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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 3, 2005
Commission File Number 0-21314
U.S. CAN CORPORATION
(Exact Name of Registrant as Specified in its Charter)
06-1094196
(I.R.S. Employer Identification No.)
DELAWARE
(State or Other Jurisdiction of
Incorporation or Organization)
700 EAST BUTTERFIELD ROAD
SUITE 250
LOMBARD, ILLINOIS 60148
(Address of Principal Executive Offices, Including Zip Code)
(630) 678-8000
(Registrant's Telephone Number, Including Area Code)
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 |_| No |X|
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 May 16, 2005, 53,333.333 shares of Common Stock were outstanding.
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U.S. CAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED APRIL 3, 2005
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Operations for the Quarterly Periods Ended
April 3, 2005 and April 4, 2004.................................................................. 3
Consolidated Balance Sheets as of April 3, 2005 and December 31, 2004............................ 4
Consolidated Statements of Cash Flows for the Quarterly Periods Ended
April 3, 2005 and April 4, 2004.................................................................. 5
Notes to Consolidated Financial Statements....................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................................ 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 20
Item 4. Controls and Procedures.......................................................................... 21
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................................................ 22
Item 5. Other Information................................................................................ 22
Item 6. Exhibits......................................................................................... 23
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; increases in the cost of compliance with laws and regulations, including
environmental laws and regulations and corporate governance; and the adequacy of the Company's internal controls over financial
reporting and the ability of the Company's independent auditors to certify as to their adequacy. In light of these and other risks
and uncertainties as described under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2004 and filed with the Securities and Exchange Commission on March 23, 2005, 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.
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's OMITTED)
For the Quarterly Period Ended
--------------------------------------------
April 3, 2005 April 4, 2004
------------------- --------------------
(Unaudited)
Net Sales $ 230,445 $ 213,467
Cost of Sales 198,446 194,095
------------- ------------
Gross profit 31,999 19,372
Selling, General and Administrative Expenses 10,908 9,804
Special Charges 513 482
Other Income (167) (380)
Interest Expense 12,940 12,717
Bank Financing Fees 729 1,378
------------- ------------
Income (Loss) before income taxes 7,076 (4,629)
Provision for Income Taxes 1,090 332
------------ ------------
Net Income (Loss) 5,986 (4,961)
Preferred Stock Dividend Requirement (4,134) (3,824)
------------ ------------
Net Income (Loss) Attributable to Common Stockholders $ 1,852 $ (8,785)
============ ============
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)
April 3, December 31,
ASSETS 2005 2004
---------------- -----------------
CURRENT ASSETS: (Unaudited)
Cash and cash equivalents $ 3,478 $ 7,108
Accounts receivable, net of allowances 95,226 78,523
Inventories 115,672 105,267
Deferred income taxes 6,573 7,525
Other current assets 24,305 30,811
---------------- -----------------
Total current assets 245,254 229,234
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization 220,231 227,022
GOODWILL 27,384 27,384
DEFERRED INCOME TAXES 23,183 23,199
OTHER NON-CURRENT ASSETS 49,846 50,913
---------------- -----------------
Total assets $ 565,898 $ 557,752
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and capital lease obligations $ 6,470 $ 9,445
Accounts payable 93,460 100,978
Accrued expenses 52,354 55,562
Restructuring reserves 3,453 4,347
Income taxes payable 1,210 479
---------------- -----------------
Total current liabilities 156,947 170,811
LONG TERM DEBT 573,021 550,551
LONG TERM LIABILITIES PURSUANT TO EMPLOYEE
BENEFIT PLANS 65,716 68,882
OTHER LONG-TERM LIABILITIES 3,752 3,684
---------------- -----------------
Total liabilities 799,436 793,928
REDEEMABLE PREFERRED STOCK, 200,000 shares authorized,
106,667 shares issued & outstanding 166,387 162,253
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 (22,386) (19,038)
Accumulated deficit (430,872) (432,724)
---------------- -----------------
Total stockholders' equity / (deficit) (399,925) (398,429)
---------------- -----------------
Total liabilities and stockholders' equity $ 565,898 $ 557,752
================ =================
The accompanying Notes to Consolidated Financial Statements are
an integral part of these balance sheets
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's OMITTED)
For the Quarterly Period Ended
April 3, 2005 April 4, 2004
------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited)
Net income (loss) $ 5,986 $ (4,961)
Adjustments to reconcile net income (loss) to net cash used for operating
activities:
Depreciation and amortization 9,790 11,198
Special Charges 513 482
Deferred income taxes - (508)
Change in operating assets and liabilities:
Accounts receivable (18,165) (7,882)
Inventories (12,329) (4,182)
Accounts payable (4,925) (1,693)
Accrued expenses (5,397) (6,188)
Other, net 5,563 (2,957)
------------------- ------------------
Net cash used for operating activities (18,964) (16,691)
------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,695) (3,719)
Proceeds from the sale of property 232 1,018
Dividends from Formametal S.A. 646 608
------------------- ------------------
------------------- ------------------
Net cash used for investing activities (4,817) (2,093)
------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving line of credit 23,200 -
Payments of other long-term debt, including capital lease obligations (6,301) (602)
Borrowings of other debt 2,804 2,169
Payment of debt financing costs (5) -
------------------- ------------------
Net cash provided by financing activities 19,698 1,567
------------------- ------------------
------------------- ------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 453 (450)
------------------- ------------------
DECREASE IN CASH AND CASH EQUIVALENTS (3,630) (17,667)
CASH AND CASH EQUIVALENTS, beginning of period 7,108 22,964
------------------- ------------------
CASH AND CASH EQUIVALENTS, end of period $ 3,478 $ 5,297
=================== ==================
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 3, 2005
(Unaudited)
(1) PRINCIPLES OF REPORTING
The consolidated financial statements include the accounts of U.S. Can Corporation (the "Corporation" or "U.S. Can"), its
wholly owned subsidiary, United States Can Company ("United States Can"), and United States Can's subsidiaries (the "Subsidiaries").
The consolidated group is referred to herein as "the Company", "we", "us", or "our". All significant intercompany balances and
transactions have been eliminated. These financial statements, in the opinion of management, include all normal recurring
adjustments necessary for a fair presentation. Operating results for any interim period are not necessarily indicative of results
that may be expected for the full year. These financial statements should be read in conjunction with the financial statements and
footnotes included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2004. Certain prior year amounts
have been reclassified to conform with the 2005 presentation.
