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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1996
COMMISSION FILE NUMBER 0-21314
U.S. CAN CORPORATION
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(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)
900 COMMERCE DRIVE
OAK BROOK, ILLINOIS 60521
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(630) 571-2500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $0.01.
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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. [ ]
As of February 28, 1997, the aggregate market value of the voting stock held by
non-affiliates of U.S. Can Corporation was approximately $158,775,156.
As of February 28, 1997, 12,995,230 shares of Common Stock were outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of U.S. Can Corporation's 1997 Proxy Statement are incorporated
in Part III hereof by reference.
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U.S. CAN CORPORATION AND SUBSIDIARIES
FORM 10-K
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business.................................................... 4
Item 2. Properties.................................................. 13
Item 3. Legal Proceedings and Regulatory Matters.................... 15
Item 4. Submission of Matters to a Vote of Security Holders......... 16
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.... 16
Item 6. Selected Financial Data..................................... 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 19
Item 8. Financial Statements and Supplementary Data................. 27
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 56
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 56
Item 11. Executive Compensation...................................... 56
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 56
Item 13. Certain Relationships and Related Transactions.............. 56
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 56
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INCLUSION OF FORWARD-LOOKING INFORMATION
CERTAIN STATEMENTS UNDER THE CAPTIONS "BUSINESS," "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN
THIS REPORT CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 21E(I)(1) OF THE EXCHANGE ACT. SUCH FORWARD-LOOKING STATEMENTS INVOLVE
KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE
ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS,
TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE,
AMONG OTHER THINGS, THE FOLLOWING: GENERAL ECONOMIC AND BUSINESS AND MARKET
CONDITIONS, CHANGES IN PRODUCT DEMAND, CHANGES IN COMPETITION, THE ABILITY OF
THE COMPANY TO INTEGRATE ACQUISITIONS OR COMPLETE FUTURE ACQUISITIONS, INTEREST
RATE FLUCTUATIONS, CURRENCY FLUCTUATIONS, DEPENDENCE ON RAW MATERIAL PRODUCERS,
DEPENDENCE ON AND AVAILABILITY OF QUALIFIED PERSONNEL, CHANGES IN OR FAILURE TO
COMPLY WITH GOVERNMENTAL REGULATIONS INCLUDING ENVIRONMENTAL LAWS, ABILITY TO
OBTAIN ADEQUATE FINANCING IN THE FUTURE AND OTHER FACTORS INDICATED IN THE
COMPANY'S REGISTRATION STATEMENTS AND REPORTS (INCLUDING THIS REPORT). THESE
IMPORTANT FACTORS MAY ALSO CAUSE THE FORWARD-LOOKING STATEMENTS MADE BY THE
COMPANY IN THIS REPORT, INCLUDING BUT NOT LIMITED TO THOSE CONTAINED UNDER THE
CAPTIONS "BUSINESS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" TO BE MATERIALLY DIFFERENT FROM ACTUAL
RESULTS ACHIEVED BY THE COMPANY. IN LIGHT OF THESE AND OTHER UNCERTAINTIES, THE
INCLUSION OF A FORWARD-LOOKING STATEMENT HEREIN SHOULD NOT BE REGARDED AS A
REPRESENTATION BY THE COMPANY THAT THE COMPANY'S PLANS AND OBJECTIVES WILL BE
ACHIEVED.
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U.S. CAN CORPORATION AND SUBSIDIARIES
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
PART I
ITEM 1. BUSINESS
GENERAL
References in this Report to the "Company" mean U.S. Can Corporation and
its subsidiaries, collectively, unless the context otherwise requires; and
references to "U.S. Can" mean solely United States Can Company and, unless the
context otherwise requires, does not include U.S. Can's foreign subsidiaries
(collectively referred to as "USC Europe"). U.S. Can Corporation is a Delaware
corporation, which owns all of U.S. Can's outstanding capital stock. The
references in this Report to market positions or market share are based on
information derived from annual reports, trade publications and management
estimates which the Company believes to be reliable.
The Company is a leading manufacturer of steel containers for personal care
products and household, automotive, paint and industrial supplies, with four
major product groups: (i) aerosol; (ii) paint and general line; (iii) metal
services; and (iv) custom and specialty. The Company believes it currently has
the number one or two market share in each of these product groups. The Company
manufactures an expansive line of aerosol containers for consumer and household
products in the United States and Europe. In paint, plastic and general line,
U.S. Can produces metal and plastic, round and oblong containers, pails and
drums for paints, coatings and industrial products. U.S. Can provides metal
services including secondary steel, shearing, slitting, coating, and lithography
of tin mill products for customers inside and outside of the container industry.
U.S. Can manufactures a wide variety of custom and specialty tins, decorative
containers and products.
The Company conducts its principal business operations in the general
packaging (non-food and non-beverage) segment of the metal container industry.
Management believes that U.S. Can offers the widest range of aerosol, round,
general line and specialty metal containers in the general packaging industry in
the United States. Full-color, quality lithographed containers are available in
a wide range of styles and sizes. The Company's aerosol cans, round and general
line cans and custom and specialty and other containers are sold to many
well-known consumer products manufacturers in the United States and Europe,
including The Sherwin-Williams Company, S.C. Johnson & Son, Inc., The Gillette
Company ("Gillette"), The Glidden Company, The Procter & Gamble Company, Reckitt
& Coleman Inc. and Henkel Kommanditgeselschaft. These customers are among the
largest customers of the Company.
PRODUCTS
Aerosol
The Company is the leader in sales of aerosol containers in the United
States, accounting for more than one of every two aerosol cans sold
domestically. Aerosol containers represent the Company's largest product line,
accounting for approximately 45.6% of the Company's sales in 1996, and are used
to package personal care, household, automotive, paint and various other
products. The Company offers a wide range of aerosol containers in order to meet
its customers' requirements, including stylized necked-in cans and barrier-pack
cans used for products such as shaving gel.
In September 1996, the Company completed the acquisition of the five
aerosol can businesses comprising USC Europe from Crown Cork & Seal Company,
Inc. ("Crown") for $52.8 million and assumption of net indebtedness of $5.8
million (collectively, the "USC Europe Acquisition"). A working capital
adjustment of at least $1.7 million is expected to be made in favor of the
Company, reducing the net cash paid to approximately $51.1 million. This
acquisition included manufacturing operations in the United Kingdom, France,
Spain and Germany and the aerosol can manufacturing equipment and assets from a
Crown facility in
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Italy. USC Europe produced approximately 24% of all steel aerosol cans sold in
Europe in 1996, and, as a group, constituted the second largest manufacturer of
steel aerosol cans in Europe. The Company's agreement with Crown to purchase USC
Europe contains a non-competition provision which materially restricts Crown's
ability to compete for USC Europe's customers prior to September 11, 1997.
Separately, the Company commenced development of a new aerosol container
manufacturing facility in Merthyr Tydfil, Wales, in part to service a long-term
purchase commitment from Gillette. In October 1996, U.S. Can received written
confirmation of Gillette's intention to purchase certain annual unit volumes of
aerosol cans from U.S. Can, including U.S. Can's European operations, through
1998, with the option to extend for an additional period, subject to price
adjustment for actual volumes purchased. U.K. Can, Ltd. (one of the USC Europe
companies) has acquired a 320,000 square-foot facility in Merthyr Tydfil, for
the establishment of this new manufacturing facility. It is not U.S. Can's
policy to have any plant devoted exclusively to one customer and management
plans to service other customers from this facility. Prior to this long-term
commitment, neither U.S. Can nor USC Europe supplied Gillette in Europe. The
Company expects to begin manufacturing at Merthyr Tydfil in mid-1997.
Paint and General Line
Paint and general line containers, which include containers such as round
cans for paint and coatings, oblong cans for products such as turpentine and
charcoal lighter, and pails and other containers for industrial and consumer
products, accounted for the second largest portion of the Company's sales,
approximately 26.8%, for 1996. 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. U.S. Can produced approximately 42% of all steel round
and general line containers sold in the United States during 1996. In September
1996, U.S. Can entered into a container supply agreement with a major coatings
customer. Under this agreement, this customer purchases round containers for its
plants in several locations throughout the United States. This customer has
agreed to purchase certain estimated quantities of round containers per contract
year. This agreement extends until March 2001, subject to termination for
material breach by either party. Under this agreement, prices and volumes may be
adjusted due to changes in certain raw materials cost, certain competitive
offers and/or availability of new types of containers. U.S. Can has established
a paint and general line manufacturing facility in the Dallas, Texas area to
accommodate the increased demand of this customer. Other customers are also
serviced from this plant. U.S. Can's largest customers for its paint and general
line containers include Sherwin-Williams and Glidden.
U.S. Can has expanded into plastic container manufacturing to offer its
customers a wider choice of packaging options. In 1995, U.S. Can purchased
Plastite Corporation ("Plastite"), whose proprietary product line of plastic
containers makes U.S. Can the nation's largest producer of plastic paint cans
for customers such as PPG Industries, Inc. In August 1996, U.S. Can acquired CPI
Plastics, Inc., CP Ohio, Inc. and CP Illinois, Inc. (collectively, the "CPI
Group") for approximately $15.1 million, expanding U.S. Can's plastic container
line and customer base. As a result of these acquisitions, U.S. Can now produces
molded drums, pails and other plastic containers and products, and has added new
customers, including Olin Corporation ("Olin"), a maker of swimming pool
chemicals, petrochemical producers Shell Oil, Valvoline International, Inc., and
Texaco, Inc., and other well known companies, such as United States Gypsum Co.,
whose products utilize plastic packaging. Plastic products accounted for
approximately 2.1% of the Company's sales in 1995 and 4.0% of the Company's
sales in 1996.
Metal Services
Management believes that the Company is the leading supplier of metal
coating and decorating to third party customers in the United States. The
Company's metal services operations also provide secondary steel and other tin
mill services for customers inside and outside of the container business. The
Company operates full service metal decorating and service facilities serving a
variety of customers including Ross Laboratories, Houston Foods Co., and Golden
Harvest, as well as companies within the container and packaging industry,
including Silgan Containers Corp., Ball Corporation and White Cap, Inc. Revenues
from metal services accounted for approximately 10.0% of the Company's sales in
1995 and approximately 13.0% in 1996. The
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Company provides customers with the advantages of quality lithography, large
press size, substantial experience in metal coating and lithography, coupled
with operational advantages, including significant capacity and convenient
geographic positioning that allow the Company to be sensitive to delivery costs
and time constraints. In April 1996, the Company more than doubled its metal
services business, on a pro forma basis, through the acquisition of Alltrista
Metal Services ("AMS"), a division of Alltrista Corporation ("Alltrista"), which
had 1995 sales of approximately $88 million. In connection with the AMS
acquisition, the Company entered into a long-term agreement to supply tin plate
to Alltrista's home canning business.
