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UNITED STATES
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, 2003
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 |_|
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).
Yes |_| No |X|
As of March 15, 2004, 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.................................................................................. 10
Item 3. Legal Proceedings........................................................................... 11
Item 4. Submission of Matters to a Vote of Security Holder.......................................... 11
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.................................... 12
Item 6. Selected Financial Data..................................................................... 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................................... 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................. 24
Item 8. Financial Statements and Supplementary Data................................................. 25
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................................................. 67
Item 9A. Controls and Procedures..................................................................... 67
PART III
Item 10. Directors and Executive Officers of the Registrant.......................................... 68
Item 11. Executive Compensation...................................................................... 71
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 75
Item 13. Certain Relationships and Related Transactions.............................................. 77
Item 14. Principal Accountant Fees and Services...................................................... 79
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................ 80
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 general economic and business conditions; the Company's substantial debt and ability to generate
sufficient cash flows to service its debt; the Company's compliance with the financial covenants contained in its various
debt agreements; changes in market conditions or product demand; the level of cost reduction achieved through
restructuring and capital expenditure programs; changes in raw material costs and availability; downward selling price
movements; currency and interest rate fluctuations; increases in the Company's leverage; the Company's ability to
effectively integrate acquisitions; changes in the Company's business strategy or development plans; the timing and cost
of plant closures; the success of new technology; and increases in the cost of compliance with laws and regulations,
including environmental laws and regulations. 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 volume of steel containers for personal care, household, automotive, paint,
industrial and specialty products in the United States and Europe, as well as 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, S.C. Johnson and CCL Custom
Manufacturing. 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"). References in this report to "the Company", "we",
"us", or "our" refer to U.S. Can Corporation and all of its subsidiaries as a combined entity.
Based on sales volume of steel aerosol cans, we hold the number one market position 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 that the Company believes to be reliable. For financial information about business segments and
geographic areas, refer to Note (15) to the Consolidated Financial Statements.
Business Segments
We have four business segments: Aerosol Products; International Operations; Paint, Plastic & General Line
Products; and Custom & 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 steel aerosol containers that enhance our customers' product offerings, 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 the cans.
Steel aerosol cans manufactured in the U.S. represent our largest business segment, accounting for approximately
43.7%, 45.7% and 43.3% of our total net sales in 2003, 2002 and 2001, respectively. In 2003, we manufactured
approximately 53% of the steel aerosol containers produced in the United States.
International Operations
Our international operations primarily produce steel aerosol cans for the European market. Based on management
estimates, we manufactured approximately 30% of the steel aerosol cans produced in Europe in 2003. We also supply steel
aerosol cans to customers in Latin America through Formametal S.A., our Argentinean joint venture. In addition, we
participate in the metal food packaging market through our wholly-owned subsidiary, May Verpackungen GmbH & Co., KG
("May"), a leading European food can producer with more than 30% of the German food can market, by sales volume (based on
management estimates). May has long-term relationships with several leading consumer products companies in Europe,
including Mars and Nestle.
International Operations represents our second largest business segment, accounting for approximately 34.9%,
30.3% and 29.7% of our total net sales in 2003, 2002 and 2001, respectively.
Paint, Plastic & General Line Products
Our primary Paint, Plastic & General Line products include steel paint and coating containers, oblong cans for
products such as turpentine and charcoal lighter fluid, plastic pails and drums for industrial products, such as spackle
and dry wall compounds, and consumer products, such as swimming pool chemicals and paint. Management estimates that U.S.
Can is second in market share in the United States, on a unit volume basis, in steel round and general line containers.
Our Paint, Plastic & General Line products accounted for approximately 14.5%, 15.1% and 16.9% of our total net
sales in 2003, 2002 and 2001, respectively. We hold the number two market position in the United States in the steel
paint can market.
Custom & Specialty Products
We also have a significant presence in the Custom & Specialty market, offering a wide range of decorative,
hermetic and specialty steel products. Our primary products include functional and decorative containers, tins and
collectible items that are typically produced in smaller quantities than our other products. Examples of products
packaged with our containers include holiday tins sold by mass merchandisers, infant formula packaging and tins for
compact discs.
Custom & Specialty products accounted for approximately 7.0%, 8.9% and 10.0% of our total net sales in 2003, 2002
and 2001, respectively.
Customers and Sales Force
As of December 31, 2003, we had approximately 5,200 customers, with our largest customer accounting for 6.7% of
our total net sales in 2003. 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 such 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. As
of December 31, 2003, we had 64 sales representatives in the United States and 13 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 United States Steel, Weirton Steel and Wheeling-Pitt, while Corus, Arcelor and Rasselstein supply the
largest volume in Europe.
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 from domestic suppliers as foreign sourcing is currently not available due to an increase in
steel requirements in other areas of the world.
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. We did experience increases in steel costs in 2003 that we believe to be a result of the
tariffs imposed in 2002 in the U.S., which have since been removed. Additionally, starting in the fourth quarter of
2003, many domestic and foreign steel suppliers began experiencing a shortage of coke, an important component of the
steel-making process. The shortage is due to many factors, which include the growing Chinese steel market and a fire at
a coal mine in the U.S. that produces coke. The shortage is expected to continue in at least the near future. While we
cannot predict the long-term effects the shortage will have on our tin-plate costs, the shortage has caused some steel
manufacturers to consider a surcharge on steel, which could potentially increase our tinplate prices. We have not always
been able to immediately offset increases in tin-plate prices with price increases on our products.
Coatings and inks, which are used to coat tin-plate and print designs and logos, represent our second largest raw
material expense. We purchase coatings and inks from regional suppliers in the United States and Europe. These products
historically have been readily available, and we expect to be able to meet our needs for coatings and inks in the
foreseeable future.
Our plastic products are produced from two main types of resins, which are petroleum or natural gas-based
products. High-density polyethylene resin is used to make pails, drums and agricultural products. We use 100%
post-industrial and post-consumer use, recycled polypropylene resin in the production of the Plastite(R)line of paint
cans. The price of resin fluctuates significantly, and we believe that it is standard industry practice, as well as a
provision of many of our customer contracts, to pass on increases and decreases in resin prices to our customers.
Seasonality
The Company's business as a whole has minor seasonal variations. Quarterly sales and earnings tend to be slightly
stronger starting in early spring (second quarter) through late summer (third quarter). Aerosol sales have minor
increases in the spring and summer related to increased sales of containers for household products and insect repellents.
Paint container sales tend to be stronger in spring and early summer due to the favorable weather conditions. Portions of
the Custom & Specialty products line tend to vary seasonally, because of holiday sales late in the year. May's food can
sales generally peak in the third and fourth quarters.
Labor
As of December 31, 2003, we employed approximately 2,300 salaried and hourly employees in the United States. Of
our total U.S. workforce, approximately 1,500 employees, or 65%, 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 450 employees were successfully negotiated in 2003. As of December 31,
2003, our European subsidiaries employed approximately 1,250 people. In line with common European practices, all plants
are unionized.
On June 4, 2003, the National Labor Relations Board, Region Six issued a Notice of Representation Hearing, Case
6-BC-12232, indicating that the Graphic Communications International Union, Local 24, or the GCIU, was seeking to
organize 31 full and regular part-time production and maintenance employees at our New Castle, Pennsylvania facility. On
August 7, 2003, these employees elected the GCIU as their exclusive bargaining representative. The GCIU has been
certified and collective bargaining negotiations began in November 2003.
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 labor unions on
employment contract issues and other employee concerns. We believe that our employees and us have benefited from this
approach, and we intend to continue this practice in the future. This practice also has the effect of staggering renewal
negotiations with the various bargaining units.
Our restructuring programs initiated in 2001 have resulted in a reduction of the salaried and hourly work force.
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. The Company's relationship with represented employees is generally 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 ten years.
Competition
Quality, service and price are the principal methods of competition in the rigid metal and plastic container
industry. To compete effectively, we must strategically locate supply facilities to reduce the added cost of shipping
cans long distances and accordingly, we maintain East Coast, Midwest, Southern and West Coast manufacturing facilities.
In addition, price competition in our industry may limit 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 Corporation. 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. Because steel aerosol cans
are pressurized and are used for personal care, household and other packaged products, they are more sensitive to
quality, can decoration and other consumer-oriented features than some of our other products.
