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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
ANCHOR GLASS CONTAINER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 59-3417812
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Anchor Plaza, 4343 Anchor Plaza Parkway, Tampa, FL 33634-7513
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 813-884-0000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
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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 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 the 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. |X|
Number of shares outstanding of common stock at March 20, 2003:
9,000,000 shares
DOCUMENTS INCORPORATED BY REFERENCE
None
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
This report of Anchor Glass Container Corporation ("Anchor" or the
"Company") includes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
include, without limitation, any statement that may predict, forecast, indicate
or imply future results, performance or achievements, and may contain the words
"believe," "anticipate," "expect," "estimate," "intend," "project," "will be,"
"will likely continue," "will likely result," or words or phrases of similar
meaning including, among other things, statements concerning:
- the Company's liquidity and capital resources;
- competitive pressures and trends in the glass container or food and
beverage industries;
- prevailing interest rates;
- prices for energy, particularly natural gas, and other raw
materials;
- legal proceedings and regulatory matters; and
- general economic conditions.
Forward-looking statements involve risks and uncertainties,
including, but not limited to, economic, competitive, governmental and
technological factors outside the control of the Company, that may cause actual
results to differ materially from the forward-looking statements. These risks
and uncertainties may include the highly competitive nature of the glass
container industry and the intense competition from makers of alternative forms
of packaging; the fluctuation in the price of natural gas; the Company's focus
on the beer industry and its dependence on certain key customers; the seasonal
nature of brewing and other beverage industries; volatility in the demand of
emerging new markets; the Company's dependence on certain executive officers;
and changes in environmental and other government regulations. The Company
operates in a changing environment in which new risk factors can emerge from
time to time. It is not possible for management to predict all of these risks,
nor can it assess the extent to which any factor, or a combination of factors,
may cause actual results to differ materially from those contained in
forward-looking statements. Given these risks and uncertainties, readers are
cautioned not to place undue reliance on forward-looking statements.
i
PART I
ITEM 1. BUSINESS.
COMPANY OVERVIEW
The Company is the third largest manufacturer of glass containers in
the United States. Anchor has nine strategically located facilities where it
produces a diverse line of flint (clear), amber, green and other colored glass
containers for the beer, beverage, food, liquor and flavored alcoholic beverage
markets.
On August 30, 2002, Anchor consummated a significant restructuring
of its existing debt and equity securities pursuant to a plan of reorganization
(the "Plan") through a Chapter 11 reorganization (the "Reorganization"). As part
of the Reorganization, Cerberus Capital Management, L.P. ("Cerberus"), a leading
New York investment management firm, through certain Cerberus-affiliated funds
and managed accounts, invested $80.0 million of new equity capital into the
Company, acquiring 100% of the series C participating preferred stock for $75.0
million and 100% of the common stock for $5.0 million. In addition, Anchor
obtained a $20.0 million term loan facility from Ableco Finance LLC (the "Term
Loan"). In connection with the Reorganization, Anchor also obtained a new $100.0
million revolving credit facility from various financial institutions (the
"Revolving Credit Facility"). In addition, Anchor repaid its 9.875% Senior Notes
due 2008, aggregate principal amount of $50.0 million (the "Senior Notes").
Anchor also retired its old common stock and its mandatorily redeemable 10%
cumulative convertible preferred stock ("Series A Preferred Stock") and canceled
its redeemable 8% cumulative convertible preferred stock (the "Series B
Preferred Stock"). In connection with the Reorganization, the Company's 11.25%
First Mortgage Notes due 2005, aggregate principal amount of $150.0 million (the
"First Mortgage Notes"), were left unimpaired and remained outstanding. All of
Anchor's other unaffiliated creditors, including trade creditors, were
unimpaired and have been or will be paid in the ordinary course.
Some of the benefits from the Reorganization include:
- Strong equity sponsorship from Cerberus that has provided Anchor
with $80.0 million of new equity capital.
- Execution of an agreement with the Pension Benefit Guaranty
Corporation ("PBGC"), which eliminated all past-service pension
liabilities, replaced by a one-time payment of $20.75 million and a
$10.0 million per year fixed payment obligation to the PBGC for ten
years (the "PBGC Agreement").
- Consummation of an agreement with Anchor's union employees, which
allowed Anchor to enter into multiemployer pension plans that
provide for benefits for future service only (at a current cost of
approximately $5.0 million per year), so that the benefit obligation
is now a fixed contribution obligation rather than a fixed benefit
obligation, thereby eliminating market risk.
- Elimination of related party and third party claims, various
contracts and the settlement of a shareholder derivative lawsuit and
other disputes.
RECENT DEVELOPMENTS
On February 7, 2003, the Company completed an offering of $300.0
million aggregate principal amount of 11% Senior Secured Notes due 2013 (the
"Senior Secured Notes"). The Senior Secured Notes are senior secured obligations
of the Company, ranking equal in right of payment with all existing and future
unsubordinated indebtedness of the Company and senior in right of payment to all
future subordinated indebtedness of the Company. The Senior Secured Notes are
secured by a first priority lien, subject to certain permitted encumbrances, on
substantially all of Anchor's existing real property, equipment and other fixed
assets relating to Anchor's nine operating glass container manufacturing
facilities.
Proceeds from the issuance of the Senior Secured Notes, net of fees,
were approximately $289.0 million and were used to repay 100% of the principal
amount outstanding under the First Mortgage Notes plus accrued interest thereon
(approximately $156.3 million), 100% of the principal amount outstanding under
the Term Loan
($20.0 million) plus accrued interest thereon and a prepayment fee
(approximately $0.4 million) and advances outstanding under the Revolving Credit
Facility (approximately $66.9 million), which includes funds for certain of the
Company's capital improvement projects. The remaining proceeds of approximately
$45.0 million are being used to terminate certain equipment leases by purchasing
from the lessors the equipment leased thereunder.
PRODUCTS, MARKETS AND CUSTOMERS
The Company produces glass containers for the beverage and food
industries in the United States. Substantially all of the Company's glass
containers are produced to customer specifications. In addition, most of the
Company's sales are pursuant to customer contracts with average terms of three
to five years from inception. The table below provides a summary of net sales
and the approximate percentage of net sales by product group for each of the
three years ended December 31, 2002.
Years ended December 31,
-----------------------------------------------------------
Products 2002 2001 2000
------------------------------------ ----------------- ----------------- -----------------
Beer/Flavored Alcoholic Beverages .. $ 419.1 58.6% $ 375.4 53.4% $ 291.4 46.3%
Beverages .......................... 100.6 14.1 108.6 15.5 108.3 17.2
Food ............................... 79.4 11.1 90.3 12.9 87.7 13.9
Liquor ............................. 83.5 11.6 89.6 12.7 96.8 15.4
Other .............................. 33.0 4.6 38.3 5.5 45.3 7.2
------- ------- ------- ------- ------- -------
Total ......................... $ 715.6 100.0% $ 702.2 100.0% $ 629.5 100.0%
======= ======= ======= ======= ======= =======
There can be no assurance that the information provided in the
preceding table will be indicative of the glass container product mix of the
Company for 2003 or in subsequent years. Management's strategy is to focus on
shifting its product mix towards those products management believes likely to
improve operating results.
The Company's ten largest customers accounted for approximately
75.4% of its net sales for the twelve months ended December 31, 2002. The loss
of a number of these customers, a significant reduction in sales to these
customers or a significant change in the commercial terms of our relationship
with these customers could have a material adverse effect on the Company's
business, financial condition and results of operations. In 2002, the Company
lost a customer responsible for approximately 3.9% of its 2001 net sales;
although the Company was able to replace these sales, there can be no assurance
that it would be able to replace sales to other lost customers in the future.
The Company's largest customer, Anheuser-Busch Companies, Inc.
("Anheuser-Busch"), accounted for approximately 43.6% of its net sales for the
twelve months ended December 31, 2002. The Company has two dedicated facilities
in Florida and Georgia that provide two Anheuser-Busch breweries with glass
containers. The Southeast Contract covering these facilities extends through
2005. The remainder of the Company's sales to Anheuser-Busch are governed by a
separate agreement which also extends through 2005.
MANUFACTURING
Manufacturing
The Company's manufacturing facilities are generally located in
geographic proximity to its customers due to the significant cost of
transportation and the importance of prompt delivery to customers. Most of the
Company's production is shipped by common carrier to customers generally within
a 150-mile radius of the plant in which it is produced.
The glass container manufacturing process involves a high percentage
of fixed costs. Standard input costs are similar among manufacturers and include
soda ash, sand, limestone and energy costs. The Company conducts regular
maintenance on all of its operating equipment. The Company, from time to time,
may experience
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unplanned plant downtime at its operating facilities due to the extreme
operating conditions inherent in some of the Company's manufacturing processes.
3
Raw Materials and Suppliers
Sand, soda ash, limestone, cullet (reclaimed glass), corrugated
packaging materials and energy, primarily natural gas, are the principal raw
materials that are used in the Company's manufacturing operations. All of these
materials are available from a number of suppliers and the Company is not
dependent upon any single supplier for any of these materials. The Company
believes that adequate quantities of these materials are, and will continue to
be, available from various suppliers. However, if temporary shortages due to
disruptions in supply caused by weather, transportation, production delays or
other factors require the Company to secure its raw materials from sources other
than its current suppliers, the Company cannot be assured that it will be able
to do so on terms as favorable as its current terms or at all. In addition,
material increases in the cost of any of these items on an industry-wide basis
could have a material adverse effect on the Company's business, financial
condition and results of operations if it is unable to pass these costs along to
its customers.
All of the Company's glass melting furnaces are equipped to burn
natural gas, which is the primary fuel used at the Company's manufacturing
facilities. Backup systems are in place at some facilities to permit the use of
fuel oil or propane, to the extent cost effective and permitted by applicable
laws and regulations. Electricity is used in certain instances for enhanced
melting.
Prices for natural gas have fluctuated significantly in recent
years. As such, they remain one of the largest and the most volatile cost
components of the Company's operations. Because of the Company's previous
financial constraints, the Company has historically participated in very limited
hedging activities. The Company's current strategy is to enter into hedging
transactions from time to time on an opportunistic basis. The Company has hedged
certain of its estimated natural gas purchases, typically over a maximum of six
to twelve months, through the purchase of natural gas futures. The Company does
not enter into hedging transactions for speculative trading purposes, but rather
to lock in energy prices. Also, the Company has entered, from time to time, into
put and call options for purchases of natural gas.
