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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 333-31363-01
-------------------------------------
CONSUMERS U.S., INC.
--------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2874087
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3140 William Flinn Highway, Allison Park, Pennsylvania 15101
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
412-486-9100
------------
(Registrant's telephone number, including area code)
None
----
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
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 November 14, 1998: Common Stock, $.01 par value, 17,000,100 shares
1 of 13
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CONSUMERS U.S., INC.
FORM 10-Q
For the Quarterly Period Ended September 30, 1998
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 1998,
Three Months Ended September 30, 1997 and
the Period from February 5, 1997 to September 30, 1997 3
Condensed Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and
the Period from February 5, 1997 to September 30, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION 12
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSUMERS U.S., INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Three Months
Nine Months Period from Ended September 30,
Ended February 5, 1997 -----------------------
September 30, 1998 to September 30, 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $493,613 $415,636 $169,211 $154,495
Costs and expenses:
Cost of products sold 456,270 386,130 154,467 141,845
Selling and administrative expenses 22,197 18,127 7,763 6,951
Restructuring charges 4,000 - 4,000 -
Income from operations 11,146 11,379 2,981 5,699
Other income (expense), net 155 234 (5) 23
Interest expense (19,947) (12,725) (6,867) (4,843)
-------- -------- -------- --------
Income (loss) before extraordinary item (8,646) (1,112) (3,891) 879
Extraordinary item - write-off of
financing costs - (11,200) - -
-------- -------- -------- --------
Income (loss) before preferred stock
dividends and minority interest (8,646) (12,312) (3,891) 879
Preferred stock dividends of subsidiary (4,187) (3,650) (1,411) (1,411)
-------- -------- -------- --------
Loss before minority interest (12,833) (15,962) (5,302) (532)
Minority interest 2,533 5,451 2,533 -
-------- -------- -------- --------
Net loss $(10,300) $(10,511) $ (2,769) $ (532)
======== ======== ======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
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CONSUMERS U.S., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
September 30, 1998 December 31, 1997
(unaudited)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,492 $ 1,060
Accounts receivable 79,691 56,940
Due from affiliate 17,330 -
Inventories:
Raw materials and manufacturing supplies 26,141 23,303
Finished products 79,710 96,820
Other current assets 7,237 8,082
-------- --------
Total current assets 214,601 186,205
Property, plant and equipment, net 311,545 324,871
Other assets 22,130 22,462
Strategic alliances with customers 24,772 25,389
Goodwill 53,816 55,803
-------- --------
$626,864 $614,730
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility $ 43,638 $ 10,468
Current maturities of long-term debt 483 567
Accounts payable 36,072 63,796
Accrued expenses 42,212 64,075
Accrued interest 9,017 4,576
Accrued compensation and employee benefits 28,731 25,185
-------- --------
Total current liabilities 160,153 168,667
Long-term debt 202,930 152,758
Long-term pension liabilities 35,265 48,826
Long-term postretirement liabilities 59,895 57,900
Other long-term liabilities 47,868 57,522
-------- --------
345,958 317,006
Commitments and contingencies
Redeemable preferred stock 55,983 55,983
-------- --------
Minority interest 13,030 6,813
-------- --------
Stockholder's equity:
Common stock 170 170
Capital in excess of par value 86,330 86,330
Accumulated deficit (34,220) (23,920)
Accumulated comprehensive income (540) (540)
-------- --------
51,740 62,040
-------- --------
$626,864 $614,022
======== ========
</TABLE>
- ---------------------------
See Notes to Condensed Consolidated Financial Statements.
