<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, 1996
-------------------------------------------
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)
<TABLE>
<CAPTION>
<S> <C>
Delaware 11-2228114
- ------------------------------------- ---------------------------------------
(State of Incorporation) (I.R.S. Employer Idenification No.)
One Aerial Way, Syosset, New York 11791
- -------------------------------------- ---------------------------------------
(Address of principal executive offices) (Zip code)
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)
</TABLE>
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 24, 1997 was $44,672,981.
The number of shares of Common Stock outstanding on March 24, 1997 was 3,205,835
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, 1996, 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 7, 1997 in connection with its 1997
Annual Meeting of Stockholders to be held on May 21, 1997.
<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 operating
subsidiaries. The Company's packaging business consists of (i) its 84% 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 GmbH & Company KG (Dixie Union) and (iii) its majority-owned European
operating subsidiary, Ferembal S.A. (Ferembal), which in turn owns 95% of
Obalex, A.S. (Obalex). The Company also owns a 49% interest in Onena Bolsas de
Papel in Spain. 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 laminates and prints
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. 14.
(c) Narrative Description of Business
---------------------------------
The Company manufactures packaging which accounted for 98.5%, 98.4 and 98%
of its consolidated revenues in 1996, 1995 and 1994, respectively.
CPC - The Company's 84% owned subsidiary, PCI, acquired CPC in November
---
1991. CPC, headquartered in Norwalk, Connecticut, has fifteen 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 2.5 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 Corporation, Pennzoil
Products Company, Procter & Gamble Company, and Quaker Oats Company. 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 long-term
contracts or agreements with customers representing a substantial portion of its
dollar sales volume.
Ferembal - The Company owns 85% of Ferembal. A convertible bond is
--------
outstanding which, if converted would reduce the Company's interest in Ferembal
to 64%. Ferembal, headquartered in Paris, has five manufacturing plants located
in each of the main agricultural regions of France. The Roye plant, located in
Picardie, was built in 1964 and expanded substantially in 1968. Its three main
divisions include coil cutting, printing and varnishing; the
2
<PAGE>
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
90% 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. At December
31, 1996, Ferembal was installing a three piece can line at a customer's
facility in Locmine.
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, "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 85% 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's subsidiary, Ferembal, owns 95% 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 wholly owned subsidiaries, owns all of
-----------
the outstanding stock of Dixie Union. Dixie Union is headquartered in Kempten,
Germany and has a subsidiary company in France. 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 49% 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.
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.
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
3
<PAGE>
the rest of the world. Sales may not be made in the Western Hemisphere, except
to certain countries in South America. 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 packing industry are 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 one customer exceeded 10% of the Company's consolidated revenues in
1996.
As of December 31, 1996, the Company's backlog was approximately $20.2
million (compared to $22.6 million at December 31, 1995). 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, Crown, Cork & Seal, Inc. 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 $11,495,000 in 1996, $12,187,000 in 1995 and $12,461,000 in 1994.
The number of persons employed by the Company as of December 31, 1996 and
1995 was 3,463 and 3,796, respectively.
(d) Foreign and Domestic Operations
-------------------------------
Sales to unaffiliated customers are set out below:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Europe $297,491 $312,137 $286,412
United States 282,703 295,470 247,614
Other 4,840 6,780 3,154
-------- -------- --------
Total $585,034 $614,387 $537,180
======== ======== ========
</TABLE>
Information regarding the operating profit and the identifiable assets
attributable to the Company's foreign operations is incorporated herein by
reference to Note 15 of the Consolidated Financial Statements appearing in the
Annual Report to Stockholders for the year ended December 31, 1996.
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
4
<PAGE>
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 main production facility for LKB is 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 19,812 square feet of leased office space in
Norwalk, Connecticut. CPC also leases its technical center in Elk Grove,
Illinois (78,840 sq. ft.), its accounting office space in Omaha, NE (5,489 sq.
ft.), and sales offices in Cincinnati, Ohio (1,266 sq. ft.) and Houston, Texas
(703 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 103,000 Lima, OH 123,000
Fairfield, CA 66,000 Newell, WV 50,000
Houston, TX 80,000 Oil City, PA 96,000
Kansas City, KS 173,000 Baltimore, MD 151,000
Elk Grove, IL 183,000 Lakeland, FL 218,000
DuPage, IL 104,000 New Market, NJ 116,000
Cincinnati, OH 130,000 Caguas, Puerto Rico 47,000
Atlanta, GA 85,000 West Memphis, AR 60,000
</TABLE>
PCI owns the facilities in Santa Ana, Fairfield, Oil City, Baltimore
and Puerto Rico; all others are leased. PCI's Cleveland, Ohio facility ceased
production in October 1996. The lease on this facility expires on August 31,
1997. PCI's New Market, New Jersey facility is expected to cease production by
the end of the first quarter of 1997. The New Market lease expires on June 30,
1999.
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.
Obalex is located in several buildings with approximately 182,000
square feet on an 5 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, a small facility is leased as sales and distribution center.
5
<PAGE>
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
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- --------------------------------------------------------------------------
MATTERS
- -------
As partial consideration for the purchase of 34 shares of PCI, the
Company issued a warrant to Merrywood, Inc. ("Merrywood") on December 17, 1996
which entitled Merrywood to purchase up to 150,000 shares of Common Stock for
$20.00 per share. The warrant expires on December 31, 2000. For purposes of
purchase accounting the Company valued the warrant at $52,208. Exemption from
registration was claimed under (S) 4(2) of the Securities Act of 1933 as seller
has represented that it will not sell or transfer such securities in violation
of the Act.
The remaining 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, 1996.
ITEM 6. SELECTED FINANCIAL DATA(1)
- -----------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales (2) $585,034 $614,387 $537,180 $481,842 $511,241
======== ======== ======== ======== ========
Net (loss) income (2) (3) $ (5,560) $ 555 $ 4,445 $ 988 $ 2,063
======== ======== ======== ======== ========
(Loss) earnings per
common share (3)
Primary $ (1.69) $ .17 $ 1.39 $ .33 $ .67
======== ======== ======== ======== ========
Fully Diluted $ (1.69) $ .17 $ 1.34 $ .32 $ .64
======== ======== ======== ======== ========
Weighted average
shares outstanding (4) 3,289 3,339 3,220 3,023 3,078
======== ======== ======== ======== ========
Total assets $391,032 $445,411 $423,585 $385,907 $400,010
======== ======== ======== ======== ========
Long term debt and capitalized
lease obligations $170,750 $143,138 $142,361 $153,982 $165,701
======== ======== ======== ======== ========
Total stockholders'
equity (4) $ 68,624 $ 76,298 $ 70,696 $ 60,855 $ 62,935
======== ======== ======== ======== ========
Working capital $ 78,747 $ 46,195 $ 71,348 $ 66,105 $ 69,158
======== ======== ======== ======== ========
Current ratio 1.76 1.29 1.52 1.67 1.69
======== ======== ======== ======== ========
</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.
(3) Includes an extraordinary charge of $6,136 ($1.87 per share both primary
and fully-diluted) in 1996. Includes an extraordinary charge of $115 ($.03
per share both primary and fully-diluted) in 1995. Includes a charge for
the cumulative effect of an accounting change of $262 ($.08 per share both
primary and fully-diluted) and an
6
<PAGE>
extraordinary charge of $108 ($.03 per share both primary and fully-
diluted) in 1994. Includes income for the cumulative effect of an
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.
(4) The 1994 weighted average shares outstanding include 268 shares issued in
May 1994 upon the conversion of the Companys 10-3/4% Convertible
Subordinated Debentures.
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, 1996.
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, 1996.
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, 1996.
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 21, 1997 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
63 Manufacturing
Marcial B. L'Hommedieu Treasurer (1) 1963
71
Linda R. Driscoll Secretary (1) 1992
52
</TABLE>
(1) The term of office of all executive officers is indefinite, at the pleasure
of the Board of Directors.
7
<PAGE>
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.
Ms. Driscoll has served as Secretary of the Company since May 1996. She had
been Assistant Secretary of the Company since May 1992.
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 21,
1997 which will be filed with the Commission pursuant to Regulation 14A and is
hereby incorporated into this report by this reference.
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 21, 1997 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
21, 1997 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, 1996 and 1995
Consolidated Statements of Operations for the years ended December 31, 1996,
1995, and 1994
Consolidated Statements of Stockholders' Equity for the years ended December
31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994
Notes to Consolidated Financial Statements for the years ended December 31,
1996, 1995 and 1994
Independent Auditors' Report.
The above financial statements are included under Item 8 of Part II of this
report.
2. Financial Statement Schedules:
II Valuation & Qualifying Accounts...................... p. 11
III Condensed Financial Information of Registrant........ p. 12
8
<PAGE>
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.
<TABLE>
<CAPTION>
3. Exhibits Required:
<S> <C> <C>
3.1 Articles of Incorporation, as amended................ (2)
3.2 By-Laws, as amended.................................. (2)
4.1 Indenture dated as of December 17, 1996, among PCI,
as Issuer, CPC and Caribbean, as Guarantors, and
United States Trust Company of New York, as Trustee,
providing for 10% Senior Secured Notes due 2006,
Series A and Series B (including the definitive forms
of the Notes)........................................ (1)
4.2 Registration Rights Agreement dated as of December
17, 1996, by and among PCI, CPC and Caribbean, and
Donaldson, Lufkin & Jenrette Securities Corporation,
Lehman Brothers Inc. and Societe Generale
Securities Corporation............................... (1)
10.1 Amended and Restated Financing Agreement dated December
17, 1996, between The CIT Group/Business Credit, Inc.
(as Lender) and PCI (as Borrower)...................... (1)
10.2 Master Lease Agreement, dated as of May 20, 1994,
between General Electric Capital Corporation and
CPC................................................... (1)
10.3 Schedules A-1 through A-6, each dated December 17,
1986, to the Master Lease Agreement (Exhibit 10.2)... (1)
10.4 Corporate Guaranty dated May 20, 1994, from PCI to
General Electric Capital Corporation, and Amendments
Nos. 1 and 2 thereto, both made as of December
17, 1996.............................................. (1)
10.5 1988 Restricted Stock Option Plan, as amended......... (2)*
10.6 1988 Director Stock Option Plan....................... (2)*
10.7 1990 Stock Option Plan for Non-Employee Directors..... (2)*
10.8 Shareholders' Agreement dated July 7, 1989, among
Viatech, Inc., Le Fer Blac S.A., Citicorp Capital
Investors Europe Limited and Citibank S.A. ........... (2)
10.9 Revolving Credit and Term Loan Agreement dated as of
December 1, 1992...................................... (2)
10.10 Stock Purchase Agreement dated November 2, 1991....... (2)
10.11 1992 Restricted Stock Plan for Non-Employee Directors,
as amended............................................ (2)*
10.12 Agreement Among PCI Stockholders, dated October
22, 1996.............................................. (2)
10.13 Employment Contract with Donald J. Bainton, as
amended............................................... (2)*
10.14 1995 Restricted Stock Compensation Plan............... (2)*
10.15 Amendment No. 2 to Revolving Credit and Term Loan
Agreement............................................. (2)
11.1 Statement re computation of per share earnings........
See Note 1 .......................................p. 31
13.1 Annual Report to Stockholders for 1996............... p. 15
21 Subsidiaries of the Registrant....................... p. 52
23.1 Independent Auditors' Report on Schedules............ p. 53
23.2 Consent of Independent Auditors...................... p. 54
27 Financial Data Schedule.............................. p. 55
* Management contract or compensatory plan or
arrangement.
</TABLE>
(1) These documents have been previously filed with the Commission by
Plastic Containers, Inc.
(2) These documents have previously been filed with the Commission.
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, 1996.
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 24, 1997
- --------------------------------------- ----- --------------
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.