Increases in the price of natural gas adversely affect the Company's
costs and margins. Over the last three years, closing prices for natural gas
prices have fluctuated significantly from a low of $1.830 per million BTUs, or
MMBTU, in October 2001 to a high of $9.978 per MMBTU in January 2001, compared
to an average price of $2.238 per MMBTU from 1995 through 1999. Since the 2001
price peak, natural gas prices have remained volatile. For March 2003, natural
gas prices ranged from approximately $5.60 to $11.90 per MMBTU and closed at
$9.133 per MMBTU. To date, natural gas prices for April 2003 have ranged from
approximately $6.80 to $8.10 MMBTU. Although certain of the Company's contracts
with its customers incorporate price adjustments based on changes in the cost of
natural gas, the change in pricing lags behind the cost the Company incurs to
obtain natural gas. A material increase in the price of natural gas would have a
material adverse effect on the Company's results of operations and financial
condition.
Quality Control
The Company maintains a program of quality control with respect to
suppliers, line performance and packaging integrity for glass containers. The
Company's production lines are equipped with a variety of automatic and
electronic devices that inspect containers for dimensional conformity, flaws in
the glass and various other performance attributes. Additionally, products are
sample inspected and tested by Company employees on the production line for
dimensions and performance and are also inspected and audited after packaging.
Containers that do not meet quality standards are crushed and recycled as
cullet. The Company has not experienced any significant quality control issues
in recent years.
The Company monitors and updates its inspection programs to keep
pace with technology and customer demands. Samples of glass and raw materials
from its plants are routinely chemically and electronically analyzed to monitor
compliance with quality standards. Laboratories are also maintained at each
manufacturing facility to test various physical characteristics of products.
SEASONALITY
4
Due principally to the seasonal nature of the brewing, iced tea and
some other segments of the beverage industry, in which demand is stronger during
the summer months, the Company's shipment volume is typically higher in the
second and third quarters. Consequently, the Company has historically built
inventory during the fourth and first quarters in anticipation of seasonal
demands during the second and third quarters. However, due to increased demand
at the end of 2001 and the beginning of 2002, the Company shipped more than
usual and built up less inventory in those periods.
In addition, although the Company seeks to minimize downtime, it has
historically scheduled shutdowns of its plants for furnace rebuilds and machine
repairs in the fourth and first quarters of the year to coincide with scheduled
holiday and vacation time under its labor union contracts. These shutdowns
normally adversely affect profitability during the fourth and first quarters.
CUSTOMER SERVICE
The Company has customer service managers responsible for
scheduling, sales forecasting and coordinating the various aspects of delivering
product to the customer. The Company maintains both low-capacity and
high-capacity forming equipment, which allows it to be more flexible and
responsive to changes in its customers' product mix and shipment location
requests. The Company's equipment mix also enables it to produce both
high-volume products and products that require shorter production runs, such as
new product introductions or specialty niche products, enhancing its
responsiveness and flexibility as a supplier.
ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS
Environmental Regulation and Compliance
The Company's operations are subject to Federal, state and local
environmental laws and regulations including, but not limited to, the Federal
Water Pollution Control Act of 1972, the Federal Clean Air Act and the Federal
Resource Conservation and Recovery Act and the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"). Among
the activities subject to environmental regulation are the disposal of checker
slag (furnace residue usually removed during furnace rebuilds), the disposal of
furnace bricks containing chromium, the disposal of waste, the discharge of
water used to clean machines and cooling water, dust emissions produced by the
batch mixing process, maintenance of underground and above ground storage tanks
and air emissions produced by furnaces. In addition, the Company is required to
obtain and maintain environmental permits in connection with its operations.
Many environmental laws and regulations provide for substantial fines and
criminal sanctions for violations. While there can be no assurance that material
costs or liabilities will not be incurred, the Company believes it is in
material compliance with applicable environmental laws and regulations.
Certain environmental laws, such as CERCLA, or Superfund, and
analogous state laws, provide for strict, and under certain circumstances, joint
and several liability for investigation and remediation of releases of hazardous
substances into the environment including soil and groundwater. These laws may
apply to properties presently or formerly owned or operated by an entity or its
predecessors, as well as to conditions at properties at which wastes
attributable to an entity or its predecessors were disposed. The Company is
conducting remediation of soil and groundwater at certain of its facilities, and
in light of historical practices, may in the future be required to perform
additional corrective actions. The Company is defending a limited number of
legal proceedings where third parties are asserting that it is responsible for
costs related to the disposal of wastes under CERCLA or analogous state laws.
The Company does not believe that the resolution of any of these legal
proceedings will have a material adverse effect on its financial condition, but
the Company cannot be assured that it or entities for which it may be
responsible will not incur future environmental liability, as a result of these
or other proceedings, that could have a material adverse effect on its financial
condition or results of operations.
Capital expenditures required for environmental compliance were
approximately $0.5 million in each of 2001 and 2002 and are anticipated to be
approximately the same in 2003. The Company anticipates that environmental
compliance will continue to require increased capital expenditures over time.
Future changes in such laws or regulations or interpretations thereof or the
nature of the Company's operations may require it to make significant additional
capital expenditures to ensure compliance in the future. The Company has
established
5
a reserve for environmental matters, including known or projected remediation
projects and projected exposure at third-party sites, in the amount of
approximately $10.0 million.
The Company does not believe that its environmental exposure is in
excess of the reserves reflected on its balance sheet. In addition to its
environmental reserves, the Company also maintains an environmental impairment
liability insurance policy to address certain potential future environmental
liabilities at both identified operating and non-operating sites. However there
can be no assurance that any future liability, particularly any arising from
presently unknown conditions, will not exceed the reserves or available
insurance coverage and have an adverse impact on the Company's operations or
financial condition.
Employee Health and Safety Regulations
The Company's operations are also subject to a variety of worker
safety laws. The Occupational Safety and Health Act of 1970, the United States
Department of Labor Occupational Health Administration Regulations and analogous
state laws mandate general requirements for safe workplaces for all employees.
The Company believes that it is operating in material compliance with applicable
employee health and safety laws.
Deposit and Recycling Legislation
Over the years, legislation has been introduced at the Federal,
state and local levels requiring a deposit or tax, or imposing other
restrictions, on the sale or use of certain containers, particularly beer and
carbonated soft drink containers. Several states have enacted some form of
deposit legislation, and others may in the future. The enactment of additional
deposit laws or laws, such as mandatory recycling rate requirements, that affect
the cost structure of a particular segment or all of the packaging industry
could have a material adverse effect on our business, results of operations and
financial condition.
COMPETITION
The glass container industry in the United States is a mature
industry. The Company and the other glass container manufacturers compete on the
basis of price, quality, reliability of delivery and general customer service.
The industry is highly concentrated with three producers, including the Company,
estimated by the Company to have accounted for over 90% of 2002 domestic volume.
The Company's principal competitors are Owens-Brockway Glass
Container Inc. ("Owens-Illinois"), a wholly owned subsidiary of Owens-Illinois
Group, Inc., and Saint-Gobain Containers Co., a wholly owned subsidiary of
Compagnie de Saint-Gobain. These competitors are larger and have greater
financial and other resources than the Company. Owens-Illinois has a relatively
large research and development staff and has in place numerous technology
licensing agreements with other glass producers, including the Company.
In addition to competing directly with Owens-Illinois and
Saint-Gobain in the glass container segment of the rigid packaging industry, the
Company also competes indirectly with manufacturers of other forms of rigid
packaging, such as aluminum cans and plastic containers. These other forms of
rigid packaging compete with glass containers principally on the basis of
quality, price, availability and consumer preference.
INTELLECTUAL PROPERTY RIGHTS
The Company operates under a ten-year contract with Heye-Glas
International, expiring December 31, 2011, that provides it with heat extraction
technology for its forming machines.
The Company also has a limited license with Owens-Illinois entitling
the Company to use certain existing patents, trade secrets and other technical
information of Owens-Illinois relating to glass manufacturing technology. The
Company will have the right to use technology in place through 2005 in exchange
for license fees and thereafter will have a perpetual paid-up license.
While the Company holds various patents, trademarks and copyrights
of its own, it believes its business is not dependent upon any one of these.
6
EMPLOYEES
As of February 28, 2003, the Company employed approximately 3,030
persons on a full-time basis. Approximately 540 of these employees are salaried
office, supervisory and sales personnel. The remaining employees are represented
principally by two unions, the Glass Molders, Pottery, Plastics and Allied
Workers and the American Flint Glass Workers Union. The Company's two labor
contracts with the Glass Molders, Pottery, Plastics and Allied Workers and its
two labor contracts with the American Flint Glass Workers Union expire on March
31, 2005 and August 31, 2005, respectively.
The Company has not experienced any significant work stoppages or
employee-related problems that had a material impact on its operations. The
Company considers its relationship with its employees to be good.
ITEM 2. PROPERTIES.
The Company's administrative and executive offices are located in
Tampa, Florida. The Company entered into a lease in January 1998 pursuant to
which it leases a portion of the headquarters facility for an initial term of
ten years.
The Company owns and operates nine glass container manufacturing
plants. The Company also leases a building located in Streator, Illinois, that
is used as a machine shop to rebuild glass-forming related machinery and a mold
shop located in Zanesville, Ohio, as well as additional warehouses for finished
products in various cities throughout the United States. Substantially all of
the Company's owned properties and equipment at its nine operating glass
container manufacturing facilities are pledged as collateral securing the
Company's obligations under the Senior Secured Notes and the related indenture.
The following table sets forth certain information concerning the
Company's manufacturing facilities. In addition to these locations, the Company
owns plants at Keyser, West Virginia, Cliffwood, New Jersey, Royersford,
Pennsylvania, Chattanooga, Tennessee and Dayville, Connecticut that have been
closed and owns land in Gas City, Indiana.
NUMBER OF NUMBER OF BUILDING AREA
LOCATION FURNACES MACHINES (SQUARE FEET)
---------------------------------- ------------ ------------ -------------
Jacksonville, Florida 2 4 624,000
Warner Robins, Georgia 2 8 864,000
Lawrenceburg, Indiana 1 4 504,000
Winchester, Indiana 2 6 627,000
Shakopee, Minnesota 2 6 360,000
Salem, New Jersey (1) 3 6 733,000
Elmira, New York 2 6 912,000
Henryetta, Oklahoma 2 6 664,000
Connellsville, Pennsylvania 2 4 624,000
- ----------
(1) A portion of the site on which this facility is located is leased pursuant
to several long-term leases.
ITEM 3. LEGAL PROCEEDINGS.
In September 2001, The National Bank of Canada, acting on its own
behalf and on behalf of PNC Bank, filed a complaint against Anchor, GGC, L.L.C.
("GGC") a former affiliate of Anchor, Consumers U.S., Inc., ("Consumers U.S.")
(the former parent company of Anchor) and certain other of Anchor's former
affiliates. The complaint alleged, among other things, fraudulent conveyances
made by GGC to Anchor and tortious interference by Anchor with the contractual
relationship between the bank and GGC. The action will be heard in the United
States Bankruptcy Court for the Middle District of Florida. A trial date is
scheduled in September 2003.
The Company's operations are subject to Federal, state and local
requirements that are designed to protect the environment. Such requirements
have in the past resulted in the Company becoming involved in related legal
proceedings, claims and remediation obligations. In addition, the Company is,
and from time to time may be, a
7
party to routine legal proceedings incidental to the operation of its business.
