<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
- - ---------
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
-------------------------------------------
OR
- - --------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ___________to __________.
Commission File Number: 1-6690
------
CONTINENTAL CAN COMPANY, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2228114
- - ----------------------------------- -----------------------------------
(State of Incorporation) (I.R.S. Employer Idenification No.)
One Aerial Way, Syosset, New York 11791
- - ----------------------------------- -----------------------------------
(Address of principal executive (Zip code)
offices)
Registrant's telephone number, including area code: (516) 822-4940
--------------
Securities registered pursuant to Section 12 (b) of the Act:
Common Stock ($.25 par value) New York Stock Exchange
- - ----------------------------------- -----------------------------------
(Title of each class) (Name of each exchange on which
registered)
Securities registered pursuant to Section 12 (g) of the Act: None
----
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 preceeding 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 (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K {X}.
The aggregate market value of voting stock held by non-affiliates of the
Registrant based on the closing price at which such stock was sold on the New
York Stock Exchange on March 15, 1994 was $63,838,500.
The number of shares of Common Stock outstanding on March 15, 1994 was 2,883,358
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part II (except Item No. 6 "Selected Financial Data" and Item No. 9 "Changes In
And Disagreements With Accountants On Accounting And Financial Disclosure") is
incorporated by reference to the Registrant's Annual Report to Stockholders for
the fiscal year ended December 31, 1993, and Part III (except Item 10 regarding
executive officers) is incorporated by reference to the Registrant's Proxy
Statement to be filed on or about April 8, 1994 in connection with its 1994
Annual Meeting of Stockholders to be held on May 18, 1994.
<PAGE>
ITEM 1. BUSINESS
-----------------
(a) General Development of Business
-------------------------------
Continental Can Company, Inc. (the Company) is a publicly traded company
incorporated in Delaware in 1970 under the name Viatech, Inc. The name of the
Company was changed to Continental Can Company, Inc. in October 1992. The
Company is engaged in the packaging business through a number of consolidated
operating subsidiaries. The Company's packaging business consists of (i) its
50%-owned domestic subsidiary, Plastic Containers, Inc. (PCI), which owns
Continental Plastic Containers, Inc. and Continental Caribbean Containers,
Inc. (collectively, CPC), (ii) its wholly owned German operating subsidiary,
Dixie Union Verpackungen GmbH (Dixie Union) and (iii) its majority-owned
European operating subsidiaries, Ferembal S.A. (Ferembal), which in turn owns
51% of Obalex, A.S. (Obalex), Onena Bolsas de Papel, S.A. (Onena) and
Industrias Gomariz, S.A. (Ingosa). PCI is a leading manufacturer of extrusion
blow-molded containers in the United States. Ferembal is a manufacturer of
rigid packaging, primarily food cans, of which it is the second largest
supplier in France. Obalex is a manufacturer of metal cans in the Czech
Republic. Dixie Union manufactures plastic films and packaging machines,
primarily for the food and pharmaceutical industries. Onena manufactures film,
and Onena and Ingosa laminate and print plastic, paper and foil packaging
materials for the food and snack food industries in Spain. The Company also
owns Lockwood, Kessler & Bartlett, Inc. (LKB) which provides services
principally in the fields of mapping and survey, civil and structural
engineering, mechanical and electrical engineering, and construction
administration and inspection.
(b) Financial Information About Industry Segments
---------------------------------------------
The Company has one reportable industry segment - packaging, as
determined in accordance with the Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 13.
(c) Narrative Description of Business
---------------------------------
The Company manufactures packaging which accounted for 97.5%, 97.3%, and
95.8% of its consolidated revenues in 1993, 1992 and 1991, respectively.
CPC - The Company's 50%-owned subsidiary, PCI, acquired CPC in
---
November 1991. CPC, headquartered in Norwalk, Connecticut, has fourteen
manufacturing plants in the continental United States and one in Puerto Rico.
CPC is a leader in the development, manufacture and sale of a wide range of
extrusion blow-molded plastic containers for household chemicals, food and
beverages, automotive products and motor oil, industrial and agricultural
chemicals and cosmetics and toiletries. CPC manufactures single and multi-
layer containers, primarily from high density polyethylene and polypropylene
resins, ranging in size from two ounces to five gallons. Some of these multi-
layer containers include a barrier layer of ethyl vinyl alcohol which renders
the container oxygen tight and makes it suitable for use in food products
which are subject to spoilage or deterioration if exposed to oxygen. CPC
sells containers to national consumer products companies, including Clorox
Company, Coca-Cola Foods, Colgate-Palmolive Company, Lever Brothers, Mobil Oil
Corp., Pennzoil Products Company, Procter & Gamble Company, Quaker Oats
Company and Quaker State Oil Refining Corporation. CPC, in many cases,
manufactures substantially all of a customer's container requirements for
specific product categories or for particular container sizes. CPC has long-
standing relationships with most of its customers and has contracts or
agreements of two to seven years in duration with customers representing
approximately 70% of its dollar sales volume.
Ferembal - The Company acquired a 68% interest in Ferembal in the fourth
--------
quarter of 1989, increased its interest to 84% in August, 1991 and at December
31, 1993 owned 85% of Ferembal. Ferembal, headquartered in Paris, has five
manufacturing plants located in each of the main agricultural regions of
France. The Roye plant,
1
<PAGE>
located in Picardie, was built in 1964 and expanded substantially in 1968. Its
three main divisions include coil cutting, printing and varnishing; the
manufacture of ends and bodies; and assembly. There are five welded lines in
operation at Roye and all industrial products are manufactured at this plant.
The Moelan plant, located in Brittany, is set up along similar lines as the
Roye plant with five welded lines. The Ludres plant, in eastern France, is
Ferembal's largest facility. In addition to twelve presses and two easy-open
end manufacturing units, Ludres has nine body assembly lines. Ferembal's
research and development and technical service departments are also located at
Ludres. The Veauche plant was built in 1982 to service southern France.
Approximately 50% of the output of the two welded lines is "passed through the
wall" to a customer for the canning of pet food. The Ville Neuve sur Lot plant
was built in 1991 and went into production with a three piece can line in
early 1992. A two piece can line went into production at this facility in
mid-1992.
Ferembal is the second largest producer of food cans in France and also
produces cans for pet foods and industrial products. Ferembal's products
include three piece cans for food with over two hundred sets of
specifications, two piece cans in several different diameters, easy open ends,
stylized and "hi-white enamel" cans, and a large number of can products for
industrial end uses. Ferembal's production for the food and pet food markets
accounts for approximately 80% of its sales with remaining sales coming from
cans produced for industrial products. Ferembal's customers are primarily
vegetable and prepared food processors, pet food processors, and paint and
other industrial can users.
Obalex - The Company, through Ferembal, owns 51% of the outstanding stock
------
of Obalex. Obalex is headquartered in a three building complex on a 5 acre
site in Znojmo, Czech Republic, which also serves as its sole manufacturing
facility. Obalex manufacturers both two and three piece cans for food which
account for approximately 80% of its sales and a number of can products for
industrial end users.
Dixie Union - The Company, through its wholly owned subsidiary, Viatech
-----------
Holding GmbH, owns all of the outstanding stock of Dixie Union. Dixie Union
is headquartered in Kempten, Germany and has subsidiary companies in France
and the United Kingdom, which function as a sales, distribution and customer
service network. Dixie Union manufactures three main product lines for the
packaging industry: multi-layer shrink bags, composite plastic films and
packaging machines and slicers. Most of Dixie Union's customers are in the
food and pharmaceutical industries.
Onena - The Company owns 80% of the stock of Onena located in Pamplona,
-----
Spain. Onena manufactures plastic film and prints and laminates paper,
plastic and foil packaging material for the food and snack food industries in
Spain.
Ingosa - The Company owns 99.97% of the stock of Ingosa located in
------
Pamplona, Spain. Ingosa prints and laminates paper, plastic and foil
packaging material for the food and snack food industries in Spain. During
1994 the Company intends to merge Onena and Ingosa and locate all of their
operations at Ingosa's current manufacturing facility. See Note 2(a) of the
Notes to the Consolidated Financial Statements.
LKB - The Company owns 100% of LKB, a consulting engineering firm,
---
located in Syosset, New York. LKB provides services to clients in the fields
of transportation, site, municipal, electrical and mechanical, and
environmental engineering. Most of LKB's clients are public sector state and
municipal agencies, utilities, financial institutions and developers. Most of
its projects involve infra-structure design and rehabilitation, environmental
reports and services, and utility substation design.
Other Matters - The primary users of products manufactured by the
-------------
Company are firms in the food and snack food, pet food, household chemical,
motor oil and pharmaceutical industries.
2
<PAGE>
The raw materials used in the production of plastic containers, cans and
packaging films are readily available commodity materials and chemicals
produced by a large number of manufacturers. It is the practice of the Company
to obtain these raw materials from several sources in order to ensure an
economical, adequate and timely supply.
Some of the products manufactured by the Company are manufactured
pursuant to license. With regard to composite films, a fully paid up license
from the American National Can Company is in effect. With regard to shrink
bags and film, a license from the American National Can Company is in effect.
Present patents under this license expire at various times through 2000. The
license will expire on the date the last of the licensed patents expire. This
license is non-exclusive as to manufacture and sale of shrink bags and film in
Europe and non-exclusive as to sales to the rest of the world. Sales may not
be made in the Western Hemisphere. The Company does not believe these licenses
are material to its packaging business taken as a whole.
The Company's business is seasonal insofar as the sales of Ferembal and
Obalex to the vegetable packaging industry is dependent on agricultural
production and occurs primarily in the second and third quarters. The
Company's remaining products are not seasonal.
The Company is not dependent upon a single customer or a few customers.
Sales to no single customer exceeded 10% of the Company's consolidated
revenues in 1993.
As of December 31, 1993, the Company's backlog was approximately
$19,868,000 (compared to $19,149,000, at December 31, 1992). All backlog is
expected to be filled within the current fiscal year. Ferembal, Obalex, and
Plastic Containers, Inc. produce most of their products under open orders. As
a result, none of the foregoing backlog is attributable to them.
The Company's business in total is highly competitive with a large number
of competitors. The main competitors include Owens Illinois, Inc. and Graham
Packaging with regard to plastic containers, CMB Packaging with regard to
cans, W. R. Grace & Co. with regard to barrier shrink films, and Multi-Vac
with regard to packaging machinery. The principal methods of competition are
price, quality and service.
The amount spent on research and development activities amounted to
approximately $12,862,000 in 1993, $14,603,000 in 1992, and $4,194,000 in
1991.
The number of persons employed by the Company as of December 31, 1993 and
1992 was 3,712 and 3,182, respectively.
(d) Foreign and Domestic Operations
-------------------------------
Sales to unaffiliated customers are set out below:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
(In thousands)
Europe $255,619 $284,771 $273,122
United States 221,636 218,988 32,772
Other 4,587 7,482 4,760
-------- -------- --------
Total $481,842 $511,241 $310,654
======== ======== ========
</TABLE>
Information regarding the operating profit and the identifiable assets
attributable to the Company's foreign operations is incorporated herein by
reference to Note 16 of the Consolidated Financial Statements appearing in the
Annual Report to Stockholders for the year ended December 31, 1993.
3
<PAGE>
ITEM 2. PROPERTIES
-------------------
The Company believes its facilities are suitable, adequate, and properly
sized to provide the capacity necessary to meet its sales. The Company's
production facilities are utilized for the manufacture and storage of the
Company's products. The extent of utilization in each of the Company's
facilities varies based on a number of factors but primarily on sales and
inventory levels for specific products. The location of the customer also
affects utilization since shipment costs beyond a certain distance can make
production of some products at a remote facility uneconomic. Seasonality
affects utilization substantially at Ferembal and Obalex with very high
utilization in the pre-harvest and harvest season and substantially lower
utilization during the late fall and winter. The Company adjusts labor levels
and capital investment at each of its facilities in order to optimize their
utilization.
The Company's general corporate offices and the main production facility
for LKB are located in Syosset, New York in a 25,000 square foot building
owned by the Company. This steel and concrete block building was constructed
in 1955 on a 2-1/2 acre lot.
CPC is headquartered in 10,415 square feet of leased office space in
Norwalk, Connecticut. CPC also leases its technical center in Elk Grove,
Illinois (78,840 sq. ft.) and sales offices in Montvale, New Jersey (2,042 sq.
ft.), Cincinnati, Ohio (1,266 sq. ft.), Houston, Texas (703 sq. ft.) and Des
Plaines, Illinois (1,655 sq. ft.).
The following table sets forth the location and square footage of CPC's
production facilities which are used for both manufacture and warehousing of
finished goods:
<TABLE>
<CAPTION>
SIZE IN SIZE IN
PLANT LOCATION SQUARE FEET PLANT LOCATION SQUARE FEET
----------------- ----------- ------------------- -----------
<S> <C> <C> <C>
Santa Ana, CA 102,500 Lima, OH 122,850
Fairfield, CA 66,000 Newell, WV 50,000
Houston, TX 80,000 Oil City, PA 96,000
Kansas City, KS 172,775 Baltimore, MD 150,600
Elk Grove, IL 137,800 Lakeland, FL 105,200
DuPage, IL 102,900 New Market, NJ 116,000
Cincinnati, OH 131,665 Caguas, Puerto Rico 46,800
Cleveland, OH 100,000
</TABLE>
CPC owns the plants in Santa Ana, Fairfield, Oil City, Baltimore and
Puerto Rico; all others are leased.
Ferembal is headquartered in 20,000 square feet of office space subject
to a capital lease in Clichy, a suburb of Paris. Ferembal operates five
manufacturing facilities in five locations in France. Ferembal owns a 384,000
square foot manufacturing facility on a 21 acre site in Roye for the
production of food and industrial cans. Ferembal owns a 42,000 square foot
manufacturing facility for the production of food cans at Veauche on a 5 acre
site. The facility at Veauche is located next to a customer's plant and food
can production is "passed through the wall" to the customer. Ferembal has a
capital lease with regard to several buildings totaling 229,000 square feet on
a 23 acre site in Ludres. In addition, Ferembal owns a 29,000 square foot
building on a 3 acre site. These facilities are used for the manufacture of
food cans and for research and development activities. Ferembal has a capital
lease with regard to several buildings totaling 252,000 square feet on an 18
acre site in Moelan which are used for the manufacture of food cans. Ferembal
operates a manufacturing facility for food cans in a 42,000 square foot
building on a 4 acre site in Villeneuve sur Lot under a rental agreement.
Each of the manufacturing facilities utilizes a portion of its building space
for warehousing its finished goods.
4
<PAGE>
Obalex is located in several buildings with approximately 182,000 square
feet on an 8.4 acre site in Znojmo, Czech Republic. This facility is the sole
manufacturing site for Obalex which also uses the complex for the storage of
its finished goods.
Dixie Union is headquartered in a three-story, 108,000 square foot
manufacturing facility on a 5 acre site in Kempten, Germany, leased through
2004. In addition, two small facilities are leased as sales and distribution
centers in Milton Keynes, England and Redon, France.
Onena is headquartered in a manufacturing facility in Pamplona, Spain
consisting of several owned buildings encompassing 89,200 square feet on a 3.7
acre site.
Ingosa owns two buildings totaling 358,000 square feet located on a 3.5
acre site in Pamplona, Spain, which also serve as its headquarters,
manufacturing and warehousing facility. The Company intends to merge the
operations of Ingosa and Onena in 1994 and it is expected that Ingosa's
manufacturing facility will be expanded by approximately 96,000 square feet at
a cost of approximately $1 million during 1994. After the merger the Company
intends to sell Onena's facility.
ITEM 3. LEGAL PROCEEDINGS
--------------------------
The Company's subsidiaries are defendants in a number of actions which
arose in the normal course of business. In the opinion of management, the
eventual outcome of these actions will not have a significant effect on the
Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
On November 29, 1993 a Special Meeting of Stockholders was held to
consider a proposal to approve the possible issuance of 887,500 shares of the
Company's Common Stock to Merrywood, Inc. pursuant to an Agreement dated
September 10, 1992, as amended, among the Company, Plastic Containers, Inc.,
Merrywood Inc., and Plaza, Inc. Such proposal was approved by a vote of
1,321,713 shares (86%) cast in favor, 84,390 shares (5%) cast against and
126,754 shares (9%) abstaining.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
--------------------------------------------------------------------------
MATTERS
-------
The information required by this item is incorporated herein by reference
to the section entitled "Common Stock Prices and Related Matters" of the
Annual Report to Stockholders for the year ended December 31, 1993.
