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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 2000
Commission File Number 333-53276
U.S. Can Corporation
(Exact Name Of Registrant As Specified In Its Charter)
Delaware 06-1094196
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
700 East Butterfield Road, Suite 250, Lombard, Illinois 60148
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (630) 678-8000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 (the"Exchange Act") during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes |X| No |_|
As of February 28, 2001, 53,333,333 shares of Common Stock were outstanding.
TABLE OF CONTENTS
Page
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PART I
Item 1. Business.................................................................................... 3
Item 2. Properties.................................................................................. 7
Item 3. Legal Proceedings........................................................................... 8
Item 4. Submission of Matters to a Vote of Security Holder.......................................... 9
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.................................... 9
Item 6. Selected Financial Data..................................................................... 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................................... 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................. 15
Item 8. Financial Statements and Supplementary Data................................................. 17
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................................................. 50
PART III
Item 10. Directors and Executive Officers of the Registrant.......................................... 50
Item 11. Executive Compensation...................................................................... 53
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 60
Item 13. Certain Relationships and Related Transactions.............................................. 61
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................ 65
INCLUSION OF FORWARD-LOOKING INFORMATION
Certain statements in this report constitute "forward-looking statements" within the meaning of the federal
securities laws. Such statements involve known and unknown risks and uncertainties which may cause the Company's actual
results, performance or achievements to be materially different than any future results, performance or achievements
expressed or implied in this report. By way of example and not limitation and in no particular order, known risks and
uncertainties include our substantial debt and ability to generate positive cash flows; the timing and cost of plant
closures; the level of cost reduction achieved through restructuring; the success of new technology; the timing of, and
synergies achieved through, integration of acquisitions; changes in market conditions or product demand; loss of
important customers; changes in raw material costs; and currency fluctuations. In light of these and other risks and
uncertainties, the inclusion of a forward-looking statement in this report should not be regarded as a representation by
the Company that any future results, performance or achievements will be attained.
PART I
ITEM 1. BUSINESS
General
U.S. Can Corporation (a Delaware corporation), through its wholly owned subsidiary, United States Can
Company, is a leading manufacturer, by sales volume, of steel containers for personal care, household, automotive, paint,
industrial and specialty products in the United States and Europe. We also are a manufacturer of plastic containers in
the United States and food cans in Europe. We have long-standing relationships with many well-known consumer products and
paint manufacturers in the United States and Europe, including Gillette, Reckitt Benckiser and Sherwin Williams. We also
produce seasonal holiday tins sold by mass merchandisers. References in this report include U.S. Can Corporation (the
"Corporation" or "U.S. Can"), its wholly owned subsidiary, United States Can Company ("United States Can"), and U.S.
Can's subsidiaries (the "Subsidiaries").
We hold the number one market position in steel aerosol cans, based on sales volume, in the United States
and the number two market position in Europe. In addition, we hold the number two market position in paint cans in the
United States, by unit volume. We attribute our market leadership to our ability to consistently provide high-quality
products and service at competitive prices, while continually improving our product-related technologies. The references
in this Report to market positions or market share are based on information derived from annual reports, trade
publications and management estimates which the Company believes to be reliable. For financial information about business
segments and geographic areas, refer to Note (13) to the Consolidated Financial Statements.
The Recapitalization
On October 4, 2000, Pac Packaging Acquisition Corporation and U.S. Can Corporation merged in a
recapitalization transaction, with U.S. Can Corporation being the surviving corporation. As a result of the
recapitalization, U.S. Can Corporation, which was previously a publicly traded company, became a private company and its
common stock was delisted from the New York Stock Exchange. See further discussion on the recapitalization in
Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources
and Note (3) to the Consolidated Financial Statements.
Business Segments
We have four major business segments: Aerosol Products; International Operations; Paint, Plastic and General Line
Products; and Custom and Specialty Products.
Aerosol Products
As the largest producer of steel aerosol cans in the United States by sales volume, we have a leading
position in all of the major aerosol consumer product lines, including personal care, household, automotive and spray
paint cans. We offer a wide range of aerosol containers to meet our customer requirements including stylized necked-in
cans and barrier pack cans used for products that cannot be mixed with a propellant, such as shaving gel. Most of the
aerosol cans that we produce employ a lithography process that consists of printing our customers' designs and logos on
flat sheets of tinplate, prior to formation into cans.
Steel aerosol cans represent our largest segment, accounting for approximately 44.2%, 49.8% and 48.9% of
our total net sales in 2000, 1999 and 1998, respectively. In 2000, we manufactured over 50% of the steel aerosol cans
produced in the United States.
International Operations
We produce steel aerosol cans and steel food cans in Europe. We also supply steel aerosol cans to
customers in Latin America through Formametal S.A., our joint venture in Argentina. On December 30, 1999, we acquired
May Verpackungen GmbH & Co., KG ("May"), a German manufacturer of steel food packaging and aerosol cans. May also has
provided us with diversification across our product lines and customer base.
International Operations represents our second largest segment, accounting for approximately 29.6%, 17.7%
and 16.4% of our total net sales in 2000, 1999 and 1998, respectively. In 2000, we were the second largest producer of
steel aerosol cans in Europe and manufactured over 25% of the steel aerosol cans produced. May is a leading European food
can producer with more than 20% of the German food can market, by sales volume.
Paint, Plastic & General Line Products
Our primary paint, plastic and general line products include steel paint and coating containers, oblong
steel cans for products such as turpentine and charcoal lighter fluid, plastic pails and other containers for industrial
products, such as spackle and dry wall compounds, and consumer products, such as swimming pool chemicals and paint.
Management estimates that U.S. Can is second in market share in the United States, on a unit volume basis, in steel round
and general line containers. Among our largest customers for these products are Sherwin Williams and ICI Industries.
Paint, plastic and general line products accounted for approximately 19.8%, 22.9% and 23.5% of our total
net sales in 2000, 1999 and 1998, respectively.
Custom & Specialty Products
We also have a significant presence in the custom and specialty products market, offering a wide range of
decorative and specialty products. Our primary products include a wide array of functional and decorative containers and
tins, fitments and stampings, and collectible items, such as decorative metal signs and canister sets. These products are
generally custom designed and decorated and are typically produced in smaller quantities than our other products. Our
customers in this segment include Wyeth Nutritionals, Keebler Company and Liz Claiborne Cosmetics.
Custom and specialty products accounted for approximately 6.4%, 9.5% and 10.4% of our total net sales in
2000, 1999 and 1998, respectively.
Customers and Sales Force
As of December 31, 2000, in the United States, we had approximately 7,000 customers, with our largest
customer accounting for 7.6% of our total net sales in 2000. To the extent possible, we enter into one-year or multi-year
supply agreements with our major customers. Some of these agreements specify the number of containers a customer will
purchase (or the mechanism for determining this number), pricing, volume discounts (if any) and, in the case of many of
our domestic and some of our international multi-year supply agreements, a provision permitting us to pass through price
increases in specified raw material and other costs.
We market our products primarily through a sales force comprised of inside and outside sales
representatives dedicated to each segment. As of December 31, 2000, we had 87 sales representatives in the United States
and 39 sales representatives in Europe. Each sales representative is responsible for growing sales in a specific
geographic region and is compensated by a salary and a bonus based on sales volume targets.
Over the past several years, we have focused on providing value added services to our customers. Beginning
in 1999 and continuing through 2000, we established a new marketing organization, and are in the process of implementing
a strategic marketing plan. We have conducted customer interviews to determine our performance against customer service
expectations. A key element to our strategic marketing plan is changing the selling process from being product-driven to
being solution-driven with the ultimate objective of becoming an informed business partner with our customers rather than
merely a product supplier. A number of strategic supplier alliances have been formed to support customers with global
manufacturing needs such as Gillette and Reckitt Benckiser.
Raw Materials
Our principal raw materials are tin-plated steel, referred to as tin-plate, and coatings and inks used to
print our customers' designs and logos onto tin-plate. Tin-plate represents our largest raw material cost. Our domestic
operations purchase tin-plate principally from domestic steel manufacturers, with a smaller portion purchased from
foreign suppliers. Our European operations purchase tin-plate principally from European suppliers.
We believe that adequate quantities of tin-plate will continue to be available from steel manufacturers.
Our largest domestic steel suppliers are U.S. Steel, Weirton Steel and LTV, while Corus, Usinor and Aceralia supply the
largest volume in Europe. We have not historically entered into written supply contracts with steel makers and believe
that other container manufacturers follow the same practice.
Our domestic and European operations purchase approximately 500,000 tons of tin-plate annually. Tin-plate
prices have increased slightly over the last five years. Historically, we have been able to negotiate lower price
increases than those announced by our major suppliers.
While there is some long-term variability, tin-plate prices are fairly stable and price increases are
announced several months before implementation. This stability enhances our ability to communicate and negotiate required
selling price increases with our customers and minimizes fluctuations of our gross margins. Many of our domestic and some
of our international multi-year supply agreements with our customers permit us to pass through tin-plate price increases
and, in some cases, other raw material costs. However, we have not always been able to immediately offset increases in
tin-plate prices with price increases on our products.
Coatings and inks, which are used to coat tin-plate and print designs and logos, represent our second
largest raw material expense. We purchase coatings and inks from regional suppliers in the United States and Europe.
These products historically have been readily available, and we expect to be able to meet our needs for coatings and inks
in the foreseeable future.