The outcome of any pending or threatened proceedings is not expected to have a
material adverse effect on the Company's financial condition or operating
results, based on its current understanding of the relevant facts.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were brought to a vote of security holders in the fourth
quarter of 2002.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
RECENT SALES OF UNREGISTERED SECURITIES
In February 2003, the Company issued $300.0 million aggregate
principal amount of its Senior Secured Notes to a group of "qualified
institutional buyers" (as such term is used in Rule 144A under the Securities
Act). The Senior Secured Notes were issued in reliance on the exemptions from
the registration requirements of the Securities Act provided by Rule 144A and
Regulation S under the Securities Act. The initial purchasers were "accredited
investors" as that term is defined in Regulation D of the Securities Act. The
sale and issuance of these securities was exempt from the registration of the
Securities Act pursuant to Rule 506 Regulation D promulgated thereunder.
On August 30, 2002, the Company sold and issued to Anchor Glass
Container Holding L.L.C. ("AGC Holding"), a Cerberus affiliate, 75,000 shares of
Series C Preferred Stock for $75.0 million and 9,000,000 shares of Common Stock
for $5.0 million. These shares were issued in an offering not involving a public
offering pursuant to Section 4(2) of the Securities Act. As a condition to the
issuance, the purchasers consented to placement of a restrictive legend on the
certificates representing the securities. The Company has not paid dividends on
its Common Stock and currently has no intention to do so in the future. The
holders of the Series C Preferred Stock are entitled to receive, when and as
declared by the Board of Directors of the Company out of legally available
funds, cumulative dividends, payable quarterly in cash, at a rate per annum
equal to 12%.
On August 30, 2002, in connection with the PBGC Agreement, the
Company granted the PBGC a warrant for the purchase of 5% of the Common Stock of
Anchor, with an exercise price of $5.27 per share and term of ten years.
As of February 28, 2003, there was one registered holder of 75,000
shares of Series C Preferred Stock, five registered holders of Common Stock and
one registered holder of warrants for the purchase of Common Stock.
Under the terms of the Plan, the holders of Anchor's First Mortgage
Notes retained their outstanding $150.0 million of First Mortgage Notes and
received a consent fee for the waiver of the change-in-control provisions, the
elimination of pre-payment provisions and other non-financial changes to the
terms of the First Mortgage Notes (including the release of Consumers U.S. as a
guarantor). The holders of Anchor's Senior Notes were repaid in cash at 100% of
their principal amount. The holders of Anchor's Series A Preferred Stock are
entitled to receive a cash distribution of $22.5 million (of which approximately
$21.0 million has been paid through February 28, 2003) and the Series A
Preferred Stock was cancelled. Anchor's Series B Preferred Stock and common
stock and warrants were cancelled and the holders received no distribution under
the Plan. The holders of the First Mortgage Notes were repaid with proceeds from
the issuance of the Senior Secured Notes.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain historical financial
information of the Company. The selected financial data as of December 31, 2002
and December 31, 2001 and for the four months ended December 31, 2002, the eight
months ended August 31, 2002 and the two years ended December 31, 2001 and 2000
have been derived from the Company's audited financial statements included
elsewhere in this Annual Report on Form 10-K. The selected financial data as of
December 31, 2000, 1999 and 1998 and for the three years ended December 31,
2000, 1999 and 1998 has been derived from the Company's financial statements
which had previously been audited by
8
Arthur Andersen LLP. Arthur Andersen has not reissued its report for purposes of
this Annual Report on Form 10-K. The following information should be read in
conjunction with the Company's financial statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The financial statements as of and for periods subsequent to August
31, 2002 are referred to as the "Reorganized Company" statements. The financial
statements prior to that date are referred to as "Predecessor Company"
statements. The financial statements for the eight months ended August 31, 2002
give effect to the restructuring and reorganization adjustments and the
implementation of fresh start accounting. The financial results for the year
ended December 31, 2002 include two different bases of accounting and,
consequently, after giving effect to the reorganization and fresh start
adjustments, the financial statements of the Reorganized Company are not
comparable to those of the Predecessor Company. Accordingly, the operating
results of the Reorganized Company and the Predecessor Company have been
separately disclosed.
REORGANIZED
COMPANY PREDECESSOR COMPANY
------------ -----------------------------------------------------------------------
FOUR MONTHS EIGHT MONTHS
ENDED ENDED YEARS ENDED DECEMBER 31,
DECEMBER 31, AUGUST 31, ------------------------------------------------------
2002 2002 2001 2000 1999 1998
------------ ------------ --------- --------- --------- ---------
(dollars in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Net sales $ 211,379 $ 504,195 $ 702,209 $ 629,548 $ 628,728 $ 643,318
Cost of products sold 192,434 451,619 658,641 603,061 582,975 594,256
Selling and administrative expenses 9,683 19,262 28,462 33,222 28,465 30,246
Restructuring, net (1) -- (395) -- -- -- 4,400
Related party provisions and charges (2) -- -- 35,668 -- 9,600 --
--------- --------- --------- --------- --------- ---------
Income (loss) from operations 9,262 33,709 (20,562) (6,735) 7,688 14,416
Reorganization items, net (3) -- 47,389 -- -- -- --
Other income (expense), net 450 673 106 5,504 2,080 2,384
Interest expense (10,381) (17,948) (30,612) (31,035) (27,279) (26,570)
--------- --------- --------- --------- --------- ---------
Net income (loss) $ (669) $ 63,823 $ (51,068) $ (32,266) $ (17,511) $ (9,770)
========= ========= ========= ========= ========= =========
Series A and B Preferred Stock dividends $ (4,100) $ (14,057) $ (14,057) $ (13,650) $ (13,037)
========= ========= ========= ========= =========
Income (loss) applicable to common stock $ 59,723 $ (65,125) $ (46,323) $ (31,161) $ (22,807)
========= ========= ========= ========= =========
Basic net income (loss) per share
applicable to common stock $ 11.37 $ (12.40) $ (8.82) $ (5.93) $ (5.12)
========= ========= ========= ========= =========
Diluted net income (loss) per share
applicable to common stock $ 1.89 $ (12.40) $ (8.82) $ (5.93) $ (5.12)
========= ========= ========= ========= =========
OTHER FINANCIAL DATA:
Depreciation and amortization $ 18,011 $ 35,721 $ 54,024 $ 54,900 $ 51,942 $ 52,155
Capital expenditures 28,666 42,654 41,952 39,805 53,963 42,297
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------------ ------------------------------------------------------
BALANCE SHEET DATA (at end of period):
Accounts receivable $ 42,070 $ 53,646 $ 43,182 $ 55,818 $ 53,556 $ 86,846
Inventories 102,149 87,235 105,573 125,521 106,977 104,329
Total assets 556,397 546,235 530,584 620,807 613,037 640,962
Total long-term debt including capital
leases 298,801 274,738 259,435 269,279 253,132 253,922
Redeemable preferred stock -- -- 82,026 76,428 70,830 66,643
Total stockholders' equity (deficit) 76,499 80,000 (124,041) (4,626) 46,187 67,938
- ----------
(1) The Company recorded a net gain for restructuring of $395 for the eight
months ended August 31, 2002. The significant components of this net gain
included: professional fees of $10,068; direct costs of the restructuring,
net of $8,344; savings attributable to the retiree benefit plan
modification of ($24,432); and first mortgage note holder consent fee of
$5,625. The Company recorded a restructuring charge in 1998 as a result of
one furnace and one machine being removed from service.
9
(2) For the year ended December 31 2001, represents the write-off of a
receivable from Consumers Packaging Inc. ("Consumers") and affiliates of
$18,221 and the write-off of an advance to G&G Investments, Inc. of
$17,447. For the year ended December 31, 1999, represents the Company's
allocable portion of the write-off of costs relating to a software system.
(3) Reorganization items, net consist of a net gain for fresh start
adjustments of $49,908 and expenses incurred in the Chapter 11 proceedings
of $2,519, comprised of: $2,450 of debtor-in-possession facility fees;
$1,687 of professional fees; $1,276 of deferred financing fees written off
relating to the Senior Notes; and a credit of $2,894 for the reversal of
interest expense relating to the Senior Notes.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Company Background
The Company is the third largest manufacturer of glass containers in
the United States, focused solely on this packaging industry segment. The
Company has nine strategically located facilities where it produces a diverse
line of flint (clear), amber, green and other colored glass containers of
various types, designs and sizes for the beer, flavored alcoholic beverages,
non-alcoholic beverages, liquor and food markets. The Company manufactures and
sells its products to many of the leading producers of products in these
categories.
Senior Secured Notes Offering
On February 7, 2003, the Company completed an offering of $300.0
million aggregate principal amount of 11% Senior Secured Notes due 2013, issued
under an indenture dated as of February 7, 2003, among the Company and The Bank
of New York, as Trustee (the "Indenture"). The Senior Secured Notes are senior
secured obligations of the Company, ranking equal in right of payment with all
existing and future unsubordinated indebtedness of the Company and senior in
right of payment to all future subordinated indebtedness of the Company. The
Senior Secured Notes are secured by a first priority lien, subject to certain
permitted encumbrances, on substantially all of Anchor's existing real property,
equipment and other fixed assets relating to Anchor's nine operating glass
container manufacturing facilities.
Proceeds from the issuance of the Senior Secured Notes, net of fees,
were approximately $289.0 million and were used to repay 100% of the principal
amount outstanding under the First Mortgage Notes plus accrued interest thereon
(approximately $156.3 million), 100% of the principal amount outstanding under
the Term Loan plus accrued interest thereon and a prepayment fee (approximately
$20.4 million) and advances outstanding under the Revolving Credit Facility
(approximately $66.9 million), which includes funds for certain of the Company's
capital improvement projects. The remaining proceeds of approximately $45.0
million are being used to terminate certain equipment leases by purchasing from
the lessors the equipment leased thereunder.
Reorganization
On August 30, 2002, Anchor consummated a significant restructuring
of its existing debt and equity securities through a Chapter 11 reorganization.
As part of this Reorganization, Cerberus, through certain Cerberus-affiliated
funds and managed accounts, invested $80.0 million of new equity capital into
Anchor, acquiring 100% of Anchor's Series C Participating Preferred Stock for
$75.0 million and 100% of Anchor's Common Stock for $5.0 million. In addition,
Anchor arranged for a $20.0 million Term Loan from Ableco Finance LLC, an
affiliate of Cerberus. In connection with the restructuring, Anchor also put in
place a new $100.0 million Revolving Credit Facility. In addition, Anchor
settled various lawsuits, eliminated certain related party claims and contracts,
reduced retiree medical obligations by more than $20.0 million and entered into
an agreement with the PBGC settling Anchor's outstanding pension liability.
