UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

     (Mark one)

ANCHOR GLASS CONTAINER CORPORATION

0-23359
Commission file number

Registrant’s telephone number, including area code: 813-884-0000

     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 þ No o.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The number of shares of Anchor Glass Container Corporation, common stock, $.10 par value,
outstanding at April 29, 2005 was 24,680,843.

ANCHOR GLASS CONTAINER CORPORATION

FORM 10-Q

For the Quarterly Period Ended March 31, 2005

INDEX

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

ANCHOR GLASS CONTAINER CORPORATION

See Notes to Condensed Financial Statements.

3

ANCHOR GLASS CONTAINER CORPORATION

See Notes to Condensed Financial Statements.

4

ANCHOR GLASS CONTAINER CORPORATION

See Notes to Condensed Financial Statements.

5

ANCHOR GLASS CONTAINER CORPORATION

NOTE 1 – Basis of Presentation

	Management Responsibility

     In the opinion of management, the accompanying condensed financial statements contain all adjustments, consisting only of normal recurring adjustments, that are necessary to present fairly the financial position of Anchor Glass Container Corporation (the “Company” or “Anchor”) as of March 31, 2005 and the results of operations and cash flows for the three months then ended.

     Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements of Anchor included in the Company’s annual report on Form 10-K for the year ended December 31, 2004. The results of operations for the interim periods are not necessarily indicative of the results of the full fiscal year.

	Post-retirement Benefits

     The Company provides post-retirement benefits to certain salaried and hourly employees and former employees. The Company accrues post-retirement benefits (such as healthcare benefits) during the years an employee provides services. Currently, the Company funds these healthcare benefits on a pay-as-you-go basis. The components of the net periodic benefit cost are:

	Capital Stock

     In the three months ended March 31, 2005, the Company recorded stock option compensation expense of $53 and received proceeds from the exercise of stock options of $52.

     In the three months ended March 31, 2004, the Company paid a dividend of $0.04 per share of common stock.

	Liquidity

     The Company’s operating results and operating cash flows during fiscal 2004 were negatively impacted by the closure of the Connellsville plant (see Note 4), the continuing high costs of energy and its direct and indirect effect on other costs and manufacturing expenses, softer sales volumes in the second half of 2004, the excess supply conditions currently prevailing in the glass container industry, the effect of fourth quarter curtailments (furnace downtime) and the acceleration of certain capital projects into 2004 from 2005. As a result of the above factors, the Company’s availability under its $115,000 revolving credit facility (the “Revolving Credit Facility”) declined and the Company was unable to meet its fixed charge coverage ratio covenant at December 31, 2004.

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ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
(dollars in thousands)

     As further described in Note 3, on February 14, 2005, the Company entered into a $20,000 revolving credit facility (the “Revolving B Loan”) with Madeleine L.L.C., an affiliate of its largest stockholders, funds and accounts managed by Cerberus Capital Management, L.P. (“Cerberus”) and its affiliates. Additionally, the lenders under the Revolving Credit Facility modified the fixed charge coverage ratio covenant for 2005 and waived the Company’s failure to comply with its fixed charge coverage ratio covenant as of December 31, 2004. The Company also entered into a similar agreement and waiver with its lender under its capital lease arrangements, which had an outstanding balance of $11,300 at March 31, 2005.

     Under the modified covenant, the required minimum fixed charge coverage ratio for 2005 and thereafter is determined on a monthly basis, beginning on January 1, 2005. The monthly calculation is determined on cumulative year to date results through the measurement date. The cumulative aspect of the calculation allows for any excess or deficit coverage in prior months to be incorporated into the current month calculation. Prior to this modification, the Revolving Credit Facility required that the Company meet a quarterly fixed charge coverage test, determined cumulatively for the four calendar quarters ending on the measurement date, unless minimum availability declined below $10,000, in which case the Company would have been required to meet a monthly fixed charge coverage test determined cumulatively for the twelve calendar months ending on the measurement date. Minimum fixed charge coverage ratios under the Revolving Credit Facility are reflected in the table below.