Our plastic products are produced from two main types of resins, which are petroleum- or natural gas-based
products. High-density polyethylene resin is used to make pails, drums and agricultural products. We use 100%
post-industrial and post-consumer use, recycled polypropylene resin in the production of the Plastite(R)line of paint
cans. The price of resin fluctuates significantly, and we believe that it is standard industry practice, as well as a
provision of many of our customer contracts, to pass on increases and decreases in resin prices to our customers.
Seasonality
The Company's business as a whole has minor seasonal variations. Quarterly sales and earnings tend to be
slightly stronger starting in early spring (second quarter) through late summer (third quarter). Aerosol sales have minor
increases in the spring and summer related to increased sales of containers for household products and insect repellents.
Paint container sales tend to be stronger in spring and early summer due to the favorable weather conditions. Portions of
the Custom and Specialty products line tend to vary seasonally, because of holiday sales late in the year. May's food
can sales generally peak in the third and fourth quarters.
Labor
As of February 1, 2001, we employed approximately 2,700 salaried and hourly employees in the United
States. Of our total U.S. workforce, approximately 1,700 employees, or 63%, were members of various labor unions,
including the United Steelworkers of America, the International Association of Machinists and the Graphic Communications
International Union. Labor agreements covering 630 employees were successfully negotiated in 2000. As of February 1,
2001, our European subsidiaries employed approximately 1,400 people. In line with common European practices, all plants
are unionized.
We have followed a labor strategy designed to enhance our flexibility and productivity through
constructive relations with our employees and collective bargaining units. Our practice is to deal directly with local
labor unions on employment contract issues and other employee concerns. We believe that we and our employees have
benefited from this approach, and we intend to continue this practice in the future. This practice also has the effect of
staggering renewal negotiations with the various bargaining units. We believe that our relations with our employees and
their collective bargaining units are generally good.
Competition
Quality, service and price are the principal methods of competition in the rigid metal and plastic
container industry. To compete effectively, we must strategically locate supply facilities to reduce the added cost of
shipping cans long distances. In addition, competition in our industry limits our ability to raise prices for many of our
top products.
In the U.S. steel aerosol can market, we compete primarily with Crown Cork & Seal. Because steel aerosol
cans are pressurized and are used for personal care, household and other packaged products, they are more sensitive to
quality, can decoration and other consumer-oriented features than some of our other products.
Our European subsidiaries compete with Crown Cork & Seal, Impress Metal Packaging and a group of other
smaller regional producers. Crown Cork & Seal is larger and may have greater financial resources than we do.
In metal paint and general line products, we compete primarily with BWAY Corporation and one smaller,
regional manufacturer. Our plastic products line competes with many regional companies.
Our custom and specialty products compete with a large number of container manufacturers, but we do not
compete across the entire product spectrum with any single company. Competition is based principally on quality, service,
price, geographical proximity to customers and production capability, with varying degrees of intensity according to the
specific product category.
Our products also face competition from aluminum, glass and plastic containers.
Acquisitions
On December 30, 1999, the Company acquired all of the partnership interests of May Verpackungen GmbH &
Co., KG ("May"), a German limited liability company, in a transaction accounted for using the purchase method. May,
headquartered in Erftstadt, Germany, is a manufacturer of pet food and specialty food packaging, as well as aerosol cans.
Historically, the Company has not had a significant presence in the food can market.
On February 20, 2001, we acquired certain assets of Olive Can Company, a Custom and Specialty
manufacturer. The acquisition, which is not material to the Company's operations or financial position, will be
accounted for as a purchase.
The Company believes that strategic acquisition opportunities are important to its growth. The Company
will continue to evaluate and selectively pursue acquisitions which adhere to U.S. Can's stated strategy of seeking rigid
packaging companies that will complement and grow the Company's existing product base. If acquisitions are made, the
Company would expect to finance them through cash and debt financing as appropriate under the conditions in effect at the
time of the acquisition.
Refer to the caption "Acquisitions" in Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note (5) to the Consolidated Financial Statements for further discussion of these matters.
ITEM 2. PROPERTIES
We have 16 plants located in the United States, many of which are strategically positioned near principal
customers and suppliers. Through our European subsidiaries, we also have production locations in the largest regional
markets in Europe, including Denmark, France, Germany, Italy, Spain and the United Kingdom. The following table sets
forth certain information with respect to our principal plants as of December 31, 2000.
Location Size (in sq. Status Segment
- -------- ------------- ------ -------
ft.)
----
United States
Elgin, IL................................ 481,346 Owned Aerosol
Tallapoosa, GA........................... 249,480 Owned Aerosol
Commerce, CA............................. 215,860 Leased Paint, Plastic and General Line
Burns Harbor, IN......................... 190,000 Leased Aerosol
Hubbard, OH.............................. 174,970 Owned Paint, Plastic and General Line
Elkridge, MD............................. 150,000 Leased Custom and Specialty
Baltimore, MD............................ 137,000 Owned Custom and Specialty
Horsham, PA.............................. 132,000 Owned Aerosol
Morrow, GA............................... 110,160 Leased Paint, Plastic and General Line
Weirton, WV.............................. 108,000 Leased Aerosol
Danville, IL............................. 100,000 Owned Aerosol
Newnan, GA............................... 95,000 Leased Paint, Plastic and General Line
Dallas, TX............................... 87,000 Owned Paint, Plastic and General Line
Baltimore, MD............................ 55,000 Leased Custom and Specialty
Alliance, OH............................. 52,000 Leased Paint, Plastic and General Line
New Castle, PA........................... 22,750 Owned Custom and Specialty
Europe
Erftstadt, Germany....................... 369,000 Leased International
Merthyr Tydfil, United Kingdom (2)....... 320,000 Leased International
Southall, United Kingdom................. 253,000 Owned International
Laon, France (1)......................... 220,000 Owned International
Reus, Spain.............................. 182,250 Owned International
Dageling, Germany........................ 172,224 Owned International
Itzehoe, Germany......................... 80,730 Owned International
Esbjerg, Denmark......................... 66,209 Owned International
Voghera, Italy........................... 45,200 Leased International
Schwedt, Germany......................... 35,500 Leased International
(1) Subject to a mortgage in favor of Societe Generale.
(2) The property at Merthyr Tydfil is subject to a 999-year lease with a pre-paid option to buy that becomes
exercisable in January 2007. Up to that time, the landowner may require us to purchase the property for a payment
of one Pound Sterling. Currently, the leasehold interest in, and personal property located at, Merthyr Tydfil is
subject to a pledge to secure amounts outstanding under a credit agreement with General Electric Capital
Corporation.
We believe our facilities are adequate for our present needs and that our properties are generally in good
condition, well-maintained and suitable for their intended use. We continuously evaluate the composition of our various
manufacturing facilities in light of current and expected market conditions and demand, and may further consolidate our
plant operations in the future.
ITEM 3. LEGAL PROCEEDINGS
Environmental Matters
Our operations are subject to environmental laws in the United States and abroad, including those
described below. Our capital and operating budgets include costs and expenses associated with complying with these laws,
including the acquisition, maintenance and repair of pollution control equipment, and routine measures to prevent,
contain and clean up spills of materials that occur in the ordinary course of our business. In addition, our production
facilities require environmental permits that are subject to revocation, modification and renewal. We believe that we are
in substantial compliance with environmental laws and our environmental permit requirements, and that the costs and
expenses associated with this compliance are not material to our business. However, additional operating costs and
capital expenditures could be incurred if, among other developments, additional or more stringent requirements relevant
to our operations are promulgated.
From time to time, contaminants from current or historical operations have been detected at some of our
present and former sites, principally in connection with the removal or closure of underground storage tanks. We are not
currently aware that any of our facility locations have material outstanding claims or obligations relating to
contamination issues.
We have been designated as a potentially responsible party at various superfund sites in the United
States, including a former site located in San Leandro, California. As a potentially responsible party, we are or may be
legally responsible, jointly and severally with other members of the potentially responsible party group, for the cost of
environmental remediation at these sites. Based on currently available data, we believe our contribution to these sites
was, in most cases, minimal.
Through corporate due diligence and the Company's compliance management system, we recently identified
potential noncompliance with the environmental laws at our New Castle, Pennsylvania facility related to the possible use
of a coating or coatings inconsistent with the conditions in the facility's Clean Air Act Title V permit. Upon
identification, the Company immediately began a full review of the plant's Title V and related records. On February 5,
2001, the Company also voluntarily self-reported the potential noncompliance to the Pennsylvania Department of
Environmental Protection (PDEP) and the Environmental Protection Agency (EPA) in accordance with PDEP's and EPA's
policies. Both PDEP and EPA have indicated that they will address the Company's self-disclosure through the annual
compliance certification process under the Title V program. Because the Company's review is in its initial phase, the
Company is unable, at this time, to determine the nature, extent and/or effect of any possible noncompliance.
Litigation
We are involved in litigation from time to time in the ordinary course of our business. In our opinion,
the litigation is not material to our financial condition or results of operations.
In May 1998, the National Labor Relations Board issued a decision ordering us to pay $1.5 million in back
pay, plus interest, for a violation of certain sections of the National Labor Relations Act. The violation was a result
of our closure of several facilities in 1991 and our failure to offer inter-plant job opportunities to 25 affected
employees. We have appealed this decision on the grounds, among others, that we are entitled to a credit against this
award for certain supplemental unemployment benefits and pension payments. We presented oral arguments in late
September 2000, and are awaiting the decision of the court. We believe this appeal will be successful.