4
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CONSUMERS U.S., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Nine Months Period from
Ended February 5, 1997
September 30, 1998 to September 30, 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(10,300) $ (10,511)
Restructuring charges 4,000 -
Extraordinary item - 11,200
Adjustments to reconcile net loss to cash provided
by (used in) operating activities:
Depreciation and amortization 40,849 38,422
Other (43) 224
Dividend accrued on preferred stock of subsidiary 4,187 3,650
Minority interest (2,533) (5,451)
Decrease in cash resulting from changes in
assets and liabilities (70,569) (34,170)
-------- ---------
(34,409) 3,364
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of assets and assumption of liabilities of Old Anchor - (200,470)
Expenditures for property, plant and equipment (23,300) (21,034)
Proceeds from the sale of property, plant and equipment 743 -
Acquisition related contribution to defined benefit pension plans (745) (9,056)
Other (974) (773)
-------- ---------
(24,276) (231,333)
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 50,000 280,000
Principal payments of long-term debt (346) (130,148)
Proceeds from issuance of preferred stock - 84,000
Proceeds from issuance of common stock - 1,000
Net draws on revolving credit facility 33,170 5,861
Advance to affiliate (17,330) -
Other, primarily financing fees (3,377) (11,940)
-------- ---------
62,117 228,773
- -----------------------------------------------------------------------------------------------------------------------------
Cash and equivalents:
Increase in cash and cash equivalents 3,432 804
Balance, beginning of period 1,060 -
-------- ---------
Balance, end of period $ 4,492 $ 804
======== =========
- -----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Interest payments, net $ 14,292 $ 4,103
======== =========
Income tax payments (refunds), net $ - $ -
======== =========
</TABLE>
- ---------------------------
See Notes to Condensed Consolidated Financial Statements.
5
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CONSUMERS U.S., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 1 - MANAGEMENT'S RESPONSIBILITY
In the opinion of Management, the accompanying condensed financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of September
30, 1998 and the results of operations for the three months and nine months
ended September 30, 1998, the three months ended September 30, 1997 and the
period from February 5, 1997 to September 30, 1997 and cash flows for the nine
months ended September 30, 1998 and the period from February 5, 1997 to
September 30, 1997.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the Financial
Statements of Consumers U.S., Inc., consolidated with its majority-owned
subsidiary, Anchor Glass Container Corporation ("Anchor"), (together, the
"Company") included in the Company's Annual Report on Form 10-K/A for the
period ended December 31, 1997. The results of operations for the interim
periods are not necessarily indicative of the results of the full fiscal year.
NOTE 2 - RESTRUCTURING CHARGE
In the third quarter of 1998, formal plans were approved to remove from
service one furnace and one machine at the Jacksonville, Florida manufacturing
facility. The furnace is scheduled to cease operations in December 1998 and
approximately 100 hourly employees will be terminated. Anchor has recorded a
restructuring charge of $4,000. Of this total charge, approximately $2,365
relates to operating lease exit costs, approximately $875 represents closing
and other costs and approximately $760 relates to the write-down of certain
equipment to net realizable value. This plan was announced in October 1998 and,
as a result, Anchor will record an additional $400 of restructuring charges in
the fourth quarter of 1998 related to certain employee costs.
NOTE 3 - ANCHOR ACQUISITION
On February 5, 1997, pursuant to an Asset Purchase Agreement, the
Company purchased eleven operating glass container manufacturing facilities and
other related assets (the "Anchor Acquisition"), from Old Anchor for a purchase
price of approximately $250,000. The purchase price paid by the Company was
subject to adjustment. In June 1998, the bankruptcy court approved the final
settlement of the purchase price which required 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, valued at approximately
$6,100. In addition, Anchor issued warrants to purchase additional shares of
common stock to an affiliate of the Company. None of the warrants issued
require any payment upon exercise. The effects of the settlement had been
reflected in the Company's financial statements for the period ended December
31, 1997.
In accordance with the settlement, Anchor issued 332,844 warrants for
Class A Common Stock, 525,000 warrants for Class B Common Stock and 892,156
warrants for Class C Common Stock, all valued at $5.00 per share.
NOTE 4 - LONG-TERM DEBT
Effective March 16, 1998, Anchor completed an offering of an aggregate
principal amount of $50.0 million of its 9 7/8% Senior Notes due 2008 (the
"Senior Notes") issued under an Indenture dated as of March 16, 1998, among
Anchor, Consumers U.S., Inc. and The Bank of New York, as Trustee. The Senior
Notes are
6
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unsecured 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. Proceeds from the issuance
of the Senior Notes will be used for growth capital expenditures and general
corporate purposes. Pending such use, Anchor used the net proceeds to
temporarily repay advances outstanding under the Revolving Credit Facility.