STOCK-BASED COMPENSATION
The Company periodically issues stock options under the U.S. Can 2000 Equity Incentive Plan. The Company continues to
utilize the intrinsic fair value method under Accounting Principles Board ("APB") Opinion No. 25 to account for its stock-based
compensation plan; therefore, no compensation costs are recognized in the Company's financial statements for options granted.
In accordance with Statement of Accounting Standards ("SFAS") No. 148 "Accounting for Stock-Based Compensation - Transition
and Disclosure", the following table presents (in thousands) what the Company's net loss would have been had the Company determined
compensation costs using the fair value-based accounting method for the quarters ended April 3, 2005 and April 4, 2004.
For The Quarterly Periods Ended
------------------------------------
April 3, 2005 April 4, 2004
------------------------------------
Net Income (Loss).....................$ 5,986 $ (4,961)
Stock-Based Compensation Cost,
net of tax - fair value method......... (23) (30)
------------------------------------
Pro-Forma Net Income (Loss)......... $ 5,963 $(4,991)
====================================
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123 (revised 2004), "Share-Based
Payment", which replaces SFAS No. 123 and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123R
requires all share-based payments to employees, including grants of employee stock options, be recognized in the financial statements
based on their fair values beginning with the first interim period after June 15, 2005. In April 2005, the United States Securities
and Exchange Commission extended the implementation timing required under SFAS No. 123R to the beginning of a registrant's next
fiscal year, which is January 1, 2006 for the Company. The Company is currently evaluating the requirements of SFAS No. 123R and has
not yet determined the method of adoption it will use. However, based on the Company's current level of annual option grants and the
number of unvested options the Company had outstanding at the end of the first quarter of 2005, the Company does not expect the
adoption of SFAS No. 123R to have a material impact on its financial position or results of operations.
(2) SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid interest of approximately $24.6 million and $21.9 million for the quarterly periods ended April 3, 2005 and
April 4, 2004, respectively. The Company paid $0.6 million in income taxes for each of the quarterly periods ended April 3, 2005 and
April 4, 2004.
(3) SPECIAL CHARGES
2005
- ----
During the first quarter of 2005, the Company recorded restructuring charges of $0.5 million related to position elimination
costs in Europe. The position eliminations consisted of 12 employees and include eliminations related to the continuation of an
early termination program in one European facility and a product line profitability review program in our German food can business.
Total cash payments in the first quarter of 2005 were $1.2 million (primarily severance and facility shut down costs), and the
Company anticipates spending another $6.5 million over the next several years. The remaining reserve consists primarily of employee
termination benefits paid over time for approximately four salaried and 36 hourly employees and other ongoing facility exit costs.
The table below presents the reserve categories and related activity as of and for the quarterly period April 3, 2005 (in
millions):
January 1, Additions Cash Payments Other (b) April 3, 2005
2005 Balance Balance
--------------- --------------- ----------------- ---------------- --------------
Employee Separation $3.2 $0.4 $(0.5) $(0.1) $3.0
Facility Closing Costs 4.1 0.1 (0.7) - 3.5
--------------- --------------- ----------------- ---------------- --------------
--------------- --------------- ----------------- ---------------- --------------
Total $7.3 $0.5 $(1.2) $(0.1) $6.5 (a)
=============== =============== ================= ================ ==============
(a) Includes $3.1 million classified as other long-term liabilities as of April 3, 2005.
(b) Non-cash foreign currency translation impact
2004
- ----
During the first quarter of 2004, the Company recorded restructuring charges of $0.5 million related to position elimination
costs in Europe. The position eliminations consisted of 23 employees and included eliminations related to an early termination
program in one European facility and a product line profitability review program in the Company's German food can business. Total
cash payments in the first quarter of 2004 were $1.6 million (primarily severance and facility shut down costs) and the Company
anticipates spending another $6.7 million over the next several years. The remaining reserve consisted primarily of employee
termination benefits to be paid over time for approximately eight salaried and 44 hourly employees and other ongoing facility exit
costs.
The table below presents the reserve categories and related activity as of and for the quarterly period ended April 4, 2004
(in millions):
January 1, April 4, 2004
2004 Balance Additions Cash Payments Other (b) Balance
--------------- --------------- ----------------- ---------------- --------------
Employee Separation $4.3 $0.5 $(1.3) $(0.1) $3.4
Facility Closing Costs 3.6 - (0.3) - 3.3
--------------- --------------- ----------------- ---------------- --------------
--------------- --------------- ----------------- ---------------- --------------
Total $7.9 $0.5 $(1.6) $(0.1) $6.7 (a)
=============== =============== ================= ================ ==============
(a) Includes $4.6 million classified as other long-term liabilities as of April 4, 2004.
(b) Non-cash foreign currency translation impact
(4) INVENTORIES
Inventories are stated at the lower of cost, using the first-in, first-out (FIFO) method, or market. Prior to April 5,
2004, all of the Company's domestic inventories were accounted for at the lower of cost, determined on a last-in, first-out (LIFO)
basis, or market, while inventories of the Company's foreign subsidiaries were stated at the lower of cost determined on a FIFO basis
or market. During the quarter ended July 4, 2004, the Company's domestic operations changed the method of accounting for the cost of
inventories from the LIFO method to the FIFO method. This change in accounting principle was made to provide a better matching of
revenue and expenses, and to enhance transparency of the Company's financial statements by conforming the Company's method of
inventory valuation to a single method. This accounting change did not have a material effect on the financial statements for
current or prior periods, and accordingly, no retroactive restatement of prior financial statements was made.