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 & Specialty products compete with a large number of container manufacturers, but we do not compete
across the entire product spectrum with any single company. Competition 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.
We also face competition from substitute products, such as aluminum, glass and plastic containers.
Strategic Transactions
The Company continually evaluates all areas of its operations for ways to improve profitability and overall
Company performance. In connection with these evaluations, management considers numerous alternatives to enhance the
Company's existing business including, but not limited to acquisitions, divestitures, capacity realignments and
alternative capital structures.
Risk Factors
We have substantial debt that could negatively impact our business by, among other things, increasing our vulnerability
to general adverse economic and industrial conditions and preventing us from fulfilling our obligations under our
borrowing agreements.
As of December 31, 2003, total consolidated debt outstanding was $555.3 million. We had $54.6 million of unused
commitment under our revolving credit facility and cash of $23.5 million.
Our high level of debt could:
o make it difficult for us to satisfy our obligations; including making interest payments under our Senior
Secured Credit Agreement and our 10 7/8% Senior Secured Notes and 12 3/8% Senior Subordinated Notes agreements;
o limit our ability to obtain additional financing to operate our business;
o limit our financial flexibility in planning for and reacting to industry changes;
o place us at a competitive disadvantage as compared to less leveraged companies;
o increase our vulnerability to general adverse economic and industry conditions, including changes in interest rates; and
o require us to dedicate a substantial portion of our cash flow to payments on our debt, reducing the availability
of our cash flow for other purposes.
We may borrow additional funds to fund our capital expenditures and working capital needs. We also may incur
additional debt to finance future acquisitions. The incurrence of additional debt could make it more likely that we will
experience some or all of the risks described above.
If we do not generate sufficient positive cash flows, we may be unable to service our debt.
Our ability to pay principal and interest on our indebtedness depends on our future operating performance.
Future operating performance is subject to market conditions and business factors that often are beyond our control.
Consequently, we cannot assure you that we will have sufficient cash flows to service our debt.
If our cash flows and capital resources are insufficient to allow us to make scheduled payments on our debt, we
may have to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our
debt. We cannot assure you that the terms of our debt will allow these alternative measures or that such measures would
enable us to satisfy our scheduled debt service obligations.
If we cannot make scheduled payments on our debt, we will be in default and, as a result:
o our debt holders could declare all outstanding principal and interest to be due and payable;
o our senior debt lenders could terminate their commitments and commence foreclosure proceedings against our
assets; and
o we could be forced into bankruptcy or liquidation.
The terms of our debt may severely limit our ability to plan for or respond to changes in our business.
Our Senior Secured Credit Facility, our 10 7/8% Senior Secured Notes and our 12 3/8% Senior Subordinated Notes,
restrict, among other things, our ability to take specific actions, even if these actions may be in our best interest.
These restrictions limit our ability to:
o incur liens or make negative pledges on our assets;
o merge, consolidate or sell our assets;
o issue additional debt;
o pay dividends or redeem capital stock and prepay other debt;
o enter into sale and leaseback transactions;
o make investments and acquisitions;
o enter into transactions with affiliates;
o make capital expenditures;
o materially change our business;
o amend our debt and other material agreements;
o issue and sell capital stock;
o allow our subsidiaries to enter into agreements that restrict distributions to us; or
o prepay specified indebtedness.
Our debt requires us to maintain specified financial ratios and meet specific financial tests. Our failure to
comply with these covenants could result in an event of default that, if not cured or waived, could result in us being
required to repay these borrowings before their due date. If we were unable to make this repayment or otherwise refinance
these borrowings, our lenders could foreclose on our assets. If we were unable to refinance these borrowings on favorable
terms, our business could be adversely impacted.
Our Senior Secured Credit Facility bears interest at a floating rate, and if interest rates rise, our payments will
increase and we may incur losses.
Outstanding amounts under our Senior Secured Credit Facility bear interest at a floating rate. Current interest
rates are low and our financial results have benefited from these low rates. If interest rates rise, our interest
payments on our Senior Secured Credit Facility also will increase, which could make it more difficult for us to satisfy
our debt obligations and further reduce availability of our cash flow for operations and other purposes. For example,
based on the amount of floating rate debt outstanding during the year ended December 31, 2003, we expect that a 1%
increase in interest rates would have increased our interest expense for 2003 by $2.9 million to $57.3 million. We also
were party to interest rate protection agreements, which expired on October 10, 2003. These agreements increased our
interest expense by $5.1 million in 2003. The expiration of these agreements did not have an impact on our reported debt
balances. We do not currently intend to enter into new interest rate protection agreements with respect to our
borrowings under our Senior Secured Credit Facility.
Berkshire Partners owns a controlling interest in our voting securities.
Berkshire Partners and its affiliates own approximately 77.3% of the total common equity of U.S. Can Corporation.
Subject to specified limitations contained in our stockholders agreement, Berkshire Partners controls the Company.
Accordingly, Berkshire and its affiliates will control the power to elect directors and to approve many actions requiring
the approval of our stockholders, such as adopting most amendments to our certificate of incorporation and approving
mergers, sales of all or substantially all of our assets and other corporate transactions that could result in a change
of control of our company.
We face competitive risks from many sources that may reduce demand for our products and adversely affect our sales and
results of operations.
The can and container industry is highly competitive with some of our competitors having greater financial
resources than we do. Quality, service and price are the principal methods of competition in our industry. Because our
customers have the ability to buy similar products from our competitors, we are limited in our ability to increase
prices. We believe our capital investments have improved our operating efficiencies, and consequently, improved
profitability, but we cannot assure you that we will continue to improve profit margins in this manner. In addition, our
profit margins could decrease if we are unable to meet our customers' quality and service demands.
We also face competitive risks from substitute products, such as aluminum, glass and plastic containers. The
market for such substitute products has grown substantially over the past several years and from time to time our
customers, including some of our largest customers, have switched from steel containers to these substitute products to
package their products. Our business also is affected by changes in consumer demand for our customers' products. A
decrease in the costs of substitute products, a widespread introduction of substitute products by our customers as a
substitute for steel containers or a decline in consumer demand for our customers' products could reduce our customers'
orders and adversely affect our sales and results of operations.
Increases in tin-plated steel prices could cause our production costs to increase, which could reduce our ability to
compete effectively.
Tin-plated steel is the most significant raw material used to make our products. Negotiations with our domestic
and European tin-plated steel suppliers generally occur once per year. Failure to negotiate favorable tin-plated steel
prices in the future could result in an increase in production costs and a negative impact on our results of operations.
Starting in the fourth quarter of 2003, many domestic and foreign steel suppliers began experiencing a shortage
of coke, an important component of the steel-making process. The shortage is due to many factors, which include the
growing Chinese steel market and a fire at a coal mine in the U.S., which produces coke. The shortage is expected to
continue in at least the near future. While we cannot predict the long-term effects the shortage will have on our
tin-plate costs, the shortage has caused some steel manufacturers to consider a surcharge on steel, which could
potentially increase our tinplate prices.
Some customer contracts allow us to pass tin-plated steel price increases through to our customers. However,
these contracts generally limit pass-throughs and also may require us to match other competitive bids. If we cannot pass
through all future tin-plated steel price increases to our customers or match other packaging suppliers' bids, our
ability to compete effectively will be reduced and our financial condition may be adversely affected. See "Business -
Raw Materials."
Our principal markets are subject to overcapacity, which could cause us to lose business and result in decreased
profitability.
The worldwide steel container markets have experienced limited growth in demand in recent years. Steel
containers are standardized products, allowing for relatively little differentiation among competitors. This led to
overcapacity and price competition among steel container producers, as capacity growth outplaced the growth in demand for
steel containers. The North American steel container market, in particular, is considered to be a mature market,
characterized by stable growth and a sophisticated distribution system. Price-driven competition has increased as
producers seek to capture more sales volume in order to keep their plants operating at optimal levels and reduce unit
costs.
Competitive pricing pressures, overcapacity or any failure to develop new product designs and technologies could
cause us to lose existing business or opportunities to generate new business and could result in decreased profitability.
We have significant underfunded pension plan obligations and significant unfunded post-retirement obligations, which
could lead to increases in our pension expenses and postretirement benefit expenses.