Custom and Specialty
The Company significantly increased its presence in the custom and
specialty products market in 1994 through acquisitions and has expanded its
product lines to include a wide array of functional and decorative containers
and tins, caps and closures, and metal housewares and collectible items, serving
customers such as Wyeth Laboratories, Keebler Co. Inc. and Wal-Mart Stores, Inc.
Included in this line are hermetic containers and slipcover tins of both
three-piece and seamless construction, manufactured in round and off-round
configurations; standard and custom closures, fitments, and stampings; and metal
trading cards, posters, serving trays, canister sets, dust pans and waste
baskets. In 1996, custom and specialty products experienced a significant
expansion in the highly customized promotional container market (e.g., metal
packaging for Liz Claiborne's Curve product line and Fossil accessories) and
growth in its licensed product operations (e.g., Norman Rockwell and The
Saturday Evening Post products). The Company believes it offers the industry's
widest range of custom and specialty products, enabling it to compete as a full
service metal decoration and specialty products provider with a large number of
manufacturers, none of which competes across the Company's entire product
spectrum. Custom and specialty contributed sales of approximately $77 million or
9.7% of the Company's sales in 1996.
Engineering Center
The Company acquired the Orlando Machine Engineering Center ("OMEC") in
1994. OMEC manufactures a full line of Callahan manufacturing machinery and a
variety of other new can manufacturing equipment ranging from small bench model
seamers to large production presses, as well as specialized equipment such as
water testers and compound lining machines. OMEC also offers a wide range of
value-added, rebuilt can-making machinery, including feeders, slitters,
flangers, seamers, liners, presses and scroll shears. OMEC utilizes the latest
in computer-controlled technology to design and build high quality tool and die
sets for the can industry, and is a leading supplier of quality spare parts for
the Callahan line, Bruderer and Bliss presses, Angelus seamers and many other
packaging equipment lines. OMEC's extensive capabilities allow U.S. Can to
perform in-house overhaul, repair and engineering support services formerly
contracted to outside machine shops.
RECENT DEVELOPMENTS
In January 1997, U.S. Can acquired certain assets from Owens-Illinois
Closure Inc. ("O-I") for cash consideration of $10 million, which is subject to
adjustment based upon the actual value of the inventory acquired and potential
contingent payments of up to $1.5 million based upon realization of certain new
business which O-I was seeking at the time of the acquisition. The assets
acquired by U.S. Can include machinery, equipment, inventory and raw materials
of O-I's Erie, Pennsylvania metal business. O-I will operate these lines for up
to one year, pending relocation into one or more of U.S. Can's plants. U.S. Can
and O-I also entered into a one-year supply agreement whereby O-I will supply
all of U.S. Can's requirements of liner material for the unishell closures
manufactured on the Erie metal lines.
In December 1996, U.K. Can, Ltd. entered into (and U.S. Can guaranteed) a
$30 million credit agreement with General Electric Capital Corporation, to
finance (and secured by) the land, building and equipment comprising the Merthyr
Tydfil aerosol can manufacturing facility.
The Company executed a lease in December 1996 for a building in Voghera,
Italy for the relocation of aerosol can manufacturing assets from a Crown
facility in Italy. The Company has taken occupancy of the
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building and anticipates commencement of manufacturing capability at this
location during the second quarter of 1997.
In October 1996, the Company issued $275 million of 10 1/8% Senior
Subordinated Notes due 2006 (the "Notes") in a private placement. Net proceeds
from the issuance of the Notes were $268.1 million, $158.4 million of which were
used to partially repay amounts borrowed under U.S. Can's bank credit agreement
(the "Credit Agreement") and $109.7 million of which were placed in an escrow
account and used in January 1997 to redeem U.S. Can's $100 million of 13 1/2%
Senior Subordinated Notes due 2002 (the "13 1/2% Notes") at a premium and pay
the related accrued interest on the 13 1/2% Notes. In March 1997, the Company
completed a registered exchange offer, exchanging all of the Notes for Series B
10 1/8% Senior Subordinated Notes due 2006 (the "Exchange Notes"). The Exchange
Notes are substantially identical (including principal amount, interest rate,
maturity and redemption rights) to the Notes, except that holders of Exchange
Notes generally will not be entitled to registration rights. Both the Notes and
Exchange Notes have been issued under the indenture (the "Indenture") dated as
of October 17, 1996, among the Company, U.S. Can and Harris Trust and Savings
Bank, as trustee. For a more complete description of the Exchange Notes and the
Indenture, see Note (5) of the Notes to Consolidated Financial Statements
included in Item 8 of this Report.
ACQUISITIONS
The Company was formed in 1983 through the purchase of the container
division of Sherwin-Williams by an investor group led by William J. Smith, the
Company's Chairman, President and Chief Executive Officer. Strategic
acquisitions were a major element of the Company's historic growth strategy. The
Company more than doubled its sales in its first four years by acquiring the
aerosol manufacturing facilities of Southern Can Company and the general
packaging business of Continental Can Company, USA, Inc. ("CCC").
Since 1983, the Company has completed a total of 23 acquisitions. Initially
the Company's acquisition strategy focused on aerosol and paint and general line
can-making operations. More recently, growth has focused on expanding into
related products and line extensions as well as new market areas. These
acquisitions have strengthened and expanded the Company's product lines and
geographical presence and have enabled it to serve the needs of an expanding
list of major customers. The Company's management has consistently been able to
improve the operating margins of acquired businesses through consolidation,
operating synergies, cost reduction and increased manufacturing efficiency.
The Company has, for the past several years, realized additional sales as a
result of its significant acquisition activity. While the Company has
historically aggressively sought acquisitions to implement its growth
strategies, these objectives have largely been met with the consummation of the
acquisitions in 1996. However, the Company plans to continue to evaluate and
selectively pursue acquisitions which it believes are strategically important to
meeting its customers needs, attracting new customers, adding new products,
complementing its existing business and expanding its geographic reach.
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The following table lists the Company's acquisitions since 1983 all of
which were consummated by the Company's United States operating entity, U.S.
Can:
YEAR
COMPLETED BUSINESS OR ASSETS ACQUIRED PRODUCT LINES PURCHASE PRICE
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1985 # Southern Can Company Aerosol $32.0 million(1)
1986 * General Can Company -- Alsip Paint and General Line $ 0.4 million
1987 # CCC General Packaging Business Aerosol/Paint and General Line $65.0 million(2)
1988 * General Can Custom and Specialty $ 1.1 million
1992 * ANC--Sparrows Point Metal Services $ 7.3 million
1992 * Fein Container Corporation Paint and General Line $ 7.0 million
1992 * ANC--General Packaging Aerosol/Paint and General Line $14.7 million
1993 * Olsher Metals Processing Corporation Metal Services $ 8.8 million(1)
1993 * Spencer Containers, Inc. Custom and Specialty $ 0.1 million
1994 @ Steeltin Can Corporation Custom and Specialty/ Metal $20.7 million(1)
Services/Paint and General
Line
1994 * Alsip facility from Ball Corporation Metal Services $ 4.6 million
1994 * Midwest Can Company Oblong Containers $ 0.5 million
1994 # Ellisco, Inc. Custom and Specialty/ Metal $32.2 million
Services
1994 # Rollason Engineering and Manufacturing, Equipment Overhaul/ Repair $ 1.4 million(3)
Inc. Packaging Industry
1994 * Grafco Industries, L.P. Custom and Specialty $ 1.1 million
1995 # Metal Litho International Metal Services $14.3 million(1)
1995 * Prospect Industries Corporation Paint and General Line $ 8.8 million
1995 # Hunter Container Corporation Custom and Specialty $ 6.5 million(1)
1995 # Plastite Corporation Plastics $ 7.3 million(4)
1996 * AMS Metal Services $14.9 million(5)
1996 # CPI Group Plastics $15.1 million(6)
1996 @ USC Europe Aerosol $52.8 million(7)
1997 * Erie Metal Business from Owens-Illinois Custom and Specialty $10.0 million(8)
Closures, Inc.
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* Indicates acquisition of assets of the business by U.S. Can.
# Indicates acquisition of stock of the entity. In all cases of stock
acquisitions, except USC Europe, the entities were subsequently merged into
the purchasing entity, U.S. Can. USC Europe which is comprised of individual
operating entities in each country (United Kingdom, France, Germany, Spain
and Italy), is operated as a group of wholly-owned direct and indirect
subsidiaries of U.S. Can.
@ Indicates acquisition of stock of an entity together with additional asset
acquisition by U.S. Can.
(1) Included assumption of debt in conjunction with acquisition.
(2) Included $55.0 million face amount of Class 1 Preferred Stock of the
Company.
(3) Included $1.0 million in the Company's Common Stock and assumption of debt
in conjunction with acquisition.
(4) Plus future contingencies not to exceed $2.5 million in the aggregate.
(5) In a related transaction, U.S. Can purchased inventory from Alltrista for
approximately $8.0 million on an installment basis.
(6) Plus future contingencies not to exceed $1.0 million in the aggregate.
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(7) Included assumption of $5.8 million in net indebtedness and subject to a
post-closing adjustment for changes in working capital from April 30, 1996
to September 11, 1996, the closing date of the USC Europe Acquisition. The
post-closing adjustment is expected to be at least $1.7 million in favor of
the Company, reducing the net cash paid to approximately $51.1 million.
(8) Subject to a post-closing adjustment for inventory acquired plus future
contingencies not to exceed $1.5 million in the aggregate.
SALES
The Company's sales are derived from five major groupings: (i) aerosol
cans, (ii) paint and general line containers, (iii) metal services, (iv) custom
and specialty products and (v) international. The following table sets forth the
percentage of sales contributed by each of these areas for each of the last
three fiscal years:
1994 1995 1996
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Aerosol.............................................. 56.6% 50.8% 45.6%
Paint and general line (including plastic)........... 28.7 28.2 26.8
Metal services....................................... 5.3 10.0 13.0
Custom and specialty products, and other............. 9.4 11.0 10.2
International........................................ -- -- 4.4
CUSTOMERS
As of December 31, 1996, in the United States, the Company had
approximately 9,000 customers for its products, as compared to approximately
6,600 and 6,500 customers as of December 31, 1995 and 1994, respectively. The
Company's 10 largest customers accounted for approximately 32.2% of sales for
1996, and 33.3% and 35.1% of sales in 1995 and 1994, respectively. No single
customer accounted for more than 10% of the Company's sales during 1996, 1995 or
1994.