Inventories reported in the accompanying balance sheets are classified as follows (000's omitted):
April 3, December 31,
2005 2004
----------------- ----------------
Raw materials........................................................ $ 33,860 $ 35,849
Work in process...................................................... 43,666 38,758
Finished goods....................................................... 38,146 30,660
----------------- ---------------
$ 115,672 $ 105,267
================= ===============
(5) COMPREHENSIVE NET INCOME (LOSS)
The components of accumulated other comprehensive loss are as follows (000's omitted):
April 3, December 31,
2005 2004
------------- ---------------
Foreign Currency Translation Adjustment ................................... $(3,431) $ 220
Minimum Pension Liability Adjustment....................................... (18,955) (19,258)
------------ ---------------
Total Accumulated Other Comprehensive Loss................................. $(22,386) $(19,038)
============ ==============
The components of comprehensive income (loss) for the quarterly periods ended April 3, 2005 and April 4, 2004 are as follows
(000's omitted):
For the Quarterly Periods Ended
-----------------------------------
April 3, April 4,
2005 2004
------------- -------------
Net Income (Loss).......................................................... $ 5,986 $ (4,961)
Foreign Currency Translation Adjustment.................................... (3,348) (1,434)
-------------- --------------
Comprehensive Income (Loss)................................................ $ 2,638 $ (6,395)
============= =============
(6) BENEFIT PLANS
The Company maintains separate noncontributory defined benefit and defined contribution pension plans covering most domestic
hourly employees and all domestic salaried personnel, respectively. It is the Company's policy to fund accrued pension and defined
contribution plan costs in compliance with ERISA or the applicable foreign requirements.
The net periodic pension cost was as follows for the first quarter of 2005 and 2004 (000's omitted):
U.S.
- ----
April 3, 2005 April 4, 2004
---------------- -------------------
Service cost.................................................. $ 321 $ 252
Interest cost................................................. 716 686
Return on assets.............................................. (729) (677)
Recognized loss............................................... 51 4
Recognized prior service cost................................. 141 122
---------------- -------------------
Net periodic pension cost..................................... $ 500 $ 387
================ ===================
Non-U.S.
- --------
April 3, 2005 April 4, 2004
---------------- -------------------
Service cost.................................................. $ 90 $ 88
Interest cost................................................. 1,127 1,129
Return on assets.............................................. (950) (864)
Recognized loss............................................... 160 208
---------------- -------------------
Net periodic pension cost..................................... $ 427 $ 561
================ ===================
The Company provides health and life insurance benefits for certain domestic retired employees in connection with collective
bargaining agreements.
Net periodic postretirement benefit costs for the Company's U.S. postretirement benefit plans for the quarters ended April
3, 2005 and April 4, 2004, included the following components (000's omitted):
U.S.
- ----
April 3, 2005 April 4, 2004
---------------- -------------------
Service cost.................................................. $ 98 $ 87
Interest cost................................................. 373 351
Recognized loss............................................... 80 48
Recognized prior service cost................................. (213) (226)
---------------- -------------------
Net periodic pension cost..................................... $ 338 $ 260
================ ===================
The Company made $0.3 million and $0.2 million in contributions to its U.S. based pension plan and $0.4 million and $0.3
million of contributions to its non-U.S. based pension plans in the first quarters of 2005 and 2004, respectively. In addition, the
Company made payments under its postretirement benefit plan of $0.2 million and $0.4 million in the first quarters of 2005 and 2004,
respectively. The Company does not anticipate its 2005 contributions to any of its plans to be significantly different from the
amounts previously disclosed in the Company's consolidated financial statements for the year ended December 31, 2004.
(7) BUSINESS SEGMENTS
Management monitors and evaluates performance, customer base and market share for four business segments. The segments have
separate management teams and distinct product lines. The Aerosol segment primarily produces steel aerosol containers in the U.S. for
personal care, household, automotive, paint and industrial products. The International segment produces aerosol cans in the Europe
and Latin America (through Formametal S.A., a joint venture in Argentina) as well as steel food packaging in Europe. The Paint,
Plastic & General Line segment produces round cans in the U.S. for paint and coatings, oblong cans for items such as lighter fluid
and turpentine as well as plastic containers for paint and industrial and consumer products. The Custom & Specialty segment produces
a wide array of functional and decorative tins, containers and other products in the U.S. The Company notes that financial
information used to produce its financial statements is not recorded or reconciled on a product line basis, and therefore, it is not
practicable for the Company to disclose revenues by product line.
The following is a summary of revenues from external customers and loss from operations for the quarterly periods ended
April 3, 2005 and April 4, 2004, respectively (000's omitted):
April 3, April 4,
2005 2004
------------- ---------------
REVENUES FROM EXTERNAL CUSTOMERS:
Aerosol................................................................ $ 105,122 $ 92,155
International.......................................................... 79,598 78,398
Paint, Plastic & General Line.......................................... 36,625 33,426
Custom & Specialty..................................................... 9,100 9,488
------------- ---------------
Total revenues......................................................... $ 230,445 $ 213,467
============= ===============
INCOME (LOSS) BEFORE INCOME TAXES:
Aerosol................................................................ $ 21,754 $ 14,447
International.......................................................... 503 (1,574)
Paint, Plastic & General Line.......................................... 4,391 3,422
Custom & Specialty..................................................... 2,498 (383)
------------- ----------------
Total Segment Income From Operations................................... 29,146 15,912
Unallocated Selling, General & Administrative Expenses (a)............. (8,055) (6,344)
Special Charges (b).................................................... (513) (482)
Other Income (c)....................................................... 167 380
Interest Expense....................................................... (12,940) (12,717)
Bank Financing Fees.................................................... (729) (1,378)
------------- ---------------
Income (Loss) before income taxes...................................... $ 7,076 $ (4,629)
============= ===============
(a) Represents domestic Selling, General & Administrative expenses. The Company does not allocate these costs to
its domestic segments.
(b) Management does not evaluate segment performance including such charges. See Note (3) for further information
on the Company's special charges.
(c) Other income represents the Company's share of the net income of its joint venture equity investment in
Argentina, and dividends related to a cost based investment.