We sponsor noncontributory defined benefit pension plans covering most domestic hourly employees and certain
international employees. Also, we provide post-retirement medical and life insurance benefits for certain domestic
retired employees in connection with collective bargaining agreements that are operated on a pay-as-you-go basis. The
U.S. defined benefit plans require quarterly cash contributions to fund the payment of benefits. The international
defined benefit plans may also require periodic contributions or benefit payments.
We rely upon actuarial models to calculate our pension benefit obligations and the related effects on operations,
as well as our projected liability for post-retirement medical benefits. Accounting for pension plans requires the use
of estimates and assumptions regarding numerous factors, including the discount rate, the long-term rate of return on
plan assets, retirement ages, mortality and employee turnover. On an annual basis, we evaluate these critical
assumptions and make changes to them as necessary to reflect our experience. Two of the critical assumptions in
determining our reported expense or liability for pensions are the discount rate and the long-term expected rate of
return on plan assets. The use of a lower discount rate and lower long-term rate of return on plan assets would increase
the present value of benefit obligations and increase pension expenses and required cash contributions.
Likewise, a deterioration in a pension plan's investment portfolio performance will cause increases to our
pension expense and required cash contributions. Our pension liability also would be increased if a pension plan were
terminated immediately because the interest rate assumption used to value the benefits and the assets on a termination
basis would most likely be lower than current funding assumptions. We may not have funds available in such circumstances
and we would have to borrow amounts in order to satisfy any such liabilities. The terms of our indebtedness, however,
may restrict or prohibit our ability to borrow such amounts.
With respect to our U.S. domestic pension plan, the failure to satisfy liabilities upon the termination of the
plan would result in the Pension Benefit Guaranty Corporation, or PBGC, terminating the plan on a "distress termination
basis". In that event, the Employee Retirement Income Security Act of 1974 would provide that the PBGC guarantee the
payment of all or a portion of the promised benefits up to an amount determined by statute. We and members of our
"controlled group", which includes any subsidiary that is owned by 80% or more by a common parent (even if it did not
participate in the plan), would be jointly and severally liable for the PBGC liability. In addition, the PBGC would have
lien on the assets of the solvent members of the controlled group upon termination to the extent of the guaranty in an
amount equal to 30% of the value of the assets of the solvent members of the controlled group.
We have recently experienced losses and our future profitability is uncertain.
We have experienced operating losses since the fiscal year ended December 31, 2000 and we may continue to incur
losses. For the years ended December 31, 2003 and 2002, we had net losses attributable to common stockholders of $27.3
million and $84.3 million, respectively. As of December 31, 2003, we had an accumulated deficit of $373.4 million. We
cannot assure you that we will become profitable in the future and if we do achieve profitability, we may not be able to
sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable could
impair our ability to continue our operations.
We face risks associated with our international operations.
We operate facilities and sell products in several countries outside the United States. We have significant
foreign operations, including plants and sales offices in Denmark, France, Germany, Italy, Spain and the United Kingdom.
In addition, we have a joint venture with an aerosol can manufacturer located in Argentina. Our international operations
subject us to risks associated with selling and operating in foreign countries. These risks include:
o fluctuations in currency exchange rates;
o restrictions on dividend payments and other payments by our foreign subsidiaries;
o withholding and other taxes on dividend payments and other payments by our foreign subsidiaries; and
o investment regulation and other restrictions by foreign governments.
Our joint venture in Argentina is also subject to these additional risks:
o limitations on conversion of foreign currencies into United States dollars;
o hyperinflation; and
o political instability.
Our business is subject to substantial environmental regulation and remediation, which could result in increased
compliance costs and adversely affect our results of operations and profitability.
Our operations are subject to federal, state, local and foreign laws and regulations relating to pollution, the
protection of the environment, the management and disposal of hazardous substances and wastes and the cleanup of
contaminated sites. Changes in applicable environmental regulations could increase the capital expenditures necessary to
bring manufacturing facilities into compliance with changing environmental laws.
We also could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions, as a
result of violations of, or liabilities under, environmental laws or non-compliance with environmental permits required
for our production facilities. Occasionally, contaminants from current or historical operations have been detected at
some of our present and former sites. The detection of contaminants or the imposition of cleanup obligations at existing
or unknown sites of contamination could result in significant liability.
We cannot predict the amount or timing of costs imposed under environmental laws. Liability under certain
environmental laws relating to contaminated sites can be imposed retroactively and on a joint and several basis (i.e.,
one liable party could be held liable for all costs at a site). We have been named as a potentially responsible party for
costs incurred in the clean up of a regional groundwater plume partially extending underneath property located in San
Leandro, California, formerly a site of one of our can assembly plants. We have agreed to indemnify the owner of this
property against this matter. Any liability in connection with this or other environmental matters could result in
increased compliance costs and adversely affect our results of operations and profitability.
A significant portion of our workforce is unionized and labor disruptions could decrease our productivity.
As of December 31, 2003, we had approximately 3,550 employees. Approximately 1,500 of our United States
employees are subject to collective bargaining agreements. In keeping with common practice, virtually all manufacturing
employees at our European plants are unionized. Although we consider our current relations with our employees to be
good, if we do not maintain these good relations, or if major work disruptions were to occur, our production costs could
increase.
ITEM 2. PROPERTIES
We have 13 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, 2004.
Location Size (in sq. Status Segment
- -------- ------------- ------ -------
ft.)
----
United States
Elgin, IL (1)............................ 481,346 Owned Aerosol
Tallapoosa, GA (1)....................... 249,480 Owned Aerosol
Baltimore, MD ........................... 232,172 Leased Custom & Specialty
Commerce, CA............................. 215,860 Leased Paint, Plastic & General Line
Newnan, GA............................... 185,122 Leased Paint, Plastic & General Line
Hubbard, OH (1).......................... 174,970 Owned Paint, Plastic & General Line
Elgin, IL................................ 144,578 Leased Custom & Specialty
Baltimore, MD (1)........................ 137,000 Owned Custom & Specialty
Horsham, PA (1).......................... 132,000 Owned Aerosol
Weirton, WV.............................. 145,700 Leased Aerosol
Danville, IL (1)......................... 100,000 Owned Aerosol
Alliance, OH............................. 52,000 Leased Paint, Plastic & General Line
New Castle, PA (1)....................... 22,750 Owned Custom & Specialty
Europe
Erftstadt, Germany....................... 369,000 Leased International
Merthyr Tydfil, United Kingdom (2)....... 320,000 Leased International
Laon, France............................. 220,000 Owned International
Reus, Spain.............................. 182,250 Owned International
Itzehoe, Germany......................... 80,730 Owned International
Esbjerg, Denmark......................... 66,209 Owned International
Voghera, Italy........................... 45,200 Leased International
Schwedt, Germany......................... 35,500 Leased International
(1) The plants that we own in the United States (a) are subject to a lien in favor of Bank of America, N.A. as
collateral agent for the lenders under the Senior Secured Credit Facility and (b) are subject to a second
priority lien in favor of Wells Fargo Bank Minnesota, N.A. as collateral agent for the holders of the 10 7/8%
Senior Secured Notes.
(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.
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.
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.
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 the 10 7/8% Senior Secured
Note ("Senior Secured Notes") and 12 3/8% Senior Subordinated Notes ("the Subordinated 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, the Senior Secured Notes and the Subordinated Notes. As of December 31, 2003,
dividends of approximately $40.3 million 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, the Senior Secured Notes and the
Subordinated 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 (after giving effect to the reverse
stock split), 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, 2003 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, 2003 and accompanying notes beginning on page 25.