On September 20, 2000, a class action lawsuit was filed against U.S. Can Corporation, Pac Packaging
Acquisition Corporation, the directors of U.S. Can Corporation prior to the recapitalization and Carl Ferenbach. The
complaint challenges the recapitalization and alleges inadequate disclosure with respect to U.S. Can Corporation's
filings with the Securities and Exchange Commission and violations of Delaware law. The complaint seeks to rescind the
recapitalization and requests that the defendants pay unspecified monetary damages, costs and attorney's fees. U.S. Can
has held discussions and based on those discussions believes it is likely that this matter will be settled, by requiring
us to pay $0.20 per share to the former stockholders of U.S. Can Corporation as of October 4, 2000, less a fee award to
the plaintiffs' counsel. The settlement agreement remains subject to final approval by the parties involved, the
preparation of definitive settlement documents, delivery of notice to the relevant U.S. Can Corporation stockholders and
approval by the Delaware Court of Chancery following a hearing. We cannot assure you that the settlement agreement will
be approved by the required parties.
For further discussion on legal and environmental matters refer to Note (10) to the Consolidated Financial
Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
U.S. Can has approximately 20 common stockholders. It has not paid, and has no present intention to pay,
cash dividends. As U.S. Can Corporation has no operations, its only source of cash for dividends or distributions is
United States Can Company. There are stringent limitations in the Senior Secured Credit Facility ("the Facility") on
United States Can's ability to fund or pay cash dividends to U.S. Can Corporation.
On October 4, 2000, U.S. Can Corporation sold (i) $106.7 million of preferred stock to Berkshire Partners,
its co-investors and certain other then existing stockholders and (ii) $53.3 million of common stock to Berkshire
Partners, its co-investors, several other then existing stockholders and management. No general form of advertising or
solicitation was used in connection with such sales and all the purchasers were accredited investors within the meaning
of Section 501(a) of Regulation D under the Securities Act of 1933, as amended (the "Securities Act"). Such sales were
exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof. No underwriters were
used, and no discounts or commissions were paid, in respect of such sales. See Item 13 - Certain Relationships and
Related Transactions - Stockholders' Agreement and - Preferred Stock.
On October 4, 2000, United States Can Company issued $175.0 million aggregate principal amount of its 12
3/8% senior subordinated notes due 2010 to a number of "qualified institutional investors" who purchased pursuant to Rule
144A under the Securities Act and to a number of non-U.S. persons pursuant to Regulation S under the Securities Act.
Salomon Smith Barney Inc. and Banc of America Securities LLC acted as initial purchasers in connection with the initial
resale of such securities and received gross commissions and discounts equal to $4.6 million.
The net proceeds from the sale of these securities were used to fund the payments required to effect the
recapitalization discussed above, to tender for all of our 10 1/8% Senior Subordinated Notes (including paying accrued
interest and the bond tender premium) and refinance a majority of our existing senior debt; and to pay related fees and
expenses. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
ITEM 6. SELECTED FINANCIAL DATA
U.S. CAN CORPORATION AND SUBSIDIARIES
(000's omitted)
For the Year Ended December 31,
-------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Operating Data:
Net sales........................................ $ 809,497 $ 732,897 $ 730,951 $ 777,140 $ 678,359
Special charges (a).............................. 3,413 -- 35,869 62,980 --
Recapitalization charge (b)...................... 18,886 -- -- -- --
Operating income (loss).......................... 48,153 66,975 21,748 (8,093) 58,727
Income (loss) from continuing operations
before discontinued operations
and extraordinary item........................ 3,341 22,452 (7,525) (29,906) 16,555
Discontinued operations, net of income taxes ( a )
Net income (loss) from discontinued operations -- -- -- 1,078 446
Net loss on sale of business.................. -- -- (8,528) (3,204) --
Extraordinary item - loss from early
extinguishment of debt, net of income taxes (c) (14,863) (1,296) -- --
(5,250)
Net income (loss) before preferred stock dividends (11,522) 21,156 (16,053) (32,032) 11,751
Preferred stock dividend requirements (d)..... (2,601) -- -- -- --
Net income (loss) available for
common shareholders........................... $ (14,123) $ 21,156 $ (16,053) $ (32,032) $ 11,751
BALANCE SHEET DATA:
Total assets..................................... $ 637,864 $ 663,570 $ 555,571 $ 633,704 $ 643,616
Total working capital............................ 74,244 37,734 76,112 80,771 105,630
Total debt....................................... 495,045 359,317 316,673 376,141 375,810
Total redeemable preferred stock................. 109,268 -- -- -- --
Total stockholders' equity (e)................... (174,323) 68,556 50,177 62,313 96,785
(a) See Note 4 of the "Notes to Consolidated Financial Statements."
(b) See Note 3 of the "Notes to Consolidated Financial Statements."
(c) See Note 6 of the "Notes to Consolidated Financial Statements."
(d) See Note 12 of the "Notes to Consolidated Financial Statements."
(e) Negative stockholders' equity in 2000 was caused by the recapitalization. See Note 3 of the "Notes to
Consolidated Financial Statements."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion summarizes the significant factors affecting the consolidated operating results
and financial condition of the Company and subsidiaries for the three years ended December 31, 2000. This discussion
should be read in conjunction with the consolidated financial statements and notes to the consolidated financial
statements.
Year Ended December 31, 2000 Compared To Year Ended December 31, 1999
Consolidated net sales for the year ended December 31, 2000 were $809.5 million as compared to $732.9
million in 1999, an increase of 10.5%. The increase was principally due to the acquisition of May Verpackungen in
December 1999. Along business segment lines, Aerosol net sales in 2000 decreased to $357.7 million from $365.3 million in
1999, a 2.1% decline, due principally to decreased unit volume. International net sales increased to $239.6 million in
2000 from $129.6 million in 1999, an increase of $110.0 million or 84.9%, due to the May acquisition. Net sales for 2000
for May were $118.2 million. There was a $9.4 million negative impact in 2000 due to U.S. dollar translation on sales
made in foreign currencies. The Paint, Plastic and General Line segment had a 4.2% decrease in net sales, from $167.6
million in 1999 to $160.5 million in 2000. This decrease is due to the loss of a Plastite customer in 1999 coupled with
an overall decrease in product demand. In the Custom & Specialty segment, sales were down 25.9% from $69.8 million in
1999 to $51.7 million in 2000, primarily due to the sale of the Wheeling metal closure and Warren lithography businesses
(see Note (4) to the Consolidated Financial Statements). Excluding Wheeling and Warren, net sales were down 7.3% from
$52.1 million in 1999 to $48.3 million in 2000.
Consolidated cost of goods sold of $693.2 million for 2000 was up $62.8 million, a 10.0% increase from
1999. The principal reason for the increase was the May acquisition ($105.0 million in 2000) offset by the sale of the
Wheeling metal closure and the Warren lithography businesses ($11.4 million), $8.0 million negative impact in 2000 due to
U.S. dollar translation on sales made in foreign currencies, and decreased volume combined with operating efficiencies of
$22.8 million. Gross profit margin of 14.4% in 2000 increased 0.4% from 1999. Throughout the Company, there is a
continuing focus on cost savings and expense reduction opportunities.
Selling, general and administrative costs increased from $35.5 million to $45.9 million between 1999 and
2000. The increase is primarily due to the acquisition of May Verpackungen in December 1999 which accounted for $7.8
million of the increase. The remainder of the increase is due to higher marketing expenses being invested to improve
customer service. As a percent of sales, selling, general and administrative costs increased from 4.9% in 1999 to 5.7% in
2000.
On July 7, 2000, a reduction in force program was announced , under which 81 salaried and 39 hourly
positions have been eliminated. A one-time pre-tax charge of $3.4 million for severance and other termination related
costs was recorded in the third quarter of 2000. Annual savings of $5.0 million are expected to be realized from this
program. There also was an $18.9 million charge in the fourth quarter of 2000 related to the recapitalization. See Notes
(3) and (4) to the Consolidated Financial Statements for further discussion on the recapitalization and the special
charge, respectively.
Interest expense in 2000 increased 35.3%, or $10.6 million, versus 1999. Increased interest expense can be
attributed to borrowings made in connection to the May acquisition (which occurred on December 30, 1999) and with the
recapitalization transaction. See caption "Liquidity and Capital Resources" and Notes (3), (5) and (6) to the
Consolidated Financial Statements for further discussion on the recapitalization transaction, the May acquisition and the
Company's debt position.
In connection with the recapitalization, substantially all of the Company's 10 1/8% subordinated notes
were redeemed and an extraordinary charge for the redemption premium and the write-off of related deferred financing
costs of $14.9 million (net of related income taxes) was recorded. In addition, a payment in kind dividend of $2.6
million on the redeemable preferred stock issued in connection with the recapitalization was recorded in 2000. See Note
(12) to the Consolidated Financial Statements.