     The actual fixed charge coverage ratio for March 2005 was .44:1.0. The Revolving B Loan and the master lease agreement contain the same fixed charge coverage ratio covenant.

     The fixed charge coverage ratio is calculated by dividing Adjusted EBITDA by fixed charges (as those terms are defined in the related debt agreements). Adjusted EBITDA is an amount equal to net income (loss) plus interest expense, income taxes, depreciation and amortization, restructuring charges, (gain)/loss on the sale of fixed assets and other non-cash items. Adjusted EBITDA is not a presentation made in accordance with generally accepted accounting principles (GAAP) and is not intended to present a superior measure of financial condition or profitability from those determined under GAAP. Adjusted EBITDA is a primary component of the fixed charge coverage financial covenant under the Company’s revolving credit facilities and master lease agreement. Fixed charges include, among other things, cash interest expense, capital expenditures, cash dividends, payments made under the agreement with the Pension Benefit Guaranty Corporation (“PBGC”), regularly scheduled principal payments of indebtedness, restructuring expenditures, taxes paid in cash and management fees, as defined.

     The Company has made various operational improvements and implemented cost savings programs which management believes will assist in its ability to meet this fixed charge coverage ratio covenant on a monthly basis. Although the Company anticipates the ability to meet this covenant, due to the cumulative year to date by month nature of the covenant calculations, combined with operational variability in a manufacturing environment, there can be no assurance that activities outside of the Company’s control may impact its ability to meet these covenants. The Company’s principal sources of liquidity are funds derived from operations and borrowings under the Revolving Credit Facility and the Revolving B Loan.

     At March 31, 2005 combined availability under these facilities was $28,300. The Company believes that cash flows from operating activities, combined with available borrowings under its two revolving credit facilities, will be sufficient to support its operations and fund its capital expenditure

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ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
(dollars in thousands)

requirements, scheduled payments of interest and principal (interest on the Senior Secured Notes is due August 15 and February 15), restructuring payments and other liquidity needs for the foreseeable future, although the Company cannot be assured that this will be the case. The Company’s ability to fund operations, make scheduled payments of interest and principal on its indebtedness and maintain compliance with the terms of its revolving credit facilities and master lease agreement, including its fixed charge coverage ratio covenant, depends on the Company’s future operating performance, which is subject to economic, financial, competitive and other factors beyond the Company’s control.

     If the Company is unable to generate sufficient cash flows from operations to meet its financial obligations and achieve compliance with its debt covenant, there may be a material adverse effect on the Company’s business, financial condition and results of operations. Management is continuing to explore alternatives to provide additional liquidity. These alternatives include:

	•	formulating plans to maintain capital expenditures at reduced levels needed for routine maintenance and providing molds to support production, following the past two years of significant furnace rebuilds and other improvement projects;
	•	implementing continued cost reduction and efficiency programs to improve results;
	•	continuing to reduce inventories in 2005 based upon a better balance of capacity and demand; and
	•	actively pursuing sales of non-performing assets.

     There can be no assurance that the Company will be successful in these alternatives. Failure to comply with financial covenants will cause default under the Revolving Credit Facility and may cause the Company’s long term capital leases and other long term debt agreements to become currently due, as a result of cross default provisions.

	New Accounting Standards

     In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard No. 123R – Share-Based Payments (“SFAS 123R”), a revision of Statement of Financial Accounting Standards No. 123 – Accounting for Stock-Based Compensation (“SFAS 123”). Under a recently released Securities and Exchange Commission rule, for companies with a December 31 year end, SFAS 123R is effective for the first annual reporting period that begins after December 31, 2005. The Company adopted the requirements of SFAS 123 effective January 1, 2003. The adoption of SFAS 123R is not expected to impact the Company’s financial position or results of operations.

     In November 2004, the FASB issued Statement of Financial Accounting Standard No. 151 – Inventory Costs, an amendment of ARB No. 43, Chapter 4 (“SFAS 151”), that is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS 151 is not expected to impact the Company’s financial position or results of operations.