In connection with the Reorganization, Anchor repaid $50.0 million
aggregate principal amount of Senior Notes. Anchor also retired its old common
stock and Series A Preferred Stock and canceled its Series B Preferred Stock. In
connection with the Reorganization, the First Mortgage Notes, aggregate
principal amount of $150.0 million, were left unimpaired and remained
outstanding and were repaid with proceeds from the issuance of the Senior
Secured Notes.
The Reorganization was consummated on August 30, 2002; however, for
accounting purposes, the Company has accounted for the reorganization and fresh
start adjustments as of August 31, 2002, to coincide with its normal financial
closing for the month of August. The Company's financial statements as of and
for periods subsequent to August 31, 2002 are referred to as the "Reorganized
Company" statements. All financial statements prior to that date are referred to
as "Predecessor Company" statements. The financial statements for the eight
11
months ended August 31, 2002 give effect to the restructuring and reorganization
adjustments and the implementation of fresh start accounting.
Pension Plan
Effective December 31, 2001, the Glass Companies Multiemployer Pension
Plan was established, created from the merger of Anchor's defined benefit
pension plan and GGC's defined benefit plan for hourly employees. Anchor, GGC,
the Board of Trustees of the Glass Companies Multiemployer Pension Plan and the
unions representing certain employees at Anchor and at GGC participating in the
plan considered the Glass Companies Multiemployer Pension Plan to be a
multiemployer pension plan.
In July 2002, the United States Department of Labor notified the
Company that it had determined that the Glass Companies Multiemployer Pension
Plan did not meet the definition of a multiemployer plan for purposes of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Effective
July 31, 2002, the Company entered into the PBGC Agreement to settle its
outstanding pension liability. Pursuant to the PBGC Agreement, and collective
bargaining agreements with the unions representing its employees, the Company
withdrew from the Glass Companies Multiemployer Pension Plan on July 31, 2002.
The PBGC partitioned the assets and liabilities of the Glass Companies
Multiemployer Pension Plan into two parts, one part attributable to Anchor
employees and former employees, and one part attributable to the employees and
former employees of GGC and terminated the Anchor portion. The termination was
effective July 31, 2002.
Anchor settled the PBGC termination claim as follows: (1) pursuant to
the PBGC Agreement, on August 30, 2002, Anchor made a payment of $20.75 million
to the PBGC with proceeds from the Reorganization; (2) for a period of 120
months, commencing September 2002, Anchor is required to make monthly payments
to the PBGC in the amount of $833,333.33; and (3) on August 30, 2002, Anchor
granted the PBGC a warrant for the purchase of 5% of its common stock, with an
exercise price of $5.27 per share and term of ten years. Anchor amended its
labor union contracts and, effective August 1, 2002, commenced contributing to
the Glass Molders, Pottery, Plastics and Allied Workers and Employees Pension
Fund and the Steelworkers Pension Trust for the future service benefits of the
Company's hourly employees.
RESULTS OF OPERATIONS
Historical results for the year ended December 31, 2002 contain two
different bases of accounting and, consequently, after giving effect to the
Reorganization and fresh start adjustments, the historical financial statements
of the Reorganized Company are not comparable to those of the Predecessor
Company and have been separately disclosed.
FOUR MONTHS ENDED DECEMBER 31, 2002 AND EIGHT MONTHS ENDED AUGUST 31, 2002
COMPARED TO YEAR ENDED DECEMBER 31, 2001
NET SALES. Net sales for the four months ended December 31, 2002
were $211.4 million and net sales for the eight months August 31, 2002 were
$504.2 million, compared to $702.2 million in the year ended December 31, 2001.
The increase in net sales of approximately $13.4 million was principally a
result of general price increases and a shift in product mix from food and
beverages to beer/flavored alcoholic beverages. Net sales and sales volume in
2002 were negatively impacted by unplanned downtime due to emergency furnace
repairs at two of the Company's operating facilities, which resulted in lower
shipment volume in September 2002. These repairs were completed in September
2002 and the furnaces are currently operating.
COST OF PRODUCTS SOLD. Cost of products sold in the four months
ended December 31, 2002 was $192.4 million, or 91.0% of net sales, and cost of
products sold in the eight months ended August 31, 2002 was $451.6 million, or
89.6% of net sales, while the cost of products sold for the year ended December
31, 2001 was $658.6 million, or 93.8% of net sales. This improvement in margin
in 2002 principally reflects the decline in the cost of natural gas, the
principal fuel for manufacturing glass, of approximately $14.0 million. The
decline in the price of natural gas in 2002, as compared with 2001, resulted in
net margin improvement of approximately $3.8 million, net of the energy price
recovery program. Additional manufacturing efficiencies, due to the Company's
cost reduction efforts, and lower inventory storage costs, resulting from the
lower levels of inventory, also favorably
12
impacted cost of products sold. These improvements were partially offset by
increases in other costs, such as insurance, fringe benefits and costs
associated with downtime during the modernization project at the Elmira, New
York facility. In addition, the furnace disruption discussed above resulted in
extra costs incurred in the four months ended December 31, 2002 of approximately
$1.8 million. With the implementation of SFAS 142, effective as of January 1,
2002, goodwill is no longer amortized. Goodwill amortization expense was $3.0
million in the year ended December 31, 2001.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses for the four months ended December 31, 2002 were $9.7 million, or 4.6%
of net sales, selling and administrative expenses for the eight months ended
August 31, 2002 were $19.3 million, or 3.8% of net sales, while selling and
administrative expenses for the year ended December 31, 2001 were $28.5 million,
or 4.0% of net sales.
RESTRUCTURING, NET AND REORGANIZATION ITEMS, NET. On August 30,
2003, the effective date of the Plan, the Company adopted fresh start reporting
pursuant to the American Institute of Certified Public Accountants Statement of
Position 90-7 "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code". The adoption of fresh start reporting results in the Company
revaluing its balance sheet to fair value based on the reorganization value of
the Company. Reorganization costs for the eight months ended August 31, 2002
consisted of a net gain for fresh start adjustments of $49.9 million and
expenses incurred in the Chapter 11 proceedings of $2.5 million.
On August 30, 2002, the Company completed the Reorganization and
recorded a net gain for restructuring of $0.4 million during the eight months
ended August 31, 2002. The significant components of this net gain include:
professional fees - $10.1 million; direct costs of the restructuring - $7.9
million; First Mortgage Note holder consent fee - $5.6 million; monetization of
assets - $4.5 million; other fees - $3.9 million; net cost of derivative
settlement - $0.2 million; retiree benefit plan modification - ($24.4 million);
and adjustment to pension liabilities - ($8.2 million).
INTEREST EXPENSE. Interest expense for the four months ended
December 31, 2002 was $10.4 million and interest expense for the eight months
ended August 31, 2002 was $17.9 million, compared to $30.6 million for the year
ended December 31, 2001, a decrease of $2.3 million. There was no accrual of
interest on the Senior Notes from April 15, 2002, the petition date, through
August 30, 2002, the date of the repayment of the principal amount of the Senior
Notes, resulting in a year over year reduction of $3.5 million in interest
expense. Interest expense was also reduced due to lower average interest rates
and lower average borrowings outstanding under the Company's revolving credit
facilities in 2002, offset by interest expense related to the PBGC Agreement and
the Term Loan.
NET INCOME (LOSS). The Company recorded a net loss of $0.6 million
and net income of $63.8 million in the four months ended December 31, 2002 and
the eight months ended August 31, 2002, respectively. The restructuring and
reorganization items were $47.8 million, leaving income of $15.4 million
attributable to all other operations. The Company recorded a net loss of $51.1
million in the year ended December 31, 2001. The related party provision and
charges were $35.7 million, leaving a loss of approximately $15.4 million in
2001 attributable to all other operations. The improvement in earnings results
for 2002 was due to general price increases, increased sales volume and a
favorable mix of business opportunities.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
NET SALES. Net sales for 2001 were $702.2 million compared to $629.5
million for 2000. This $72.7 million, or 11.5%, increase in net sales was
principally a result of the 12.0% increase in shipment volume, particularly in
the beer product line, primarily associated with (i) the Company's agreement
with Anheuser-Busch to provide all the bottles for the Anheuser-Busch
Jacksonville, Florida and Cartersville, Georgia breweries, beginning in 2001,
(ii) the natural gas related price recovery program discussed below and (iii)
general price increases. Net sales in the first six months of 2001 were
negatively impacted by $23.8 million due to a change in the way certain
packaging materials were sold to one of the Company's customers. This change
resulted in a comparable reduction in cost of products sold in 2001.
COST OF PRODUCTS SOLD. Cost of products sold for 2001 was $658.6
million, or 93.8% of net sales, while the cost of products sold for 2000 was
$603.0 million, or 95.8% of net sales. This increase in the cost of products
sold
13
principally reflects the increases in net sales noted above. Productivity
improvements of approximately $7.0 million were offset by increases in other
costs, including raw material and labor costs of approximately $5.4 million. In
addition, the Company continued to experience significant increases in the cost
of natural gas as compared to the preceding year. These increased prices for
natural gas, the principal fuel for manufacturing glass, increased costs by
approximately $12.5 million compared to 2000. Energy costs declined in the
second half of 2001 and at year-end were in line with historical levels. In the
second half of 2000, the Company initiated a price recovery program for the
escalating natural gas costs incurred. Approximately $21.5 million was recovered
through this program in 2001 and is included in net sales.
RELATED PARTY PROVISIONS AND CHARGES. Prior to the Reorganization,
Consumers, Anchor's former indirect parent, indirectly owned, on a fully-diluted
basis, approximately 59.0% of Anchor's capital stock. In August 2001, Consumers
and Owens-Illinois announced an agreement whereby Owens-Illinois was to acquire
Consumers glass-producing assets as well as Anchor's capital stock held by
Consumers. The stock sale never materialized. However, as a result of this
announcement and Consumers bankruptcy in Canada, the Company recorded a charge
to earnings during 2001 of $18.2 million ($25.0 million in receivables and a
$1.8 million investment in common shares of Consumers, net of $8.6 million in
payables). The Company also recorded a provision of $17.4 million against an
advance from an affiliate as a related party provision on the statement of
operations.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative
expenses for 2001 were $28.5 million and for 2000 were approximately $33.2
million. This decrease was attributable to a focus on overall cost reduction,
including reducing personnel related costs, data processing costs and support
costs of related parties, including fees under the management agreement with G&G
Investments, Inc., offset by increased legal and professional fees.
OTHER INCOME, NET. Other income, net decreased to $0.1 million in
2001 from $5.5 million in 2000. Other income for 2000 included the gain on the
sale (of approximately $6.1 million) of the Company's previously closed Houston,
Texas glass container manufacturing facility and certain related operating
rights to Anheuser-Busch, offset by the write down of approximately $1.2 million
on 1,842,000 shares of Consumers' common stock to reflect the investment at fair
value.
