UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-23359

ANCHOR GLASS CONTAINER CORPORATION

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:
Common Stock, par value $.10 per share

     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].

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act. Yes [   ] No [X].

Aggregate market value of voting and non-voting common equity held by non-affiliates at June 30, 2003:

Number of shares outstanding of common stock at March 1, 2004:
24,514,843 shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Items 5 and 10 and Items 11, 12, 13 and 14 are incorporated by reference from the definitive
Proxy Statement in connection with the Annual Meeting to be held June 9, 2004.

Table of Contents

PART I

ITEM 1. Business.

Company Overview

     Anchor Glass Container Corporation (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.

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, 2003.

     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 2004 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 largest customer, Anheuser-Busch Companies, Inc. (“Anheuser-Busch”), accounted for approximately 53.3% of its net sales for the year ended December 31, 2003. In 2003, the Company entered into a multi-year supply agreement with Snapple Beverage Group, Inc. and Mott’s Inc., affiliates of Cadbury Schweppes plc, to supply 100% of their requirements for 16 oz. Snapple bottles and Nantucket Nectars and Yoo-hoo bottles, as well as for several Mott’s items. Performance under this multi-year contract with certain affiliates of Cadbury Schweppes began on January 1, 2004.

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.

   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.

     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. Two of the Company’s furnaces, refurbished in 2003, are equipped to utilize oxygen in conjunction with the burning of natural gas, increasing the overall efficiency of the furnace. 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, it remains one of the largest and the most volatile cost components of the Company’s operations. The Company’s current strategy is to enter into hedging transactions from time to time on an opportunistic basis. The Company has currently hedged certain of its estimated natural gas purchases extending into 2005 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 enters 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. Since 2000, closing prices for natural gas have fluctuated significantly from a low of $1.830 per million BTUs (“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. In 2003, natural gas prices have closed at between $4.430 and $9.133 per MMBTU, with the low being October 2003 and the high being March 2003. The natural gas price for March 2004 closed at $5.150 per MMBTU.

   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

     Demand for beer, iced tea and other beverages is stronger during the summer months. Because the Company’s shipment volume is typically higher in the second and third quarters, the Company usually builds inventory during the fourth and first quarters in anticipation of such seasonal demands. 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, coupled with the Company’s contemporaneous inventory build-up, consume working capital and adversely affect its liquidity on a seasonal basis.

Customer Service

     The Company’s sales and marketing efforts are targeted primarily to established customers with whom it enjoys long-standing relationships. As a result, an important focus of the Company’s sales and marketing is customer

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service, and it seeks to respond quickly to customer needs. To this end, the Company has customer service managers responsible for scheduling, sales forecasting and coordinating the various aspects of delivering product to its customers.

     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, 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 2002 and 2003 and are anticipated to be approximately the same in 2004. The Company anticipates that environmental compliance will continue to require increased capital expenditures over time as environmental 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 a reserve for environmental matters, including known or projected remediation projects and projected exposure at third-party sites, in the amount of approximately $9.2 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.

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   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 and regulations 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.

Competition

     The glass container industry in the United States is a mature, low-growth industry. The Company and the other glass container manufacturers compete on the basis of price, quality, reliability of delivery and customer service. The industry is highly concentrated with three producers, including the Company, estimated by the Company to have accounted for over 90% of 2003 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. (“Saint-Gobain”), a wholly owned subsidiary of Compagnie de Saint-Gobain.

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. Under this license, the Company has 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.

Employees

     As of February 28, 2004, the Company employed approximately 3,040 persons on a full-time basis. Approximately 530 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.

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ITEM 2. Properties.

     The Company’s administrative and executive offices are located in Tampa, Florida. The Company entered into a new lease covering this office space in January 2004 for an initial term of eight years.

     The Company owns and operates nine glass container manufacturing facilities. The Company also leases a building located in Streator, Illinois, that is used as a machine shop to rebuild glass-forming and 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 its 11% Senior Secured Notes due 2013, aggregate principal amount of $300.0 million (the “Senior Secured Notes”), its 11% Senior Secured Notes due 2013, aggregate principal amount of $50.0 million (the “Additional Notes”) and the related indenture (the “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 and Marienville, Pennsylvania.