In accordance with industry practice, the Company enters into one-year or
multi-year supply agreements with its major customers. 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 the Company's multi-year supply agreements, a provision permitting the
Company to pass through announced price increases in certain raw material costs.
In the United States, U.S. Can markets its products primarily through a
sales force comprised of inside and outside sales representatives. Beginning in
1994, the sales force was organized to reflect the Company's increased presence
in Metal Services and Custom and Specialty Products and is now comprised of five
groups--the Aerosol Sales group, the Paint and General Line Sales group, the
Metal Services Sales group, the Custom and Specialty Sales group and the OMEC
sales group. In total, as of February 1, 1997, the Company had 63 outside sales
representatives and 58 inside sales representatives working in the domestic
market. In Europe, USC Europe has an experienced sales force in all five
countries. The Company has eight inside sales representatives and eight outside
sales representatives working in Europe. Management believes that its
experienced sales force with extensive customer relationships is a significant
competitive advantage.
As of December 31, 1996, the amount of domestic open orders from customers
(backlog) was approximately $58.8 million. As of December 31, 1995, such backlog
was approximately $54 million. The Custom and Specialty Products line tends to
be slightly more seasonal than the aerosol, round and general lines but, as a
whole, U.S. Can's backlog does not vary to any material degree because of
seasonality. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Seasonality."
RAW MATERIALS
The Company's principal raw materials are tin-plated steel ("tin plate")
and coatings and inks used to print its customers' designs and logos onto the
tin plate. U.S. Can purchases tin plate principally from domestic steel
manufacturers, with a minor portion purchased from Asian and European mills.
Both U.S. Can
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and USC Europe primarily rely on local mills to satisfy their plants' tin plate
requirements, but may also buy tin plate from other suppliers. Tin plate
accounted for approximately 85% of U.S. Can's total raw material purchases in
1996. Periodically, U.S. Can's major suppliers announce increases in prices for
tin plate and, in September 1996, they announced an increase of 2 3/4% in the
price of tin plate, effective January 5, 1997. Historically, U.S. Can has been
able to negotiate lower price increases than those announced by its major
suppliers. However, there can be no assurance that U.S. Can will be successful
in negotiating lower price increases with respect to future price increases.
Many of U.S. Can's multi-year supply agreements with its customers permit it to
pass through announced price increases in certain raw material costs. However,
historically, U.S. Can has not always been able to immediately offset increases
in tin plate prices with price increases on its products.
The Company believes that adequate quantities of tin plate will continue to
be available from steel manufacturers. The individual suppliers of raw materials
accounting for more than 10% of the total steel used by U.S. Can in 1996 were
USX's U.S. Steel group, Weirton Steel Corporation and LTV Corporation. The
percentage of total raw materials supplied to U.S. Can by each of these
suppliers ranged from approximately 25% to approximately 32% for the year ended
December 31, 1996.
Periodically, USC Europe's major suppliers have announced price increases
for tin plate. Historically, Crown and its subsidiaries have on occasion been
able to negotiate lower price increases and/or later effective dates than those
announced by their major suppliers. However, there can be no assurance that USC
Europe will be successful in negotiating lower price increases or later
effective dates with respect to future price increases, if any. Although supply
agreements with customers often permit USC Europe to pass on announced raw
material cost increases in form of higher prices, USC Europe has not always been
able to fully offset increases in tin plate prices.
The Company has not historically entered into written supply contracts with
steel makers and believes that other can manufacturers follow the same practice.
The Company allocates its purchases among steel makers on the basis of price and
performance, and uses a structured quality and service rating system which
monitors each supplier's performance on a monthly basis. Typically, the Company
reaches an oral agreement with each of its domestic tin plate suppliers on the
volume of the Company's purchases and pricing once per calendar year, based on
good faith estimates. Pricing is subject to renegotiation if the steel maker's
raw material costs increase or decrease. Since the inception of the Company, the
annual steel price agreements have not been renegotiated for any reason.
Agreements with foreign steel makers are substantially similar.
The Company's second largest raw material expense is for coatings and inks,
which are used to print designs and logos onto the tin plate prior to assembly.
Coatings and inks accounted for approximately 9% of U.S. Can's raw material
costs in fiscal year 1996 and are purchased from indigenous suppliers. Based on
the ready availability of these materials in the past and the number of
manufacturers which continue to make these products, management does not
anticipate any lack of availability of coatings and inks in the foreseeable
future.
The Company's plastic products are produced from two main types of resin,
which is a petroleum or natural gas product. High density polyethylene resin is
used to make pails, drums and agricultural products. 100% post-industrial and
consumer use, recycled polyethylene or polypropolene resin is used in the
production of the Plastite line of paint cans. The price of resin fluctuates
significantly and management believes that it is standard industry practice, as
well as the Company's contractual right/obligation in many of its supply
agreements, to pass on increases and decreases in resin prices to the customer.
LABOR
As of February 1, 1997, in the United States, the Company employed
approximately 4,065 salaried and hourly employees. At that date, there were
2,477 employees who were members of various labor unions, including the United
Steelworkers of America ("USWA"), the International Association of Machinists
("IAM"), Local 810 of the Steel, Metals, Alloys and Hardware Fabricators and
Warehousemen (affiliated with the International Brotherhood of Teamsters
("Teamsters")), the Sheet Metal Workers of America ("SMWA"), Graphic
Communications International Union ("GCIU"), International Leather Goods,
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Plastic, Novelty and Service Workers Union ("ILGPNSWU"), and the International
Union of Electronic, Electrical, Salaried, Machine and Furniture Workers,
AFL-CIO ("IUE"). Unionized employees constitute approximately 61% of the
Company's total workforce. The labor agreement with a local unit of the USWA,
covering approximately 240 employees at the Hubbard, Ohio facility, was ratified
in early March 1996. A new agreement with the IAM, covering approximately 80
employees at U.S. Can's Racine, Wisconsin facility, was completed in March 1996.
In September 1996, the Company completed negotiations with the ILGPNSWU, Local
No. 359 at its Newnan, Georgia plant for the renewal of a labor agreement
covering approximately 95 employees. In December 1996, the labor agreement with
the USWA, covering approximately 419 employees at the Elgin, Illinois plant, was
extended to June 2001. The Company concluded negotiations at its Midwest Litho
Center in Alsip, Illinois, to discontinue its operations involving the GCIU's
unit of approximately 20 employees. At that same facility, negotiations are
underway to renew the extended agreement with the Teamsters bargaining unit of
about 72 employees which expired in January 1997. The Company has begun
negotiations with the USWA at the Chicago Metal Services plant to renew an
agreement covering approximately 100 employees scheduled to expire in March
1997. The Company's labor agreement with a local unit of the GCIU, covering
approximately 83 employees at the Trenton, New Jersey Litho Center, was renewed
for a three-year period commencing in March 1996. The labor agreement with the
USWA, covering approximately 100 employees at the Columbiana, Ohio plant, was
renewed for three years in April 1996.
USC Europe employed approximately 650 people at the end of 1996. The
Company believes that its workforce is skilled and committed, as demonstrated
over the last five years by increasing productivity and very limited work
stoppage due to labor disputes. The workforce is trained in industry-best
practices, combining the skills and know-how of recent can-making developments
from leaders in aerosols on both sides of the Atlantic and is, therefore, one of
the most valuable assets of USC Europe. In line with common European practices,
all plants are unionized. The management of the Company believes that labor
relations are excellent at all plants. Each of USC Europe's plants is managed by
an experienced management team, comprising in most cases a managing director,
plant manager, sales manager and finance manager.
In the United States, the Company has followed a labor strategy designed to
enhance its flexibility and productivity through constructive relations with its
employees and collective bargaining units. Elements of this strategy have
included implementation of flexible staff schedules, plant-level profit sharing
plans and plants staffed entirely by salaried workers. Management believes the
401(k) plan first negotiated at U.S. Can's Elgin, Illinois plant is unique in
the packaging industry and provides incentives for local performance, while
reducing the Company's exposure to defined benefit plan costs traditionally
bargained for by unions. During the last four years, the Company has expanded
this plan to include local bargaining units at several of its domestic plants.
Management believes the Company and its employees have benefited from
dealing directly with local unions in order to tailor their contracts to local
employee issues. In the future, management intends to negotiate separately with
the unions at acquired plants to reach individual site contracts with the
respective local bargaining units. This policy has the effect of staggering
renewal negotiations with the various bargaining units. Management believes the
Company's relations with its employees and their collective bargaining units are
generally good, as evidenced by the fact that the Company has had only two work
stoppages in its history: a five-day work stoppage at the Horsham, Pennsylvania
facility in November 1992, and a one-day work stoppage at the now-closed San
Leandro, California facility in June 1988.
COMPETITION
The principal methods of competition in the general packaging industry are
price, quality and service. The Company believes that it competes favorably in
each of these areas. The Company can also compete more effectively by reducing
manufacturing costs and enhancing operating efficiencies through investments in
capital equipment and technology. Price competition in the industry is vigorous
and limits the Company's ability to increase prices. Generally, customers of all
general line containers are demanding more consistent product availability with
shorter lead times. Because aerosol cans are used for personal care, household
and other packaged products, and because they are pressurized, aerosol cans are
more sensitive to quality, can decoration and other consumer-oriented features
than paint and general line containers.
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Competition has increased in the general packaging industry as a result of
mature markets, customer consolidations and consolidation within the container
industry. In steel aerosol containers, U.S. Can competes primarily with Crown
and BWAY Corporation. Crown is larger and has greater financial resources than
the Company. USC Europe competes in the steel aerosol market with the combined
Crown/CarnaudMetalbox operations (subject to the terms of a one-year
non-compete, summarized below), the German container manufacturer,
Schmalbach-Lubeca/Continental Can Europe (which has announced it will be
acquired by Viag), the German aerosol manufacturer, Staehle, and a group of
other smaller regional producers. Domestically, U.S. Can also competes with
Advanced Monobloc and two other smaller firms which manufacture aluminum aerosol
containers. In Europe, USC Europe competes with aluminum aerosol container
manufacturers, Alusuisse-Lonza Holding AG/Boxal and Pechiney International,
S.A./Cebal.
The USC Europe Acquisition represented the sale by Crown of various aerosol
operations in Europe, which sale was mandated by the stipulation of the European
Economic Communities European Merger Task Force in connection with Crown's
merger with CarnaudMetalbox. The mandate provides various conditions to the
terms of the sale by Crown, including limitations on competition for customers
of the various aerosol operations. Thus, in compliance with the terms of the
stipulation, the terms of the Company's agreement with Crown to purchase USC
Europe include a non-compete. For one year, Crown is prohibited from competing
for the business of customers who were, prior to the purchase, served by USC
Europe to the extent that such competition would lessen the volume of products
historically purchased from USC Europe by such customers. Excepted from this
non-compete are customers who, with the approval of the Commission of European
Communities and in good faith, decline to purchase aerosol cans from USC Europe.