Interest on the Senior Notes accrues at 9 7/8% per annum and is payable
semiannually on each March 15 and September 15 to registered holders of the
Senior Notes at the close of business on the March 1 and September 1
immediately preceding the applicable interest payment date.
Anchor entered into a Registration Rights Agreement on March 16, 1998.
Pursuant to the agreement, Anchor filed an exchange offer registration
statement with the Securities and Exchange Commission, which was declared
effective on April 28, 1998. In June 1998, Anchor completed an offer to the
holders of the Senior Notes to exchange their Senior Notes for like principal
amount of new Senior Notes, substantially identical to the Senior Notes except
that the new Senior Notes do not contain terms with respect to transfer
restrictions.
The Senior Notes are redeemable at any time at the option of Anchor, in
whole and not in part, 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 Senior Notes at a purchase price
equal to 101% of the principal amount plus interest accrued to the date of
purchase.
The Indenture, subject to certain exceptions, restricts Anchor from
taking various actions, including, but not limited to, the incurrence of
additional indebtedness, the granting of additional liens, the payment of
dividends and other restricted payments, mergers, acquisitions and transactions
with affiliates.
NOTE 4 - 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. Exit charges and
the amounts charged against the liability as of September 30, 1998 are as
follows:
<TABLE>
<CAPTION>
Amount Charged
Exit Charges Against Liability
------------ -----------------
<S> <C> <C>
Severance and employee benefit costs $13,000 $12,800
Plant shutdown costs related to consolidation
and discontinuation of manufacturing facilities 12,800 11,700
</TABLE>
NOTE 5 - NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 -- Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133, effective for fiscal
years beginning after June 15, 1999, establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. The Company has not yet quantified the impacts
of adopting SFAS 133 and has not determined the timing of or method of
adoption. SFAS 133 could increase volatility in earnings and other
comprehensive income.
7
<PAGE> 8
ITEM 2. 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-Brockway Glass Container Inc. acquired substantially all of
the assets of, and assumed certain liabilities, of Anchor Glass Container
Corporation ("Old Anchor"), now being liquidated in a proceeding under Chapter
11 of the U.S. Bankruptcy Code of 1978, as amended. The Company purchased
eleven operating glass container manufacturing facilities and other related
assets (the "Anchor Acquisition"). Prior to the Anchor Acquisition, the Company
had no operations. As a result, the following discussion represents activity
for the third quarter and first nine months of 1998 and the third quarter of
1997 and the period from February 5, 1997 to September 30, 1997 (the "1997
Period"). Accordingly, operations for the Company for the 1997 Period are not
directly comparable to operations for the first nine months of 1998.
RESULTS OF OPERATIONS
Income from operations for the nine months ended September 30, 1998 was
$11.1 million compared to $11.4 million for the 1997 Period. The 1997 Period
excludes the month January which, historically, is a below average operating
period due to post holiday shutdown start-up costs. Income from operations for
the quarter ended September 30, 1998 was $2.9 million compared to $5.7 million
for the third quarter of 1997.
Net sales. Net sales for the 1998 third quarter were $169.2 million,
compared to $154.5 million for the comparable quarter of 1997, an increase of
9.5% on a unit volume increase of approximately 23%. Net sales for the first
nine months of 1998 were $493.6 million, or approximately $12.6 million per
week. Net sales for the 1997 Period were approximately $415.6 million, or
approximately $12.2 million per week. This slight increase in net sales was
principally as a result of higher sales of beer and tea products in 1998 as
compared to 1997. The continued shift in product mix in 1998 towards higher
volume, lower margin products has unfavorably impacted margins, as noted below.
Also, despite operating at near full manufacturing capacity, the industry has
experienced significant pricing pressures, unfavorably affecting margins.