<TABLE>
<CAPTION>
/s/ Donald J. Bainton Date: March 24, 1997
- ---------------------------------------------------- ----------- --------------
<S> <C> <C>
Donald J. Bainton, Chairman of the Board
of Directors and Chief Executive Officer
(Principal Executive Officer)
/s/ Kenneth Bainton Date: March 24, 1997
- ---------------------------------------- ---------- --------------
Kenneth Bainton, Director
/s/ Robert L.. Bainton Date: March 24, 1997
- ---------------------------------------- ---------- --------------
Robert L. Bainton, Director
/s/ Nils E. Benson Date: March 24, 1997
- ---------------------------------------- ---------- --------------
Nils E. Benson, Director
/s/ Charles DiGiovanna Date: March 24, 1997
- ---------------------------------------- ---------- --------------
Charles DiGiovanna, Director
/s/ Rainer N. Greeven Date: March 24, 1997
- ---------------------------------------- ---------- --------------
Rainer N. Greeven, Director
/s/ V. Henry ONeill Date: March 24, 1997
- ---------------------------------------- ---------- --------------
V. Henry O'Neill, Director
/s/ John J. Serrell Date: March 24, 1997
- ---------------------------------------- ---------- --------------
John J. Serrell, Director
/s/ Robert A. Utting Date: March 24, 1997
- ---------------------------------------- ---------- --------------
Robert A. Utting, Director
/s/ Abdo Yazgi Date: March 24, 1997
- ---------------------------------------- ---------- --------------
Abdo Yazgi, Director
/s/ Jose Luis Zapata Date: March 24, 1997
- ---------------------------------------- ---------- --------------
Jose Luis Zapata, Director
</TABLE>
10
<PAGE>
Schedule II - Valuation and Qualifying
Accounts
Continental Can Company, Inc. and
Subsidiaries
Allowance for Doubtful Accounts
Years Ended December 31, 1996, 1995 and
1994
(in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning costs and (1) (2) end of
of period expenses Deductions Other period
---------- ---------- ---------- ------- --------------
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1996 $6,144 $1,878 $2,160 $1,484 $4,378
========== ========== ---------- ======= ==============
Year ended
December 31, 1995 $5,316 $1,909 $1,081 $ - $6,144
========== ========== ========== ======= ==============
Year ended
December 31, 1994 $3,522 $2,845 $1,051 $ - $5,316
========== ========== ========== ======= ==============
</TABLE>
(1) Represents uncollectible accounts written-off.
(2) Represents $1,484 from deconsolidation of subsidiary in 1996.
11
<PAGE>
Schedule III - Condensed Financial Information of Registrant
Continental Can Company, Inc.
Balance Sheets
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
(in thousands) 1996 1995
-------- --------
ASSETS:
<S> <C> <C>
Cash $ 24 $ (10)
Investments in Subsidiaries at Equity 101,356 77,520
Other Assets 1,436 1,692
-------- -------
Total Assets $102,816 $79,202
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities (a) $ 4,192 $ 2,479
Long Term Debt (a) 30,000 425
-------- -------
Total Liabilities 34,192 $ 2,904
Stockholders' Equity 68,624 76,298
-------- -------
$102,816 $79,202
======== =======
</TABLE>
(a) See Note 8, Items (a) and (b) of Notes to Consolidated Financial Statements
of Continental Can Company, Inc. and Subsidiaries.
Continental Can Company, Inc.
Statements of Earnings
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Management Fees $ 2,103 $ 2,247 $ 1,882
Selling, General and
Administrative Expenses 2,917 3,817 2,923
-------- ------- -------
(814) (1,570) (1,041)
(Deficit) Equity in Net (Loss) Income
of Subsidiaries (b) ( 4,361) 2,402 5,803
-------- ------- -------
(5,175) 832 4,762
Other (385) (277) (290)
-------- ------- -------
555 4,472
(Provision for) Recovery of
Income Taxes - - (27)
-------- ------- -------
Net Income $ (5,560) $ 555 $ 4,445
======== ======= =======
</TABLE>
(b) Includes for 1996, 1995 and 1994 extraordinary charges of $6,136, $115 and
$108, respectively, relating to the extinguishment of debt and in 1994 a
charge of $262 relating to the cumulative effect of adopting SFAS No. 112.
12
<PAGE>
Schedule III - Condensed Financial Information of Registrant (Continued)
Continental Can Company, Inc.
Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net (Loss) Income $ (5,560) $ 555 $ 4,445
Adjustments to Reconcile Net (Loss)
Income to Net Cash Used in Operating
Activities:
Dividends Received From Affiliates 311 344 818
(Deficit) Equity in Net (Loss) Income 4,361 (2,402) (5,803)
of Subsidiaries
(Increase) Decrease in Due to (1,590) 1,281 (442)
Affiliates
Other 669 51 387
-------- ------- -------
Net Cash Used in Operating Activities (1,809) (171) (595)
Cash Flows From Investing Activities:
Increase Investment in Subsidiaries (29,163) - (1,225)
Proceeds from Sale of Capital Assets - - 411
-------- ------- -------
Net Cash Used in Investing Activities (29,163) - (814)
Cash Flows From Financing Activities:
Common Stock Issued Upon Conversion of
Debentures and Warrants 131 849 362
Proceeds from Short-Term Borrowings 1,300 - -
Proceeds from (Repayment of)
Long-Term Financing 29,575 (767) 500
-------- ------- -------
Net Cash Provided by Financing 31,006 82 862
Activities
Net Increase (Decrease) in Cash 34 (89) (547)
Cash at Beginning of Year (10) 79 626
-------- ------- -------
Cash at End of Year $ 24 $ (10) $ 79
======== ======= =======
Cash paid for interest and income taxes
was as follows:
1996 1995 1994
-------- ------- -------
Interest $ 111 $ 76 $ 210
Income Taxes $ 76 $ 105 $ 8
</TABLE>
13
<PAGE>
EXHIBITS ATTACHED:
------------------
11.1 Statement re computation of per share earnings Page 31
13.1 1996 Annual Report to Stockholders Page 15
21 Subsidiaries of the Registrant Page 52
23.1 Independent Auditors' Report on Schedules Page 53
23.2 Consent of Independent Auditors Page 54
27 Financial Data Schedule Page 55
14
<PAGE>
CONTINENTAL CAN COMPANY, INC.
1996 ANNUAL REPORT
CORPORATE PROFILE
Continental Can Company, Inc., through its subsidiaries, manufactures extrusion
blow-molded plastic containers, metal cans, plastic 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 OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT TO SHAREHOLDERS............................. 2
DESCRIPTION OF BUSINESS............................ 4
SELECTED FINANCIAL DATA............................ 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.. 7
CONSOLIDATED FINANCIAL STATEMENTS.................. 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS......... 16
INDEPENDENT AUDITORS REPORT........................ 39
DIRECTORS AND OFFICERS............................. 40
CORPORATE INFORMATION.............................. 41
</TABLE>
REPORT TO SHAREHOLDERS
----------------------
In 1996, we made very good progress in positioning our Company for significantly
increased earnings in 1997 and beyond. A major milestone was our acquisition of
an additional 34% of Plastic Containers, Inc. (PCI) bringing our total ownership
to 84%. This comes at a time when PCI is poised to contribute very positively
to our Company's overall earnings performance. From an operational standpoint,
we continued to address manufacturing efficiencies at Ferembal and PCI, our two
largest subsidiaries. At Ferembal, we took what we expect to be our final
restructuring charge which amounted to $1.1 million. At PCI, we took a $6.5
million charge for restructuring. PCI opened a new plant in Atlanta in 1996 and
had recently opened a plant in West Memphis, Arkansas following its customers
relocation to these areas. As a result, PCI was able to close two other plants
and transfer their remaining business into other facilities. Without these
charges, earnings before extraordinary item would have amounted to $1.01 per
share in 1996.
The acquisition of additional equity at PCI was financed at the PCI level. In
addition to a $40.6 million sale/leaseback financing of equipment, PCI sold $125
million of 10% Senior Secured Notes. The proceeds of these transactions were
used to finance the equity purchase, redeem PCIs outstanding 10-3/4% Senior
Secured Notes, and pay down existing short-term debt. The extraordinary charge
in 1996 related to this transaction. As expected, PCI's operational results
improved significantly in the second half of 1996. We are strongly confident
that it will be substantially profitable in 1997.
Ferembal, our French can manufacturing subsidiary, maintained strong
profitability in spite of continued pricing pressures from other European
countries. In addition, our cost control program, instituted several years ago,
is continuing, and we are confident in our objective of maintaining a cost
efficient, quality-oriented operation at Ferembal. Excellent results have been
obtained from our ongoing personnel reductions and our materials purchasing
program, a program which has kept the cost of materials at an acceptable level
despite contrary market pressures. Also, we are currently in the process of
opening a sixth plant contiguous to one of our major customers. In 1997, we
expect Ferembal to once again produce positive results.
15
<PAGE>
Our Czech can manufacturing subsidiary, Obalex, had another excellent year in
both volume and income. For 1997, we expect Obalex to continue its excellent
growth, as the Eastern European market continues to flourish.
Dixie Union, our German flexible packaging business, experienced a difficult
year for a number of reasons. The film segment of the business was negatively
impacted by strong competitive pricing, and the mad cow disease, which impacted
meat consumption throughout Europe and adversely affected both the barrier
shrink bag and packaging machinery markets. However, we are hopeful for a
turnaround in both of these areas in 1997. We are confident that barrier shrink
bag volume will increase since we recently extended our rights to sell this
product in Eastern Europe and South America. Also, the packaging machinery
segment, expecially the complete machine line systems, seems to be showing signs
of renewed growth with increased orders and substantial backlog. In short, we
expect Dixie Union, in 1997, to rebound in both sales and income, contributing
to our Company's profitability.
We are confident that 1997 will show a marked improvement over 1996. We do not
foresee nor expect to incur any restructuring charges in 1997. Over the past
couple of years, we have taken the necessary steps to make our businesses as
lean as possible without affecting customer satisfaction. The cost reduction
programs, the personnel reductions, and the plant restructuring charges reflect
not only the steps management has had to take in order to ensure the continued
health of our businesses, but also the everchanging and highly competitive
nature of todays packaging environment. With 1997 upon us, we are very
optimistic that we have taken the prudent steps to reduce our basic operating
costs and that these actions will ensure the future growth and prosperity of our
Company. We shall continue to address the individual needs of each of our
businesses to ensure their success, and will continue to look for attractive
acquisitions and joint ventures that are accretive to our Company's
profitability and which provide long-term value for our shareholders.
Donald J. Bainton
Chairman and Chief Executive Officer
March 14, 1997
DESCRIPTION OF BUSINESS
Continental Can Company, Inc. is a holding company primarily engaged
in the packaging business through a number of operating subsidiaries. The
Company's packaging business consists of its 84% owned domestic subsidiary,
Plastic Containers, Inc. (PCI), which owns Continental Plastic Containers, Inc.
and Continental Caribbean Containers, Inc. (collectively, CPC), a leading
manufacturer of extrusion blow-molded containers in the United States. Its
wholly-owned German operating subsidiary is Dixie Union GmbH & Company KG (Dixie
Union) and its majority-owned European operating subsidiaries are Ferembal S.A.
(Ferembal) and Obalex A.S. (Obalex). The Company also owns 49% of Onena Bolsas
de Papel S.A. (Onena). 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 laminates and
prints 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 - CPC, headquartered in Norwalk, Connecticut, develops,
---
manufactures and sells a wide range of extrusion blow-molded plastic containers
through its national network of sixteen manufacturing plants (including one in
Puerto Rico). CPC supplies containers for food and beverages, household
chemicals, automotive products and motor oil, industrial and agricultural
chemicals, cosmetics and
16
<PAGE>
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 and Quaker Oats Company. CPC often
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 long-term contracts
with customers representing a substantial portion of its sales volume.
FEREMBAL - The Company currently owns an 85% interest in Ferembal,
--------
the second largest food can manufacturer in France and the third largest in
Europe. Ferembal, headquartered in Paris, has five manufacturing plants located
in each of the main agricultural regions of France.
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, chemical products and motor oil. Ferembal's products
include both two and three-piece cans for food, easy-open ends, 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 85% 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's subsidiary, Ferembal, owns 95% of the
------
outstanding stock of Obalex. Obalex, located in the Czech Republic,
manufactures 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 owns all of the outstanding stock of Dixie
-----------
Union. Dixie Union is headquartered in Kempten, Germany and has a subsidiary
company in France. 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 - The Company owns a 49% interest in Onena, located in
-----
Pamplona, Spain. Onena manufactures plastic film and laminates and prints a
variety of paper, foil and plastic film products. Its major customers are
primarily in the food and snack food industries in Spain.
SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales (2) $585,034 $614,387 $537,180 $481,842 $511,241
======== ======== ======== ======== ========
Net (loss) income (2)(3) $ (5,560) $ 555 $ 4,445 $ 988 $ 2,063
======== ======== ======== ======== ========
(Loss) earnings per
common share (3)
Primary $ (1.69) $ .17 $ 1.39 $ .33 $ .67
======== ======== ======== ======== ========
Fully diluted $ (1.69) $ .17 $ 1.34 $ .32 $ .64
======== ======== ======== ======== ========
Weighted average
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
shares outstanding (4) 3,289 3,339 3,220 3,023 3,078
======== ======== ======== ======== ========
Total assets $391,032 $445,411 $423,585 $385,907 $400,010
======== ======== ======== ======== ========
Total debt $184,463 $201,748 $177,259 $173,847 $178,888
======== ======== ======== ======== ========
Total stockholders'
equity (4) $ 68,624 $ 76,298 $ 70,696 $ 60,855 $ 62,935
======== ======== ======== ======== ========
EBITDA (5) $ 51,892 $ 54,361 $ 59,365 $ 59,368 $ 64,521
======== ======== ======== ======== ========
Current ratio 1.76 1.29 1.52 1.67 1.69
======== ======== ======== ======== ========
</TABLE>
(1) In thousands, except per share amounts.
(2) In 1993, includes sales of $10,682 and net income of $238 related to the
purchase of Obalex.
(3) Includes an extraordinary charge of $6,136 ($1.87 per share both primary
and fully diluted) in 1996. Includes an extraordinary charge of $115 ($.03
per share both primary and fully diluted) in 1995. Includes a charge for
the cumulative effect of an accounting change of $262 ($.08 per share both
primary and fully diluted) and an extraordinary charge of $108 ($.03 per
share both primary and fully diluted) in 1994. 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.
(4) The 1994 weighted average shares outstanding include 268 shares issued in
May 1994 upon the conversion of the Company's 10-3/4% Convertible
Subordinated Debentures.
(5) Earnings before interest, taxes, depreciation and amortization, determined
without consideration to minority interests.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
1996 VS. 1995
In 1996, net sales decreased 4.8% to $585 million from $614.4 million in 1995.
This decline resulted primarily from foreign currency translation rate
differences (approximately $10 million), resin price decreases which are a
customer pass-through at PCI (approximately $9 million), and volume decreases
primarily in the Company's European flexible packaging operations (approximately
$8 million).
Backlog at December 31, 1996, amounted to $20.2 million as compared to $22.6
million at December 31, 1995. Since PCI, Ferembal and Obalex produce most of
their products under open order, none of this backlog is attributable to them.
Gross profit decreased 3.7% to $87 million in 1996 from $90.4 million in 1995.
Gross profit as a percentage of sales improved to 14.9% in 1996 as compared to
14.7% in 1995. The decrease in gross profit resulted from lower sales volume
and foreign currency translation rate differences. The increase in gross profit
margin reflected the pass-through of resin price decreases, equally reducing
sales and cost.
Restructuring charges amounted to $7,624,000 and $4,905,000 in 1996 and 1995,
respectively. Charges of $1,124,000 in 1996 and $5,003,000 in 1995 related to
termination benefits for certain employees of Ferembal and reflect a response to
continuing competitive pressure in Ferembal's marketplace. Restructuring charges
reflected two plant closings at PCI and amounted to $6,500,000 in 1996. One
closing had been completed by year-end while the other plant was expected to be
completed in the first quarter of 1997.
Selling, general and administrative expenses as a percentage of net sales
amounted to 10.2% in 1996 as compared to 10.6% in 1995 and reflects the Companys
continued emphasis on cost reductions. As a
18
<PAGE>
result of these various factors, operating income decreased to $19,874,000 in
1996 from $20,598,000 in 1995, while operating margin remained at 3.4% in 1996
and 1995.
Net interest expense decreased slightly to $19.6 million in 1996 from $19.9
million in 1995. Foreign currency exchange gains amounted to $115,000 in 1996
compared to losses of $299,000 in 1995.
The Company's consolidated effective tax rate is an amalgamation of the tax
charges and tax benefits of itself and its subsidiaries. This rate reflects the
offsetting nature of these items in consolidation. PCI utilized tax benefits of
$1,876,000 and $2,505,000 in 1996 and 1995, respectively.
Minority interest in 1996 and 1995 reflects the interest of other shareholders
in PCI, Ferembal, Onena and Obalex.
Income before extraordinary item in 1996 amounted to $576,000 ($.18 per share).
An extraordinary charge in 1996, net of the portion attributable to the minority
interest, amounting to $6,136,000 ($1.87 per share) related to costs associated
with the early redemption of PCIs 10.75% Senior Secured Notes due in 2001.
Net loss amounted to $5,560,000 ($1.69 per share) in 1996 and net income
amounted to $555,000 ($.17 per share) in 1995.
1995 VS. 1994
In 1995, net sales increased 14% to $614.4 million from $537.2 million in 1994.
This improvement resulted from net volume increases, foreign currency
translation rate differences (approximately $34 million) and resin price
increases which are a customer pass-through at PCI (approximately $23 million).
Backlog at December 31, 1995 amounted to $22.6 million as compared to $29.9
million at December 31, 1994. Since PCI, Ferembal and Obalex produce most of
their products under open orders, none of this backlog is attributable to them.
Gross profit increased 1.2% to $90.4 million in 1995 from $89.3 million in 1994.
Gross profit margin declined to 14.7% in 1995 from 16.6% in 1994. The increase
in gross profit resulted from higher sales volumes, while the declining gross
profit margin reflected continued competitive pressure on pricing in the can and
flexible packaging markets. Additionally, the pass-through of resin costs at
PCI increases both sales and costs equally, reducing the margin percentage.
Restructuring charges amounted to $4,905,000 in 1995 and primarily related to
termination benefits for certain employees of Ferembal and reflect a response to
continuing competitive pressure in Ferembal's marketplace. Restructuring charges
in 1994 amounted to $2,541,000 of which $1,686,000 related to Ferembal and a
charge of $855,000 related to a plant closing in 1991 at PCI. Selling, general
and administrative expense as a percentage of net sales amounted to 10.6% in
1995 as compared to 11.4% in 1994. This reduction reflects the fixed nature of
many of these expenses in relation to increased volume.
As a result of these various factors, operating income decreased to $20,598,000
in 1995 from $25,648,000 in 1994, while operating margin declined to 3.4% in
1995 from 4.8% in 1994.
Net interest expense increased slightly to $19.9 million in 1995 from $18.7
million in 1994. This increase primarily reflected higher average short-term
debt balances in Europe and the United States in 1995.
The Company's consolidated effective tax rate is an amalgamation of the tax
charges and tax benefits of itself and its subsidiaries. This rate reflects the
offsetting nature of these items in consolidation. PCI
19
<PAGE>
utilized tax benefits of $2,505,000 and $1,631,000 in 1995 and 1994,
respectively. Also in 1994, Ferembal settled a tax dispute which resulted in a
tax benefit of approximately $900,000.
Minority interest in 1995 and 1994 reflects the interest of other shareholders
in PCI, Ferembal, Onena and Obalex.
Income before extraordinary item in 1995 amounted to $670,000 ($.20 per share).
An extraordinary charge in 1995, net of the portion attributable to the minority
interest, amounting to $115,000 ($.03 per share) related to costs associated
with the cancellation of a revolving credit agreement at PCI.
Net income amounted to $555,000 ($.17 per share) in 1995 and $4,445,000 ($1.34
per share) in 1994.
FINANCIAL CONDITION
Capital Resources
The packaging business utilizes relatively large amounts of specialized
machinery and equipment which are periodically upgraded or replaced.
Capital expenditures in 1996 amounted to $33.3 million primarily for the
purchase of machinery and equipment. During 1996, major capital expenditures
included the purchase of extrusion blow-molding lines and line changes at PCI
and a can line at Ferembal. Expenditures in 1997 are expected to amount to
approximately $23 million and be similar in character to those in 1996.
During 1996, the Company increased its ownership of PCI to 84%. See Note 2(a).
During 1996, the Company sold an 8% interest in Onena for a nominal
consideration. As a result of the sale, the Company holds less than a majority
of Onena's shares and, accordingly, deconsolidated its results after December
12, 1996. See Note 2(b).
Ferembal increased its ownership interest in Obalex to 95% during 1996. See
Note 2(c). The minority stockholders of Ferembal have the right to sell a
portion of their shares in an initial public offering of Ferembal which the
Company has agreed to make at their request. It is expected that the holder of
a junior subordinated convertible bond of Ferembal will convert its bond at such
time to participate in any such offering. Although the Company does not
currently expect to sell any of its stock in Ferembal in any such offering, if
the bond is converted, the Company ownership of Ferembal will decline from 85%
to 64%. See Note 2(d).
The Company has actively pursued acquisition possibilities in 1996 and intends
to continue to do so in 1997 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 1996 capital requirements with cash generated from
operations, from existing funds, through borrowings and through a sale/leaseback
financing. It is anticipated that such expenditures in 1997 will be financed in
a similar manner.
LIQUIDITY
The Company's liquidity position at December 31, 1996 improved from the prior
year end. Working capital increased to $78.7 million at December 31, 1996 from
$46.2 million at December 31, 1995. The current ratio increased to 1.76 at
December 31, 1996 from 1.29 at December 31, 1995.
20
<PAGE>
The Company's cash position increased by $6 million between December 31, 1996
and 1995. Cash flows from operating activities provided $40.9 million for the
Company in 1996, most of which related to depreciation and amortization. Cash
from operations was used primarily for capital expenditures. The Company
invested approximately $33.3 million in 1996 in property, plant and equipment.
In December 1996, CPC entered into a sale/leaseback financing agreement of $40.6
million of equipment at five plants. Additionally, the Company refinanced long-
term debt at PCI using a portion of the proceeds of these transactions to
purchase an additional 34% equity interest in PCI to replace existing long-term
debt and, to reduce short-term borrowings. Ferembal also issued new long-term
debt to repay short-term borrowings.
The Company's packaging subsidiaries had available various unutilized credit
facilities of approximately $100 million at December 31, 1996. However, the
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 both in 1997 and on a long-term
basis.
UTILIZATION OF NET OPERATING LOSS CARRYFORWARDS
The Company and its subsidiaries account for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes," 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 9, PCI has tax net operating loss carryforwards (NOL's)
totaling approximately $50 million which expire through 2010. SFAS 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." Based upon the scheduled reversals of deferred tax liabilities,
projected future taxable income and tax planning strategies, management believes
it is more likely than not the Company will realize the benefits of these
deductible differences net of the existing valuation allowances at December 31,
1996.
The NOL's available for future utilization were generated principally by
operating losses caused by increased post-acquisition depreciation and
amortization charges and additional interest expense on debt incurred in
connection with the purchase. Additionally, in the years ended December 31,
1996 and 1992, extraordinary losses were incurred due to the write-off of
deferred financing costs. 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.
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. At PCI, changes in
the cost of plastic resin are passed-through to customers and have equal and
offsetting effects on sales and costs of goods sold and, therefore, have no
material effect on earnings and cash flow. Such changes can have a substantial
impact on sales. Inflation has not been a material factor in the Company's
revenues and earnings in the past three years.
NEW ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities." SFAS No. 125 is effective for
21
<PAGE>
transactions occurring after December 31, 1996. Management of the Company does
not expect the adoption of SFAS No. 125 to have any impact on the Companys
financial position, results of operations or liquidity.
22
<PAGE>
<TABLE>
<CAPTION>
CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(In thousands, except share data)
1996 1995
-------- ---------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 15,020 $ 8,925
Investment securities 1,210 285
Accounts Receivable:
Trade 74,677 94,461
Other 7,217 13,215
Less allowance for doubtful (4,378) (6,144)
accounts
--------- --------
Accounts receivable, net 77,516 101,532
Inventories 82,911 91,636
Prepaid expenses and other current 5,938 5,275
assets
--------- ---------
Total current assets 182,595 207,653
--------- ---------
Property, plant and equipment, at cost:
Land, building and improvements 49,788 52,090
Manufacturing machinery and 216,760 263,331
equipment
Furniture, fixtures and equipment 9,434 9,591
Construction in progress 8,644 22,476
--------- ---------
284,626 347,488
Less accumulated depreciation and (132,850) (148,874)
amortization
--------- ---------
Net property, plant and 151,776 198,614
equipment
Goodwill, net of accumulated
amortization of $2,645
and $2,227, in 1996 and 1995, 31,130 14,486
respectively
Other assets, net of accumulated 25,531 24,658
amortization
--------- ---------
Total assets $ 391,032 $ 445,411
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
23
<PAGE>
CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
(In thousands, except share data)
1996 1995
--------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 8,633 $ 47,945
Accounts payable - trade 44,169 56,830
Accrued liabilities:
Employee compensation and 18,421 18,238
benefits
Other accrued expenses 13,536 17,417
Current installments of long-term
debt and obligations under capital
leases 5,080 10,665
Income taxes payable 1,710 1,610
Other current liabilities 12,299 8,753
--------- -------
Total current liabilities 103,848 161,458
Long-term debt, excluding current 156,373 130,023
installments
Obligations under capital leases,
excluding current installments 14,377 13,115
Deferred income taxes 3,641 3,872
Other liabilities 32,179 30,365
--------- -------
Total liabilities 310,418 338,833
Minority interest 11,990 30,280
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 3,201,035
shares in 1996 and 3,196,368 800 799
shares in 1995.
--------- -------
800 799
Additional paid-in capital 43,997 43,868
Retained earnings 21,182 26,742
Cumulative foreign currency translation 2,645 4,889
adjustment
--------- --------
Total stockholders' equity 68,624 76,298
Commitments and contingencies - -
--------- --------
Total liabilities and $391,032 $445,411
stockholders' equity
========= ========
</TABLE>
See accompanying notes to consolidated financial statements
24
<PAGE>
CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
(In thousands, except per share data)
1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Net sales $585,034 $614,387 $537,180
Cost of sales 498,008 523,978 447,884
-----------------------------------
Gross profit 87,026 90,409 89,296
Selling, general and administrative 59,528 64,906 61,107
expenses
Restructuring charges 7,624 4,905 2,541
-----------------------------------
Operating income 19,874 20,598 25,648
Other income (expense):
Interest expense, net (19,593) (19,917) (18,684)
Foreign currency exchange gain (loss) 115 (299) (121)
Other, net (397) (291) (180)
-----------------------------------
Net other expense (19,875) (20,507) (18,985)
(Loss) income before provision
(recovery) for income taxes,
minority interest, extraordinary
item and cumulative effect of
accounting change (1) 91 6,663
Provision (recovery) for income taxes 1,245 (503) 1,761
-----------------------------------
(Loss) income before minority interest,
extraordinary item and cumulative
effect of accounting change (1,246) 594 4,902
Minority interest (1,822) (76) 87
-----------------------------------
Income before extraordinary item and
cumulative effect of accounting 576 670 4,815
change
Extraordinary item, net (6,136) (115) (108)
Cumulative effect of accounting change, - - (262)
net
-----------------------------------
Net (loss) income $ (5,560) $ 555 $ 4,445
===================================
(Loss) earnings per common share -
Primary:
Before extraordinary item and
cumulative effect of $ 0.18 $ 0.20 $ 1.50
accounting change
Extraordinary item, net (1.87) (0.03) (0.03)
Cumulative effect of accounting - - (0.08)
change, net
-----------------------------------
Net (loss) earnings per common share - $ (1.69) $ 0.17 $ 1.39
primary
===================================
(Loss) earnings per common share -
assuming full dilution:
Before extraordinary item and
cumulative effect of $ 0.18 $ 0.20 $ 1.45
accounting change
Extraordinary item, net (1.87) (0.03) (0.03)
Cumulative effect of accounting - - (0.08)
change, net
-----------------------------------
Net (Loss) earnings per common share - $ (1.69) $ 0.17 $ 1.34
assuming full dilution
===================================
</TABLE>
See accompanying notes to consolidated financial statements
25
<PAGE>
CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
(In thousands)
1996 1995 1994
---------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net (loss) income $ (5,560) $ 555 $ 4,445
Adjustments to reconcile net
(loss) income to net cash
provided by operating
activities:
Depreciation and amortization 32,300 34,353 34,018
Extraordinary item, net 6,136 115 108
Minority interest (1,822) (76) 87
Deferred income taxes (2,022) (2,805) 789
Loss on sale of capital 722 68 169
assets, net
Provision for doubtful (769) 1,656 2,845
accounts receivable
Changes in Assets and
Liabilities:
Decrease (increase) in 10,517 14,534 (25,528)
accounts receivable, net
Decrease (increase) in 4,007 697 (4,143)
other receivables
Decrease (increase) in 224 (4,215) (6,952)
inventories
(Increase) decrease in
prepaid expenses and
other current assets (235) 245 (678)
Decrease in intangible 121 - -
assets
(Increase) in other assets (1,056) (1,338) (274)
Decrease (increase) in 182 (11,377) (2,740)
pension asset/liability
(Decrease) increase in (4,895) (9,144) 15,901
accounts payable
Increase (decrease) in 2,257 (1,021) 1,884
accrued liabilities
Increase in income taxes 203 362 419
payable
Increase (decrease) in 568 2,462 (1,792)
other liabilities
---------------------------------
Net Cash Provided by 40,878 25,071 18,558
Operating Activities
Cash Flows From Investing Activities:
Purchase of minority interests (30,715) (1,448) (1,970)
Net change in investment securities (930) 2 31
Proceeds from sale of capital 41,813 986 985
assets
Capital expenditures, net of (33,301) (42,482) (23,858)
investment grants
Purchase of equipment for customer - - (249)
reimbursement
---------------------------------
Net Cash Used in Investing (23,133) (42,942) (25,061)
Activities
Cash Flows From Financing Activities:
Principal payments of long-term
debt and obligations under
capital leases (116,265) (14,742) (18,125)
Proceeds from long-term debt and
obligations under capital leases 147,836 9,164 5,727
Common stock issued upon
conversion of debentures and
warrants 131 1,007 362
(Repayments of) proceeds from (32,866) 22,211 14,485
short-term borrowings
Dividends paid by subsidiary to (71) (49) (51)
minority interest
Financing fees paid (5,514) - -
Premium on repurchase of bonds (5,382) - -
---------------------------------
Net Cash (Used in) (12,131) 17,591 2,398
Provided by Financing
Activities
Effect of exchange rate changes on cash 481 429 140
---------------------------------
Increase (decrease) in cash and cash 6,095 149 (3,965)
equivalents
Cash and cash equivalents at beginning 8,925 8,776 12,741
of year
---------------------------------
Cash and cash equivalents at end of year $ 15,020 $ 8,925 $ 8,776
=================================
See accompanying notes to consolidated
financial statements
</TABLE>
26
<PAGE>
CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
(In thousands)
Cumulative
Common Stock Foreign Total
------------ Additional Currency Stock-
Number Paid-in Retained Translation holders'
of Shares Amount Capital Earnings Adjustment Equity
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances December 31, 1993 2,879 $720 $41,414 $21,742 $(3,021) $60,855
Net income - - - 4,445 - 4,445
Common stock issued to employees
and upon conversion of debentures 272 68 1,458 - - 1,526
Foreign currency translation - - - - 3,870 3,870
adjustment
---------------------------------------------------------------------
Balances December 31, 1994 3,151 $788 $42,872 $26,187 $ 849 $70,696
Net income - - - 555 - 555
Common stock issued to
employees 45 11 996 - - 1,007
Foreign currency translation - - - - 4,040 4,040
adjustment
---------------------------------------------------------------------
Balances December 31, 1995 3,196 $799 $43,868 $26,742 $ 4,889 $76,298
Net loss - - - (5,560) - (5,560)
Common stock issued to
employees 5 1 129 - - 130
Foreign currency translation - - - - (2,244) (2,244)
adjustment
---------------------------------------------------------------------
Balances December 31, 1996 3,201 $800 $43,997 $21,182 $ 2,645 $68,624
=====================================================================
See accompanying notes to consolidated financial statements
</TABLE>
27
<PAGE>
CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
(a) Principles of Consolidation
Continental Can Company, Inc. (the Company) through its subsidiaries,
manufactures extrusion blow-molded plastic containers, metal cans, plastic films
and equipment for the packaging industry, and prints and laminates flexible
packaging for the food and snack food industries. The accompanying consolidated
financial statements include the accounts of the Company and its majority-owned
foreign and domestic subsidiaries.
At December 31, 1996, the Company owned the following packaging related
businesses: 85% of Ferembal S.A. (Ferembal) (see Note 2(d)), located in France
which in turn owns 95% of Obalex A.S. (Obalex) (see Note 2(c)) located in the
Czech Republic; 100% of Dixie Holding, Inc. and Dixie Union Geschaftsfuhrungs
GmbH which own 100% of Dixie Union GmbH & Company KG (Dixie Union), located in
the Federal Republic of Germany; and 84% of Plastic Containers, Inc. (PCI) (see
Note 2(a)), which in turn owns 100% of Continental Plastic Containers, Inc. and
Continental Caribbean Containers, Inc. (collectively, CPC). The Company also
owns 49% of Onena Bolsas de Papel, S.A. (Onena) (57% at December 31, 1995)
located in Spain. In addition, the Company owns 100% of an engineering firm,
Lockwood, Kessler & Bartlett, Inc. (LKB).
Minority interests reflected in consolidation represent the portions of
Ferembal, Obalex, Onena and PCI not owned by the Company. After December 12,
1996, the results of Onena are presented using the equity method of accounting
(see Note 2(b)).
All significant intercompany balances and transactions have been eliminated in
consolidation.
(b) Investment Securities
Investment securities consist of held-to-maturity government agency securities
stated at amortized cost, which approximates market value, and certificates of
deposit. At December 31, 1996 and 1995, all of the investment securities were
held by PCI.
(c) 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 applied on a
first-in, first-out (FIFO) basis or market.
(d) Depreciation and Amortization
28
<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 improvements 10 to 35
Manufacturing machinery and equipment 3 to 20
Furniture, fixtures and equipment 3 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 consists
of (i) goodwill (amortized on a straight-line basis over forty years), (ii)
finance costs (amortized over periods ranging from five to nine years), and
(iii) customer contracts (amortized over ten years); and (b) Ferembal consists
of patents (amortized on a straight-line basis over their estimated useful
lives) and goodwill (amortized on a straight-line basis over forty years).
(e) Goodwill
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the expected periods
to be benefited, generally forty years. The Company assesses the recoverability
of this intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected undiscounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
(f) 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.