U.S. CAN CORPORATION AND SUBSIDIARIES
(000's omitted)
For the Year Ended December 31,
-------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
OPERATING DATA:
Net sales........................................ $ 822,896 $ 796,500 $ 772,188 $ 809,497 $ 732,897
Special charges (a).............................. 612 8,705 36,239 3,413 --
Recapitalization charge (b)...................... -- -- -- 18,886 --
Operating income (loss).......................... 50,147 39,547 (6,146) 48,153 66,975
Loss from early extinguishment of debt (c)....... -- -- -- 24,167 2,152
Income (loss) from continuing operations before
cumulative effect of accounting change........ (13,520) (53,474) (40,416) (11,522) 21,156
Cumulative effect of accounting change, net of
income taxes (d).............................. -- (18,302) -- -- --
Net income (loss) before preferred stock dividends (13,520) (71,776) (40,416) (11,522) 21,156
Preferred stock dividend requirements............ (13,821) (12,521) (11,345) (2,601) --
Net income (loss) attributable to
common stockholders........................... $ (27,341) $ (84,297) $ (51,761) $ (14,123) $ 21,156
BALANCE SHEET DATA:
Total assets..................................... $ 577,188 $ 578,826 $ 634,350 $ 637,864 $ 663,570
Total debt....................................... 555,266 549,682 536,776 495,045 359,317
Redeemable preferred stock....................... 146,954 133,133 120,613 109,268 --
Stockholders' equity (deficit)................... (345,904) (343,846) (247,124) (174,323) 68,556
(a) See Note (3) of the "Notes to Consolidated Financial Statements" for a description of the 2003, 2002 and
2001 Special Charges. In 2000, we announced a reduction in force program.
(b) On October 4, 2000, the Company 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, 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. The Company recorded the $18.9
million charge for expenses related to the recapitalization.
(c) In April of 2002, the FASB issued Statement of Financial Accounting Standards No. 145 (SFAS No. 145) related to
gains and losses on extinguishment of debt. The Company has adopted SFAS No. 145 and determined that the losses
in 2000 and 1999 do not meet the criteria in Opinion 30 for classification as an extraordinary item. As such,
the Company has reported its 2000 and 1999 losses from early extinguishment of debt as deductions from income
before income taxes. See Note (2) (n) to the audited consolidated financial statements for further details on
SFAS No. 145.
(d) See Note (14) of the "Notes to Consolidated Financial Statements."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion summarizes the significant factors affecting the consolidated operating results and
financial condition of the Company and subsidiaries for the three years ended December 31, 2003. 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 accounting principles generally accepted in the United
States 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: customer rebate accruals
included in allowance for doubtful accounts; inventory valuation; restructuring amounts; asset impairments; goodwill
impairments; 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. Accounting policies requiring significant management judgments include those related to
revenue recognition, inventory valuation, rebate accruals, goodwill impairment, restructuring reserves, tax valuation
allowances, pension benefit obligations and interest rate exposure.
The Company's critical accounting policies are described in Note (2) to the audited Consolidated Financial
Statements. 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, however, we have not
historically been required to make material adjustments to our rebate accruals. 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. Since raw materials inventory is generally not customer-specific, losses would generally relate to work in
progress and finished goods inventory. An increase of 1% in the level of reserves for work in progress and finished
goods inventory would result in a pretax charge of less than $1 million. The Company has not historically experienced
major deviations in the level of reserve for unsaleable inventory, except in the case of discontinued product lines. In
2001, we wrote off $3.2 million of inventory associated with the exit of certain product lines in our Custom & Specialty
segment.
Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets" requires that
goodwill and "indefinite-lived" intangibles are not amortized but are tested at least annually for impairment. On an
ongoing basis, the Company reviews its operations for indications of potential goodwill impairment and annually tests its
goodwill for impairment under SFAS 142 in November of each year. The Company identifies potential impairments of
goodwill by comparing an estimated fair value for each applicable business unit to its respective carrying value.
Although the values are assessed using a variety of internal and external sources, future events may cause reassessments
of these values and related goodwill impairments. The Company currently has $27.4 million of goodwill relating to its
Aerosol and Paint, Plastic and General Line segments included in its consolidated balance sheet. As of December 31,
2003, a 10% decrease in the Company's assessment of the fair value of the Aerosol or Paint, Plastic and General Line
businesses would cause no impairment of the goodwill related to that segment.
In accordance with SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," we continually
review whether events and circumstances subsequent to the acquisition of any long-lived 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
an undiscounted 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. Our estimates of future cash
flows are based on historical performance, our assessment of the impact of economic and industry-specific trends and
Company-prepared projections. These estimates are highly likely to change from period to period based on performance and
changes in market and economic conditions. A significant decline in our assessment of future cash flows and a
significant decline in our assessment of the fair value of long-lived assets could cause us to record material impairment
losses.
As more fully described in Note (3) to the Consolidated Financial Statements, several restructuring programs were
implemented in order to streamline operations and reduce costs. The Company has established reserves and recorded
charges against such 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. During 2003, the Company recorded a net charge of $0.6 million related to
restructuring. The charge consisted of new restructuring reserves of $2.4 million less reversals of $1.8 million due to
the reassessment of restructuring reserves established in 2001. At December 31, 2003, $7.9 million of reserves for
restructuring programs were included in the Company's consolidated balance sheet. $4.3 million of these reserves related
to employee separation costs for employees that have already been separated. As these payments will be made over time,
actual payments may not reflect the amounts accrued but they are unlikely to vary materially. $3.6 million of the
reserve relates to future costs related to facilities that the Company has closed. The Company has made assumptions
regarding the period of time that it will require to dispose of these facilities. In most cases, the Company has
included costs through the life of the leases. If the Company disposes of or subleases the facilities earlier than
expected, the Company will reduce the level of the reserve.
The Company accounts for income taxes using the asset and liability method under which deferred income tax assets
and liabilities are recognized for the tax consequences of "temporary differences" between the financial statement
carrying amounts and the tax bases of existing assets and liabilities and operating losses and tax credit carry
forwards. On an ongoing basis, the Company evaluates its deferred tax assets to determine whether it is more likely
than not that such assets will be realized in the future and records valuation allowances against the deferred tax assets
for amounts which are not considered more likely than not to be realized. The estimate of the amount that is more likely
than not to be realized requires the use of assumptions concerning the amounts and timing of the Company's future income
by taxing jurisdiction. Actual results may differ from those estimates.
In 2002, due to a history of operating losses in certain foreign countries coupled with the deferred tax assets
that arose in connection with the restructuring programs and goodwill impairment charges, the Company determined that it
could not conclude that it was "more likely than not" that all of the deferred tax assets of certain of its foreign
operations would be realized in the foreseeable future. Accordingly, during the fourth quarter of 2002, the Company
established a valuation allowance of $44.7 million to provide for the estimated unrealizable amount of its net deferred
tax assets as of December 31, 2002. The Company will continue to assess the valuation allowance and, to the extent it is
determined that such allowance is no longer required, these deferred tax assets will be recognized in the future. In
2003, the Company did not record an income tax benefit related to 2003 losses of those operations.
The Company relies upon actuarial models to calculate its pension benefit obligations and the related effects on
operations. Accounting for pensions and postretirement benefit plans using actuarial models requires the use of
estimates and assumptions regarding numerous factors, including the discount rate, the long-term rate of return on plan
assets, health care cost increases, retirement ages, mortality and employee turnover. On an annual basis, the Company
evaluates these critical assumptions and makes changes to them as necessary to reflect the Company's experience. In any
given year, actual results could differ from actuarial assumptions made due to economic and other factors which could
impact the amount of expense or liability for pensions or postretirement benefits the Company reports.
Two of the critical assumptions in determining the Company's reported expense or liability for pensions or
postretirement benefits are the discount rate and the long-term expected rate of return on plan assets. The use of a
lower discount rate and a lower long-term expected rate of return on plan assets would increase the present value of
benefit obligations and increase pension expense and postretirement benefit expense. A 1% decrease in our discount rate
would have caused our 2003 pension expense and postretirement expense to increase by approximately $1.2 million. A 1%
decrease in our assumed return on plan assets would have increased our pension expense by approximately $0.3 million. At
December 31, 2003, we reduced our discount rate related to our U.S. plans by 0.5%. This increased our annual 2003
pension expense and postretirement expense by approximately $0.6 million.