Cost of products sold. The Company's cost of products sold in the third
quarter and first nine months of 1998 were $154.5 million and $456.3 million,
respectively (or 91.3% and 92.4% of net sales), while the cost of products sold
for the third quarter of 1997 and the 1997 Period were $141.9 million and
$386.1 million, respectively (or 91.8% and 92.9% of net sales). The slight
decrease in the percentage of cost of products sold for 1998, as compared with
1997, reflects more favorable employee benefit costs, particularly in the areas
of pensions and health insurance, as the result of favorable claims and census
experience, which may be non-recurring, offset by higher freight costs and the
impact of increased sales of lower margin items. This improvement also reflects
the impact of the closing of the Dayville, Connecticut plant effective during
the second quarter of 1997 and is partially offset by costs related to the
delay and start-up of a rebuilt furnace and machine rebuilds at one
manufacturing plant, originally scheduled for December 1997 but completed in
February 1998.
Restructuring charge. In the third quarter of 1998, formal plans were
approved to remove from service one furnace and one machine at the
Jacksonville, Florida manufacturing facility. The furnace is scheduled to cease
operations in December 1998 and approximately 100 hourly employees will be
terminated. Anchor has recorded a restructuring charge of $4.0 million. Of this
total charge, approximately $2.3 million relates to operating lease exit costs,
approximately $0.9 million represents closing and other costs and approximately
$0.8 million relates to the write-down of certain equipment to net realizable
value. This plan was announced in October 1998 and, as a result, Anchor will
record an additional $0.4 million of restructuring charges in the fourth quarter
of 1998 related to certain employee costs.
8
<PAGE> 9
Selling and administrative expenses. Selling and administrative expenses
for the 1998 third quarter and the first nine months of 1998 were approximately
$7.8 million (or 4.6% of net sales) and $22.2 million (or 4.5% of net sales),
respectively, while selling and administrative expenses in the third quarter of
1997 and the 1997 Period were $6.9 million (or 4.5% of net sales) and $18.1
million (or 4.4% of net sales), respectively. This slight increase in selling
and administrative expenses as a percentage of net sales reflects slightly
higher personnel costs as the Company augmented its management team in the
second half of 1997 and expenditures in connection with Year 2000 compliance,
offset by focused reductions in other selling and administrative categories.
Interest expense. Interest expense for the 1998 third quarter was
approximately $6.8 million compared to $4.8 million in the third quarter of
1997, an increase of 41.8%. Interest expense for the first nine months of 1998
was approximately $19.9 million compared to $12.7 million in the 1997 Period,
an increase of 56.8%. On March 16, 1998, the Company completed an offering of
an aggregate principal amount of $50.0 million of its 9 7/8% Senior Notes due
2008 (the "Senior Notes") issued under an Indenture dated as of March 16, 1998,
among the Company, Consumers U.S., Inc. and The Bank of New York, as Trustee.
Annual interest expense on the Senior Notes approximates $4.9 million.
Additionally, interest expense has increased based upon higher average
outstanding borrowings under the Revolving Credit Facility during 1998, as
compared to 1997.
Net loss. The Company had a loss of approximately $2.8 million in the
third quarter of 1998 as compared to a loss of $0.5 million in the third
quarter of 1997. The Company had a net loss of $10.3 million for the first nine
months of 1998 compared to income excluding extraordinary item of $0.7 million
for the 1997 Period.
LIQUIDITY AND CAPITAL RESOURCES
In the first nine months of 1998, operating activities consumed $34.4
million in cash as compared to $3.4 million of cash provided in the 1997
Period. This increase in cash consumed reflects adjustments for changes in
working capital items and the higher loss in the first nine months of 1998 as
compared with the loss before the extraordinary item in the 1997 Period. The
balance of trade related accounts receivable increased approximately $22.7
million from year-end 1997 reflecting the seasonal nature of certain sales and
the impact of credit terms of certain customers. Additionally, the balance of
accounts payable decreased approximately $27.7 million from year-end partially
as a result of the increase in cash from other financing activities, allowing
the Company to take advantage of available cash discounts. In addition, trade
payables were higher in December 1997, due to the furnace and machine rebuilds
noted above. Cash consumed in investing activities in the first nine months of
1998 and the 1997 Period were $24.3 million and $231.4 million, respectively,
principally reflecting the capital expenditures in 1998 and the cash component
of the Anchor Acquisition in the 1997 Period. In February 1997, Anchor
contributed $9.0 million in cash to Anchor's defined benefit pension plans.