INTEREST EXPENSE. Interest expense for 2001 was approximately $30.6
million, compared to $31.0 million in 2000, a decrease of 1.4%. Interest expense
in 2000 included the write-off of certain financing fees of $1.3 million.
Excluding this item, interest increased primarily due to interest on higher
average outstanding borrowings under the revolving credit facility at the time,
offset by lower interest rates and less net interest incurred on related party
liabilities.
NET LOSS. The Company had a net loss in 2001 of approximately $51.1
million compared to a net loss in 2000 of approximately $32.3 million. The
related party provision and charges was $35.7 million, leaving a loss of
approximately $15.4 million in 2001 attributable to all other operations. The
results of 2000 included a gain on the sale of the previously closed Houston,
Texas glass container manufacturing facility of approximately $4.1 million and a
gain of approximately $2.0 million on the sale of certain operating rights
related to the Houston, Texas facility, both included in "Other income, net"
above. The 2000 results also included approximately $5.4 million of unabsorbed
expenses associated with extended year-end shutdown period in 2000, a $1.2
million write down on shares of Consumers' common stock to reflect the
investment at fair value and a write-off of $1.3 million related to the
refinancing of a former credit facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are funds derived from
operations and borrowings under the Revolving Credit Facility, as well as the
lease facility described below. The Company believes that cash flows from
operating activities combined with funds from the issuance of the Senior Secured
Notes and available borrowings under the Revolving Credit Facility and the
master lease agreement will be sufficient to support its operations and
liquidity requirements for the foreseeable future, although the Company cannot
be assured that this will be the case. Peak operating needs are in the spring,
at which time working capital borrowings are significantly higher than at other
times of the year.
14
Senior Secured Notes Offering
On February 7, 2003, the Company completed an offering of $300.0
million aggregate principal amount of 11% Senior Secured Notes due 2013. The
Senior Secured Notes are redeemable, in whole or in part, at the Company's
option on or after February 15, 2008, at redemption prices defined in the
Indenture. The Indenture provides that upon the occurrence of a change of
control, the Company will be required to offer to purchase all of the Senior
Secured Notes at a purchase price equal to 101% of the principal amount thereof
plus accrued interest to the date of purchase.
The Indenture governing the Senior Secured Notes, subject to certain
exceptions, restricts the Company from taking various actions, including, but
not limited to, subject to specified exceptions, the incurrence of additional
indebtedness, the payment of dividends and other restricted payments, the
granting of additional liens, mergers, consolidations and sale of assets and
transactions with affiliates.
The Company entered into a Registration Rights Agreement on February
7, 2003. Under the Registration Rights Agreement, the Company will use its
reasonable best efforts to register with the Securities and Exchange Commission,
exchange notes having substantially identical terms as the Senior Secured Notes.
Reorganization
As part of the Reorganization:
- The holders of the First Mortgage Notes retained their outstanding
$150.0 million of First Mortgage Notes and received a consent fee of
$5.6 million for the waiver of the change-in-control provisions, the
elimination of pre-payment premiums and certain non-financial
changes to the terms of the First Mortgage Notes, including the
release of Consumers U.S. as a guarantor. The First Mortgage Notes
were repaid in cash with proceeds of the Senior Secured Notes.
- The Senior Notes were repaid in cash at 100% of their principal
amount of $50.0 million.
- The holders of the Series A preferred stock (which had a then
current accrued liquidation value of approximately $83.6 million)
were entitled to receive a cash distribution of $22.5 million in
exchange for their shares, of which $21.0 million was paid through
February 28, 2003 (and the remainder of which is expected to be paid
in 2003), and the Series A Preferred Stock was canceled.
- The Series B Preferred Stock (which had a then current accrued
liquidation value of approximately $105.7 million) and common stock
and warrants were canceled and the holders received no distribution
under the Plan.
- The Company entered into the PBGC Agreement, whereby the PBGC
proceeded in accordance with procedures under ERISA, to partition
the assets and liabilities of the Glass Companies Multiemployer
Pension Plan and terminate the Anchor portion. At August 30, 2002,
Anchor paid $20.75 million to the PBGC and entered into a ten-year
payment obligation.
- All of the Company's other unaffiliated creditors, including trade
creditors, were unimpaired and have been or will be paid in the
ordinary course.
Cash Flows
Operating Activities. Operating activities provided $23.1 million in
cash in the four months ended December 31, 2002 and $53.1 million in the eight
months ended August 31, 2002, as compared to cash provided of $37.5 million in
the year ended December 31, 2001. This increase in cash provided reflects an
improvement in earnings of approximately $30.8 million and changes in working
capital items. Accounts receivable and inventory levels decreased approximately
$3.6 million and $3.4 million, respectively, in 2002. As a result of lower
natural gas prices, net cash outlays for natural gas purchases in the twelve
months ended December 31, 2002 decreased approximately $3.8 million as compared
to the year ended December 31, 2001. Anchor contributed approximately $7.6
million to the multiemployer pension plans in 2002, compared to $7.4 million
contributed to the prior benefit pension plan in 2001.
15
Investing Activities. Cash consumed in investing activities was
$18.1 million in the four months ended December 31, 2002 and $49.5 million in
the eight months ended August 31, 2002, as compared to $30.9 million in the year
ended December 31, 2001. Capital expenditures were $28.7 million in the four
months ended December 31, 2002 and $42.6 million in the eight months ended
August 31, 2002, as compared to $42.0 million in the year ended December 31,
2001. The Company invested approximately $31.0 million in the now completed
modernization project at the Elmira, New York facility, of which $18.6 million
was invested in 2002. To fund capital expenditures as provided for under the
terms of the indentures outstanding at the time, the Company applied cash
deposited into escrow of $10.0 million and $13.3 million, respectively, in 2002
and 2001, which represented the proceeds of leasing and sale-leaseback
transactions.
Financing Activities. Net cash consumed in financing activities was
$5.0 million in the four months ended December 31, 2002 and $3.7 million in the
eight months ended August 31, 2002, as compared to $10.7 million in the year
ended December 31, 2001. The net financing activities in 2002 principally
reflect the Reorganization transactions, consisting of $80.0 million of proceeds
from the issuance of capital stock, $20.0 million of proceeds from the issuance
of the Term Loan, repayment of the principal balance of $50.0 million on the
Senior Notes, payment of $20.75 million under the PBGC Agreement and repayment
of the advances outstanding under the former debtor-in-possession facility of
approximately $47.9 million.
Debt and Other Contractual Obligations
Under the Company's new master lease, entered into in December 2002,
the Company can lease equipment from time to time until March 31, 2003, in an
amount not to exceed $20.0 million in the aggregate. The master lease agreement
is structured as a capital lease under GAAP. For each group of equipment items
the Company agrees to lease, it will enter into an equipment schedule that will
apply the terms of the master lease to such equipment. The Company financed
$10.0 million of equipment in December 2002 under a lease term of five years.
The Company intends to finance an additional $10.0 million of equipment in late
March 2003.
In August 2002, the Company entered into a ten-year payment
obligation under the PBGC Agreement. The present value of this obligation,
approximately $65.0 million at December 31, 2002, was determined by applying a
discount rate of 8.9%. See "--Overview--Pension Plan."
Commitments for the principal payments and interest required on
long-term debt, including capital leases and other contractual obligations, are
as follows:
2007 and
2003 2004 2005 2006 thereafter
--------- -------- -------- --------- -----------
(dollars in thousands)
Long-term debt (1) $ -- $ -- $ -- $ -- $ 300,000
Capital leases (2) 2,611 2,599 2,098 2,108 2,241
Interest on above obligations 30,436 33,800 33,789 33,778 202,898
Payments under PBGC Agreement (3) 10,000 10,000 10,000 10,000 57,500
Operating leases 9,476 4,005 3,232 3,015 12,165
Series A Preferred Stock (4) 5,091 -- -- -- --
--------- -------- -------- --------- -----------
$ 57,614 $ 50,404 $ 49,119 $ 48,901 $ 574,804
========= ======== ======== ========= ===========
(1) Includes the obligations under the Senior Secured Notes due 2013.
(2) Includes the capital lease obligation under the new master lease.
(3) The Company is required to make monthly payments to the PBGC in the
amount of $833,333.33.
(4) Includes the remaining balance of the settlement of the Series A
Preferred Stock ($22.5 million) under the Plan.
In addition to the above, the Company is obligated to pay
approximately $2.9 million annually (in aggregate approximately $43.7 million)
related to its post-retirement benefit plan and approximately $5.0 million
annually to multiemployer plans for the future service benefits of its hourly
employees.
16
The obligations under the Revolving Credit Facility are secured on a
first priority security interest in, a lien upon, and a right of set off against
all of the Company's inventories, receivables, general intangibles and proceeds
therefrom. In addition, the Revolving Credit Facility contains customary
negative covenants and restrictions for transactions, including, without
limitation, restrictions on indebtedness, liens, investments, fundamental
business changes, asset dispositions outside of the ordinary course of business,
certain junior payments, transactions with affiliates and changes relating to
indebtedness. In addition, the Revolving Credit Facility requires that the
Company meet a quarterly fixed charge coverage test, unless minimum availability
declines below $10.0 million in which case the Company must meet a monthly fixed
charge coverage test.
As of March 4, 2003, advances outstanding under the Revolving Credit
Facility were approximately $3.0 million, borrowing availability was
approximately $74.1 million and outstanding letters of credit on this facility
were approximately $4.2 million.
In addition, the letters of credit outstanding under the prior
debtor-in-possession facility are currently in the process of being transitioned
to the Revolving Credit Facility. As of March 4, 2003, outstanding letters of
credit under this facility are approximately $3.7 million and are collateralized
by a cash deposit, recorded as restricted cash on the balance sheet. The
transition of the letters of credit to the Revolving Credit Facility and the
return of the cash deposit are expected to occur by the end of the first quarter
of 2003.
Capital Expenditures
Capital expenditures were approximately $71.3 million in 2002 and
are expected to be approximately $72.0 million in 2003, which includes
approximately $22.5 million of expenditures for certain capital improvement
projects at the Company's Henryetta, Oklahoma and Warner Robins, Georgia
facilities.
Off-Balance Sheet Arrangements
Except for operating lease commitments as disclosed in the table of
contractual obligations above, the Company is not party to off-balance sheet
arrangements.
IMPACT OF INFLATION
The impact of inflation on the Company's costs, and the ability to
pass on cost increases in the form of increased sales prices, is dependent upon
market conditions. While the general level of inflation in the domestic economy
has been relatively low, the Company has experienced significant cost increases
in specific materials and energy and has not been fully able to pass on these
cost increases to its customers for several years, although the Company did
realize some price increases in 2001 and 2002, primarily due to the abnormally
high energy costs experienced in 2001. Over the last three years, closing prices
for natural gas prices have fluctuated significantly from a low of $1.830 per
MMBTU in October 2001 to a high of $9.978 per MMBTU in January 2001, compared to
an average price of $2.238 per MMBTU from 1995 through 1999. Since the 2001
price peak, natural gas prices have remained volatile. For March 2003, natural
gas prices ranged from $5.60 to $11.90 per MMBTU and closed at $9.133 per MMBTU.
