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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, 2001
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 March 15, 2002, 53,333,333 shares of Common Stock were outstanding.
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TABLE OF CONTENTS
Page
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PART I
Item 1. Business.................................................................................... 2
Item 2. Properties.................................................................................. 6
Item 3. Legal Proceedings........................................................................... 7
Item 4. Submission of Matters to a Vote of Security Holder.......................................... 8
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.................................... 8
Item 6. Selected Financial Data..................................................................... 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................................... 10
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.................................................................. 51
PART III
Item 10. Directors and Executive Officers of the Registrant.......................................... 51
Item 11. Executive Compensation...................................................................... 54
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............................ 64
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 sufficient cash flows to service our debt; the timing and cost of plant closures; the level of cost reduction achieved
through restructuring; the success of new technology; changes in market conditions or product demand; loss of important customers or
volume; downward product price movements; 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, incorporated in Delaware in 1983, 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 Reckitt Benckiser, Sherwin Williams, Gillette, and Unilever. 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 United States 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 (14) 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 manufactured in the U.S. represent our largest segment, accounting for approximately 43.4%, 44.2%
and 49.8% of our total net sales in 2001, 2000 and 1999, respectively. In 2001, we manufactured approximately 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. In December 1999, we acquired May Verpackungen GmbH & Co., KG
("May"), a German manufacturer of steel food packaging and aerosol cans. May has provided us with diversification across our product
lines and customer base.
International Operations represent our second largest segment, accounting for approximately 29.7%, 29.6% and 17.7% of
our total net sales in 2001, 2000 and 1999, respectively. In 2001, 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 cans and
plastic pails and drums. 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 17.4%, 17.4% and 20.3% of our total net sales in 2001, 2000 and
1999, respectively.
Custom & Specialty Products
We also have a significant presence in the custom and specialty market, offering a wide range of decorative and
specialty steel products. Our primary products include functional and decorative containers and tins, and collectible items, such as
decorative metal signs. 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. On
February 20, 2001, we acquired certain assets of Olive Can Company, a Custom and Specialty manufacturer. The Olive acquisition is not
material to the Company's operations or financial position.
Custom and specialty products accounted for approximately 9.5%, 8.8% and 12.2% of our total net sales in 2001, 2000
and 1999, respectively.
Customers and Sales Force
As of December 31, 2001, in the United States, we had approximately 4,300 customers, with our largest customer
accounting for 8.7% of our total net sales in 2001. 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, 2001, we had 81 sales representatives in the United States and 37 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.
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. Our largest domestic steel suppliers are U.S. Steel, Weirton Steel
and Wheeling-Pitt, while Corus, Arcelor and Rasselstein supply the largest volume in Europe.
The President of the United States has imposed 30% ad valorem tariffs under Section 201 of the Trade Act of 1974 on
tin mill imports from most foreign producers effective March 20, 2002. These tariffs are scheduled to remain in effect for three
years, declining to 24% in the second year and 18% in the third year. Tin mill imports from Canada, Mexico and certain developing
countries are excluded from the tariffs. The Company purchases the vast majority of its domestic steel from domestic sources and
since the tariff curtails foreign competition, a negative impact to the Company could arise from price increases from domestic
suppliers.
Our domestic and European operations purchase approximately 400,000 tons of tin-plate annually. The Company believes
that adequate quantities of tin-plate will continue to be available from steel manufacturers, however, potential seasonal shortages
may occur as the result of the tariffs.
Tin-plate prices have increased slightly over the last five years. While there is some long-term variability,
tin-plate prices have generally been stable and price increases have historically been announced several months before
implementation. This stability has enhanced 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. While
the Company believes it has an agreement in place which should limit the impact of any steel price increases on its operations in
fiscal 2002, it cannot assess the impact of the tariffs on its steel prices in 2003 or later years. We have not always been able to
immediately offset increases in tin-plate prices with price increases on our products. Further, the tariffs could jeopardize this
pricing stability, and could negatively impact our gross margins as we may not have the ability to immediately or fully pass through
tinplate price increases to all of our customers. Due to the recent imposition of the tariffs, the Company is unable to determine the
effects the tariffs will have on steel prices or resource availability, however, the Company will continue to explore other sourcing
alternatives to limit any potential negative impact of the tariffs.
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.
Special Charges
During 2001, the Company initiated several restructuring programs. Upon completion, the programs will result in (a)
the closure of five manufacturing facilities, (b) the additional consolidation of two facilities into a new facility, (c) the
reversal of a previous decision to close a custom and specialty lithography facility due to changing business needs and (d) the
elimination of approximately 600 jobs. Charges of $36.2 million were recorded for the cost of these programs. $13.2 million of the
charge consists of non-cash charges, primarily write-offs of property, plant and equipment. The remainder of the charge consists of
cash costs, primarily employee termination costs, future cash payments for employee benefits as required under union contracts, lease
termination and other facility exit costs. While the majority of the restructuring initiatives will be completed in 2002, certain
portions of the programs will not be completed until 2003, and the Company does not expect to realize the full earnings benefits
until 2004. Certain long-term liabilities (approximately $6.0 million as of December 31, 2001), consisting primarily of employee
termination costs and future cash payments for employee benefits as required under union contracts, are expected to be paid over many
years.
The individual components of the restructuring programs are discussed in Note (4) to the consolidated financial
statements.
Labor
As of February 1, 2002, we employed approximately 2,600 salaried and hourly employees in the United States. Of our
total U.S. workforce, approximately 1,600 employees, or 62%, 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
approximately 590 employees were successfully negotiated in 2001. As of February 1, 2002, 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. 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.
As discussed previously, the restructuring programs initiated in 2001 will result in a reduction of the salaried and
hourly work force. Of the approximately 600 positions identified for elimination, approximately 400 were hourly positions. As of
December 31, 2001 approximately 51 salaried and 53 hourly positions have been eliminated. The Company has worked closely with the
various labor unions and their collective bargaining units to ensure provisions for termination, severance and pension eligibility
were in accordance with the respective collective bargaining agreements. Except as referenced in "Legal Proceedings - Litigation",
the Company's relationship with represented employees is good and there have been no labor strikes, slow-downs, work stoppages or
other material labor disputes threatened or pending against the Company for at least the past 10 years.
Competition
Quality, service and price are the principal methods of competition in the rigid metal and plastic container
industry. Geographic presence is also an important competitive factor given the cost of shipping empty cans long distances and
accordingly, the Company maintains East Coast, Midwest, Southern and West Coast manufacturing facilities. In addition, price
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 and BWAY. Because steel aerosol
cans are pressurized and are used for personal care, household and other consumer 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 other smaller regional
producers. Crown Cork & Seal and Impress are 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 line competes with a large number of container manufacturers, but we do not compete across
the entire product spectrum with any single company. Competition in this segment 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 and flexible pouches.