In paint and general line, the Company competes primarily with BWAY
Corporation and one smaller, private firm. The Company's products also face
competition from aluminum, glass and plastic containers. In 1995, the Company
entered the plastic container line through the acquisition of Plastite. In 1996,
the Company expanded its plastics operations by acquiring the CPI Group.
Because shipping costs associated with the delivery of cans from outside
North America would add a major additional component of cost, the industry has
historically had relatively little competition from offshore manufacturers.
Management believes that this condition is unlikely to change in the foreseeable
future. Management also believes that, due to the substantial transportation
costs involved in shipping empty cans over long distances, its large number of
facilities and their strategic locations near customers are a major competitive
advantage.
Management believes that the following factors benefit the Company from a
competitive standpoint: (i) reputation for quality and service; (ii)
strategically located manufacturing facilities and a strong sales force; (iii)
substantial capital investment in new technology such as necked-in and barrier
package designs, high-speed presses and assembly equipment, and
computer-controlled lithography; (iv) quality control systems, including
statistical process control and electronic "vision" error detection; (v) breadth
of product line; (vi) in-house decorating and lithography capacity; and (vii) a
successful domestic labor strategy.
Custom and specialty products compete with a large number of container
manufacturers and closure suppliers; it does not compete across its entire
product spectrum with any single company. Competition is based principally on
price, quality and service, geographical proximity to customers and production
capability, with varying degrees of intensity according to the specific product
category. The Company believes it has the ability to compete favorably in each
aspect of the custom and specialty business as market conditions may require.
Metal services divides its business into metal decorating and tin mill
services. In metal decorating, metal services competes with a few smaller metal
decorating firms and the litho operations of the other major can companies. The
tin mill service center market is fragmented and shared by a large number of
firms. Management believes the Company's investment in litho capacity and
technology, reputation for quality, experience in metal decorating and
strategically located plants provide the Company with significant advantages
relative to its competitors.
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ITEM 2. PROPERTIES
The Company has 39 manufacturing facilities located in 12 states in the
U.S. and in five countries abroad, many of which are strategically positioned
near principal customers and suppliers. In Europe, USC Europe has production
locations in the five largest regional markets, including the United Kingdom,
France, Spain, Italy and Germany. The following table sets forth certain
information with respect to these plants as of February 28, 1997.
LOCATION SIZE STATUS FUNCTION
-------- ---- ------ --------
UNITED STATES
Elgin, IL............... 481,346 sq. ft. Owned Manufacture and assembly of a full range
of aerosol cans, round gallons and oblong
cans of all sizes.
Chicago, IL............. 266,269 sq. ft. Owned Steel slitting and shearing, coating and
lithography.
Tallapoosa, GA.......... 228,080 sq. ft. Owned Manufacture and assembly of a full range
of aerosol cans and round gallons.
Commerce, CA............ 215,860 sq. ft. Leased Manufacture and assembly of aerosol cans,
oblong cans and round quarts and gallons.
Sparrows Point, MD...... 211,670 sq. ft. Leased Steel shearing, coating and lithography.
Glen Dale, WV(1)........ 210,000 sq. ft. Owned Manufacture of metal caps and closures,
and custom and specialty products.
Burns Harbor, IN........ 190,000 sq. ft. Leased Steel shearing, coating and lithography.
Hubbard, OH............. 174,970 sq. ft. Owned Manufacture and assembly of a full range
of round and general line cans.
Baltimore, MD........... 150,000 sq. ft. Leased Assembly of round cans.
Horsham, PA............. 132,000 sq. ft. Owned Assembly of aerosol cans and manufacture
of ends.
Racine, WI.............. 130,000 sq. ft. Owned Assembly of aerosol cans.
Brookfield, OH.......... 129,900 sq. ft. Leased Steel slitting, shearing and processing.
Green Bay, WI........... 127,000 sq. ft. Leased Assembly of aerosol cans.
Baltimore, MD
(Steeltin Plant)...... 123,000 sq. ft. Owned Assembly of specialty cans.
Columbiana, OH.......... 121,000 sq. ft. Leased Manufacture of custom and specialty
products.
Morrow, GA.............. 110,160 sq. ft. Leased Manufacture of plastic containers.
Weirton, WV............. 108,000 sq. ft. Leased Steel shearing, coating and lithography.
North Brunswick, NJ..... 106,326 sq. ft. Leased Manufacture and assembly of steel pails.
Danville, IL(2)......... 100,000 sq. ft. Owned Assembly of aerosol cans and manufacture
of ends.
Wheeling, WV............ 100,000 sq. ft. Leased Manufacture of metal caps and closures.
Trenton, NJ............. 98,700 sq. ft. Leased Steel shearing, coating and lithography.
Newnan, GA.............. 95,000 sq. ft. Leased Manufacture of plastic pails and other
products.
Fern Park, FL........... 90,081 sq. ft. Leased Manufacture and overhaul of packaging
equipment and parts.
Alsip, IL
(Midwest Litho
Center)............... 90,000 sq. ft. Owned Steel shearing and coating.
Dallas, TX.............. 87,000 sq. ft. Owned Manufacture of round cans.
Vernalis, CA............ 74,000 sq. ft. Leased Manufacture of custom and specialty
containers.
Alsip, IL............... 64,349 sq. ft. Leased Assembly of round flat-top and screw-neck
cans.
Warren, OH.............. 58,000 sq. ft. Leased Coating and lithography.
Alliance, OH............ 52,000 sq. ft. Leased Manufacture of plastic products.
Baltimore, MD
(Columbia
Specialty)............ 45,000 sq. ft. Leased Manufacture of specialty tins and
components.
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LOCATION SIZE STATUS FUNCTION
-------- ---- ------ --------
Jerseyville, IL......... 24,000 sq. ft. Leased Manufacture of plastic products.
New Castle, PA.......... 22,750 sq. ft. Owned Coating and lithography.
Tallapoosa, GA.......... 21,400 sq. ft. Owned Sporri Development Center; assembly of a
variety of specialty cans, including
small-size aerosol cans.
EUROPE
Merthyr Tydfil, UK...... 320,000 sq. ft. Leased(3) Manufacture and assembly of aerosol cans.
Southall, UK............ 253,000 sq. ft. Owned Manufacture and assembly of aerosol cans.
Laon, France............ 220,000 sq. ft. Leased Manufacture and assembly of aerosol cans.
Reus, Spain............. 182,250 sq. ft. Owned Manufacture and assembly of aerosol cans.
Tredegar, UK............ 90,350 sq. ft. Owned Steel shearing and coating operations.
Voghera, Italy(4)....... 45,200 sq. ft. Leased Assembly of aerosol cans.
Schwedt, Germany........ 35,500 sq. ft. Leased Assembly of aerosol cans.
- -------------------------
(1) Purchased July 31, 1996; expected date of manufacturing capability is
mid-1997.
(2) Subject to a mortgage in favor of The First National Bank of Danville.
(3) The property at Merthyr Tydfil is subject to a 999-year lease with a
pre-paid option to buy which becomes exercisable in January 2007. Up to that
time, the landowner may require the Company to purchase the property for a
payment of 1 pound British Sterling.
(4) Lease executed on December 18, 1996. The Company has taken occupancy of this
building and expects manufacturing to begin during the second quarter of
1997.
Currently, the Company's facility under construction at Merthyr Tydfil is
subject to a pledge of the leasehold interests and personal property located
thereon to secure amounts outstanding under a credit agreement entered into with
General Electric Capital Corporation on December 20, 1996. The Company's
facility in Laon, France is subject to a pledge of the leasehold interests
pursuant to a lease financing arrangement with Sogaibail, S.A.
In addition to its manufacturing facilities, the Company owns approximately
22 acres of undeveloped land in Raeford, North Carolina; leases 37,734 square
feet of office space in Oak Brook, Illinois to house its corporate headquarters;
leases approximately 102,400 square feet of office and warehouse space in
Baltimore, Maryland to house a custom and specialty sales office and
distribution center; and leases approximately 58,200 square feet of office and
warehouse space in Saddle Brook, New Jersey to house East Coast aerosol and
paint and general line sales and a general line distribution center. The Company
owns an additional building in Saddle Brook, where manufacturing operations were
formerly conducted, a 118,000 square-foot building in Philadelphia,
Pennsylvania, which is under contract for sale, a 145,000 square-foot building
in Baltimore, Maryland, where AMS conducted metal service operations, a 40,000
square-foot space in Benecia, California, which is available for sub-lease, and
a 68,000 square foot building in Trussville, Alabama, which is under contract
for sale.
Management believes the Company's facilities are adequate for its present
needs and that its properties are generally in good condition, well-maintained
and suitable for their intended use. All of the manufacturing plants described
in the table above (other than Glen Dale, WV and Voghera, Italy) are operating
in regular service with one or more shifts per day. The Company continuously
evaluates the composition of its various manufacturing facilities in light of
current and expected market conditions and demand. While no plans currently
exist to further consolidate plant operations, such actions may be deemed
appropriate in the future.
In July 1996, the Company completed its acquisition of a facility in Glen
Dale, West Virginia for the transfer of its manufacturing operations currently
located in Wheeling, West Virginia. In January 1997, the Company acquired
certain assets from O-I which include machinery, equipment, inventory and raw
materials of O-I's Erie, Pennsylvania metal business. O-I will operate these
lines for up to one year, pending relocation. The Company plans to transfer
manufacturing capabilities from O-I's Erie plant to Glen Dale.
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ITEM 3. LEGAL PROCEEDINGS AND REGULATORY MATTERS
The Company is involved in a number of legal proceedings arising in the
ordinary course of business. Management does not believe that these proceedings
will have a material adverse effect on the business or financial condition of
the Company either individually or in the aggregate. In addition, the Company is
involved in the following matters.