Year Ended December 31, 1999 Compared To Year Ended December 31, 1998
Consolidated net sales for the year ended December 31, 1999 were $732.9 million, an increase of 0.3%
versus $731.0 million in 1998. Along business segment lines, Aerosol net sales increased 2.1% from $357.8 million in 1998
to $365.3 million in 1999, primarily due to increased U.S. demand. International operations experienced an 8.1% increase
in net sales, from the $119.9 million reported in 1998 to $129.6 million in 1999. Increased efficiencies and production
at the Wales facility is the primary contributor to the growth internationally. Consistent with expectations, the Paint,
Plastic and General Line segment had a 2.3% decrease in net sales from $171.6 million in 1998 to $167.6 million in 1999,
due to reduced customer requirements during the year. In the Custom and Specialty segment, sales decreased 8.4% from
$76.2 million in 1998 to $69.8 million in 1999, due principally to significant liquidation of excess holiday products in
early 1998 and softer markets in 1999. Key management changes were made in mid-1999 to address Custom and Specialty sales
and operational issues.
Consolidated cost of goods sold of $630.4 million for 1999 decreased $8.5 million, an 1.3% decrease,
versus $638.9 million in 1998 due to consolidation of operations and an increased focus on cost saving opportunities.
Gross margin of 14.0% compares favorably to the 12.6% reported in 1998 due to benefits derived from restructuring
programs, productivity improvements as a result of line speed-ups and cost reduction programs instituted in the plants,
as well as the ramp-up of the Wales facility.
Selling, general and administrative costs increased 2.9% from $34.5 million to $35.5 million between 1998
and 1999. As a percent of sales, selling, general and administrative costs remained flat at 4.8%.
In the third quarter of 1998, a pre-tax special charge of $35.9 million was established. The provision was
for the closure of several facilities and write-downs of non-core businesses. Costs related to closing and realigning
selected lithography facilities servicing the core business was also included in the provision as part of our national
lithography strategy. The 1998 special charge included charges for non-cash items of $27.7 million.
Interest expense in 1999 was $29.9 million, a decrease of 14.4%, or $5.0 million, versus $34.9 million in
1998. Prior to the May acquisition in late December, long-term debt had been reduced by $48.0 million as excess cash was
used to redeem some of the 10 1/8% notes due 2006. Including the May acquisition, long-term debt increased 3.4% or
$10.6 million in 1999 as compared to 1998. In 1999, there were 10 months in which no borrowings were made under the credit
agreement.
In 1999, a $1.3 million extraordinary charge (net of related income taxes of $0.8 million) was recorded
for the early redemption premium on $27.7 million of the 10 1/8% notes and the write-off of related deferred financing
costs.
LIQUIDITY AND CAPITAL RESOURCES
During 2000, liquidity needs were met through internally generated cash flow, the sale of the Wheeling
metal closures and Warren lithography businesses, borrowings made under lines of credit and a sale/leaseback transaction
of certain manufacturing assets. Principal liquidity needs included working capital (primarily inventory and accrued
expenses), the recapitalization, debt and interest payments and capital expenditures. Cash flow provided by operations
was $28.7 million for the year ended December 31, 2000, compared to cash provided of $62.5 million for the year ended
December 31, 1999. The decrease was primarily due to the aforementioned working capital needs.
Net cash used in investing activities was $8.6 million in 2000, as compared to $91.5 million in 1999. Cash
was provided in 2000 by the sale of the Wheeling metal closure and Warren lithography businesses for $12.1 million, and
the sale/leaseback transaction of certain manufacturing assets. Cash used for investing activities for 1999 included
$63.8 million paid to acquire May. Total capital expenditures in 2000 were $24.5 million versus $31.0 million in 1999
(which included the installation of two new state-of-the-art lithography presses). Capital expenditures are expected to
be approximately $150.0 to $200.0 million during the five years commencing 2001, in roughly equal amounts of
$30.0 million to $40.0 million a year. They are expected to be funded from operations and borrowings under the revolving
credit facility. Capital investments have historically yielded reduced operating costs and improved profit margins, and
management believes that the strategic deployment of capital will enable overall profitability to improve by leveraging
the economies of scale inherent in the manufacturing of containers
Concurrent with the recapitalization, $175.0 million Senior Subordinated Notes ("the Notes") were issued
and the Senior Secured Credit Facility ("the Facility") was placed. The Notes will mature on October 4, 2010 and will
bear interest at a rate of 12 3/8% per annum until maturity. The Company will pay interest semiannually on April 1 and
October 1 of each year, beginning April 1, 2001. The Facility provides for two tranches of term loans in the aggregate
principal amount of $260.0 million. In addition, the Facility provides for a revolving credit facility that will provide
revolving loans in an aggregate amount up to $140.0 million. Upon closing of the recapitalization, the full amount
available under the term loan facilities was borrowed and approximately $20.5 million under the revolving credit
facility. The borrowings under the revolving credit facility are available to fund working capital requirements, capital
expenditures and other general corporate purposes. The tranche A term loan facility of $80.0 million matures in quarterly
installments from December 31, 2000 through October 4, 2006. The tranche B term loan facility of $180.0 million matures
in quarterly installments from December 31, 2000 through October 4, 2008. Principal repayments required under the term
loan facilities are $6.0 million in 2001increasing to $65 million in 2008. Additionally, the Facility requires a
prepayment in the event that excess cash flow (as defined) exists and following certain other events, including asset
sales and issuances of debt and equity. The Facility has a number of financial covenants and restrictive covenants. See
Note (6) to the Consolidated Financial Statements.
During the first quarter of 2001, we experienced a decline in order volumes consistent with the steel
aerosol can market generally. Management believes these lower volumes are mainly created by inventory reductions in the
consumer products market in both the U.S. and Europe. In addition, May Verpackungen experienced difficulties with a
major customer in the second half of 2000 resulting in reduced production for a portion of 2000. As a result, May was
required to re-qualify its production process with this customer before returning to prior production levels, which will
negatively impact the first half of 2001. Because we have a fixed cost base, our earnings levels and cash flow are
sensitive to unit volumes levels.
Under our senior secured credit facilities, there are several financial covenants tied to specific
earnings and debt levels, as well as interest and fixed charge coverage ratios. As a result of the volume shortfalls,
there is uncertainty as to whether we will be in compliance under our covenants at the end of the first quarter of 2001.
We are not required to report the results of our first quarter operations to the lenders until May 1, 2001, and we do not
expect to know our definitive results of operations for this period until April 26, 2001. In the event we are not in
compliance with our covenants, we expect to negotiate with the lenders and obtain a waiver. We cannot be assured,
however, that the lenders will agree to grant us a waiver. As of March 23, 2001 the total amount outstanding under our
senior credit facility was $306 million. A default under our credit facility which is not waived could allow the lenders
to accelerate the outstanding indebtedness. Accelerated indebtedness that is unpaid for a period of ten days would also
trigger a default of our $175,000,000 principal amount 12-3/8% Senior Subordinated Notes due 2010.
In addition, we issued $106.7 million in preferred stock and $53.3 million in common stock was issued
concurrent with the recapitalization. The preferred stock has a liquidation preference equal to the purchase price per
share, plus all accrued and unpaid dividends. The preferred stock ranks senior to all classes of U.S. Can Corporation
common stock and is not convertible into common stock. Dividends accrue on the preferred stock at an annual rate of 10%,
are cumulative from the date of issuance and compounded quarterly, on March 31, June 30, September 30 and December 31 of
each year and are payable in cash when and as declared by the Board of Directors, so long as sufficient cash is available
to make the dividend payment and has been obtained in a manner permitted under the terms of the new senior secured credit
facility and the indenture.
Funds generated from the recapitalization were used to retire all of the borrowings outstanding under the
Company's former credit agreement, to repay the principal, accrued interest and tender premium applicable to U.S. Can's
10 1/8% Notes due 2006, to pay fees and expenses associated with the transaction and to make payments to U.S. Can's
existing stockholders and optionholders as previously described.
The following table sets forth the sources and uses of funds in connection with the recapitalization as of
October 4, 2000:
Amount
(Dollars in Millions)
---------------------
Sources of Funds:
New Senior Secured Credit Facility:
Revolving Credit Facility.................................. $20.5
Term Loans................................................. 260.0
12 3/8% Senior Subordinated Notes due October 1, 2010......... 175.0
Preferred Stock............................................... 106.7
Common Stock.................................................. 53.3
-------------
Total Sources.................................................... $615.5
Uses of Funds:
Purchase Capital Stock........................................ $277.5
Refinance Existing Debt....................................... 309.0
Payment of Fees and Expenses (a).............................. 29.0
-------------
Total Uses....................................................... $615.5
(a) We paid $4.6 million in additional expenses related to the recapitalization after October 4, 2000.
See Note (3) to the Consolidated Financial Statements for further discussion on the recapitalization transaction.
Primary sources of liquidity are cash flow from operations and borrowings under the new revolving credit
facility. Management expects that ongoing requirements for debt service, working capital and capital expenditures will be
funded from these sources. Based upon the current level of operations and anticipated growth, cash generated from
operations together with amounts available under the revolving credit facility are expected to be adequate to meet
anticipated debt service requirements, capital expenditures and working capital needs for the next several years. Future
operating performance and the ability to service or refinance the notes, to service, extend or refinance the senior
secured credit facility and to redeem or refinance our preferred stock will be subject to future economic conditions and
to financial, business and other factors, many of which are beyond management's control.
INFLATION
Tin-plated steel represents the primary component of the Company's raw materials requirement.
Historically, the Company has not always been able to immediately offset increases in tinplate prices with price
increases on the Company's products. However, in most years, a combination of factors has permitted the Company to
maintain its profitability notwithstanding these conditions. The Company's capital spending programs and manufacturing
process upgrades have increased operating efficiencies and thereby mitigated the impact of inflation on the Company's
cost structure.