To date, natural gas prices for April 2003 have ranged from $6.80 to $8.10
MMBTU. A material increase in the price of natural gas would have a material
adverse effect on the Company's results of operations and financial condition.
SEASONALITY
Due principally to the seasonal nature of the brewing, iced tea and
some other segments of the beverage industry, in which demand is stronger during
the summer months, the Company's shipment volume is typically higher in the
second and third quarters. Consequently, the Company has historically built
inventory during the fourth and first quarters in anticipation of seasonal
demands during the second and third quarters. However, due to increased demand
at the end of 2001 and the beginning of 2002, the Company shipped more than
usual and built up less inventory in those periods.
17
In addition, although the Company seeks to minimize downtime, it has
historically scheduled shutdowns of its plants for furnace rebuilds and machine
repairs in the fourth and first quarters of the year to coincide with scheduled
holiday and vacation time under its labor union contracts. These shutdowns
normally adversely affect profitability during the fourth and first quarters.
NEW ACCOUNTING STANDARDS
Effective January 1, 2002, the Company adopted Statement of
Financial Accounting Standards No. 142--Goodwill and Other Intangible Assets.
SFAS No. 142 addresses financial accounting and reporting for intangible assets
acquired individually or with a group of other assets at acquisition. SFAS No.
142 also addresses financial accounting and reporting for goodwill and other
intangible assets subsequent to their acquisition. SFAS No. 142 provides that
goodwill and intangible assets that have indefinite useful lives will not be
amortized but rather will be tested at least annually for impairment. It also
provides that intangible assets that have finite useful lives will continue to
be amortized over their useful lives, but those lives will no longer be limited
to forty years. For the financial statements of the Predecessor Company, it was
determined that the Company's fair value was greater than the carrying amount of
its net assets and no goodwill impairment has resulted from the adoption of SFAS
No. 142.
Effective January 1, 2002, the Company adopted Statement of
Financial Accounting Standards No. 144--Accounting for the Impairment or
Disposal of Long-Lived Assets, that addresses financial reporting for the
impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No.
121 and the reporting provisions of Accounting Principles Board Opinion No.
30--Reporting the Results of Operations, for the disposal of a segment of a
business. The Company has determined that the impact of adopting SFAS No. 144 is
not material. Assets previously held for sale have been reclassified as
operating property, plant and equipment as required by SFAS No. 144.
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 143--Accounting for Asset
Retirement Obligations, that addresses the accounting for the recognition of
liabilities associated with the retirement of long-lived assets. The Company
adopted the requirements of SFAS No. 143 concurrent with fresh start accounting
and has determined that the impact of adopting SFAS No. 143 is not material.
In April 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 145--Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections regarding the accounting of gains and losses from the extinguishment
of debt and to eliminate an inconsistency between the accounting for
sale-leaseback transactions and certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. SFAS No. 145 is
effective for transactions occurring after May 15, 2002. The Company adopted the
requirements of SFAS No. 145 concurrent with fresh start reporting. As a result,
$1.3 million was reclassified from extraordinary item to interest expense for
the year ended December 31, 2000.
In June 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 146--Accounting for Exit or
Disposal Activities. SFAS No. 146 addresses significant issues regarding the
recognition, measurement, and reporting of costs that are associated with exit
and disposal activities, including restructuring activities that are currently
accounted for pursuant to the guidance that the EITF has set forth in EITF Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." The Company has adopted the requirements of SFAS No. 146
concurrent with fresh start accounting and has determined that the impact of
adopting SFAS No. 146 is not material.
In December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 148 - Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of Statement No. 123
("SFAS 148"). SFAS 148 amends Statement No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"), to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends the disclosure requirements
of SFAS 123 to require prominent disclosures in both annual and interim
financial statements about
18
the method of accounting for stock-based employee compensation and the effect of
the method used on reported results. The Company has currently adopted the
disclosure requirements of SFAS 148.
FORMER USE OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS
In June 2002, Arthur Andersen was convicted of federal obstruction
of justice charges. As a result of Arthur Andersen's conviction, Arthur Andersen
is no longer in a position to reissue their audit reports or to provide consents
to include financial statements reported on by them in this annual report.
The report covering our financial statements for the 2000 fiscal
year was previously issued by Arthur Andersen and has not been reissued by them.
Accordingly, the Company is unable to obtain a consent from Arthur Andersen. The
Company believes that it is unlikely that damages, if any, could be recovered
from Arthur Andersen for any claim against them.
The SEC has provided temporary regulatory relief designed to allow
companies that file reports with the SEC to dispense with the requirement to
file a consent of Arthur Andersen in certain circumstances. There is no
assurance that the Company will be able to continue to rely on the temporary
relief granted by the SEC.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The significant accounting policies of the Company are disclosed in
Note 1 and other notes to the annual financial statements included herein. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from estimates. The most significant accounting
estimates inherent in the preparation of the Anchor financial statements form
the basis for reserves with respect to areas such as, post-retirement benefits,
environmental reserves, product liability and insurance reserves and valuation
allowances to reduce deferred tax assets. Estimates and judgments are based on
historical experience and other factors believed to be reasonable in the
circumstances. Management continually reviews its accounting policies for
application and disclosure in the financial statements.
Post-retirement benefits - Post-retirement benefit obligations are
based on various assumptions including, discount rate, health care cost trend
rates retirement and mortality rates and other factors. Actual results that
differ from the assumptions affect future expenses and obligations.
Environmental reserves - Reserves have been established for
potential environmental liabilities, including known or projected remediation
projects and projected exposure at third-party sites. These reserves require
that the Company make significant estimates. Changes in facts and
circumstances could result in changes to environmental liabilities.
Product liability and insurance reserves - These reserves are
determined based upon reported claims in process and actuarial estimates for
losses incurred but not reported.
Deferred tax assets - The Company uses the liability method
accounting for income taxes. If, on the basis of available evidence, it is more
likely than not that all or a portion of the deferred tax asset will not be
realized, the asset must be reduced by a valuation allowance. Since realization
is not assured as of December 31, 2002, management has deemed it appropriate to
establish a valuation allowance against the net deferred tax assets.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Revolving Credit Facility is subject to interest rates based on
a floating benchmark rate (the prime rate or eurodollar rate), plus an
applicable margin. The applicable margin was fixed through February 2003, and
thereafter becomes a fixed spread based on the Company's level of excess
availability. A change in interest rates under the Revolving Credit Facility
could have an impact on results of operations. A change of 10.0% in the market
rate of interest would impact interest expense by approximately $0.3 million,
based on average borrowings outstanding during 2002. The Company's long-term
debt instruments are subject to fixed interest rates and, in addition, the
amount of principal to be repaid at maturity is also fixed. Therefore, the
Company is not subject to market risk from its long-term debt instruments. Fewer
than 1.0% of the Company's net sales are denominated in currencies other than
the U.S. dollar, and the Company does not believe its total exposure to currency
fluctuations to be significant. The Company has hedged certain of its estimated
natural gas purchases, typically over a maximum of six to twelve months, through
the purchase of natural gas futures. The Company does not enter into such
hedging transactions for speculative trading purposes but rather to lock in
energy prices. Also, the Company has entered into put and call options for
purchases of natural gas. Accounting for these derivatives may increase
volatility in earnings.
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PAGE
----
Reports of Independent Certified Public Accountants F-2
Statements of Operations and Comprehensive Income (Loss) -
Four Months Ended December 31, 2002 (Reorganized Company),
Eight Months Ended August 31, 2002 and
Two Years Ended December 31, 2001 and 2000 (Predecessor Company) F-5
Balance Sheets -
December 31, 2002 (Reorganized Company) and
December 31, 2001 (Predecessor Company) F-6
Statements of Cash Flows -
Four Months Ended December 31, 2002 (Reorganized Company),
Eight Months Ended August 31, 2002 and
Two Years Ended December 31, 2001 and 2000 (Predecessor Company) F-8
Statements of Stockholders' Equity (Deficit) -
Four Months Ended December 31, 2002 (Reorganized Company),
Eight Months Ended August 31, 2002 and
Two Years Ended December 31, 2001 and 2000 (Predecessor Company) F-10
Notes to Financial Statements F-12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Directors and Executive Officers. The following table sets forth
certain information regarding each of the Company's directors and executive
officers.
NAME AGE POSITION
----------------------------- --- ----------------------------------------------
Richard M. Deneau............ 56 President and Chief Executive Officer and
Director
Darrin J. Campbell........... 38 Chief Financial Officer and Executive Vice
President - Sales and Asset Management
Roger L. Erb................. 60 Executive Vice President - Operations and
Engineering
Richard A. Kabaker........... 59 Vice President, General Counsel and Secretary
Joel A. Asen................. 52 Director
James N. Chapman............. 40 Director
Jonathan Gallen.............. 42 Director
George Hamilton.............. 46 Director
Timothy F. Price............. 48 Director
Alan H. Schumacher........... 56 Director
Lenard B. Tessler............ 50 Director
Director and Executive Officers' Terms of Office. Each officer
serves at the discretion of the Board and until such officer's successor is
chosen and qualified. Directors are elected at the annual meeting of the
stockholders and hold office until their successors are elected and qualified.
RICHARD M. DENEAU assumed his duties as the Company's President and
Chief Operating Officer in July 1997 and as a director in June 1998. In August
2002, he became the Company's Chief Executive Officer. From January 1996 to June
1997, Mr. Deneau was Senior Vice President and Chief Operating Officer of
Ball-Foster Glass Container Co. From October 1992 to January 1996, he was Senior
Vice President and General Manager of Beverage Can Operations at American
National Can Company. Prior to October 1992, Mr. Deneau was Senior Vice
President of Sales at American National Can Company's Foster-Forbes Glass
Company Division, a predecessor of Ball-Foster Glass Container Co.
DARRIN J. CAMPBELL joined the Company as Vice President, Pricing and
Business Development in September 2000, became Executive Vice President--Sales
and Asset Management in September 2001 and became the Company's Chief Financial
Officer in November 2002. Mr. Campbell was Chief Operating Officer of Pabst
Brewing from May 1999 to August 2000 and Chief Financial Officer from September
1996 to April 1999.
ROGER L. ERB became the Company's Senior Vice President-Operations
in October 1997 and Executive Vice President--Operations and Engineering in
September 2001. From September 1995 to June 1997, Mr. Erb was Senior Vice
President of Technical Services at Ball-Foster Glass Container Co. Prior
thereto, he was employed at American National Can Company's Foster-Forbes Glass
Company Division, serving as Senior Vice President of Technical Services from
June 1994 to September 1995, Senior Vice President of Operations from January
1993 to June 1994 and, prior to this time, as Vice President of Technical
Services.