(8) COMMITMENTS AND CONTINGENCIES
Environmental
United States Can has been named as a potentially responsible party for costs incurred in the clean-up of the San Leandro
Plume, a regional groundwater plume partially extending underneath United Sates Can's former site in San Leandro, California and at
the M&J Solvents site in Georgia. When the Company acquired the San Leandro facility, it assumed certain liabilities subject to
indemnification by the former owner / operator for claims made on or before December 1986. The former owner / operator tendered its
obligations under the remedial action order to the Company. The Company accepted the tender with reservation of any legal rights it
may have to seek contribution or reimbursement. The Company is a party to an indemnity agreement related to this matter with the
current owner of the property, who purchased the property from the Company. In its 1994 agreement with the current owner, the Company
agreed to defend and indemnify the current owner and its successors and assigns for any claims, including investigative or remedial
action, required by any governmental agency that regulates hazardous substances. Neither the agreement with the former owner nor
with the current operator contains any caps or limits. Extensive soil and groundwater investigative work has been performed on the
San Leandro Plume, including at the San Leandro site. Currently, the State of California is overseeing remediation at an offsite
source of contamination of the San Leandro Plume. Periodically, the State of California conducts regional sampling to monitor the
efficacy of the remediation. The Company, along with other PRPs, participated in a coordinated sampling event in 1999. In November
2002, as part of a larger sampling scheme, the State of California requested that we sample existing monitoring wells at the San
Leandro property. The Company completed a round of sampling in December 2002. The 2002 sampling results generally show that the
concentration of contamination is declining, which we view as a positive development. While the State has not yet commented on
either the 1999 or the 2002 sampling results, we believe that the source of contamination is unrelated to our past operations. The
Company receives quarterly invoices from the State of California for its oversight work and for the regional sampling. At this time,
the Company is unable to estimate reasonably possible losses related to the San Leandro site or to the San Leandro Plume, but
believes the sampling supports its position that the groundwater contamination in the San Leandro Plume is unrelated to its past
operation. To date, the Company has not been required to implement any remedial action at the San Leandro site. With regard to M & J
Solvents, over 1,000 contributors to the site have been identified. The initial compliance status report has not been finalized and
thus, the nature, extent and source of contamination is unknown.
Legal
The Company is 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.
Local No. 24M of the Graphics Communications International Union, the union representing employees at the Company's Weirton
facility, filed an arbitration case challenging the Company's decision to modify its health care plan for retirees. The Union
contended that the Company had an obligation to bargain over plan changes and that it failed to do so. The Company contended that
the matter was not arbitrable, that it only had an obligation to bargain with the Union regarding benefits for active employees
represented by the Union, and that it had no obligation to bargain with regard to retiree benefits. On December 22, 2004, the
arbitrator issued a decision finding that the dispute was arbitrable, that the Company was obligated to bargain with the Union
regarding benefits for retirees, that the Company violated its duty to bargain by unilaterally modifying the health care plan as to
retirees and that benefits under the health care plan are vested as to retirees. On March 16, 2005, the Company filed a lawsuit
appealing the arbitration decision. The Union has not yet responded.
(9) SUBSIDIARY GUARANTOR INFORMATION
The following presents the condensed consolidating financial data for U.S. Can Corporation (the "Parent Guarantor"), United
States Can Company (the "Issuer"), USC May Verpackungen Holding Inc. (the "Subsidiary Guarantor"), and the Issuer's European
subsidiaries, including May Verpackungen GmbH & Co., KG (the "Non-Guarantor Subsidiaries"), as of April 3, 2005 and December 31, 2004
and for the quarterly periods ended April 3, 2005 and April 4, 2004. Investments in subsidiaries are accounted for by the Parent
Guarantor, the Issuer and the Subsidiary Guarantor under the equity method for purposes of the supplemental consolidating
presentation. Earnings of subsidiaries are, therefore, reflected in their parent's investment accounts and earnings. This
consolidating information reflects the guarantors and non-guarantors of the 10 7/8% Senior Secured Notes and 12 3/8% Senior
Subordinated Notes.
The 10 7/8% Senior Secured Notes and 12 3/8% Senior Subordinated Notes are guaranteed on a full, unconditional, unsecured,
senior subordinated, joint and several basis by the Parent Guarantor, the Subsidiary Guarantor and any other domestic restricted
subsidiary of the Issuer. USC May Verpackungen Holding Inc., which is wholly owned by the Issuer, currently is the only Subsidiary
Guarantor. The Parent Guarantor has no assets or operations separate from its investment in the Issuer.
Separate financial statements of the Issuer or the Subsidiary Guarantors have not been presented as management has
determined that such information is not material to the holders of the 10 7/8% Senior Secured Notes and 12 3/8% Senior Subordinated
Notes.
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarterly Period Ended APRIL 3, 2005
(unaudited)
(000's omitted)
USC May USC Europe/ May
United Verpackungen Verpackungen GmbH
U.S. Can States Can Holding & Co., KG U.S. Can
Corporation Company (Guarantor (Non-Guarantor Corporation
(Parent) (Issuer) Subsidiaries) Subsidiaries) Eliminations Consolidated
------------- ------------- ------------------ ------------------- ----------------------------
NET SALES...................... $ - $ 150,847 $ - $ 79,598 $ - $ 230,445
COST OF SALES.................. - 122,204 - 76,242 - 198,446
-------- ---------- --------- ---------- ------- ---------
Gross profit.............. - 28,643 - 3,356 - 31,999
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE........ - 8,055 - 2,853 - 10,908
SPECIAL CHARGES................ - 89 - 424 - 513
OTHER INCOME................... - - - (167) - (167)
INTEREST (INCOME)
EXPENSE....................... - 11,719 1,629 (408) - 12,940
BANK FINANCING FEES............ - 729 - - - 729
EQUITY INCOME (LOSS)
FROM SUBSIDIARIES ........... 5,986 (2,065) (526) - (3,395) -
-------- ---------- ----------- --------- --------- --------
Income (loss) before income
taxes 5,986 5,986 (2,155) 654 (3,395) 7,076