ITEM 3. Legal Proceedings.

     The Company is, and from time to time may be, a 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 financial condition, operating results or cash flows of the Company, based on the Company’s current understanding of the relevant facts. Legal expenses incurred related to these contingencies are generally expensed as incurred.

     The Company’s operations are subject to various Federal, state and local requirements that are designed to protect the environment. Such requirements have resulted in the Company being involved in related legal proceedings, claims and remediation obligations. The Company does not believe that its environmental exposure is in excess of the reserves reflected on its balance sheet, although there can be no assurance that this will continue to be the case.

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 2003.

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PART II

ITEM 5. Market for the Registrant’s Common Equity and Related Stockholder Matters.

     The Company’s equity securities consist of one class of common stock. The common stock began trading on September 25, 2003, the initial public offering date. The common stock is traded on Nasdaq under the symbol AGCC. The high and low sales prices quoted on Nasdaq for the fourth quarter ended December 31, 2003 were $16.75 and $13.90, respectively.

     The Company paid an initial cash dividend of $.04 per common share in the fourth quarter of 2003. In January 2004, the Board of Directors of the Company declared a cash dividend of $.04 per common share payable on March 15, 2004 to shareholders of record on March 1, 2004. The amount and timing of dividends payable on common stock is within the sole discretion of the Board of Directors. The instruments governing the Company’s indebtedness contain various covenants that limit the amount of dividends the Company may pay.

     There are approximately 1,700 holders of the Company’s common stock as of March 1, 2004.

Recent Sales of Unregistered Securities

     On August 5, 2003, the Company issued the Additional Notes. The Additional Notes were acquired by Deutsche Bank Securities and Credit Suisse First Boston. The Additional Notes were issued in reliance on the exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) provided by Section 4(2) under the Securities Act.

     On February 7, 2003, the Company issued the Senior Secured Notes. The Senior Secured Notes were acquired by Deutsche Bank Securities, Banc of America Securities LLC and Credit Suisse First Boston. The Senior Secured Notes were issued in reliance on the exemptions from the registration requirements of the Securities Act provided by Section 4(2) under the Securities Act.

     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, the Company sold and issued to Anchor Glass Container Holding LLC (“AGC Holding”), an affiliate of Cerberus Capital Management, L.P. (“Cerberus”), a leading New York investment management firm, 75,000 shares of Company’s Series C Participating Preferred Stock, par value $.01 (the “Series C Preferred Stock”) for $75.0 million and 13,499,995 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 Series C Preferred Stock was redeemed with a portion of the proceeds of the initial public equity Offering. Prior to redemption, the holders of the Series C Preferred Stock were 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%.

     In connection with the Reorganization, the Company executed an agreement with the Pension Benefit Guaranty Corporation (“PBGC”) which eliminated all past-service pension liabilities, replaced by a one-time payment of $20.8 million and a $10.0 million per year fixed payment obligation to the PBGC for ten years (the “PBGC Agreement”). On August 30, 2002, in connection with the PBGC Agreement, the Company granted the PBGC a warrant for the purchase of 711,000 shares of Anchor’s common stock, with an exercise price of $5.27 per share and term of ten years. In June 2003, the Company repurchased the outstanding warrant held by the PBGC for a negotiated price of $1.5 million.

     Under the terms of the Plan, the holders of Anchor’s 11.25% First Mortgage Notes due 2005, aggregate principal amount of $150.0 million (the “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., Inc., the Company’s former parent, as a guarantor). The holders of Anchor’s 9.875% Senior

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Notes due 2008, aggregate principal amount of $50.0 million (the “Senior Notes”) were repaid in cash at 100% of their principal amount. The holders of Anchor’s mandatorily redeemable 10% cumulative convertible preferred stock (the “Series A Preferred Stock”) were entitled to receive a cash distribution of $22.5 million and the Series A Preferred Stock was cancelled. Anchor’s redeemable 8% cumulative convertible preferred stock (the “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.