RICHARD A. KABAKER became the Company's Vice President and General
Counsel in December 2002 and became the Company's Secretary in January 2003.
From August 2001 to November 2002, Mr. Kabaker was in private practice. From
September 2000 to August 2001, he was Vice President, Legal Affairs and General
Counsel of Rexam Beverage Can Company, the successor company to American
National Can Company. From 1996 to 2000, he served as Vice President, Legal
Affairs of American National Can Company. Prior thereto, he held various
positions in the law department of American National Can Company and its
predecessor companies.
21
JOEL A. ASEN joined the Company in December 2002 as a director. Mr.
Asen has been the President of Asen Advisory since 1992, which provides
strategic and financial advisory services. He was Managing Director at Whitehead
Sterling from 1991 to 1992, at Paine Webber, Inc. from 1990 to 1991 and at
Drexel Burnham Lambert Incorporated from 1988 to 1990. From 1985 to 1988, he was
a Senior Vice President at GAF Corporation. Prior to that time, Mr. Asen was a
Manager of Business Development at GE and Manager of Marketing and Business
Development at GECC. Mr. Asen is also a Director of Resolution Performance
Products, LLC and Compass Minerals Group, LLC.
JAMES N. CHAPMAN joined the Company in December 2002 as a director.
Mr. Chapman is associated with Regiment Capital Advisors, LLC, which he joined
in January 2003. Prior to joining Regiment, Mr. Chapman acted as a capital
markets and strategic planning consultant with private and public companies as
well as hedge funds across a range of industries. Prior to establishing an
independent consulting practice, Mr. Chapman worked for The Renco Group, Inc.
from December 1996 to December 2001. Prior to joining Renco, Mr. Chapman was a
founding principal of Fieldstone Private Capital Group in August 1990. Prior to
joining Fieldstone, Mr. Chapman worked for Bankers Trust Company from July 1985
to August 1990, most recently in the BT Securities capital markets area. Mr.
Chapman serves as a member of the board of directors of Coinmach Corporation,
Davel Communications, Inc., Meridian Rail LLC and Southwest Royalties, Inc.
JONATHAN GALLEN joined the Company in August 2002 as a director. Mr.
Gallen is sole managing member of Pequod LLC, the general partner of Ahab
Partners, L.P., a distressed securities fund which invests in publicly traded
debt, private debt, trade claims, large and middle-market bank loans, distressed
real estate and public and private equity. Mr. Gallen is also the President of
Ahab Capital Management, Inc. (formerly known as Pequod Capital, Inc.)., the
investment manager to Ahab International, Ltd., an unregistered investment
corporation that develops and manages a diversified portfolio of distressed
investments as well as invests and trades in a wide variety of securities. Prior
to forming Ahab Capital Management, Mr. Gallen worked with Stephen A. Feinberg
at the time of Cerberus' formation, developing investment strategies, techniques
and procedures of distressed investing. From 1990 through 1993, Mr. Gallen
founded and operated Gallen Sports Productions, Inc., a sports marketing and
merchandising company, and prior thereto, he practiced law at Pircher, Nichols,
& Meeks, a law firm specializing in real estate. Mr. Gallen has served as a
director of Wherehouse Entertainment, Inc., Harvest Foods and Fruehauf Trailer
Corporation.
GEORGE HAMILTON joined the Company in August 2002 as a director.
Prior to establishing an independent consulting practice in 2001, Mr. Hamilton
served as President of several consumer goods companies within the Newell
Rubbermaid Company, including Rubbermaid Europe s.a., Lee Rowan Company and
Anchor Hocking Specialty Glass, from 1996 through 2001. From 1984 to 1996, Mr.
Hamilton served as Vice-President Controller at Newell Rubbermaid in a number of
companies, both domestic and international, including Anchor Hocking Corp., from
1990 through 1993. From 1979 through 1984, Mr. Hamilton worked with Ernst &
Young in Canada, Mr. Hamilton serves on the Board of Airway Industries Inc.,
Strategic Sourcing Services, Inc. and Wamnet, Inc.
TIMOTHY F. PRICE joined the Company in August 2002 as a director.
Mr. Price is managing member of Communications Advisory Group, LLC. Mr. Price is
the former President and Chief Operating Officer of MCI Communications. In his
15-year history with MCI, Mr. Price held senior staff, line, field and
headquarters positions. As President, Mr. Price was responsible for all of MCI's
core communications businesses, including its units serving residential and
business customers, domestically and globally, as well as network operations and
information systems. Mr. Price serves on the board of ICG and the advisory board
of C&T Access Ventures and has served on the boards of MCI, SHL Systemhouse, the
National Alliance of Business, the Woodruff Foundation and the Corporate 100 of
the John F. Kennedy Center for the Performing Arts.
ALAN H. SCHUMACHER joined the Company in December 2002 as a
director. Mr. Schumacher is a member of the Federal Accounting Standards
Advisory Board and has 23 years experience working in various positions at
American National Can Group. From 1997 to 2000, Mr. Schumacher served as
Executive Vice President and Chief Financial Officer. From January 1988 through
June 1997, he held the positions of Vice President, Controller and Chief
Accounting Officer. Positions held prior to 1988 include Assistant Corporate
Controller and Manager of Corporate Accounting. Prior to joining American
National Can Group, Mr. Schumacher was employed as a Senior Auditor at Price
Waterhouse and Company.
22
LENARD B. TESSLER joined the Company in August 2002 as a director.
Mr. Tessler is a Managing Director of Cerberus, which he joined in May 2001.
Prior to joining Cerberus, he was a founding partner of TGV Partners, a private
investment partnership formed in April 1990. Mr. Tessler served as Chairman of
the Board of Empire Kosher Poultry from 1994 to 1997, after serving as its
President and Chief Executive Officer from 1992 to 1994. Before founding TGV
Partners, Mr. Tessler was a founding partner of Levine, Tessler, Leichtman &
Co., a leveraged buyout firm formed in 1987. Mr. Tessler serves as a member of
the board of directors of Garfield & Marks Designs, Ltd., Opinion Research
Corporation, Meridian Rail LLC, Renaissance Mark, Inc. and G+G Retail.
COMPENSATION OF DIRECTORS
The Company's non-employee directors (other than Messrs. Tessler and
Gallen) are entitled to receive an annual director's fee of $35,000. The
chairman of the audit committee and the chairman of other board committees are
entitled to receive an annual fee of $10,000 and $5,000, respectively. In
addition, a fee of $1,250 is paid to non-employee directors (other than Messrs.
Tessler and Gallen) for each directors' meeting attended and $1,000 for each
audit or other committee meeting attended. Directors who are also the Company's
employees or employees of Cerberus do not receive additional consideration for
serving as directors, except that all directors are entitled to reimbursement
for travel and out-of-pocket expenses in connection with their attendance at
board and committee meetings.
EMPLOYMENT AGREEMENTS
General
Messrs. Deneau, Campbell and Erb have employment agreements that
extend until August 30, 2005. Their agreements provide for an annual base
salary, $350,040 for Mr. Deneau and $250,080 for each of Mr. Campbell and Mr.
Erb, an annual bonus pursuant to the Management Incentive Plan, as described
below, eligibility for the grant of stock options and participation in all
benefit plans offered to other senior executive officers. The Company's board of
directors has recently approved an increase in the annual base salary for each
of Messrs. Deneau, Campbell and Erb of 5.0% for 2003.
Termination Provisions
If Mr. Deneau is terminated by the Company without "cause" or
terminates his employment for "good reason," in each case, as these terms are
defined in the employment agreements, Mr. Deneau will receive his base salary
until August 30, 2005 and the annual bonus that would have been paid had he
continued his employment until August 30, 2005 (paid in a lump sum no later than
10 days after termination), continuation of medical and dental plans until
August 30, 2005 (provided that such benefits will terminate if Mr. Deneau is
eligible for such benefits under another employer-provided plan) and continued
vesting of any outstanding stock options or other equity-based compensation
awards as if Mr. Deneau had remained employed until August 30, 2005.
If Mr. Campbell or Mr. Erb is terminated by the Company without
"cause" or terminates his employment for "good reason," in each case, as these
terms are defined in the employment agreements, he will receive his base salary
for one year after termination of employment and the annual bonus that would
have been paid had he continued his employment for one year after termination
(paid in a lump sum no later than 10 days after termination), continuation of
medical and dental plans for one year after termination (provided that such
benefits will terminate if he is eligible for such benefits under another
employer-provided plan) and continued vesting of any outstanding stock options
or other equity-based compensation awards as if he had remained employed for one
year after termination.
The employment agreements also provide that for so long as Messrs.
Deneau, Campbell or Erb (as applicable) are receiving post-termination payments
or for one year after a termination with "cause", they shall not, without the
Company's written consent, participate or engage in, directly or indirectly, any
business that is competitive with the glass container manufacturing business
conducted by the Company within the United States as of the date of the
termination of employment. In addition, during such period they shall not,
without the Company's consent, solicit the Company's employees, customers or
suppliers.
23
Mr. Buckwalter, the Company's Executive Vice President and Chief
Financial Officer until November 2002, entered into an employment and consulting
agreement that provides that, after Mr. Campbell became the Company's Chief
Financial Officer, Mr. Buckwalter will be retained by the Company as a
consultant until December 31, 2003. As a consultant, Mr. Buckwalter receives a
fee at a monthly rate of $20,840 and reimbursement of COBRA premiums if COBRA
coverage is selected. With respect to 2002, Mr. Buckwalter shall receive a
payment pursuant to the Management Incentive Plan. If the Company terminates Mr.
Buckwalter's status as a consultant prior to December 31, 2003, he will be
entitled to receive fees until December 31, 2003. The employment and consulting
agreement also provides that for so long as Mr. Buckwalter is an employee and
for one year after a termination as an employee with "cause", he shall not,
without the Company's consent, participate or engage in, directly or indirectly,
any business that is competitive with the glass container manufacturing business
conducted by the Company as of the date of the termination of employment within
the United States. In addition, during such period, he shall not, without the
Company's consent, solicit the Company's employees, customers or suppliers.
EMPLOYMENT PLANS
Equity Incentive Plan
The equity incentive plan is designed to motivate and retain
individuals who are responsible for the attainment of the Company's primary
long-term performance goals and covers employees, directors or consultants. The
plan provides for the grant of nonqualified stock options, incentive stock
options and restricted stock for shares of the Company's common stock to
participants of the plan selected by the board or a committee of the board (the
"Administrator"). One million shares of common stock have been reserved under
the plan. The terms and conditions of awards are determined by the Administrator
for each grant, except that, unless otherwise determined by the Administrator,
options vest and become exercisable as follows: 50.0% of an option grant vests
1/3 on the first anniversary of the grant date, 1/3 on the second anniversary of
the grant date and 1/3 on the third anniversary of the grant date; and the
remaining 50.0% of the option grant vests in three tranches of equal amounts if
the Company attains certain performance targets established by the board.