5
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA(1)
-----------------------------------
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales (2) $481,842 $511,241 $310,654 $292,033 $119,807
======== ======== ======== ======== ========
Net income (2) (3) $ 988 $ 2,063 $ 7,394 $ 5,059 $ 1,672
======== ======== ======== ======== ========
Earnings per
common share (3)
Primary $ .33 $ .67 $ 2.92 $ 2.88 $ 1.32
======== ======== ======== ======== ========
Fully Diluted $ .32 $ .64 $ 2.59 $ 2.40 $ 1.07
======== ======== ======== ======== ========
Weighted average
shares outstanding (4) 3,023 3,078 2,533 1,758 1,263
======== ======== ======== ======== ========
Total assets $385,907 $400,010 $410,543 $202,524 $172,815
======== ======== ======== ======== ========
Long term debt and capitalized
lease obligations $153,982 $165,701 $159,567 $ 65,862 $ 74,952
======== ======== ======== ======== ========
Total stockholders'
equity (4) $ 60,855 $ 62,935 $ 61,393 $ 23,856 $ 9,823
======== ======== ======== ======== ========
Working capital $ 66,105 $ 69,158 $ 63,004 $ 48,235 $ 43,743
======== ======== ======== ======== ========
Current ratio 1.67 1.69 1.57 1.56 1.63
======== ======== ======== ======== ========
</TABLE>
(1) In thousands, except per share amounts and current ratio.
(2) In 1993, includes sales of $10,682 and net income of $238 related to the
purchase of Obalex. In 1991, includes sales of $17,030 and a net loss of
$1,045 related to the purchase of PCI. In 1989, includes sales of
$34,538 and net income of $150 related to the purchase of Ferembal.
(3) Includes income for the cumulative effect of accounting change of $460
($.15 per share primary and $.14 per share fully-diluted) and an
extraordinary charge of $1,502 ($.49 per share primary and $.44 per share
fully-diluted) in 1992. Includes income for an extraordinary item of $22
($.01 per share both primary and fully-diluted), and $127 ($.10 per share
primary and $.08 per share fully-diluted) in 1990 and 1989, respectively.
(4) The 1991 weighted average shares outstanding include 1,020 shares and 255
warrants to purchase shares sold in June 1991 for net proceeds of
$29,453. The 1990 weighted average shares outstanding include 460 shares
sold in January 1990 for net proceeds of $6,756.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The information required by this item is incorporated herein by reference
to the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Annual Report to Stockholders for
the year ended December 31, 1993.
6
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
The information required by this item is incorporated by reference to the
Company's consolidated financial statements and related notes, together with
the independent auditors' report in the Annual Report to Stockholders for the
year ended December 31, 1993.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
There have been no changes in nor disagreements with the Company's
accountants on accounting and financial disclosure during the twenty-four
month period ended December 31, 1993.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-----------------------------------------------------------
The information required by this item, with respect to directors of the
registrant, will be included under the caption "Election of Directors" of a
definitive Proxy Statement to be dated March 28, 1994 which will be filed with
the Commission pursuant to Regulation 14A and is hereby incorporated into this
report by this reference.
Executive officers of the registrant include Messrs. Donald J. Bainton
and Abdo Yazgi who are also directors of the registrant and for whom
information required by this item is included in the Proxy Statement as
previously mentioned.
Information for other executive officers, is as follows:
<TABLE>
<CAPTION>
Term of Year First
Name and Age Position Held Office Became Officer
------------ ------------- ------ --------------
<S> <C> <C> <C>
John H. Andreas Vice President- (1) 1992
61 Manufacturing
Marcial B. L'Hommedieu Treasurer (1) 1963
69
</TABLE>
(1) The term of office of all executive officers is indefinite, at the
pleasure of the Board of Directors.
The business experience of each executive officer is as follows:
Mr. Andreas has served as Vice President of Manufacturing since April
1992. Prior to that time, he was an independent business consultant. Prior to
his retirement in 1988, Mr. Andreas was employed by the former Continental Can
Company, Inc. for 33 years, most recently as General Manager.
Mr. L'Hommedieu has served as Treasurer or Assistant Treasurer of the
Company and its subsidiary, Lockwood, Kessler & Bartlett, Inc., since 1963.
ITEM 11. EXECUTIVE COMPENSATION
--------------------------------
The information required by this item is included under the caption
"Executive Compensation" of a definitive Proxy Statement to be dated March 28,
1994 which will be filed with the Commission pursuant to Regulation 14A and is
hereby incorporated into this report by this reference.
7
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------
The information required by this item is included under the caption
"Stock Ownership" of a definitive Proxy Statement to be dated March 28, 1994
which will be filed with the Commission pursuant to Regulation 14A and is
hereby incorporated into this report by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------
The information required by this item is included under the caption
"Transactions with Management" of a definitive Proxy Statement to be dated
March 28, 1994 which will be filed with the Commission pursuant to Regulation
14A and is hereby incorporated into this report by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
--------------------------------------------------------------------------
(a) 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1993 and 1992
Consolidated Statements of Earnings for the years ended December 31,
1993, 1992, and 1991
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1992 and 1991
Notes to Consolidated Financial Statements for the years ended December
31, 1993, 1992 and 1991
Independent Auditors' Report
The above financial statements are included under Item 8 of Part II of
this report.
2. Financial Statement Schedules:
See index to financial statement schedules for Continental Can Company,
Inc. and subsidiaries on page 11.
<TABLE>
<CAPTION>
3. Exhibits Required:
<C> <S> <C>
3.1 Articles of Incorporation, as amended................................................(2)
3.2 By-Laws, as amended..................................................................(2)
4.1 Indenture, dated as of April 1, 1992, among Plastic Containers, Inc. ("PCI"),
each of Continental Plastic Containers, Inc. ("CPC") and Continental
Caribbean Containers, Inc. ("CCC"), as guarantors and United States
Trust Company of New York, as trustee (the "Trustee")................................(1)
4.2 Pledge and Security Agreement, dated as of April 9, 1992, by PCI in favor of the
Trustee..............................................................................(1)
4.3 Pledge and Security Agreement, dated as of April 9, 1992, by CPC in in favor of
the Trustee..........................................................................(1)
4.4 Pledge and Security Agreement, dated as of April 9, 1992, by CCC in favor of the
Trustee..............................................................................(1)
4.5 Stock Pledge Agreement, dated as of April 9, 1992, by PCI in favor of the Trustee....(1)
4.6 Patent and Trademark Security Assignment, dated April 9, 1992, by CPC to Trustee.....(1)
</TABLE>
8
<PAGE>
<TABLE>
<C> <S> <C>
4.7 Deed of Trust and Assignment of Leases and Rents, dated April 9, 1992, by CPC
relating to real property located in Fairfield, Connecticut..........................(1)
4.8 Deed of Trust and Assignment of Leases and Rents, dated April 9, 1992,
by CPC relating to real property located in Santa Ana, California....................(1)
4.9 Mortgage and Assignment of Leases and Rents, dated April 9, 1992, by
CPC relating to real property located in Oil City, Pennsylvania......................(1)
4.10 Deed of Trust and Assignment of Leases and Rents, dated April 9, 1992, by
CPC relating to real property located in Baltimore, Maryland.........................(1)
4.11 Chattel Mortgage, dated April 7, 1992, by CCC relating to personal property
located in Puerto Rico...............................................................(1)
4.12 Pledge Agreement, dated as of April 9, 1992 by CCC relating to real property
located in Puerto Rico...............................................................(1)
4.13 Mortgage, dated April 8, 1992, by CCC relating to real property located in
Puerto Rico..........................................................................(1)
10.1 Credit Agreement dated as of April 2, 1992, between PCI and Citibank, N.A. ..........(1)
10.2 1988 Restricted Stock Option Plan, as amended........................................(2)*
10.3 1988 Director Stock Option Plan......................................................(2)*
10.4 1990 Stock Option Plan for Non-Employee Directors....................................(2)*
10.5 Shareholders' Agreement dated July 7, 1989, among Viatech, Inc., Le Fer Blac S.A.,
Citicorp Capital Investors Europe Limited and Citibank S.A. .........................(2)
10.6 Revolving Credit and Term Loan Agreement dated as of December 1, 1992................(2)
10.7 Stock Purchase Agreement dated November 2, 1991......................................(2)
10.8 Noncompetition Agreement dated November 21, 1991.....................................(2)
10.9 Stockholders' Agreement dated October 19, 1991.......................................(2)
10.10 1992 Restricted Stock Plan for Non-Employee Directors, as amended....................(2)*
10.11 Agreement Among PCI Stockholders, dated September 10, 1992...........................(2)
10.12 Employment Contract with Donald J. Bainton...........................................(2)*
13.1 Annual Report to Stockholders for 1993..........................................Attached
22.1 Subsidiaries of the Registrant.................................................... p. 17
24.1 Independent Auditors' Report on Schedules......................................... p. 18
24.2 Consent of Independent Auditors................................................... p. 19
28.1 Proxy Relating to PCI Stock, dated September 11, 1992................................(2)
</TABLE>
* Management contract or compensatory plan or arrangement.
(1) These documents have been previously filed with the Commission
as Exhibits to 1992 Quarterly Reports on Form 10-Q for Plastic
Containers, Inc.
(2) These documents have previously been filed with the Commission
as Exhibits to 1993 Quarterly Reports on Form 10-Q for
Continental Can Company, Inc.
All other items for which provision is made in the applicable
regulations of the Securities and Exchange Commission have been
omitted as they are not required under the related instructions or
they are inapplicable.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1993.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CONTINENTAL CAN COMPANY, INC.
By: /s/ Abdo Yazgi Date: March 18, 1994
------------------------------------------ --------------
Abdo Yazgi, Executive Vice President
(Principal Financial & Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Donald J. Bainton Date: March 18, 1994
------------------------------------------ --------------
Donald J. Bainton, Chairman of the Board
of Directors and Chief Executive
Officer (Principal Executive Officer)
Date:
------------------------------------------ --------------
Kenneth Bainton, Director
/s/ Robert L.. Bainton Date: March 18, 1994
------------------------------------------ --------------
Robert L. Bainton, Director
/s/ Nils E. Benson Date: March 18, 1994
------------------------------------------ --------------
Nils E. Benson, Director
/s/ Rainer N. Greeven Date: March 18, 1994
------------------------------------------ --------------
Rainer N. Greeven, Director
/s/ Ronald H. Hoenig Date: March 18, 1994
------------------------------------------ --------------
Ronald H. Hoenig, Director
/s/ Ferdinand W. Metternich Date: March 18, 1994
------------------------------------------ --------------
Ferdinand W. Metternich, Director
/s/ Charles M. Marquardt Date: March 18, 1994
------------------------------------------ --------------
Charles M. Marquardt, Director
Date:
------------------------------------------ --------------
Donald F. Othmer, Director
/s/ V. Henry O'Neill Date: March 18, 1994
------------------------------------------ --------------
V. Henry O'Neill, Director
/s/ John J. Serrell Date: March 18, 1994
------------------------------------------ --------------
John J. Serrell, Director
/s/ Robert A. Utting Date: March 18, 1994
------------------------------------------ --------------
Robert A. Utting, Director
/s/ Abdo Yazgi Date: March 18, 1994
------------------------------------------ --------------
Abdo Yazgi, Director
/s/ Cayo Zapata Date: March 18, 1994
------------------------------------------ --------------
Cayo Zapata, Director
/s/ Jose Luis Zapata Date: March 18, 1994
------------------------------------------ --------------
Jose Luis Zapata, Director
10
<PAGE>
Index to Financial Statement Schedules for
Continental Can Company, Inc. and Subsidiaries
Years ended December 31, 1993, 1992 and 1991
Subsidiaries of the Registrant Page 12
Independent Auditors' Report on Schedules Page 13
Consent of Independent Auditors Page 14
FINANCIAL STATEMENT SCHEDULES:
-----------------------------
II - Amounts Receivable from Related Parties and
Underwriters, Promoters, and Employees other
than Related Parties Page 15
III - Condensed Financial Information of Registrant Page 16
V - Property, Plant and Equipment Page 18
VI - Accumulated Depreciation and Amortization of
Property, Plant and Equipment Page 19
VIII - Allowance for Doubtful Accounts Page 19
IX - Short-Term Borrowings Page 20
X - Supplementary Income Statement Information Page 20
All other schedules are omitted because they are
not applicable, not required, or the information
is given in the financial statements or the notes
thereto.
EXHIBITS ATTACHED:
- - -----------------
1993 Annual Report to Stockholders Page 21
11
<PAGE>
(22) Subsidiaries of the Registrant
The following listed companies represent the significant subsidiaries of
the Company, all of which are included in the Company's consolidated financial
statements:
<TABLE>
<CAPTION>
Name Under Which State of Other Jurisdiction Percentage Owned
Business is Conducted of Incorporation by Company
- - --------------------------- --------------------------- ----------------
<S> <C> <C>
Ferembal S.A. France 85%
Lockwood, Kessler & New York 100%
Bartlett, Inc.
Viatech Holding GmbH Germany 100%
Dixie Union Verpackungen Germany 100%
GmbH (2)
Onena Bolsas de Papel S.A. Spain 80%
Plastic Containers, Inc. Delaware 50%*
Continental Plastic Delaware 100%
Containers, Inc. (3)
Continental Caribbean Delaware 100%
Containers, Inc. (3)
Obalex A.S. (1) Czech Republic 51%
Industrias Gomariz, S.A. Spain 99.97%
</TABLE>
(1) Subsidiary of Ferembal
(2) Subsidiary of Viatech Holding GmbH
(3) Subsidiary of Plastic Containers, Inc.
* The Company, pursuant to a proxy, has voting rights over 51% of the
shares of Plastic Containers, Inc.
12
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
-----------------------------------------
The Board of Directors and Stockholders
Continental Can Company, Inc.:
Under date of March 9, 1994, we reported on the consolidated balance sheets of
Continental Can Company, Inc. and subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of earnings, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1993, as contained in the 1993 Annual Report to Stockholders. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedules as listed in the accompanying index. These consolidated financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statement schedules based on our audits.
In our opinion, such schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
As discussed in notes 1 (h) and 13 and notes 1 (d) and 10 to the consolidated
financial statements, the Company adopted the provisions of Financial
Accounting Standards Nos. 106, "Employer's Accounting for Post-Retirement
Benefits Other Than Pensions" and 109, "Accounting for Income Taxes",
respectively, on a prospective basis in 1992.
/s/ KPMG PEAT MARWICK
Jericho, New York
March 9, 1994
13
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors
Continental Can Company, Inc.:
We consent to incorporation by reference in the Registration Statements Nos.
33-7783, 33-37163, 33-37164 and 33-37165 on Form S-8 of Viatech, Inc. (now
known as Continental Can Company, Inc.) of our reports dated March 9, 1994
relating to the consolidated balance sheets of Continental Can Company, Inc.
and subsidiaries as of December 31, 1993 and 1992, and the consolidated
statements of earnings, stockholders' equity and cash flows and related
schedules for each of the years in the three year period ended December 31,
1993, which reports are either incorporated by reference or appear in the
December 31, 1993 Annual Report on Form 10-K of Continental Can Company, Inc.
As discussed in notes 1 (h) and 13 and notes 1 (d) and 10 to the consolidated
financial statements, the Company adopted the provisions of Financial
Accounting Standards Nos. 106, "Employer's Accounting for Post-Retirement
Benefits Other Than Pensions" and 109, "Accounting for Income Taxes",
respectively, on a prospective basis in 1992.