PROVISION FOR
INCOME TAXES................. - - 53 1,037 - 1,090
-------- --------- --------- --------- ------- ---------
NET INCOME (LOSS).............. 5,986 5,986 (2,208) (383) (3,395) 5,986
PREFERRED STOCK DIVIDEND
REQUIREMENT.................. (4,134) - - - - (4,134)
-------- --------- --------- --------- ------- ---------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS........... $ 1,852 $ 5,986 $ (2,208) $ (383) $(3,395) $ 1,852
======== ========= ========= ========= ======== =========
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarterly Period Ended APRIL 4, 2004
(unaudited)
(000's omitted)
USC May USC Europe/ May
United Verpackungen Verpackungen GmbH
U.S. Can States Can Holding & Co., KG U.S. Can
Corporation Company (Guarantor (Non-Guarantor Corporation
(Parent) (Issuer) Subsidiaries) Subsidiaries) Eliminations Consolidated
------------ ------------- ----------------- -------------------- ------------- -------------
NET SALES...................... $ - $ 135,069 $ - $ 78,398 $ - $ 213,467
COST OF SALES.................. - 117,583 - 76,512 - 194,095
------- ---------- --------- ---------- ------- ---------
Gross profit.............. - 17,486 - 1,886 - 19,372
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES...................... - 6,344 - 3,460 - 9,804
SPECIAL CHARGES................ - - - 482 - 482
OTHER INCOME................... - (224) - (156) - (380)
INTEREST EXPENSE............... - 10,922 1,353 442 - 12,717
BANK FINANCING FEES............ - 1,288 - 90 - 1,378
EQUITY LOSS
FROM SUBSIDIARIES ........... (4,961) (4,374) (822) - 10,157 -
------- ---------- ----------- --------- -------- --------
Loss before income taxes (4,961) (5,218) (2,175) (2,432) 10,157 (4,629)
PROVISION (BENEFIT) FOR
INCOME TAXES................. - (257) 75 514 - 332
------- ---------- --------- --------- ------- ---------
NET LOSS....................... (4,961) (4,961) (2,250) (2,946) 10,157 (4,961)
PREFERRED STOCK DIVIDEND
REQUIREMENT.................. (3,824) - - - - (3,824)
------- --------- --------- --------- ------- ---------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS.................. $(8,785) $ (4,961) $ (2,250) $ (2,946) $10,157 $ (8,785)
======= ========= ========= ========= ======== =========
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
As of APRIL 3, 2005
(unaudited)
(000s omitted)
USC May USC Europe/ May
Verpackungen Verpackungen
U.S. Can United States Holding GmbH U.S. Can
Corporation Can Company (Subsidiary (Non-Guarantor Corporation
(Parent) (Issuer) Guarantor) Subsidiaries) Eliminations Consolidated
-------------- --------------- ------------------ ----------------- -------------- ------------------
CURRENT ASSETS:
Cash and cash equivalents $ - $ 996 $ - $ 2,482 $ - $ 3,478
Accounts receivable...... - 64,961 - 30,265 - 95,226
Inventories.............. - 74,636 - 41,036 - 115,672
Deferred income taxes.... - 6,573 - - - 6,573
Other current assets..... - 6,217 - 18,088 - 24,305
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total current assets - 153,383 - 91,871 - 245,254
NET PROPERTY, PLANT AND
EQUIPMENT................... - 124,844 - 95,387 - 220,231
GOODWILL...................... - 27,384 - - - 27,384
DEFERRED INCOME TAXES......... - 22,867 - 316 - 23,183
OTHER NON-CURRENT ASSETS...... - 36,305 - 13,541 - 49,846
INTERCOMPANY
ADVANCES.................... - 289,801 - - (289,801) -
INVESTMENT IN
SUBSIDIARIES................ - - 61,835 - (61,835) -
-------------- --------------- ------------------ ----------------- -------------- ------------------
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total assets........ $ - $ 654,584 $ 61,835 $ 201,115 $ (351,636) $ 565,898
============== =============== ================== ================= ============== ==================
CURRENT LIABILITIES
Current maturities of
long-term debt......... $ - $ 3,935 $ - $ 2,535 $ - $ 6,470
Accounts payable......... - 41,922 - 51,538 - 93,460
Restructuring reserves... - 1,171 - 2,282 - 3,453
Income taxes payable..... - - - 1,210 - 1,210
Accrued Expenses......... - 37,189 - 15,165 - 52,354
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total current - 84,217 - 72,730 - 156,947
liabilities...................
TOTAL LONG TERM DEBT.......... 854 572,167 - - - 573,021
LONG-TERM LIABILITIES PURSUANT
TO EMPLOYEE BENEFIT PLANS... - 39,475 896 25,345 - 65,716
OTHER LONG-TERM
LIABILITIES................. - 2,784 - 968 - 3,752
PREFERRED STOCK............... 166,387 - - - - 166,387
INTERCOMPANY LOANS............ 112,058 - 128,488 49,255 (289,801) -
INVESTMENT IN
SUBSIDIARIES................ 120,626 76,567 - - (197,193) -
STOCKHOLDERS' EQUITY.......... (399,925) (120,626) (67,549) 52,817 135,358 (399,925)
-------------- --------------- ------------------ ----------------- -------------- ------------------
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total liabilities $ - $ 654,584 $ 61,835 $ 201,115 $ (351,636) $ 565,898
and
stockholders'
equity........................
============== =============== ================== ================= ============== ==================
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2004
(000's omitted)
USC May
USC Europe/ May
Verpackungen Verpackungen
U.S. Can United States Holding GmbH U.S. Can
Corporation Can Company (Subsidiary (Non-Guarantor Corporation
(Parent) (Issuer) Guarantor) Subsidiaries) Eliminations Consolidated
-------------- --------------- ------------------ ----------------- -------------- ------------------
CURRENT ASSETS:
Cash and cash equivalents $ - $ 927 $ - $ 6,181 $ - $ 7,108
Accounts receivable...... - 50,115 - 28,408 - 78,523
Inventories.............. - 62,861 - 42,406 - 105,267
Deferred income taxes.... - 6,660 - 865 - 7,525
Other current assets..... - 8,376 - 22,435 - 30,811
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total current assets - 128,939 - 100,295 - 229,234
NET PROPERTY, PLANT AND
EQUIPMENT................... - 126,418 - 100,604 - 227,022
GOODWILL...................... - 27,384 - - - 27,384
DEFERRED INCOME TAXES......... - 22,867 - 332 - 23,199
OTHER NON-CURRENT ASSETS...... - 36,715 - 14,198 - 50,913
INTERCOMPANY
ADVANCES.................... - 286,028 - - (286,028) -
INVESTMENT IN
SUBSIDIARIES................ - - 64,954 - (64,954) -
-------------- --------------- ------------------ ----------------- -------------- ------------------
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total assets........ $ - $ 628,351 $ 64,954 $ 215,429 $ (350,982) $ 557,752
============== =============== ================== ================= ============== ==================
CURRENT LIABILITIES
Current maturities of
long-term debt......... $ - $ 3,965 $ - $ 5,480 $ - $ 9,445
Accounts payable......... - 41,716 - 59,262 - 100,978
Restructuring reserves... - 1,947 - 2,400 - 4,347
Income taxes payable..... - - - 479 - 479
Accrued Expenses......... - 39,244 - 16,318 - 55,562
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total current - 86,872 - 83,939 - 170,811
liabilities...................