     Portions required by this Item 5 are incorporated by reference from the definitive Proxy Statement under the heading “Executive Compensation.”

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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, 2003 and 2002 and for the year ended December 31, 2003, the four months ended December 31, 2002, the eight months ended August 31, 2002 and the year ended December 31, 2001 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, 2001 has been derived from the Company’s audited financial statements. The selected financial data as of December 31, 2000 and 1999 and for the two years then ended has been derived from the Company’s financial statements which had previously been audited by 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.

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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, beverage, food, liquor and flavored alcoholic beverage markets. The Company manufactures and sells its products to many of the leading producers of products in these categories.

   Initial Public Offering

     On September 30, 2003, the Company consummated an initial public offering of 7,500,000 shares of its common stock, par value $.10 per share, at the initial public offering price of $16.00 per share. On October 8, 2003, the underwriters for the Equity Offering exercised an option to purchase 1,125,000 additional shares of common stock to cover over-allotment of shares in connection with the Equity Offering. The Company received net proceeds from the Equity Offering of $127.7 million (including proceeds of $16.8 million from the exercise of the over-allotment option).

     $85.3 million of the net proceeds of the Equity Offering were used to redeem all of the Series C Preferred Stock. The redemption price of the Series C Preferred Stock was equal to the sum of (i) $1,000 per share ($75.0 million) plus all accrued and unpaid dividends computed to the date of redemption ($10.3 million) and (ii) 15% of the fair market value of all of the outstanding shares of common stock. The portion of the redemption price specified in clause (ii) of the preceding sentence was paid through the issuance of 2,382,348 shares of common stock (valued at $38.1 million based on the initial public offering price of $16.00 per share). The remainder of the net proceeds were used to fund working capital and for general corporate purposes. Pending application of these net proceeds, advances outstanding under Anchor’s $100.0 million revolving credit facility (the “Revolving Credit Facility”) were paid down and the excess funds were invested in short-term U.S. government securities.

   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 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. The collateral does not include inventory, accounts receivable or intangible assets.

     Proceeds from the issuance of the Senior Secured Notes, net of fees, were $289.0 million and were used to repay the principal amount outstanding under the First Mortgage Notes plus accrued interest thereon ($156.3 million in total), the principal amount outstanding under the $20.0 million term loan facility from Ableco Finance LLC (the “Term Loan”) plus accrued interest thereon and a prepayment fee ($20.4 million in total) and advances then outstanding under the Revolving Credit Facility ($66.9 million in total), which included funds for certain of the Company’s capital improvement projects. During the first quarter of 2003, the remaining proceeds of $45.0 million were used to terminate certain equipment leases by purchasing from the respective lessors the equipment leased thereunder.

     The Company entered into a Registration Rights Agreement on February 7, 2003, under which the Company registered with the Securities and Exchange Commission (the “SEC”) new Senior Secured Notes, having substantially identical terms as the Senior Secured Notes. On August 5, 2003, the Company completed an exchange offer with respect to $298.8 million of Senior Secured Notes tendered in the exchange offer, for a like principal

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amount of new Senior Secured Notes, identical in all material respects to the Senior Secured Notes, except that the new Senior Secured Notes do not bear legends restricting the transfer thereof.

     On August 5, 2003, the Company completed an additional offering of the Additional Notes. Proceeds from the issuance of the Additional Notes, net of fees, were $53.4 million. The Additional Notes were issued at an issue price of 107.5% of their principal amount. The Additional Notes were issued under the same Indenture as the Senior Secured Notes, as supplemented by a first supplemental indenture, dated August 5, 2003, and their terms are identical in all material respects to the Senior Secured Notes.

     100% of the net proceeds from the issuance of the Additional Notes were used to finance improvements to the collateral securing the Senior Secured Notes and the Additional Notes in compliance with the Indenture. Pending application of such proceeds, a portion of the net proceeds were used to pay down advances outstanding under the Revolving Credit Facility of $49.7 million.