/s/ KPMG PEAT MARWICK
Jericho, New York
March 21, 1994
14
<PAGE>
Continental Can Company, Inc. and Subsidiaries
Schedule II - Amounts Receivable from Related Parties and Underwriters,
Promoters, and Employees other than Related Parties
Years ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
Balance at
Beginning Balance at
Year of Year Additions Deductions End of Year
- - ------ --------- --------- ---------- -----------
<S> <C> <C> <C> <C>
1993 $166,060 - $131,074 $ 34,986
======== ======== ======== ========
1992 $325,000 - $158,940 $166,060
======== ======== ======== ========
1991 $225,000 $100,000 - $325,000
======== ======== ======== ========
</TABLE>
All balances shown reflect loans by the Company to
Mr. Donald J. Bainton, Chairman of the Board and
Chief Executive Officer.
15
<PAGE>
Schedule III - Condensed Financial Information of Registrant
Continental Can Company, Inc.
Balance Sheets
Years Ended December 31, 1993 and 1992
(in thousands)
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
ASSETS:
Cash $ 626 $ 103
Investments - 500
Investments in Subsidiaries at
Equity, net of due to
subsidiaries of $2,668 62,181 63,451
in 1992
Other Assets 2,370 2,461
------- -------
Total Assets $65,177 $66,515
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities (a) 3,472 1,768
Long Term Debt (a) 850 1,812
------- -------
Total Liabilities 4,322 3,580
Stockholders' Equity 60,855 62,935
------- -------
$65,177 $66,515
======= =======
</TABLE>
(a) See Note 9, Items (a) and (b) of Notes to Consolidated Financial Statements
of Continental Can Company, Inc. and Subsidiaries. At December 31, 1993,
current liabilities include $1,164 of Convertible Subordinated Debentures
due in 1994.
Continental Can Company, Inc.
Statements of Earnings
Years Ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Management Fees $ 2,157 $ 1,855 $ 1,264
Selling, General and
Administrative Expenses 3,232 3,238 2,600
------- ------- -------
(1,075) (1,383) (1,336)
Equity in Net Income of
Subsidiaries (b) 2,247 3,587 8,642
------- ------- -------
1,172 2,204 7,306
Other (205) (165) 226
------- ------- -------
967 2,039 7,532
(Provision for) Recovery of
Income Taxes 21 24 (138)
------- ------- -------
Net income $ 988 $ 2,063 $ 7,394
======= ======= =======
(b) Includes for 1992 an extraordinary charge of $1,502 relating to the
retirement of a promissory note and a benefit of $460 relating to the
cumulative effect of adopting SFAS No. 109.
</TABLE>
16
<PAGE>
Schedule III - Condensed Financial Information of Registrant (Continued)
Continental Can Company, Inc.
Statements of Cash Flows
Years Ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
(in thousands)
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 988 $ 2,063 $ 7,394
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Equity in Net Income of Subsidiaries (2,247) (3,587) (8,642)
Increase in Due to Affiliates 299 1,001 1,225
Other 288 (310) (1,242)
------- ------- --------
Net Cash Provided By (Used in) (672) (833) (1,265)
Operating Activities
Cash Flows From Investing Activities:
Purchase of Minority Interest (213) (120) (6,051)
Redemption of investment in
Government Securities 500 10 4,958
Purchase of Equity in PCI - - (30,000)
Proceeds from Sale of Capital Assets 527 778 -
Capital Expenditures (6) (152) -
------- ------- --------
Net Cash Provided By (Used in) 808 516 (31,093)
Investing Activities
Cash Flows From Financing Activities:
Common Stock Issued Upon Conversion of
Debentures and Warrants 184 2,111 157
Sale of Common Stock - - 29,453
Proceeds from Short Term Borrowings - - 2,500
Proceeds from (Repayment of)
Long-Term Financing 203 (1,907) (43)
------- ------- --------
Net Cash Provided by Financing 387 204 32,067
Activities
Net Increase (Decrease) in Cash 523 (113) (291)
Cash at Beginning of Year 103 216 507
------- ------- --------
Cash at End of Year $ 626 $ 103 $ 216
======= ======= ========
<CAPTION>
Cash paid for interest and income taxes was as follows:
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Interest $ 232 $ 232 $ 227
Income Taxes $ 22 $ 4 $ 296
</TABLE>
17
<PAGE>
Continental Can Company, Inc. and Subsidiaries
Schedule V - Property, Plant and Equipment
Years Ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
(in thousands) Total Plant, Land, Building Furniture,
Property and and Building Machinery and Fixtures and Construction
Equipment Improvements Equipment Equipment in Progress
------------- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at 1/1/91 $ 79,504 $24,809 $ 47,090 $7,218 $ 387
Additions $ 13,959 $ 901 $ 3,618 $1,315 $ 8,125
Retirements (9,845) (4,571) (4,773) (501) -
Assets of Acquired
Subsidiaries 145,456 19,076 121,030 - 5,350
Foreign Currency Trans-
lation Adjustment (423) 1,188 (1,637) (670) 696
-------- ------- -------- ------ -------
Balance at 12/31/91 $228,651 $41,403 $165,328 $7,362 $14,558
Additions $ 26,393 1,343 31,114 703 (6,767)
Retirements (1,410) (3) (937) (470) -
Foreign Currency Trans-
lation Adjustment (5,406) (1,494) (3,621) (57) (234)
-------- ------- -------- ------ -------
Balance at 12/31/92 $248,228 $41,249 $191,884 $7,538 $ 7,557
Additions $ 22,154 $ 435 $ 19,582 $ 186 $ 1,951
Retirements (5,091) - (4,232) (389) (470)
Assets of Acquired Subsidiaries 8,404 3,557 3,650 443 754
Foreign Currency
Translation Adjustment (6,428) (1,508) (4,461) (399) (60)
-------- ------- -------- ------ -------
Balance at 12/31/93 $267,267 $43,733 $206,423 $7,379 $ 9,732
======== ======= ======== ====== =======
</TABLE>
18
<PAGE>
Continental Can Company, Inc. and Subsidiaries
Schedule VI - Accumulated Depreciation and Amortization of Property, Plant and
Equipment
Years Ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
(in thousands)
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Balance at Beginning of Period $60,869 $33,710 $25,689
Additions 29,649 30,009 9,895
Retirements (3,355) (546) (2,482)
Foreign Currency Translation Adjustment (2,971) (2,304) 608
------- ------- -------
Balance at End of Period $84,192 $60,869 $33,710
======= ======= =======
</TABLE>
Continental Can Company, Inc. and Subsidiaries
Schedule VIII - Allowance for Doubtful Accounts
Years Ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
(in thousands)
Additions
Balance at charged to Balance at
beginning costs and Other Deductions end of
of period expenses additions (1) period
---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1993 $3,622 $ 915 $ 418(3) $1,433 $3,522
====== ====== ========= ====== ======
Year ended
December 31, 1992 $4,626 $ 709 $ - $1,713 $3,622
====== ====== ========= ====== ======
Year ended
December 31, 1991 $1,796 $1,576 $1,411(2) $ 157 $4,626
====== ====== ========= ====== ======
</TABLE>
(1) Represents uncollectible accounts written-off.
(2) Represents $1,411 from the consolidation of acquired subsidiary in 1991.
(3) Represents $418 from the consolidation of acquired subsidiary in 1993.
19
<PAGE>
Continental Can Company, Inc. and Subsidiaries
Schedule IX - Short-Term Borrowings
Years ended December 31, 1993, 1992 and 1991
Amounts payable to banks for short term borrowings:
<TABLE>
<CAPTION>
(in thousands, except for percentage amounts)
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Amounts borrowed at year-end $ 6,378 $ 3,986 $ 7,997
Average amount of short-term
borrowings during the year
(computed on a monthly basis) $ 8,375 $ 6,671 $12,420
Maximum amount of short-term
borrowing at any month end $19,565 $23,291 $27,555
Weighted average stated
interest rate:
During the year (computed on a monthly 9.6% 12.1% 10.9%
basis)
At year-end 10.0% 11.1% 9.6%
</TABLE>
Continental Can Company, Inc. and Subsidiaries
Schedule X - Supplementary Income Statement Information
Years ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
(in thousands)
CHARGED TO COSTS
ITEM AND EXPENSES
------- ----------------
1993 1992 1991
------- ------- ------
<S> <C> <C> <C>
Maintenance and repairs $10,635 $11,018 $3,510
======= ======= ======
Taxes, other than payroll and income taxes $ 5,682 $ 5,234 $4,063
======= ======= ======
</TABLE>
20
<PAGE>
CONTINENTAL CAN COMPANY, INC.
1993 ANNUAL REPORT
CORPORATE PROFILE
Continental Can Company, Inc., through its subsidiaries, manufactures extrusion
blow-molded plastic containers, metal cans, films and equipment for the
packaging industry, and prints and laminates flexible packaging for the food and
snack food industries. The Company also owns Lockwood, Kessler & Bartlett,
Inc., an engineering firm located in the United States.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE NUMBER
-----------
<S> <C>
Report To Shareholders 22
Description Of Business 24
Selected Financial Data 26
Management's Discussion And Analysis
Of Financial Condition 27
Consolidated Financial Statements 33
Notes To Consolidated Financial Statements 38
Independent Auditor's Report 60
General Information 61
Directors And Officers 62
Subsidiaries And Officers 63
</TABLE>
21
<PAGE>
REPORT TO STOCKHOLDERS:
- - -----------------------
Last year was a challenging one for our company. European economies failed to
emerge from their recessionary slump which had a negative impact on the sales
and profitability of our subsidiaries in Europe. Since most of our sales are
generated in Europe, the ongoing recession had a significant impact. Due to
high levels of inventory, several of Ferembal's vegetable-can customers
shuttered their packing plants for the season, thereby reducing orders for food
cans. Finally, the dollar strengthened against European currencies throughout
1993, resulting in a $19.8 million reduction in reported sales due to currency
translation rate differences.
To partially offset the declines resulting from sluggish European economies,
cost-cutting measures were implemented at each of our European subsidiaries.
These actions served to reduce somewhat the negative impact of the recession.
In addition, this cost-cutting program has placed our Company in a good position
to increase profitability when the European economic situation improves.
On the domestic side the performance of Plastic Containers, Inc., (PCI) improved
with an increase in sales and an improvement in overall results. In 1993, sales
rose by $6.3 million over 1992. This improvement was a result of the renewed
sales and marketing efforts which began in 1992 and are continuing. These
marketing efforts were coupled with a detailed examination of our manufacturing
operations which has enabled us to respond quickly to changing customer demands.
This is a crucial component in our ability to introduce new products quickly,
keep up with our increasing sales volume, and to provide "just-in-time" delivery
to our customers.
Because we believe that carefully chosen acquisitions are of vital strategic
importance to the growth of our Company, we have continued to acquire those
companies that can increase our sales and profitability. In 1993, we increased
our stake in Obalex, A.S., our Czech can manufacturer in which we had purchased
a 34% interest at the end of 1992. Obalex had sales of $10.7 million and net
income of approximately $677,000 which added $238,000 in net income to our 1993
consolidated results.
In addition to the increased position in Obalex, we acquired Industrias Gomariz
S.A. (Ingosa) for a nominal consideration in late 1993. Like Onena, Ingosa is
located in Pamplona, Spain, and is a flexible packaging manufacturer. Because
both companies share similar products and markets, we intend to merge these
companies into one operating entity in 1994. Once these companies are merged,
we anticipate a boost in sales and an enhancement of profitability. Our
agreement with the Spanish provincial government to exchange amounts due it by
Ingosa for a portion of the equity of the merged entity, and other favorable
terms of that agreement, significantly strengthens the financial
22
<PAGE>
condition of the new firm. The formation of this new entity will allow us to
expand our current markets and to weather more easily the difficult economic
conditions which continue in Spain.
In 1993, our cash flow remained strong, enabling our Company to reduce debt
while continuing to invest in machinery and equipment to expand our
manufacturing capacity, capability, and efficiency. In 1994, we look forward to
increases in our sales, profitability, and cash flow. We believe that European
economies will improve somewhat during the coming year. Foreign currency rates,
while potentially still negative, are not expected to be a major factor in our
reported results in 1994. Given the swings between the dollar and European
currencies, PCI's improving performance is an important factor both for the
Company's revenues and for its long-term growth and profitability. For 1994 and
beyond, we expect PCI to continue to build on the base it has established, to
increase its sales, and to improve its operating results.
During the ten rewarding years that I have been Chairman and CEO of Continental
Can Company, Inc. (formerly Viatech, Inc.), our Company has enjoyed tremendous
growth and success by nearly every financial measure. However, change is
inevitable and growth essential, especially in today's marketplace. We are
committed to continuing our growth internally and through acquisitions, so that
the next ten years will prove to be as successful and rewarding as the last ten
years have been.
Donald J. Bainton
Chairman & Chief Executive Officer
March 18, 1994
23
<PAGE>
DESCRIPTION OF BUSINESS
Continental Can Company, Inc. is a holding company primarily engaged in the
packaging business through a number of consolidated operating subsidiaries. The
Company's packaging business consists of its 50%-owned domestic subsidiary,
Plastic Containers, Inc. (PCI), which owns Continental Plastic Containers, Inc.
and Continental Caribbean Containers, Inc. (collectively, CPC), which is a
leading manufacturer of extrusion blow-molded containers in the United States.
Its wholly-owned German operating subsidiary is Dixie Union Verpackungen GmbH
(Dixie Union) and its majority-owned European operating subsidiaries are
Ferembal S.A. (Ferembal), Obalex A.S. (Obalex), Onena Bolsas de Papel, S.A.
(Onena) and Industrias Gomariz, S.A. (Ingosa). Ferembal is a manufacturer of
rigid packaging, primarily food cans, of which it is the second largest supplier
in France. Obalex also manufactures rigid packaging, primarily food cans, in the
Czech Republic. Dixie Union manufactures plastic films and packaging machines,
primarily for the food and pharmaceutical industries. Onena manufactures film,
and Onena and Ingosa laminate and print plastic, paper and foil packaging
materials for the food and snack food industries primarily in Spain. The Company
also owns Lockwood, Kessler & Bartlett, Inc. (LKB) which provides services
principally in the northeastern United States in the fields of survey, civil,
environmental and structural engineering, mechanical and electrical engineering,
and construction administration and inspection.
CPC - The Company's 50%-owned subsidiary, PCI, acquired CPC in November
---
1991. CPC, headquartered in Norwalk, Connecticut, develops, manufactures and
sells a wide range of extrusion blow-molded plastic containers through its
national network of fifteen manufacturing plants (including one in Puerto Rico).
CPC supplies containers for household chemicals, food and beverages, automotive
products and motor oil, industrial and agricultural chemicals and cosmetics and
toiletries. CPC produces both single and multi-layer containers, manufactured
primarily from high density polyethylene and polypropylene resins, ranging in
size from two ounces to five gallons. Some of these multi-layer containers
include a barrier layer to protect food products which are subject to spoilage
or deterioration if exposed to oxygen. Besides being fully recyclable, in many
instances, these containers can be, and are, produced using a significant amount
of post-consumer recycled plastic. Its customers include some of the largest
consumer products companies in the United States, such as Clorox Company, Coca-
Cola Foods, Colgate-Palmolive Company, Mobil Oil Corporation, Pennzoil Products
Company, Procter & Gamble Company, Quaker Oats Company and Quaker State Oil
Refining Corporation. CPC, in many cases, manufactures substantially all of a
customer's container requirements for specific product categories or for
particular container sizes. CPC has long-standing relationships with most of
its customers
24
<PAGE>
and has long-term contracts with customers representing approximately 70% of its
dollar sales volume.
FEREMBAL - The Company owns an 85% interest in Ferembal, the second
--------
largest food can manufacturer in France and the fourth largest in Europe.
Ferembal, headquartered in Paris, has five manufacturing plants located in each
of the main agricultural regions of France. The most recent plant was built in
1991 and went into full production with both two and three-piece can lines by
mid-1992.
Besides food cans for such products as vegetables, mushrooms, fruits,
prepared meals and pet foods, Ferembal also manufactures cans for industrial
products such as paint, automotive products and motor oil. Ferembal's products
include both two and three-piece cans for food, easy-open ends, stylized and
"hi-white enamel" cans, and a large number of can products for industrial end
uses, all in a number of different diameters. Ferembal's production for the
food and pet food markets accounts for approximately 80% of its sales with
remaining sales coming from cans produced for industrial products. Ferembal's
customers include many leading French and European vegetable and prepared food
processors, pet food processors, and paint and other industrial can users.