TOTAL LONG TERM DEBT.......... 854 549,697 - - - 550,551
LONG-TERM LIABILITIES PURSUANT
TO EMPLOYEE BENEFIT PLANS... - 41,652 591 26,639 - 68,882
OTHER LONG-TERM
LIABILITIES................. - 2,782 - 902 - 3,684
PREFERRED STOCK............... 162,253 - - - - 162,253
INTERCOMPANY LOANS............ 112,057 - 127,111 46,860 (286,028) -
INVESTMENT IN
SUBSIDIARIES................ 123,265 70,613 - - (193,878) -
STOCKHOLDERS' EQUITY.......... (398,429) (123,265) (62,748) 57,089 128,924 (398,429)
-------------- --------------- ------------------ ----------------- -------------- ------------------
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total liabilities $ - $ 628,351 $ 64,954 $ 215,429 $ (350,982) $ 557,752
and
stockholders'
equity........................
============== =============== ================== ================= ============== ==================
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTERLY PERIOD ENDED APRIL 3, 2005
(unaudited)
(000s omitted)
U.S. Can United USC May
Verpackungen USC Europe / May
States Can Holding Verpackungen U.S. Can
Corporation Company (Subsidiary (Non-Guarantor Corporation
(Parent) (Issuer) Guarantor) Subsidiaries) Consolidated
-------------- ------------- ------------------ -------------------- -------------
CASH FLOWS USED FOR OPERATING ACTIVITIES.........$.....-..... $(15,167) $ (2,217) $ (1,580) $ (18,964)
- - --------- --------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................-..... (4,071) - (1,624) (5,695)
Proceeds from sale of property.......................-..... - - 232 232
Dividends from Formametal S.A........................-..... 646 - - 646
- -------- --------- -------- ---------
Net cash used for investing activities...........-..... (3,425) - (1,392) (4,817)
- -------- --------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in intercompany advances.....................-..... (3,774) 2,217 1,557 -
Net borrowings under revolving line of - 23,200
credit................................................... - - 23,200
Payments of other long-term debt.....................-..... (1,028) - (5,273) (6,301)
Borrowings of other debt.............................-..... 268 - 2,536 2,804
Payments of debt financing costs.....................-..... (5) - - (5)
- --------- --------- -------- ----------
Net cash (used for) provided by - 18,661
-------- ---------
financing
activities.............................................. 2,217 (1,180) 19,698
---------- ---------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................-..... - - 453 453
- -------- --------- -------- ---------
INCREASE (DECREASE) IN CASH AND - 69
CASH EQUIVALENTS........................................... - (3,699) (3,630)
CASH AND CASH EQUIVALENTS, beginning of - 927
-------- ---------
period..................................................... - 6,181 7,108
--------- -------- ---------
CASH AND CASH EQUIVALENTS, end of period.........$.....-..... $ 996 $ - $ 2,482 $ 3,478
= = ========= ========= ======== =========
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTERLY PERIOD ENDED APRIL 4, 2004
(unaudited)
(000s omitted)
USC May
United Verpackungen USC Europe / May
U.S. Can States Can Holding Verpackungen U.S. Can
Corporation Company (Subsidiary (Non-Guarantor Corporation
(Parent) (Issuer) Guarantor) Subsidiaries) Consolidated
-------------- ------------- ------------------ -------------------- -------------
CASH FLOWS USED FOR OPERATING ACTIVITIES.........$.....-..... $(11,648) $ (2,250) $ (2,793) $ (16,691)
- - --------- --------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................-..... (3,354) - (365) (3,719)
Proceeds from sale of property.......................-..... 1,018 - - 1,018
Dividends from Formametal S.A........................-..... 608 - - 608
- -------- --------- -------- ---------
Net cash used for investing activities...........-..... (1,728) - (365) (2,093)
- -------- --------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in intercompany advances.....................-..... (1,268) 2,250 (982) -
Payments of other long-term debt.....................-..... (602) - - (602)
Borrowings of other debt.............................-..... - - 2,169 2,169
- -------- --------- --------- ---------
Net cash (used for) provided by - (1,870)
-------- ----------
financing
activities.............................................. 2,250 1,187 1,567
---------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................-..... - - (450) (450)
- -------- --------- --------- ----------
DECREASE IN CASH AND - (15,246)
CASH EQUIVALENTS........................................... - (2,421) (17,667)
CASH AND CASH EQUIVALENTS, beginning of - 16,854
-------- ---------
period..................................................... - 6,110 22,964
--------- -------- ---------
CASH AND CASH EQUIVALENTS, end of period.........$.....-..... $ 1,608 $ - $ 3,689 $ 5,297
= = ========= ========= ======== =========
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following narrative discusses the results of operations, liquidity and capital resources for the Company on a
consolidated basis. This section should be read in conjunction with the financial statements and footnotes contained within this
report and the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained therein).
Use of Estimates; Critical Accounting Policies
The preparation of consolidated 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. The Company's critical accounting policies are described in Note (2) to the audited
Consolidated Financial Statements contained within the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2004, as supplemented by Note (1) to these financial statements.
Results of Operations
The following table presents the Company's Revenue and Gross Profit by segment for the first quarter of 2005 as compared to
the first quarter of 2004.
For the quarterly periods ended April 3, 2005 and April 4, 2004
-----------------------------------------------------------------------------
Revenue Gross Profit Percentage to Sales
(in 000's) (in 000's)
-----------------------------------------------------------------------------
2005 2004 2005 2004 2005 2004
-----------------------------------------------------------------------------
Aerosol $ 105,122 $ 92,155 $21,754 $ 14,447 20.7% 15.7%
International 79,598 78,398 3,356 1,886 4.2% 2.4%
Paint, Plastic & General Line 36,625 33,426 4,391 3,422 12.0% 10.2%
Custom & Specialty 9,100 9,488 2,498 (383) 27.5% (4.0)%
----------------------------------------------------------
Total $ 230,445 $ 213,467 $ 31,999 $ 19,372 13.9% 9.1%
==========================================================
Consolidated net sales for the first quarter ended April 3, 2005 were $230.4 million compared to $213.5 million in the first
quarter of 2004, an increase of 8.0%. Along business segment lines, Aerosol net sales for the first quarter of 2005 increased to
$105.1 million from $92.2 million for the same period in 2004, a 14.1% increase, due to an increase in aerosol can prices resulting
from increased raw material costs that were passed on to customers, and changes in customer and product mix ($10.9 million) and
increased unit volume ($2.0 million). International net sales increased to $79.6 million for the first quarter of 2005 from $78.4
million for the first quarter of 2004, an increase of $1.2 million or 1.5%. The increase was 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
first quarter of 2004 ($3.6 million) and the positive impact of a change in prices and customer and product mix ($6.8 million)
partially offset by a decrease in volume ($9.2 million). Paint, Plastic & General Line net sales increased $3.2 million to $36.6
million for the first quarter of 2005 from $33.4 million for the first quarter of 2004. This increase was due to increased raw
material costs in our paint and general line business ($3.2 million), which were passed on to customers, and increased volume in our
plastics business ($0.8 million) partially offset by the negative impact of decreased metal can volume ($0.8 million). In the Custom
& Specialty segment, sales decreased 4.1% from $9.5 million for the first quarter of 2004 to $9.1 million for the first quarter of
2005, driven primarily by a decline in volume, partially offset by increased prices.