     The Company entered into a Registration Rights Agreement on August 5, 2003 with respect to the Additional Notes under which the Company registered with the SEC new Additional Notes, having substantially identical terms as the Additional Notes. On January 29, 2004, the Company completed an exchange offer with respect to $50.0 million of Additional Notes tendered in the exchange offer, for a like principal amount of new Additional Notes, identical in all material respects to the Additional Notes, except that the new Additional Notes do not bear legends restricting the transfer thereof.

   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 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. In connection with the Reorganization, 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 and entered into the PBGC Agreement. The Term Loan was subsequently repaid with a portion of the proceeds from the offering of the Senior Secured Notes. The Series C Preferred Stock was redeemed in full with a portion of the proceeds of the Equity Offering.

     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 the “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.

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.

   Fourth Quarter 2003 Compared to Fourth Quarter 2002

     The Company’s sales growth in the fourth quarter continued the positive trend experienced in the third quarter of 2003. Unit shipments increased 9.3% in the fourth quarter 2003 compared to the fourth quarter 2002. The overall increase in unit shipments for the glass container industry during the comparable period was 1%. The Company’s volume growth in the fourth quarter of 2003 was primarily driven by strong shipments in the beer category. Improvements in volume and price/mix changes contributed to income from operations. Net sales for the three months ended December 31, 2003 were $167.1 million compared to net sales of $156.9 million for the three months ended December 31, 2002, an increase in net sales of $10.2 million, or 6.5%.

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     Income from operations declined $8.0 million in the fourth quarter 2003 compared to the fourth quarter 2002. The increase in noncash depreciation and amortization represented $5.4 million of this amount. Expenses for natural gas, the principal fuel for manufacturing glass, increased $2.9 million (1.7% of net sales), as compared with 2002. During the fourth quarter, Anchor finished three renovation projects, including two furnaces at its Salem, New Jersey facility and one furnace at its Lawrenceburg, Indiana facility. Anchor has continued to realize productivity improvements at its manufacturing facilities, including improvements from the furnace rebuilds at the Henryetta, Oklahoma and Warner Robins, Georgia facilities completed earlier in 2003. These productivity improvements were more than offset by the downtime costs associated with the fourth quarter projects, contributing $2.6 million to the decline in income from operations. The decline in income from operations is partially offset by reduced operating lease expense of $3.6 million in the fourth quarter of 2003, as a result of the buyout of certain equipment leases.

     Interest expense increased $3.9 million in the fourth quarter 2003 compared to the fourth quarter 2002. Interest expense related to the Senior Secured Notes (principal amount of $350.0 million) in the fourth quarter of 2003 was $4.6 million more than interest expense related to the First Mortgage Notes (principal amount of $150.0 million) and Term Loan (principal amount of $20.0 million) in the comparable period of 2002, partially offset by lower average interest rates and lower average borrowings outstanding under the Company’s Revolving Credit Facility.

     Net sales. Net sales for 2003 were $709.9 million compared to net sales of $715.6 million for the periods comprising 2002, a decrease in net sales of $5.7 million, or less than one percent. Unit shipments declined slightly by 1.3%, year over year, as compared to the decline of 2.9% in glass container industry shipments. The strength of Anchor’s volume shipments in the second half of 2003 was not enough to fully offset the decline experienced in the first half of 2003. The Company believes that the negative impact on sales in the early months of 2003 was due to the softness in the economy, the effect of the military action against Iraq and the harsh weather conditions experienced during the winter and spring in certain parts of the United States.

     Cost of products sold. The Company’s cost of products sold for 2003 was $660.5 million, or 93.0% of net sales, while the cost of products sold for the periods comprising 2002 was $644.1 million, or 90.0% of net sales. This decline in margin in 2003 principally was due to the increase in the cost of natural gas, the principal fuel for manufacturing glass, of $18.0 million (2.5% of net sales), as compared with the periods comprising the year ended 2002. In addition, margin was negatively impacted by noncash cost increases in 2003 for depreciation and amortization of $16.8 million (2.4% of net sales). The Company also incurred costs associated with downtime during the capital improvement projects at four of the Company’s facilities during 2003. These costs were partially offset by additional manufacturing efficiencies due to the Company’s cost reduction efforts and due to the completed improvement projects at Elmira, New York, Henryetta, Oklahoma and Warner Robins, Georgia, and by reduced operating lease expense of $9.9 million in 2003 as a result of the buyout of certain equipment leases.