Acquisitions
In December 1999, the Company acquired all of the partnership interests of May, a German limited liability company,
in a transaction accounted for as a purchase. 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.
In February 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, was accounted for as a purchase.
Refer to Note (5) to the Consolidated Financial Statements for further discussion of these transactions.
ITEM 2. PROPERTIES
We have 15 operations 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 March 15, 2002.
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
Baltimore, MD ........................... 232,172 Leased Custom and Specialty
Burns Harbor, IN......................... 190,000 Leased Aerosol
Newnan, GA............................... 185,122 Leased Paint, Plastic and General Line
Hubbard, OH*............................. 174,970 Owned Paint, Plastic and General Line
Elgin, IL................................ 144,578 Leased Custom and Specialty
Baltimore, MD*........................... 137,000 Owned Custom and Specialty
Horsham, PA*............................. 132,000 Owned Aerosol
Weirton, WV.............................. 108,000 Leased Aerosol
Danville, IL*............................ 100,000 Owned Aerosol
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 (3) International
Laon, France (1)......................... 220,000 Owned International
Reus, Spain.............................. 182,250 Owned International
Daegeling, 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
* U.S. owned plants are subject to a mortgage in favor of Bank of America, N.A. as collateral agent for the lenders
under the credit agreement.
(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.
(3) The Southall, U.K. plant was sold in December 2001. The Company will vacate the facility in the third quarter of
2002.
In connection with our restructuring initiatives, we have closed several manufacturing facilities, some which have
been subleased. The Company has reserved for on-going costs associated with these closed facilities and they are not included in the
above listing.
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, relating to pollution, the
protection of the environment, the management and disposal of hazardous substances and wastes and the cleanup of contaminated sites.
Our capital and operating budgets include costs and expenses associated with complying with these laws, including the acquisition,
maintenance and repair of pollution control equipment, and routine measures to prevent, contain and clean up spills of materials that
occur in the ordinary course of our business. In addition, some of our production facilities require environmental permits that are
subject to revocation, modification and renewal. We believe that we are in substantial compliance with environmental laws and our
environmental permit requirements, and that the costs and expenses associated with this compliance are not material to our business.
However, additional operating costs and capital expenditures could be incurred if, among other developments, additional or more
stringent requirements relevant to our operations are promulgated.
Occasionally, contaminants from current or historical operations have been detected at some of our present and former
sites. Although we are not currently aware of any material claims or obligations with respect to these sites, the detection of
additional contamination or the imposition of cleanup obligations at existing or unknown sites could result in significant
liability.
We have been designated as a potentially responsible party under superfund laws at various sites in the United
States, including a former can plant 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 the sites designated under U.S.
Superfund law was, in most cases, minimal. With respect to San Leandro, we believe the principal source of contamination is unrelated
to our past operations.
Through corporate due diligence and the Company's compliance management system, we 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. In February 2001, the Company 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. The Company undertook a full review, revised its emissions
calculations based on its review and determined that it had not exceeded its emissions cap for any reporting year. In September 2001,
the Company reported to PDEP and EPA certain deviations from the requirements of its Title V permit related to the use of
non-compliant coatings and corresponding recordkeeping and reporting obligations, and certain recordkeeping deviations stemming from
the malfunction of the temperature recorder for an oxidizer. The Company met with PDEP officials in October 2001, and provided some
supplemental information requested by PDEP in November 2001. The Company and PDEP plan to discuss a cooperative resolution of this
matter once PDEP reviews the Company's submission. Since PDEP's review is not yet complete, the Company is unable, at this time, to
determine PDEP's position or the effect on the Company of any reported deviation.
Based upon currently available information, the Company does not expect the effects of environmental matters to be
material to its financial position.
Litigation
We are involved in litigation from time to time in the ordinary course of our business. In our opinion, the
litigation is not material to our financial condition or results of operations.
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 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. On June 19, 2001, the Court of Appeals issued a written decision. While the Court enforced the award of backpay,
with interest, it agreed with the Company's position that the NLRB should permit the Company to present actuarial calculations of any
credit due it because of overpayments or early payments of supplemental unemployment benefits or pension. On March 1, 2002, the
Company settled this case. Under the settlement agreement, the Company will pay approximately $1.8 million in backpay and interest,
as well as certain pension adjustments that are not expected to have a material effect on the Company. The National Labor Relations
Board must approve the settlement before any payments are made. The Company expects to receive approval in April 2002.
In September 2000, a purported class action suit 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 challenged the
recapitalization and alleged inadequate disclosure with respect to U.S. Can Corporation's filings with the Securities and Exchange
Commission and violations of Delaware law. The complaint sought to rescind the recapitalization and requested that the defendants pay
unspecified monetary damages, costs and attorney's fees. The parties settled this matter in return for an additional $0.20 per share
payment to the class, or a total additional payment of approximately $2.0 million (less the legal fees and expenses awarded to
plaintiffs' counsel). The Delaware Chancery Court approved this settlement in July 2001, and awarded plaintiffs' counsel
approximately $500,000 in fees. The Company fully complied with its obligations under the settlement by funding the net settlement
proceeds of approximately $0.15 per share to the class members in October 2001.
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. Its common stock has not been registered and there is no trading
market for its common stock. 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") and $175.0 million Senior Subordinated Notes ("the Notes") on United States Can's
ability to fund or pay cash dividends to U.S. Can Corporation.
In 2000, U.S. Can Corporation issued shares of preferred stock having a face value of $106.7 million. Dividends
accrue on the preferred stock at an annual rate of 10%, are cumulative from the date of issuance and are 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 our Board of Directors,
so long as sufficient cash is available to make the dividend payment and such payment would not violate the terms of the Facility and
the Notes. As of December 31, 2001 and 2000, dividends of approximately $13.9 million and $2.6 million, respectively, have been
accrued. As United States Can is U.S. Can Corporation's only source of cash and payments by United States Can are restricted by the
terms of the Facility and the Notes, U.S. Can Corporation does not anticipate paying cash dividends on the preferred stock in the
foreseeable future. Holders of the preferred stock have no voting rights, except as otherwise required by law. 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.
ITEM 6. SELECTED FINANCIAL DATA
The following consolidated financial data as of and for each of the fiscal years in the five years ended December 31, 2001
were derived from our audited financial statements. You should read all of this information in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements for the year ended December
31, 2001 and accompanying notes beginning on page 17.