Year Ended December 31, 2003 Compared To Year Ended December 31, 2002
As of December 31,
-----------------------------------------------------------------------------
Revenue Gross Income Percentage to
Sales
-----------------------------------------------------------------------------
2003 2002 2003 2002 2003 2002
-----------------------------------------------------------------------------
Aerosol........................... $ 359,246 $ 364,133 $ 61,802 $ 59,545 17.2% 16.4%
International..................... 286,808 241,197 9,232 14,448 3.2% 6.0%
Paint, Plastic & General Line..... 118,909 119,952 13,070 11,378 11.0% 9.5%
Custom & Specialty................ 57,933 71,218 3,320 734 5.7% 1.0%
----------------------------------------------------------
Total....................... $ 822,896 $ 796,500 $ 87,424 $ 86,105 10.6% 10.8%
==========================================================
Net Sales
Consolidated net sales for the year ended December 31, 2003 were $822.9 million as compared to $796.5 million in
2002, an increase of 3.3%. Along business segment lines, Aerosol net sales in 2003 decreased to $359.2 million from
$364.1 million in 2002, a decrease of 1.3%, due principally to decreased unit volume ($7.9 million) partially offset by
changes in customer and product mix ($3.0 million). International net sales increased to $286.8 million in 2003 from
$241.2 million in 2002, an increase of $45.6 million or 18.9% primarily due to the positive impact of the translation of
sales made in foreign currencies based upon using the same average U.S. dollar exchange rates in effect during the year
ended December 31, 2002. Paint, Plastic & General Line segment net sales decreased $1.0 million to $119.0 million for
the year ended December 31, 2003. This decrease was due primarily to the negative impact of a decrease in paint volume
($6.5 million) partially offset by an increase in plastics volume ($2.3 million) and increasing resin prices in our
plastics business ($3.2 million), which are contractually passed on to customers. Custom & Specialty sales of $57.9
decreased from the $71.2 million for the year ended December 31, 2002, driven primarily by a decline in volume.
Gross Income
Consolidated gross income for the year ended December 31, 2003 was $87.4 million as compared to $86.1 million in
2002, an increase of $1.3 million. Along business segment lines, Aerosol gross income dollars increased $2.3 million
versus 2002, and the percentage to sales increased from 16.4% to 17.2%. The increase in gross margin dollars and
percentage to sales was driven by the positive impact of restructuring programs ($6.0 million) partially offset by the
margin and overhead absorption impacts ($3.7 million) of the decreased volume. International gross margin decreased by
$5.2 million, and the percentage to net sales decreased from 6.0% to 3.2%. The decline in International gross margin
dollars and percentage to net sales was primarily due to a $2.6 million charge to operations by May Verpackungen to
writedown its inventory to net realizable market value as well as increased material and production costs at May
Verpackungen which cannot be passed through to customers ($0.5 million). The positive benefit of the Southall plant
closure in the third quarter of 2002 ($3.0 million), was offset by the negative impact of volume related inefficiencies
in the UK and France ($2.6 million) and a non-recurring pension benefit in 2002 of $2.5 million. The Paint, Plastic &
General Line segment gross margin increased $1.7 million versus 2002 and the percentage to net sales increased 1.5
percentage points to 11.0% in 2003. The improvement was driven by restructuring program benefits ($0.7 million) and
other plastics cost reductions ($1.4 million), offset by the impact of decreased paint volume of ($0.4 million). In the
Custom & Specialty segment, gross margin dollars increased to $3.3 million in 2003 versus $0.7 million in 2002. The
improvement was driven by a restructuring benefit of $0.6 million, and other cost reduction programs and operational
efficiencies of $2.0 million.
Selling, General and Administrative Costs
Selling, general and administrative costs decreased from $37.9 million in 2002 to $36.7 million in 2003 due to
positive results from Company-wide cost savings programs.
Interest Expense and Bank Financing Fees; Preferred Stock Dividend Requirements
Interest expense in 2003 increased 6.1%, or $3.1 million, versus 2002 due to higher interest rates ($1.0 million)
and higher average borrowings ($2.8 million). The increase in interest expense was partially offset by a $0.7 million
decrease in interest expense versus prior year related to the October 10, 2003 expiration of the Company's interest rate
protection agreements. See Note (5) to the Consolidated Financial Statements for a further discussion of the Company's
debt position.
Bank financing fees for 2003 were $6.1 million compared to $4.1 million for 2002. The 2003 increase was
primarily due to $1.5 million of fees incurred and expensed by the Company to amend the Senior Secured Credit Facility.
In addition, during 2003, amortization of deferred financing costs increased $0.5 million over 2002 to $4.6 million due
to $5.4 million of fees and expenses related to the 10 7/8% Senior Secured Note offering and Senior Secured Credit
Facility amendment, which are being amortized over the life of the applicable borrowings. The amortization of these fees
and all other deferred financing fees is included in bank financing fees.
Payment in kind dividends of $13.8 million and $12.5 million on the redeemable preferred stock were recorded in
2003 and 2002, respectively. See Note (11) to the Consolidated Financial Statements.
Year Ended December 31, 2002 Compared To Year Ended December 31, 2001
As of December 31,
-----------------------------------------------------------------------------
Revenue Gross Income Percentage to
Sales
-----------------------------------------------------------------------------
2002 2001 2002 2001 2002 2001
-----------------------------------------------------------------------------
Aerosol........................... $ 364,133 $ 334,716 $ 59,545 $ 47,299 16.4% 14.1%
International..................... 241,197 229,466 14,448 17,829 6.0% 7.8%
Paint, Plastic & General Line..... 119,952 130,412 11,378 12,544 9.5% 9.6%
Custom & Specialty................ 71,218 77,594 734 (998) 1.0% (1.3)%
----------------------------------------------------------
Total....................... $ 796,500 $ 772,188 $ 86,105 $ 76,674 10.8% 9.9%
==========================================================
Net Sales
Consolidated net sales for the year ended December 31, 2002 were $796.5 million as compared to $772.2 million in
2001, an increase of 3.1%. Along business segment lines, Aerosol net sales in 2002 increased to $364.1 million from
$334.7 million in 2001, an increase of 8.8%, due principally to increased unit volume ($37.4 million) partially offset by
the pricing impacts resulting from a shift in customer demand to smaller can sizes. International net sales increased to
$241.2 million in 2002 from $229.5 million in 2001, an increase of $11.7 million or 5.1% primarily due to the positive
impact of the translation of sales made in foreign currencies based upon using the same average U.S. dollar exchange
rates in effect during the year ended December 31, 2001. The Paint, Plastic & General Line segment net sales decreased
8.0%, from $130.4 million in 2001 to $120.0 million in 2002. This decrease was due to changes in product and customer
mix along with falling resin prices in our plastics business that are contractually passed on to customers ($11.3
million) and decreased paint volume ($2.2 million) offset by increased volume in plastics ($3.1 million). In 2002, the
Company reduced manufacturing capacity in its paint business as part of the Company's restructuring programs. In the
Custom & Specialty segment, sales decreased 8.2% from $77.6 million in 2001 to $71.2 million in 2002 driven primarily by
a change in product mix ($7.6 million) partially offset by an increase in volume ($1.2 million).
Gross Income
Consolidated gross income for the year ended December 31, 2002 was $86.1 million as compared to $76.7 million in
2001, an increase of $9.4 million. Along business segment lines, Aerosol gross income dollars increased $12.2 million
versus 2001, and the percentage to sales increased from 14.1% to 16.4%. The increase in gross margin dollars was driven
by increased volume ($5.3 million) and savings realized from other cost containment programs ($2.4 million).
International gross margin decreased by $3.4 million, and the percentage to net sales decreased from 7.8% to 6.0%. The
consolidation of the production of all U.K. production volume into the Merthyr Tydfil plant increased our per unit
production costs, as the inexperienced work force could not produce the same level of output as the prior two-plant
workforce, spoilage costs increased and machine breakdowns increased in frequency and duration. These inefficiencies
were partially offset by a $2.1 million benefit relating to the closure of our Southall, U.K. facility in August 2002 and
a non-recurring pension benefit of $2.5 million. In Germany, our per unit costs also increased as the shift of our sales
mix to the third and fourth quarters was not adequately planned nor anticipated, causing us to incur higher overtime,
although fewer units were produced. The Paint, Plastic & General Line segment gross margin decreased $1.2 million, while
the percentage to net sales of 9.5% remained fairly constant with 2001 (9.6%). The decrease in dollars versus 2001 was
driven by plastics competitive pricing pressures ($2.9 million) and the overhead absorption impact of producing fewer
units due to the new Atlanta plant in the first half of 2002 ($1.4 million), partially offset by a $2.6 million benefit
realized from restructuring programs and cost containment programs ($0.5 million). In the Custom & Specialty segment,
gross margin dollars increased to $0.7 million in 2002, versus a loss of $1.0 million in 2001. 2001 gross margins were
reduced by a $3.2 million charge for the write-off of inventory associated with discontinued product lines. After
consideration of this one-time write-off, gross margin decreased due to a decline in volume at one facility and increased
manufacturing support expenses ($1.1 million), partially offset by benefits realized from restructuring programs ($0.4
million).