     Selling and administrative expenses. Selling and administrative expenses for the year ended December 31, 2003 were $26.9 million, or 3.8% of net sales, while selling and administrative expenses for the periods comprising the year ended December 31, 2002 were $28.9 million, or 4.0% of net sales. The year to date decline in selling and administrative expenses resulted from lower personnel and benefit costs incurred and lower professional fees in 2003 as compared to 2002.

     Restructuring, net and Reorganization items, net. On August 30, 2002, 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 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;

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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).

     No comparable expenses were incurred in 2003. Approximately $1.0 million of legal fees, related to the Restructuring, were recorded against restructuring related reserves in 2003.

     Interest expense. Interest expense for 2003 was $48.5 million compared to $28.3 million for the periods comprising 2002, an increase of $20.2 million. Interest expense related to the Senior Secured Notes (principal amount of $350.0 million) in 2003 was $16.4 million more than interest expense related to the First Mortgage Notes (principal amount of $150.0 million) in 2002. A noncash write-off of $3.6 million, for deferred fees related to debt repaid with the proceeds from the issuance of the Senior Secured Notes, together with payments of $0.3 million for the Term Loan prepayment penalty and $0.4 million for the consent fee paid to the First Mortgage Note holders, were included in interest expense in 2003, totaling $4.3 million. Under the PBGC Agreement, interest incurred in 2003 was $3.6 million greater than in 2002, during which interest was incurred for only the four months following the Reorganization. Interest expense in 2002, not recurring in 2003, included a $1.6 million accrual of interest on the Senior Notes, which were repaid on August 30, 2002, and the related unpaid interest was reversed through a credit to reorganization items, net in August 2002. The overall increase in interest expense was also partially offset by lower average interest rates and lower average borrowings outstanding under the Company’s Revolving Credit Facility in 2003.

     Net income (loss). The Company recorded a net loss of $26.1 million for 2003 compared to net income of $63.2 million in the periods comprising 2002. The restructuring and reorganization items in the periods comprising 2002 were $47.8 million, leaving income of $15.4 million attributable to all other operations.

     The decline in earnings year over year of $41.5 million was primarily due to:

•		higher cost of natural gas — $18.0 million;
•		higher interest expense — $20.2 million (including $3.6 million of noncash write-off of deferred fees);
•		higher noncash depreciation and amortization expense — $16.8 million;
•		other net factors, higher expense — $0.8 million;

     and offset by the positive effects of:

•		lower operating lease expenses — $9.9 million; and
•		improved sales price and mix — $4.4 million.

     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 $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 $14.0 million. The decline in the price of natural gas in 2002, as compared with 2001, resulted in net margin improvement of $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 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 $1.8 million. With

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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. 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. Interest expense on the Senior Notes was accrued for the full year of 2001 compared to an accrual of three and one-half months for 2002, 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 $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.

Liquidity and Capital Resources

     The Company’s principal sources of liquidity are funds derived from operations and borrowings under the Revolving Credit Facility. The Company believes that cash flows from operating activities, combined with available borrowings under the Revolving Credit Facility, 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.

   Cash Flows

     Operating Activities. Operating activities provided $25.2 million in cash in 2003 compared to $75.6 million in cash in the periods comprising 2002. This decrease in cash provided reflects the decline in earnings and changes in working capital items. Inventory levels increased in 2003, using $34.6 million in cash. As a result of higher natural gas prices, net cash outlays for natural gas purchases in 2003 increased $18.0 million as compared to the periods comprising 2002. Cash interest payments in 2003 were $10.0 million over payments in 2002. Cash used in the reduction of current liabilities was $7.0 million. Accounts receivable levels declined in 2003, providing cash of $8.0 million.

     Investing Activities. Cash consumed in investing activities was $147.0 million in 2003, as compared to $67.6 million in the periods comprising 2002. Capital expenditures were $119.1 million and $71.3 million, respectively in 2003 and 2002. The Company has recently finished three renovation projects, including two furnace