ACQUISITIONS
The Company believes that strategic acquisition opportunities are important to its growth. In
December 1999, U.S. Can acquired all of the partnership interests of May for an aggregate amount of $64.6 million. The
acquisition was financed using borrowings made by U.S. Can under the Credit Agreement. On February 20, 2001, certain
assets of Olive Can Company, a Custom and Specialty manufacturer were acquired.
The Company will continue to evaluate and selectively pursue acquisitions which adhere to U.S. Can's
stated strategy of seeking rigid packaging companies that will complement and grow the Company's existing product base
and create value for shareholders. If acquisitions are made, the Company would expect to finance them through cash and
debt financing as appropriate under the conditions in effect at the time of the acquisition.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", which establishes new
accounting and reporting standards for derivative instruments. In June 1999, the FASB issued SFAS No. 137, "Accounting
for Certain Derivatives and Certain Hedging Activities - A Deferral of the Effective Date of FASB Statement No. 133", and
in June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities
- - An Amendment of FASB Statement No. 133."
These rules require that all derivative instruments be reported in the consolidated financial statements
at fair value. Changes in the fair value of derivatives are to be recorded each period as a component of earnings or
other comprehensive income, depending on whether the derivative is designated and is effective as part of a hedged
transaction, and on the type of hedge transaction. Gains or losses on derivative instruments reported in other
comprehensive income must be reclassified as earnings in the period in which earnings are affected by the underlying
hedged item, and the ineffective portion of all hedges must be recognized in earnings in the current portion. These new
standards may result in additional volatility in reported earnings, other comprehensive income and accumulated other
comprehensive income. These rules become effective for us on January 1, 2001. We will record the effect of the
transition to these new accounting requirements in the first quarter of 2001. The effect of this change will decrease
stockholders' equity (other comprehensive loss) by approximately $2.5 million.
The Emerging Issues Task Force released Issue No. 00-10 (EITF 00-10), "Accounting for Shipping and
Handling Revenues and Costs" in July of 2000. EITF 00-10 requires that amounts billed, if any, for shipping and handling
be included in revenue and costs incurred for shipping and handling are required to be recorded in cost of goods sold.
The impact of implementing EITF 00-10 was to increase each of net sales and cost of goods sold by approximately $22.9
million, $18.8 million and $20.7 million in 2000, 1999 and 1998 respectively. There was no net impact on results of
operations nor financial position caused by the implementation of EITF 00-10.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Foreign Currency and Interest Rate Risk
Foreign Currency Risk
The Company has engaged in transactions that carry some degree of foreign currency risk. As such, a series
of forward hedge contracts have been entered into to mitigate the foreign currency risks associated with the financing of
one production facility in the United Kingdom as follows:
2001 2002 2003 2004 2005 Thereafter
-------------------------------------------------------------------------------------
Forward Exchange Contracts (in millions)
(Receive $US / Pay GBP)
Contract amount ................ $3.00 $2.90 $2.80 $15.60 - -
Average Contractual
Exchange Rate .................. 1.54 1.52 1.50 1.49 - -
................Foreign exchange risk is also borne because much of the financing is currently obtained in United States
dollars, but a portion of the Company's revenues and expenses occur in the various currencies of our foreign
subsidiaries' operations. The new revolving credit facility allows certain foreign subsidiaries to borrow up to
$75 million in British Pounds Sterling, German Deutsche Marks and Euros. The Company has not made borrowings in any of
these currencies.
Interest Rate Risk
................Interest rate risk exposure is primarily the result of floating rate borrowings. A portion of the interest
rate risks have been hedged by entering into a swap and collar agreements. Since the counterparties to the agreements are
also lenders under the senior secured credit facility, obligations under these agreements are subject to the security
interest under the terms of the senior secured credit facility. See "Other Indebtedness."
................The table below provides information about the Company's derivative financial instruments and other
financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt
obligations. For debt obligations, the table presents principal cash flows and related weighted average interest rates
by expected maturity dates. For interest rate swaps and collars, the table presents notional amounts and weighted
average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual
payments to be exchanged under the contract.
2001 2002 2003 2004 2005 Thereafter
--------------------------------------------------------------------------------------
Debt Obligations (in millions)
- ----------------
Fixed rate..................... $6.0 $7.0 $19.2 $0.7 $0.5 $176.7
Average interest rate.......... 6.93% 6.99% 8.39% 6.33% 6.13% 12.34%
Variable rate.................. $9.7 $9.0 $10.0 $14.0 $21.0 $221.3
Average interest rate.......... 10.04% 11.78% 11.78% 11.77% 11.76% 11.8%
Interest Rate Swaps
- -------------------
Variable to Fixed.............. $83.3 $83.3 $83.3 $ -- $ -- $ --
Pay / receive rate............. 6.625% 6.625% 6.625% -- -- --
Interest Rate Collars
- ---------------------
Contract Amount................ $41.7 $41.7 $41.7 -- -- --
Cap Rate....................... 7.25% 7.25% 7.25% -- -- --
Floor Rate..................... 6.10% 6.10% 6.10% -- -- --
The Company does not utilize derivative financial instruments for trading or other speculative purposes.
Based upon borrowing rates currently available to the Company for borrowings with similar terms and
maturities, the fair value of the Company's total debt was approximately $495.3 million as of December 31, 2000. No
quoted market value is available (except on the 12 3/8% Senior Subordinated Notes). These amounts, because they do not
include certain costs such as prepayment penalties, do not represent the amount the Company would have to pay to
reacquire and retire all of its outstanding debt in a current transaction.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Report of Independent Public Accountants................................................................... 18
Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................. 19
Consolidated Balance Sheets as of December 31, 2000 and 1999............................................... 20
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998....... 21
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1999................. 23
Notes to Consolidated Financial Statements................................................................. 24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO U.S. CAN CORPORATION:
We have audited the accompanying consolidated balance sheets of U.S. CAN CORPORATION (a Delaware corporation) AND
SUBSIDIARIES as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of U.S. Can Corporation and Subsidiaries as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 6, 2001
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's omitted)
For the Year Ended
-------------------------------------------------------
December 31, December 31, December 31,
2000 1999 1998
----------------- ----------------- -----------------
Net Sales................................................. $809,497 $732,897 $730,951
Cost of Sales............................................. 693,158 630,411 638,861
----------------- ----------------- -----------------
Gross income......................................... 116,339 102,486 92,090
Selling, General and Administrative Expenses.............. 45,887 35,511 34,473
Special Charges........................................... 3,413 - 35,869
Recapitalization Charges.................................. 18,886 - -
----------------- ----------------- -----------------
Operating income..................................... 48,153 66,975 21,748
Interest Expense.......................................... 40,468 29,901 34,935
----------------- ----------------- -----------------
Income (loss) before income taxes.................... 7,685 37,074 (13,187)
Provision (benefit) for income taxes...................... 4,344 14,622 (5,662)
----------------- ----------------- -----------------
Income (loss) from operations before discontinued 3,341 22,452 (7,525)
operations and extraordinary item..................
Net loss on sale of discontinued businesses, net of
income taxes............................................ - - (8,528)
Extraordinary Item, net of income taxes
Net loss from early extinguishment of debt................ (14,863) (1,296) -
----------------- ----------------- -----------------
Net Income (Loss) Before Preferred Stock Dividends........ (11,522) 21,156 (16,053)
Preferred Stock Dividend Requirement...................... (2,601) - -
----------------- ----------------- -----------------
Net Income (Loss) Available for Common Stockholders....... $(14,123) $21,156 $(16,053)
================= ================= =================
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000's omitted, except per share data)
December 31, December 31,
ASSETS 2000 1999
--------------------- ---------------------
CURRENT ASSETS:
Cash and cash equivalents............................................ $10,784 $15,697
Accounts receivables, net of allowances.............................. 90,763 91,864
Inventories, net..................................................... 113,902 115,979
Deferred income taxes................................................ 12,538 16,114
Other current assets................................................. 23,300 19,677
--------------------- ---------------------
Total current assets............................................ 251,287 259,331
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization........................................... 272,220 332,504
GOODWILL, less amortization............................................... 70,712 50,478
OTHER NON-CURRENT ASSETS.................................................. 43,645 21,257
--------------------- ---------------------
Total assets.................................................... $637,864 $663,570
===================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and capital lease obligations... $14,671 $38,824
Accounts payable..................................................... 102,274 104,189
Accrued expenses..................................................... 46,479 50,711
Restructuring reserves............................................... 11,915 25,016
Income taxes payable................................................. 1,704 2,857
--------------------- ---------------------
Total current liabilities....................................... 177,043 221,597
LONG TERM DEBT............................................................ 480,374 320,493
DEFERRED INCOME TAXES PAYABLE............................................. 3,083 10,670
OTHER LONG-TERM LIABILITIES............................................... 42,419 42,254
--------------------- ---------------------
Total liabilities............................................... 702,919 595,014
PREFERRED STOCK........................................................... 109,268 -
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value........................................ 533 135
Additional Paid -in-capital.......................................... 52,800 112,840
Unearned restricted stock............................................ - (629)
Treasury common stock at cost........................................ - (1,380)
Currency translation adjustment...................................... (19,674) (7,771)
Accumulated deficit.................................................. (207,982) (34,639)
--------------------- ---------------------
Total stockholders' equity...................................... (174,323) 68,556
--------------------- ---------------------
Total liabilities and stockholders' equity................. $637,864 $663,570
===================== =====================
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(000's omitted)
Accumulated Other
Comprehensive Loss
--------------------------
Common Paid-in-CapitUnearned Treasury Cumulative Minimum Accumulated Comprehensive
Pension
Restricted Common Translation Liability
Stock Stock Stock Adjustment Adjustment Deficit Income (Loss)
------------------------------------------------------------------------------------------------------
BALANCE AT $ 131 $108,003 $ (2,558) $ (714) $ (2,193) $ (614) $(39,742)
DECEMBER 31, 1997.......