Selling, General and Administrative Costs
Selling, general and administrative costs decreased from $46.6 million in 2001 to $37.9 million in 2002 due to
the lack of goodwill amortization during the year and positive results from management's focus on Company-wide cost
saving programs initiated in 2001. The Company has ceased the amortization of goodwill. Goodwill amortization for the
year ended December 31, 2001 was $2.8 million.
Special Charges
During 2002, the Company substantially completed the restructuring programs initiated in 2001. The Company
offered voluntary termination programs to corporate office salaried employees, opened a new plastics plant in Atlanta,
Georgia and closed six planned manufacturing facilities. The Burns Harbor, Indiana lithography facility was closed in
the fourth quarter, completing the facility closure program. In addition, during the fourth quarter of 2002, the Company
sold its Daegeling, Germany facility.
During 2002, the Company recorded a net charge of $8.7 million related to restructuring. The net charge of $8.7
million consists of new restructuring reserves of $11.9 million less reversals of $3.2 million due to the reassessment of
restructuring reserves established in 2001. Included in the 2002 net restructuring charge are executive position
elimination costs and the loss on the sale of the Daegeling, Germany facility. While the majority of the restructuring
initiatives have been 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
$3.7 million as of December 31, 2002), consisting primarily of employee termination costs and future ongoing facility
carrying costs will be paid over many years. The Company initiated the restructuring programs in 2001 and recorded a net
restructuring charge of $36.2 million for the year.
The table below presents the reserve categories and related activity as of December 31, 2002:
(in millions) January 1, 2002 Net Deductions(c) Other (b) December 31, 2002
Balance Additions(d) Balance
----------------- --------------- ---------------- ------------- --------------------
Employee Separation $21.2 $4.9 ($17.6) $0.7 $9.2
Facility Closing Costs 10.7 3.8 (9.6) 1.6 6.5
----------------- --------------- ---------------- ------------- --------------------
Total $31.9 $8.7 ($27.2) $2.3 $15.7(a)
================= =============== ================ ============= ====================
(a) Includes $3.7 million classified as other long-term liabilities as of December 31, 2002.
(b) Non-cash foreign currency translation impact and the reversal of $1.5 million of asset write-offs previously expensed in 2001.
(c) Includes cash payments of $20.8 million. The remaining non-cash deductions represent increased pension and post-retiree
benefits transferred to Other Long-Term Liabilities and the non-cash loss recorded on the sale of the Daegeling facility.
(d) Includes reversals of $3.2 million (representing $1.6 million of employee separation costs and $1.6 million of facility
closing costs) as actual expenditures were less than anticipated.
Interest Expense and Bank Financing Fees; Preferred Stock Dividend Requirements
Interest expense, including bank financing fees, in 2002 decreased 3.4%, or $1.9 million, versus 2001 due to
lower interest rates ($3.4 million) partially offset by the interest expense impact of higher average borrowings ($1.5
million). See Note (5) to the Consolidated Financial Statements for a further discussion of the Company's debt position.
Payment in kind dividends of $12.5 million and $11.3 million on the redeemable preferred stock issued in
connection with the recapitalization were recorded in 2002 and 2001, respectively. See Note (11) to the Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
During 2003, liquidity needs were met through cash provided by operating activities, seasonal borrowings made
under credit lines and proceeds from the sale of a facility. Principal liquidity needs included operating costs,
seasonal working capital needs and capital expenditures. Cash flow provided by operations was $21.0 million for the year
ended December 31, 2003, compared to $6.2 million for the year ended December 31, 2002. The increase in cash provided
was primarily due to decreased restructuring expenditures ($ 12.0 million).
Net cash used in investing activities was $14.4 million in 2003, as compared to $21.7 million in 2002. Investing
activities for 2003 relate primarily to capital spending of $19.8 million, including $1.6 million in conjunction with the
Company's restructuring programs, offset by the proceeds received from the sale of property of $5.4 million. As of
December 31, 2003, the cost to complete projects included in Construction in Progress is estimated at $8.6 million. We
are contractually committed to spend approximately 75% of this amount, however we expect to spend the entire amounts
necessary to complete these projects. Total capital expenditures in 2002 were $27.2 million, including $11.5 million in
conjunction with the Company's restructuring programs. Base capital expenditures are expected to range from $20.0
million to $24.0 million in 2004. 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 by financing activities in 2003 was $8.8 million versus cash provided of $12.0 million in
2002. Cash provided by financing activities in 2003 includes the proceeds of the initial sale of receivables by the
Company's subsidiary May Verpackungen as discussed below.
On July 22, 2003, the Company completed an offering of $125 million of 10 7/8% Senior Secured Notes due 2010
("Senior Secured Notes"). The Notes are secured, on a second priority basis, by substantially all of the collateral that
currently secures the Company's Senior Secured Credit Facility.
The Company also amended its Senior Secured Credit Facility to permit the offering of the Senior Secured Notes
and adjust certain financial covenants, among other things. These amendments also permit, from time to time and subject
to certain conditions, the Company to repurchase a portion of its outstanding 12 3/8% senior subordinated notes in open
market or privately negotiated purchases.
The Company used the $125 million in proceeds generated from the offering to prepay $23.3 million of its Tranche
A term loan, $46.7 million of its Tranche B term loan and to reduce its borrowings under its revolving credit facility by
$55.0 million. The repayments under the revolving credit facility did not reduce the $110.0 million amount available for
borrowings under the facility. The prepayments under the Tranche A term loan were applied in direct order of maturity
and eliminate quarterly principal payments through December 2004. Through December 31, 2003, the Company incurred
approximately $6.9 million of fees and expenses related to the offering and the amendment of its Senior Secured Credit
Facility.
At December 31, 2003, $42.1 million had been borrowed under the $110.0 million revolving loan portion of the
Senior Secured Credit Facility. Letters of Credit of $13.3 million were also outstanding securing the Company's
obligations under various insurance programs and other contractual agreements. In addition, the Company had $23.5
million of cash and cash equivalents at year end.
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 our Senior Secured Credit Facility) or (2) the LIBOR rate (as defined in our Senior
Secured Credit Facility), in each case, plus an applicable margin. The applicable margins are subject to future
reductions based on the achievement of certain leverage ratio targets and on the credit rating of our Senior Secured
Credit Facility.
Borrowings under the Tranche A term loan are due and payable in quarterly installments, beginning in the first
quarter 2005. The payments in the first three quarters of 2005 will be approximately $3.5 million per quarter, and $7.1
million will be paid in the fourth quarter of 2005. Borrowings under the Tranche B term loan are due and payable in
quarterly installments of nominal amounts. The balance under the Tranche A and Tranche B term loans is due in January
2006. No payments are due on borrowings under the Tranche C term loan prior to its final maturity in January 2006. The
revolving credit facility is available until January 4, 2006. Additionally, the Company's Senior Secured Credit Facility
requires a prepayment in the event that excess cash flow (as defined) exists and following certain other events,
including certain asset sales and issuances of debt and equity.
United States Can has outstanding $125.0 million aggregate principal amount of 10 7/8% Senior Secured Notes due
July 15, 2010. The 10 7/8% Senior Secured Notes are secured obligations, on a second priority basis behind the lenders
under the Company's Senior Secured Credit Facility, of United States Can and are senior in right of payment to all of
United States Can's unsubordinated indebtedness. The 10 7/8% Senior Secured Notes are guaranteed on a senior secured
basis by U.S. Can and all of United States Can's domestic restricted subsidiaries.
United States Can also has outstanding $171.7 million aggregate principal amount of 12 3/8% Senior Subordinated
Notes due October 1, 2010. The 12 3/8% Senior Subordinated Notes are unsecured obligations of United States Can and are
subordinated in right of payment to all of United States Can's senior indebtedness. The 12 3/8% Senior Subordinated Notes
are guaranteed by U.S. Can and all of United States Can's domestic restricted subsidiaries. During December 2003, in
accordance with the amended Senior Secured Credit Facility, the Company repurchased $3.3 million face value 12 3/8%
Senior Subordinated Notes at a discount, plus accrued interest. A gain of $0.2 million from the early extinguishment of
the 12 3/8% Senior Subordinated Notes, related to the discount and net of related deferred financing costs, was recorded
in operating income.