OBALEX - The Company, through Ferembal, owns 51% of the outstanding stock
------
of Obalex. Obalex, located in the Czech Republic, manufacturers both two and
three-piece cans for food which account for approximately 80% of its sales and a
number of can products for industrial end users.
DIXIE UNION - The Company, through its wholly-owned subsidiary, Viatech
-----------
Holding GmbH, owns all of the outstanding stock of Dixie Union. Dixie Union is
headquartered in Kempten, Germany and has subsidiary companies in France and the
United Kingdom, which function as a sales, distribution and customer service
network. Dixie Union manufactures three main product lines for the packaging
industry: multi-layer shrink bags, composite plastic films and packaging
machines and slicers. Dixie Union is one of a few companies in Europe which
manufacture both packaging films and packaging equipment.
Dixie Union's customers are primarily processors of meats, cheeses,
poultry and fish products, although Dixie Union also produces packaging and
machinery for suppliers of technical and medical products. Most of Dixie
Union's sales are generated in Europe; however, a number of Dixie Union's
packaging machines are sold in the United States through an exclusive
distributor, and through agents and distributors on a worldwide basis.
ONENA AND INGOSA - The Company also owns an 80% interest in Onena and a
----------------
99.97% interest in Ingosa, which are located in Pamplona, Spain. Onena
manufactures plastic film, and Onena and Ingosa laminate and print a variety of
paper, foil and plastic
25
<PAGE>
film products. Their major customers are primarily in the food and snack food
industries in Spain. During 1994, the Company intends to merge Onena and Ingosa
and locate all of the operations at Ingosa's current manufacturing facility,
which will be expanded. See Note 2(a) of the Notes to the Consolidated Financial
Statements.
SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales (2) $481,842 $511,241 $310,654 $292,033 $119,807
======== ======== ======== ======== ========
Net income (2) (3) $ 988 $ 2,063 $ 7,394 $ 5,059 $ 1,672
======== ======== ======== ======== ========
Earnings per
common share (3)
Primary $ .33 $ .67 $ 2.92 $ 2.88 $ 1.32
======== ======== ======== ======== ========
Fully Diluted $ .32 $ .64 $ 2.59 $ 2.40 $ 1.07
======== ======== ======== ======== ========
Weighted average
shares outstanding (4) 3,023 3,078 2,533 1,758 1,263
======== ======== ======== ======== ========
Total assets $385,907 $400,010 $410,543 $202,524 $172,815
======== ======== ======== ======== ========
Long-term debt and capitalized
lease obligations $153,982 $165,701 $159,567 $ 65,862 $ 74,952
======== ======== ======== ======== ========
Total stockholders'
equity (4) $ 60,855 $ 62,935 $ 61,393 $ 23,856 $ 9,823
======== ======== ======== ======== ========
EBITDA (5) $ 59,368 $ 64,521 $ 38,393 $ 33,590 $ 9,533
======== ======== ======== ======== ========
Working capital $ 66,105 $ 69,158 $ 63,004 $ 48,235 $ 43,743
======== ======== ======== ======== ========
Current ratio 1.67 1.69 1.57 1.56 1.63
======== ======== ======== ======== ========
</TABLE>
(1) In thousands, except per share amounts and current ratio.
(2) In 1993, includes sales of $10,682 and net income of $238 related to the
purchase of Obalex. In 1991, includes sales of $17,030 and a net loss of
$1,045 related to the purchase of PCI. In 1989, includes sales of $34,538
and net income of $150 related to the purchase of Ferembal.
(3) Includes income for the cumulative effect of accounting change of $460
($.15 per share primary and $.14 per share fully-diluted) and an
extraordinary charge of $1,502 ($.49 per share primary and $.44 per share
fully-diluted) in 1992. Includes income for an extraordinary item of $22
($.01 per share both primary and fully-diluted), and $127 ($.10 per share
primary and $.08 per share fully-diluted) in 1990 and 1989, respectively.
(4) The 1991 weighted average shares outstanding include 1,020 shares and 255
warrants to purchase shares sold in June 1991 for net proceeds of $29,453.
The 1990 weighted average shares outstanding include 460 shares sold in
January 1990 for net proceeds of $6,756.
(5) Earnings before interest, taxes, depreciation and amortization.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
1993 VS. 1992
Sales declined 5.8% in 1993 to $481,842,000 as compared to $511,241,000 in 1992.
The decrease resulted primarily from changes in foreign currency translation
rates which reduced reported sales by $19.8 million as compared to the prior
year. A reduction in vegetable can sales in France as a result of inventory
reductions by Ferembal's customers (approximately $10 million) and an economic
recession in Europe accounted for the remainder of the decline. Increased sales
at PCI ($6.3 million) and sales of Obalex ($10.7 million) offset a portion of
the decline. Management believes that currency translation rate differences and
economic weakness in Europe will continue to negatively impact reported sales in
1994, although less severely than in 1993.
Backlog amounted to approximately $19,868,000 at December 31, 1993 as compared
to $19,149,000 at December 31, 1992. The increase in backlog is not expected to
have a material effect on the Company's sales in 1994.
Gross profit declined 10% to $87,164,000 as compared to $96,872,000 in 1992.
Gross profit margin declined to 18.1% in 1993 from 18.9% in 1992. The decline
in gross profit related primarily to the Company's European operations for the
reasons noted above.
Selling, general and administrative expenses remained at approximately 13% as a
percentage of sales in both 1993 and 1992. As a result of these various
factors, operating income was $24,871,000 in 1993 and $29,600,000 in 1992 while
the operating income margin amounted to 5.2% in 1993 from 5.8% in 1992.
Net interest expense declined during 1993 to $22,942,000 from $26,023,000 in
1992 as a result of changes in foreign currency translation rates, lower average
outstanding debt balances and lower interest rates primarily in the Company's
European operations.
The Company's consolidated effective tax rate amounted to approximately 153% in
1993 compared to 87% in 1992. The higher effective tax rate reflects the low
level of tax benefits accrued at the Company's loss operations offset by the
provision for taxes applicable to the Company's profitable operations.
Minority interest in each of 1993 and 1992 reflects the interests of other
shareholders in PCI, Ferembal and Onena, and of Obalex in 1993.
27
<PAGE>
Net income amounted to $988,000 ($.33 per share) in 1993 as compared to
$2,063,000 ($.67 per share) in 1992. Included in net income in 1992 was the
cumulative effect of an accounting change relating to the adoption of FASB No.
109 amounting to $460,000 ($.15 per share) and an extraordinary loss related to
the write-off of a deferred financing fee of $1,502,000 ($.49 per share).
1992 VS. 1991
Sales increased 65% in 1992 to $511,241,000 as compared to $310,654,000 in
1991. This increase resulted primarily from the acquisition of CPC in November
1991 ($183,712,000 in 1992 and $17,030,000 in 1991) and from an approximately 6%
improvement in foreign currency translation rates over the prior year. Sales in
1992 were negatively impacted by a poor harvest in France for some crops because
of adverse weather conditions and general economic weakness in both the United
States and Europe. Management believes the negative impact of the poor harvest
amounted to about $2,000,000 and about $3,000,000 related to weak economies.
Gross profit increased by 40% or $27.5 million to $96.9 million in 1992.
The increase in gross profit also related to the acquisition of CPC ($28,388,000
in 1992 and $1,568,000 in 1991) and foreign currency translation rates. Gross
profit as a percentage of sales declined to 18.9% in 1992 from 22.3% in 1991.
The percentage decline relates to a generally lower gross profit margin at CPC
than at the Company's other operating subsidiaries primarily because of CPC's
substantially higher depreciation charges relating to the write-up of its assets
at acquisition. However, the Company's other operations also reported a decline
in gross profit margin to 21.6% in 1992 from 23.1% in 1991. Other factors
reducing gross profit margins were pricing pressures in the packaging machine
business at Dixie Union which is expected to continue so long as Europe remains
in a recession, and increased raw material costs at Ferembal which are not
expected to continue to increase so long as Europe remains in a recession.
Backlog declined approximately $7.9 million from December 31, 1991 to
December 31, 1992. Of this amount approximately $1.7 million related to
currency translation rates. Economic weakness, primarily in Europe, accounted
for approximately $5.8 million while economic weakness in the United States
accounted for approximately $.4 million. Approximately 80% of the decline
related to Dixie Union with most of the remainder attributable to reduced
backlog at Onena. The declining backlog could be expected to result in lower
sales at Dixie Union and Onena during the first half of 1993 compared to the
same period of 1992.
Selling, general and administrative expenses remained at approximately 13%
in each of 1992 and 1991. As a result of these factors operating income
amounted to $29,600,000 in 1992 as compared to $27,356,000 in 1991. Operating
income increased
28
<PAGE>
$2,883,000 in 1992 and declined $1,214,000 in 1991 as a result
of the acquisition. The operating income margin declined from 8.8% in 1991 to
5.8% in 1992, again primarily resulting from a lower level of the operating
income margin at PCI than at the remainder of the Company's operations.
However, the operating profit margin in the remainder of the Company's
operations also declined from 9.7% in 1991 to 9.0% in 1992.
Net interest expense rose substantially in 1992 to $26,023,000. Besides
the increase resulting from the acquisition of CPC ($10,095,000 in 1992 and
$884,000 in 1991), European interest rates were higher during 1992 than 1991.
Additionally, the Company earned substantial interest income during 1991 from
the proceeds of a stock offering. Foreign currency exchange losses were also
higher in 1992 than 1991 primarily as a result of the devaluation of the pound.
The Company's consolidated effective tax rate in 1992 amounted to 87% as
compared to 42% in 1991. The higher effective tax rate in 1992 reflects the
effect of offsetting relatively low levels of tax benefits to pre-tax losses
recognized by CPC against the provision for taxes applicable primarily to
Ferembal's pre-tax income.
Minority interest in each of 1992 and 1991 reflects the interest of other
shareholders in PCI, Ferembal, and Onena, and of Dixie Union in 1991. The
change in minority interests results principally because the minority
shareholder of PCI absorbed 50% of PCI's losses, which were greater in 1992 than
in 1991.
Income before cumulative effect of accounting change and extraordinary item
amounted to $3,105,000 ($1.01 per share) in 1992 as compared to $7,394,000
($2.92 per share) in 1991. Cumulative effect of accounting change related to
the adoption of FASB No. 109 on January 1, 1992 and amounted to $460,000 ($.15
per share) in 1992. The extraordinary loss related to the write-off of a
deferred financing fee from the acquisition of CPC and amounted to $1,502,000
($.49 per share) in 1992. As a result, net income amounted to $2,063,000 ($.67
per share) in 1992 and $7,394,000 ($2.92 per share) in 1991.
FINANCIAL CONDITION
Capital Requirements
The packaging business utilizes relatively large amounts of specialized
machinery and equipment which are periodically upgraded or replaced.
Capital expenditures in 1993 amounted to $22,154,000 primarily for the
purchase of machinery and equipment. During 1993, major capital expenditures
included the purchase of extrusion blow-molding lines and line changes for
barrier containers for food products and an easy-open end line for cans.
29
<PAGE>
Expenditures in 1994 are expected to amount to approximately $25,500,000 and be
similar in character to those in 1993. Approximately $1 million is expected to
be spent on a building addition at Ingosa during 1994.
During 1993, Ferembal increased its ownership interest in Obalex to 51%
through the issuance by Obalex of an additional 17% of its shares for a capital
contribution by Ferembal of approximately $3,000,000. See Note 2(b).
During 1993 the Company purchased substantially all of the shares of Ingosa
for nominal consideration. The Company intends to merge the operations of Onena
and Ingosa during 1994 and has entered into an agreement with the Spanish
provincial government to capitalize certain amounts due it by Ingosa for 41% of
the equity of the merged entity. The merger is expected to be completed by June
30, 1994 and to be legally effective as of January 1, 1994. See Note 2(a).
The Company has actively pursued acquisition possibilities in 1993 and
intends to continue to do so in 1994 and later years. It is presently the
Company's intention to finance any acquisitions by leveraging the assets of the
company to be acquired or, possibly, through the issuance of stock. There are no
plans presently to utilize any substantial portion of the existing capital
resources of the Company in an acquisition.
The Company met its 1993 capital requirements with cash generated from
operations, from existing funds, and through borrowings. It is anticipated that
most expenditures in 1994 will be financed in a similar manner.
LIQUIDITY
The Company's liquidity position at December 31, 1993 remained essentially
unchanged from the prior year end. Working capital decreased to $66.1 million
at December 31, 1993 from $69.2 million at December 31, 1992. The current ratio
was 1.67 at December 31, 1993 and 1.69 at December 31, 1992.
The Company's cash position decreased by approximately $1.5 million between
December 31, 1993 and 1992. Cash flows from operating activities provided $28.9
million for the Company in 1993 most of which related to depreciation and
amortization. Of the cash provided by operating activities, the Company
invested a substantial portion of such funds in capital expenditures amounting
to $22.2 million. Additionally, the Company used a net amount of $9.0 million
in financing activities primarily for the repayment of short and long-term
borrowings.
At December 31, 1993, the Company had available a credit line of $3,150,000
under a Revolving Credit Facility. The Company's packaging subsidiaries had
available various credit facilities of $42.7 million at December 31, 1993.
However, the
30
<PAGE>
Company's ability to draw upon these lines for other than certain
subsidiary purposes is restricted.
The Company expects that cash from operations and its existing banking
facilities will be sufficient to meet its needs in 1994 and on a long-term
basis.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company and its subsidiaries account for income taxes in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (FAS No. 109) issued in February 1992. This statement requires, among
other things, recognition of future tax benefits, measured by enacted tax rates,
attributable to deductible temporary differences between financial statement and
income tax bases of assets and liabilities and to tax net operating loss
carryforwards, to the extent that realization of such benefits is more likely
than not.
As discussed in Note 10, PCI has tax net operating loss carryforwards (NOL's)
totaling approximately $45,000,000 which expire between 2006 and 2008. FAS No.
109 requires that the tax benefit of such NOL's be recorded as an asset to the
extent that management assesses the utilization of such NOL's to be "more likely
than not". Management has determined, based on the Continental Plastic
Container Company's history of prior operating earnings and its expectations for
the future, that operating income of PCI will more likely than not be sufficient
to utilize at least $28,500,000 of the $45,000,000 of NOL's prior to their
ultimate expiration in the year 2008.
The NOL's available for future utilization were generated principally by an
operating loss in the short period following the November 1991 purchase and
additional interest expense on debt incurred in connection with the purchase.
Additionally, in the year ended December 31, 1992, an extraordinary loss was
incurred due to the write-off of deferred financing costs relating to a short-
term note which was refinanced. The operations of the Continental Plastic
Container Companies have historically been profitable (excluding non-recurring
items). In assessing the likelihood of utilization of existing NOL's,
management considered the historical results of the Continental Plastic
Container Companies' operations both prior to the purchase and as subsidiaries
of PCI subsequent to the purchase, and the current operating environment.
In 1992, PCI adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Post-retirement Benefits Other than Pensions". There
was no cumulative effect of the change in accounting for post-retirement
benefits, as the accumulated post-retirement benefit obligation (APBO) existing
at January 1, 1992 equaled the amount recorded in the prior year as part of the
purchase accounting adjustments. PCI continues to
31
<PAGE>
fund benefit costs on a pay-as-you-go basis. See Note 13 for more information.
NEW ACCOUNTING STANDARD NOT ADOPTED
PCI provides certain post-employment benefits to former and inactive
employees, their beneficiaries and covered dependents. These benefits include
disability related benefits, continuation of health care benefits and life
insurance coverage. In November 1992, the Financial Accounting Standards Board
issued SFAS No. 112, "Employers' Accounting for Post-Employment Benefits", which
requires employers to recognize the obligation to provide post-employment
benefits and an allocation of the cost of those benefits to the periods the
employees render service. Implementation of SFAS No. 112 will be required of
PCI in 1994. The effect of the implementation of this Statement has not been
determined. However, management believes the impact will not be significant to
the consolidated financial statements.