........Consolidated gross profit increased $12.6 million for the quarter ended April 3, 2005 from the same quarter in
2004. Along business segment lines, Aerosol gross profit dollars increased by $7.3 million and the percentage to sales increased to
20.7% versus 15.7% for the first quarter of 2004. The increase in Aerosol gross profit dollars was due to an increase in volume in
the first quarter of 2005 versus the same period of 2004 and improved pricing and product and customer mix. The International
segment gross profit increased $1.5 million versus the same period in 2004 and the percentage to sales increased to 4.2% from 2.4%.
The increase in International gross profit was primarily due to operational efficiencies and improved pricing and product and
customer mix ($1.7 million) partially offset by decreased International volume ($0.2 million). The Paint, Plastic & General Line
segment gross profit increased $1.0 million versus the same period in 2004. The percentage to net sales increased from 10.2% in 2004
to 12.0% in 2005. The increase in dollars and percentage was due to improved pricing and customer and product mix. The Custom &
Specialty segment gross profit increased to $2.5 million in the first quarter of 2005, compared to a loss of ($0.3) million in the
first quarter of 2004. The increase was driven primarily by cost reduction programs and operational improvements associated with the
2004 closing of the Company's New Castle, PA lithography and the Elgin, IL (Olive Can) Custom & Specialty plants.
Selling, general and administrative costs were $10.9 million or 4.7% of sales in the first quarter of 2005 compared to $9.8
million or 4.6% of sales in the first quarter of 2004. The increase in selling, general and administrative costs in the first
quarter of 2005 primarily relates to severance payments to be made over time to Company executives.
During the first quarter of 2005, the Company recorded restructuring charges of $0.5 million related to position elimination
costs in Europe. The position eliminations consisted of 12 employees and include eliminations related to the continuation of an
early termination program in one European facility and a product line profitability review program in our German food can business.
Total cash payments in the first quarter of 2005 were $1.2 million (primarily severance and facility shut down costs) and the Company
anticipates spending another $6.5 million over the next several years. The majority of these cash payments relate to restructuring
programs completed in previous years, for which the Company has already realized the associated cost savings. The remaining reserve
consists primarily of employee termination benefits paid over time for approximately four salaried and 36 hourly employees and other
ongoing facility exit costs.
The table below presents the reserve categories and related activity as of and for the quarterly period ended April 3, 2005
(in millions):
January 1, Additions Cash Payments Other (b) April 3, 2005
2005 Balance Balance
--------------- --------------- ----------------- ---------------- --------------
Employee Separation $3.2 $0.4 $(0.5) $(0.1) $3.0
Facility Closing Costs 4.1 0.1 (0.7) - 3.5
--------------- --------------- ----------------- ---------------- --------------
--------------- --------------- ----------------- ---------------- --------------
Total $7.3 $0.5 $(1.2) $(0.1) $6.5 (a)
=============== =============== ================= ================ ==============
(a) Includes $3.1 million classified as other long-term liabilities as of April 3, 2005.
(b) Non-cash foreign currency translation impact
Interest expense for the first quarter of 2005 increased 1.9%, or $0.2 million, versus the same period of 2004. The increase
is due primarily to higher interest rates and higher average borrowings during the period. Bank financing fees for the first quarter
of 2005 were $0.7 million as compared to $1.4 million for the first quarter of 2004. The decrease in bank financing fees is due to
lower fees and expenses associated with the Company's new Credit Facility entered into in June 2004, which are being amortized over
the life of the applicable borrowings, versus the fees and expenses previously being amortized in conjunction with the Company's
former Senior Secured Credit Facility.
Income tax expense was $1.1 million for the first quarter of 2005 versus income tax expense of $0.3 million for the first
quarter of 2004. Prior to 2005, the Company recorded valuation allowances as it could not conclude that it was "more likely than
not" that all of the deferred tax assets of its domestic operations and certain of its foreign operations would be realized in the
foreseeable future. Accordingly, the Company did not record income taxes related to the first quarter of 2005 and 2004 for the
applicable operations.
Payment in kind dividends of $4.1 million and $3.8 million on the redeemable preferred stock were recorded for the first
quarters of 2005 and 2004, respectively.
Liquidity and Capital Resources
During the first quarter of 2005, liquidity needs were met through cash on hand and borrowings under the Company's revolving
line of credit. Principal liquidity needs included operating costs, working capital and capital expenditures. Cash flow used by
operations was $19.0 million for the quarterly period ended April 3, 2005 compared to cash used of $16.7 million for the quarterly
period ended April 4, 2004. The increased use of cash by operations is due primarily to increases in working capital.
During 2004, many domestic and foreign steel suppliers began experiencing increased raw material costs which they passed on
to their customers, including the Company. The price increases took the form of surcharges and base prices increases. The Company's
steel suppliers have announced price increases for 2005 for as much as 26%. This is in addition to significant increases received in
fiscal year 2004. 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. In response to the unprecedented steel cost
increases, the Company increased its selling prices during 2004 and has implemented significant price increases in 2005. The Company
has generally been successful in passing along the majority of the steel cost increases to our customers. However, future steel
surcharges or base price increases could occur and the Company cannot predict with certainty its ability to pass along future
increases to customers or how its customers or competitors will respond to such increases. Additionally, customer contracts may
limit pass-throughs and also may require us to match other competitive bids.