Net loss................... - - - - - - (16,053) $ (16,053)
Issuance of stock under
employee benefit plans.. - - - 716 - - - -
Purchase of treasury stock. - - - (1,730) - - - -
Exercise of stock options.. 2 1,656 - - - - - -
Issuance of restricted stock - 180 (180) - - - - -
Amortization of unearned
restricted stock......... - - 1,909 - - - - -
Equity adjustment to
reflect
minimum pension liability - - - - - 614 - 614
Cumulative translation
adjustment.............. - - - - 750 - - 750
----------------
Comprehensive loss......... $ (14,689)
--------------------------------------------------------------------------------------================
BALANCE AT 133 109,839 (829) (1,728) (1,443) - (55,795)
DECEMBER 31, 1998.......
Net income................. - - - - - - 21,156 $ 21,156
Issuance of stock under
employee benefit plans.. - - - 850 - - - -
Purchase of treasury stock. - - - (502) - - - -
Exercise of stock options.. 2 2,818 - - - - - -
Issuance of restricted stock - 183 (183) - - - - -
Amortization of unearned
restricted stock........ - - 383 - - - - -
Cumulative translation
adjustment.............. - - - - (6,328) - - (6,328)
----------------
Comprehensive income....... $ 14,828
================
--------------------------------------------------------------------------------------
BALANCE AT $ 135 $112,840 $ (629) $(1,380) $ (7,771) $ - $(34,639)
DECEMBER 31, 1999.......
======================================================================================
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY-- (Continued)
(000's omitted)
Accumulated Other
Comprehensive Loss
--------------------------
Common Paid-in-CapitUnearned Treasury Cumulative Minimum Accumulated Comprehensive
Pension
Restricted Common Translation Liability
Stock Stock Stock Adjustment Adjustment Deficit Income (Loss)
------------------------------------------------------------------------------------------------------
BALANCE AT $ 135 $112,840 $ (629) $(1,380) $ (7,771) $ - $(34,639)
DECEMBER 31, 1999.......
Net loss before preferred
stock dividends......... - - - - - - (11,522) $ (11,522)
Redemption of common stock
and exercise of stock
options in connection
with
the recpaitalization.... (134) (110,973) 305 - - - (159,220) -
Purchase of treasury stock. - - - (488) - - - -
Retirement of treasury stock (1) (1,867) - 1,868 - - - -
Issuance of common stock in
recapitalized company... 533 52,800 - - - - - -
Preferred stock dividends.. - - - - - - (2,601) -
Amortization of unearned
restricted stock........ - - 324 - - - - -
Cumulative translation
adjustment.............. - - - - (11,903) - - (11,903)
----------------
Comprehensive loss......... $ (23,425)
------------- ================
--------------------------------------------------------------------------------------
BALANCE AT $ 533 $ 52,800 $ - $ - $ (19,674) $ - $(207,982)
DECEMBER 31, 2000.......
======================================================================================
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted)
For the Year Ended December 31,
------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 2000 1999 1998
--------------- --------------- ---------------
Net income (loss) before preferred stock dividends requirements....... $(11,522) $21,156 $(16,053)
Adjustments to reconcile net income to net cash provided by...........
operating activities -
Depreciation and amortization...................................... 33,670 31,863 35,439
Special Charge..................................................... 3,413 - 35,869
Recapitalization Charge............................................ 18,886 - -
Loss on Sale of Business........................................... - - 8,528
Extraordinary loss on extinguishment of debt....................... 14,863 1,296 -
Deferred income taxes.............................................. (4,344) 11,124 (6,916)
Change in operating assets and liabilities, net of effect of
acquired and disposed of businesses:
Accounts receivable................................................ (11,869) (14,464) 10,275
Inventories........................................................ (3,587) 4,211 15,324
Accounts payable................................................... 10,733 14,805 (667)
Accrued expenses................................................... (7,363) (8,563) (8,228)
Other, net......................................................... (14,148) 1,024 (8,608)
---------------
--------------- --------------- ---------------
Net cash provided by operating activities....................... 28,732 62,452 64,963
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................. (24,504) (30,982) (22,828)
Acquisition of businesses, net of cash acquired....................... - (63,847) -
Proceeds from sale of business........................................ 12,088 4,500 28,296
Proceeds from sale of property........................................ 8,755 448 6,601
Investment in Formametal S.A.......................................... (4,914) (1,600) (3,000)
--------------- --------------- ---------------
Net cash provided by (used in) investing activities............ (8,575) (91,481) 9,069
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock ............................................. 53,333 - -
Issuance of preferred stock .......................................... 106,667 - -
Retirement of common stock and exercise of stock options.............. (270,022) 2,820 1,658
Purchase of treasury stock............................................ (488) (502) (1,730)
Issuance of 12 3/8% notes............................................. 175,000 - -
Repurchase of 10 1/8% notes........................................... (254,658) (27,696) (10,675)
Net borrowings (payments) under the old revolving line of credit and
changes
in cash overdrafts................................................. (56,100) 23,553 (36,770)
Borrowing of Tranche A loan........................................... 80,000 - -
Borrowing of Tranche B loan........................................... 180,000 - -
Borrowing of other long-term debt, including capital lease obligations 19,286 38,598 -
Payments of long-term debt, including capital lease obligations....... (22,528) (9,449) (15,618)
Payment of debt financing costs....................................... (16,137) - -
Payment of recapitalization costs..................................... (18,886) - -
--------------- --------------- ---------------
--------------- --------------- ---------------
Net cash provided by (used in) financing activities............ (24,533) 27,324 (63,135)
--------------- --------------- ---------------
--------------- --------------- ---------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................................. (537) (670) 402
--------------- --------------- ---------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................ (4,913) (2,375) 11,299
CASH AND CASH EQUIVALENTS, beginning of year............................ 15,697 18,072 6,773
---------------
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS, end of year.................................. $10,784 $15,697 $18,072
=============== =============== ===============
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
(1) Basis of Presentation and Operations
The consolidated financial statements include the accounts of U.S. Can Corporation (the "Corporation" or
"U.S. Can"), its wholly owned subsidiary, United States Can Company ("United States Can"), and U.S. Can's subsidiaries
(the "Subsidiaries"). All significant intercompany balances and transactions have been eliminated. The consolidated group
is referred to herein as the Company. Certain prior year amounts have been reclassified to conform with the 2000
presentation.
The Company is a supplier of steel and plastic containers for personal care, household, food, automotive,
paint and industrial supplies, and other specialty products. The Company owns or leases 16 plants in the United States
and 10 plants located in Europe.
(2) Summary of Significant Accounting Policies
(a) Cash and Cash Equivalents - The Company considers all liquid interest-bearing instruments purchased
with an original maturity of three months or less to be cash equivalents.
(b) Accounts Receivable Allowances - Activity in the accounts receivable allowances accounts was as
follows (000's omitted):
2000 1999 1998
---- ---- ----
Balance at beginning of year........................................... $ 13,367 $ 17,063 $ 15,134
Provision for doubtful accounts..................................... 516 997 881
Change in discounts, allowances and rebates,
net of recoveries................................................ (2,449) (3,914) 2,525
Net write-offs of doubtful accounts................................. (463) (779) (1,477)
------------- ----------- -----------
Balance at end of year................................................. $ 10,971 $ 13,367 $ 17,063
============= =========== ===========
(c) Inventories--Inventories are stated at the lower of cost or market and include material, labor and
factory overhead. Costs for United States inventory have been determined using the last-in, first-out ("LIFO") method.
Had the inventories been valued using the first-in, first-out ("FIFO") method, the amount would not have differed
materially from the amounts as determined using the LIFO method. Costs for Subsidiaries' inventory of approximately $44.2
million at December 31, 2000 and $49.6 million as of December 31, 1999 have been determined by the FIFO method.
Inventories reported in the accompanying balance sheets were classified as follows (000's omitted):
2000 1999
---- ----
Raw materials....................................................................... $ 28,540 $ 30,821
Work in progress.................................................................... 49,728 49,884
Finished goods...................................................................... 35,634 35,274
Total Inventory..................................................................... $ 113,902 $ 115,979
============== ===========
(d) Property, Plant and Equipment--Property, plant and equipment is recorded at cost. Major renewals and
betterments which extend the useful life of an asset are capitalized; routine maintenance and repairs are expensed as
incurred. Maintenance and repairs charged against earnings were approximately $27.5 million, $29.4 million and
$29.9 million in 2000, 1999 and 1998, respectively. Upon sale or retirement of these assets, the asset cost and related
accumulated depreciation are removed from the accounts and any related gain or loss is reflected in income.
Depreciation for financial reporting purposes is principally provided using the straight-line method over
the estimated useful lives of the assets, as follows: buildings-25 to 40 years; machinery and equipment--5 to 20 years.
Equipment under capital leases are amortized over the life of the lease. Depreciation expense was $28.7 million, $28.8
million and $30.5 million for 2000, 1999 and 1998, respectively.