On February 28, 1995, Continental Holdings Inc. ("CHI"), an affiliate of
Peter Kiewit Sons', Inc. ("Kiewit"), filed a Complaint against U.S. Can and
others in the United States District Court, District of New Jersey, asserting
claims based upon alleged indemnity obligations of U.S. Can to Kiewit, as
successor in interest to CCC, arising from the 1987 acquisition by U.S. Can of
the general packaging business of CCC. These alleged indemnity obligations
relate to environmental liabilities, reimbursable insurance deductibles and
reinsurance amounts, and certain personal injury and employment discrimination
claims. The Complaint includes counts for breach of contract, declaratory
judgment, indemnification and contribution, certain statutory remedies, state
environmental law remedies and unjust enrichment. CHI seeks unspecified
compensatory damages, consequential and incidental damages, interest, attorneys'
fees and costs of litigation, equitable relief, environmental response costs,
and restitution. No aggregate dollar amount of damages is specified in the
Complaint. However, in an initial discovery disclosure served on U.S. Can, CHI
alleged that its damages to the date of such disclosure were approximately $4.4
million. U.S. Can has filed an Answer to the Complaint, asserted affirmative
defenses and made counterclaims against CHI seeking reimbursement for expenses
and accruals relating to postretirement medical and life insurance benefits for
former employees of CCC, and expenses incurred as a result of CCC's breach of
its contractual indemnification obligations to U.S. Can. The case has been
transferred to the United States District Court for the Northern District of
Illinois. U.S. Can believes it has meritorious defenses to all of CHI's claims.
The National Labor Relations Board ("NLRB") has issued a decision finding
the Company in violation of certain sections of the National Labor Relations Act
as a result of the Company's closure of certain facilities in 1991 and failure
to offer inter-plant job opportunities to affected employees. Management does
not believe that the resolution of this matter will have a material adverse
effect on the Company's financial condition or results of operations.
Aerosol containers, the Company's principal product, have historically been
subject to criticism on environmental grounds. While the Company believes that
aerosol can technology is environmentally sound, unfavorable legislation or
regulation relating to aerosols could reduce the number of aerosol containers
used by the Company's customers, which could have a material adverse effect on
the Company. The Company is also subject to potential liability for the costs of
environmental remediation. This liability may be based upon the ownership or
operation of industrial facilities where contaminants may be found, regardless
of whether the Company has contributed to the contamination.
The Company understands that the groundwater in San Leandro, California
(formerly a site of one of the Company's can assembly facilities) is
contaminated at shallow and intermediate depths, and that the area of concern
partially extends to the groundwater below its former can assembly facility. The
California Regional Water Quality Control Board originally examined
contamination issues involving the site but did not, in 1989-91, require any
remediation. The Company did expend approximately $375,000 in voluntary ground
remediation of a potential contamination site on this property at that time. The
California Department of Toxic Substances Control ("CDTSC") identified regional
groundwater contamination concerns for this area and has been trying to define
and delineate the areas of possible contamination and the sources of the
contamination on a regional basis. In late April 1996, the CDTSC issued to
certain of the past and present owners of this facility, including U.S. Can, an
order directing such owners to conduct remediation activities at this site;
however, no specific form of remediation was indicated. Representatives of the
Company met with the CDTSC in response to the order and agreed to undertake
additional site assessment work with the purpose of producing a site
characterization to determine with greater focus the nature of the
contamination. In January 1997, the Company received results from on-site
investigations conducted by an independent environmental consultant. Those
results indicated that, while no evidence of soil contamination in the studied
areas was found, there is a substantial probability that soil beneath one area
of the facility has had an impact
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on site groundwater. Additionally, groundwater in the vicinity has been impacted
by contaminants which appear to be migrating on-site from up gradient sources.
The Company's designated consultant has delivered to the CDTSC a work plan to
develop site characterization. The San Leandro facility was closed in 1989 and
was sold, except for a related parcel of land, in 1994. The remaining parcel was
sold in 1995. In connection with the sale, the Company agreed to indemnify the
purchaser against any environmental claims related to the Company's ownership of
the property. There can be no assurance that the Company will not incur material
costs and expenses in connection with the CDTSC order.
For a discussion of various Superfund sites in the U.S., see "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE AND DIVIDEND POLICY
U.S. Can Corporation's common stock, par value $0.01 per share (the "Common
Stock"), has been listed on the New York Stock Exchange since April 7, 1995,
trading under the symbol "USC." Prior to that time, the Common Stock was
included in the Nasdaq National Market under the trading symbol "USCN." The
table below sets forth the high and low bid information for the Common Stock for
the first quarter of 1995, and the high and low sales price for the Common Stock
for each full quarterly period thereafter.
QUARTER HIGH LOW
------- ---- ---
First quarter, 1995........................................ $23.250 $18.750
Second quarter, 1995....................................... 21.500 14.000
Third quarter, 1995........................................ 16.000 12.000
Fourth quarter, 1995....................................... 14.250 11.000
First quarter, 1996........................................ 17.375 13.250
Second quarter, 1996....................................... 18.250 16.125
Third quarter, 1996........................................ 16.375 14.500
Fourth quarter, 1996....................................... 17.250 15.250
The bid information for the first quarter of 1995 set forth above reflects
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions.
As of February 28, 1997, there were 778 record holders of the Common Stock.
No cash dividends have been declared on the Common Stock by U.S. Can Corporation
during 1995 or 1996, and U.S. Can Corporation has no intention to pay cash
dividends in the foreseeable future. There are restrictions under U.S. Can's
credit agreements on the ability of U.S. Can to transfer funds to U.S. Can
Corporation in the form of cash dividends, loans or advances, and U.S. Can
Corporation's ability to pay dividends, that currently limit U.S. Can
Corporation's ability to pay cash dividends and are likely to limit the future
payment of dividends on the Common Stock.
SALES OF UNREGISTERED SECURITIES
In March 1996, the Company contributed shares of Common Stock, valued at
approximately $425,000, to U.S. Can's Salaried Employees Savings and Retirement
Accumulation Plan ("SRAP"). This contribution served as partial payment of an
inter-company debt owed by U.S. Can Corporation to U.S. Can. These shares are
held by the trustee for the benefit of the SRAP participants, who have an
indirect beneficial interest in the Common Stock held by the trustee. The
transaction between the Company and the trustee is exempt pursuant
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to Section 4(2) of the Securities Act of 1933 (the "Act"). In June 1996, 62,000
shares of restricted Common Stock were awarded to officers of the Company and
U.S. Can, as compensation. These awards were exempt pursuant to Section 4(2) of
the Act.
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial data has been derived from the
Company's consolidated financial statements and should be read in conjunction
with the audited Consolidated Financial Statements and the Notes thereto, for
the years ended December 31, 1994, 1995 and 1996, contained in Item 8 of this
Report, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," contained in Item 7 of this Report.
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U.S. CAN CORPORATION AND SUBSIDIARIES
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(000'S OMITTED, EXCEPT PER SHARE DATA AND PERCENTAGES)
OPERATING DATA:
Net Sales....................... $396,604 $455,127 $563,153 $626,485 $761,429
Cost of sales................... 346,193 392,652 481,676 555,478 669,772
-------- -------- -------- -------- --------
Gross income.................. 50,411 62,475 81,477 71,007 91,657
Selling, general and
administrative expenses....... 19,671 20,270 24,798 27,369 30,131
Overhead reduction
provision(a).................. -- -- -- 8,000 --
-------- -------- -------- -------- --------
Operating income........... 30,740 42,205 56,679 35,638 61,526
Interest expense on
borrowings.................... 21,940 19,576 21,829 24,513 28,387
Amortization of deferred
financing costs............... 962 1,052 1,307 1,543 1,518
Consolidation expense(b)........ 887 622 463 327 --
Other expense................... 648 648 1,117 1,708 1,946
-------- -------- -------- -------- --------
Income before income taxes,
minority interest,
extraordinary item and
cumulative effect of
accounting change.......... 6,303 20,307 31,963 7,547 29,675
Provision for income taxes...... 3,056 8,775 13,393 3,608 12,674
-------- -------- -------- -------- --------
Income before minority
interest, extraordinary
item and cumulative effect
of accounting change....... 3,247 11,532 18,570 3,939 17,001
Minority interest(c)............ (2,825) (608) -- -- --
-------- -------- -------- -------- --------
Income before extraordinary
item and cumulative effect
of accounting change....... 422 10,924 18,570 3,939 17,001
Extraordinary item--loss from
early extinguishment of debt,
net of income taxes........... -- (3,402) -- -- (5,250)
Cumulative effect of accounting
change, net of income
taxes(d)...................... (12,537) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss)............... $(12,115) $ 7,522 $ 18,570 $ 3,939 $ 11,751
======== ======== ======== ======== ========
PRIMARY PER SHARE DATA (E):
Income (loss) before
extraordinary item and
cumulative effect of
accounting change............. $ (0.15) $ 1.16 $ 1.73 $ 0.31 $ 1.30
Extraordinary item.............. -- (0.37) -- -- (0.40)
Cumulative effect of accounting
change........................ (2.83) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss)............... $ (2.98) $ 0.79 $ 1.73 $ 0.31 $ 0.90
======== ======== ======== ======== ========
Weighted averages shares
outstanding (000's)........... 4,428 9,212 10,714 12,839 13,090
======== ======== ======== ======== ========
OTHER DATA:
Capital expenditures............ $ 17,185 $ 22,010 $ 32,516 $ 31,379 $ 48,630
Gross margin.................... 12.7% 13.7% 14.5% 11.3% 12.0%
Operating margin................ 7.8% 9.3% 10.1% 5.7% 8.1%
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AS OF DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(000'S OMITTED)
BALANCE SHEET DATA:
Current assets............................ $ 84,609 $ 99,551 $134,279 $147,185 $232,564
Total assets.............................. 280,184 306,588 400,724 455,436 643,616
Current liabilities....................... 58,139 70,171 95,475 98,237 126,934
Total debt (including current
maturities)............................. 202,668 182,822 200,646 244,576 375,810
Total stockholders' equity (deficit)
(f)..................................... (44,000) 18,509 74,910 81,827 96,785
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(a) The Company recorded a pretax charge of approximately $8.0 million in the
fourth quarter of 1995 related to actions taken to reduce overhead and to
eliminate redundant manufacturing capacity. See Note 7 of the "Notes to
Consolidated Financial Statements."
(b) Annual consolidation expense charges to income represent interest costs
related to the reserves established for plant closings and are based on
U.S. Can's incremental borrowing rate at the time the discounted reserves
were established.
(c) Minority interest represents participation of the former holder of U.S.
Can's Class 1 Preferred Stock, by virtue of its accretion right, in the
earnings of U.S. Can. All remaining shares of Class 1 Preferred Stock were
redeemed in connection with the Company's initial public equity offering in
March 1993.
(d) Effective January 1, 1992, the Company changed its method of accounting for
postretirement benefits, other than pension, and its method of accounting
for income taxes. The accounting change for such postretirement benefits
resulted in a net non-cash charge of $12.5 million and decreased operating
income in 1992 by $1.2 million. The accounting change for income taxes was
immaterial in amount.