INFLATION AND CHANGING PRICES
Costs and revenues are subject to inflation and changing prices in the
packaging business. Since all competitors are similarly affected, product
selling prices generally reflect cost increases resulting from inflation.
Inflation has not been a material factor in the Company's revenues and earnings
in the past three-years.
32
<PAGE>
CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
(In thousands)
1993 1992
-------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,741 $ 14,275
Investments 317 851
Accounts receivable:
Trade accounts 71,899 71,389
Other 8,357 9,195
Less allowance for doubtful accounts (3,522) (3,622)
-------- --------
Accounts receivable, net 76,734 76,962
-------- --------
Inventories 69,503 72,252
Prepaid expenses and other
current assets 4,911 4,765
-------- --------
Total current assets 164,206 169,105
-------- --------
Property, plant and equipment, at cost:
Land, building and building
improvements 43,733 41,249
Manufacturing machinery and
equipment 206,423 191,884
Furniture, fixtures and equipment 7,379 7,538
Construction in progress 9,732 7,557
-------- --------
267,267 248,228
Less accumulated depreciation and
amortization (84,192) (60,869)
-------- --------
Net property plant and equiptment 183,075 187,359
-------- --------
Goodwill, net of accumulated
amortization 13,369 14,425
Other assets 25,257 29,121
-------- --------
Total assets $385,907 $400,010
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
(In thousands)
1993 1992
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short term borrowings $ 6,378 $ 3,986
Accounts payable - trade 40,828 42,921
Accrued liabilities:
Employee compensation and benefits 16,075 17,274
Other accrued expenses 15,887 18,054
Current installments of long
term debt and obligations under capital
leases 13,487 9,201
Income taxes payable 635 482
Other current liabilities 4,811 8,029
-------- --------
Total current liabilities 98,101 99,947
Long term debt, excluding current installments 140,481 149,742
Obligations under capital leases,
excluding current installments 13,501 15,959
Deferred income taxes 2,717 2,973
Other 38,137 39,340
-------- --------
Total liabilities 292,937 307,961
Minority interest 32,115 29,114
Stockholders' equity:
Capital stock:
First preferred stock, cumulative $25 par value.
Authorized 250,000 shares; no shares issued. - -
Second preferred stock, 4% non-cumulative,
$100 par value. Authorized 1,535 shares;
no shares issued. - -
Common stock, $.25 par value. Authorized
20,000,000 shares; Outstanding 2,879,158
shares in 1993 and 2,858,026 shares in 1992. 720 715
-------- --------
720 715
Additional paid-in capital 41,414 41,235
Retained earnings 21,742 20,754
Cumulative foreign currency translation
adjustment (3,021) 231
-------- --------
Total stockholders' equity 60,855 62,935
-------- --------
Total liabilities and
stockholders' equity $385,907 $400,010
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
(In thousands, except per share data)
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Sales $481,842 $511,241 $310,654
Cost of sales 394,678 414,369 241,301
-------- -------- --------
Gross profit 87,164 96,872 69,353
Selling, general and administrative
expenses 62,293 67,272 41,997
-------- -------- --------
Operating income 24,871 29,600 27,356
-------- -------- --------
Other income (expense):
Interest expense, net (22,942) (26,023) (12,569)
Foreign currency exchange loss (134) (562) (123)
Other - net (55) 559 190
-------- -------- --------
Net other expense (23,131) (26,026) (12,502)
-------- -------- --------
Income before provision for income
taxes, minority interest, extraordinary
item and cumulative effect of
accounting change 1,740 3,574 14,854
Provision for income taxes 2,655 3,117 6,204
-------- -------- --------
Income (loss) before minority interest,
extraordinary item and cumulative effect
of accounting change (915) 457 8,650
Minority interest (1,903) (2,648) 1,256
-------- -------- --------
Income before extraordinary item and
cumulative effect of accounting
change 988 3,105 7,394
Extraordinary item, net - (1,502) -
Cumulative effect of accounting
change, net - 460 -
-------- -------- --------
Net income $ 988 $ 2,063 $ 7,394
======== ======== ========
Earnings (loss) per common share -
Primary:
Before extraordinary item and
cumulative effect of accounting
change $ 0.33 $ 1.01 $ 2.92
Extraordinary item - (0.49) -
Cumulative effect of accounting
change, net - 0.15 -
-------- -------- --------
Net earnings per common share -
primary $ 0.33 $ 0.67 $ 2.92
======== ======== ========
Earnings (loss) per common share -
assuming full dilution:
Before extraordinary item and
cumulative effect of accounting
change $ 0.32 $ 0.94 $ 2.59
Extraordinary item - (0.44) -
Cumulative effect of accounting
change, net - 0.14 -
-------- -------- --------
Net earnings per common share -
assuming full dilution $ 0.32 $ 0.64 $ 2.59
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE>
CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
(In thousands)
Cumulative
Foreign
Additional Currency Total
Number Common Paid-in Retained Translation Stockholders'
of Shares Stock Capital Earnings Adjustment Equity
--------- ------ ---------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1991 1,748 $437 $ 9,792 $11,297 $ 2,330 $23,856
Net income - - - 7,394 - 7,394
Sale of common stock 1,020 255 29,198 - - 29,453
Common stock issued to employees
and upon conversion of debentures 16 4 153 - - 157
Foreign currency translation
adjustment - - - - 533 533
--------- ------ ---------- -------- ------------ -------------
Balances, December 31, 1991 2,784 $696 $39,143 $18,691 $ 2,863 $61,393
Net income - - - 2,063 - 2,063
Common stock issued to employees
and upon conversion of debentures
and warrants 74 19 2,092 - - 2,111
Foreign currency translation
adjustment - - - - (2,632) (2,632)
--------- ------ ---------- -------- ------------ -------------
Balances, December 31, 1992 2,858 $715 $41,235 $20,754 $ 231 $62,935
Net income - - - 988 - 988
Common stock issued to employees
and upon conversion of debentures
and warrants 21 5 179 - - 184
Foreign currency translation
adjustment - - - - (3,252) (3,252)
--------- ------ ---------- -------- ------------ -------------
Balances, December 31, 1993 2,879 $720 $41,414 $21,742 $(3,021) $60,855
========= ====== ========== ======== ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE>
CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
(In thousands)
1993 1992 1991
------- -------- -------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 988 $ 2,063 $ 7,394
Adjustments To Reconcile Net Income To
Net Cash Provided by Operating Activities:
Depreciation and amortization 34,686 34,924 10,970
Extraordinary loss on write off of - 1,502 -
capitalized finance costs, net
Minority interest (1,903) (2,648) 1,256
Deferred income taxes (1,554) (2,285) 53
(Gain) loss on sale of capital assets 363 (534) (276)
Provision for losses on accounts receivable 915 210 1,332
Foreign currency exchange (gain) loss (17) 13 21
Changes In Assets and Liabilities, Net of
Effects of Acquisition:
(Increase) decrease in accounts
receivables (1,691) 7,815 (3,254)
Decrease in other receivables 3,941 198 121
(Increase) decrease in inventories 3,993 (8,260) (452)
(Increase) decrease in prepaid expenses
and other current assets 146 (1,632) (716)
(Increase) in intangible assets (16) - (4,210)
(Increase) decrease in other assets (481) (465) 183
Increase (decrease) in accounts payable (4,963) 441 (156)
Increase in accrued liabilities 465 1,642 1,356
Increase (decrease) in income taxes
payable 329 (1,403) (824)
Increase (decrease) in other liabilities (6,303) (1,247) 1,556
------- ------- -------
Net Cash Provided by Operating
Activities 28,898 30,334 14,354
Cash Flows From Investing Activities:
Purchase of minority interests (213) (120) (11,855)
Investment in government securities and
bonds 5 - (1,710)
Proceeds from investments 534 1,349 7,558
Proceeds from sale of capital assets 770 1,434 1,033
Capital expenditures, net of investment
grants (22,154) (26,393) (13,959)
Purchase of equipment for customer
reimbursement - (999) (500)
Cash used to purchase PCI, net of cash
acquired - - (49,130)
Cash used to purchase Obalex, net of cash
acquired - (1,086) -
------- ------- -------
Net Cash Used in Investing
Activities (21,058) (25,815) (68,563)
Cash Flows From Financing Activities:
Minority investment in subsidiary - - 1,245
Principal payments of long term debt
and obligations under capital leases (9,379) (135,397) (23,399)
Proceeds from long-term debt and
obligations under capital leases 827 135,378 11,959
Common stock issued upon conversion
of debentures and warrants 184 2,111 157
Proceeds from sale of common stock - - 29,453
Proceeds from (repayments of) short
term borrowings (339) (3,613) 5,721
Dividends paid by subsidiary to
minority interest (344) (80) -
Capital contribution to PCI by
minority interest - - 30,000
------- ------- -------
Net Cash Provided by (Used in)
Financing Activities (9,051) (1,601) 55,136
Effect of exchange rate changes on cash (323) (169) (967)
------- ------- -------
Net Increase (decrease) in cash and cash
equivalents (1,534) 2,749 (40)
Cash and cash equivalents at beginning
of year 14,275 11,526 11,566
------- ------- -------
Cash and cash equivalents at end of year $12,741 $14,275 $11,526
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE>
CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(1) Accounting Policies and Other Matters
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Continental Can Company, Inc. (the Company), its majority-owned foreign and
domestic subsidiaries and, subsequent to acquisition on November 21, 1991, its
50% interest in Plastic Containers, Inc. (PCI). During 1992, the Company entered
into an agreement which gave the Company a proxy to vote an additional 1% of the
shares of PCI (see Note 2(c)). The proxy provides the Company with effective
control over PCI and, accordingly, the Company's interest in PCI is reflected on
a consolidated basis.
At December 31, 1993, the Company owned the following packaging related
businesses: 85% of Ferembal S.A. (Ferembal), located in France which in turn
owns 51% of Obalex A.S. (Obalex) located in the Czech Republic; 100% of Viatech
Holding GmbH (Holding), which in turn owns all of the outstanding shares of
Dixie Union Verpackungen GmbH (Dixie Union), located in the Federal Republic of
Germany; and 80% of Onena Bolsas de Papel, S.A. (Onena), and 99.97% of
Industrias Gomariz, S.A. (Ingosa), both located in Spain. As mentioned above,
the Company also owns 50% of PCI, which in turn owns 100% of Continental Plastic
Containers, Inc. and Continental Caribbean Containers, Inc. (collectively, CPC).
In addition, the Company owns 100% of an engineering firm, Lockwood, Kessler &
Bartlett, Inc.
At December 31, 1992 the Company's then 34% interest in Obalex was reflected on
the equity method of accounting. In 1993, the Company increased its interest in
Obalex to 51% and accordingly the Company's interest is now reflected on a
consolidated basis.
Minority interests reflected in consolidation represent the portions of
Ferembal, Holding, Onena, Ingosa and PCI not owned by the Company. See Note 2.
All significant intercompany balances and transactions have been eliminated.
(b) Inventories
Inventories consist principally of packaging materials, repair parts and
supplies. The manufacturing inventories of PCI are stated at the lower of cost
applied on the last-in, first-out (LIFO) method, which is not in excess of
market. Inventories of the Company's other subsidiaries and the repair parts and
supplies inventories of PCI are stated at the lower of cost on a first-in,
first-out (FIFO) basis or market.
(c) Depreciation and Amortization
38
<PAGE>
Depreciation and amortization of property, plant and equipment are computed on a
straight-line basis over the estimated useful lives of the assets, as follows:
<TABLE>
<CAPTION>
Estimated
useful lives
(years)
<S> <C>
Building and building improvements 10 to 35
Manufacturing machinery and equipment 5 to 20
Furniture, fixtures and equipment 5 to 10
</TABLE>
Leasehold improvements are amortized over their estimated useful lives or
the term of the lease, whichever is less.
Provision for amortization of intangible assets is based upon the estimated
useful lives of the related assets and is computed using the straight-line
method. Intangible assets resulting from the acquisitions of (a) PCI consist of
(i) a non-compete agreement and acquisition and financing costs (amortized over
five-years), and (ii) customer contracts (amortized over ten years); and (b)
Ferembal consist of patents (amortized on a straight-line basis over their
estimated useful lives) and goodwill (amortized on a straight line basis over
forty years).
(d) Income Taxes
The Company files a consolidated tax return for U.S. purposes for itself
and its domestic subsidiaries (to the extent it owns at least 80% of such
subsidiaries). Separate returns are filed for all other subsidiaries. U.S.
deferred income taxes have not been provided on the unremitted earnings of the
Company's foreign subsidiaries to the extent that such earnings have been
invested in the business, as any taxes on dividends would be substantially
offset by foreign and other tax credits.
Effective January 1, 1992, the Company implemented the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes" (see Note 10). The cumulative effect of adopting SFAS No. 109 is
reflected in the consolidated statement of earnings. SFAS No. 109 utilizes the
liability method and deferred taxes are determined based on the estimated future
tax effects of differences between the financial statement and tax bases of
assets and liabilities given the provisions of enacted tax laws. Prior to the
implementation of SFAS No. 109, the Company accounted for income taxes using
Accounting Principles Board Opinion No. 11.
(e) Foreign Currency Translation
The accounts of Ferembal and its subsidiary, Obalex, Holding and its
subsidiary, Dixie Union, Onena and Ingosa have been converted to U.S. dollars
utilizing SFAS No. 52, "Foreign Currency Translation", under which assets and
liabilities are translated at the exchange rate in effect at the balance sheet
date, while revenues, costs and expenses are translated at the average exchange
rate for the reporting period. Resulting unrealized net gains or losses are
recorded as a separate
39
<PAGE>
component of stockholders' equity. Realized foreign exchange gains or losses
are reflected in operations.
(f) Statement of Cash Flows
The Company considers securities purchased within three months of their maturity
date to be cash equivalents. Cash equivalents consist of short-term investments
in government securities and bonds.
Cash paid for interest and income taxes was as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Interest $23,386 $25,535 $13,734
Income taxes 4,667 6,666 6,561
</TABLE>
As partial consideration for the purchase of CPC, PCI gave a secured promissory
note for $100,000,000 effective November 22, 1991. See Note 2(c).
(g) Research and Development
Research and development costs are charged to expense as incurred. Such costs
amounted to approximately $12,862,000, $14,603,000, and $4,194,000 in 1993,
1992, and 1991, respectively.
(h) Accounting for Post-retirement Benefits Other Than Pensions
In 1992, the Company adopted SFAS No. 106, "Employer's Accounting for Post-
retirement Benefits Other Than Pensions", which requires a calculation of the
actuarial present value of expected benefits to be paid to or for employees
after their retirement and an allocation of the cost of those benefits to the
periods the employees render service (see Note 13).
(i) Insurance
Prior to November 21, 1991, CPC was self-insured for the purposes of providing
workers' compensation, general liability and property and casualty insurance
coverages up to varying deductible amounts. CPC's former owner's risk management
consulting services determined CPC's required reserves for asserted and
unasserted claims based on actuarially determined loss experience. Subsequent to
November 21, 1991, PCI purchased commercial insurance policies, but remained
self-insured for coverages up to varying deductible amounts. PCI's self-
insurance reserves are included in other liabilities in the consolidated balance
sheets. Costs charged to operations for self-insurance for the years ended
December 31, 1993 and 1992 were $2,268,000 and $2,078,000, respectively, and for
the period from November 22, 1991 through December 31, 1991 were $222,000.
(j) Plant Rationalization and Realignment
PCI records an estimate of the liabilities associated with the closing of
specific manufacturing facilities. Costs (income) charged to operations for
these programs were $(135,000), and $159,000 for the
40
<PAGE>
years ended December 31, 1993 and 1992 respectively, and $32,000 for the period
from November 22, 1991 through December 31, 1991. Net income was recognized in
1993 due to a sublease of the related facilities. Included in other current
liabilities at December 31, 1993 is $472,000 ($1,734,000 at December 31, 1992)
related to accruals for plant rationalization and realignment.
(k) Earnings Per Share
Earnings per common share is based on the weighted average number of common
and common equivalent shares outstanding. Common equivalent shares include
dilutive stock options (using the treasury stock method) exercisable under the
Company's option plans and warrants. Weighted average shares outstanding in
1993, 1992, and 1991 were 3,023,062, 3,078,387, and 2,532,967, respectively.