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
29
<PAGE>
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(g) Foreign Currency Translation
The accounts of the Company's foreign subsidiaries 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 component of stockholders' equity. Realized
foreign exchange gains or losses are reflected in operations.
(h) Statement of Cash Flows
Cash equivalents consist of short-term investments in government securities and
bonds. The Company considers securities purchased within three months of their
maturity date to be cash equivalents.
Cash paid for interest and income taxes was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Interest $21,265 $19,657 $18,725
Income taxes $ 1,955 $ 2,630 $ 4,086
</TABLE>
(i) Research, Development and Engineering
Expenditures for research, development and engineering are expensed as incurred.
Research, development and engineering costs amounted to $11,495,000, $12,187,000
and $12,461,000 in 1996, 1995 and 1994, respectively.
(j) Insurance
PCI purchases commercial insurance policies, but remains self-insured in certain
states for the purposes of providing workers' compensation, general liability
and property and casualty insurance coverage up to varying deductible amounts.
PCI's self-insurance reserves are included in other liabilities on the
consolidated balance sheets. Costs charged to operations for self-insurance for
the years ended December 31, 1996, 1995 and 1994 were $2,629,000, $2,200,000 and
$2,066,000, respectively.
(k) Restructuring Charges
Included in expenses in 1996, 1995 and 1994 are restructuring charges of
$7,624,000, $4,905,000 and $2,541,000, respectively. Charges relating to
Ferembal amounted to $1,124,000, $5,003,000 and $1,686,000 in 1996, 1995 and
1994, respectively. These charges include termination benefits for certain
employees, approximately half of whom accepted early retirement. Terminated
employees at Ferembal received $3,043,000 in 1996, $1,882,000 in 1995 and
$889,000 in 1994. Included in other current
30
<PAGE>
liabilities in 1996 is $1,455,000 for termination benefits for the remaining
employees of Ferembal, substantially, all of which is expected to be paid in
1997.
In 1996, restructuring charges relating to PCI amounted to $6,500,000 in
connection with plans to consolidate certain manufacturing facilities. PCI
closed one plant in 1996 and will close another plant by the end of the first
quarter of 1997. Production from these plants will be transferred to other
existing facilities. The components of the $6,500,000 charge include
approximately $1,400,000 for employee severance costs, approximately $1,600,000
for an impairment loss related to fixed assets, and approximately $3,500,000 for
noncancellable lease obligations and related facility closing costs. As of
December 31, 1996, approximately half of the employees had been terminated and
severance benefits paid were approximately $590,000. In addition, payments of
approximately $714,000 and $257,000 had been made against other accrued charges
as of December 31, 1996 and 1995, respectively. Included in other current
liabilities in 1996 is $4,096,000 representing the unpaid portion of severance
benefits and other accrued charges relating to the PCI restructuring,
substantially all of which is expected to be paid in 1997. For the years ended
December 31, 1995 and 1994, a credit of $98,000 and a charge of $855,000,
respectively, related to prior plant consolidations at PCI.
(l) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(m) 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. Weighted average shares outstanding in 1996, 1995 and 1994 were
3,288,816, 3,338,737 and 3,220,082, respectively.
Prior to their conversion in 1994, earnings per common share, assuming full
dilution, gave 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.
(n) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying
31
<PAGE>
amount or fair value less costs to sell. Adoption of SFAS No. 121 did not have a
material impact on the Companys financial position, results of operations, or
liquidity.
(o) Stock Option Plans
Prior to January 1, 1996, the Company accounted for its stock option plans in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(p) Reclassifications
Certain reclassifications have been made to conform prior year consolidated
financial statements to the 1996 presentation.
(2) ACQUISITIONS AND DISPOSALS
(a) PCI
In December 1996, the Company increased its interest in PCI to 84% by purchasing
34% of PCI from Merrywood, Inc. (Merrywood).
In August 1996, Merrywood notified the Company of its intention to put its 50%
interest in PCI to the Company for $30 million, plus interest at prime plus 1%
from November 21, 1991 pursuant to an Agreement entered into in 1992. In
October 1996, the Company and Merrywood entered into a new Agreement (the "1996
Agreement") pursuant to which the Company purchased 34% of PCI in December 1996
for $30 million, plus a warrant exercisable through December 31, 2000 to
purchase 150,000 shares of Common Stock at the lesser of $20.00 per share or
book value at December 31, 1996. The 1996 Agreement also provided that the
remaining shares in PCI would be purchased by the Company prior to December 31,
2000 for approximately $15.4 million plus interest at 10%. The Company agreed
to retain one of Merrywood's designees as a director of the Company and PCI. All
prior agreements between the Company and Merrywood were terminated by the 1996
Agreement.
The acquisition of these shares was accounted for under the purchase method with
the excess of the purchase price over the fair value of the assets acquired
($17,648,000) allocated to goodwill.
The Company obtained the funds for such purchase from a loan of $30 million from
PCI. The loan matures on June 15, 2007 and accrues interest, payable at
maturity, at an annual rate of 6.9% compounded
32
<PAGE>
semi-annually. PCI obtained such funds through a refinancing of its existing
Senior Notes (see Note 8) and a sale/leaseback financing by CPC. The
sale/leaseback financing of all manufacturing and ancillary equipment at five of
its facilities generated proceeds of $40,566,000 which approximated book value.
The terms of the leases range from 88 to 109 months subject to CPC's option to
repurchase the equipment at 78 and 83 months at a pre-established fair market
value.
(b) Onena
On December 12, 1996, the Company sold 8% of its interest in Onena to SODENA, an
economic development corporation owned by the Government of Navarra, for nominal
consideration. This sale reduced the Company's ownership to less than a majority
of Onena's voting stock. In addition, the Company and SODENA entered into an
amended shareholders' agreement which provides, among other things, that SODENA
will appoint a majority of Onena's directors; that the Company's previous
obligation to purchase SODENA's shares in Onena in 1999 is eliminated; and that,
for nominal consideration, SODENA will have a call, and the Company a put, with
regard to the Company's remaining shares in Onena. As a result of these changes,
effective as of December 12, 1996, the Company has deconsolidated Onena and will
account for its investment in the common stock of Onena under the equity method.
At the time of the deconsolidation, the Company had a negative basis in its
common equity investment in Onena. The Company will not recognize the results of
Onena until its profits exceed losses incurred after December 12, 1996.
(c) Obalex
During 1996, Ferembal increased its equity interest in Obalex to 95% through the
purchase of an additional 9% of Obalex for $495,000. During 1995, Ferembal
purchased an additional 22% of Obalex for $1,448,000. During 1994, Ferembal
purchased an additional 13% of Obalex for $730,000. These transactions have
been accounted for under the purchase method with the purchase price allocated
to the fair value of the net assets acquired.
(d) Ferembal
As part of the 1989 purchase of Ferembal, a junior subordinated convertible bond
was issued which, if converted at December 31, 1996, would reduce the Company's
percentage ownership of Ferembal to 64% (see Note 8(c)). Pursuant to an
Agreement among the Company, the minority shareholders and the convertible
bondholder of Ferembal, the Company has agreed to take Ferembal public in order
to provide liquidity for these other investors. The Company is committed to
taking Ferembal public at a time determined by the minority shareholders. It is
expected that the convertible bondholder will convert its bond into equity
immediately prior to any such offering.
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 held 80,000 shares, and two
banks, Credit du Nord and Societe Generale, held the remaining 70,000 shares.
Ferembal purchased such shares from the banks in 1994 for $1,817,000 which
approximates fair market value.
33
<PAGE>
(3) ACCOUNTS RECEIVABLE AND BUSINESS/CREDIT CONCENTRATIONS
Most of the Company's customers are located in the United States and Europe.
Sales to five customers in 1996, three customers in 1995 and three customers in
1994 accounted for 35%, 23% and 21% of the Company's net sales, respectively;
accounts receivable from five customers at December 31, 1996 and five customers
at December 31, 1995 amounted to 47% and 46%, respectively, of the Company's
total stockholders' equity.
During 1996, 1995 and 1994, Ferembal discounted with banks approximately
$105,514,000, $79,353,000 and $79,260,000, respectively, of trade accounts
receivable with full recourse. Of these amounts, approximately $13,297,000
remains outstanding on December 31, 1996, ($17,401,000 at December 31, 1995).
The components of other accounts receivable at December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Recoverable value added taxes related $ 983 $ 2,680
to Ferembal
Engineering fees billed 2,415 2,309
Cost of molds not yet billed 588 1,734
Other taxes 57 1,154
Due from customer for equipment - 419
purchases
Other 3,174 4,919
------ -------
$7,217 $13,215
====== =======
(4) INVENTORIES
Inventories consist principally of packaging materials. The components of
inventory at December 31 were as follows:
1996 1995
------- -------
(in thousands)
Raw materials and supplies $40,785 $43,625
Work in process 6,627 7,795
Finished goods 39,746 42,241
------- -------
87,158 93,661
LIFO reserve (4,247) (2,025)
------- -------
$82,911 $91,636
======= =======
</TABLE>
During 1996 and 1995, LIFO inventory layers were reduced. This reduction
resulted in charging lower inventory costs prevailing in previous years to cost
of goods sold in 1996 and 1995, thus reducing cost of goods sold by
approximately $80,000 and $700,000, respectively, below the amount that would
have resulted from liquidating inventory recorded at December 31, 1996 and 1995
prices.
(5) DERIVATIVE FINANCIAL INSTRUMENTS
34
<PAGE>
The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. They are used to manage well-
defined interest rate and currency price risks. At December 31, 1996, Ferembal
had an option to purchase $10 million at 5.1 FF to the dollar. The amount under
option approximates the amount of Ferembal's expected 1997 U.S. dollar-
denominated purchase obligations. The option was exercised on January 3, 1997.
At December 31, 1996, Ferembal had entered into several short-term interest rate
hedge agreements in which it has exchanged an obligation to pay variable
interest rates based on the three-month Paris Inter-Bank Offering Rate (PIBOR)
for fixed rates ranging from 3.42% to 6.0%. These agreements cover the period
between January 1997 and March 1998 for principal amounts between $5.8 million
and $21.2 million. Ferembal had also entered into an interest rate dollar
agreement. To the extent the PIBOR rate is above 4.5% for the period between
March 1997 and March 1998, Ferembal would receive the difference based on
principal amounts of $7.7 million to $11.6 million; if below 4.5%, Ferembal
would pay the actual rate but not less than 3.1%. At December 31, 1996, PIBOR
was 3.43%.
Ferembal has purchased interest rate options which provide that Ferembal would
receive the difference between the actual interest rate and 4.2% and 3.6% if the
actual rate is higher and that Ferembal would pay the difference between the
actual rate and 4.2% and 3.6% if the actual rate is lower. The principal
amounts to which these agreements would apply range between $20.2 million and
$21.2 million and cover the period January through September 1997.
The fair value of these agreements at December 31, 1996 was an unrecognized loss
of $23,269. This negative fair value reflects the difference between the
interest rates in effect for such agreements and the rates that could have been
obtained on December 31, 1996 based on the principal amounts over the period
covered.
(6) OTHER ASSETS
The components of other assets at December 31, were as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
(in thousands)
<S> <C> <C>
Intangibles:
Non-compete agreements $ - $15,000
Financing and acquisition costs 5,861 6,058
Customer contracts 7,630 7,630
Prefunded pension 4,971 5,153
Deferred tax assets 5,359 5,099
Non-current receivables, principally VAT 1,081 1,248
Other 5,929 4,100
------- -------
30,831 44,288
Less accumulated amortization of 5,300 19,630
intangibles ------- -------
$25,531 $24,658
======= =======
</TABLE>
35
<PAGE>
(7) SHORT-TERM BORROWINGS
At December 31, 1996 and 1995, approximately $8,633,000 and $47,945,000,
respectively, were outstanding representing at December 31, 1996 amounts drawn
by (a) the Company ($1,300,000 at an interest rate of 9.25%) (b) Ferembal,
including Obalex, ($6,731,000 at interest rates ranging from 5.46% to 11.53%)
and (c) Dixie Union ($602,000 at interest rates ranging from 6.75% to 7.0%).