Property reported in the accompanying balance sheets were classified as follows (000's omitted):
2000 1999
---- ----
Land ............................................................................... $ 6,543 $ 14,541
Buildings........................................................................... 65,158 83,106
Machinery and equipment............................................................. 402,822 407,043
Capital leases...................................................................... 13,137 23,484
Construction in process............................................................. 22,266 32,873
509,926 561,047
Accumulated depreciation and amortization........................................... (237,706) (228,543)
Total Property...................................................................... $ 272,220 $ 332,504
============== ============
The Company acquired May Verpackungen on December 30, 1999 (see Note (5)). During 2000, the Company
finalized the amounts assigned to the net assets acquired. The final amount assigned to property, plant and equipment
was approximately $28.0 million less than the amount reflected in the December 31, 1999 balance sheet, and goodwill was
increased accordingly.
(e) Goodwill - The excess purchase price over the fair value of the net assets of businesses acquired
("goodwill"), is amortized on a straight-line basis over the periods of expected benefit, ranging from 20 to 40 years.
The related amortization expense was $2.9 million, $1.7 million and $1.8 million for the years ended December 31, 2000,
1999 and 1998, respectively. The Company continually reviews whether subsequent events and circumstances have occurred
that indicate the remaining estimated useful life of goodwill may warrant revision or its recoverable value requires
adjustment. In assessing and measuring recoverability, the Company uses projections to determine whether future operating
income (net of tax) exceeds the goodwill amortization. In addition to the amount discussed in (d) Property, Plant and
Equipment, there were further goodwill adjustments of $3.9 million relating to finalization of the fair value of the
assets acquired in the May acquisition.
(f) Deferred Financing Costs - Costs related to the issuance of new debt are included in other
non-current assets and are deferred and amortized over the terms of the related debt agreements. Financing costs
expensed in 2000, 1999, and 1998 were $1.7 million, $1.2 million and $1.8 million, respectively and are included in
interest expense.
(g) Revenue - Revenue is recognized when goods are shipped to the customer. Estimated sales returns and
allowances are recognized as an offset against revenue in the period in which the related revenue is recognized.
(h) Foreign Currency Translation - The functional currency for substantially all the Company's
Subsidiaries is the applicable local currency. The translation from the applicable foreign currencies to U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and
expense accounts using an average exchange rate prevailing during the period. The gains or losses resulting from such
translation are included in stockholders' equity. Gains or losses resulting from foreign currency transactions are
included in operating income and were not material in 2000, 1999 or 1998.
(i) New Accounting Pronouncements - In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which establishes new accounting and reporting standards for derivative instruments. In June 1999, the FASB
issued SFAS No. 137, "Accounting for Certain Derivatives and Certain Hedging Activities - A Deferral of the Effective
Date of FASB Statement No. 133", and in June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - An Amendment of FASB Statement No. 133."
These rules require that all derivative instruments be reported in the consolidated financial statements
at fair value. Changes in the fair value of derivatives are to be recorded each period as a component of earnings or
other comprehensive income, depending on whether the derivative is designated and is effective as part of a hedged
transaction, and on the type of hedge transaction. Gains or losses on derivative instruments reported in other
comprehensive income must be reclassified as earnings in the period in which earnings are affected by the underlying
hedged item, and the ineffective portion of all hedges must be recognized in earnings in the current portion. These new
standards may result in additional volatility in reported earnings, other comprehensive income and accumulated other
comprehensive income. These rules become effective for us on January 1, 2001. We will record the effect of the
transition to these new accounting requirements in the first quarter of 2001. The effect of this change will decrease
stockholders' equity (other comprehensive loss) by approximately $2.5 million.
The Emerging Issues Task Force released Issue No. 00-10 (EITF 00-10), "Accounting for Shipping and
Handling Revenues and Costs" in July of 2000. EITF 00-10 requires that amounts billed, if any, for shipping and handling
be included in revenue and costs incurred for shipping and handling are required to be recorded in cost of goods sold.
The impact of implementing EITF 00-10 was to increase each of net sales and cost of goods sold by approximately $22.9
million, $18.8 million and $20.7 million in 2000, 1999 and 1998 respectively. There was no net impact on results of
operations nor financial position caused by the implementation of EITF 00-10.
(j) Use of estimates - The preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(3) Recapitalization
On October 4, 2000, U.S. Can Corporation and Berkshire Partners LLC completed a recapitalization of the
Company through a merger. As a result of the recapitalization, all of U.S. Can's common stock, other than certain shares
held by designated continuing shareholders (the rollover shareholders), was converted into the right to receive $20.00 in
cash per share and options to purchase approximately 1.6 million shares of U.S. Can's common stock were retired in
exchange for a cash payment of $20.00 per underlying share, less the applicable option price. Certain shares held by the
rollover shareholders were converted into the right to receive $20.00 in cash per share and certain shares held by the
rollover shareholders were converted into the right to receive shares of capital stock of the surviving corporation in
the merger.
The recapitalization was financed by:
- a $106.7 million preferred stock investment by Berkshire Partners, its co-investors and certain of the
rollover stockholders;
- a $53.3 million common stock investment by Berkshire Partners, its co-investors, certain of the rollover
stockholders and management;
- $260.0 million in term loans under a new senior bank credit facility;
- $20.5 million in borrowings under a new revolving credit facility; and
- $175.0 million from the sale of 12 3/8% Senior Subordinated Notes due 2010.
Funds generated from the recapitalization were used to retire all of the borrowings outstanding under the
Company's former credit agreement, to repay the majority of the principal, accrued interest and tender premium applicable
to U.S. Can's 10 1/8% Notes due 2006, to pay fees and expenses associated with the transaction and to make payments to
U.S. Can's existing stockholders and optionholders as previously described. The Company recorded a charge of $18.9
million related to the recapitalization in the fourth quarter of 2000. In addition, see Note (6) regarding the
extraordinary charge relating to the early redemption of the Company's 10 1/8% Notes due in 2006.
(4) Special Charges and Discontinued Operations
2000
On July 7, 2000, the Company announced a reduction in force program, under which 81 salaried and 39 hourly
positions have been eliminated. A one-time pre-tax charge of $3.4 million for severance and other termination related
costs was recorded in the third quarter of 2000. The Company expects to realize annual savings of $5.0 million from this
program.
1998
In the third quarter of 1998, the Company established a pre-tax special charge of $35.9 million. The
provision was for the closure of several facilities and write-downs of non-core businesses. Costs related to closing and
realigning selected lithography facilities servicing our core business were also included in the provision as part of our
national lithography strategy. The 1998 special charge included charges for non-cash items of $27.7 million.
On November 9, 1998, the Company sold its commercial metal services business ("Metal Services") for net
cash proceeds of approximately $28 million. Metal Services included one plant in each of Chicago, Illinois; Trenton, New
Jersey; and Brookfield, Ohio, and the closed Midwest Litho plant in Alsip, Illinois. Based on the proceeds received, the
Company recorded an incremental $8.5 million after-tax charge for the loss on the sale of Metal Services in 1998.
Revenues to third parties from these operations were $94.3 million in the period ended November 8, 1998
(excluding intra-company sales continued by the buyer and ongoing third-party sales from the closed Midwest Litho
facility, which were transferred to other Metal Services facilities).
As of December 31, 2000, the remaining balances in the 2000 and 1998 restructuring reserves include $7.3
million for severance and related termination benefits paid over a period of time for approximately 22 salaried and 133
hourly employees; $4.4 million for non-cash write-off of assets related to facilities being closed or consolidated; and
$3.7 million for other costs associated with the restructuring actions (primarily on-going carrying costs for facilities
already closed).
Cash expended for restructuring activities in 2000 was $5.1 million and the Company anticipates spending
another $11.0 million of such costs in 2001 and beyond. The remainder of the restructuring reserves primarily consists of
non-cash items associated with the write-off of assets. The details of the changes in accrued restructuring reserves are
as follows (000's omitted):
2000 1999
---- ----
Balance at beginning of the year............................................... $ 28,514 $ 43,387
Special charge.............................................................. 3,413 --
Payments against reserve.................................................... (5,142) (6,856)
Non-cash charges against reserve............................................ (11,394) (8,017)
----------- ------------
Balance at end of the year..................................................... $ 15,391(a) $ 28,514(a)
========== ============
(a) Includes $3.5 million and $3.5 million classified as other long-term liabilities as of December 31, 2000 and
1999, respectively.
(5) Acquisitions
On December 30, 1999, the Company acquired all of the partnership interests of May Verpackungen GmbH &
Co., KG ("May"), a German limited liability company. The acquisition was accounted for as a purchase for financial
reporting purposes; therefore 1999 results do not include operations related to the acquired business. The acquisition
was financed using the borrowings made by U.S. Can under the former credit agreement for an aggregate amount of $64.6
million. During 2000, the Company finalized its allocation of the purchase price to the net assets acquired.