(e) Primary net income (loss) per common share amounts are computed by dividing
net income applicable to common stock (computed as net income (loss) less
dividends earned during the period on the Company's preferred stock and
accretion on the Company's redeemable warrants, such stock and warrants
outstanding only through March 1993) by the weighted average common shares
and common equivalent shares outstanding during the periods. Such average
shares include common shares outstanding and common shares subject to
outstanding dilutive stock options and stock purchase warrants. All shares
issued in 1992 were treated as outstanding for all reported periods.
(f) The significant increases in stockholders' equity in 1993 and 1994 were
primarily due to the Company's initial public equity offering in March 1993
and the Company's equity offering in November 1994, which resulted in net
increases of $48.6 million and $34.2 million, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In November 1994, the Company completed a second public offering of Common
Stock and contributed the net proceeds of $34.2 million to the capital of U.S.
Can. The net proceeds were used by U.S. Can to prepay a portion of the
outstanding balance of its revolving line of credit.
Since 1994, the Company has made a number of acquisitions. In 1994, the
Company acquired the stock of Steeltin and the assets of two affiliated
companies, Eastern Metal Decorating, Inc. ("EMD") and Eastern Container Company,
Inc. ("ECC") (Steeltin, EMD and ECC collectively referred to hereinafter as
"Steeltin"); assets from Midwest Can Company ("Midwest"); the stock of Ellisco;
the stock of Rollason Engineering & Manufacturing, Inc. ("Rollason"); the assets
of a lithography plant from Ball Corporation; and the metal packaging operations
of Grafco Industries Limited Partnership ("Grafco"). In 1995, the Company
acquired the stock of Plastite, Hunter Container Corporation ("Hunter") and
Metal Litho International and the assets of a related partnership ("MLI"), as
well as certain assets of Prospect Industries Corporation ("Prospect"). In April
1996, the Company acquired the assets of AMS. The stock of the CPI Group and the
stock and assets of USC Europe were acquired in August 1996 and September 1996,
respectively.
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RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996, AS COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Sales
Net sales for the year ended December 31, 1996 totaled $761.4 million, an
increase of 21.5% over the corresponding period in 1995. Companies acquired by
U.S. Can during the first three quarters of 1996, including USC Europe, added
approximately $86.5 million to sales in 1996. The Company has also realized
additional sales as a result of the MLI, Plastite, Hunter and Prospect
acquisitions in 1995 and the AMS, CPI Group and USC Europe acquisitions in 1996.
Sales gains for the year also reflect volume growth in substantially all of the
Company's products.
Gross Income
Gross income of $91.7 million for 1996 was $20.7 million, or 29.1%, higher
than gross income for 1995. The 1996 acquisitions and higher margins on certain
products contributed to this increase. Volume gains in 1996 with stable costs
contributed to improved performance. Gross margin increased to 12.0% of net
sales in 1996 from 11.3% of net sales in 1995 despite a significant advance
purchase of steel in late 1994 which resulted in the Company not realizing the
full impact of the 1995 steel price increase in the first quarter of 1995. In
1995, margins, as well as sales, were negatively impacted by weak second half
demand. In 1996, the fourth quarter and full year were impacted by the somewhat
lower margins of acquired businesses and seasonality of the new European
operations. However, these were more than offset by improved sales and margins
in core operations. U.S. Can expects the integration of acquired operations will
improve overall margins. However, progress will be limited during the first half
of 1997 by the start-up of two plants in Europe, one in the U.S. and the
relocation of another domestic operation.
Operating Income
The Company's operating income of $61.5 million for 1996 was $25.9 million,
or 72.6%, higher than operating income for 1995. Income was favorably impacted
by increased sales, improved margins and the effect of an overhead reduction
program begun in late 1995. Operating income as a percent of net sales was 8.1%
for 1996 as compared to 5.7% for 1995. The Company experienced an increase in
selling, general and administrative expenses during 1996, primarily due to
acquisitions. However, these expenses as a percent of net sales decreased from
4.4% of net sales in 1995 to 4.0% of net sales in 1996. Increased
diversification into metal services, plastics and Europe is expected to
temporarily restrain operating margin growth until those new operations are
assimilated into the Company.
Interest and Other Expenses
Interest expense on borrowings increased by approximately $3.9 million in
1996 as compared to 1995. The increase is a result of increased borrowing,
primarily to finance the Company's acquisitions and the refinancing of shorter
term bank debt with a portion of the proceeds of the 10 1/8% $275 million note
issue in October 1996. Amortization of deferred financing costs and other
expense remained flat in 1996 as compared to 1995. The Company believes more
permanent long-term capital is the most appropriate means to finance
acquisitions, and, due to strong demand, it was able to borrow $50 million more
than originally planned in the Note offering. As a result, repayment of lower
cost, shorter term debt with the Note proceeds will continue to generate
somewhat higher interest expense even though a portion of the proceeds was used
to redeem higher cost 13.5% bonds.
Net Income
For 1996, income before extraordinary item was $17 million, more than four
times the $3.9 million reported in 1995. During 1996, the Company redeemed its
13 1/2% Notes with the proceeds from the issuance of the 10 1/8% Notes. The
early extinguishment of the 13 1/2% Notes resulted in an extraordinary charge of
$5.2 million (net of income taxes of $3.5 million) primarily representing a
prepayment premium and the write off of related unamortized deferred financing
costs. See Note (5) to the Consolidated Financial Statements
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included in Item 8 of this Report. Earnings per share before extraordinary item
were $1.30 for the year. After the extraordinary item, the Company had net
income of $11.8 million ($0.90 per share) in 1996 compared to net income of $3.9
million ($0.31 per share) in 1995.
YEAR ENDED DECEMBER 31, 1995, AS COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Sales
Net sales for the year ended December 31, 1995, totaled $626.5 million, an
increase of 11.2% over net sales in 1994. The 1994 acquisition of Ellisco and
acquisitions completed in 1995 were the primary factors contributing to the
sales growth. Increased volume in metal services also contributed to the sales
growth. 1995 sales of aerosol containers were down slightly, while sales of
round and general line containers increased slightly, compared to 1994. The
Company believes the weak demand in its core product lines was due to summer
weather conditions unfavorable for outdoor activities and painting and due to
inventory adjustments by major retailers which use the Company's products. The
Company experienced some increased demand in aerosol and round paint containers
in the fourth quarter of 1995 but demand did not return fully to more
traditional levels until December.
Gross Income
Gross income for 1995 was $71.0 million, 12.9% lower than gross income in
1994. Weak second half demand for aerosol, round and general line containers
resulted in underutilization of manufacturing capacity. This underutilization
and lower than anticipated income contributions from certain 1995 acquisitions
contributed to the decrease in gross income. Competitive pressures in the face
of weak demand precluded the Company from fully recovering cost increases with
corresponding increases in selling prices. Gross margin decreased from 14.5% of
net sales in 1994 to 11.3% of net sales in 1995.
Operating Income
During the fourth quarter of 1995, the Company recorded an $8.0 million
pretax charge for a plant consolidation and overhead reduction program. The
primary components of the charge include costs associated with severance
packages and the cessation of manufacturing at the Saddle Brook, New Jersey
facility. Selling, general and administrative expenses increased by $2.6 million
in 1995, as compared to 1994, due to acquisitions and the costs associated with
the terminated Massilly, S.A. investment. This provision, the increase in
selling, general and administrative expenses and the factors described above
resulted in operating income of $35.6 million for 1995, compared to $56.7
million in 1994. Operating income before the overhead reduction provision was
$43.6 million. Selling, general and administrative expenses, as a percentage of
net sales, were 4.4% for both 1995 and 1994.
Interest and Other Expenses
Interest expense on borrowings increased by $2.7 million in 1995, as
compared to 1994. The increase is a result of increased borrowing primarily to
finance the Ellisco acquisition in 1994 and the MLI, Plastite, Prospect and
Hunter acquisitions in 1995, net of the effect of using the net proceeds from
the Company's public offering of Common Stock in 1994 to reduce debt.
Amortization of deferred financing costs and other expense also increased in
1995. The increase was primarily a result of new borrowings and goodwill
amortization related to acquisitions.
Net Income
As a result of the factors discussed above, the Company recorded net income
of $3.9 million ($0.31 per share) in 1995, compared to $18.6 million ($1.73 per
share) in 1994. Net income was adversely affected by $4.8 million ($0.38 per
share) as a result of the overhead reduction provision.
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LIQUIDITY AND CAPITAL RESOURCES
During the last three fiscal years, the Company has met its liquidity needs
primarily through internally generated cash flows, borrowings under its credit
lines and proceeds of securities offerings. Principal liquidity needs have
included operations, repayment of indebtedness and related interest, capital
expenditures and acquisitions. The Company completed the sale of the Notes in
October 1996, in order to refinance the 13 1/2% Notes with lower interest debt,
to retire the temporary acquisition financing incurred in 1996, including the
USC Europe Acquisition, and, generally, to replace shorter term, variable-rate
bank financing with longer term, fixed-rate financing.
From 1992 to 1994, the Company improved its cash flow from operations
through increased unit volumes, improved operating efficiencies, control of
selling, general and administrative costs and careful management of inventory
and receivables. Cash flow in 1995 was negatively impacted by higher material
costs, competitive pricing, weak demand in major markets and retail inventory
adjustments. Cash flow in 1996 returned to more historic levels. The Company
actively manages its working capital as both inventories and receivables
increase due to increased sales. The USC Europe Acquisition will have an adverse
impact on consolidated inventory turns and receivable days outstanding due to
business practices in Europe.
In April 1994, U.S. Can entered into the Credit Agreement providing a $130
million line of credit, consisting of a $95 million revolving credit facility
(the "Revolving Credit Facility") and a $35 million term loan (the "Term Loan").
Funds available under the Credit Agreement have been and may be used for working
capital and other general corporate purposes, including acquisitions.
Obligations under the Credit Agreement are currently secured by U.S. Can's
inventories and accounts receivable. In December 1996, the Term Loan was repaid
in full, primarily with a borrowing under the Revolving Credit Facility. This
repayment increased borrowings under the Revolving Credit Facility and reduced
the fee payable under the Credit Agreement for unused credit availability.
In early April 1996, the lenders under the Credit Agreement (the "Lenders")
provided a temporary $10 million increase in the Revolving Credit Facility due
to seasonal inventory requirements. In late April 1996, the Lenders provided an
additional temporary $20 million increase in the Revolving Credit Facility to
fund the AMS acquisition. In July 1996, the Lenders provided the Company with an
additional credit facility (the "Acquisition Facility") to fund certain
permitted acquisitions, including the USC Europe and CPI Group acquisitions. All
of the supplemental credit lines, including the Acquisition Facility, were
terminated on October 17, 1996, the closing date of the Note offering described
in the following paragraph.