Earnings per common share, assuming full dilution, gives effect to the
conversion of the Company's outstanding 10-3/4% Convertible Subordinated
Debentures as if such Debentures had been converted, after elimination of
related interest expense, net of income tax benefit.
(l) Reclassifications
Certain reclassifications have been made to conform prior year financial
statements to the 1993 presentation.
(2) Acquisitions
(a) Ingosa
On November 30, 1993, the Company purchased substantially all of the shares
of Ingosa for nominal consideration. Ingosa, located in Pamplona, Spain, is a
flexible packaging manufacturer which laminates and prints plastic, paper and
foil materials primarily for the food industry in Spain. The acquisition is
being accounted for under the purchase method. In connection with this
transaction the excess of the fair value of the net assets acquired over the
purchase price was allocated to property, plant and equipment. Such allocation
has been based on preliminary estimates which may be revised at a later date.
In addition, the Company entered into an agreement with the provincial
government through SODENA, an economic development corporation owned by the
government. The agreement, which was subsequently legislatively ratified in
1994, contemplates that Onena will be merged into Ingosa. SODENA will receive
41% of the equity in the combined entity in exchange for the elimination of
$3,736,000 (534 million pesetas) in overdue local taxes owed by Ingosa. In
addition, SODENA will provide the merged entity with a $2,100,000 (300 million
pesetas) interest free loan for a period of up to 4 years secured by Onena's
existing land and building and provide certain other incentives to the merged
entity. The Company has agreed to invest $700,000 (100 million pesetas) in the
merged entity as additional equity. The various transactions contemplated
pursuant to this agreement are expected to be completed during the second
quarter of 1994 and to be legally effective as of January 1, 1994.
41
<PAGE>
(b) Obalex
On November 27, 1992, Ferembal acquired 34% of the stock of Obalex A.S., a
producer of food cans in the Czech Republic, for approximately $3,021,000 and
simultaneously entered into two agreements to provide Obalex with training, a
technology license, and certain equipment, which approximates Ferembal's
estimated cost of providing such training, technology and equipment. Ferembal
paid approximately $1,086,000, with a balance of $1,935,000, paid in December
1993.
In 1993, Ferembal, pursuant to a pre-emptive right, subscribed to a share
issue which gave Ferembal an additional 17% interest in the common stock of
Obalex for approximately $3,000,000.
These transactions have been accounted for under the purchase method with
the purchase price allocated to the fair value of the net assets acquired.
(c) PCI
During 1991, the Company and Merrywood, Inc. (Merrywood) each invested
$30,000,000 for respective 50% interests in PCI. On November 21, 1991, PCI
purchased all of the outstanding stock of CPC, manufacturer of a wide range of
blow-molded plastic containers for the food, automotive, personal care and
household, industrial and agricultural chemical markets. The purchase price of
approximately $153,450,000 included $135,450,000 as the purchase price for the
stock acquired, $15,000,000 as consideration for a non-competition agreement,
and $3,000,000 as fees for providing financing. Of the total consideration,
$53,450,000 was paid in cash and $100,000,000 was represented by a secured
promissory note of PCI, guaranteed by CPC. PCI's results are reflected in the
Company's consolidated financial statements after consideration of purchase
accounting adjustments recorded by PCI.
In 1992, PCI issued $110,000,000 in senior secured notes, the proceeds of
which were used to retire the secured promissory note of PCI (see Note 9(c)).
In connection with the retirement of the promissory note, PCI incurred an
extraordinary loss of $3,005,000 on the write-off of capitalized financing
costs. The Company has reflected this item in its consolidated statement of
earnings, net of the portion attributable to the minority interest in PCI.
In addition to the foregoing amounts to purchase CPC, PCI had agreed to pay
the seller an amount equal to 30% of the amount by which CPC's sales (adjusted
to reflect resin prices in effect on August 31, 1991) for 1992 and 1993 exceeded
$218,000,000 and $224,000,000, respectively. No additional payments were
required.
During 1992, the Company entered into an agreement with Merrywood pursuant
to which Merrywood granted the Company a proxy, irrevocable until August 6,
1998, to vote an additional 1% of the PCI common stock. The agreement also
provides (i) that Merrywood has the right to require the Company to purchase its
50% interest in PCI for $30,000,000, plus interest at 1% over the prime rate
from November 21, 1991, and (ii) that after July 1, 1994, Merrywood has the
right to exchange its 50% interest in PCI for 887,500 shares
of the Company's
42
<PAGE>
common stock (adjusted for any future stock split, stock combination or
reclassification) representing approximately 31% of the total number of shares
currently outstanding. In addition, pursuant to the agreement, the Company gave
Merrywood three voting and one non-voting position on the Company's board of
directors. If Merrywood has not elected to require the Company to purchase its
interests in PCI for cash by August 7, 1998, then Merrywood's PCI shares are
required to be exchanged for shares of the Company's Common Stock.
(d) Minority Interest in Dixie Union
In July 1991, the Company purchased the 49% minority interest in the equity of
Viatech Holding GmbH owned by the Dow Chemical Company (Dow) for $5,804,000 in a
transaction accounted for under the purchase method. In connection with this
transaction, the excess of the fair value of the net assets acquired over the
purchase price was allocated to property, plant and equipment. In addition, the
Company entered into a new technology transfer agreement with Dow with regard to
certain extrusion and polymer technology. The effective period is five-years,
commencing 1991, and the annual royalty paid is $280,000.
(e) Ferembal
During the two-year period ended December 31, 1993, the Company purchased
approximately 1% of the outstanding shares of Ferembal for $333,000. In August
1991, the Company purchased approximately 16% of the outstanding shares of
Ferembal from Citicorp Capital Investors Europe Limited and certain of its
affiliates for an aggregate consideration of $6,051,000. As a result of these
transactions, the Company's equity interest in Ferembal increased from 68% (as
acquired during 1989) to 85%. These transactions have been accounted for under
the purchase method, with the excess of cost over the fair value of the net
assets acquired (approximately $3.6 million) being amortized on a straight-line
basis over forty years. As part of the 1989 purchase of Ferembal, goodwill of
approximately $10.0 million (amortized over 40 years) was recorded and a junior
subordinated convertible bond was issued which, if converted at December 31,
1993, would reduce the Company's percentage ownership of Ferembal to 64%. (See
Note 9(d)).
The accumulated amortization of goodwill relating to Ferembal amounted to
$1,442,000 and $1,083,000 at December 31, 1993 and 1992, respectively.
During the year ended December 31, 1991, Ferembal created Ferembal
Investissement S.A. (Investissement) for the purpose of holding a subsidiary,
Ferembal Sud Ouest S.A. (Sud Ouest). Investissement was capitalized with 150,000
shares of 100 francs par value. Ferembal holds 80,000 shares and two banks,
Credit du Nord and Societe Generale, hold the remaining 70,000 shares. Ferembal
has entered into an agreement with the banks whereby it has guaranteed to
purchase the shares between the dates of May 1, 1995 and December 31, 1996.
(3) Investments
43
<PAGE>
At December 31, 1993 and 1992, short-term investments consisted principally of
U.S. treasury bills and government agency securities. All investments are
recorded at cost, which approximates market.
(4) Accounts Receivable and Business/Credit Concentrations
Most of the Company's customers are located in the United States and Europe.
Sales to two customers in 1993, two customers in 1992 and three customers in
1991 accounted for 15%, 15% and 24% of the Company's sales, respectively;
accounts receivable from two customers at December 31, 1993 and from three
customers at December 31, 1992 amounted to 19%, and 24%, respectively, of the
Company's total stockholders' equity.
Included in other accounts receivable at December 31, 1993 are $3,024,000 due
from a customer for equipment purchases, engineering fees billed of $2,250,000
($3,297,000 at December 31, 1992), recoverable value added taxes of $686,000
($2,993,000 at December 31, 1992) related to Ferembal, and a loan aggregating
$34,986 ($166,060 at December 31, 1992) to the Company's Chairman. The loan
bears interest at prime + 1% and matures no later than December 31, 1994.
(5) Inventories
Inventories consist principally of packaging materials. The components of
inventory at December 31 were as follows:
<TABLE>
<CAPTION>
1993 1992
------- -------
(in thousands)
<S> <C> <C>
Raw materials and supplies $31,774 $33,168
Work in process 5,834 7,025
Finished goods 31,720 31,947
------- -------
69,328 72,140
LIFO reserve 175 112
------- -------
$69,503 $72,252
======= =======
</TABLE>
(6) Prepaid Expenses and Other Current Assets
The components of prepaid expenses and other current assets at December 31, were
as follows:
<TABLE>
<CAPTION>
1993 1992
------ ------
(in thousands)
<S> <C> <C>
Prepaid expenses $2,367 $2,948
Other 2,544 1,817
------ ------
$4,911 $4,765
====== ======
</TABLE>
Ferembal entered into an agreement with a local municipality in France for the
sale, at cost, of land and buildings under construction at December 31, 1991.
Ferembal then agreed to lease the land and buildings from the municipality under
a 20-year operating lease. Ferembal may terminate the lease at any time in the
first six-years, without penalty, and upon agreement thereafter. Rental payments
to the municipality will be determined on the cost of the land and
44
<PAGE>
buildings, less any government subsidies received, plus interest, and will be
payable over the 20-year term. At December 31, 1992, the construction of the
buildings was complete and the cost of such land and buildings were considered
to be assets held for sale and were presented as other current assets in the
amount of $1,560,000. The sale of the land and buildings occurred on January 11,
1993 at cost. Payment is due in the second quarter of 1994.
(7) Other Assets
The components of other assets at December 31 were as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
(in thousands)
<S> <C> <C>
Intangibles:
Non-compete agreements $15,000 $15,000
Financing and acquisition costs 6,469 6,659
Customer contracts 7,630 7,630
Patents 679 726
Technical licenses 784 -
Deferred tax assets 2,482 988
Non-current receivables,
principally VAT 1,832 191
Investment in Obalex - 3,021
Other 599 484
------- -------
35,475 34,699
Less accumulated amortization of
intangibles 10,218 5,578
------- -------
$25,257 $29,121
======= =======
</TABLE>
(8) Short-term Borrowings
At December 31, 1993 and 1992, approximately $6,378,000 and $3,986,000,
respectively, were outstanding representing amounts drawn to cover bank
overdrafts. Interest is to be paid at rates ranging from 7.14% to 14%.
At December 31, 1993, Ferembal had short-term unsecured borrowing agreements of
approximately $21,000,000, substantially all of which were unused. At December
31, 1993, Holding had total lines of credit available under short-term unsecured
borrowing agreements of approximately $9,100,000.
(9) Long-Term Debt, Capital Leases and Other Long-Term Liabilities
Long-term debt and capital leases at December 31, 1993 and 1992 are summarized
as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
(In thousands)
<S> <C> <C>
10.75% Convertible Subordinated
Debentures due 1994 (a).......................... $1,164 $1,212
Revolving Credit Facility
due in 1994, with interest at 1% above the prime
rate (6% at December 31, 1993) (b).............. 850 600
</TABLE>
45
<PAGE>
<TABLE>
<S> <C> <C>
10.75% Senior Secured Notes due 2001 (c).................. 110,000 110,000
Term loan payable between 1993 and 1997 at 10.25%
(denominated in francs: 14 million at December 31, 1993
and 18 million at December 31, 1992)...................... 2,369 3,258
Notes payable due in installments through 1997 at the
Paris Inter Bank Offering Rate (PIBOR) (6.53% at December
31, 1993) plus .6% to .75% (denominated in francs: 65
million at December 31, 1993, 85 million at December 31,
1992)..................................................... 10,998 15,385
Term loans payable between 1993 and 2001 at weighted
average interest rates of 10% and a range of: 8% to
15.5%; denominated in francs: 27 million at December 31,
1993 and 34 million at December 31, 1992.................. 4,535 6,094
Convertible Subordinated Bond due 2000 at PIBOR
(denominated in francs: 10 million at December 31, 1993
and 1992) (d)............................................. 1,692 1,810
Term loans payable between 1993 and 2001 at rates of 11.6%
to 15.1% (denominated in Czech crowns: 41 million at
December 31, 1993)........................................ 1,007 --
Obligations under capital leases (e)...................... 15,863 18,566
Notes payable in 1995 and 1996 at 8.9% to 9.85%
(denominated in deutsch marks: 10 million at December
31, 1993 and 1992)........................................ 5,759 6,176
8.85% note payable in thirteen semi-annual installments
beginning in June 1994 (denominated in deutsch marks:
7,630,000 at December 31, 1993, 9,265,000 at December 31,
1992)..................................................... 4,394 5,725
Obligations pursuant to extension agreement with regard to
turnover tax (f).......................................... 4,558 1,024
Obligations relating to settlement of social security
assessments (g)........................................... 3,312 3,353
Bank borrowings at an average effective interest rate of
10.7% in 1993, and 11.3% in 1992 (133 million and 187
million pesetas at December 31, 1993 and 1992,
respectively)............................................. 932 1,630
Other..................................................... 36 69
-------- --------
167,469 174,902
Less current installments................................. (13,487) (9,201)
-------- --------
$153,982 $165,701
======== ========
</TABLE>
46
<PAGE>
(a) In May 1987, the Company issued $1,612,875 of 10.75% Convertible
Subordinated Debentures due in 1994. Interest payments are payable every
six months. Each $15.00 face amount of Debenture, with the payment of an
additional $15.00 in cash, is convertible into four shares of Common Stock.
The Debentures are callable at the option of the Company. Shares issuable
upon conversion of the Debentures amounted to 310,450 at December 31, 1993.
(b) The Company's Revolving Credit Facility provides for borrowings of up to $4
million. A commitment fee of .75% is payable on the unused portion of the
facility. There are provisions regarding the maintenance of minimum net
worth and demand deposits averaging at least $400,000. The facility is
secured by all of the Company's tangible and intangible assets. Subject to
certain conditions precedent, the Revolving Credit Facility may be
converted into a five-year term note when due.
(c) PCI is required to make four annual sinking fund payments of $22 million
each, commencing April 1, 1997 and continuing through April 1, 2000. The
notes are redeemable, in whole or in part, at the option of PCI at prices
decreasing from 105% of par at April 1, 1997 to par on April 1, 2000. In
the event of a change of control of PCI as defined in the indenture, PCI is
obligated to offer to purchase all outstanding Senior Secured Notes at a
redemption price of 101% of the principal amount thereof, plus accrued
interest. In addition, PCI is obligated in certain instances to offer to
purchase Senior Secured Notes at a redemption price of 100% of the
principal amount thereof, plus accrued interest with the net cash proceeds
of certain sales or dispositions of PCI's assets. The indenture places
certain restrictions on PCI concerning payment of dividends, additional
liens, disposition of the proceeds from asset sales, sale-leaseback
transactions and additional borrowings. At December 31, 1993, PCI was in
compliance with these restrictions.
(d) In 1989, Ferembal issued a subordinated bond convertible into 100,000
shares of capital stock at the option of the holders at any time prior to
October 28, 1999. If exercised, the Company's ownership interest in
Ferembal will decrease from the present 85% interest to a 64% interest. If
the conversion right is not exercised, the bond becomes due in two equal
annual installments beginning in 1999.
(e) The capital lease obligations represent lease payments due through 2005
which are capitalized according to FASB Statement No. 13.
The following is a schedule of future minimum lease payments under the
capitalized leases together with the present value of the net minimum lease
payments as of December 31, 1993:
<TABLE>
<CAPTION>
Fiscal Year (in thousands)
-------------------------------------------
<S> <C>
1994 $ 3,087
1995 2,907
1996 2,758
1997 2,688
</TABLE>
47
<PAGE>
<TABLE>
<S> <C>
1998 2,618
Later Years 10,317
-------
Total minimum lease payments 24,375
Less amount representing interest (8,512)
-------
Present value of net minimum lease
payments, including current maturities,
with interest rates ranging from
8% to 10.5% $15,863
=======
</TABLE>
In January 1991, Ferembal entered into a sale and lease-back agreement relating
to land and buildings at one of its manufacturing facilities with a net book
value of approximately $2,394,000. The transaction resulted in a net gain of
$284,000. The gain on this transaction was deferred and is being amortized over
the lives of the leased assets. The proceeds were used to retire an equivalent
amount of senior long-term debt.