Net cash used for investing activities was $4.8 million for the first quarter of 2005 compared to net cash used of $2.1
million for the first quarter of 2004. First quarter 2005 investing activities include capital spending of $5.7 million offset by
proceeds received from the sale of property of $0.2 million and dividends from Formametal S.A. of $0.6 million. Proceeds received
from the sale of property during the first quarter of 2004 are composed of the payment received for the March 2004 sale of the
Company's closed Dallas, Texas facility.
Net cash provided by financing activities in the first quarter of 2005 was $19.7 million versus net cash provided of $1.6
million for the same period in 2004. The primary first quarter 2005 sources of cash were borrowings under the Company's revolving
line of credit and short-term borrowings by a number of the Company's European facilities, both to fund working capital
requirements.
At April 3, 2005, $23.2 million was outstanding under the $65.0 million revolving loan portion of the Company's Credit
Facility. Letters of credit of $15.5 million were also outstanding securing the Company's obligations under various insurance
programs and other contractual agreements. In addition, the Company had $3.5 million of cash and cash equivalents at quarter end.
The 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 Credit Facility, the Company is required to meet certain financial tests, including
achievement of a minimum interest coverage ratio, a maximum leverage ratio, a maximum first lien leverage ratio and maximum annual
capital expenditures. The restrictive covenants limit the Company's ability to incur debt, pay dividends or make distributions,
repurchase debt and to make certain loans, investments or acquisitions. As of April 3, 2005, the Company was in compliance with all
of the required financial ratios and other covenants under the aforementioned facilities.
At existing levels of operations, cash 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 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's 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 Credit Facility and Senior Secured Notes.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Management does not believe the Company's exposure to market risk has significantly changed since year-end 2004.
Item 4. Controls and Procedures
As of April 3, 2005, the Company's management, with the participation of the Company's Chief Executive Officer and principal
financial officer, evaluated the effectiveness of the design and operations of the Company's disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, the Chief Executive
Officer and principal financial officer concluded, as of April 3, 2005, that the Company's disclosure controls and procedures were
effective for recording, processing, summarizing and reporting the information the Company discloses in the reports that the Company
files with the Commission.
Except as set forth below, during the quarter ended April 3, 2005, there was no change in the Company's internal controls
over financial reporting that materially affected, or was reasonably likely to materially affect, the Company's internal controls
over financial reporting.
As reported in the Company's December 31, 2003 10-K/A, in November 2004, as a result of inquiries regarding accounting and
financial reporting issues at its Laon, France facility, the Company determined that it would restate its financial statements for
the years ended December 2002 and 2003, and the quarter ended April 4, 2004 (the "Restatement"). In connection with the Restatement
and in connection with the preparation of this report, the Company's auditors, Deloitte & Touche LLP, delivered a letter to the
Company regarding "material weaknesses" in the Company's internal controls concerning oversight of its European operations, in
particular its Laon, France facility. As described below, the Company has begun to take corrective action to address this weakness.
In connection with the Restatement process and the inquiry by the Audit Committee, the Company has carried out an
evaluation, under the supervision and with the participation of its Chief Executive Officer and principal financial officer, of the
effectiveness of the design and operation of the Company's disclosure controls and procedures, including an evaluation of such
controls and procedures at a number of its other facilities, and has concluded that the controls and procedures at such other
facilities, and at the Company's corporate headquarters, are superior to those that existed at its Laon, France facility.
The Company has initiated the implementation of various measures to strengthen its internal controls and has added more
structure to the financial oversight of its European operations, including its facility in Laon, France. In particular, the Company
has implemented and intends on implementing the following plans to strengthen its internal controls and add more structure to the
financial oversight of its European operations:
|X| In December 2004, the Company hired a new Finance Director for its Laon, France facility. The Company has also provided
additional training and has hired international corporate resources.
|X| The Company is in the process of selecting a consulting firm to provide internal audit services to the Company's European
operations.
|X| The Company is in the process of implementing a detailed system at each European location to provide support to the audit
process, including reports, checklists and site visits.
The Company believes that the efforts that have been or will be taken will substantially strengthen the organization and
personnel of the senior financial and control functions in Europe and the Company's overall operations.
The Company will continue to evaluate the effectiveness of its controls and procedures on an ongoing basis, including
consideration of recommendations identified through the investigation, and will implement further actions as necessary in its
continuing efforts to strengthen the control process.
The Company's management is committed to continuing to improve the state of its controls and procedures, corporate
governance and financial reporting. Other than the Company's progress in implementing the plans described above, since the
evaluation date by the Company's management of its internal controls, there have not been any significant changes in the internal
controls or in other factors that could significantly affect the internal controls.
PART II
OTHER INFORMATION
Item 1. 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 and at the M&J Solvents site in Georgia. 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. With respect to M&J Solvents site, while over 1,000 contributors to the site have
been identified, the initial compliance status report has not been finalized and thus, the nature, extent and source of contamination
is unknown.
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.
Local No. 24M of the Graphics Communications International Union, the union representing employees at the Company's Weirton
facility, filed an arbitration case challenging the Company's decision to modify its health care plan for retirees. The Union
contended that the Company had an obligation to bargain over plan changes and that it failed to do so. The Company contended that
the matter was not arbitrable, that it only had an obligation to bargain with the Union regarding benefits for active employees
represented by the Union, and that it had no obligation to bargain with regard to retiree benefits. On December 22, 2004, the
arbitrator issued a decision finding that the dispute was arbitrable, that the Company was obligated to bargain with the Union
regarding benefits for retirees, that the Company violated its duty to bargain by unilaterally modifying the health care plan as to
retirees and that benefits under the health care plan are vested as to retirees. On March 16, 2005, the Company filed a lawsuit
appealing the arbitration decision. The Union has not yet responded.
Item 5. Other Information
During April 2005, the Company entered into a resignation agreement with Thomas A. Scrimo. A copy of the agreement is
attached as Exhibit 10.39 to this report.
Item 6. Exhibits
(a) Exhibits
10.39 Resignation Agreement and General Release between United States Can Company and Thomas A. Scrimo dated April 24, 2005.
31.1 Certification of Chief Executive Officer Pursuant to Section 13a-15 of the Securities and Exchange Act of 1934
31.2 Certification of Principal Financial Officer Pursuant to Section 13a-15 of the Securities and Exchange Act of 1934
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
U.S. CAN CORPORATION
Date: May 18, 2005 By: /S/ ROBERT L. BURKHARDT
-----------------------
Vice President and Controller
(Duly authorized officer and principal financial
officer)