     The American Jobs Creation Act of 2004 was signed into law in October 2004 and has provisions that may impact the Company’s income taxes in the future, including, but not limited to a deduction related to qualified production activities taxable income. The FASB proposed the qualified production activities deduction is a special deduction and will have no impact on deferred taxes existing at the enactment date. Rather, the impact of this deduction will be reported in the period in which the deduction is claimed on the Company’s tax return. The Company is evaluating the impact of the FASB guidance related to qualified production activities on its effective tax rate in future periods; however, no deduction will be recorded until all available loss carryforwards are exhausted.

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ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
(dollars in thousands)

	Revision

     The Company revised its condensed statements of cash flows by $1,159 for the three months ended March 31, 2004 to reflect the principal payments under its agreement with the PBGC as cash outflows from operating activities instead of cash outflows from financing activities. This revision had no impact on the Company’s balance sheets or statements of operations.

     This revision had the impact of reducing cash flows from operating activities from $(26,461) to $(27,620) for the three months ended March 31, 2004. The revision also had the impact of increasing cash flows from financing activities from $26,234 to $27,393 for the three months ended March 31, 2004.

NOTE 2 – Property, Plant and Equipment

     In the first quarter of 2005, the Company sold a previously closed facility located at Dayville, Connecticut. The Company received proceeds from the sale of $6,472. Included on the accompanying condensed statement of operations is a gain of $3,117, including the associated release of an environmental reserve of $250 as a result of the sale.

NOTE 3 – Revolving Credit Facilities

     On February 14, 2005, the Company entered into a $20,000 Revolving B Loan with Madeleine L.L.C., an affiliate of its largest stockholders, funds and accounts managed by Cerberus and its affiliates. As availability under the Revolving B Loan is not subject to a borrowing base, the new facility provides the Company with liquidity in excess of that provided by the Revolving Credit Facility. As of March 31, 2005, advances outstanding under the Revolving B Loan were $10,000.

     The Revolving B Loan matures on August 30, 2007, contemporaneously with the maturity of the Revolving Credit Facility, and bears interest on drawn portions thereof at LIBOR plus 8% (10.72% at March 31, 2005), payable quarterly. Interest on the new facility is payable in kind through June 30, 2005 and thereafter if availability under the Revolving Credit Facility is less than an agreed upon threshold. Advances under the Revolving B Loan are to be drawn in a minimum amount of $5,000. Under the terms of the Revolving Credit Facility, advances are to be drawn from the Revolving B Loan if excess availability as defined in the Revolving Credit Facility is equal to or less than $3,000. Repayments of advances outstanding under the Revolving B Loan may not be made if availability under the terms of the Revolving Credit Facility is less than an agreed upon threshold. The Revolving B Loan is secured by a second lien on the Company’s inventory, receivables and general intangibles. The Revolving B Loan requires the Company to meet the same monthly fixed charge coverage test as under the Revolving Credit Facility.

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ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
(dollars in thousands)

NOTE 4 – Restructuring, Impairment and Other Charges and Inventory Loss

     In November 2004, the Company closed its Connellsville, Pennsylvania manufacturing facility (the “Restructuring”). The Company expects to complete the Connellsville facility closure activities by December 2005 (the “Restructuring Period”). This decision was based on a number of considerations, including the excess supply conditions currently prevailing in the glass container industry and the Company’s analysis of the economics of each Anchor facility. This analysis is part of an ongoing and comprehensive operational review, begun in the third quarter of 2004, to increase the Company’s asset productivity and improve cash flow.

     During the Restructuring Period, the Company will record restructuring expenses and other related charges that will, in total, approximate $51,800 to $53,000. These charges include approximately $1,500 for a company-wide reduction in force, in addition to Connellsville, as a result of management’s evaluation of personnel costs. The major types of costs incurred and to be incurred are:

     Other facility exit costs primarily consist of charges that do not meet the initial recognition requirements as of the restructuring date and are charged to expense as incurred. The Company recorded the $25,758 asset impairment charge in the fourth quarter of 2004 to reduce this property and equipment to its estimated salvage value, as determined based on the Company’s best estimate of recoverable value for these assets based on expected discounted future cash flows. This property and equipment is currently classified as held for use and is recorded at its disposal value.