U.S. CAN CORPORATION AND SUBSIDIARIES
(000's omitted)
For the Year Ended December 31,
-------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Operating Data:
Net sales........................................ $ 772,188 $ 809,497 $ 732,897 $ 730,951 $ 777,140
Special charges (a).............................. 36,239 3,413 -- 35,869 62,980
Recapitalization charge (b)...................... -- 18,886 -- -- --
Operating income (loss).......................... (6,146) 48,153 66,975 21,748 (8,093)
Income (loss) from continuing operations
before discontinued operations
and extraordinary item........................ (40,416) 3,341 22,452 (7,525) (29,906)
Discontinued operations, net of income taxes ( f )
Net income from discontinued operations....... -- -- -- -- 1,078
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) -- --
Net income (loss) before preferred stock dividends (40,416) (11,522) 21,156 (16,053) (32,032)
Preferred stock dividend requirements (d)..... (11,345) (2,601) -- -- --
Net income (loss) available for
common shareholders........................... $ (51,761) $ (14,123) $ 21,156 $ (16,053) $ (32,032)
BALANCE SHEET DATA:
Total assets..................................... $ 634,350 $ 637,864 $ 663,570 $ 555,571 $ 633,704
Total debt....................................... 536,776 495,045 359,317 316,673 376,141
Redeemable preferred stock....................... 120,612 109,268 -- -- --
Stockholders' equity (e)......................... (247,124) (174,323) 68,556 50,177 62,313
(a) See Note (4) of the "Notes to Consolidated Financial Statements" for a description of the 2001 and 2000 Special
Charges. In 1998, the Company established a restructuring provision for closure of the Green Bay, Wisconsin aerosol assembly plant,
the Alsip, Illinois general line plant, and the Columbiana, Ohio specialty plant; a write-down to estimated proceeds for the sale of
the metal closure business located in Glen Dale, West Virginia; and selected closures and realignment of facilities servicing the
lithography needs of the Company's core businesses. In 1997, the Company established a special charge for the closure of the Racine,
Wisconsin aerosol assembly plant, the Midwest lithography center in Alsip, Illinois, the Sparrows Point lithography center in
Baltimore, Maryland, and the California Specialty plant in Vernalis, California; a write-down to estimated proceeds for the sale of
the Orlando machine engineering center; and organizational changes designed to reduce general overhead.
(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 2001 and 2000 was caused by the recapitalization. See Note (3) of the "Notes to
Consolidated Financial Statements."
(f) On November 9, 1998, the Company sold its commercial metal services business ("Metal Services"). Metal Services
included one plant in each of Chicago, Illinois; Trenton, New Jersey; Brookfield, Ohio, and Alsip, Illinois.
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, 2001. This discussion should be read in
conjunction with the consolidated financial statements and notes to the consolidated financial statements.
Critical Accounting Policies; Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting
period. Estimates are used for, but not limited to: allowance for doubtful accounts; inventory valuation; purchase accounting
allocations; restructuring amounts; asset impairments; depreciable lives of assets; useful lives of intangible assets; pension
assumptions and tax valuation allowances. Future events and their effects cannot be perceived with certainty. Accordingly, our
accounting estimates require the exercise of management's current best reasonable judgment based on facts available. The accounting
estimates used in the preparation of the Consolidated Financial Statements will change as new events occur, as more experience is
acquired, as more information is obtained and as the Company's operating environments change.
The Company's critical accounting policies are described in Note (2) to the Consolidated Financial Statements.
Accounting policies requiring significant management judgments include those which affect revenue, accounts receivable allowances and
inventory. Significant business or customer conditions could cause material changes to the amounts reflected in our financial
statements. For example, the Company enters into contractual agreements with certain of its customers for rebates, generally based
on annual sales volumes. Should the Company's estimates of the customers' annual sales volumes vary materially from the sales
volumes actually realized, revenue may be materially impacted. Similarly, a large portion of the Company's inventory is manufactured
to customer specifications. Other inventory is generally less specific and saleable to multiple customers. However, losses may result
should the Company manufacture customized products which it is unable to sell. Management also estimates allowances for
collectibility related to its accounts receivable. These allowances are based on the customer relationships, the aging and turns of
accounts receivable, credit worthiness of customers, credit concentrations and payment history. Despite our best efforts, the
inability of a particular customer to pay its debts could impact collectibility of receivables and could have an impact on future
revenues if the customer is unable to arrange other financing.
As more fully described in Note (4) to the Consolidated Financial Statements, several restructuring programs are
underway in order to streamline operations and reduce costs. The Company has established reserves to cover the costs to implement
the programs. The estimated costs were determined based on contractual arrangements, quotes from contractors, similar historical
activities and other judgmental determinations. Actual costs may differ from those estimated.
To manage interest rate exposure, the Company enters into interest rate agreements. The net interest paid or
received on these agreements is recognized as interest income or expense. Our interest rate agreements are reported in the
consolidated financial statements at fair value using a mark to market valuation. Changes in the fair value of the contracts are
recorded each period as a component of other comprehensive income. Gains or losses on our interest rate agreements are reclassified
as earnings or losses in the period in which earnings are affected by the underlying hedged item. This may result in additional
volatility in reported earnings, other comprehensive income and accumulated other comprehensive income. Our interest rate swaps and
collars were entered into in 2000, when interest rates were higher than current rates. Accordingly, these contracts are "out of the
money" and may require future payments if market interest rates do not return to historical levels. In addition, if rates do
increase above historical levels and the counterparties to the agreements default on their obligations under the agreements, our
interest expense would increase. The Company does not use financial instruments for trading or speculative purposes.
Year Ended December 31, 2001 Compared To Year Ended December 31, 2000
Consolidated net sales for the year ended December 31, 2001 were $772.2 million as compared to $809.5 million in
2000, a decrease of 4.6%. Along business segment lines, Aerosol net sales in 2001 decreased to $334.7 million from $357.7 million in
2000, a 6.4% decline, due principally to decreased unit volume ($13.6 million), a change in the mix of sales volume towards lower
selling value products ($4.0 million) and pricing concessions granted in the first half of 2002 ($5.3 million). The pricing
concessions granted in the first part of the year will continue to negatively impact the first half of 2002, both in sales and gross
profit. International net sales decreased to $229.5 million in 2001 from $239.6 million in 2000, a decrease of $10.1 million or
4.2%. There was a $9.7 million negative impact in 2001 due to U.S. dollar translation on sales made in foreign currencies. The Paint,
Plastic and General Line segment net sales decreased 4.5%, from $140.9 million in 2000 to $134.5 million in 2001 due primarily to
decreased unit volume of paint and general line. In the Custom & Specialty segment, sales increased 3.1% from $71.3 million in 2000
to $73.5 million in 2001, due to additional sales as the result of the acquisition of Olive Can ($12.1 million see Note (5) to the
Consolidated Financial Statements) offset by the sale of the Wheeling metal closure and Warren lithography businesses ($3.4 million)
and an overall decline in volume ($6.5 million).