The Senior Secured Credit Facility, the 10 7/8% Senior Secured Notes and the 12 3/8% Senior Subordinated Notes
contain a number of financial and restrictive covenants. Under our Senior Secured Credit Facility, the Company is
required to meet certain financial tests, including achievement of a minimum EBITDA level, a minimum interest coverage
ratio, a minimum fixed charge coverage ratio and a maximum leverage ratio. The restrictive covenants limit the Company's
ability to incur debt, pay dividends or make distributions, sell assets or consolidate or merge with other companies.
The Company was in compliance with all of the required financial ratios and other covenants under both facilities, as
amended, at December 31, 2003 and anticipates being in compliance in 2004.
On November 13, 2003, May finalized the terms of a two-year accounts receivable factoring arrangement. Under
the terms of the agreement, May will factor its customer accounts receivable, subject to a maximum of (Euro)12 million of
receivables. May pays a nominal factoring fee and an interest charge for amounts advanced to May that have not been paid
by the customer to the factor. May received its initial draw under the factoring agreement ($11.2 million) in December
2003 and used a portion of this draw to repay all of its borrowings under two bank facilities. In addition, one of May's
lenders agreed to extend the existing facility for borrowings up to (Euro)1.3 million through June 30, 2004. Any borrowings
under the extended facility will be secured by one manufacturing plant. We cannot assure you that the factoring
arrangement will be sufficient to meet May's funding requirements during its peak third quarter borrowing period. If the
factoring arrangement is not sufficient to meet May's funding requirements, the Company would expect to extend or
refinance the current bank facilities, but we cannot assure you that the Company will be able to obtain the needed
extensions or refinancing. If additional funds above those available from the factoring arrangement are required and the
Company is unable to extend or refinance the current bank facilities, the Company would seek to provide funding from
other sources currently available to the Company, including existing or new lines of credit in Europe and the United
States.
As more fully described in Note (3) to the Consolidated Financial Statements, the Company initiated several
restructuring programs in 2001. While the majority of the restructuring initiatives were completed in 2002, certain
portions of the programs were not completed until 2003. Future cash requirements related to these programs are estimated
to be approximately $3.4 million in 2004 and $4.5 million in 2005 and beyond, consisting primarily of employee
termination costs and future ongoing facility carrying costs that will be paid over many years. The Company expects to
fund these cash requirements from cash on hand, operations and borrowings under the revolving credit facility.
The table below presents the reserve categories and related activity as of December 31, 2003:
January 1, 2003 Net December 31, 2003
(in millions) Balance Additions(c) Cash Deductions Other (b) Balance
----------------- --------------- ---------------- ------------- --------------------
Employee Separation $9.2 ($6.0) $0.4 $4.3 $0.7
Facility Closing Costs 6.5 (0.1) (2.8) - 3.6
----------------- --------------- ---------------- ------------- --------------------
Total $15.7 $0.6 ($8.8) $0.4 $7.9 (a)
================= =============== ================ ============= ====================
(a) Includes $4.5 million classified as other long-term liabilities as of December 31, 2003.
(b) Non-cash foreign currency translation impact.
(c) Includes reversals of $1.8 million due to the re-assessment of reserves.
The Company has also initiated a customer and product line profitability review within its German food can
business. As a result of this review, the Company intends to exit certain unprofitable customer relationships and
product lines (representing less than 10% of International segment sales and less than 3% of total Company sales) during
2004. The Company will record restructuring charges related to these product line exits, primarily employee severance,
but has not yet quantified the amount of the charges.
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, restructuring
costs, capital expenditures and working capital needs. Future operating performance, unexpected capital expenditures,
investments, acquisitions 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.
The Company has a number of contractual commitments to make future cash payments. Under existing agreements,
contractual obligations as of December 31, 2003 are as follows (000's omitted):
Payments due by period
Contractual Obligations (b) 1st year 2-3 years 4-5 years After 5 years
-------------------------------------------------------------------------------------------------------
Long term debt.............................. $18,751 $232,965 $ 2,052 $ 300,710
Capital lease obligations................... 748 40 - -
Operating leases............................ 6,327 9,984 7,214 12,284
Pension & other post-retirement employee
benefit obligations (a).................. 3,089 5,900 6,518 -
Other long-term liabilities on the
consolidated balance sheet............... 2,652 2,311 221 159
----------------------------------------------------------
Total Contractual Commitments............... $ 31,567 $251,200 $ 16,005 $ 313,153
(a) These amounts exclude the Company's non-U.S. pension plans as this information is not available.
Payments to the Company's non-U.S. pension plans were $3.3 million in 2003. The Company's
long-term pension and post-retirement benefit obligations are estimates based on the Company's
current information and are subject to collective bargaining agreements. The Company reserves the
right to make changes to these estimates in the future as facts and circumstances change and new
information is received. Additionally, the amount of contractual obligations beyond five years is
not reliably estimable and is therefore not included in the table.
(b) The aggregate amount of the Company's open purchase obligations is not included in the Company's
contractual obligations table due to the short-term nature and, excluding the amount that the
Company has committed to spend to complete projects included in Construction in Progress (as
discussed previously), the immateriality of the purchase obligations that the Company is
contractually obligated to as of December 31, 2003.
See Note (5) to the Consolidated Financial Statements for further information on obligations under our borrowing
agreements and Note (9) for further information on capital and operating leases.
The Company's amended Senior Secured Credit Facility permits, from time to time and subject to certain
conditions, the redemption of the subordinated debt. The Company intends to pursue opportunistic repurchases of its
outstanding 12 3/8% Senior Subordinated Notes as time and circumstances permit, subject to market conditions, the trading
price of the 12 3/8% Senior Subordinated Notes and the terms of the Company's Senior Secured Credit Facility.
The Company continually evaluates all areas of its operations for ways to improve profitability and overall
Company performance. In connection with these evaluations, management considers numerous alternatives to enhance the
Company's existing business including, but not limited to acquisitions, divestitures, capacity realignments and
alternative capital structures.
INFLATION
Tin-plated steel represents the primary component of the Company's raw materials requirements. Historically, the
Company has not always been able to immediately offset increases in tinplate prices with customer price increases. The
Company's capital spending programs and manufacturing process upgrades are designed to increase operating efficiencies
and mitigate the impact of inflation on the Company's cost structure.
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 the Company's ability to communicate and negotiate required selling price
increases with its customers and minimizes fluctuations of the Company's gross margins. Many of the Company's domestic
and some of its international multi-year supply agreements with its customers permit it to pass through tin-plate price
increases and, in some cases, other raw material costs. Starting in the fourth quarter of 2003, many domestic and
foreign steel suppliers began experiencing a shortage of coke, an important component of the steel-making process. The
shortage is due to many factors, which include the growing Chinese steel market and a fire at a coal mine in the U.S.
that produces coke and is expected to continue in at least the near future. While we cannot predict the long-term
effects the shortage will have on our tin-plate costs, the shortage has caused some steel manufacturers to consider a
surcharge on steel, which could potentially increase our tinplate prices. The Company has not always been able to
immediately offset increases in tin-plate prices with price increases on its products.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued SFAS No. 146 "Accounting for Costs Associated With Exit or
Disposal Activities," in July 2002. SFAS No. 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. SFAS No. 146 supercedes the guidance of Emerging Issues
Task Force ("EITF") Issue No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity," which required that liabilities for exit costs be recognized at the date of an entity's commitment to
an exit plan. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. As
discussed in Note (3), the Company recorded restructuring charges in 2003 in accordance with the provisions of SFAS No.
146.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN
46"), which requires variable interest entities to be consolidated by the primary beneficiary of the entity if certain
criteria are met. FIN 46 is effective immediately for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46
became effective during the fourth quarter of 2003. The Company adopted FIN 46 in January of 2003. There was no impact
to the financial position and results of operations of the Company as a result of the adoption in 2003.
In December of 2003, the FASB issued a revised SFAS No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits". The statement revises employers' disclosures about pension plans and other postretirement
benefit plans but it does not change the measurement or recognition of those plans. The revised SFAS No. 132 requires
additional disclosures to those in the original SFAS 132 about the assets, obligations, cash flows, and net periodic
benefit cost of defined pension plans and other defined benefit postretirement plans. The statement also increases
quarterly pension plan and postretirement benefit plan disclosure requirements. Revised SFAS No. 132 domestic plan
disclosure requirements are effective for financial statements with fiscal years ending after December 15, 2003.