(f) In June 1988, Onena settled an outstanding dispute regarding the amount of
turnover tax due to the Spanish provincial government. A mortgage on
Onena's property, plant and equipment secures the obligation, which amounts
to $822,000 (118 million pesetas) at December 31, 1993 and 1992 and is
repayable in installments over a six-year term. Also included is
$3,736,000 (534 million pesetas) at December 31, 1993 which is due to the
Spanish provincial government by Ingosa and which is expected to be
capitalized in 1994. See Note 2(a).
(g) In 1992, Onena reached an agreement with regard to sums due to social
security which amounts to $2,626,000 (375 million pesetas) at December 31,
1993 (385 million pesetas at December 31, 1992). The agreement provides for
a five-year repayment schedule. Also included is $686,000 (98 million
pesetas) at December 31, 1993 relating to amounts due to social security by
Ingosa which will be repaid over a three-year period beginning in 1994.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending December 31 (In thousands)
-------------------------------------------
<S> <C>
1994 $ 12,756
1995 10,483
1996 7,645
1997 25,117
1998 23,315
Later Years 72,290
--------
$151,606
========
</TABLE>
During 1992, PCI obtained a $15 million credit facility with Citibank, N.A.
("Citibank") under which PCI is able to borrow, on a revolving basis, up to an
amount representing specified percentages of PCI's eligible accounts receivable
and eligible inventory, not to exceed $15 million outstanding at any time. The
facility will mature on its fifth anniversary. The revolving credit loans bear
interest at the
48
<PAGE>
rate, selected at PCI's option, of 1.5% per annum over the fluctuating
alternative base rate of Citibank or 2.75% per annum over the London Inter Bank
offering rate of Citibank. Borrowings under the revolving credit facility are
guaranteed by CPC and secured by accounts receivable and inventories and a
secondary lien on the outstanding stock of CPC. PCI is required to pay Citibank
an annual commitment fee of 1/2% of the average daily unused portion of the
revolving credit facility. Commitment fees totaled $72,000 and $43,000 for the
years ended December 31, 1993 and 1992, respectively. There were no outstanding
borrowings under this credit facility at December 31, 1993 and 1992.
This revolving credit facility contains covenants covering, among other things,
leverage, cash flow, minimum fixed charge coverage, minimum interest coverage
and net worth, and restrictions on capital expenditures, additional
indebtedness, sale-leaseback transactions, dividends and other corporate
transactions of PCI and its subsidiaries. At December 31, 1993, PCI was in
compliance with the covenants. PCI is required to have no outstanding borrowings
under the revolving credit facility for at least 30 consecutive days during each
12-month period, other than borrowings used to finance permitted acquisitions,
dividends and letters of credit.
The agreement provides for the issuance of letters of credit by Citibank on
PCI's behalf. At December 31, 1993, $1,084,000 of such letters of credit had
been issued, guaranteeing obligations carried in the consolidated balance sheet.
The revolving credit facility agreement also requires a reserve by PCI of
$1,800,000 for automatic clearing house (ACH) float. The letter of credit and
ACH reserve reduce the total amount available under the revolving credit
facility. At December 31, 1993, no other funds had been drawn on the revolving
credit facility. Additional letters of credit totaling $652,000 were obtained
from another banking facility.
The Company has a $625,000 unused standby letter of credit available, which
expires on January 28, 1996, bears interest at 1.5% per annum and is secured by
U.S. Treasury bills worth $510,000.
Other long-term liabilities at December 31, 1993 primarily include pension and
profit sharing amounts related to PCI and Ferembal of $17,447,000 ($16,275,000
at December 31, 1992), insurance reserves at PCI of $7,688,000 ($7,625,000 at
December 31, 1992), and accrued post-retirement benefits at PCI of $6,008,000
($5,832,000 at December 31, 1992).
(10) Income Taxes
As discussed in note 1(d), The Company adopted SFAS No. 109 as of January 1,
1992. The cumulative effect of this change in accounting for income taxes of
$460,000, exclusive of the portion allocated to minority interest ($85,000), was
determined as of January 1, 1992 and is reported separately in the consolidated
statement of earnings for the year ended December 31, 1992. As a result of
applying SFAS No. 109 in 1992, pre-tax income before minority interest,
extraordinary item and cumulative effect of accounting change for the year ended
December 31, 1992 increased by $884,000. Prior years'
49
<PAGE>
financial statements have not been restated to apply the provisions of SFAS No.
109.
The components of the provision for income taxes for the years ended December
31, 1993, 1992 and 1991 are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Current - Federal $ (145) $ (108) $ 79
Foreign 4,209 5,452 6,013
State 145 58 59
Deferred - Federal (1,494) (945) -
Foreign (60) (1,340) 53
------- ------- ------
Provision for income taxes $ 2,655 $ 3,117 $ 6,204
======= ======= =======
</TABLE>
The Company's total income tax provision differs from the provision that would
result from applying the U.S. Federal statutory income tax rate to income before
provision for income taxes, minority interest, extraordinary item and cumulative
effect of accounting change due to the following:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(in thousands, except for percentage amounts)
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Provision at U.S. Federal
Statutory rate $ 592 34.0% $1,215 34.0% $5,050 34.0%
Losses not providing tax benefits
currently - - - - 711 4.8
Change in the beginning of year
valuation allowance 1,671 96.0 2,409 67.4 - -
State income taxes, net of
Federal income tax benefit 96 5.5 38 1.1 38 .3
Differential in foreign tax rates 394 22.7 (498) (13.9) 374 2.5
Other (98) (5.6) (47) (1.4) 31 .2
------ ----- ------ ----- ------ ----
Provision for income taxes $2,655 152.6% $3,117 87.2% $6,204 41.8%
====== ===== ====== ===== ====== ====
</TABLE>
The significant components of deferred income tax benefit attributable to income
from continuing operations for the years ended December 31, 1993 and 1992 are as
follows:
<TABLE>
<CAPTION>
1993 1992
-------- ---------
(in thousands)
<S> <C> <C>
Deferred tax expense (exclusive of the effects
of other components listed below) $ 1,773 $ (130)
Benefit of operating loss carry forwards (7,495) (8,535)
Book over tax bases of principally fixed assets 2,497 3,971
Increase in beginning-of-the-year balance
of the valuation allowance for
deferred tax assets 1,671 2,409
------- --------
$(1,554) $( 2,285)
======= ========
</TABLE>
For the year ended December 31, 1991, deferred income tax expense of $53,000
results from timing differences in the recognition of income and expense
reported in the financial statements and that reported for
50
<PAGE>
tax purposes. The source of the differences between income and expense for tax
purposes as compared to related amounts reported in the financial statements and
the tax effect of each is as follows:
<TABLE>
<CAPTION>
1991
----
(in thousands)
<S> <C>
Restricted stock compensation $ (56)
Various differences attributable to
foreign subsidiaries 53
Other, net 56
-----
Provision for deferred income
taxes $ 53
=====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1993 and 1992 are presented below:
<TABLE>
<CAPTION>
Deferred tax assets:
1993 1992
------- -------
(in thousands)
<S> <C> <C>
Net operating loss carry forwards $17,127 $ 9,632
Vacation pay, due to accrual for financial
reporting purposes 1,109 1,094
Plant rationalization reserves 733 1,154
Self-insurance reserves 3,271 3,247
Pension and post-retirement benefit reserves 5,995 6,629
Deferred income 1,623 1,602
Tax over book bases of molds 131 394
Other 1,155 1,380
------- -------
Total gross deferred tax assets 31,144 25,132
Less valuation allowance (6,291) (4,620)
------- -------
Net deferred tax assets 24,853 20,512
------- -------
Deferred tax liabilities:
Taxable gain on merger 3,222 3,418
Book over tax bases of principally fixed assets 20,716 18,219
Acquisition costs, book over tax bases 947 603
------- -------
Total gross deferred tax liabilities 24,885 22,240
------- -------
Net deferred tax liabilities included in the
accompanying consolidated balance sheet $ 32 $ 1,728
======= =======
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1992 was
$2,211,000. The net change in the total valuation allowance for the years
ended December 31, 1993 and 1992 was an increase of $1,671,000 and
$2,409,000, respectively.
Due to different tax jurisdictions of the Company's subsidiaries, net
deferred tax liabilities of $32,000 at December 31, 1993, and $1,728,000 at
December 31, 1992 shown above are reflected in the consolidated balance
sheets as:
<TABLE>
<CAPTION>
1993 1992
------ ------
(in thousands)
<S> <C> <C>
Current deferred tax assets (included in
prepaid expenses and other current $ 203 $ 257
assets)
Non-current deferred tax assets
(included in
</TABLE>
51
<PAGE>
<TABLE>
<S> <C> <C>
other assets) 2,482 988
------ ------
2,685 1,245
Non-current deferred tax liabilities 2,717 2,973
------ ------
Net deferred tax liabilities $ 32 $1,728
====== ======
</TABLE>
At December 31, 1993, PCI has operating loss carry forwards for Federal
income tax purposes of approximately $45,000,000 which are available to offset
future Federal taxable income through 2008.
(11) Common Stock
(a) Sales of Common Stock
In June 1991, the Company received net proceeds of $29,453,000 from the
sale of 1,020,000 shares of its Common Stock and 255,000 Warrants to
purchase its Common Stock. Each Warrant, for a period of two years,
entitled the holder thereof to purchase one share of the Company's Common
Stock for $30.875. At December 31, 1993, no Warrants remained outstanding.
(b) Options
The 1981 Incentive Stock Option Plan, as amended, (the Incentive Plan)
provided for the issuance of up to 120,000 shares of the Company's Common
Stock upon the exercise of options at prices not less than 100% of the fair
market value of the shares. Options were exercisable for up to 10 years.
During 1992, 3,000 options were exercised under the Plan. As of December
31, 1993, no options remained unexercised and no further options could be
granted under the Incentive Plan.
The 1988 Restricted Stock Option Plan, as amended, (the Restricted Plan)
provides for the issuance of up to 500,000 shares of Common Stock upon the
exercise of options at an exercise price determined by the Personnel
Committee of the Board of Directors (the Committee), but no less than $1.00
per share. The Committee may determine the exercise period of the option up
to a maximum of twenty years from the date of the grant and may determine a
restricted period during which any portion of the option may not be
exercised. On March 4, 1993, an employee was granted an option to purchase
up to 5,000 shares of common stock at a price of $22.00 per share. The
option expires five-years from its grant and had not been exercised as of
December 31, 1993. As of December 31, 1993, the Chairman and the Executive
Vice President had received (i) restricted options (granted in March 1992)
to purchase 30,000 and 20,000 shares, respectively, vesting over a five-
year period, at $26.75 per share, such price being the fair market value at
date of grant; (ii) unrestricted options to purchase 140,000 and 60,000
shares, respectively, under the Restricted Plan at $8.625 to $17.00 per
share, such prices being the fair market value of a share of the Company's
Common Stock at the date of the grant; and (iii) restricted options
(granted in April 1991) to purchase 10,000 and 6,000 shares, respectively,
at an exercise price of $1.00 per share which vest at a rate of 20% per
year subject to their continued employment. Concerning the 16,000
restricted options granted in April 1991, compensation to be recognized
over the five-year vesting period will aggregate $520,000, of which
$104,000, $104,000 and $78,000 was charged to expense in 1993, 1992 and
1991, respectively. As of
52
<PAGE>
December 31, 1993, 28,100 shares were reserved for future options under the
Restricted Plan.
The Chairman was granted, pursuant to a prior employment agreement, an option to
purchase 40,000 shares of the Company's Common Stock at an exercise price of
$2.94 per share being the fair market value of a share of the Company's stock on
the date this option was approved by the Company's shareholders. This option is
not under any of the Company's option plans, had not been exercised as of
December 31, 1993 and expires on December 31, 1998.
Pursuant to the 1988 Director Stock Option Plan (the Retainer Plan), directors
may elect to receive a stock option in lieu of cash as an annual retainer. Each
electing director will receive an option equal to the nearest number of whole
shares determined by dividing the annual retainer by the fair market value of
the stock less one dollar. The option price is one dollar per share and an
option may not be exercised prior to the first anniversary of the date it was
granted nor more than ten years after such date. During 1993, nine electing
directors each received an option to purchase 316 shares of Common Stock under
the Retainer Plan. During 1992 and 1991, nine and eight electing directors each
received an option to purchase 241 and 100 shares of Common Stock, respectively,
pursuant to the Retainer Plan. In 1993, 1992, and 1991, a total of $58,500,
$41,250, and $24,000, respectively, was charged to compensation expense with
respect to the Retainer Plan.
In 1992, pursuant to an agreement (see Note 2(c)), each of three directors and
an advisory director were granted options to purchase 10,000 shares of the
Company's Common Stock at $25.75 per share, being its fair market value on the
date of the grant. The options expire in 2002 and had not been exercised as of
December 31, 1993.
Pursuant to the 1992 Restricted Stock Plan for Non-Employee Directors (the
"Stock Plan"), each non-employee director of the Company receives an award of
300 shares of Company Common Stock during each year of service beginning in
1992. Such shares are restricted from transfer while such recipient remains a
member of the Board of Directors and the shares are subject to forfeiture under
certain circumstances including resignation or failure to stand for reelection
prior to age 70. The Company issued 8,400 shares under the Stock Plan in 1993
for the 1992 and 1993 plan years; the Company has expensed $103,425 in 1993 and
$79,500 in 1992 for shares which were issued.
In March 1990, a director received an option to purchase 10,000 shares of the
Company's Common Stock at an exercise price of $17.00 per share, being the fair
market value of a share of the Company's Common Stock on the date the option was
granted. The option is not under any of the Company's option plans, had not been
exercised as of December 31, 1993 and expires on March 13, 1995.
The 1990 Stock Option Plan for Non-Employee Directors (the Director Plan)
provides for the issuance of up to 200,000 shares of Common Stock to directors
who are not employees of the Company or its subsidiaries. The Director Plan is
administered by a Board Committee. The Director Plan provides for the grant to
each non-employee director, at the commencement of his initial term, of an
option to
53
<PAGE>
purchase up to 10,000 shares of Common Stock at a price equal to the
fair market value of a share of Common Stock on the date of the grant. The
options become exercisable as to one-tenth of the shares subject to option on
the date of the grant and on the nine successive anniversaries of such date.
The term of the options is 10 years provided that any option holder who ceases
to be a member of the Board of Directors forfeits any part of the option grant
which has not become exercisable as of such date. During 1990, each member of
the Board of Directors who was not an employee (10 individuals) received an
option to purchase 10,000 shares of Common Stock at prices ranging from $17.00
to $17.50 per share, being the fair market value of a share of Common Stock on
the date of the grant. No options have been exercised pursuant to the Director
Plan. There are currently 100,000 shares available for grant under the Director
Plan.
Additionally, on November 9, 1993, an individual was awarded an option to
purchase up to 5,000 shares of Common Stock at an exercise price of $20.00 per
share being the fair market value of a share of the Company's stock on such
date. The option expires five-years from its grant and had not been exercised
at December 31, 1993.
(12) Pension and Profit Sharing Plan
PCI provides a defined benefit pension plan for substantially all salaried
employees (which was amended in 1993) and a noncontributory defined benefit
pension plan for substantially all hourly workers who have attained 21 years of
age.