Upon a "Liquidity Event," all unvested awards will become
immediately exercisable and the Administrator may determine the treatment of all
vested awards at the time of the Liquidity Event. A "Liquidity Event" is defined
as (1) an event in which any person who is not the Company's affiliate becomes
the beneficial owner, directly or indirectly, of 50.0% or more of the combined
voting power of the Company's then outstanding securities, (2) the sale,
transfer or other disposition of all or substantially all of the Company's
business, whether by sale of assets, merger or otherwise to a person other than
Cerberus, (3) if specified by the Company's board of directors in an award at
the time of grant, the consummation of an initial public offering of common
equity securities or (4) the Company's dissolution and liquidation.
Management Incentive Plan
The Anchor Glass Container Corporation Management Incentive Plan is
designed to compensate the Company's salaried employees for performance with
respect to planned business objectives. Participants are compensated based on
the achievement of EBITDA targets or such other goals as determined by the
compensation committee. Plan participation is limited to salaried employees
within the organization. Eligible participants are designated at the beginning
of each year as approved by the compensation committee. As of December 31, 2002,
no payments have been made pursuant to this plan during the calendar year 2002.
Employee Retention Plan
The Anchor Glass Container Corporation Executive/Key Employee
Retention Plan covers approximately 47 employees, at the vice president or
director levels. Under this plan, upon a "change in control," if a participating
employee is terminated by the Company "without cause" or terminates his or her
employment with the Company for "good reason" (such as a reduction in base
salary, a material change in position, duties or responsibilities, or a material
change in job location) (in each case, as these terms are defined in the plan),
the Company is obligated to pay a severance benefit to the employee. If all
participating employees were to be
24
terminated by the Company without cause and/or were to terminate their
employment with the Company for good reason, the aggregate amount of severance
benefits payable by the Company under this plan would be approximately $3.4
million. This plan expires October 2004.
The Company made no grants of equity compensation awards under any
of the foregoing plans to the Company's executives for the year ended December
31, 2002.
25
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding compensation
awarded to, earned by or paid, during the three years ended December 31, 2002,
to the Company's Chief Executive Officer and each of the three other most highly
compensated executive officers at the end of 2002.
ANNUAL COMPENSATION
-----------------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) COMPENSATION(3)
- ------------------------------------- ------ ----------- ----------- --------------- ---------------
Richard M. Deneau .................. 2002 $ 350,040 $ 350,000 $ -- $ 12,000
President and Chief Executive 2001 350,040 -- -- 10,200
Officer 2000 350,040 -- 92,413 8,500
Darrin J. Campbell(4)............... 2002 $ 250,080 $ 250,000 $ -- $ 11,000
Chief Financial Officer and 2001 210,452 -- -- 49,496
Executive Vice President - 2000 -- -- -- --
Sales and Asset Management
Roger L. Erb........................ 2002 $ 250,080 $ 250,000 $ -- $ 12,000
Executive Vice President - 2001 250,080 -- -- 9,646
Operations and Engineering 2000 242,580 -- 92,413 8,500
Dale A. Buckwalter(5) .............. 2002 $ 250,080 $ 250,000 $ -- $ --
Executive Vice President and 2001 217,550 -- -- --
Chief Financial Officer, until 2000 69,757 -- 25,553 --
November 2002
- -------------
(1) Includes restructuring bonus paid in 2002. Excludes bonuses pursuant to
the Management Incentive Plan for 2002, to be paid in 2003.
(2) For 2000 includes (i) compensation associated with the 1999 Officer Stock
Purchase Plan for: Mr. Deneau - $66,861 and Mr. Erb - $66,861 and (ii)
compensation associated with the 2000 Executive Stock Purchase Plan for:
Mr. Deneau - $25,552, Mr. Erb - $25,552 and Mr. Buckwalter - $25,552.
(3) For 2002, includes the Company's contributions under the Company's 401(k)
plan for: Mr. Deneau - $12,000, Mr. Campbell - $11,000 and Mr. Erb -
$12,000. For 2001, includes (i) the Company's contributions under the
Company's 401(k) plan for: Mr. Deneau - $10,200 and Mr. Erb - $9,646 and
(ii) moving expenses paid by the Company for: Mr. Campbell - $49,496. For
2000, includes the Company's contributions under the Company's 401(k) plan
for: Mr. Deneau - $8,500 and Mr. Erb - $8,500.
(4) Mr. Campbell joined the Company in 2000 and became the Company's Chief
Financial Officer in November 2002.
(5) Mr. Buckwalter joined the Company in 2000 and served as the Company's
Chief Financial Officer until November 2002.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
26
The Compensation Committee is comprised of Messrs. Gallen, Hamilton,
Price and Tessler. Mr. Tessler is a Managing Director of Cerberus.
27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information with respect to the
beneficial ownership of the Company's Common Stock and the Company's Series C
Participating Preferred Stock as of February 28, 2003 by:
- each person who is known by us to beneficially own 5% or more of the
Common Stock or Series C Participating Preferred Stock;
- each of the Company's directors; and
- the Company's executive officers named in the Summary Compensation
Table and all of the Company's current directors and executive
officers as a group.
Unless otherwise indicated in the footnotes to the table, each
stockholder has sole voting and investment power with respect to shares
beneficially owned and all addresses are in care of the Company. All primary
share amounts and percentages reflect beneficial ownership determined pursuant
to Rule 13d-3 under the Securities and Exchange Act, and assume, on a
stockholder by stockholder basis, that each stockholder has converted all
securities owned by such stockholder that are convertible into common stock at
the option of the holder currently or within 60 days of February 28, 2003 and
that no other stockholder so converts.
NUMBER OF PERCENTAGE OF
SHARES OF TOTAL SERIES C
NUMBER OF PERCENTAGE OF SERIES C PARTICIPATING
SHARES OF TOTAL COMMON PARTICIPATING PREFERRED STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK STOCK (%) PREFERRED STOCK (%)
- --------------------------------------- ------------ -------------- --------------- ----------------
AGC Holding (1)(2) 8,514,000 94.60% (3) 75,000 100.0%
Pension Benefit Guaranty
Corporation (4) 474,000 (5) 5.00% (6) -- --
Richard M. Deneau (7) 229,500 2.55% -- --
Darrin J. Campbell (8) 121,500 1.35% -- --
Roger L. Erb (9) 121,500 1.35% -- --
Dale A. Buckwalter (10) 13,500 0.15% -- --
Directors and executive officers as a
group (4 persons, including those
listed above) 486,000 5.40% -- --
- ----------
(1) Stephen Feinberg, in his capacity as the managing member of Cerberus
Associates, L.L.C., the general partner of Cerberus Partners, L.P., which
is the managing member of AGC Holding, exercises sole voting and sole
investment control over all securities of the Company held by AGC Holding.
Thus, pursuant to Rule 13d-3 under the Securities and Exchange Act,
Stephen Feinberg is deemed to beneficially own all such securities of the
Company held by AGC Holding.
(2) The address for AGC Holding is c/o Cerberus Capital Partners, L.P., 450
Park Avenue, 28th Floor, New York, New York 10022.
(3) This percentage is based on the number of shares of common stock
outstanding as of December 31, 2002 and is not calculated on a
fully-diluted basis. On a fully-diluted basis, AGC Holding would own
approximately 89.4% of the Company's common stock.
(4) The address for the PBGC is 1200 K Street N.W., Washington, D.C.
20005-4026.
(5) Includes shares of common stock issuable upon exercise of the common stock
warrant granted to the PBGC on August 30, 2002 in connection with the
Company's Reorganization.
(6) For the purposes of computing the percentage of outstanding common stock
of the PBGC, the 474,000 shares of common stock issuable upon exercise of
the warrant granted to the PBGC were deemed to be outstanding. Such shares
were not deemed to be outstanding for the purpose of computing the
percentage of outstanding common stock of any other beneficial owner.
28
(7) On August 30, 2002, Mr. Deneau acquired 229,500 shares of common stock
from Cerberus at a purchase price of $127,500.
(8) On August 30, 2002, Mr. Campbell acquired 121,500 shares of common stock
from Cerberus at a purchase price of $67,500.
(9) On August 30, 2002, Mr. Erb acquired 121,500 shares of common stock from
Cerberus at a purchase price of $67,500.
(10) On December 2, 2002, Mr. Buckwalter acquired 13,500 shares of common stock
from Cerberus at a purchase price of $7,500.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CONTROLLING STOCKHOLDER
As part of the Company's Reorganization, certain Cerberus-affiliated
funds and managed accounts invested $80.0 million of new equity capital into the
Company, acquiring 100% of the Company's Series C Participating Preferred Stock
for $75.0 million and 100% of the Company's Common Stock for $5.0 million. In
addition, the Company arranged for a $20.0 million Term Loan from Ableco Finance
LLC, an affiliate of Cerberus, which was repaid with a portion of the proceeds
from the Senior Secured Notes.
STOCKHOLDERS' AGREEMENT
On August 30, 2002, the Company entered into a Stockholders'
Agreement with AGC Holding, the Company's majority stockholder, the PBGC, Mr.
Deneau, the Company's Chief Executive Officer and one of the Company's
directors, Mr. Campbell, the Company's then Executive Vice President of Sales
and Asset Management, Mr. Erb, the Company's Executive Vice President of
Operations and Engineering and Mr. Buckwalter, the Company's former Executive
Vice President and Chief Financial Officer.
Demand Registration Rights. AGC Holding has certain demand
registration rights, subject to the following limitations: (i) in no event is
the Company required to effect a demand registration until the earlier of (a) an
initial public offering of equity securities and (b) the first anniversary of
the Stockholders' Agreement; (ii) in no event is the Company required to effect
a demand registration unless the aggregate offering price, net of underwriting
discounts and commissions, is at least $1,000,000; provided, however, that the
Company is required to effect a demand registration regardless of the aggregate
offering price in the event that AGC Holding is disposing of all of the
registrable securities held by it; and (iii) subject to certain requirements
pursuant to the Stockholders' Agreement, in no event is the Company required to
effect, in the aggregate, more than four demand registrations. In addition, if
AGC Holding requests that the Company file a registration statement on Form S-3
for a public offering of all or any portion of its shares of registrable
securities, the reasonably anticipated aggregate price to the public of which
would exceed $1,000,000, the Company is required to use its best efforts to
register for public sale the registrable securities specified in such request.
Incidental Registration Rights. If, after an initial public offering
of equity securities, the Company proposes to register any of the Company's
securities under the Securities Act of 1933 (other than in a registration on
Form S-4 or S-8 and other than pursuant to the preceding paragraph), the Company
will notify all holders of registrable securities of the Company's intention and
upon the request of any holder, subject to certain restrictions, effect the
registration of all securities requested by holders to be so registered