On October 17, 1996, U.S. Can Corporation issued $275 million of Notes in a
private placement. Of the $268.1 million net proceeds to the Company from the
issuance, (I) approximately $109.7 million was deposited in an escrow account
and used to redeem U.S. Can's 13 1/2% Notes on January 15, 1997, and pay the
remaining interest thereon; (ii) approximately $67.3 million of the net proceeds
was used to retire the Acquisition Facility; and (iii) approximately $91.1
million of the net proceeds was used to repay a portion of the borrowings
outstanding under the Revolving Credit Facility. In March 1997, the Company
completed a registered exchange of the private Notes for freely transferable
Exchange Notes (the "Exchange Offer"). All of the Notes were tendered in the
Exchange Offer and, as a result, only the Exchange Notes remain outstanding.
Management believes that, through the Note offering and the Exchange Offer, the
Company has improved its capital structure and, as a result, the Company will be
able to commit greater resources to its capital programs, thereby improving its
cash flow.
As of December 31, 1996, the Company's total debt was approximately $375.8
million and scheduled principal payments (excluding principal due on the
Revolving Credit Facility) were approximately $11.9 million, $11.3 million, $8.6
million, $3.8 million and $4.9 million for the years 1997, 1998, 1999, 2000 and
2001, respectively. All amounts outstanding under the Revolving Credit Facility
are required to be repaid in April 1998. As of February 28, 1997, U.S. Can had
borrowings of $51.5 million outstanding under the Credit Agreement, $11.8
million in letters of credit had been issued pursuant thereto and $31.7 million
of unused credit remained available thereunder. As of December 31, 1996, U.S.
Can was in compliance with the Credit Agreement and its other long-term debt
agreements.
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23
Cash flow from operations for the year ended December 31, 1996, as adjusted
for interest payments of $28.4 million during that period, was approximately
$59.3 million. Principal and interest requirements (net of related income tax
benefits and excluding such amounts due under the Revolving Credit Facility) are
expected to be approximately $39.2 million in 1997, $43.7 million in 1998, $25.6
million in 1999 and $20.5 million in 2000. Using cash flow from operations for
the year ended December 31, 1996 (as adjusted for interest payments during that
period) as a benchmark, assuming no increase or decrease in that cash flow from
operations, the Company's cash flow from operations at the level generated
during this period would exceed principal and interest (net of income taxes)
requirements (excluding for the Revolving Credit Facility) for the years 1997
through 2000.
The Company's capital expenditures totaled $48.6 million in 1996, $31.4
million in 1995 and $32.5 million in 1994. In each case, these capital
expenditures included investments in new can production lines, paint can line
enhancements, advanced lithography technology and computer integrated
manufacturing, to increase manufacturing capacity, reduce changeover times and
improve productivity. The Company has also invested capital in plant expansions
and the installation of state-of-the-art end-making presses and automated
packaging equipment.
The Company expects to spend approximately $300 million on capital
expenditures during the five years commencing in 1997, in roughly equal annual
amounts. The Company makes capital expenditures principally for improvements in
the productivity and quality of lithography operations, continued technological
enhancement of existing equipment, automation of existing processes,
computer-integrated manufacturing techniques, quality and service improvements,
facility expansion, and, if necessary to meet demand, additional can-making
capacity. For the new Merthyr Tydfil facility, the Company has undertaken an
investment of approximately $28.5 million over a two- to three-year period, in
order to establish a state-of-the-art aerosol can manufacturing plant. The
Company's capital investments have historically yielded reduced operating costs
and improved the Company's profit margins, and management believes that the
strategic deployment of capital will enable the Company to improve its overall
profitability by leveraging the economies of scale inherent in the manufacture
of containers.
Management believes that cash flow from operations, amounts available under
its credit facilities and proceeds from equipment financings should provide
sufficient funds for the Company's short-term and long-term capital expenditure
and debt amortization requirements, and other cash needs in the ordinary course
of business. The Company believes it will be able to refinance the Revolving
Credit Facility on or prior to maturity. If future strategic acquisition
opportunities arise, the Company would expect to finance them though some
combination of cash, stock and/or debt financing.
ACQUISITIONS
In January 1994, U.S. Can acquired the stock of Steeltin and assets of two
related companies. Steeltin was subsequently merged into U.S. Can. The total
cost of this transaction was approximately $19.1 million in cash, plus the
assumption of approximately $1.6 million of debt. In March 1994, U.S. Can
acquired the stock of Ellisco from CSS Industries, Inc. and certain minority
shareholders for approximately $32.2 million. Ellisco was subsequently merged
into U.S. Can.
In the first quarter of 1995, U.S. Can acquired the stock of MLI and
Plastite for an aggregate amount of approximately $17.4 million in cash, plus
the assumption of debt and certain future contingent payments. Both MLI and
Plastite were subsequently merged into U.S. Can. In April 1995, U.S. Can
acquired certain assets from Prospect for approximately $8.8 million and, in May
1995, U.S. Can acquired the stock of Hunter for approximately $4.0 million, plus
the assumption of certain debt. Hunter was subsequently merged into U.S. Can.
In April 1996, U.S. Can completed the acquisition of assets of AMS from
Alltrista for a purchase price of approximately $14.9 million. Subsequent to the
purchase of the AMS assets, U.S. Can negotiated for the purchase of additional
assets, including inventory and raw materials from Alltrista. In June 1996, U.S.
Can purchased such additional assets from AMS for a total of approximately $8
million on an installment basis,
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24
with the final payment of $2.2 million being paid on October 25, 1996, using
borrowings made by U.S. Can under the Revolving Credit Facility.
In August 1996, U.S. Can completed the acquisition of all of the
outstanding stock of the CPI Group for approximately $15.1 million and potential
contingent payments not to exceed $1 million. Potential contingent payments are
equal to 50% of the amount, if any, by which an amount representing adjusted
gross profit of the CPI Group in 1996 and 1997 exceeds such amount for the year
1995. Subsequent to the acquisition, the CPI Group companies were merged into
U.S. Can.
The Company completed the USC Europe Acquisition on September 11, 1996. USC
Europe has aerosol can businesses located in the United Kingdom, France, Spain
and Germany, as well as certain aerosol can-making equipment in Italy. The
purchase price included $52.8 million in cash and the assumption of net
indebtedness totaling $5.8 million, subject to a post-closing adjustment for
changes in working capital between April 30, 1996 and the closing of the USC
Europe Acquisition on September 11, 1996. This adjustment is expected to equal
at least $1.7 million, reducing the net cash paid by the Company for USC Europe
to approximately $51.1 million.
While the Company has historically aggressively sought acquisitions to
implement its growth strategies, these objectives have largely been met with the
completion of the 1996 acquisitions. However, the Company will continue to
evaluate and selectively pursue acquisitions which it believes are strategically
important to meeting its customers needs, attracting new customers, adding new
products, complementing its existing business and expanding its geographic
reach.
ENVIRONMENTAL MATTERS
The Company's domestic and foreign operations are subject to extensive
governmental regulatory requirements relating to environmental protection. As
part of its compliance effort, management has commissioned outside technical
consultants to work in concert with the Company's internal environmental group
to implement a company-wide environmental auditing program. Based on the 1996
audit results and reports prepared in connection with the 1996 acquisitions,
management believes that the Company's current operations are in substantial
compliance with applicable environmental laws and regulations, the violation of
which would have a material adverse effect on the Company. The Company is in the
process of integrating USC Europe into its environmental management system and
will be evaluating USC Europe's ongoing compliance responsibilities during this
process. There can be no assurance that currently unknown matters, new laws and
regulations or stricter interpretations of existing laws and regulations will
not materially affect the Company's business or results of operations in the
future.
As part of its commitment to capital investment in technology, the Company
has made, and expects to continue to make, significant capital expenditures to
upgrade its facilities in accordance with current and pending environmental
regulations. Approximately 8.9% of the Company's capital budget is
environmentally related. A program dedicating approximately $8.3 million to
upgrade the Company's lithography centers to comply with scheduled Clean Air Act
requirements has been undertaken, of which $6.2 million had been spent as of
December 31, 1996. With respect to USC Europe, a thermal oxidizer has been
ordered and will be installed at the Southall facility in England, at an
estimated cost of approximately $800,000, to comply with U.K. air emissions
regulations.
As of December 31, 1996, the Company's reserves for future ascertainable
costs of environmental remediation in the United States were approximately
$400,000. Management does not believe that such costs, if any, in excess of the
reserve will have a material adverse affect on the Company's results of
operations or financial condition. In making this assessment, the Company
considered all information available to it including its and other companies'
reported prior experience in dealing with such matters, data released by the EPA
and reports by independent environmental consultants regarding certain matters.
In estimating the ascertainable costs of environmental remediation, management
has not taken into account any potential insurance recovery. In conjunction with
its acquisitions, the Company routinely obtains indemnification for
environmental matters from the sellers. Such indemnification is typically
subject to varying "baskets" or deductibles and maximum limitations, and is
ultimately subject to the creditworthiness of the indemnitor(s) (and in some
cases the guarantor of the indemnity obligations).
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With respect to the USC Europe facilities, no subsurface sampling has been
performed to identify possible contamination. Several of the facilities have
been operating at their locations for more than ten years and, according to a
survey conducted by an independent environmental consultant, it is likely that
there have been releases of hazardous substances at these locations in the past.
However, management has been advised by an independent environmental consultant,
familiar with United Kingdom and German law and policy with respect to
remediation requirements, that the local authorities are unlikely to propose or
enforce stringent remediation requirements which would affect the commercial
viability of either the German or the British facilities given their location in
heavily industrialized areas. Moreover, the Company has been indemnified by
Crown as to environmental conditions at these sites. Management believes that
any future requirement to remediate these sites will not have a material adverse
effect on the Company's financial condition or results of operations.
The Company received a request for information from the U.S. EPA in January
1997, concerning the lithography operations at its Chicago facility (formerly
owned by Alltrista). In March 1997, representatives of the U.S. EPA inspected
the Chicago facility and requested additional information, including compliance
tests and reports. The Company is cooperating fully with the U.S. EPA inquiry.
The Company does not know what the outcome of this inquiry will be. In the
acquisition agreement between the Company and Alltrista, Alltrista agreed to
indemnify the Company for compliance costs that relate back to Alltrista's
operation of this facility.
For a discussion of the San Leandro, California environmental order, see
"Legal Proceedings and Regulatory Matters." There can be no assurance that the
Company will not incur material costs and expenses in connection with this
order.