     The Company had taken a charge of $8,963 for an inventory write-down in the fourth quarter of 2004, of which $1,100 pertained to unusable supplies and raw materials and $7,900 pertained to finished goods related write downs and charges. A substantial amount of the finished product inventory on location at this facility was manufactured for a few specific customers. At times, glass container customers require discounts to purchase products manufactured at closed facilities. Based upon the negotiations with its customers, the Company recorded a write-down of finished product inventory to values supported by written agreements with these customers. The Company has valued and recorded this inventory at its negotiated selling price.

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ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
(dollars in thousands)

     A reconciliation of the Restructuring liability, recorded in accrued expenses on the accompanying balance sheet, is as follows:

     The cash requirements of the Restructuring are and will be funded through operations and borrowings under Anchor’s Revolving Credit Facility and Revolving B Loan. Anchor expects the timing of cash requirements to approximate:

     In the second quarter of 2005, the Company implemented a reduction in force at its corporate facility. See Note 6 – Subsequent Event.

NOTE 5 – Commitments and Contingencies

     On April 20, 2005, a consolidated amended class action complaint was filed in the United States District Court for the Middle District of Florida, Tampa Division entitled “Davidco Investors, LLC, individually and on behalf of all others similarly situated v. Anchor Glass Container Corporation, Darrin J. Campbell, Richard M. Deneau, Peter T. Reno, Joel A. Asen, James N. Chapman, Jonathan Gallen, George Hamilton, Timothy F. Price, Alan H. Schumacher, Lenard B. Tessler, Credit Suisse First Boston, Merrill Lynch & Co., Lehman Brothers, PricewaterhouseCoopers, LLC, Cerberus Capital Management, L.P., Cerberus International, Ltd., Cerberus Institutional Partners, L.P., Cerberus Institutional Partners (America), L.P. and Stephen A. Feinberg, Case Number 8:04-cv-2561-T- 24EAJ.” Darrin J. Campbell was the Company’s former Chief Executive Officer and a former member of the Company’s Board of Directors. Richard M. Deneau was the Company’s former Chief Executive Officer and a former member of the Company’s Board of Directors. Peter T. Reno is the Company’s Vice President and Interim Operating Committee Chairman. Alan H. Schumacher, James N. Chapman, Jonathan Gallen, Timothy F. Price and Lenard B. Tessler are members of the Company’s Board of Directors. Joel A. Asen and George Hamilton previously were members of the Company’s Board of Directors. PricewaterhouseCoopers LLP is the Company’s independent registered public accounting firm. Credit Suisse First Boston, Merrill Lynch & Co. and Lehman Brothers were underwriters of the Company’s initial public offering of common stock. Cerberus is a New York investment management firm. Cerberus International, Ltd., Cerberus Institutional Partners, L.P. and Cerberus Institutional Partners (America), L.P. own shares of the Company’s common stock. Stephen Feinberg exercises voting and investment authority over all securities of the Company owned by Cerberus International, Ltd., Cerberus Institutional Partners, L.P., Cerberus Institutional Partners (America), L.P., and certain private investment funds and managed accounts.

     The consolidated amended complaint was filed to amend the complaint filed by Davidco Investors, LLC previously disclosed in the Company’s Form 8-K dated December 10, 2004. Four securities class action lawsuits brought against the Company have now been merged into this case. The lawsuit seeks to have the court determine recognition of a class action brought on behalf of all persons who purchased the Company’s securities between September 25, 2003 and November 4, 2004 and alleges violations of Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”) and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 thereunder.

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ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
(dollars in thousands)

     On February 10, 2005, a complaint was filed in the United States District Court for the Middle District of Florida, Tampa Division, entitled Christopher Carmona, derivatively on behalf of Anchor Glass Container Corporation v. Richard M. Deneau, Darrin J. Campbell, Peter T. Reno, Alan H. Schumacher, James N. Chapman, Jonathan Gallen, Timothy F. Price, Alexander Wolf, Joel A. Asen and George Hamilton, as defendants, and Anchor Glass Container Corporation, as nominal defendant.