Consolidated cost of goods sold increased $2.3 million to $695.5 million for 2001. The principal reasons for the
increase included additional volume as a result of the Olive Can acquisition ($11.8 million) and a one-time inventory write-off
relating to discontinued custom and specialty products ($3.2 million) offset by decreased costs caused by volume and mix ($12.7
million). The Company does not believe that the recently imposed tariffs on imported steel will have a material impact on the
Company's cost of goods sold in 2002, as an agreement is in place covering a significant portion of its domestic steel purchases.
However, it cannot determine the effect on steel purchase prices for 2003 and later years. For further discussion on the tariffs see
"Business - Raw Materials". Gross profit margin of 9.9% in 2001 decreased 4.5 percentage points from 2000. The primary reasons for
the decline in gross margin rate include the impact of volume declines (0.5 percentage points), selling price and product mix (2.0
percentage points) and manufacturing inefficiencies resulting from volume softness (0.9 percentage points) and the delay in the sale
of the Southall, U.K facility (0.4 percentage points).
Selling, general and administrative costs increased from $45.9 million in 2000 to $46.6 million in 2001. The Company
expects a reduction to selling, general and administration costs as a result of the Company offering a voluntary termination program
in connection with the restructuring initiatives discussed in Note (4) to the Consolidated Financial Statements.
During 2001, the Company initiated several restructuring programs. These programs will result in (a) the closure of
five manufacturing facilities, (b) the additional consolidation of two facilities into one new facility, (c) the reversal of a
previous decision to close a custom and specialty lithography facility due to changing business needs and (d) the elimination of
approximately 600 jobs. The restructuring programs, which are more fully described in Note (4) to the Consolidated Financial
Statements, resulted in a net charge of $36.2 million in 2001. The programs are expected to result in improved operating income in
2002 and future years as a result of reduced payroll costs and the elimination of fixed overhead costs. A pre-tax charge of
$3.4 million for severance and other termination-related costs was recorded in the third quarter of 2000. 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 2001 increased 41.6%, or $16.8 million, versus 2000 due to borrowings made in connection with the
recapitalization transactions that occurred in October 2000. The recapitalization resulted in increased borrowings for all 2001
versus the fourth quarter of 2000. See "Liquidity and Capital Resources" and Notes (3), (5) and (6) to the Consolidated Financial
Statements for a further discussion of the recapitalization and the Company's debt position.
Payment in kind dividends of $11.3 million and $2.6 million on the redeemable preferred stock issued in connection
with the recapitalization were recorded in 2001 and 2000, respectively. See Note (12) 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 additional sales as a result of the May acquisition 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 5.5% decrease in net sales, from $149.1 million in 1999 to $140.9 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 19.2% from $88.2 million in 1999 to $71.3 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
3.7% from $70.5 million in 1999 to $67.9 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 decrease to cost of goods sold in 2000 due to U.S. dollar
translation on purchases 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.
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 were
eliminated. A pre-tax charge of $3.4 million for severance and other termination related costs was recorded in the third quarter of
2000. 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 is 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.
LIQUIDITY AND CAPITAL RESOURCES
During 2001, liquidity needs were met through internally generated cash flow, borrowings made under lines of credit
and the initial payment received on the sale of our Southall facility. Principal liquidity needs included operating costs, debt and
interest payments and capital expenditures. Cash flow used by operations was $7.0 million for the year ended December 31, 2001,
compared to cash provided of $28.7 million for the year ended December 31, 2000. The increased use of cash is due to the decrease in
net income (as discussed in Results of Operations).
Net cash used in investing activities was $24.4 million in 2001, as compared to $8.6 million in 2000. Cash used for
investing activities included capital spending, the acquisition of certain assets of Olive Can Company and advances to Formametal
S.A. ("Formametal") to finance Formametal's debt repayment and working capital needs, offset by cash received from the sale of the
Southall facility. Cash was provided in 2000 by the sale of Wheeling and Warren as discussed in Note (4) and a sale/leaseback of
certain manufacturing assets offset by capital expenditures. Total capital expenditures in 2001 were $19.5 million compared to $24.5
million in 2000. Base capital expenditures are expected to range from $100.0 million to $110.0 million during the five years
commencing 2002, in equal amounts of $20.0 million to $22.0 million per year. In addition, capital expenditures in connection with
the Company's restructuring programs are expected to be $9.0 million. The Company expects to spend the majority of this amount in
2002 and the remainder in 2003. Capital expenditures are expected to be funded from cash on hand, 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.
Net cash provided from financing activities in 2001 was $35.1 million versus net cash used of $24.5 million in 2000.
The primary 2001 financing source was borrowings under the revolving credit portion of the Senior Secured Credit Facility ("the
Facility") including the new Tranche C loan under the Facility, as described below.
Primary sources of liquidity are cash flow from operations and borrowings under revolving credit facilities. United
States Can Company, as Borrower, is a party to 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
originally provided 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. The borrowings under the revolving credit portion of
the facility are available to fund working capital requirements, capital expenditures and other general corporate purposes. The
revolving loan facility also includes a subfacility for the issuance of Letters of Credit.
During 2001, the Senior Secured Credit Facility was amended twice. The first amendment (April 2001) reduced the
revolving credit facility to $110.0 million. The second amendment (December 2001) includes an additional Tranche C term loan facility
of up to $25.0 million. Under certain circumstances, the Company's majority shareholder may be required to cash collateralize and
ultimately repurchase the new term loan facility. The Company borrowed $20.0 million under the Tranche C facility on December 18,
2001. In addition, the amendments provide for (1) an increase in the interest rate to be paid under the facility of 75 basis points,
(2) revised financial covenants in line with current and expected operating trends and (3) an acceleration of the maturity date of
all borrowings under the Senior Secured Credit Facility to January 4, 2006. Principal repayments required under the Senior Secured
Credit Facility are $9.0 million in 2002 increasing to $274.9 million at the maturity date in 2006. 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.
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 were increased in connection with the 2001 amendments and
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.