In connection with a 1993 asset purchase, the Company entered into an
Administrative Consent Order ("ACO") with the New Jersey Department of
Environmental Protection ("NJDEP"), requiring U.S. Can to investigate and
remediate certain environmental concerns at the Saddle Brook, New Jersey
facility. As part of the ACO, U.S. Can deposited $3 million into an escrow
account, which U.S. Can may draw from to fund such activities. The ACO limits
U.S. Can's liability under New Jersey environmental laws in this respect to the
$3 million deposited in the escrow account. This limitation does not, however,
limit U.S. Can's liability for clean-up costs resulting from its own activities
in the event of a sale, or other transfer of control, of U.S. Can or the
facility. The Company is working with the NJDEP to complete the remediation
process. The Company does not believe the costs of remediation and monitoring
will exceed the escrow amount.
As a potentially responsible party ("PRP") at various Superfund sites in
the U.S., the Company is or may be legally responsible, jointly and severally
with the other members of the PRP group, for the cost of remediation of these
sites. Based on currently available data (including EPA data, internal records
and other sources believed to be reliable), the Company believes its
contribution, and/or the contribution of its predecessors, to these sites was de
minimis. Based on the information available as of the date of this Report,
management does not believe that its aggregate remediation costs or potential
liabilities in connection with these sites will have a material adverse effect
on the Company's financial condition or results of operations. However, there
can be no assurance that the other PRP's will pay their proportionate share of
the remediation costs at these sites and, as a result, future costs or
liabilities incurred by the Company could be material.
With respect to each of the matters discussed above, there can be no
assurance that the Company will not be required to pay environmental compliance
costs or to incur liabilities that may be material in amount. Based on
information available as of the date of this Report, management does not believe
that aggregate remediation costs or other liability in connection with the
possible contamination at these sites would have a material adverse effect on
the Company's financial condition or results of operations. Further, although at
this time there are no environmental compliance costs which the Company believes
to be material there can be no assurance that the Company will not be required
to pay environmental compliance costs or to incur liabilities that may be
material in amount due to matters which arise in the future or matters which are
not known to the Company as of the date of this Report.
LITIGATION
For a discussion of the Kiewit litigation, see "Legal Proceedings and
Regulatory Matters." For a discussion of the San Leandro, California remediation
order, the U.S. EPA inquiry at the Chicago plant and Superfund sites affecting
the Company, see "-- Environmental Matters." The Company is involved in various
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other environmental and legal actions and administrative proceedings. Management
is of the opinion that the outcome of such other actions and proceedings will
not have a material effect on the Company's financial position or results of
operations.
SEASONALITY
The Company's business as a whole is not affected to any significant degree
by seasonal variations, although quarterly sales and earnings tend to be
slightly stronger starting in early spring (second quarter) and extending
through late summer (third quarter). Aerosol sales do not tend to fluctuate
during the year, with only relatively minor spring and summer increases related
to household products and insect repellents. Paint sales tend to be stronger in
spring and early summer due to the favorable weather conditions. Portions of the
custom and specialty products line tend to vary seasonally, because of holiday
sales late in the year.
INTEREST RATES / FOREIGN CURRENCY
Management does not believe that interest rate fluctuations have a material
effect on the Company's results of operations and financial condition. As of
December 31, 1996, 12.7% of the Company's borrowings were floating rate
obligations. In the past, management has adopted strategies to increase the
Company's floating-rate exposure to benefit from declining rates. Currently, the
Company holds no interest rate swaps. However, in an effort to limit foreign
exchange risk related to the financing of the Merthyr Tydfil facility, the
Company has entered into a series of British Pound / Dollar forward contracts
that will not exceed $37 million in notional amount or a term of more than seven
years. The Indenture under which the 10 1/8 Notes were issued limits the
Company's ability to enter into currency hedging transactions that would be
considered speculative, such as transactions unrelated to repayment of
indebtedness permitted by the Indenture.
INFLATION
Historically, the Company has not always been able to immediately offset
increases in tin plate prices with price increases on the Company's products.
However, in most years, a combination of factors has permitted the Company to
improve its profitability notwithstanding these conditions. The Company's
capital spending programs and manufacturing process upgrades have increased
operating efficiencies and thereby reduced the Company's unit cost of
production. In addition, historically, the Company has been able to negotiate
lower price increases than those announced by its major suppliers. See "Business
- -- Raw Materials." The operating efficiencies and reduced unit cost of
production which have been achieved through the Company's capital spending
programs have mitigated the impact of inflation on the Company's cost structure.
In 1995, higher material costs were one of the factors contributing to the
Company's reported earnings. Management does not believe inflation will have a
material adverse impact on the Company in the next several quarters.
CUSTOMER RELATIONSHIPS/AEROSOL CONTAINERS
Aerosol containers accounted for 45.6% of the Company's gross sales for the
year ended December 31, 1996. A significant reduction in the number of aerosol
containers used by the Company's customers could have a material adverse effect
on the Company and, in particular, its European operations which are comprised
solely of aerosol manufacturing facilities.
The Company's manufacturing facility in Merthyr Tydfil is expected to be
operational in mid-1997. The initial investment of approximately $28.5 million,
being expended over the next two to three years, was commenced on the strength
of a commitment from Gillette for a long-term purchase arrangement in the U.K.
The loss of Gillette as a customer or a material reduction in the benefits to
the Company expected under this arrangement would have an adverse impact on the
profitability of that facility and the Company's ability to recoup the start-up
costs of establishing the facility.
The Company's relationships with its customers are critical to its
business. A significant portion of the Company's annual net sales is
attributable to repeat customers. The loss of a significant number of such
customers could have a material adverse effect on the Company.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Report of Independent Public Accountants.................... 28
U.S. Can Corporation and Subsidiaries Consolidated Balance
Sheets as of December 31, 1995 and 1996................... 29
U.S. Can Corporation and Subsidiaries Consolidated
Statements of Operations for the Years Ended December 31,
1994, 1995 and 1996....................................... 30
U.S. Can Corporation and Subsidiaries Consolidated
Statements of Stockholders' Equity for the Years Ended
December 31, 1994, 1995 and 1996.......................... 31
U.S. Can Corporation and Subsidiaries Consolidated
Statements of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996....................................... 32
U.S. Can Corporation and Subsidiaries Notes to Consolidated
Financial Statements...................................... 33
U.S. Can Corporation and Subsidiaries Quarterly Financial
Data (Unaudited).......................................... 55
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To U.S. Can Corporation:
We have audited the accompanying consolidated balance sheets of U.S. CAN
CORPORATION (a Delaware corporation) AND SUBSIDIARIES as of December 31, 1995
and 1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, 1995 and 1996, and their results
of operations and cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 14, 1997
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U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000'S OMITTED, EXCEPT SHARE DATA)
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 136 $ 7,966
Accounts receivable, less allowances of $5,451 and $10,895
in 1995 and 1996, respectively.......................... 51,279 86,822
Inventories............................................... 78,252 113,143
Prepaid expenses and other current assets................. 10,786 15,261
Prepaid income taxes...................................... 6,732 9,372
--------- ---------
Total current assets.................................. $ 147,185 $ 232,564
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... $ 2,576 $ 5,425
Buildings................................................. 44,954 62,421
Machinery, equipment and construction in process.......... 306,319 408,428
--------- ---------
$ 353,849 $ 476,274
Less -- Accumulated depreciation and amortization......... (123,748) (153,160)
--------- ---------
Total property, plant and equipment................... $ 230,101 $ 323,114
--------- ---------
MACHINERY REPAIR PARTS...................................... $ 5,395 $ 6,057
INTANGIBLES................................................. 62,301 67,206
OTHER ASSETS................................................ 10,454 14,675
--------- ---------
Total assets.......................................... $ 455,436 $ 643,616
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 17,216 $ 11,928
Cash overdrafts........................................... 5,395 3,769
Accounts payable.......................................... 32,560 56,355
Accrued payrolls and benefits............................. 19,282 25,786
Accrued insurance......................................... 5,830 6,770
Other current liabilities................................. 17,954 22,326
--------- ---------
Total current liabilities............................. $ 98,237 $ 126,934
--------- ---------
SENIOR DEBT................................................. $ 127,360 $ 88,882
SUBORDINATED DEBT........................................... 100,000 275,000
--------- ---------
Total long-term debt.................................. $ 227,360 $ 363,882
--------- ---------
OTHER LONG-TERM LIABILITIES:
Postretirement benefits................................... $ 25,080 $ 26,128
Deferred income taxes..................................... 19,962 27,892
Other long-term liabilities............................... 2,970 1,995
--------- ---------
Total other long-term liabilities..................... $ 48,012 $ 56,015
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 10,000,000 shares
authorized, none issued or outstanding.................. $ -- $ --
Common stock, $.01 par value; 50,000,000 shares authorized
12,902,111 and 12,995,636 shares issued in 1995 and
1996, respectively...................................... 129 130
Paid-in capital........................................... 103,913 105,582
Unearned restricted stock................................. (2,052) (2,581)
Treasury common stock, at cost; 37,908 and 20,651 shares
in 1995 and 1996, respectively.......................... (319) (256)
Currency translation adjustment........................... -- 1,622
Retained deficit.......................................... (19,844) (7,712)
--------- ---------
Total stockholders' equity............................ $ 81,827 $ 96,785
--------- ---------
Total liabilities and stockholders' equity......... $ 455,436 $ 643,616
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
29
30
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000'S OMITTED, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
---- ---- ----
NET SALES................................................... $563,153 $626,485 $761,429
COST OF SALES............................................... 481,676 555,478 669,772
-------- -------- --------
Gross income.............................................. $ 81,477 $ 71,007 $ 91,657
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 24,798 27,369 30,131
OVERHEAD REDUCTION PROVISION................................ -- 8,000 --
-------- -------- --------
Operating income.......................................... $ 56,679 $ 35,638 $ 61,526
INTEREST EXPENSE ON BORROWINGS.............................. 21,829 24,513 28,387
AMORTIZATION OF DEFERRED FINANCING COSTS.................... 1,307 1,543 1,518
CONSOLIDATION EXPENSE....................................... 463 327 --
OTHER EXPENSE............................................... 1,117 1,708 1,946
-------- -------- --------
Income before income taxes and extraordinary item......... $ 31,963 $ 7,547 $ 29,675
PROVISION FOR INCOME TAXES.................................. 13,393 3,608 12,674
-------- -------- --------
Income before extraordinary item.......................... $ 18,570 $ 3,939 $ 17,001
EXTRAORDINARY ITEM -- LOSS FROM EARLY EXTINGUISHMENT OF
DEBT, net of income taxes................................. -- -- (5,250)