The Company's borrowings are pursuant to a Revolving Credit Facility which
provides for borrowings up to $2.5 million. A commitment fee of 0.5% is payable
on the unused portion of the facility. The facility is secured by the
receivables of LKB and a $1.3 million mortgage on LKB's headquarters in Syosset,
NY.
At December 31, 1996, Ferembal had unutilized short-term unsecured borrowing
agreements of approximately $61 million. At December 31, 1996, Dixie Union had
total lines of credit available under short-term unsecured borrowing agreements
of approximately $13 million.
PCI has a $50 million revolving credit facility with a commercial bank with
interest on individual borrowings based on the bank's prime rate or LIBOR, at
PCI's option. Borrowings are secured by accounts receivable and inventories. At
December 31, 1996, there were no borrowings outstanding under this facility. PCI
is required to pay an annual commitment fee of 0.25% on the unused facility up
to $25 million and 0.5% on the unused amount in excess of $25 million.
Commitment fees for the years ended December 31, 1996 and 1995 were $104,000 and
$23,000, respectively. The facility contains certain restrictive covenants,
including the maintenance of minimum levels of net worth, fixed charge coverage
and interest coverage, limitations on capital expenditures and additional
indebtedness, and restrictions on the payment of dividends. At December 31,
1996, PCI was in compliance with these covenants. The facility also provides for
the issuance of letters of credit by the bank on PCI's behalf. At December 31,
1996, letters of credit amounting to $3,586,000 had been issued to guarantee
obligations carried on PCI's consolidated balance sheet.
The extraordinary loss of $115,000 in 1995, which is net of the portion
attributable to minority interest, relates to the write-off of unamortized fees
for a prior revolving credit agreement.
(8) LONG-TERM DEBT, CAPITAL LEASES AND OTHER LONG-TERM LIABILITIES
Long-term debt, and capital leases and other long term liabilities as of
December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
(in thousands)
10% Senior Secured Notes due 2006 (a)..... $125,000 -
10.75% Senior Secured Notes due 2001 (b).. - 104,700
Term loan payable by Ferembal through
1997 at 10.25%
(denominated in francs: 2 million and 6
million at December 31, 1996 and 1995,
respectively).......................... 385 1,223
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Notes payable by Ferembal in
installments through 1997 at
PIBOR (3.43% at December 31, 1996) plus
0.6% to 0.75%
(denominated in francs: 4.2 million and
21 million at
December 31, 1996 and 1995,
respectively).......................... 814 4,282
Notes payable by Ferembal in
installments through 2001 at
PIBOR plus 0.55% to 0.6% (denominated
in francs: 75 million at December 31,
1996).................................. 14,449 -
Term loans payable by Ferembal through
2001 at weighted
average interest rates of 10% and a
range of 8.5% to 15.5%
(denominated in francs: 11.1 million
and 14.8 million at
December 31, 1996 and 1995,
respectively).......................... 2,139 3,024
Convertible Subordinated Bond due 2000
at PIBOR (denominated 1,927 2,040
in francs: 10 million at December 31,
1996 and 1995) (c).....................
Term loans payable through 1999 at
rates of 13%
(denominated in Czech crowns: 4.9
million and 6.5 million
at December 31,1996 and 1995,
respectively).......................... 184 245
Obligations under capital leases (d).... 17,029 15,148
Notes payable by Dixie Union at 5.7% to
9.25% (denominated in
deutsch marks: 16 million and 13
million at December 31, 1996
and 1995, respectively)................. 10,390 9,049
Notes payable by Dixie Union in
semi-annual installments
through 2003 at rates of 7.3% to 7.8%
(denominated in
deutsch marks: 5.4 million and 6.1
million at December 31, 1996
and 1995, respectively)................. 3,513 4,250
Other (e)............................... - 9,842
-------- --------
175,830 153,803
Less current installments............... (5,080) (10,665)
-------- --------
$170,750 $143,138
======== ========
</TABLE>
(a) In 1996, PCI completed an offering of 10% Senior Secured Notes due 2006,
(the "Senior Secured Notes"), payable semi-annually on July 15th and
December 15th, are secured by all the issued stock of CPC and substantially
all the assets and properties owned by PCI other than inventory,
receivables and certain equipment securing capital lease obligations.
The Senior Secured Notes are not redeemable by PCI prior to December 15, 2001.
On or after that date the notes are redeemable, in whole or in part, at the
option of PCI at an initial price of 105% of par declining ratably per annum, to
par on December 15, 2004.
In the event of a change of control 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
37
<PAGE>
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 assets.
The indenture places certain restrictions on payment of dividends, additional
liens, disposition of the proceeds from asset sales, sale/leaseback transactions
and additional borrowings. At December 31, 1996, PCI was in compliance with
these restrictions.
(b) The extraordinary loss of $6,136,000 in 1996 and $108,000 in 1994, (which
are net of the portion attributable to minority interest) relates to the
early extinguishment by PCI of a portion of the 10- 3/4% Senior Secured
Notes due in 2001.
(c) In 1989, Ferembal issued a subordinated bond convertible into 100,000
shares of capital stock at the option of the holder 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 (see Note 2(d)).
(d) The capital lease obligations represent lease payments due through 2004
which are capitalized.
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, 1996:
<TABLE>
<CAPTION>
Fiscal Year (in thousands)
- ---------------------------------------- --------------
<S> <C>
1997 $ 3,543
1998 3,642
1999 3,265
2000 2,875
2001 2,636
Thereafter 5,270
-------
Total minimum lease payments $21,231
Less amount representing interest (4,202)
-------
Present value of net minimum lease
payments, including current maturities,
with interest rates ranging from
3.43% to 10.6% $17,029
=======
</TABLE>
(e) Includes the following amounts relating to Onena at December 31, 1995 (i) a
mortgage in the amount of $948,000 (115 million pesetas) (ii) $3,097,000
(377 million pesetas) due to social security (iii) a discounted secured
note amounting to $2,333,000 (252.8 million pesetas) and (iv) bank debt of
$3,039,000 (370 million pesetas) at an average interest rate of 10.25%.
Maturities of long-term debt are as follows:
38
<PAGE>
<TABLE>
<CAPTION>
Year Ending December 31 (in thousands)
----------------------- --------------
<S> <C>
1997 $ 2,428
1998 7,147
1999 12,211
2000 5,919
2001 5,901
Later Years 125,195
--------
$158,801
========
</TABLE>
Other long-term liabilities at December 31, 1996 primarily include
pension and profit sharing amounts related to PCI and Ferembal of $4,710,000
($7,859,000 at December 31, 1995), insurance reserves at PCI of $9,638,000
($8,956,000 at December 31, 1995), and accrued postretirement benefits at PCI
of $6,298,000 ($5,972,000 at December 31, 1995).
(9) INCOME TAXES
The components of the provision for (benefit) income taxes for the years ended
December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Current - Federal $ - $ 145 $ 148
- Foreign 3,247 2,075 812
- State 20 82 12
------- ------- -------
Total Current 3,267 2,302 972
------- ------- -------
Deferred - Federal (1,746) (2,569) (1,559)
- Foreign (126) (73) 2,553
- State (150) (163) (205)
------- ------- -------
Total Deferred (2,022) (2,805) 789
------- ------- -------
Provision for (benefit) income taxes $ 1,245 $ ( 503) $ 1,761
======= ======= =======
</TABLE>
The income tax provision (benefit) differed from the provision (benefit) that
would result from applying the U.S. Federal statutory income tax rate to income
before provision for (benefit) income taxes, minority interest, extraordinary
item and cumulative effect of accounting change as a result of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----- ---------------- ---------------
(in thousands, except for percentage amounts)
Amount % Amount % Amount %
- -------------------------------------------------- ----- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Provision (recovery) at U.S. federal
statutory rate $ - * $ 31 34.0 $2,265 34.0
Losses not providing tax benefits 5,414 * - - (847) (12.7)
Change in valuation allowance
allocated to operations (4,154) * (383) (420.9) 696 10.4
State and local income taxes, net of
federal income tax benefit (86) * (53) (58.2) (127) (1.9)
Differential in foreign tax rates (11) * (247) (271.4) (440) (6.6)
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Other 82 * 149 163.8 214 3.2
------- ----- ------ ------ -----
Provision for (recovery) income taxes $ 1,245 * $(503) (552.7) $1,761 26.4
------- ----- ------ ------ -----
*Percentages not meaningful
</TABLE>
The significant components of deferred income tax (benefit) expense attributable
to income from continuing operations for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Deferred tax (benefit) expense
(exclusive of the effects of other $(2,366) $ (844) $ 119
components below)
Benefit of operating loss carryforwards 8,643 (5,922) (1,313)
Book over tax basis of principally (6,104) 109 886
fixed assets
Pension and postretirement benefits (450) 2,277 401
reserves
Prefunded pension (74) 1,958 -
(Decrease) increase in valuation
allowance for deferred tax assets (1,671) (383) 696
------- ------- -------
$(2,022) $(2,805) $ 789
======= ======= =======
</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 are
presented below:
<TABLE>
<CAPTION>
1996 1995
-------- ----
Deferred tax assets: (in thousands)
<S> <C> <C>
Net operating loss carryforwards $18,811 $ 27,454
Vacation pay, due to accrual for 1,131 1,120
financial reporting purposes
Restructuring 2,437 -
Self-insurance reserves 4,012 3,753
Pension and postretirement benefit 3,767 3,317
reserves
Stock options, due to accrual for 349 340
financial reporting purposes
Accounts Receivable principally due
to allowance for 1,671 2,526
doubtful accounts
Other 2,747 3,967
------- --------
Total gross deferred tax assets 34,925 42,477
Less valuation allowance (9,370) (11,041)
------- --------
Net deferred tax assets 25,555 31,436
Deferred tax liabilities:
Taxable gain on merger 2,169 2,953
Book over tax basis of principally 15,607 21,711
fixed assets
Acquisition costs, book over tax - 237
bases
Prefunded pension 1,884 1,958
Other 429 608
------- --------
Total gross deferred tax liabilities 20,089 27,467
======= ========
Net deferred tax Asset $ 5,466 $ 3,969
======= ========
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1996 and 1995
was $11,041,000 and $11,424,000, respectively. The net change in the total
valuation allowance for the years ended December 31, 1996 and 1995 was a
decrease of $1,671,000 and a decrease of $383,000, respectively.
40
<PAGE>
Due to different tax jurisdictions of the Company's subsidiaries, net deferred
tax assets of $5,466,000 and $3,969,000 at December 31, 1996 and 1995,
respectively, shown above are reflected in the consolidated balance sheets as:
<TABLE>
<CAPTION>
1996 1995
------ ------
(in thousands)
<S> <C> <C>
Current deferred tax assets (included in
prepaid expenses and other current $3,748 $2,742
assets)
Non-current deferred tax assets
(included in
other assets) 5,359 5,099
------ ------
9,107 7,841
Non-current deferred tax liabilities 3,641 3,872
------ ------
Net deferred tax asset $5,466 $3,969
====== ======
</TABLE>
At December 31, 1996, PCI has operating loss carryforwards for Federal income
tax purposes of approximately $50 million, which are available to offset future
Federal taxable income through 2010. In addition, PCI has alternative minimum
tax credit carryforwards of approximately $132,000 which are available to reduce
future Federal regular income taxes over an indefinite period and research and
experimentation credits of approximately $342,000 available to reduce Federal
income taxes through 2010. Based upon the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies,
management believes it is more likely than not that PCI will realize the
benefits of these deductible differences, net of the existing valuation
allowances at December 31, 1996.