The following table sets forth the plans' funded status at December 31, 1993 and
1992 based primarily on January 1, 1993 participant data and plan assets:
<TABLE>
<CAPTION>
1993 1992
-------- --------
(in thousands)
<S> <C> <C>
Actuarial present value of benefit obligation,
including vested benefits of $28,369,000 and
$16,884,000 in 1993 and $25,341,000 and
$14,308,000 in 1992 for the salaried and
hourly plans, respectively $(50,142) $(43,955)
======== ========
Projected benefit obligation (PBO) (50,893) (45,899)
Plan assets, at fair value 41,181 37,378
Unrecognized net (gain) loss 2,252 2,241
Adjustment to recognize minimum liability (1,533) (1,576)
Prior service cost not yet recognized in net
periodic pension cost 31 576
-------- --------
Accrued pension liability (included in Other
Liabilities) $ (8,962) $ (7,280)
======== ========
</TABLE>
54
<PAGE>
Net pension costs under the above mentioned PCI plans included the
following components for the years ended December 31, 1993 and 1992 and the
period from November 22, 1991 to December 31, 1991:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Service Cost $ 818 $ 817 $ 120
Interest Cost 3,713 3,515 442
Return on plan assets (4,198) (2,730) (6,526)
Net amortization and deferral 781 (593) 6,526
Change in acturial assumptions 2,725 -- --
------- ------- -------
Net periodic pension costs 3,839 1,009 562
Effect of window plan -- 581 --
------- ------- -------
Total $ 3,839 $ 1,590 $ 562
======= ======= =======
</TABLE>
During 1992, negotiated benefit increases were made for certain hourly plan
participants and early retirement (window plan) was accepted by certain salaried
plan participants. The effects of these changes were to increase the hourly
plan's PBO by $576,000 and increase the salaried plan's PBO and total periodic
pension expense by $814,000 and $581,000, respectively.
Assumptions used in the accounting were:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Discount rates 7.5% 8.5% 8.5%
Rates of increase in compensation levels 5.0% 6.5% 6.5%
Expected long-term rate or return on assets 9.5% 9.5% 9.5%
</TABLE>
Ferembal provides retirement benefits pursuant to an industry-wide labor
agreement. The plan is not funded. Amounts charged to expense amounted to
$250,000 in 1993, $94,000 in 1992 and $35,000 in 1991. Other non-current
liabilities at December 31, 1993 include $1,425,000 ($1,230,000 at December 31,
1992) for this plan. Ferembal also provides an employee profit-sharing plan,
the annual contributions to which are determined by a prescribed formula.
Amounts charged to expense amounted to $954,000 in 1993, $1,287,000 in 1992 and
$1,450,000 in 1991. Amounts are paid to employees after five-years with accrued
interest. Other non-current liabilities at December 31, 1993 include
$5,951,000($4,557,000 at December 31, 1992) for the plan.
Holding provides selected managers of a subsidiary company with pension and
disability benefits. Amounts charged to expense amounted to $161,000 in 1993,
$154,000 in 1992 and $326,000 in 1991.
(13) Post-Retirement Benefits Other Than Pensions and Post-Employment Benefits
PCI provides certain health care and life insurance benefits for retired PCI
employees. Certain of PCI's hourly and salaried employees become eligible for
these benefits when they become eligible for an immediate pension under a formal
company pension plan. In 1993, the plan was amended to eliminate health care
benefits for employees hired
55
<PAGE>
after January 1, 1993. Expenses for benefits provided to retired employees were
$710,000, $490,000 and $132,000 for the years ended December 31, 1993 and 1992
and the period from November 22, 1991 through December 31, 1991, respectively.
In 1992, PCI adopted SFAS No. 106, "Employers' Accounting for Post-Retirement
Benefits Other Than Pensions". There was no cumulative effect of the change in
accounting for post-retirement benefits, as the accumulated post-retirement
benefit obligation (APBO) existing at January 1, 1992 equaled the amount
recorded in the prior year as part of the purchase accounting adjustments. PCI
continues to fund benefit costs on a pay-as-you-go basis. Summary information on
PCI's plan at December 31, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
Accumulated post-retirement benefit obligation: 1993 1992
------ -------
(in thousands)
<S> <C> <C>
Retirees $3,565 $ 4,699
Fully eligible, active plan participants 1,121 1,572
Other fully active plan participants 1,262 784
------ -------
$5,948 $ 7,055
Unrecognized net loss from experience and
changes in assumptions ( 672) --
Prior service cost not yet recognized in net
Periodic post-retirement benefit cost 732 (1,223)
------ -------
Accrued post-retirement benefit obligation $6,008 $ 5,832
====== =======
<CAPTION>
The components of net periodic post-retirement benefit cost at
December 31, 1993 and 1992 is as follows:
1993 1992
------ -------
(in thousands)
<S> <C> <C>
Service cost $ 55 $ 33
Interest cost 588 457
Net amortization and deferral 67 --
------ -------
Net periodic post-retirement benefit cost $ 710 $ 490
====== =======
</TABLE>
As of December 31, 1993, the discount rate used in determining the APBO was
7.5%. The assumed health care cost trend rate used in measuring the accumulated
post-retirement benefit obligation was 10.95% for 1993, declining gradually with
each succeeding year on an ultimate rate of 5.0% beginning in calendar year
2002.
As of December 31, 1992, the discount rate used in determining the APBO was
8.5%. The assumed health care cost trend rate used in measuring the accumulated
post-retirement benefit obligation was 10% for 1992, declining gradually with
each succeeding year on an ultimate rate of 6.2% beginning in calendar year
2020.
The effect of a one percentage-point increase in the assumed health
care cost trend rates in each year would increase the accumulated post-
retirement benefit obligation as of December 31, 1993 by $851,000 and the
aggregate of the service and interest cost components of net periodic post-
retirement benefit cost for the year then ended by $90,000.
PCI provides certain post-employment benefits to former and inactive
employees, their beneficiaries and covered dependents. These benefits
56
<PAGE>
include disability related benefits, continuation of health care benefits and
life insurance coverage.
In November 1992, the Financial Accounting Standards Board issued SFAS No. 112,
"Employers' Accounting for Post-Employment Benefits", which requires employers
to recognize the obligation to provide post-employment benefits and an
allocation of the cost of those benefits to the periods the employees render
service. Implementation of the Statement will be required of PCI in 1994. The
effect of the implementation of the Statement has not been determined. However,
management believes the impact will not be significant to the consolidated
financial statements.
(14) Executive Compensation
The Company entered into employment agreements with its Chairman and former
Vice-Chairman.
The contract with the former Vice-Chairman, who died in January 1989, provided
for compensation of $135,000 per annum and was to expire on December 31, 1998.
Also, the contract provided that in the event of his death prior to December 31,
1998, his spouse will receive one-half of the amounts which would otherwise have
been paid to him until her death or until December 31, 1998, whichever occurs
first. The Company has included the present value of this obligation in accrued
liabilities.
At December 31, 1993, the contract with the Chairman, as amended, provides for
base compensation of $400,000 per annum and expires on December 31, 1999. The
contract also provides that, in the event of his death before December 31, 1999,
his spouse will receive one-half of the amount paid to him annually as base
compensation until her death, or until ten years after the date of his death,
whichever occurs first.
(15) Net Interest Expense
The details of net interest expense were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Interest income $ 917 $ 939 $ 1,579
Interest expense (23,859) (26,962) (14,148)
-------- -------- --------
Interest expense, net $(22,942) $(26,023) $(12,569)
======== ======== ========
</TABLE>
(16) Foreign and Domestic Operations
The Company performs services principally in the packaging industry.
Manufacturing operations are performed domestically through PCI, whereas
manufacturing operations are performed overseas in Europe through Ferembal,
Holding and Onena. Information about the Company's foreign and domestic
operations follows.
57
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991
----- ---- ----
(in thousands)
Sales to unaffiliated customers:
<S> <C> <C> <C>
Foreign $260,206 $296,910 $280,434
Domestic 221,636 214,331 30,220
-------- -------- --------
Total $481,842 $511,241 $310,654
======== ======== ========
Income (loss) before provision for
income taxes, minority interest,
extraordinary item and cumulative
effect of accounting change:
Foreign $ 11,045 $ 13,558 $ 16,740
Domestic (9,305) ( 9,984) ( 1,886)
-------- -------- --------
Total $ 1,740 $ 3,574 $ 14,854
======== ======== ========
Identifiable assets:
Foreign $173,390 $177,913 $215,149
Domestic 212,517 222,097 195,394
-------- -------- --------
Total $385,907 $400,010 $410,543
======== ======== ========
</TABLE>
(17) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, investments, accounts
receivable, other current assets, accounts payable and short-term
borrowings approximate fair value because of the short maturity of these
instruments. The fair value of the Company's long-term debt is estimated,
based on the quoted market prices for the same or similar issues, or on the
current rates offered to the Company for debt of the same remaining
maturities, and approximates the carrying amount as of December 31, 1993.
(18) Commitments and Contingencies
The Company and its subsidiaries occupy offices and use equipment under
various lease arrangements. The rent expense under non-cancellable long-
term operating leases for the years ended December 31, 1993, 1992 and 1991
was approximately $7,082,000, $4,968,000, and $758,000, respectively. Total
commitments under such arrangements are payable in annual installments of
$4,627,000 in 1994, $4,311,000 in 1995, $3,887,000 in 1996, $2,699,000 in
1997 and $1,435,000 in 1998 and $502,000 thereafter.
The Company also rents certain equipment and facilities on a month-to-month
basis or through short-term leases. The rent expense under such
arrangements amounted to approximately $1,317,000 in 1993, $969,000 in
1992, and $711,000 in 1991.
Ferembal is contingently liable for receivables sold with recourse of
$9,859,000 at December 31, 1993.
At December 31, 1993, Holding has commitments for the purchase or
construction of capital assets amounting to $136,000.
58
<PAGE>
The Company's subsidiaries are defendants in several actions which arose in the
normal course of business and, in the opinion of management, the eventual
outcome of these actions will not have a material adverse effect on the
Company's financial position.
(19) Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for 1993 and 1992 (in thousands, except per
share amounts) is as follows:
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
1993 Quarter Quarter Quarter Quarter
- - ---- --------- -------- -------- ---------
<S> <C> <C> <C> <C>
Total Revenue $110,239 $127,933 $134,325 $109,345
Gross Profit 20,119 24,074 26,150 16,821
Net Income (Loss) (824) 958 1,258 (404)
Net Earnings (Loss) Per
Common Share $ (.27) $ .32 $ .42 $ (.13)
</TABLE>
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
1992 Quarter Quarter Quarter Quarter
- - ---- --------- -------- -------- ---------
<S> <C> <C> <C> <C>
Total Revenue $115,977 $125,926 $151,225 $118,113
Gross Profit 21,622 25,159 30,556 19,535
Income Before
Extraordinary Items 208 1,668 2,294 (1,065)
Net Income (Loss) (834) 1,668 2,294 (1,065)
Earnings (Loss) Per Share
Before Extraordinary Item
and Accounting Change .07 .55 .75 (.35)
Net Earnings (Loss) Per
Common Share $ (.27) $ .55 $ .75 $ (.35)
</TABLE>
59
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
THE BOARD OF DIRECTORS AND STOCKHOLDERS
CONTINENTAL CAN COMPANY, INC.
We have audited the consolidated balance sheets of Continental Can Company, Inc.
and subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1993. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of Continental Can
Company, Inc. and subsidiaries as of December 31, 1993 and 1992, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1993, in conformity with generally accepted accounting
principles.
As discussed in notes 1 (h) and 13 and notes 1 (d) and 10 to the consolidated
financial statements, the Company adopted the provisions of Financial Accounting
Standards Nos. 106, "Employer's Accounting for Post-Retirement Benefits Other
Than Pensions" and 109, "Accounting for Income Taxes", respectively, on a
prospective basis in 1992.
/s/ KPMG PEAT MARWICK
Jericho, New York
March 9, 1994
60
<PAGE>
GENERAL INFORMATION
ANNUAL MEETING
May 18, 1994 at 10:00 a.m. at The Union League Club, 38 East 37th Street, New
York, New York.
AVAILABILITY OF FORM 10-K
Stockholders may receive, without charge, a copy of the Company's 1993 Annual
Report filed with the Securities and Exchange Commission on Form 10-K, including
the financial statements and schedules thereto, by directing their written
inquiries to Abdo Yazgi, Secretary, Continental Can Company, Inc., One Aerial
Way, Syosset, New York 11791.
CONTINENTAL CAN COMPANY, INC.
COMMON STOCK PRICES AND RELATED MATTERS
The common stock of Continental Can Company, Inc. is traded on the New York
Stock Exchange. The following table indicates the quarterly high and low sales
prices for Continental Can Company, Inc. (CAN) common stock for the last two
years.
<TABLE>
<CAPTION>
1993 1992
- - ------------------------------------------------
Quarter High Low High Low
- - ------------------------------------------------
<S> <C> <C> <C> <C>
First 27-5/8 20-7/8 40-3/8 24-1/8
Second 27-1/2 20-1/8 28-3/8 20-3/8
Third 24-1/2 18-1/4 32-5/8 20-1/4
Fourth 22-1/8 18-3/4 30 19-7/8
</TABLE>
No dividends were paid to the holders of common stock for the years 1993, 1992
and 1991. The Company has no present intention to pay dividends on its common
stock. There were 422 stockholders of record as of March 21, 1994.
61
<PAGE>
DIRECTORS PRINCIPAL OCCUPATION
Donald J. Bainton Chairman of the Board and
Chief Executive Officer
of the Company
Kenneth Bainton Registered Architect with the firm of
Alexander Kouzmanoff in New York City
Robert L. Bainton Former President of B & B Beverage Co.
(Retired 1991)
Nils E. Benson Former President of Penn Elastic Co.
(Retired 1989)
Rainer N. Greeven Partner, Greeven & Ercklentz (Attorneys)
Ronald H. Hoenig President of Hoenig & Company, Inc.
Charles H. Marquardt Former Chief Operating Officer of
Plastic Containers, Inc. (Retired 1993)
Ferdinand W. Metternich Managing partner in St. Gallen Consulting
Group, a management consulting firm
based in Switzerland
V. Henry O'Neill Private investor in real estate
Donald F. Othmer Distinguished Professor of Chemical
Engineering Polytechnic University
John J. Serrell President of Kinetic Development Inc.
Robert A. Utting President of R.A. Utting & Associates, Inc.
Abdo Yazgi Executive Vice President, Chief Administrative
Officer, and Secretary of the Company
Cayo Zapata Director of Tapas Tapones, a division of
Taenza, S.A. DE C.V.
Jose Luis Zapata Director of Corporate Finance of Taenza, S.A.
DE C.V.
OFFICERS PRINCIPAL OCCUPATION
Donald J. Bainton Chairman of the Board
& Chief Executive Officer
Abdo Yazgi Executive Vice President,
Chief Administrative Officer,
and Secretary
John Andreas Vice President - Manufacturing
Marcial B. L'Hommedieu Treasurer
Linda Driscoll Assistant Secretary
62
<PAGE>
CONTINENTAL CAN COMPANY, INC.
General Offices: Syosset, New York
SUBSIDIARIES AND OFFICERS:
PLASTIC CONTAINERS, INC,
Syosset, New York
CONTINENTAL PLASTIC CONTAINERS, INC.
Norwalk, Connecticut
Charles DiGiovanna, Chief Executive Officer and President
Jay Hereford, Chief Financial Officer
Frank Kalisik, Vice President - Research & Development
John E. Farrell, Vice President - Marketing
CONTINENTAL CARIBBEAN CONTAINERS, INC.
Caugus, Puerto Rico
FEREMBAL S.A.
Clichy, France
Rene Faber, Managing Director
Christian Bonnet, Financial Director
Pierre Lichtenberger, Divisional Director
Roland Montaclair, Purchasing Director
Jean-Marie Desautard, Personnel Director
OBALEX, A.S.
Znojmo, Czech Republic
Jiri Nekvasil, Chairman
Lubos Kadlec, Managing Director
VIATECH HOLDING GMBH
Kempten, Federal Republic of Germany
DIXIE UNION VERPACKUNGEN GMBH
Kempten, Federal Republic of Germany
Hans H. Schwaebe, Executive Director
Peter Epp, Chief Financial Officer
ONENA BOLSAS DE PAPEL S.A.
INDUSTRIAS GOMARIZ S.A.
Pamplona, Spain
Carlos Paredes, Executive Director
LOCKWOOD, KESSLER & BARTLETT, INC.
Syosset, New York
John A. Eaton, President
Sylvester A. Celebrini, Vice President
Ralph A. Cuomo, Vice President
George Gross, Vice President
Steven Hanuszek, Vice President
John P. Lekstutis, Vice President
Martin Solomon, Vice President
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
New York, New York
AUDITORS
KPMG Peat Marwick
Jericho, New York
GENERAL COUNSEL
Carter, Ledyard & Milburn
New York, New York
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