Borrowings under the Tranche A term loan are due and payable in quarterly installments, which are $2.0 million for
each quarter in 2002 and increase over time to $8.0 million per quarter, until the final balance is due. Borrowings under the Tranche
B term loan are due and payable in quarterly installments of nominal amounts until the final payment is due on January 4, 2006. No
payments are due on borrowings under the Tranche C term loan prior to its final maturity. The revolving credit facility is available
until January 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 and the Notes contain a number of financial and restrictive covenants. The
covenants to the Senior Secured Credit Facility were amended in connection with the 2001 amendments. 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, as amended, at December 31, 2001 and
anticipates being in compliance in 2002 and future years.
At December 31, 2001, $56.1 million was outstanding under the $110.0 million revolving loan portion of the Senior
Secured Credit Facility. Letters of Credit of $9.8 million were outstanding securing the Company's obligations under various
insurance programs and other contractual agreements. Additionally, unsecured revolving lines of credit granted by various banks of
approximately $19.0 million are available to fund the seasonal working capital requirements of our international operations. There
were no borrowings outstanding under these facilities at December 31, 2001. The lines may be terminated by the offering banks upon
given notice periods.
As more fully described in Note (4) to the Consolidated Financial Statements, the Company has initiated several
restructuring programs. Future cash requirements to complete these programs are estimated to be approximately $21.0 million in 2002
and $3.0 million in 2003, including capital expenditures. The Company expects to fund these cash requirements from cash on hand,
operations and borrowings under the revolving credit facility. Upon completion, the programs are expected to yield annual
improvements in operating income exceeding $17.0 million, primarily through the reduction of payroll and fixed overhead expenses.
The Company has a number of contractual commitments to make future cash payments. Under existing agreements,
contractual obligations as of December 31, 2001 are as follows (000's omitted):
Payments due by period
Contractual Obligations 1st year 2-3 years 4-5 years After 5 years
----------------------------------
----------------------------------------------------------
Long Term Debt $11,182 $44,293 $ 297,584 $ 179,427
Capital lease obligations 3,801 469 20 -
Operating leases 6,454 9,065 7,298 6,434
----------------------------------------------------------
Total Contractual Commitments $ 21,437 $53,827 $ 304,902 $ 185,861
See Note (6) to the Consolidated Financial Statements for further information on obligations under the Senior Secured
Credit Facility and 12 3/8% Senior Subordinated Notes due October 1, 2010 ("Notes") and Note (10) for further information on capital
and operating leases.
At existing levels of operations, cash generated from operations together with amounts to be drawn from the revolving
credit facility, are expected to be adequate to meet anticipated debt service requirements, restructure costs, capital expenditures
and working capital needs. Future operating performance, including the impact, if any, of the tariff described under "Raw
Materials", 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.
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.
The President of the United States has imposed 30% ad valorem tariffs under Section 201 of the Trade Act of 1974 on
tin mill imports from most foreign producers effective March 20, 2002. These tariffs are scheduled to remain in effect for three
years, declining to 24% in the second year and 18% in the third year. Tin mill imports from Canada, Mexico and certain developing
countries are excluded from the tariffs. The Company purchases the vast majority of its domestic steel from domestic sources and
since the tariff curtails foreign competition, a negative impact to the Company could arise from price increases from domestic
suppliers.
NEW ACCOUNTING PRONOUNCEMENTS
During July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 141 modifies the method of accounting for business combinations entered into after June 30, 2001 and
addresses the accounting for acquired intangible assets. All business combinations entered into after June 30, 2001, are accounted
for using the purchase method. SFAS No. 142 eliminates the current requirement to amortize goodwill and indefinite-lived intangible
assets, addresses the amortization of intangible assets with a defined life, and addresses the impairment testing and recognition for
goodwill and intangible assets. The Company will adopt this pronouncement on January 1, 2002. This pronouncement applies to
goodwill and intangible assets arising from transactions completed before and after the date of adoption. Effective January 1, 2002,
the Company will cease amortization of goodwill and indefinite-lived intangibles and test for impairment, at least, annually.
Management is currently assessing the provisions of both pronouncements and their potential impact on the Company's consolidated
results of operations and financial position. The Company recorded goodwill amortization of $2.8 million, $2.9 million and $1.7
million for 2001, 2000, and 1999, respectively.
The FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," in August 2001. SFAS
No. 144, which addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be
disposed of, supercedes SFAS No. 121 and is effective for fiscal years beginning after December 15, 2001. While the Company is
currently evaluating the impact SFAS No. 144 will have on its financial position and results of operations, it does not expect such
impact to be material.
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 a production facility
in the United Kingdom as follows:
2002 2003 2004 2005 2006 Thereafter Fair Value
-------- --------- ---------- --------- -------- ----------- ------------
Forward Exchange Contracts (in millions)
(Receive $US / Pay GBP)
Contract amount $2.93 $2.81 $15.57 - - - $1.1
Average Contractual
Exchange Rate 1.52 1.50 1.49 - - -
The Company bears foreign exchange risk because much of the financing is currently obtained in United States dollars,
but a portion of the Company's revenues and expenses are earned in the various currencies of our foreign subsidiaries' operations.
The revolving credit facility allows certain foreign subsidiaries to borrow up to $75 million in British Pounds Sterling, and Euros.
The Company has not made borrowings in any of these currencies.
Interest Rate Risk
Interest rate risk exposure results from our floating rate borrowings. A portion of the interest rate risks have been
hedged by entering into 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.
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.
2002 2003 2004 2005 2006 Thereafter Fair Value
----------- ------------ ----------- ------------ ------------ ----------- -------------
Debt Obligations (dollars in millions)
- --------------------------
Fixed rate $6.0 $3.6 $17.2 $0.5 $1.3 $179.0 $138.9
Average interest rate 7.97% 7.26% 8.42% 6.12% 8.76% 12.36%
Variable rate $9.0 $10.0 $14.0 $21.0 $274.9 $ 0.4 $334.0
Average interest rate 6.63% 6.63% 6.62% 6.61% 6.59% 1.65%
Interest Rate Swaps-
Variable to Fixed
- --------------------------
Notional Amount $83.3 $83.3 $ -- $ -- $ -- $ -- $(5.0)
Pay / receive rate 6.63% 6.63% -- -- -- --
Interest Rate Collars
- --------------------------
Notional Amount $41.7 $41.7 -- -- -- -- $(2.1)
Cap Rate 7.25% 7.25% -- -- -- --
Floor Rate 6.10% 6.10% -- -- -- --
The interest rate swaps and collars were entered into in 2000, when interest rates were higher than current rates.
Accordingly, these contracts are "out-of-the-money" and may require future payments if market interest rates do not return to
historical levels. In addition, if rates do increase above historical levels and the counterparties to the agreements default on
their obligations under the agreements, our interest expense would increase. The Company does not use financial instruments for
trading or speculative purposes. No quoted market value is available (except on the 12 3/8% Senior Subordinated Notes). Fair value
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, 2001, 2000 and 1999................. 19
Consolidated Balance Sheets as of December 31, 2001 and 2000............................................... 20
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2001, 2000 and 1999....... 21
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999................. 22
Notes to Consolidated Financial Statements................................................................. 23
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, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2001. 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, 2001 and 2000, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 6, 2002
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's omitted)
For the Year Ended
-------------------------------------------------------
December 31, December 31, December 31,
2001 2000 1999
----------------- ----------------- -----------------
Net Sales................................................. $772,188 $809,497 $732,897
Cost of Sales............................................. 695,514 693,158 630,411
----------------- ----------------- -----------------
Gross income......................................... 76,674 116,339 102,486
Selling, General and Administrative Expenses.............. 46,581 45,887 35,511
Special Charges........................................... 36,239 3,413 -
Recapitalization Charges.................................. - 18,886 -
----------------- ----------------- -----------------
Operating income..................................... (6,146) 48,153 66,975
Interest Expense.......................................... 57,304 40,468 29,901
----------------- ----------------- -----------------
Income (loss) before income taxes.................... (63,450) 7,685 37,074
Provision (benefit) for income taxes...................... (23,034) 4,344 14,622
----------------- ----------------- -----------------
Income (loss) from operations before extraordinary item (40,416) 3,341 22,452
Extraordinary Item, net of income taxes
Net loss from early extinguishment of debt................ - (14,863) (1,296)
----------------- ----------------- -----------------
Net Income (Loss) Before Preferred Stock Dividends........ (40,416) (11,522) 21,156
Preferred Stock Dividend Requirement...................... (11,345) (2,601) -
----------------- ----------------- -----------------
Net Income (Loss) Available for Common Stockholders....... $(51,761) $(14,123) $21,156
================= ================= =================
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 2001 2000
--------------------- ---------------------
CURRENT ASSETS:
Cash and cash equivalents............................................ $14,743 $10,784
Accounts receivables, net of allowances.............................. 95,274 90,763
Inventories, net..................................................... 100,676 113,902
Deferred income taxes................................................ 21,977 12,538
Other current assets................................................. 15,732 23,300
--------------------- ---------------------
Total current assets............................................ 248,402 251,287
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization........................................ 239,234 272,220
GOODWILL, less amortization............................................... 66,437 70,712
OTHER NON-CURRENT ASSETS.................................................. 80,277 43,645
--------------------- ---------------------
Total assets.................................................... $634,350 $637,864
===================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and capital lease obligations... $14,983 $14,671
Accounts payable..................................................... 96,685 102,274
Accrued expenses..................................................... 45,437 46,479
Restructuring reserves............................................... 25,945 11,915
Income taxes payable................................................. 1,055 1,704
--------------------- ---------------------
Total current liabilities....................................... 184,105 177,043
LONG TERM DEBT............................................................ 521,793 480,374
DEFERRED INCOME TAXES PAYABLE............................................. 1,162 3,083
OTHER LONG-TERM LIABILITIES............................................... 53,801 42,419
--------------------- ---------------------
Total liabilities............................................... 760,861 702,919
PREFERRED STOCK........................................................... 120,613 109,268
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value........................................ 533 533
Additional Paid -in-capital.......................................... 52,800 52,800
Accumulated other comprehensive loss................................. (38,651) (19,674)
Accumulated deficit.................................................. (261,806) (207,982)
--------------------- ---------------------
Total stockholders' equity...................................... (247,124) (174,323)
--------------------- ---------------------
Total liabilities and stockholders' equity................. $634,350 $637,864
===================== =====================
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)
Common Paid-in-CapitUnearned Treasury Accumulated Accumulated Comprehensive
Other
Restricted Common Comprehensive
Stock Stock Stock Loss Deficit Income (Loss)
---------------------------------------------------------------------------------------------
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.......
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.......
Net loss before preferred
stock dividends......... - - - - - (40,416) $ (40,416)
Settlement of shareholder
litigation in
connection
with the
recapitalization........... - - - - - (2,063) -
Unrealized loss on cash flow
hedge.................. - - - - (3,862) - (3,862)
Preferred stock dividends.. - - - - - (11,345) -
Equity adjustment to
reflect
minimum pension liability - - - - (288) - (288)
Cumulative translation
adjustment.............. - - - - (14,827) - (14,827)
----------------
Comprehensive loss......... $ (59,393)
================
------------------------------------------------------------------------------
BALANCE AT $ 533 $ 52,800 $ - $ - $ (38,651) $(261,806)
DECEMBER 31, 2001.......
==============================================================================
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: 2001 2000 1999
--------------- --------------- ---------------
Net income (loss) before preferred stock dividends requirements....... $(40,416) $(11,522) $21,156
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation and amortization...................................... 34,626 33,670 31,863
Special Charge..................................................... 36,239 3,413 -
Recapitalization Charge............................................ - 18,886 -
Extraordinary loss on extinguishment of debt....................... - 14,863 1,296
Deferred income taxes.............................................. (23,034) (4,344) 11,124
Change in operating assets and liabilities, net of effect of
acquired and disposed of businesses:
Accounts receivable................................................ (5,677) (11,869) (14,464)
Inventories........................................................ 11,070 (3,587) 4,211
Accounts payable................................................... (3,366) 10,733 14,805
Accrued expenses................................................... (12,838) (7,363) (8,563)
Other, net......................................................... (3,596) (14,148) 1,024
---------------
--------------- --------------- ---------------
Net cash (used in) provided by operating activities............. (6,992) 28,732 62,452
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................. (19,537) (24,504) (30,982)
Acquisition of businesses, net of cash acquired....................... (4,198) - (63,847)
Proceeds from sale of business........................................ - 12,088 4,500
Proceeds from sale of property........................................ 7,208 8,755 448
Investment in Formametal S.A.......................................... (7,891) (4,914) (1,600)
--------------- --------------- ---------------
Net cash used in investing activities.......................... (24,418) (8,575) (91,481)
--------------- --------------- ---------------
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
Settlement of shareholder litigation.................................. (2,063) - -
Purchase of treasury stock............................................ - (488) (502)
Issuance of 12 3/8% notes............................................. - 175,000 -
Repurchase of 10 1/8% notes........................................... - (254,658) (27,696)
Net borrowings (payments) under the revolving line of credit......... 37,600 (56,100) 23,553
Borrowing of Tranche A loan........................................... - 80,000 -
Borrowing of Tranche B loan........................................... - 180,000 -
Borrowing of Tranche C loan........................................... 20,000 - -
Borrowing of other long-term debt, including capital lease obligations - 19,286 38,598
Payments of long-term debt, including capital lease obligations....... (14,102) (22,528) (9,449)
Payment of debt financing costs....................................... (6,294) (16,137) -
Payment of recapitalization costs..................................... - (18,886) -
--------------- --------------- ---------------
--------------- --------------- ---------------
Net cash provided by (used in) financing activities............ 35,141 (24,533) 27,324
--------------- --------------- ---------------
--------------- --------------- ---------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................................. 228 (537) (670)
--------------- --------------- ---------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................ 3,959 (4,913) (2,375)
CASH AND CASH EQUIVALENTS, beginning of year............................ 10,784 15,697 18,072
---------------
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS, end of year.................................. $14,743 $10,784 $15,697
=============== =============== ===============
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, 2001, 2000 AND 1999
(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 United States 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 2001 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 15 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 - Allowances for accounts receivable are based on the customer relationships, the
aging and turns of accounts receivable, credit worthiness of customers, credit concentrations and payment history. Although
management monitors collections and credit worthiness, the inability of a particular customer to pay its debts could impact
collectibility of receivables and could have an impact on future revenues if the customer is unable to arrange other financing.
Activity in the accounts receivable allowances accounts was as follows (000's omitted):
2001 2000 1999
---- ---- ----
Balance at beginning of year........................................... $ 10,971 $ 13,367 $ 17,063
Provision for doubtful accounts..................................... 621 516 997
Change in discounts, allowances and rebates,
net of recoveries................................................ 790 (2,449) (3,914)
Net write-offs of doubtful accounts................................. (139) (463) (779)
------------- ----------- -----------
Balance at end of year................................................. $ 12,243 $ 10,971 $ 13,367
============= =========== ===========
(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 has been determined using the first-in, first-out ("FIFO")
method. Subsidiaries' inventory was approximately $48.1 million at December 31, 2001 and $44.2 million as of December 31, 2000. The
Company estimates reserves for inventory obsolescence and shrinkage based on its judgment of future realization.
Inventories reported in the accompanying balance sheets were classified as follows (000's omitted):
2001 2000
---- ----
Raw materials....................................................................... $ 27,216 $ 28,540
Work in progress.................................................................... 40,046 49,728
Finished goods...................................................................... 33,414 35,634
Total Inventory..................................................................... $ 100,676 $ 113,902
============== ===========
In addition to the 2001 restructuring initiatives, the Company charged $3.2 million to Cost of Goods Sold for the
write-off of inventory associated with discontinued product lines. See Note (4) for further information on restructuring initiatives.
(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 $28.6 million, $27.5 million and $29.4 million in 2001, 2000 and 1999,
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 is amortized over the life of the lease. Depreciation expense was $29.2 million, $28.7 million and $28.8 million for
2001, 2000 and 1999, respectively.
Property reported in the accompanying balance sheets is classified as follows (000's omitted):
2001 2000
---- ----
Land ............................................................................... $ 6,025 $ 6,543
Buildings........................................................................... 62,483 65,158
Machinery and equipment............................................................. 396,843 402,822
Capital leases...................................................................... 13,135 13,137
Construction in process............................................................. 24,014 22,266
502,500 509,926
Accumulated depreciation and amortization........................................... (263,266) (237,706)
Total Property...................................................................... $ 239,234 $ 272,220
============== ============
(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 $2.8 million, $2.9 million and $1.7 million for the years ended December 31, 2001, 2000 and 1999, respectively.
SFAS No. 142 eliminates the current requirement to amortize goodwill and indefinite-lived intangible assets,
addresses the amortization of intangible assets with a defined life, and addresses the impairment testing and recognition for
goodwill and intangible assets. The Company adopted this pronouncement on January 1, 2002. This pronouncement applies to goodwill
and intangible assets arising from transactions completed before and after the date of adoption. Effective January 1, 2002, the
Company ceased amortization of goodwill and indefinite-lived intangibles and test for impairment, at least, annually. Management is
currently assessing the provisions of the pronouncement and its potential impact on the Company's consolidated results of operations
and financial position.
(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 2001, 2000, and 1999 were
$2.6 million, $1.7 million and $1.2 million, respectively and are included in interest expense. The Company paid $6.3 million and
$16.1 million of financing costs in 2001 and 2000, respectively.
(g) Impairment of Long-Lived Assets - In accordance with SFAS 121, we continually review whether events and
circumstances subsequent to the acquisition of any long-lived assets, including goodwill and other intangible assets, have occurred
that indicate the remaining estimated useful lives of those assets may warrant revision or that the remaining balance of those assets
may not be recoverable. If events and circumstances indicate that the long-lived assets should be reviewed for possible impairment,
we use projections to assess whether future cash flows or operating income (before amortization) on a non-discounted basis related to
the tested assets is likely to exceed the recorded carrying amount of those assets, to determine if a write-down is appropriate.
Should an impairment be identified, a loss would be reported to the extent that the carrying value of the impaired assets exceeds
their fair values as determined by valuation techniques appropriate in the circumstances that could include the use of similar
projections on a discounted basis. Effective January 1, 2002, the Company adopted FAS 144 which essentially supercedes FAS 121. For
further discussion on SFAS 144 see (l) New Accounting Pronouncements.
(h) Revenue - Revenue is recognized when goods are shipped to the customer. Provisions for discounts, returns,
allowances, customer rebates and other adjustments are provided for in the same period as the related revenues are recorded. The
Company enters into contractual agreements with its customers for rebates on certain products. As sales occur, a provision for
rebates is accrued on the balance sheet and is charged against net sales.
(i) 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 2001, 2000 or
1999.
(j) Financial Instruments - To manage interest rate exposure, the Company enters into interest rate agreements. The
net interest paid or received on these agreements is recognized as interest income or expense. Our interest rate agreements are
reported in the consolidated financial statements at fair value using a mark to market valuation. Changes in the fair value of the
contracts are recorded each period as a component of other comprehensive income. Gains or losses on our interest rate agreements are
reclassified as earnings or losses in the period in which earnings are affected by the underlying hedged item. The Company does not
use financial instruments for trading or speculative purposes.
(k) Accumulated Other Comprehensive Income - The components of accumulated other comprehensive income
for 2001, 2000 and 1999 are as follows (000's omitted):
2001 2000 1999
----------------- ----------------- ----------------
Foreign Currency Translation Adjustment $(34,501) $(19,674) $(7,771)
Minimum Pension Liability Adjustment (288) - -
Unrealized Loss on Cash Flow Hedges (3,862) - -
----------------- ----------------- ----------------
Total Accumulated Other Comprehensive Income $(38,651) $(19,674) $(7,771)
(l) New Accounting Pronouncements - During July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 modifies the method of accounting for business combinations entered into
after June 30, 2001 and addresses the accounting for acquired intangible assets. All business combinations entered into after June
30, 2001, are accounted for using the purchase method. As described in (e) Goodwill, SFAS No. 142 eliminates the current
requirement to amortize goodwill and indefinite-lived intangible assets, addresses the amortization of intangible assets with a
defined life, and addresses the impairment testing and recognition for goodwill and intangible assets. Management is currently
assessing the provisions of both pronouncements and their potential impact on the Company's consolidated results of operations and
financial position
The FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," in August 2001. SFAS
No. 144, which addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be
disposed of, supercedes SFAS No. 121 and is effective for fiscal years beginning after December 15, 2001. The Company believes the
impact of SFAS No. 144 on its financial position and results of operations to be immaterial.
(m) Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Estimates are used for, but not limited to: allowance for doubtful accounts; inventory
valuation; purchase accounting allocations; restructuring amounts; asset impairments; depreciable lives of assets; useful lives of
intangible assets; pension assumptions and tax valuation allowances. Future events and their effects cannot be perceived with
certainty. Accordingly our accounting estimates require the exercise of judgment. The accounting estimates used in the preparation
of the Consolidated Financial Statements will change as new events occur, as more experience is acquired, as more information is
obtained and as the Company's operating environments changes. While actual results could differ from these estimates, management
believes that the estimates are reasonable.
(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
2001
During 2001, the Company initiated several restructuring programs. Upon completion, these programs will result in
(a) the closure of five manufacturing facilities, (b) the additional consolidation of two facilities into a new facility, (c) the
reversal of a previous decision to close a custom and specialty lithography facility due to changing business needs and (d) the
elimination of approximately 600 jobs. As of December 31, 2001, the remaining balance in the restructuring reserve includes
severance and related termination benefits paid over time for approximately 159 salaried and 330 hourly employees. Charges of $36.2
million were recorded for the cost of these programs. Cash charges consist primarily of employee termination costs, future cash
payments for employee benefits as required under union contracts, lease termination and other facility exit costs. Non-cash charges
consist primarily of write-offs of property, plant and equipment.
The following table summarizes the Company's 2001 restructuring programs:
Special Charge
-----------------------------------------------------------
Programs Cash Non-cash Total Charge Positions eliminated
- ------------------------------------ ------------------- ----------------- --------------------- ---------------------------
(in millions)
Baltimore $0.6 $1.8 $2.4 1
Salaried Reduction in Force $4.6 -- $4.6 82
International Operations $3.4 (a) $5.8 $9.2 286
Burns Harbor $9.5 $3.8 $13.3 135
Other Facilities $4.9 $9.0 $13.9 89
Reassessment of Prior Programs -- ($7.2) ($7.2) --
------------------- ----------------- --------------------- ---------------------------
Total $23.0 $13.2 $36.2 593
(a) Net of cash proceeds of $ 11.7 million to be received from the sale of the Southall, UK site.
Baltimore
---------
The Company closed a paint can manufacturing facility and a warehouse in Baltimore, Maryland and transferred a
portion of its production capacity to another facility located in Baltimore, Maryland.
Salaried Reduction in Force
---------------------------
In the third quarter, the Company offered a voluntary termination program to all corporate office salaried
employees. Approximately 82 employees accepted the voluntary program.
International Operations
------------------------
After a review of its operating facilities in the United Kingdom, the Company decided to close its Southall, England
manufacturing facility. Production capabilities will be transferred to our Merthyr Tydfil and other European aerosol plants. The
European consolidation will reduce payroll and overhead costs in the U.K while realigning capacity within Europe to meet customer
demand. In connection with the realignment, the Company completed the sale of its Southall, United Kingdom property in late December
2001 and the manufacturing facility will be closed over the first three-quarters of 2002. In addition, several other headcount
reduction programs were initiated throughout our International operations, including May.
Burns Harbor
------------
The Company plans to close its Burns Harbor, Indiana lithography facility and transition its volume to other existing
operations. The closure will reduce excess capacity, overhead and related payroll costs as well as leverage investments made in
previous years in new technology in existing U.S. Can facilities.
Other Facilities
----------------
The Company reviewed its steel paint can capacity versus Company and industry requirements and decided to permanently
reduce capacity by closing its Dallas, Texas plant. The Company closed this operation in the fourth quarter of 2001.
In 2001, we entered into a lease for a new plastics manufacturing plant. We closed our two existing plastics plants
(Newnan, Georgia and Morrow, Georgia) in the first quarter of 2002, and all goods will be produced in our new Atlanta plant.
In order to better leverage resources and facilities, the Company plans to close its Columbia Specialty plant in
2002, exit certain product lines and transfer production capacity to its Steeltin and Olive Can operations. The closure will provide
for better operating efficiencies and reduce overhead and payroll costs associated with the Columbia operation.
Reassessment of Prior Programs
------------------------------
Due to the Olive Can acquisition, the Company revised its plan to close a lithography operation for which it had
previously reserved closing costs. Accordingly, a reversal of previously provided restructuring reserves was recorded.
2000
On July 7, 2000, the Company announced a reduction in force program, under which 81 salaried and 39 hourly positions
were 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.
Reserve Status
The tables below present the reserve categories and related activity as of December 31, 2001 and December 31, 2000 respectively:
January 1, 2000 December 31, 2001
Balance Additions(a) Deductions(c) Balance
-------------------- ------------------ ------------------ --------------------
Employee Separation $6.1 $19.8 ($4.7) $21.2
Facility Closing Costs 9.3 11.2 (9.8) 10.7
Other Asset Write-Offs -- 5.2 (5.2)(d) --
--------------------
------------------ ------------------ --------------------
Total $15.4 $36.2 ($19.7) $31.9(b)
==================== ================== ================== ====================
(a) Includes a re-assessment of prior programs of $7.2 million
(b) Includes $6.0 million of other long-term liabilities as of December 31, 2001
(c) Includes cash payments of $ 8.3 million
(d) Net of proceeds from sale of Southall facility of $11.7 million
January 1, 1999 December 31, 2000
Balance Additions Deductions(a) Balance
------------------ ------------------ ------------------ --------------------
Employee Separation $7.2 $3.4 ($4.5) $6.1
Facility Closing Costs 21.3 -- (12.0) 9.3
------------------ ------------------ ------------------ --------------------
Total $28.5