     The lawsuit is a derivative action brought by a shareholder of the Company on behalf of the Company against certain of its officers and directors alleging violations of state law, including breaches of fiduciary duties for insider selling and misappropriation of information, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment between September 2003 and the present that allegedly have caused substantial losses and other damages to the Company, such as to its reputation and goodwill.

     Although the ultimate outcome of the above-described matters cannot be determined with certainty, the Company believes that the complaints are without merit and it and the individual defendants intend to vigorously defend the lawsuits.

     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 such 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.

     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.

NOTE 6 – Subsequent Event

     In the second quarter of 2005, as part of a comprehensive operational review, the Company implemented a reduction in force at its corporate facility. As a result of this action, the Company will record a charge of approximately $800 in the second quarter of 2005. The Company anticipates that total restructuring charges associated with its operational review will approximate $52,600 to $54,000.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 eight 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.

Results of Operations

     Net sales. Net sales for the first quarter of 2005 were $179.3 million compared to $189.6 million for the first quarter of 2004. The decrease in net sales of $10.3 million, or 5.4%, was principally the result of a decrease in unit shipments of 5.0% reflecting the softer beer volumes and a weaker-than-expected performance in the ready-to-drink category, offset by higher shipments in the liquor category where the Company experienced year-over-year gains. Decline in beer shipments reflects continuing reduced market place demand; the ready-to-drink decrease is a result of the absence of last year’s non-contracted volume shipments. Liquor sales showed strong year-over-year improvements as new business shipments have ramped to full rate levels.

     The decline in sales dollars exceeded the decline in unit shipments, reflecting in part, the planned changes in sales mix attributable to current customer contracts and the Company’s inability to fully pass through the high cost of energy to its customers. The Company was able to mitigate some of the impact of higher energy costs (see below), as recent contract changes took effect in 2005, allowing the Company to pass on a portion of higher natural gas penalties to certain customers.

     Cost of products sold. The Company’s cost of products sold in the first quarter of 2005 was $175.9 million, or 98.1% of net sales, while the cost of products sold for the first quarter of 2004 was $175.0 million, or 92.3% of net sales. Included in the 2005 first quarter results were higher energy costs that were not able to be passed through to customers of $6.6 million, which includes higher natural gas costs, higher transportation and raw material costs due to rising fuel prices, and higher costs for electricity. A portion of these costs, primarily the portion related to natural gas, will be partially recovered in second quarter 2005 based upon the contracted pricing formulas in place with certain customers. The decline in margin includes $5.5 million primarily due to lower volumes (as discussed above) and higher freight, increased costs of raw materials, primarily soda ash, of $1.0 million and costs associated with unplanned downtime due to a weahter-related power loss at our Winchester, Indiana glass container facility totaling $0.9 million, which is partially offset by an accrual for insurance recoveries of $0.6 million. Partially offsetting these increases are favorable productivity improvements and efficiencies of $1.7 million, before giving effect to unplanned downtime at a facility due to a weather-related power loss, a one-time gain of $0.8 million from a legal settlement related to vendor pricing, and lower depreciation expense of $0.5 million.

     Restructuring, impairment and other charges, net and inventory loss. In November 2004, the Company closed its Connellsville, Pennsylvania manufacturing facility (the “Restructuring.”) The Company expects to complete the Connellsville facility closure activities by December 2005 (the “Restructuring Period”).

     This decision was based on a number of considerations, including the excess supply conditions currently prevailing in the glass container industry and the Company’s analysis of the economics of each Anchor facility. This analysis is part of an ongoing and comprehensive operational review, begun in the third quarter of 2004, to increase the Company’s asset productivity and improve cash flow.

     During the Restructuring Period, the Company will record restructuring expenses and other related charges that will, in total, approximate $51.8 million to $53.0 million. These charges include approximately $1.5 million for a company-wide reduction in force, in addition to Connellsville, as a result of management’s evaluation of personnel costs.

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     The major types of costs incurred and to be incurred are: