<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
CONSUMERS U.S., INC.
--------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2874087
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3140 William Flinn Highway, Allison Park, Pennsylvania 15101
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 412-486-9100
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Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to section 12(g) of the Act:
None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
All voting and non-voting stock of the registrant is held by an affiliate of the
registrant. Number of shares outstanding of each class of common stock at March
27, 1998: Common Stock, $.01 par value, 17,000,100 shares
DOCUMENTS INCORPORATED BY REFERENCE
None
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ITEM 6. SELECTED FINANCIAL DATA.
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth certain historical financial information
of the Company. The selected financial data for the period from February 5, 1997
to December 31, 1997 has been derived from the Company's audited financial
statements included elsewhere in the Form 10-K. The following information should
be read in conjunction with the Company's financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 5, 1997 TO
DECEMBER 31, 1997(1)
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(dollars in thousands)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 569,441
Cost of products sold 523,709
Selling and administrative expenses 25,120
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Income from operations 20,612
Other expense, net (2,602)
Interest expense (18,281)
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Loss before extraordinary item (271)
Extraordinary item(2) (11,200)
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Loss before preferred stock dividends and minority interest (11,471)
Preferred stock dividends of subsidiary (5,062)
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Loss before minority interest (16,533)
Minority interest (5,451)
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Net loss $ (11,082)
=========
BALANCE SHEET DATA (at end of period):
Accounts receivable $ 56,940
Inventories 120,123
Total assets 614,022
Total debt 163,793
Total stockholder's equity 62,040
OTHER FINANCIAL DATA:
Net cash provided by operating activities $ 28,996
Net cash used in investing activities (257,255)
Net cash provided by financing activities 229,319
Depreciation and amortization 51,132
Capital expenditures 41,634
</TABLE>
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1) The Anchor Acquisition was consummated on February 5, 1997.
2) Extraordinary item in the period from February 5, 1997 to December 31,
1997 resulted from the write-off of financing costs related to debt
extinguished.
<PAGE> 3
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company was formed in January 1997 to consummate the Anchor
Acquisition. On February 5, 1997, pursuant to an Asset Purchase Agreement, the
Company and Owens acquired substantially all of the assets of, and assumed
certain liabilities, of Old Anchor. In the Anchor Acquisition, the Company
purchased eleven operating glass container manufacturing facilities and other
related assets. Prior to the Anchor Acquisition, the Company had no operations
and therefore the following discussion represents activity from February 5, 1997
through December 31, 1997 (the "1997 Period"). Accordingly, operations for the
Company for the 1997 Period are not directly comparable to operations of Old
Anchor for 1996.
RESULTS OF OPERATIONS
Net Sales. Net sales for the 47 weeks in the 1997 Period for the
continuing plants operated by the Company were approximately $569.4 million, or
approximately $12.1 million per week. Net sales for the same nine plants for
1996 (52 weeks) under Old Anchor were approximately $722.7, or $13.9 million per
week. Net sales per week decreased principally as a result of lower sales of
beer products by the Company.
Cost of Products Sold. The Company's cost of products sold in the 1997
Period was $523.7 million (or 92.0% of net sales), while Old Anchor's cost of
products sold in 1996 was $831.6 million (or 102.1% of net sales) in 1996.
Despite closing four plants in 1995 and 1996, Old Anchor still maintained excess
capacity which reduced its ability to withstand the adverse industry conditions
prevailing in 1996. In an attempt to fill excess capacity, some of Old Anchor's
lost volume was replaced with smaller orders requiring shorter production runs
as well as more frequent retooling and color changes, which led to higher unit
costs and lower margins. Following the Anchor Acquisition, the Company closed
its Houston and Dayville plants and removed from production two furnaces, one at
each of two other plants. By reducing excess capacity and through a better
utilization of the Company's workforce during the 1997 Period, wage increases of
approximately 7% during the 1997 Period had only a limited impact.
Selling and Administrative Expenses. Selling and administrative
expenses for the 1997 Period were approximately $25.1 million (or 4.4% of net
sales), while Old Anchor's selling and administrative expenses were $39.6
million in 1996 (or 4.8% of net sales). This slight decline in selling and
administrative expenses as a percentage of net sales reflects lower personnel
and fringe benefit costs primarily as a result of the headquarters cost
reductions which occurred in March 1997.
Net Income (Loss). The Company had a net loss in the 1997 Period of
approximately $11.1 million, including an extraordinary loss of approximately
$11.2 million as result of the write-off of certain financing fees in connection
with the refinancing of the Anchor Loan Facility. Despite lower net sales per
week in the 1997 Period compared to Old Anchor's net sales per week in 1996,
income form operations during the 1997 Period for the continuing plants was
approximately $17.1 million, while Old Anchor has a loss from operations in 1996
from these same plants of $63.2 million, principally as a result of the return
to higher margin business and reduced cost of products sold and selling and
administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
In the 1997 Period, operating activities provided $29.0 million in
cash, reflecting the loss before extraordinary item adjusted for changes in
working capital items. Cash consumed in
<PAGE> 4
investing activities for the 1997 Period was $257.3 million, principally
reflecting the cash component of the Anchor Acquisition. Additionally, in
February 1997, the Company contributed $9.0 million in cash to the Company's
defined benefit pension plans. Capital expenditures in the 1997 Period were
$41.6 million. Cash increased from financing activities for the 1997 Period by
$229.3 million reflecting the issuance of capital stock and borrowings in
connection with the Anchor Acquisition.
Capital expenditures required for environmental compliance were
approximately $0.8 million for 1997 and are anticipated to be approximately $1.7
million annually in 1998 and 1999. However, there can be no assurance that
future changes in such laws, regulations or interpretations thereof or the
nature of the Company's operations will not require the Company to make
significant additional capital expenditures to ensure compliance in the future.
The purchase price of the Anchor Acquisition was approximately $250.0
million and was comprised of: approximately $200.5 million in cash, $47.0
million face amount (1,879,320 shares) of Series A Preferred Stock of Anchor and
$2.5 million of common stock (490,898 shares) of Class A Common Stock of Anchor.
However, the purchase price paid by the Company is subject to adjustment. On
June 13, 1997, Old Anchor delivered to the Company the unaudited Closing Balance
Sheet, which indicated that Old Anchor believed that it was entitled to
additional payments from the Company and Owens totaling approximately $76.3
million. On July 28, 1997, the Company delivered its notice of disagreement to
Old Anchor, which requested a reduction to the purchase price of approximately
$96.8 million. Since that time, the parties have been negotiating the amount of
the adjustment, and have reached a proposed settlement (the "Proposed
Settlement"). The Proposed Settlement requires the payment by Anchor to Old
Anchor of an additional $1.0 million in cash and the issuance of 1,225,000
warrants for the purchase of additional shares of common stock of Anchor,
together valued at $7.1 million. In addition, Anchor will issue 525,000 warrants
to purchase additional shares of common stock to an affiliate of Consumers U.S.,
valued at $2.6 million. None of the warrants to be issued will require any
payment upon exercise. The Proposed Settlement is subject to final approval by
the Company, Old Anchor and the bankruptcy court.
The Company obtained the cash portion of the purchase price from an
$85.0 million cash investment by Consumers International in common stock Of
Consumers U.S. and borrowings under the $130.0 million Anchor Loan Facility.
In conjunction with the Anchor Acquisition, Anchor entered into a
credit agreement providing for a $110.0 million Revolving Credit Facility. At
March 20, 1998, advances outstanding under the Revolving Credit Facility were
$5.9 million and the total outstanding letters of credit on this facility were
$11.1 million.
On April 17, 1997, Anchor completed an offering of $150.0 million
aggregate principal amount of First Mortgage Notes. The First Mortgage Notes are
senior secured obligations of the Company, ranking senior in right of payment to
all existing and future subordinate indebtedness of Anchor and pari passu with
all existing and future senior indebtedness of Anchor. The First Mortgage Notes
are guaranteed by Consumers U.S. Proceeds from the issuance of the First
Mortgage Notes, net of fees, were approximately $144.0 million and were used to
repay $130.0 million outstanding under the Anchor Loan Facility and $8.8 million
outstanding under the Revolving Credit Facility, with the balance used for
general corporate purposes.
As a result of its failure to have an exchange offer registration
statement declared effective and to have exchanged all First Mortgage Notes
validly tendered, Anchor has paid additional interest on the First Mortgage
Notes. The amount of additional interest that the Company has paid has ranged
from 0.5% in October 1997 to 1.5% in February 1998. This additional interest is
expected to be nonrecurring and not significant to the Company's continuing
operations.
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In March 1998, Anchor issued $50.0 million aggregate principal amount
of its 9 7/8% Senior Notes due 2008. The Senior Notes are senior unsecured
obligations ranking pari passu in right of payment with all existing and future
senior indebtedness of Anchor. Proceeds of the offering will be used for capital
expenditures necessary to expand to meet customer needs and general corporate
purposes.
The First Mortgage Notes Indenture and the Senior Notes Indenture
contain certain covenants that restrict the Company from taking various actions,
including, subject to specified exceptions, the incurrence of additional
indebtedness, the granting of additional liens, the making of investments, the
payment of dividends and other restricted payments, mergers, acquisitions and
other fundamental corporate changes, capital expenditures, operating lease
payments and transactions with affiliates. The Revolving Credit Facility also
contains certain financial covenants that require the Company to meet and
maintain certain financial tests and minimum ratios, including a minimum working
capital ratio, a minimum consolidated net worth test and a minimum interest
coverage ratio.
Anchor may enter into a new revolving credit facility that will provide
for revolving credit loans, and the issuance of letters of credit, in an
aggregate amount not to exceed the lessor of $125.0 million and the borrowing
base in effect. The new revolving credit facility will also contain certain
customary covenants contained in the Revolving Credit Facility, including an
event of default upon a change of control and upon a default under the Notes
and/or certain other Indebtedness of Anchor. The new revolving credit facility
will also require Anchor to meet and maintain certain financial tests and
minimum ratios, including minimum leverage ratio, a minimum consolidated net
worth test and a minimum interest coverage ratio.
The Company expects significant expenditures in the 1998, including
interest expense on the First Mortgage Notes and the Senior Notes, required
pension plan contributions of $17.0 million, payment in respect of Anchor's
supply agreement with The Stroh Brewery Company of $7.0 million, capital
expenditures of approximately $55.0 million and closing costs associated with
the closed manufacturing facilities of approximately $11.0 million. In addition,
Anchor is required to make pension plan contributions for underfundings of $13.9
million in 1999 and $40.5 million to be contributed over the three years
thereafter. Also, as a result of the valuation performed by an independent
appraiser of the Series A Preferred Stock contributed to the plans, which was
completed in November 1997, Anchor is required to make an additional pension
contribution of $0.7 million in 1998. Peak needs are in spring and fall at which
time working capital borrowings are estimated to be $20.0 million higher than at
other times of the year. The Company's principal sources of liquidity through
1998 are expected to be funds derived from operations, proceeds from the Senior
Note offering, borrowings under the Revolving Credit Facility and proceeds from
asset sales.
IMPACT OF INFLATION
The impact of inflation on the costs of the Company, and the ability to
pass on cost increases in the form of increased sales prices, is dependent upon
market conditions. While the general level of inflation in the domestic economy
has been at relatively low levels, the Company has begun to pass on inflationary
cost increases either as a result of contractual arrangements permitting the
pass on of cost increases or as the result of recent negotiations with various
customers.
SEASONALITY
Due principally to the seasonal nature of the brewing, iced tea and
soft drink industries, in which demand is stronger during the summer months, the
Company's shipment volume is expected to be higher in the second and third
quarters. Consequently, the Company will build inventory during the first
quarter in anticipation of seasonal demands during the second and third
quarters. In addition, the Company will schedule shutdowns of its plants for
furnace rebuilds and machine
<PAGE> 6
repairs in the first and fourth quarters of the year to coincide with scheduled
holiday and vacation time under its labor union contracts. These shutdowns and
seasonal sales patterns adversely affect profitability during the first and
fourth quarters. The Company is reviewing alternatives to reduce downtime
during these periods in order to minimize disruption to the production process
and its negative effect on profitability.
YEAR 2000
The Company's plan is to achieve Year 2000 compliance while integrating
the operations of the Company and Consumers. The Company's information systems
cover a broad spectrum of software applications and hardware custom designed for
its manufacturing processes and are similar to those of Consumers. Consumers,
after an extensive study of its general technology needs, decided to upgrade its
information systems from a platform based on large IBM mainframes to a platform
based on mid-range database servers. This upgrade will resolve any Year 2000
issues. To better integrate its information systems with those of Consumers, the
Company will begin a similar upgrade of its systems in the second quarter of
1998 with a planned implementation date of March 1999, which management believes
provides sufficient time to resolve any unexpected issues. Certain of these
upgrades are included in the capital expenditure budget.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
With the exception of the historical information contained in this
report, the matters described herein contain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, without limitation, any statement that may
predict, forecast, indicate or imply future results, performance or
achievements, and may contain the words "believe," "anticipate," "expect,"
"estimate," "intend," "project," "will be," "will likely continue," "will likely
result," or words or phrases of similar meaning. Forward-looking statements
involve risks and uncertainties (including, but not limited to, economic,
competitive, governmental and technological factors outside the control of the
Company) which may cause actual results to differ materially from the
forward-looking statements. These risks and uncertainties may include the
ability of management to implement its business strategy in view of the
Company's limited operating history and the recent insolvency of Old Anchor; the
highly competitive nature of the glass container market and the intense
competition from makers of alternative forms of packaging; the Company's focus
on the beer industry and its dependence on certain key customers; the seasonal
nature of brewing, iced tea and other beverage industries; the Company's
dependence on certain executive officers; and changes in environmental and
other government regulations. The Company operates in a very competitive
environment in which new risk factors can emerge from time to time. It is not
possible for management to predict all such risk factors, nor can it assess the
impact of all such risk factors on the Company's business or the extent to which
any factor, or a combination of factors, any cause actual results to differ
materially from those contained in forward-looking statements. Given these risks
and uncertainties, readers are cautioned not to place undue reliance on
forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable
<PAGE> 7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Index to Financial Statements of Consumers U.S., Inc. F-1
Report of Independent Public Accountants F-2
Consolidated Statement of Operations -
Period from February 5, 1997 to December 31, 1997 F-3
Consolidated Balance Sheet-
December 31, 1997 F-4
Consolidated Statement of Cash Flows -
Period from February 5, 1997 to December 31, 1997 F-6
Consolidated Statement of Stockholder's Equity -
Period from February 5, 1997 to December 31, 1997 F-8
Notes to Consolidated Financial Statements F-9
Index to Financial Information of Old Anchor H-1
Report of Independent Public Accountants H-2
Consolidated Statements of Operations -
Period from January 1, 1997 to February 4, 1997 and
Years Ended December 31, 1996 and 1995 H-3
Consolidated Balance Sheets-
February 4, 1997 and December 31, 1996 H-4
Consolidated Statements of Cash Flows -
Period from January 1, 1997 to February 4, 1997 and
Years Ended December 31, 1996 and 1995 H-6
Consolidated Statements of Stockholder's
Equity (Deficiency in Assets)-
Period from January 1, 1997 to February 4, 1997 and
Years Ended December 31, 1996 and 1995 H-8
Notes to Consolidated Financial Statements H-9
</TABLE>
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements, Schedules and Exhibits
1. Financial Statements. The Financial Statements of Consumers
U.S. and Old Anchor and the Reports of Independent Public
Accountants are included beginning at page F-1 and beginning at
page H-1 of this Form 10-K. See the index to financial statements
in Item 8.
2. Financial Statement Schedules. The following Financial
Statement Schedules are filed as part of this Form 10-K and should
be read in conjunction with the Consolidated Financial Statements
of Old Anchor and the Financial Statements of Anchor.
SCHEDULE II
ANCHOR RESOLUTION CORP.
VALUATION AND QUALIFYING ACCOUNTS
PERIOD FROM JANUARY 1, 1997 TO FEBRUARY 4, 1997
AND YEARS ENDED DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- -------- -------- -------- -------- -------- --------
Additions
------------------------
Balance at Charged to Charged to Balance at
beginning of costs and other end
Description year expenses accounts Deductions of year
- ----------- ------------ -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
Interim Period 1997
Allowance for doubtful accounts $1,503 $ 127 $1,630
Year ended December 31, 1996
Allowance for doubtful accounts $1,826 $1,126 -- $1,449(A) $1,503
Year ended December 31, 1995
Allowance for doubtful accounts $3,447 $ 656 -- $2,277(A) $1,826
</TABLE>
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(A) Accounts written off
SCHEDULE II
CONSUMERS U.S., INC.
VALUATION AND QUALIFYING ACCOUNTS
PERIOD FROM FEBRUARY 5, 1997 TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- -------- -------- -------- -------- -------- --------
Additions
------------------------
Balance at Charged to Charged to Balance at
beginning of costs and other end
Description period expenses accounts Deductions of period
- ----------- ------ -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Period from February 5, 1997 to
December 31, 1997
Allowance for doubtful accounts $1,630 $ 375 $ 360(B) $ 340(A) $2,025
</TABLE>
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(A) Accounts written off
(B) Amount recognized as part of Anchor Acquisition
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the financial statements or notes thereto.
<PAGE> 9
3. Exhibits
<TABLE>
EXHIBIT
NUMBER ITEM
<S> <C>
2.1* Asset Purchase Agreement dated as of December 18, 1996 among
Anchor Glass Container Corporation, now known as Anchor
Resolution Corp. ("Old Anchor"), Consumers Packaging, Inc. and
Owens-Brockway Glass Container, Inc.
2.2* Amendment to Asset Purchase Agreement (the "Asset Purchase
Agreement") dated as of February 5, 1997 by and among Old
Anchor, Consumers Packaging, Inc. and Owens-Brockway Glass
Container, Inc.
2.3* Order of United States Bankruptcy Court for the District of
Delaware approving (i) the Asset Purchase Agreement and (ii)
the assumption and assignment of certain related executory
contracts
2.4* Order of United States Bankruptcy Court for the District of
Delaware approving the Amendment to the Asset Purchase
Agreement
2.5* Memorandum of Understanding dated February 5, 1997 among Old
Anchor, Consumers Packaging, Inc. and the Company
3.1* Amended and Restated Certificate of Incorporation of the
Company
3.2* Bylaws of the Company
3.5* Certificate of Designation of Series A 10% Cumulative
Convertible Preferred Stock
3.6* Certificate of Designation of Series B 8% Cumulative
Convertible Preferred Stock
4.1* Indenture dated as of April 17, 1997 among the Company,
Consumers U.S. and The Bank of New York, as trustee
4.2* Form of Initial Notes (included in Exhibit 4.1)
4.3* Form of Exchange Notes (included in Exhibit 4.1)
4.4* Security Agreement dated as of April 17, 1997 among the
Company, Bankers Trust Company, as agent under the Revolving
Credit Agreement
4.5* Assignment of Security Agreement dated as of April 17, 1997
among the Company, Bankers Trust Company, as assignor, and The
Bank of New York, as assignee and as trustee under the
Indenture
4.6* Pledge Agreement dated as of April 17, 1997 among Consumers
U.S. and The Bank of New York, as trustee under the Indenture
4.7* Intercreditor Agreement dated as of February 5, 1997 among The
Bank of New York, as Note Agent, and BT Commercial
Corporation, as Credit and Shared Collateral Agent
4.8* Amendment No. 1 to the Intercreditor Agreement, dated as of
April 17, 1997 among The Bank of New York as Note Agent, and
BT Commercial Corporation, as Credit and Shared Collateral
Agent
4.9* Registration Rights Agreement dated as of April 17, 1997 among
the Company, Consumers U.S., BT Securities Corporation and TD
Securities (USA) Inc.
4.10** Indenture dated as of March 16, 1998 among the Company,
Consumers U.S. and The Bank of New York, as trustee
4.11** Form of Initial Notes (included in Exhibit 4.10)
4.12** Form of Exchange Notes (included in Exhibit 4.10)
4.13** Registration Rights Agreement dated as of March 16, 1998 among
the Company, TD Securities and BT Alex. Brown
10.1* Credit Agreement (the "Credit Agreement") dated as of February
5, 1997 among the Company, Bankers Trust Company, as Issuing
Bank, BT Commercial Corporation, as Agent and Co-Syndication
Agent, PNC Bank, National Association, as Co-Syndication Agent
and Issuing Bank, and the various financial institutions party
thereto
10.2* First Amendment to the Credit Agreement dated as of March 11,
1997 among the Company, Bankers Trust Company, BT Commercial
Corporation, and PNC Bank, National Association
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
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<S> <C>
10.3* Second Amendment to the Credit Agreement dated as of April 9,
1997 among the Company, Bankers Trust Company, BT Commercial
Corporation, and PNC Bank, National Association
10.4* Third Amendment and Waiver to the Credit Agreement dated as of
May 23, 1997 among the Association, and the various financial
institutions party to the Credit Agreement
10.5* Fourth Amendment to the Credit Agreement dated as of September
15, 1997 among the Association and the various financial
institutions part to the Credit Agreement
10.6* Assignment of Security Interest in U.S. Trademarks and Patents
dated February 5, 1997 by the Company to BT Commercial
Corporation, as Collateral Agent under the Credit Agreement
10.7* Assignment of Security Interest in U.S. Copyrights dated
February 5, 1997 by the Company to BT Commercial Corporation,
as Collateral Agent under the Credit Agreement
10.8* Guaranty dated February 5, 1997, by Consumers U.S. in favor of
BT Commercial Corporation and the other financial institutions
party to the Credit Agreement Plan
10.9* Termination Agreement dated February 3, 1997 by and between
Consumers Packaging Inc., the Company and the Pension Benefit
Guaranty Corporation
10.10* Release Agreement among Old Anchor, the Company, the Official
Committee of Unsecured Creditors of Anchor Glass Container
Corporation ("Old Anchor") and Vitro, Sociedad Anonima
10.11* Agreement (the "Vitro Agreement") dated as of December 18,
1996 between Old Anchor and Consumers Packaging, Inc.
10.12* First Amendment to the Vitro Agreement dated as of February 4,
1997 among Vitro, Sociedad Anonima, Consumers Packaging, Inc.,
on behalf of itself, and Consumers Packaging, Inc. on behalf
of the Company
10.13* Waiver Agreement dated as of February 5, 1997 by and between
Old Anchor and Consumers Packaging, Inc.
10.14* Assignment and Assumption Agreement dated as of February 5,
1997 by and between Consumers Packaging, Inc.
10.15* Assignment and Assumption Agreement dated as of February 5,
1997 by and between Consumers Packaging, Inc. and the Company
relating to certain employee Benefit plans
10.16* Assignment and Assumption Agreement dated as of February 5,
1997 between Consumers Packaging, Inc. and the Company
relating to certain commitment letters
10.17* Bill of Sale, Assignment and Assumption Agreement dated as of
February 5, 1997 by and between Old Anchor and the Company
10.18* Assignment of Patent Property and Design Property from Old
Anchor to the Company
10.19* Trademark Assignment from Old Anchor to the Company
10.20* Foreign Trademark Assignment from Old Anchor to the Company
10.21* Copyright Assignment from Old Anchor to the Company
10.22* Agreement dated as of February 5, 1997 between the Travelers
Indemnity Company and its Affiliates, including The Aetna
Casualty and Surety Company and their Predecessors, and the
Company
10.23* Allocation Agreement dated as of February 5, 1997 between
Consumers Packaging, Inc. and Owens-Brockway Glass Container,
Inc.
10.24* Supply Agreement dated as of February 5, 1997 by and between
the Company and Owens-Brockway Glass Container, Inc.
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
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<S> <C>
10.25* Transition Agreement dated as of February 5, 1997 between
Consumers Packaging, Inc., the Company and Owens-Brockway
Glass Container, Inc.
10.26+* Technical Assistance and License Agreement executed December
18, 1996 by Owens-Brockway Glass Container, Inc. and Consumers
Packaging, Inc.
10.27* Assurance Agreement (the "Assurance Agreement") dated as of
February 5, 1997 among Owens-Brockway Glass Container, Inc.,
Consumers Packaging, Inc., the Company, BT Commercial
Corporation, Bankers Trust Company and The Bank of New York
10.28* Letter agreement relating to Assurance Agreement dated April
17, 1997 addressed to Owens-Brockway Glass Container, Inc. and
signed by Bankers Trust Company and The Bank of New York
10.29* Intercompany Agreement dated as of April 17, 1997 among G&G
Investments, Inc., Glenshaw Glass Company, Inc., Hillsboro
Glass Company, I.M.T.E.C. Enterprises, Inc., Consumers
Packaging, Inc., Consumers International, Inc., Consumers
U.S., the Company, BT Securities Corporation and The Bank of
New York, as trustee under the Indenture
10.30* Management Agreement dated as of February 5, 1997 by and
between the Company and G&G Investments, Inc.
10.31* Anchor Glass Container Corporation/Key Executive Employee
Retention Plan
10.32* Lease Agreement - Anchor Place at Fountain Square (the "Lease
Agreement") dated March 31, 1988, by and between Old Anchor
and Fountain Associates I Ltd. Relating to the Company's
headquarters in Tampa, Florida
10.33* First Amendment to Lease Agreement effective as of June 16,
1992, by and between Fountain Associates I Ltd. and Old Anchor
10.34* Second Amendment to Lease Agreement effective as of September
30, 1993, by and between Fountain Associates I Ltd. and Old
Anchor
10.35* Third Amendment to Lease Agreement effective as of February
22, 1995, by and between Fountain Associates I Ltd. and Old
Anchor
10.36* Agreement dated as of March 31, 1996 by and between Fountain
Associates I Ltd. Citicorp Leasing, Inc. and Old Anchor
10.37* Amended and Restated Agreement effective as of September 12,
1996, by and between Fountain Associates I Ltd., Citicorp
Leasing Inc. and Old Anchor
10.38* Sixth Amendment to Lease and Second Amendment to Option
Agreement dated as of February 5, 1997, by and between
Fountain Associates I Ltd., Citicorp Leasing, Inc. and Old
Anchor
10.39* Building Option Agreement dated March 31, 1988, by and between
Fountain Associates I, Ltd. and Old Anchor
10.40* First Amendment to Building Option Agreement effective as of
June 16, 1992, by and between Fountain Associates I. Ltd. and
Old Anchor
10.41+* Supply Agreement effective as of June 17, 1996 between The
Stroh Brewery Company and the Company
10.42 Supply Agreement between Bacardi International Limited and the
Company (Withdrawn upon the request of the registrant, the
Commission consenting thereto)
10.43* Warrant Agreement dated as of February 5, 1997 between the
Company and Bankers Trust Company
10.44* Form of Warrant issued pursuant to the Warrant Agreement
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
-------- ----
<S> <C>
10.45 Rebate Agreement dated as of January 1, 1996 between Bacardi
International Limited and the Company (Withdrawn upon the
request of the registrant, the Commission consenting thereto)
10.46** Fifth Amendment to the Credit Agreement dated as of January
16, 1998 among the Association and the various financial
institutions part to the Credit Agreement
10.47** Sixth Amendment to the Credit Agreement dated as of March 11,
1998 among the Association and the various financial
institutions part to the Credit Agreement
12.1++ Statement re: computation of ratio of earnings to fixed
charges for the period from February 5, 1997 to December 31,
1997
12.2** Statement re: computation of ratio of earnings to fixed
charges for the years ended December 31, 1993, 1994, 1995 and
1996 and the period from January 1, 1997 to February 4, 1997.
21.1*** List of subsidiaries of the Company
23.1++ Consent of Independent Public Accountants
27.1++ Financial Data Schedule of the Company (for SEC use only)
</TABLE>
- ------------------------
+ Portions hereof have been omitted and filed separately with the Commission
pursuant to a request for confidential treatment in accordance with Rule 406
of Regulation C.
* - Filed as an exhibit to the Company's Registration Statement on Form S-4
(Reg. No. 333-31363) originally filed with the Securities and Exchange
Commission on July 16, 1997 and incorporated herein by reference.
** - Filed as an exhibit to Annual Report on Form 10-K for Anchor Glass
Container Corporation for the fiscal year ended December 31, 1997 and
incorporated herein by reference.
*** - Filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 and incorporated
herein by reference.
++ - Filed herewith.
(b) Reports on Form 8-K
None
<PAGE> 13
INDEX TO FINANCIAL INFORMATION FOR CONSUMERS U.S.
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Financial Statements of Consumers U.S.:
Report of Independent Public Accountants F-2
Consolidated Statement of Operations -
Period from February 5, 1997 to December 31, 1997 F-3
Consolidated Balance Sheet-
December 31, 1997 F-4
Consolidated Statement of Cash Flows -
Period from February 5, 1997 to December 31, 1997 F-6
Consolidated Statement of Stockholder's Equity -
Period from February 5, 1997 to December 31, 1997 F-8
Notes to Consolidated Financial Statements F-9
See Index to Financial Information of Old Anchor at H-1
</TABLE>
F-1
<PAGE> 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Consumers U.S., Inc.:
We have audited the accompanying consolidated balance sheet of Consumers U.S.,
Inc. (a Delaware corporation) as of December 31, 1997, and the related
consolidated statements of operations, stockholder's equity and cash flows for
the period from February 5, 1997 through December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Consumers U.S.,
Inc. as of December 31, 1997, and the results of its operations and its cash
flows for the period from February 5, 1997 to December 31, 1997, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
February 25, 1998 (Except with respect to the
financing matter as discussed in
Note 13, as to which the date is
March 11, 1998)
F-2
<PAGE> 15
CONSUMERS U.S., INC.
CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 5, 1997 TO DECEMBER 31, 1997
RESTATED
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Net sales ........................................................ $ 569,441
Costs and expenses:
Costs of products sold ......................................... 523,709
Selling and administrative expenses ............................ 25,120
---------
Income from operations ........................................... 20,612
Other expense, net ............................................... (2,602)
Interest expense ................................................. (18,281)
---------
Loss before extraordinary item ................................... (271)
Extraordinary item -
Write-off of deferred financing costs .......................... (11,200)
---------
Loss before preferred stock dividends and minority interest ...... (11,471)
Preferred stock dividends of subsidiary .......................... (5,062)
---------
Loss before minority interest .................................... (16,533)
Minority interest ................................................ 5,451
---------
Net loss ......................................................... $ (11,082)
=========
- -------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE> 16
CONSUMERS U.S., INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
RESTATED
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------
Assets
- -----------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents .................................................... $ 1,060
Accounts receivable, less allowance for doubtful accounts of $2,025 .......... 56,940
Inventories -
Raw materials and manufacturing supplies ................................... 23,303
Finished products .......................................................... 96,820
Other current assets ......................................................... 8,082
---------
Total current assets ..................................................... 186,205
- -----------------------------------------------------------------------------------------
Property, plant and equipment:
Land ....................................................................... 7,769
Buildings .................................................................. 63,438
Machinery, equipment and molds ............................................. 297,317
Less accumulated depreciation .............................................. (43,653)
---------
324,871
- -----------------------------------------------------------------------------------------
Other assets.................................................................. 22,462
Strategic alliance with customers, net of accumulated amortization of $811 ... 25,389
Goodwill, net of accumulated amortization of $2,857 .......................... 55,095
---------
$ 614,022
=========
- -----------------------------------------------------------------------------------------
</TABLE>
F-4
<PAGE> 17
CONSUMERS U.S., INC.
BALANCE SHEET
DECEMBER 31, 1997
RESTATED
(DOLLARS IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
<S> <C>
Liabilities and Stockholders' Equity
- -----------------------------------------------------------------------------------------
Current liabilities:
Revolving credit facility .................................................... $ 10,468
Current maturities of long-term debt ......................................... 567
Accounts payable ............................................................. 63,796
Accrued expenses ............................................................. 67,588
Accrued interest ............................................................. 4,576
Accrued compensation and employee benefits ................................... 25,185
---------
Total current liabilities .................................................. 172,180
- -----------------------------------------------------------------------------------------
Long-term debt ............................................................... 152,758
Long-term pension liabilities ................................................ 48,826
Long-term post retirement liabilities ........................................ 57,900
Other long-term liabilities .................................................. 57,522
---------
317,006
Commitments and contingencies
- -----------------------------------------------------------------------------------------
Redeemable preferred stock of subsidiary, Series A, $.01 par value;
authorized 2,239,320 shares; issued and outstanding 2,239,320 shares;
$25 liquidation and redemption value ........................................ 55,983
---------
Minority interest ............................................................ 6,813
---------
Stockholders' equity:
Common stock, $.10 par value; authorized 20,000,000 shares;
issued and outstanding 17,000,100 shares ................................... 170
Capital in excess of par value ............................................... 86,330
Accumulated deficit .......................................................... (23,920)
Additional minimum pension liability ......................................... (540)
---------
62,040
---------
$ 614,022
=========
- -----------------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE> 18
CONSUMERS U.S., INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM FEBRUARY 5, 1997 TO DECEMBER 31, 1997
RESTATED
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss ........................................................... $ (11,082)
Extraordinary item ................................................. 11,200
Adjustments to reconcile loss before extraordinary item
to net cash provided by operating activities:
Depreciation and amortization ................................... 51,132
Other ........................................................... 3,101
Dividends accrued on preferred stock of subsidiary............... 5,062
Minority interest ............................................... (5,451)
Decrease in cash resulting from changes
in assets and liabilities ........................................... (24,966)
---------
28,996
- ----------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of assets and assumption of liabilities of Old Anchor ..... (200,470)
Expenditures for property, plant and equipment ..................... (40,519)
Payment of strategic alliance with customers ....................... (6,000)
Acquisition related contribution to defined benefit pension plans .. (9,056)
Other .............................................................. (1,210)
---------
(257,255)
- ----------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ........................... 280,000
Principal payments of long-term debt ............................... (130,278)
Proceeds from issuance of common stock ............................. 85,000
Net draws on revolving credit facility ............................. 10,468
Distribution to shareholder......................................... (3,513)
Other, primarily financing fees .................................... (12,358)
---------
229,319
- ----------------------------------------------------------------------------------
Cash and cash equivalents:
Increase in cash and cash equivalents .............................. 1,060
Balance, beginning of period ....................................... --
---------
Balance, end of period ............................................. $ 1,060
=========
- ----------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 19
CONSUMERS U.S., INC.
STATEMENT OF CASH FLOWS
PERIOD FROM FEBRUARY 5, 1997 TO DECEMBER 31, 1997
RESTATED
(DOLLARS IN THOUSANDS)
(CONTINUED)
<TABLE>
<S> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ...................................................................... $ 11,702
=========
Income tax payments (refunds), net ............................................ $ --
=========
Equipment financing ............................................................. $ 1,115
=========
Increase (decrease) in cash resulting from changes in assets and liabilities:
Accounts receivable ........................................................... $ (9,635)
Inventories ................................................................... (1,241)
Other current assets .......................................................... (620)
Accounts payable, accrued expenses and other current liabilities .............. (13,682)
Other, net .................................................................... 512
---------
$ (24,966)
=========
- ---------------------------------------------------------------------------------------------
Supplemental noncash activities:
In connection with the Anchor Acquisition, Anchor issued $46,983 face amount
of Series A Preferred Stock and $2,454 of Class A Common Stock and incurred
$1,500 of fees. In connection with the Anchor Loan Facility, Anchor issued
1,405,229 warrants to the lenders valued at $7,012.
Anchor Acquisition:
Fair value of assets acquired................................................ $ 525,500
Acquisition costs accrued.................................................... (62,500)
Goodwill..................................................................... 59,000
Purchase price............................................................... (250,000)
---------
Liabilities assumed $ 272,000
=========
</TABLE>
In February 1997, Anchor contributed $9,000 face amount of Series A
Preferred Stock to Anchor's defined benefit pensions plans.
In connection with the issuance of the First Mortgage Notes, Anchor
issued 702,615 shares of Class B Common Stock to Consumers U.S. and 702,614
warrants valued at $3,506 to the initial purchasers of the First Mortgage Notes.
Also, with the issuance of the First Mortgage Notes, Anchor recorded an
extraordinary loss for the write-off of deferred financing fees of the Anchor Lo
Facility.
The Company considers short-term investments with original maturities
of ninety days or less at the date of purchase to be classified as cash
equivalents.
F-7
<PAGE> 20
CONSUMERS U.S., INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM FEBRUARY 5, 1997 TO DECEMBER 31, 1997
RESTATED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Capital Accumu- Minimum Total
Common In-Excess lated Pension Stockholders'
Stock of Par Deficit Liability Equity
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, February 5, 1997 $ -- $ -- $ -- $ -- $ --
Issuance of 17,000,100 shares of
Common Stock to Consumers
International 170 86,330 -- -- 86,500
Net loss -- -- (11,082) -- (11,082)
Acquisition of
manufacturing rights -- -- (9,325) -- (9,325)
Distribution to shareholder -- -- (3,513) -- (3,513)
Amount related to minimum
pension liability -- -- -- (540) (540)
------------------------------------------------------------------
Balance, December 31, 1997 $ 170 $ 86,330 $(23,920) $ (540) $(62,040)
==================================================================
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
F-8
<PAGE> 21
CONSUMERS U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM FEBRUARY 5, 1997 TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization of the Company
Consumers U.S., Inc. ("Consumers U.S."), a Delaware corporation and a
wholly-owned subsidiary Consumers International Inc. ("Consumers
International"), which is a wholly-owned subsidiary of Consumers Packaging Inc.
("Consumers"), was formed in January 1997 to hold an investment in Anchor Glass
Container Corporation ("Anchor") which acquired certain assets and assumed
certain liabilities of the former Anchor Glass Container Corporation ("Old
Anchor"), now Anchor Resolution Corp.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Consumers U.S., which has no independent operations, and its majority-owned
subsidiary, Anchor (together the "Company"). All material intercompany accounts
and transactions have been eliminated in consolidation. Consumers U.S. holds
64.8% of the total outstanding voting common shares of Anchor and holds the
majority of Anchor board of directors positions, and accordingly, the results of
Anchor's operations have been consolidated in these financial statements.
Giving effect to the Anchor Acquisition (see Note 2) and the related financing,
the amount of minority interest originally recognized by the Company was
$13,501, consisting of $2,983 attributable to minority common stockholders and
$10,518 attributable to Anchor warrant holders. Therefore, 35.2% of the earnings
(losses) of Anchor attributable to common stockholders is charged (credited) to
the Company's statement of operations. The amount by which the minority common
stockholders can participate in the losses attributable to common stockholders
of Anchor is limited to $6,688, consisting of $2,983 attributable to minority
common stockholders and 35.2% of the value of the warrants, after which the
Company absorbs all of Anchor's losses. However, if future earnings do
materialize, the Company's earnings shall be credited to the extent of such
minority interest losses previously absorbed.
The remaining carrying value of the warrants will not be adjusted by any further
losses attributable to the common stockholders of Anchor. Should the warrant
holders exercise their option to convert to Class C Common Stock, this event
will be treated as issuance of stock by a subsidiary, and accordingly, the
accounting treatment will be based on the facts and circumstances in existence
at that time.
Restatement
The Company has restated the accompanying financial statements for the period
ended December 31, 1997. The Company previously recorded the Acquisition of
Manufacturing Rights, discussed below, at its purchase price of $12,525 and
included that amount in the caption Strategic Alliance with Customers on its
Consolidated Balance Sheet. As discussed below, because these manufacturing
rights were acquired from a related party under common control, the $3,200
carrying value as recorded by the related party should have been maintained and
accordingly, a restatement has been made. The Company has now reflected the
remaining purchase price as a distribution from equity. Additionally, as
discussed in Note 4, shares of Class B Common Stock issued to Consumers U.S.
upon the issuance of the First Mortgage Notes, previously recorded as a
deferred asset to be amortized over the life of the First Mortgage Notes, have
now been treated as a shareholder distribution. As discussed in Note 6,
Consumers has charged Consumers U.S. for services provided and since the cost
of these services has already been charged to earnings by the Company, this
amount has been treated as a distribution to a shareholder as opposed to a
selling and administrative expense, as previously recorded. This reduced the
loss before minority interest by $3,513, reduced the minority interest credit
by $1,237 and reduced net loss by $2,276.
Business Segment
The Company is engaged in the manufacture and sale of a diverse line of clear,
amber, green and other color glass containers of various types, designs and
sizes to customers principally in the beer, food, iced tea, distilled spirits
and soft drink industries. The Company markets its products throughout the
United States. The Company's international and export sales are insignificant.
Sales to The Stroh Brewery Company represented approximately 15.6% of total net
sales for the period ended December 31, 1997. Revenues are recognized as product
is shipped to customers. The loss of a significant customer, unless replaced,
could have a material adverse effect on the Company's business.
F-9
<PAGE> 22
Inventories
Inventories are stated at the lower of cost or market. The cost of substantially
all inventories of raw materials and semi-finished and finished products is
determined on the first-in, first-out method. Manufacturing supplies and certain
other inventories are valued at weighted average costs.
Property, Plant and Equipment
Property, plant and equipment expenditures, including renewals, betterments and
furnace rebuilds which extend useful lives, and expenditures for glass forming
machine molds are capitalized and depreciated using the straight-line method
over the estimated useful lives of the assets for financial statement purposes
while accelerated depreciation methods are principally used for tax purposes.
Generally, annual depreciation rates range from 2.5% for buildings, 6.3% to 20%
for machinery and equipment and 40% for molds. Furnace and machine rebuilds,
which are recurring in nature and which extend the lives of the related assets,
are capitalized and depreciated over the period of extension, generally at rates
of 20% to 25%, based on the type and extent of these rebuilds. Depreciation of
leased property recorded as capital assets is computed on a straight-line basis
over the estimated useful lives of the assets. Maintenance and repairs are
charged directly to expense as incurred.
Strategic Alliance with Customers
Anchor has entered into long-term agreements with several customers. Payments
made or to be made to these customers are being amortized as a component of net
sales on the statement of operations over the term of the related supply
contract, which range between 11 and 15 years, based upon shipments.
Acquisition of Manufacturing Rights
In September 1997, Hillsboro Glass Company ("Hillsboro"), a glass-manufacturing
plant owned by G&G Investments, Inc. ("G&G") (the majority owner of Consumers),
discontinued manufacturing. All of Hillsboro's rights and obligations to fill
orders under a supply contract between Consumers and one of its major customers
was purchased by Consumers and Anchor effective December 31, 1997. The purchase
price of Anchor's portion of this contract was $12,525, the majority of
which will be paid in 1998. Although this amount was based upon an independent
valuation, because these manufacturing rights were acquired from a related
party under common control, the $3,200 carrying value of these rights previously
recorded on Hillsboro's books was maintained. The excess of the purchase price
over the carrying value has been treated as a distribution to a shareholder.
Goodwill
Goodwill represents the excess of the purchase price over the estimated fair
value of net assets acquired and is amortized on a straight line basis over a
twenty year period. Amortization expense for the period ended December 31, 1997
was $2,857.
Income Taxes
The Company applied Statement of Financial Accounting Standards No. 109 -
Accounting for Income Taxes ("SFAS 109") which establishes financial accounting
and reporting standards for the effects of income taxes which result from a
company's activities during the current and preceding years.
Retirement Plans
Anchor has retirement plans, principally non-contributory, covering
substantially all salaried and hourly employees. The Company's funding policy is
to pay at least the minimum amount required by the Employee Retirement Income
Security Act of 1974 and the Retirement Protection Act of 1994, which requires
the Company to make significant additional contributions into its underfunded
defined benefit plans.
F-10
<PAGE> 23
Postretirement Benefits
Statement of Financial Accounting Standards No. 106 - Employers' Accounting for
Postretirement Benefits Other Than Pensions ("SFAS 106") requires accrual of
postretirement benefits (such as healthcare benefits) during the period that an
employee provides service. This accounting method has no effect on the Company's
cash outlays for these postretirement benefits.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 - Disclosures about Fair
Value of Financial Instruments requires disclosure of the estimated fair values
of certain financial instruments. The estimated fair value amounts have been
determined using available market information or other appropriate valuation
methodologies that require considerable judgment in interpreting market data and
developing estimates. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts. As the long-term debt has not been registered or traded in an
established trading market, and the debt was issued during the current period,
the Company has estimated the fair value of the debt to be the carrying value.
The carrying amount of other financial instruments approximate their estimated
fair values.
The fair value information presented herein is based on information available to
management as of December 31, 1997. Although management is not aware of any
factors that would significantly affect the estimated value amounts, such
amounts have not been comprehensively revalued for purposes of these financial
statements since that date and, therefore, the current estimates of fair value
may differ significantly from the amounts presented herein.
From time to time, the Company may enter into interest rate swap agreements that
effectively hedge interest rate exposure. The net cash amount paid or received
on these agreements are accrued and recognized as an adjustment to interest
expense.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimated.
NOTE 2 - PURCHASE OF ASSETS
On February 5, 1997, pursuant to an Asset Purchase Agreement dated December 18,
1996, as amended (the "Asset Purchase Agreement"), between Consumers,
Owens-Brockway Glass Container Inc. ("Owens") and Old Anchor, the Company (the
rights and obligations of Consumers having been assigned to Anchor) and Owens
acquired substantially all of the assets of, and assumed certain liabilities, of
Old Anchor.
The Company purchased eleven operating glass container manufacturing facilities
and other related assets (the "Anchor Acquisition"). Owens purchased assets and
assumed liabilities of Old Anchor's Antioch and Hayward, California facilities
and purchased certain other existing inventories. Owens also purchased Old
Anchor's investment in Rocky Mountain Bottle Company, a joint venture with Coors
Brewing Company ("Coors"), and assumed Old Anchor's agreement to manufacture
Coors' glass packaging products in the United States.
F-11
<PAGE> 24
The total purchase price approximated $378,000, excluding fees of approximately
$1,500 which were paid by Consumers and recorded as capital in excess of par by
Anchor. The portion of the purchase price paid in cash by Owens amounted to
approximately $128,000. The remaining purchase price of approximately $250,000
from the Company was comprised of: approximately $200,500 in cash, $47,000 face
amount (1,879,320 shares) of mandatorily redeemable 10% cumulative convertible
preferred stock of Anchor ("Series A Preferred Stock") and $2,500 of common
stock of Anchor (490,898 shares with an estimated value of $5.00 per share) (the
"Class A Common Stock").
The purchase price paid by the Company is subject to adjustment. On June 13,
1997, Old Anchor delivered to Anchor the closing balance sheet which indicated
that Old Anchor believed that is was entitled to additional payments from the
Company and Owens totaling approximately $76,300. On July 28, 1997, Anchor
delivered its notice of disagreement to Old Anchor, which requested a reduction
of the purchase price of approximately $96,800. Since that time, the parties
have been negotiating the amount of the adjustment, and have reached a proposed
settlement (the "Proposed Settlement"). The Proposed Settlement requires the
payment by Anchor to Old Anchor of an additional $1,000 in cash and the issuance
of 1,225,000 warrants for the purchase of additional shares of common stock,
together valued at approximately $7,100, recorded as an adjustment to goodwill.
In addition, Anchor will issue 525,000 warrants to purchase additional shares of
common stock to an affiliate of the Company, valued at approximately $2,600
which has been recorded as an expense. None of the warrants to be issued will
require any payment upon exercise. The effect of the Proposed Settlement has
been reflected in the financial statements for the period ended December 31,
1997. The Proposed Settlement is subject to final approval by the Company, Old
Anchor and the bankruptcy court.
The Company obtained the cash portion of the purchase price principally from an
$85,000 cash investment by Consumers International in common stock of Consumers
U.S. and a $130,000 bank loan.
For the period from February 5, 1997 to February 5, 2000, the common stock of
Anchor is divided into three classes, Class A and Class B, which are voting, and
Class C, which is non-voting. During this period, the number of Directors of
Anchor is fixed at nine, with the holders of the Class A shares having the right
to elect four Directors and the holders of the Class B shares having the right
to elect five Directors. In connection with the settlement of the issues
surrounding the adjustment to the purchase price paid by the Company, it is
expected that the certificate of incorporation of Anchor will be amended to
increase the number of directors to be elected by the holders of Class B Common
Stock. Holders of the Class C shares do not participate in the election of
Directors. On February 5, 2000, the three classes of common stock will
automatically be consolidated into one single class of common stock with
identical rights. Anchor currently has outstanding warrants exercisable for
2,107,843 shares of Class C Common Stock at an exercise price of $.10 per share,
which has already been deemed paid.
Upon consummation of the purchase and effective February 6, 1997, Anchor
changed its name to Anchor Glass Container Corporation.
The Anchor Acquisition is accounted for by using the purchase method, with the
purchase price being allocated to the assets acquired and preacquisition
liabilities assumed based on their estimated fair value at the date of
acquisition. These allocations are based on appraisals, evaluations, estimations
and other studies. Certain acquisition costs and fees, including the costs of
closing and consolidating certain facilities have also been recorded by the
Company at the date of acquisition. The excess of the purchase price over the
fair value of net asset purchased of $58,660 is classified as Goodwill on the
accompanying balance sheet. The shares issued to Consumers U.S. in conjunction
with the issuance of the First Mortgage Notes (see Note 4) were accounted for as
a step acquisition, and accordingly, goodwill was reduced by $2,984.
F-12
<PAGE> 25
The estimated values of assets acquired and liabilities assumed as of February
5, 1997 after giving effect to the Anchor Acquisition and consideration paid is
as follows:
<TABLE>
<S> <C>
Accounts receivable.................................... $ 46,000
Inventories............................................ 119,000
Property, plant and equipment.......................... 327,000
Goodwill............................................... 59,000
Other assets........................................... 32,000
Current liabilities.................................... (149,000)
Long-term debt......................................... (2,000)
Other long-term liabilities ........................... (182,000)
---------
$ 250,000
=========
</TABLE>
The following unaudited pro forma results of operations for the Company for the
year ended December 31, 1997 assumes the Anchor Acquisition occurred on January
1, 1997 (dollars in thousands):
<TABLE>
<S> <C>
Net sales.............................................. $ 623,518
Loss before extraordinary item......................... (11,561)
Net loss............................................... (22,192)
</TABLE>
These pro forma amounts represent historical operating results with appropriate
adjustments of the Anchor Acquisition which would give effect to interest
expense and the impact of purchase price adjustments to depreciation and
amortization expense. These pro forma amounts do not purport to be indicative of
the results that would have actually been obtained had the Anchor Acquisition
been completed as of January 1, 1997, or that may be obtained in the future.
On January 9, 1997, the Pension Benefit Guaranty Corporation ("PBGC") notified
Old Anchor that it intended to institute involuntary termination proceedings
with respect to the three defined benefit pension plans then maintained by Old
Anchor, and currently maintained by Anchor. However, the PBGC reached an
agreement with Vitro, S.A., the parent of Old Anchor, in which Vitro, S.A.
agreed to provide a limited guaranty to the PBGC with respect to the unfunded
benefit liabilities of Anchor's defined benefit plans, if the plans, or any one
of them, are terminated before August 1, 2006. Consequently, the PBGC agreed not
to terminate the plans as a result of the Asset Purchase Agreement and the
assumption of the plans by Anchor. In conjunction with the purchase, Anchor
assumed all liabilities of the plans and funded $9,056 of plan contributions,
previously unfunded following Old Anchor's filing of Chapter 11. Additionally,
Anchor issued to the plans $9,000 face amount (360,000 shares) of Series A
Preferred Stock.
NOTE 3 - REVOLVING CREDIT FACILITY
In conjunction with the Anchor Acquisition, Anchor entered into a credit
agreement dated as of February 5, 1997, with Bankers Trust Company ("BTCo") as
issuing bank and BT Commercial Corporation, as agent, to provide a $110,000
senior secured revolving credit facility (the "Revolving Credit Facility"). The
Revolving Credit Facility enables Anchor to obtain revolving credit loans for
working capital purposes and the issuance of letters of credit for its account
in an aggregate amount not to exceed $110,000. Advances outstanding at any one
time cannot exceed an amount equal to the borrowing base as defined in the
Revolving Credit Facility.
Revolving credit loans bear interest at a rate based upon, at Anchor's option,
(i) the higher of the prime rate of BTCo, 0.5% in excess of the overnight
federal funds rate and 0.5% in excess of the adjusted certificate of deposit
rate, as defined, each plus a defined margin, or (ii) the average of the
offering rates of banks in the New York interbank Eurodollar market, plus a
defined margin. Interest is payable monthly. A commitment fee of 0.5% on the
unused portion of the facility and letter of credit fees, as defined, are
payable quarterly. The Revolving Credit Facility expires February 5, 2002.
F-13
<PAGE> 26
At December 31, 1997, advances outstanding under the Revolving Credit Facility
were $10,468 and the borrowing availability was $52,497. The total outstanding
letters of credit on this facility were $12,788. At December 31, 1997, the
weighted average interest rate on borrowings outstanding was 8.4%.
Anchor's obligations under the Revolving Credit Facility are secured by a first
priority lien on substantially all of Anchor's inventories and accounts
receivable and related collateral and a second priority pledge of all of
Anchor's Series B preferred stock and the Class B common stock. In addition,
Anchor's obligations under the Revolving Credit Facility are guaranteed by
Consumers U.S., the holder of Anchor's outstanding Series B preferred stock and
Class B common stock.
The Revolving Credit Facility contains certain covenants that restrict Anchor
from taking various actions, including, subject to specified exceptions, the
incurrence of additional indebtedness, the granting of additional liens, the
making of investments, the payment of dividends and other restricted payments,
mergers, acquisitions and other fundamental corporate changes, capital
expenditures, operating lease payments and transactions with affiliates. The
Revolving Credit Facility also contains certain financial covenants that require
the Company to meet and maintain certain financial tests and minimum ratios,
including a minimum working capital ratio, a minimum consolidated net worth test
and a minimum interest coverage ratio.
NOTE 4 - LONG-TERM DEBT
Long-term debt at December 31, 1997 consists of the following:
<TABLE>
<S> <C>
$150,000 First Mortgage Notes, interest at 11.25% due 2005..... $150,000
Other.......................................................... 3,325
--------
153,325
Less current maturities........................................ 567
--------
$152,758
========
</TABLE>
In connection with the Anchor Acquisition, Anchor entered into a Senior Credit
Agreement, dated as of February 5, 1997, with Bankers Trust Company, as agent,
to provide a $130,000 bank loan (the "Anchor Loan Facility"). The Anchor Loan
Facility was repaid in full from the net proceeds of the issuance of the
$150,000 11.25% First Mortgage Notes, due 2005, (the " First Mortgage Notes").
The Anchor Loan Facility bore interest at a rate of 12.50%.
As additional consideration in providing the Anchor Loan Facility, Anchor issued
to BT Securities Corporation and TD Securities, 1,405,229 warrants convertible
to Class C common stock. The warrants are valued at approximately $7,000. As a
result of the refinancing of the Anchor Loan Facility, deferred financing fees
of $11,200 were written off as an extraordinary loss in the second quarter of
1997.
Effective April 17, 1997, Anchor completed an offering of the First Mortgage
Notes, issued under an indenture dated as of April 17, 1997 (the "Indenture"),
among Anchor, Consumers U.S. and The Bank of New York, as Trustee. The First
Mortgage Notes are senior secured obligations of Anchor, ranking senior in right
of payment to all existing and future subordinate indebtedness of Anchor and
pari passu with all existing and future senior indebtedness of Anchor. The First
Mortgage Notes are guaranteed by Consumers U.S. Proceeds from the issuance of
the First Mortgage Notes, net of fees, were approximately $144,000 and were used
to repay $130,000 outstanding under the Anchor Loan Facility and $8,800 of
advances outstanding under the Revolving Credit Facility, with the balance used
for general corporate purposes.
Interest on the First Mortgage Notes accrues at 11.25% per annum and is payable
semiannually on each April 1 and October 1 to registered holders of the First
Mortgage Notes at the close of business
F-14
<PAGE> 27
on the March 15 and September 15 immediately preceding the applicable interest
payment date. The Company entered into a Registration Rights Agreement on April
17, 1997. Pursuant to this agreement, additional interest in an amount of up to
1.5% per annum accrues on the First Mortgage Notes under certain conditions. As
a result of the Company's failure to have an exchange offer registration
statement declared effective on or prior to October 14, 1997, additional
interest in the amount of 0.5% accrued from October 14, 1997. Due to the
Company's failure to have exchanged all First Mortgage Notes tendered in
accordance with the terms of the exchange offer on or prior to November 28,
1997, additional interest increased to 1.0%. Additional interest increased to
1.5% on January 13, 1998 and accrued to February 11, 1998 when it was reduced to
0.5%.
The First Mortgage Notes are redeemable, in whole or in part, at Anchor's option
on or after April 1, 2001, at redemption prices defined in the Indenture. The
Indenture provides that upon the occurrence of a change in control, Anchor will
be required to offer to repurchase all of the First Mortgage Notes at a purchase
price in cash equal to 101% of the principal amount plus interest accrued to the
date of purchase. Prior to the sale of the First Mortgage Notes, the Company
entered into an interest rate swap agreement to partially protect the Company
from interest rate fluctuations until such time as the fixed interest rate on
the First Mortgage Notes was established. The agreement was terminated
concurrent with interest rate of the First Mortgage Notes being set. The
realized gain on the agreement, approximately $1,900, has been deferred and is
being amortized over the term of the First Mortgage Notes.
All of the obligations of Anchor under the First Mortgage Notes and the
Indenture are secured by a first priority perfected security interest in
substantially all of the existing and future real property, personal property
and other assets of Anchor and a first priority perfected security interest in
collateral ranking pari passu with the security interest in favor of the
Revolving Credit Facility.
The Indenture, subject to certain exceptions, restricts the Company from taking
various actions, including, but not limited to, subject to specified exceptions,
the incurrence of additional indebtedness, the granting of additional liens, the
payment of dividends and other restricted payments, mergers, acquisitions and
transactions with affiliates.
All of the Company's debt agreements contain cross-default provisions.
Principal payments required on long-term debt are $567 in 1998, $291 in 1999,
$297 in 2000, $303 in 2001 and $300 in 2002. Payments to be made in 2003 and
thereafter are $151,567.
In connection with the issuance of the First Mortgage Notes on April 17, 1997,
Anchor issued 702,615 shares of Class B common stock to Consumers U.S. and
702,614 warrants, valued at $5.00 for each share and warrant, to the initial
purchasers. As Anchor has treated the issuance of the shares to the Company as
a distribution, the effect of the issuance has been eliminated upon
consolidation. The value of the warrants issued to the initial purchasers has
been deferred to be amortized over the life of the First Mortgage Notes.
NOTE 5 - REDEEMABLE PREFERRED STOCK
Anchor has designated 2,239,320 shares as Series A Preferred Stock and 5,000,000
shares as Series B Preferred Stock. The Series A Preferred Stock ranks, as to
dividends and redemption and upon liquidation, prior to all other classes and
series of capital stock of the Company. The holders of Series A Preferred Stock
are entitled to receive, when and as declared by the Board of Directors of
Anchor, cumulative dividends, payable quarterly in cash, at an annual rate of
10%. Holders of Series A Preferred Stock are not entitled to vote, except as
defined in its Certificate of Designation. No dividends have been declared or
paid as of December 31, 1997.
Anchor is required to redeem all outstanding shares of the Series A Preferred
Stock on January 31, 2009, and, on or after February 5, 2000, may, at its
option, redeem outstanding shares of Series A Preferred Stock at a price of
$25.00 per share, if the trading price of the common stock equals or exceeds
$6.00 per share. Shares of Series A Preferred Stock are convertible into shares
of Class A
F-15
<PAGE> 28
Common Stock, at the option of the holder, at a ratio determined by dividing the
liquidation value of the Series A Preferred Stock by $6.00 and such ratio is
subject to adjustment from time to time.
Pursuant to the Asset Purchase Agreement, the Company is obligated to register
all of the shares of the Class A Common Stock and Series A Preferred Stock under
the Securities Exchange Act and to qualify the shares for listing on a
nationally recognized United States securities exchange or on The Nasdaq Stock
Market's National Market.
NOTE 6 - RELATED PARTY INFORMATION
G&G Investments, Inc.
Anchor is party to a management agreement with G&G, in which G&G is to provide
specified managerial services for Anchor. For these services, G&G is entitled to
receive an annual management fee of $3,000 and reimbursement of its
out-of-pocket costs. The terms of Revolving Credit Facility and the Indenture
limit the management fee annual payment to $1,500 unless certain financial
maintenance tests are met. The Company has recorded an expense of $2,750 for
this agreement for the period ended December 31, 1997 of which $975 has been
paid.
Other affiliates
Related party transactions with Consumers and its affiliates for the period from
February 5, 1997 to December 31, 1997 are summarized as follows:
<TABLE>
<S> <C>
Purchases of inventory and other...................... $ 5,201
Payable for inventory and other....................... 1,283
Sales of inventory and other.......................... 20,314
Receivable from sales of inventory and other.......... 5,791
</TABLE>
All transaction with Consumers and its affiliates are conducted on terms which,
in the opinion of management, are no less favorable than with third parties.
Consumers has charged Consumers U.S. $3,513 for services provided which resulted
in Consumers U.S. receiving 702,615 shares of Class B common stock of Anchor.
This amount is unpaid as of December 31, 1997. Since the cost of these
services has already been charged to earnings by the Company, this amount has
been treated as a distribution to a shareholder.
Stock Option Plan
Anchor participates in the Director and Employee Incentive Stock Option Plan,
1996 of Consumers. Options to purchase 1,261,500 shares of Consumers common
stock, at exercise prices that range from $9.65 to $13.50 (Canadian dollars),
were granted to all salaried employees of Anchor in 1997. The Company has
elected to follow Accounting Principles Board Opinion No. 25 -- Accounting for
Stock Issued to Employees ("APB 25"). Under APB 25, because the exercise price
of employee stock options equals the market price of the stock on the date of
grant, no compensation expense is recorded. The Company adopted the disclosure
only provisions of Statement of Financial Accounting Standards No. 123 --
Accounting for Stock-Based Compensation ("SFAS 123").
Information related to stock options during the period ended December 31, 1997
follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE
OF EXERCISE FAIR
SHARES PRICE VALUE
--------- --------- --------
<S> <C> <C> <C>
Options outstanding, February 5, 1997.... --
Granted............................... 1,261,500 12.95 $4,43
Exercised............................. --
Forfeited............................. --
--------- --------- --------
Options outstanding, December 31, 1997... 1,261,500 $12.95
========= =========
</TABLE>
No options are exercisable at December 31, 1997 and, the weighted average
remaining contractual life of the options is 9.5 years.
The Company applied APB 25 in accounting for these stock options and,
accordingly, no compensation cost has been reported in the financial statements
for the period ended December 31, 1997. In accordance with SFAS 123, the fair
value of option grants is estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions for pro forma footnote
purposes: (i) risk-free interest of 5.76%, (ii) expected option life of 3
years, (iii) expected volatility of 41.51% and (iv) no expected dividend yield.
Had the Company determined compensation cost based on the fair value at the
grant date for these options under SFAS 123, the Company's net loss would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<S> <C>
Net loss
As reported...................................................... $(11,082)
Pro forma........................................................ (11,228)
</TABLE>
NOTE 7 - PENSION PLANS
As part of the Anchor Acquisition, Anchor assumed the pension plans previously
maintained by Old Anchor. Anchor has defined benefit retirement plans for
salaried and hourly-paid employees. Benefits are calculated on a salary-based
formula for salaried plans and on a service-based formula for hourly plans.
Pension costs for the period from February 5, 1997 to December 31, 1997 are
summarized below:
<TABLE>
<S> <C>
Service cost-benefits earned during the year.......... $ 3,934
Interest cost on projected benefit obligation......... 28,219
Return on plan assets................................. (29,087)
--------
Total pension cost.................................. $ 3,066
========
</TABLE>
F-16
<PAGE> 29
Anchor has substantial unfunded obligations related to its employee pension
plans. The Retirement Protection Act of 1994 requires Anchor to make significant
additional funding contributions into its underfunded defined benefit retirement
plans and will increase the premiums paid to the PBGC. Excluding payments made
as part of the Anchor Acquisition, the Company funded required contributions of
approximately $20,000 in 1997.
As an objection to the sale, the PBGC entered a determination to terminate Old
Anchor's qualified defined benefit pension plans. However, in conjunction with
the sale, Anchor assumed all liabilities of the plans and funded $9,056 of plan
contributions, previously unfunded following Old Anchor's filing of Chapter 11.
Additionally, Anchor issued $9,000 face amount of Series A Preferred Stock and
Vitro, the parent of Old Anchor, has guaranteed to fund certain qualified
defined benefit plan obligations, should Anchor default on its obligations.
Consequently, the PBGC agreed not to terminate the plans as a result of the
Agreement and the assumption of the plans by Anchor.
Anchor also sponsors two defined contribution plans covering substantially all
salaried and hourly employees. In 1994, the salaried retirement and savings
programs were changed, resulting in the freezing of benefits under the defined
benefit pension plans for salaried employees and amending the defined
contribution savings plan for salaried employees. Under the amended savings plan
Anchor matches employees' basic contributions to the plan in an amount equal to
150% of the first 4% of an employee's compensation. Expenses under the savings
programs for the period from February 5, 1997 to December 31, 1997 were
approximately $2,000.
The funded status of Anchor's pension plans at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Accumulated Assets Exceed
Benefits Accumulated
Exceed Assets Benefits
------------- -------------
<S> <C> <C>
Actuarial present value of accumulated plan benefits:
Vested benefit obligation........................... $ 314,427 $ 114,381
========= =========
Accumulated benefit obligation...................... $ 325,349 $ 114,381
========= =========
Projected benefit obligation........................ 325,349 114,381
Plan assets at fair value................................ 270,157 131,631
--------- ---------
Projected benefit obligation in excess of (less than)
plan assets......................................... 55,192 (17,250)
Amounts not recognized -
Subsequent gains.................................... 4,651 5,693
Additional minimum liability............................. 540 --
--------- ---------
Accrued (prepaid) pension cost........................... $ 60,383 $ (11,557)
========= =========
</TABLE>
Plan assets are held by an independent trustee and consist primarily of
investments in equities, fixed income and government securities. There is
currently no public market for the Series A Preferred Stock and no dividends
have been paid during the current year. The Company has received a valuation of
the contributed Series A Preferred Stock in the fourth quarter of 1997. Based
upon this valuation, the Company will be required to contribute approximately
$745 to bring the total value of the Series A Preferred Stock contribution up to
the $9,000 contributed value.
Significant assumptions used in determining net pension cost and related pension
obligations for the benefit plans for 1997 are as follows:
<TABLE>
<S> <C>
Discount rate......................................... 7.25%
Expected long-term rate of return
on plan assets.................................... 9.0
</TABLE>
F-17
<PAGE> 30
NOTE 8 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides benefits to substantially all salaried, and certain hourly
employees under several plans. SFAS 106 requires accrual of postretirement
benefits (such as healthcare benefits) during the years an employee provides
services. Currently, the Company funds these healthcare benefits on a
pay-as-you-go basis. The Company also contributes to a multi-employer trust, and
under the requirements of SFAS 106, recognizes as postretirement benefit cost
the required annual contribution. The Company's cash flows are not affected by
implementation of SFAS 106.
The accumulated postretirement benefit obligation at December 31, 1997 is as
follows:
<TABLE>
<S> <C>
Retirees ............................................................ $39,882
Eligible plan participants .......................................... 9,186
Other active plan participants ...................................... 12,054
-------
61,122
Unrecognized gain ................................................... 568
-------
Accrued postretirement benefit costs (including $3,790 in
current liabilities) ............................................. $61,690
=======
</TABLE>
Net postretirement benefit costs for the period from February 5, 1997 to
December 31, 1997 consist of the following components:
<TABLE>
<S> <C>
Service cost - benefits earned during the year....................... $ 755
Interest cost on accumulated postretirement
benefit obligation .............................................. 3,855
-------
$ 4,610
=======
</TABLE>
The assumed healthcare cost trend used in measuring the accumulated
postretirement benefit obligation as of December 31, 1997 was 8.5% declining
gradually to 5.5% by the year 2003, after which it remains constant. A one
percentage point increase in the assumed healthcare cost trend rate for each
year would increase the accumulated post-retirement benefit obligation as of
December 31, 1997 by approximately 11% and the net postretirement healthcare
cost for the period ended December 31, 1997 by approximately 12%. The assumed
discount rate used in determining the accumulated postretirement benefit
obligation was 7.25% for 1997.
The Company also contributes to a multi-employer trust which provides certain
other postretirement benefits to retired hourly employees. Expenses under this
program for the period from February 5, 1997 to December 31, 1997 were $3,781.
NOTE 9 - PLANT CLOSING COSTS
In an effort to reduce the Company's cost structure and improve productivity,
the Company closed its Houston, Texas plant effective February 1997 and its
Dayville, Connecticut plant effective April 1997 and included the liabilities
assumed as part of the Anchor Acquisition cost. Closure of these facilities will
result in the consolidation of underutilized manufacturing operations and is
expected to be completed by February 5, 1999. Substantially all of the hourly
and salaried employees at these plants, approximately 600 in total, have been
terminated. Exit charges and the amounts charged against the liability as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Amount Charged
Exit Charges Against Liability
------------ -----------------
<S> <C> <C>
Severance and employee benefit costs $13,000 $11,700
Plant shutdown costs related to consolidation
and discontinuation of manufacturing facilities 12,800 9,100
</TABLE>
F-18
<PAGE> 31
NOTE 10 - INCOME TAXES
The Company applies SFAS 109 under which the liability method is used in
accounting for income taxes. Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. Under SFAS 109, if on the basis of
available evidence, it is more likely than not that all or a portion of the
deferred tax asset will not be realized, the asset must be reduced by a
valuation allowance. Since realization is not assured at of December 31, 1997,
management has deemed it appropriate to establish a realization reserve against
the tax asset created during the period.
The following significant components of the deferred tax assets and liabilities
are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Pension and postretirement liabilities .... $ 1,200
Accumulated depreciation .................. 600
Other ..................................... 300
Tax loss carryforwards .................... 2,900
-------
5,000
-------
Valuation allowance .......................... (1,600)
-------
3,400
Deferred tax liabilities:
Accrued liabilities and reserves .......... 3,200
Other assets .............................. 200
-------
Net deferred tax assets ...................... 3,400
-------
$ --
=======
</TABLE>
The effective tax rate reconciliation at December 31, 1997 is as follows:
<TABLE>
<S> <C>
Federal rate .............................. (34)%
State rate ................................ (5)
-------
Permanent differences ..................... 25
-------
(14)
Valuation allowance ....................... 14
-------
Effective rate ............................ -- %
=======
</TABLE>
NOTE 11 - LEASES
The Company leases distribution and office facilities, machinery,
transportation, data processing and office equipment under non-cancelable leases
which expire at various dates through 2004. These leases generally provide for
fixed rental payments and include renewal and purchase options at amounts which
are generally based on fair market value at expiration of the lease. The Company
has no material capital leases.
Future minimum lease payments under non-cancelable operating leases are as
follows:
<TABLE>
<S> <C>
1998.................................... $ 17,300
1999.................................... 13,600
2000.................................... 10,400
2001.................................... 9,200
2002.................................... 9,200
After 2002.............................. 20,300
---------
$ 80,000
=========
</TABLE>
F-19
<PAGE> 32
Rental expense for all operating leases for the period from February 5, 1997 to
December 31, 1997 were $17,547.
In connection with the Anchor Acquisition, Anchor assumed and amended Old
Anchor's lease of the headquarters facility located in Tampa, Florida and a
related option to purchase. The term of the amended lease expires January 2,
1998, unless Anchor has exercised its purchase right, and the term then expires
February 1, 1998. In January 1998, Anchor exercised the option to purchase the
headquarters facility and assigned such option to a third party purchaser of the
facility. Anchor has to entered into a ten year lease pursuant to which Anchor
will lease a portion of the headquarters facility.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Anchor is a respondent in various environment-related cases. The measurement of
liabilities in these cases and other environmental concerns is based on
available facts of each situation and considers factors such as prior experience
in remediation efforts and presently enacted environmental laws and regulations.
In the opinion of management, based upon information presently known, the
Company has adequately provided for environmental liabilities. The Company is
not otherwise party to, and none of its assets are subject to any other pending
legal proceedings, other than ordinary routine litigation incidental to its
business and against which the Company is adequately insured and indemnified or
which is not material. The Company believes that the ultimate outcome of these
cases will not materially affect future operations.
NOTE 13 - SUBSEQUENT EVENTS
Following the issuance of the First Mortgage Notes, the Company filed, with the
Securities and Exchange Commission, a Registration Statement on July 16, 1997,
(File No.333-31363) on Form S-4 under the Securities Act of 1933, with respect
to an issue of 11.25% First Mortgage First Mortgage Notes, due 2005, identical
in all material respects to the First Mortgage Notes, except that the new First
Mortgage Notes would not bear legends restricting the transfer thereof. Upon the
effectiveness of the Registration Statement, February 12, 1998, the Company
commenced an offer to the holders of the First Mortgage Notes to exchange their
First Mortgage Notes for a like principal amount of new First Mortgage Notes.
The exchange offer is expected to be completed by March 30, 1998.
In connection with a plan to simplify the corporate ownership structure of
Consumers, Anchor and their affiliates, Glenshaw Glass Company, Inc., a
wholly-owned subsidiary of G&G, may become a subsidiary of the Company.
Subsequent to year end, Anchor has made definitive arrangements to issue 9 7/8%
senior unsecured notes, due 2008 in the amount of $50,000 (the "Offering"), the
proceeds of which are to be used to pay down the existing indebtedness under the
Anchor's Revolving Credit Facility and to provide for future expansion to meet
customer needs.
F-20
<PAGE> 33
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.
CONSUMERS U.S., INC.
Date: July 13, 1998 By /s/ M. William Lightner, Jr.
------------------------------------------
M. William Lightner, Jr.
Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ John J. Ghaznavi
- --------------------------------------
John J. Ghaznavi
Chairman and Chief Executive Officer
(Principal Executive Officer)
July 13, 1998
/s/ M. William Lightner, Jr.
- --------------------------------------
M. William Lightner, Jr.
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
July 13, 1998
Directors:
/s/ John J. Ghaznavi
- --------------------------------------
John J. Ghaznavi
July 13, 1998
/s/ David T. Gutowski
- --------------------------------------
David T. Gutowski
July 13, 1998
/s/ M. William Lightner, Jr.
- --------------------------------------
M. William Lightner, Jr.
July 13, 1998
/s/ C. Kent May
- --------------------------------------
C. Kent May
July 13, 1998
<PAGE> 1
EXHIBIT 12.1
CONSUMERS U.S., INC.
STATEMENT RE COMPUTATION OF RATIOS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM FEBRUARY 5, 1997
TO DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<S> <C>
EARNINGS -
Loss before extraordinary item $ (271)
Interest and amortization of debt expense 18,281
Rental expense representative of interest factor 5,849
--------
Total earnings $ 20,346
========
FIXED CHARGES -
Interest and amortization of debt expense $ 18,281
Rental expense representative of interest factor 5,849
--------
Total fixed charges $ 24,130
========
RATIO OF EARNINGS TO FIXED
CHARGES --
========
DEFICIENCY OF EARNINGS AVAILABLE
TO COVER FIXED CHARGES $ 271
========
</TABLE>
For the purposes of computing the ratio of earnings to fixed charges and the
deficiency of earnings available to cover fixed charges, earnings consist of
income (loss) before income taxes, extraordinary items and cumulative effect of
change in accounting, plus fixed charges. Fixed charges consist of interest and
amortization of debt expense plus a portion of operating lease expense.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made part of this
annual report on Form 10-K/A.
/s/ ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
July 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF CONSUMERS U.S., INC. INCLUDED IN FORM 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> FEB-05-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,060
<SECURITIES> 0
<RECEIVABLES> 56,940
<ALLOWANCES> 2,025
<INVENTORY> 120,123
<CURRENT-ASSETS> 186,205
<PP&E> 368,524
<DEPRECIATION> 43,653
<TOTAL-ASSETS> 614,022
<CURRENT-LIABILITIES> 172,180
<BONDS> 152,758
55,983
0
<COMMON> 170
<OTHER-SE> 61,870
<TOTAL-LIABILITY-AND-EQUITY> 614,022
<SALES> 569,441
<TOTAL-REVENUES> 569,441
<CGS> 523,709
<TOTAL-COSTS> 523,709
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 375
<INTEREST-EXPENSE> 18,281
<INCOME-PRETAX> (271)
<INCOME-TAX> 0
<INCOME-CONTINUING> (271)
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