However, disclosure of information about foreign plans required by the Statement is effective for fiscal years ending
after June 15, 2004. The Company adopted this statement in December of 2003 and there was no impact to the financial
position and results of operations of the Company as a result of the adoption. See Notes (7) and (8) to the Consolidated
Financial Statements for the additional disclosures required by this pronouncement.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Foreign Currency Risk
The Company bears foreign exchange risk because much of our financing is currently obtained in U.S. 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 were
hedged by entering into swap and collar agreements. The agreements expired on October 10, 2003. The Company does not
currently intend to enter into new interest rate protection agreements.
The table below provides information about the Company's debt obligations that are sensitive to changes in
interest rates as of December 31, 2003. The table presents principal cash flows and related weighted average interest
rates by expected maturity dates.
Debt Obligations 2004 2005 2006 2007 2008 Thereafter Fair Value
- -------------------------- ----------- ------------ ----------- ------------ ------------ ----------- -------------
- --------------------------
(dollars in millions)
Fixed rate $0.7 $ -- $0.9 $ -- $ $296.7 $290.2
--
Average interest rate 10.13% -- 11.74%
6.14% -- --
Variable rate $18.8 $19.2 $212.9 $1.0 $ 1.1 $4.0 $252.1
Average interest rate 5.15% 4.74% 1.20%
5.07% 5.08% 4.74%
The Company does not use financial instruments for trading or speculative purposes. Quoted market values are
only available on the 10 7/8% Senior Secured Notes and 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
----
Independent Auditors' Report for 2003 and 2002............................................................. 26
Report of Independent Accountants for 2001................................................................. 27
Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001................. 28
Consolidated Balance Sheets as of December 31, 2003 and 2002............................................... 29
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2003, 2002 and 2001....... 30
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001................. 31
Notes to Consolidated Financial Statements................................................................. 32
INDEPENDENT AUDITORS' REPORT
To U.S. Can Corporation:
Lombard, Illinois
We have audited the accompanying consolidated balance sheets of U.S. Can Corporation and Subsidiaries ("the Company")
as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. 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. The consolidated
financial statements of the Company for the year ended December 31, 2001, before the inclusion of the disclosures
discussed in Note 14 to the financial statements, were audited by other auditors, who have ceased operations. Those
auditors expressed an unqualified opinion on those financial statements in their report dated March 6, 2002.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America.
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, such 2003 and 2002 consolidated financial statements present fairly, in all material respects, the
financial position of U.S. Can Corporation and Subsidiaries as of December 31, 2003 and 2002, and the results of
their operations and their cash flows for the years then ended, in conformity with accounting principles generally
accepted in the United States.
As discussed in Note 2, in 2002 the Company changed its method of accounting for goodwill as required by Statement of
Financial Accounting Standards (Statement) No. 142, "Goodwill and Other Intangible Assets."
As discussed above, the financial statements of U.S. Can Corporation as of December 31, 2001, and for the years then
ended were audited by other auditors who have ceased operations. As described in Note 14, these financial statements
have been revised to include the transitional disclosures required by Statement No. 142, which was adopted by the
Company as of January 1, 2002. Our audit procedures with respect to the disclosures in Note 14 with respect to 2001
included (i) comparing the previously reported net income to the previously issued financial statements and the
adjustments to reported net income representing amortization expense (including any related tax effects) recognized
in those periods related to goodwill, to the Company's underlying records obtained from management, and (ii) testing
the mathematical accuracy of the reconciliation of adjusted net income to reported net income. In our opinion, the
disclosures for 2001 in Note 14 are appropriate. However, we were not engaged to audit, review, or apply any
procedures to the 2001 financial statements of the Company other than with respect to such disclosures and,
accordingly, we do not express an opinion or any other form of assurance on the 2001 financial statements taken as a
whole.
Deloitte & Touche LLP
Chicago, Illinois
March 5, 2004
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The following report is a copy of a report previously issued by Arthur Andersen LLP and has not been reissued by
Arthur Andersen LLP. In fiscal 2002, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142). As discussed in Note 14 to the
consolidated financial statements, the Company has presented the transitional disclosures for 2001 required by SFAS
No. 142. The Arthur Andersen LLP report does not extend to these transitional disclosures. These disclosures are
reported on by Deloitte & Touche LLP as stated in their report appearing herein.
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
* The 2000 and 1999 consolidated financial statements are not required to be presented in the 2003 annual report.
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's omitted)
For the Year Ended
-------------------------------------------------------
December 31, December 31, December 31,
2003 2002 2001
----------------- ----------------- -----------------
Net Sales................................................. $822,896 $796,500 $772,188
Cost of Sales............................................. 735,472 710,395 695,514
----------------- ----------------- -----------------
Gross Income......................................... 87,424 86,105 76,674
Selling, General and Administrative Expenses.............. 36,665 37,853 46,581
Special Charges........................................... 612 8,705 36,239
----------------- ----------------- -----------------
Operating Income (Loss).............................. 50,147 39,547 (6,146)
Interest Expense.......................................... 54,444 51,333 54,668
Bank Financing Fees....................................... 6,118 4,051 2,636
----------------- ----------------- -----------------
Loss Before Income Taxes............................. (10,415) (15,837) (63,450)
Provision (Benefit) for Income Taxes...................... 3,105 37,637 (23,034)
----------------- ----------------- -----------------
Loss from Operations Before Cumulative Effect of
Accounting Change..................................... (13,520) (53,474) (40,416)
Cumulative Effect of Accounting Change, net of income taxes - (18,302) -
----------------- ----------------- -----------------
Net Loss Before Preferred Stock Dividends............ (13,520) (71,776) (40,416)
Preferred Stock Dividend Requirement...................... (13,821) (12,521) (11,345)
----------------- ----------------- -----------------
Net Loss Attributable to Common Stockholders......... $(27,341) $(84,297) $(51,761)
================= ================= =================
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 2003 2002
--------------------- ---------------------
CURRENT ASSETS:
Cash and cash equivalents............................................ $23,540 $11,790
Accounts receivable, net of allowances............................... 87,609 89,986
Inventories, net..................................................... 95,545 105,635
Deferred income taxes................................................ 829 7,730
Other current assets................................................. 13,573 14,466
--------------------- ---------------------
Total current assets............................................ 221,096 229,607
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization........................................ 243,373 241,674
GOODWILL, less accumulated amortization................................... 27,384 27,384
DEFERRED INCOME TAXES..................................................... 30,816 29,340
OTHER NON-CURRENT ASSETS.................................................. 54,519 50,821
--------------------- ---------------------
Total assets.................................................... $577,188 $578,826
===================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and capital lease obligations... $19,499 $26,153
Accounts payable..................................................... 90,851 94,537
Accrued expenses..................................................... 46,485 51,446
Restructuring reserves............................................... 3,422 11,990
Income taxes payable................................................. 1,249 958
--------------------- ---------------------
Total current liabilities....................................... 161,506 185,084
LONG TERM DEBT............................................................ 535,767 523,529
LONG TERM LIABILITIES PURSUANT TO EMPLOYEE
BENEFIT PLANS.......................................................... 71,779 74,574
OTHER LONG-TERM LIABILITIES............................................... 7,086 6,352
--------------------- ---------------------
Total liabilities............................................... 776,138 789,539
REDEEMABLE PREFERRED STOCK, 200,000 shares authorized, 106,667 shares
issued & outstanding................................................ 146,954 133,133
STOCKHOLDERS' EQUITY:
Common stock, $10.00 par value, 100,000 shares authorized, 53,333
shares issued & outstanding......................................... 533 533
Additional paid-in-capital........................................... 52,800 52,800
Accumulated other comprehensive loss................................. (25,793) (51,076)
Accumulated deficit.................................................. (373,444) (346,103)
--------------------- ---------------------
Total stockholders' equity / (deficit).......................... (345,904) (343,846)
--------------------- ---------------------
Total liabilities and stockholders' equity................. $577,188 $578,826
===================== =====================
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-CapitAccumulated Accumulated Comprehensive
Other
Comprehensive
Stock Loss Deficit Income (Loss)
----------------------------------------------------------------------
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)
Currency translation adjustment........ - - (14,827) - (14,827)