(10) COMMON STOCK
(a) Stock Options
The Company has three plans pursuant to which stock options may be granted. The
1988 Restricted Stock Option Plan, as amended (the Restricted Plan), provides
for grants of options to purchase up to 500,000 shares of authorized but
unissued common stock at an exercise price determined by the Personnel Committee
of the Board of Directors (the Committee) but not 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. At December 31,
1996, there were 43,100 shares available for grant under the Restricted Plan.
The per share weighted-average fair value of stock options granted under the
Restricted Plan during 1996 and 1995 was $7.07 and $11.02 on the date of grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1996 1995
-------- -----------------
<S> <C> <C>
Expected dividend yield 0 0
Risk free interest rate 5.5% 7.21%
Expected life 5 years 5 years
</TABLE>
Stock option activity under the Restricted Plan for the periods shown is as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES* EXERCISE PRICE
------- ----------------
<S> <C> <C>
Outstanding at 12-31-94 472,800 $19.64
Granted 25,000 $24.50
Forfeited (57,200) $23.03
Expired (1,300) $26.75
-------
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Outstanding at 12-31-95 439,300 $19.45
Granted 37,500 $16.82
Forfeited (9,100) $23.18
Expired (10,800) $26.75
-------
Outstanding at 12-31-96 456,900 $18.98
=======
</TABLE>
*No options were exercised under the Restricted Plan in 1996 or
1995.
The 1988 Director Stock Option Plan, as amended (the Retainer Plan), provides
for the grant of stock options to purchase up to 50,000 shares of authorized but
unissued common stock to directors that elect to receive a stock option in lieu
of cash as an annual retainer and for attendance fees. Each electing director
will receive an option equal to the nearest number of whole shares determined by
dividing the annual retainer plus attendance fees 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. At December 31, 1996, there
were 29,230 shares available for grant under the Retainer Plan. The per share
weighted-average fair value of stock options granted under the Restricted Plan
during 1996 and 1995 was $0.17 and $0.30 on the date of grant using the Black
Scholes option-pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1996 1995
-------- -----------------
<S> <C> <C>
Expected dividend yield 0 0
Risk free interest rate 6.46% 5.76%
Expected life 3 years 3 years
Stock option activity under the
Retainer Plan for the periods shown is
as follows:
WEIGHTED AVERAGE
SHARES* EXERCISE PRICE
------ ----------------
Outstanding at 12-31-94 12,702 $1.00
Granted 2,791 $1.00
Exercised - $1.00
------
Outstanding at 12-31-95 15,493 $1.00
Granted 6,644 $1.00
Exercised (1,367) $1.00
------
Outstanding at 12-31-96 20,770 $1.00
======
*No options were forfeited or expired under the Retainer Plan in
1996 or 1995.
</TABLE>
The 1990 Stock Option Plan for Non-Employee Directors (the Director Plan)
provides for grant of options to purchase up to 200,000 shares of authorized but
unissued 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 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 ten 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. There are 130,000 shares available for grant under the
Director Plan.
42
<PAGE>
Stock option activity under the Director Plan for the periods shown is as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES* EXERCISE PRICE
------------------ -------------------------
<S> <C> <C>
Outstanding at 12-31-94 95,000 $17.11
Forfeited (9,000) $17.28
Expired (5,000) $17.00
-------
Outstanding at 12-31-95 81,000 $19.45
Forfeited - $23.18
Expired (11,000) $17.23
-------
Outstanding at 12-31-96 70,000 $18.98
=======
*No options were granted or exercised under the Director Plan in 1995 or 1996.
</TABLE>
Some options, which are not pursuant to any plan, were granted prior to 1994.
At December 31, 1996 a total of 85,000 shares were subject to such options at
exercise prices ranging from $2.94 to $25.75 per share, which represented the
fair market value of a share of the Company's stock on the date each of such
options was granted. These options expire between 1998 and 2002. In 1995,
options to purchase 10,000 shares of Common Stock at a price of $17.00 per share
were exercised.
The Company applies APB Opinion No. 25 in accounting for its plans and,
accordingly, no compensation cost has been recognized in the financial
statements for stock options which are issued at or above the fair market value
of a share of the Company's common stock on the date of the grant. Compensation
expense is charged for the difference between the option price and the fair
market value of a share of Common Stock with regard to discounted stock options.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net income
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
------------ --------
<S> <C> <C> <C>
Net (Loss) Income As reported $(5,560,000) $555,000
Pro forma $(5,631,000) $484,000
Net (Loss) Earnings per Share As reported $ (1.69) $ .17
Pro forma $ (1.71) $ .14
</TABLE>
Pro forma net (loss) income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net (loss) income amounts
presented above because compensation cost is reflected over the options' vesting
period of one to five years and compensation cost for options granted prior to
January 1, 1995 is not considered.
(b) Stock Grants
The Company has two plans pursuant to which restricted stock grants may be made.
Pursuant to the 1992 Restricted Stock Plan for Non-Employee Directors (the "1992
Plan"), each non-employee director of the Company receives an annual award of
300 shares of Company Common Stock. 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 failure to stand
for re-election prior to age 70. The Company issued 3,300, 3,900 and 4,200
shares under the Stock Plan for the 1996, 1995 and 1994 plan
43
<PAGE>
years, respectively. The Company has charged to expense $51,975 in 1996, $93,113
in 1995 and $90,300 in 1994 for shares which were issued.
The 1995 Restricted Stock Compensation Plan (the "1995 Plan") provides for the
issuance of restricted shares to key employees of the Company. During 1995, the
Chairman was granted 8,163 shares under the 1995 Plan in lieu of a cash bonus of
$200,000. Such amount was charged to compensation expense in 1994. Also in
1995, the Chairman and five other employees received a total of 21,740 shares
under the 1995 Plan. All such shares vest five years after the date of the grant
subject to the continued employment of the recipients by the Company or its
subsidiaries. The amount charged to compensation expense for these shares was
$106,526 in 1996 and $88,772 in 1995.
(11) PENSION, PROFIT SHARING AND OTHER PLANS
PCI maintains a defined benefit pension plan for substantially all salaried
employee's. Plan benefits are based on all years of continuous service and the
employee's compensation during the highest five continuous years of the last ten
years of employment, minus a profit-sharing annuity. The profit-sharing annuity
is based on the amount of profit-sharing contributions received for 1988 through
1992. Any employee who terminated employment prior to August 31, 1993 is
governed by the terms of the plan in effect at the time the termination
occurred.
PCI maintains a noncontributory defined benefit pension plan for substantially
all hourly workers who have attained 21 years of age. Plan benefits are
variable by location/contract but are based primarily on years of service and
the employee's highest wage classification for twelve consecutive months in the
five years prior to retirement. "Normal" retirement is at age 65, with at least
five years of continuous service. However, employees may retire as early as age
55 and receive reduced benefits.
Subject to the limitation on deductibility imposed by Federal income tax laws,
PCI's policy has been to contribute funds to the plans annually in amounts
required to maintain sufficient plan assets to provide for accrued benefits.
Plan assets are held in a master trust and are comprised primarily of common
stock, corporate bonds and U.S. Government and government agency obligations.
The following table sets forth the plans' funded status at December 31, 1996 and
1995 based primarily on January 1, 1996 participant data and plan assets:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
(in thousands)
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF BENEFIT
OBLIGATION, INCLUDING VESTED BENEFITS
OF $30,280 AND $20,372 IN 1996 AND
$29,078 AND $18,644 IN 1995 FOR THE
SALARIED AND HOURLY PLANS, RESPECTIVELY ($54,478) ($52,798)
========= ========
PROJECTED BENEFIT OBLIGATION (PBO) (56,582) (54,987)
PLAN ASSETS, AT FAIR VALUE 58,898 53,150
UNRECOGNIZED NET LOSS 2,820 7,132
PRIOR SERVICE COST NOT YET RECOGNIZED
IN NET PERIODIC PENSION COST (165) (142)
--------- --------
PREFUNDED PENSION ASSET $ 4,971 $ 5,153
========= =========
</TABLE>
44
<PAGE>
Net periodic pension costs under the above mentioned PCI plans included the
following components for the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -------
(in thousands)
<S> <C> <C> <C>
SERVICE COST $1,362 $ 992 $ 1,161
INTEREST COST 4,001 4,002 3,715
(RETURN) LOSS ON PLAN ASSETS (8,505) (6,292) 1,916
NET AMORTIZATION AND DEFERRAL 3,897 2,922 (5,613)
------ ------- -------
NET PERIODIC PENSION COSTS $ 755 $ 1.624 $ 1,179
====== ======= =======
</TABLE>
PCI contributions to the plans for the years ended December 31, 1996, 1995 and
1994 were $573,000, $12,800,000 and $2,585,000, respectively.
<TABLE>
<CAPTION>
Assumptions used in the accounting were: As of December 31,
--------------------
1996 1995 1994
----- --------- ---------
<S> <C> <C> <C>
Discount rates 7.75% 7.50% 9.00%
Rates of increase in compensation levels 5.00% 5.00% 5.00%
Expected long-term rate on return on 9.50% 9.50% 9.50%
assets
</TABLE>
PCI contributes to various union pension plans pursuant to its labor agreements.
Union benefit plan expense was $1,083,000, $1,080,000 and $896,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
Ferembal provides retirement benefits pursuant to an industry-wide labor
agreement. The plan is not funded. Costs charged (income credited) to
operations amounted to $144,110, ($213,000) and $179,000 in 1996, 1995 and 1994,
respectively. Other non-current liabilities at December 31, 1996 include
$1,730,000, ($1,682,000 at December 31, 1995) 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
$590,000, $86,000 and $673,000 in 1996, 1995 and 1994, respectively. Amounts
are paid to employees after five years with accrued interest. Other non-current
liabilities at December 31, 1996 include $2,980,000, ($4,701,000 at December 31,
1995) for the plan.
Dixie Union provides selected managers with pension and disability benefits.
Amounts charged to expense amounted to $183,000, $192,000 and $175,000 in 1996,
1995 and 1994, respectively.
PCI maintains a defined contribution plan which covers substantially all hourly
employees who meet eligibility requirements. Provisions regarding employee and
employer contributions and the benefits provided under the plan vary between
PCI's manufacturing facilities. PCI's defined contribution plan's expense was
$303,000, $292,000 and $272,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
PCI maintains a contributory defined contribution 401(k) savings plan which
covers substantially all non-organized salaried employees. Employees may
contribute up to twelve and eight percent of pay on a pre-tax and after-tax
basis, respectively. However, the total employee contribution rate may not
exceed fifteen percent of pay. PCI matches up to three percent of employees'
pre-tax contributions. Employees vest in PCI's contributions at twenty-five
percent per year, becoming fully vested after four years of employment.
Employees may make withdrawals from the plan prior to attaining age 59-1/2,
subject to certain penalties.
45
<PAGE>
PCI's savings plan expense was $553,000, $518,000 and $450,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
(12) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND POSTEMPLOYMENT 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 after January 1, 1993.
PCI's policy is to fund the cost of medical benefits in amounts determined at
the discretion of management. Summary information on PCI's plan at December 31,
1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
(in thousands)
Accumulated postretirement benefit obligation:
<S> <C> <C>
Retirees $2,895 $3,449
Fully eligible, active plan participants 740 1,219
Other active plan participants 1,472 1,486
------ ------
$5,107 $6,154
Unrecognized net gain (loss) from experience 793 (614)
and changes in assumptions
Prior service cost in net periodic 398 432
postretirement benefit cost ------ ------
Accrued postretirement benefit obligation $6,298 $5,972
(included in other liabilities) ====== ======
</TABLE>
The components of net periodic postretirement benefit cost at December 31, 1996,
1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ------ ------
(in thousands)
<S> <C> <C> <C>
Service cost $ 87 $ 52 $ 73
Interest cost 447 480 431
Net amortization and deferral (34) (34) (57)
----- ------ ------
Net periodic postretirement benefit cost $ 500 $ 498 $ 447
===== ====== ======
</TABLE>
For measurement purposes, a 9.05% annual rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) was assumed for 1996;
the rate was assumed to decrease gradually to 5.0% by the year 2001 and remain
at that level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example, increasing the assumed
health care cost trend rates by one percentage point in each year would increase
the accumulated postretirement benefit obligation as of December 31, 1996 by
$408,000 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year ended December 31, 1996 by
$46,000.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75% and 7.5% at December 31, 1996 and
1995, respectively.