The following is a summary of the final allocation of the aggregate purchase price for May (000's omitted):
Current Assets........................................................................... $ 50,685
Property, Plant and Equipment............................................................ 46,604
Goodwill................................................................................. 32,206
Other Assets............................................................................. 5,896
Current Portion of Long Term Debt........................................................ (16,118)
Current Liabilities...................................................................... (35,405)
Long-Term Debt........................................................................... (6,552)
Other Liabilities........................................................................ (12,728)
--------------
Total Purchase Price..................................................................... $ 64,588
==============
The following represents the Company's unaudited pro forma results of operations for 1999 as if the May
acquisition had occurred on January 1, 1999 (000's omitted):
1999
----
Net Sales........................................................................................... $ 860,837
Income Before Discontinued Operations and Extraordinary Item........................................ 23,337
Net Income.......................................................................................... 22,041
May's pre-acquisition results have been adjusted to reflect amortization of goodwill, the depreciation
expense impact of the increased fair market value of property, plant and equipment, interest expense on acquisition
borrowings, changes in contractual agreements and the effect of income taxes on the pro forma adjustments. The pro forma
information given above does not purport to be indicative of the results that 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.
On February 20, 2001, certain assets were acquired of Olive Can Company, a Custom and Specialty
manufacturer. The acquisition, which is not material to the Company's operations, will be accounted for as a purchase.
In March 1998, a European Subsidiary acquired a 36.5% equity interest in Formametal S.A. ("Formametal"),
an aerosol can manufacturer located in Argentina, for $4.6 million. In connection with this investment, the Company has
provided a guaranty in an amount not to exceed $5.8 million, to secure the repayments of certain indebtedness of
Formametal. In 1999, the Company loaned Formametal $1.0 million for capital expenditures with all principal and interest
payable in January 2004. In addition, the Company received a three-year option to convert this loan into additional
shares of Formametal, which, if exercised, would take the Company's interest in Formametal up to 39.8%. This investment
has been accounted for using the equity method.
(6) Debt Obligations
Long-term debt obligations of the Company at December 31, 2000 and 1999 consisted of the following (000's
omitted):
2000 1999
---- ----
Senior debt -
New revolving line of credit at adjustable interest rate, based on market rates,
due October 4, 2006............................................................ $ 18,500 $ --
Revolving credit facility at adjustable interest rate, based on market rates,
(repaid in connection with the recapitalization)............................... -- 56,100
Tranche A term loan at adjustable interest rate, based on market rates,
due October 4, 2006............................................................ 80,000 --
Tranche B term loan at adjustable interest rate, based on market rates,
due October 4, 2008............................................................ 180,000 --
Secured term loan at 8.5% interest rate, due serially to October 2003............ 19,911 21,156
Industrial revenue bonds at adjustable interest rate, based on market rates,
due February 1, 2015........................................................... 4,000 7,500
Capital lease obligations........................................................ 6,609 10,869
Other............................................................................ 10,171 27,063
Senior Subordinated Series B Notes at 12 3/8% interest rate, due October 1, 2010....... 175,000 --
Senior Subordinated Series B Notes at 10 1/8% interest rate, due October 15, 2006...... 854 236,629
------------- -------------
Total Debt 495,045 359,317
Less--Current maturities......................................................... (14,671) (38,824)
-------------- -------------
Total long-term debt.......................................................... $ 480,374 $ 320,493
============= =============
In connection with the recapitalization, United States Can Company, as Borrower, entered into a Credit
Agreement among United States Can, U.S. Can Corporation and Domestic Subsidiaries of U.S. Can Corporation as Domestic
Guarantors, and certain lenders including Bank of America, N.A., Citicorp North America, Inc., and Bank One NA as of
October 4, 2000 (the "Senior Secured Credit Facility"). The Senior Secured Credit Facility provides for aggregate
borrowings of $400.0 million consisting of: (i) $80.0 million tranche A loan; (ii) $180.0 million tranche B loan; and
(iii) $140.0 million under a revolving credit facility. All of the term debt and approximately $20.5 million under the
revolving credit facility were used to finance the recapitalization.
Amounts outstanding under the Senior Secured Credit Facility bear interest at a rate per annum equal to
either: (1) the base rate (as defined in the Senior Secured Credit Facility) or (2) the LIBOR rate (as defined in the
Senior Secured Credit Facility), in each case, plus an applicable margin. The applicable margins are subject to future
reductions based on the achievement of certain leverage ratio targets and on the credit rating of the Senior Secured
Credit Facility. The applicable margins are not subject to reduction until after March 2001.
Borrowings under the tranche A term loan are due and payable in quarterly installments, which are
initially $1.0 million and increase over time to $8.0 million, until the final balance is due on October 4, 2006.
Borrowings under the tranche B term loan are due and payable in quarterly installments (the quarterly payments due before
December 31, 2006 being in nominal amounts), with the final balance due on October 4, 2008. The revolving credit facility
is available until October 4, 2006. In addition, the Company is required to prepay a portion of the facilities under the
Senior Secured Credit Facility upon the occurrence of certain specified events.
The Senior Secured Credit Facility is secured by a first priority security interest in all existing and
after-acquired assets of the Company and its direct and indirect domestic subsidiaries' existing and after-acquired
assets, including, without limitation, real property and all of the capital stock owned of our direct and indirect
domestic subsidiaries (including certain capital stock of their direct foreign subsidiaries only to the extent permitted
by applicable law). In addition, if loans are made to foreign subsidiaries, they will be secured by the existing and
after-acquired assets of certain of our foreign subsidiaries.
United States Can also issued $175.0 million aggregate principal amount of 12 3/8% Senior Subordinated
Notes due October 1, 2010 (" Notes"). The Notes are unsecured obligations of United States Can and are subordinated in
right of payment to all of United States Can's senior indebtedness. The Notes are guaranteed by U.S. Can and all of
United States Can's domestic restricted subsidiaries.
Both the Senior Secured Credit Facility and the Notes contain a number of financial and restrictive
covenants. Under our senior secured credit facility, the Company is required to meet certain financial tests, including
achievement of a minimum EBITDA level, a minimum interest coverage ratio, a minimum fixed charge coverage ratio and a
maximum leverage ratio. The restrictive covenants limit the Company's ability to incur debt, pay dividends or make
distributions, sell assets or consolidate or merge with other companies. The Company was in compliance with all of the
required financial ratios and other covenants at December 31, 2000.
During the first quarter of 2001, the Company experienced a decline in order volumes generally consistent
with the steel aerosol can market. In addition, May Verpackungen experienced difficulties with a major customer in the
second half of 2000 resulting in (i) reduced production for a portion of 2000, and (ii) requiring May Verpackungen to
re-qualify its production process with the customer before returning to prior production levels. This will negatively
impact May Verpackungen's first half 2001 revenues. As the Company has a significant fixed cost base, earnings levels
and cash flow are sensitive to unit volumes. As a result of the volume shortfalls, there is uncertainty as to whether
the Company will be in compliance with the covenants at the end of the first quarter 2001. In the event of noncompliance
with our covenants, the lenders would have the ability to terminate their commitments to advance us additional funds and
to accelerate any outstanding indebtedness. If the lenders accelerate the outstanding indebtedness and the Company
remains in default under the senior secured credit facility for a period of ten days, then the Company would also be in
default under the indenture governing the Notes. In the event the Company is not in compliance with the covenants, the
Company expects to negotiate with the lenders to obtain a waiver. The Company cannot be assured, however, that the
lenders will agree to grant the Company a waiver.
In connection with the recapitalization, the Corporation completed a tender offer and consent solicitation
for all of its outstanding 10 1/8% notes due 2006, plus accrued interest and a bond tender premium. $235.7 million of the
$236.6 million principal amount of bonds outstanding were purchased by the Corporation in the tender offer. An
extraordinary charge of $14.9 million ($24.2 million pre-tax) was taken in the fourth quarter of 2000, related to the
tender premium and the write-off of related deferred financing charges.
Under existing agreements, contractual maturities of long-term debt as of December 31, 2000 (including
capital lease obligations), are as follows (000's omitted):
2001............................................................................................ $ 14,671
2002............................................................................................ 15,988
2003............................................................................................ 29,416
2004............................................................................................ 14,999
2005............................................................................................ 21,503
Thereafter...................................................................................... 398,468
-------------
$ 495,045
=============
See Note (10) for further information on obligations under capital leases. Other debt, consisting of
various governmental loans, real estate mortgages and secured equipment notes bearing interest at rates between 4.2% and
8.5%, matures at various times through 2015, and was used to finance the expansion of several manufacturing facilities.
In an effort to limit foreign exchange risks, the Company has entered into several forward hedge
contracts. The Merthyr Tydfil facility was financed by a series of British Pound/Dollar forward hedge contracts, which
will not exceed $24.4 million in notional amount or a term of not more than five years.
Based upon borrowing rates currently available to the Company for borrowings with similar terms and
maturities, the fair value of the Company's total debt was approximately $495.3 million and $366 million as of
December 31, 2000 and 1999, respectively. No quoted market value is available (except on the 12 3/8% and the 10 1/8%
Notes). These amounts, because they do not include certain costs such as prepayment penalties, do not represent the
amount the Company would have to pay to reacquire and retire all of its outstanding debt in a current transaction.
The Company paid interest on borrowings of $27.5 million, $26.5 million and $ 33.2 million in 2000, 1999
and 1998, respectively. Accrued interest payable of $13.4 million and $5.1 million as of December 31, 2000 and 1999
respectively, is included in accrued expenses on the consolidated balance sheet.
(7) Income Taxes
The provision (benefit) for income taxes before discontinued operations and extraordinary item consisted
of the following (000's omitted):
2000 1999 1998
---- ---- ----
Current......................................................... $ -- $ 1,304 $ --
Deferred........................................................ 2,301 11,124 (6,916)
Foreign......................................................... 2,043 2,194