PCI provides certain postemployment 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.
46
<PAGE>
In 1994, PCI adopted the provisions of SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," which requires employers to recognize the obligation
to provide postemployment benefits and an allocation of the cost of those
benefits to the periods the employees render service. The cumulative effect of
this change in accounting principle of $262,000, which is net of the portion
attributable to minority interest, was determined as of January 1, 1994 and is
reported separately in the consolidated statement of operations for the year
ended December 31, 1994. Additional costs charged to operations for
postemployment benefits in 1996 and 1995 were $38,000 and $24,000, respectively.
(13) EXECUTIVE COMPENSATION
The Company entered into employment agreements with its Chairman and former
Vice-Chairman.
At December 31, 1996, the contract with the Chairman, as amended, provides for
base compensation of $420,000 per annum. The contract also provides that, in
the event of his death before its expiration on May 17, 2006, his spouse will
receive one-half of the amount paid to him annually as base compensation until
her death.
The contract with the former Vice Chairman, who died in January 1989, provided
that in the event of his death prior to its expiration on December 31, 1998, his
spouse would 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.
This obligation which amounted to $135,000 and $244,000 at December 31, 1996 and
1995, respectively, is included in accrued liabilities.
(14) NET INTEREST EXPENSE
The details of net interest expense are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ----
(in thousands)
<S> <C> <C> <C>
Interest income $ 730 $ 759 $ 941
Interest expense (20,323) (20,676) (19,625)
--------- -------- --------
Interest expense, net ($19,593) $(19,917) $(18,684)
========= ======== ========
</TABLE>
(15) 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,
Obalex, Dixie Union and Onena. Information about the Company's foreign and
domestic operations is as follows.
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Sales to unaffiliated customers:
Foreign $302,331 $318,917 $289,566
Domestic 282,703 295,470 247,614
-------- -------- --------
Total $585,034 $614,387 $537,180
======== ======== ========
(Loss) income before provision
(recovery) for income taxes, minority
interest, extraordinary item and
cumulative effect of accounting change:
Foreign $ 6,616 $ 3,937 $ 11,191
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Domestic (6,617) (3,846) (4,528)
-------- -------- --------
Total $ (1) $ 91 $ 6,663
======== ======== ========
Identifiable assets:
Foreign $179,833 $220,740 $207,946
Domestic 211,199 224,671 215,639
-------- -------- --------
Total $391,032 $445,411 $423,585
======== ======== ========
</TABLE>
The above (loss) income includes restructuring charges of $7,624,000,
$4,905,000 and $2,541,000 for 1996, 1995 and 1994 (see Note 1(k)).
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, investment securities,
derivative financial instruments, 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.
(17) 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, 1996, 1995 and 1994 was approximately
$8,681,000, $7,131,000 and $5,418,000, respectively. Total commitments under
such arrangements are payable in annual installments of $14,378,000 in 1997,
$12,513,000 in 1998, $11,547,000 in 1999, $11,062,000 in 2000, $10,096,000 in
2001 and $28,641,000 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 $1,321,000 in 1996, $1,277,000 in 1995 and $841,000 in
1994.
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 consolidated financial statements.
(18) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1996 and 1995 (in thousands, except per
share amounts) is as follows:
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
1996 Quarter Quarter Quarter Quarter
- ----------------------------------- --------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $131,382 $141,263 $170,882 $141,507
Gross Profit 18,861 21,525 28,160 18,480
(Loss) Income Before
Extraordinary Item (441) 181 2,642 (1,806)
Net (Loss) Income (441) 181 2,642 (7,942)
(Loss) Earnings Per Share Before
Extraordinary Item (.13) .06 .80 (.55)
Net (Loss) Earnings Per
Common Share $ (.13) $ .06 $ .80 (2.41)
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
1995 Quarter Quarter Quarter Quarter
- ----------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $144,460 $160,952 $171,024 $137,951
Gross Profit 22,327 23,036 25,697 19,349
Income (Loss) Before
Extraordinary Item 437 1,932 (1,872) 173
Net Income (Loss) 437 1,932 (1,872) 58
Earnings (Loss) Per Share Before
Extraordinary Item .13 .58 (.56) .05
Net Earnings (Loss) Per
Common Share $ .13 $ .58 $ (.56) $ .02
</TABLE>
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, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1996. 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, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 12 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits," on a prospective basis in
1994.
/s/ KPMG Peat Marwick LLP
Jericho, New York
March 6, 1997
DIRECTORS PRINCIPAL OCCUPATION
Donald J. Bainton Chairman of the Board and
Chief Executive Officer of the Company
49
<PAGE>
Kenneth Bainton Partner with the firm of Alexander Kouzmanoff,
Architects, in New York City
Robert L. Bainton Vice Chairman of the Board
Nils E. Benson Former President of Penn Elastic Co.
Charles DiGiovanna President, Continental Plastic Containers, Inc.
Rainer N. Greeven Partner, Greeven & Ercklentz (Attorneys)
V. Henry O'Neill Private Investor
John J. Serrell Business Consultant
Robert A. Utting President of R.A. Utting & Associates, Inc.
Abdo Yazgi Executive Vice President, Chief Administrative Officer,
and Secretary of the Company
Jose Luis Zapata Director of Corporate Finance of Taenza, S.A.
de C.V.
OFFICERS PRINCIPAL OCCUPATION
Donald J. Bainton Chairman of the Board and Chief Executive Officer
Abdo Yazgi Executive Vice President, Chief Administrative Officer,
and Assistant Secretary
John H. Andreas Vice President - Manufacturing
Marcial B. L'Hommedieu Treasurer
Linda R. Driscoll Secretary
CONTINENTAL CAN COMPANY, INC.
General Offices: Norwalk, Connecticut
SUBSIDIARIES AND OFFICERS:
CONTINENTAL PLASTIC CONTAINERS, INC.
Norwalk, Connecticut
Charles DiGiovanna, Chief Executive Officer and President
Jay Hereford, Chief Financial Officer
Samuel A. Nutile, Vice President - Manufacturing
John S. Roesch, Vice President - Sales & Marketing
David M. Stulman, Vice President - Human Resources
CONTINENTAL CARIBBEAN CONTAINERS, INC.
Caugus, Puerto Rico
FEREMBAL S.A.
Clichy, France
Vincent Weber, Managing Director
Pierre Lichtenberger, Commercial Director
OBALEX, A.S.
Znojmo, Czech Republic
Jiri Nekvasil, Chairman
Lubomir Kadlec, Managing Director
DIXIE UNION GMBH & COMPANY KG
Kempten, Federal Republic of Germany
Hans H. Schwaebe, Executive Director
Peter Epp, Chief Financial Officer
50
<PAGE>
ONENA BOLSAS DE PAPEL S.A.
Pamplona, Spain
Juan Ballaz, Executive Director
Carlos Aizpun, Chief Financial Officer
LOCKWOOD, KESSLER & BARTLETT, INC.
Syosset, New York
John P. Lekstutis, President
Sylvester A. Celebrini, Vice President
Ralph A. Cuomo, Vice President
George Gross, Vice President
Steven Hanuszek, Vice President
Andre Haddad, Vice President
Martin Solomon, Vice President
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
New York, New York
AUDITORS
KPMG Peat Marwick LLP
Jericho, New York
GENERAL COUNSEL
Carter, Ledyard & Milburn
New York, New York
GENERAL INFORMATION:
ANNUAL MEETING
May 21, 1997 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 1996 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 Linda R. Driscoll, Secretary, Continental Can Company, Inc., 301
Merritt 7 Corporate Park, P.O. Box 5395, Norwalk, Connecticut 06856.
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>
1996 1995
Quarter High Low High Low
- -----------------------------------------
<S> <C> <C> <C> <C>
First 17 15-1/8 29-1/8 21-1/4
Second 15-1/2 13-7/8 27-3/4 23-3/8
Third 14-7/8 10-3/4 24-3/4 19
Fourth 16-3/4 11 19-3/4 14-5/8
</TABLE>
No dividends were paid to the holders of common stock for the years 1996, 1995
and 1994. The Company has no present intention to pay dividends on its common
stock. There were 347 stockholders of record as of March 7, 1997.
51
<PAGE>
(21) Subsidiaries of the Registrant
The following listed companies represent the significant subsidiaries of the
Company, all of which except Onena Bolsas de Papal, S.A. are included in the
Company's consolidated financial statements:
<TABLE>
<CAPTION>
Name Under Which State or Other Jurisdiction Percentage Owned
- ---------------- --------------------------- ----------------
Business is Conducted of Incorporation by Company
- --------------------- ---------------- ----------
<S> <C> <C>
Ferembal S.A. France 85%(1)
Lockwood, Kessler & New York 100%
Bartlett, Inc.
Dixie Union GmbH & Company Germany 100%
KG
Onena Bolsas de Papel S.A. Spain 49%
Plastic Containers, Inc. Delaware 84%
Continental Plastic Delaware 100%
Containers, Inc. (2)
Continental Caribbean Delaware 100%
Containers, Inc. (2)
Obalex A.S. (3) Czech Republic 95%
</TABLE>
(1) A bond, convertible into the equity of Ferembal S.A., is currently
outstanding, which, if converted, would reduce the Company's percentage
ownership of Ferembal S.A. to 64%.
(2) Subsidiary of Plastic Containers, Inc.
(3) Subsidiary of Ferembal.
52
<PAGE>
Exhibit 23.1
- --------------
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
-----------------------------------------
The Board of Directors and Stockholders
Continental Can Company, Inc.:
Under date of March 6, 1997, we reported on the consolidated balance sheets of
Continental Can Company, Inc. and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1996, as contained in the 1996 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 Note 12 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits," on a prospective basis in
1994.
/s/ KPMG Peat Marwick LLP
Jericho, New York
March 6, 1996
<PAGE>
Exhibit 23.2
- ------------
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 6, 1997 relating to
the consolidated balance sheets of Continental Can Company, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the consolidated statements
of operations, stockholders' equity and cash flows and related schedules for
each of the years in the three year period ended December 31, 1996, which
reports are either incorporated by reference or appear in the December 31, 1996
Annual Report on Form 10-K of Continental Can Company, Inc.
As discussed in Note 12 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits," on a prospective basis in
1994.
/s/ KPMG Peat Marwick LLP
Jericho, New York
March 6, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 15,020
<SECURITIES> 1,210
<RECEIVABLES> 81,894
<ALLOWANCES> 4,378
<INVENTORY> 82,911
<CURRENT-ASSETS> 182,595
<PP&E> 284,626
<DEPRECIATION> 132,850
<TOTAL-ASSETS> 391,032
<CURRENT-LIABILITIES> 103,848
<BONDS> 170,750
0
0
<COMMON> 800
<OTHER-SE> 67,824
<TOTAL-LIABILITY-AND-EQUITY> 391,032
<SALES> 585,034
<TOTAL-REVENUES> 585,034
<CGS> 498,008
<TOTAL-COSTS> 565,160
<OTHER-EXPENSES> 19,875
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,593
<INCOME-PRETAX> (1)
<INCOME-TAX> 1,245
<INCOME-CONTINUING> 576
<DISCONTINUED> 0
<EXTRAORDINARY> (6,136)
<CHANGES> 0
<NET-INCOME> (5,560)
<EPS-PRIMARY> (1.69)
<EPS-DILUTED> (1.69)
</TABLE>