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 made an additional pension contribution of $0.7 million
in cash in March 1998. Capital expenditures in the first nine months of 1998
were $23.3 million.
Cash increased from financing activities for the first nine months of
1998 by $62.1 million principally reflecting the issuance by Anchor of the
Senior Notes in March 1998 and borrowings under the Revolving Credit Facility.
Anchor advanced approximately $17.3 million to an affiliate in September 1998.
The advance is evidenced by a promissory note maturing in January 1999. The
funds were obtained through borrowings under the Revolving Credit Facility.
Interest on the note is payable at the interest rate payable by Anchor on its
revolving credit advances plus 1/2%.
In conjunction with the Anchor Acquisition, the Company entered into a
credit agreement providing for a $110.0 million Revolving Credit Facility (the
"Revolving Credit Facility"). At November 1, 1998, advances outstanding under
the Revolving Credit Facility were $52.7 million, outstanding letters of credit
on this facility were $11.1 million and the borrowing availability was $20.6
million.
9
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On March 16, 1998, Anchor completed an offering of the Senior Notes. The
Senior Notes are unsecured 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. Proceeds from
the issuance of the Senior Notes will be used for growth capital expenditures
and general corporate purposes. Pending such use, the Company used the net
proceeds to temporarily repay advances outstanding under the Revolving Credit
Facility.
The indentures covering the $150,000 aggregate principal amount of
11 1/4% First Mortgage Notes due 2005 (the "First Mortgage Notes") and the
Senior Notes contain certain covenants that 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
contains other and more restrictive covenants, including certain financial
covenants that require the Company to meet and maintain certain financial tests
and minimum ratios, such as a minimum working capital ratio, a minimum
consolidated net worth and a minimum interest coverage ratio.
The Company expects significant expenditures in the remainder of 1998,
including interest expense on the First Mortgage Notes, the Senior Notes and
the Revolving Credit Facility, an obligation in respect of Anchor's supply
agreement with The Stroh Brewery Company of $7.0 million, capital expenditures
of approximately $22.0 million (a portion of which will be leased) and closing
costs associated with the closed manufacturing facilities of approximately $1.0
million. Because of a change, effective January 1, 1998, to the market value
asset valuation method for determining pension plan contributions, no further
pension contributions will be required in 1998 with respect to either current
funding or past underfundings. Peak cash 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, borrowings under
the Revolving Credit Facility and proceeds from sales of discontinued
manufacturing facilities.
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 experienced pricing
pressures in the current market and has not been fully able to pass on
inflationary cost increases to its 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 typically 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 generally schedules shutdowns of its plants for furnace
rebuilds and machine 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 considering
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 information systems cover a broad spectrum of software
applications for its manufacturing processes, certain of which are
custom-designed. After an extensive study, the Company has updated its plan to
achieve Year 2000 compliance by upgrading both the packaged and custom-designed
software currently in place, along with certain hardware upgrades. These
upgrades are expected to resolve any Year 2000 issues.
10
<PAGE> 11
The upgrade of certain hardware, including the personal computer-based
environment is expected to be completed by December 1998. The primary
accounting software applications will be upgraded to a Year 2000 certified
compliant release and should be completed by February 1999. The upgrade of
other custom-designed software, which represents a small percentage of the
total applications, is expected to be completed in the third quarter of 1999.
Management believes this timetable provides sufficient time to resolve any
unexpected issues.
In addition to software and hardware considerations, the Company has
completed its review of the impact of the Year 2000 on its manufacturing
operations and process controls. The Company has identified components
requiring modification or replacement, and expects that critical control
technology will be Year 2000 compliant in the second quarter 1999 and
non-critical control and reporting systems will be compliant by the third
quarter of 1999.
The Company has initiated formal communications with all of its
significant suppliers to determine the extent to which the Company is
vulnerable to the failure of such suppliers to remediate their own Year 2000
problems. The Company is currently in the process of grading the responses from
low to high risk. In addition, although many of the Company's customers have
been communicating with the Company regarding Year 2000 issues, the Company has
not made any formal assessment of the effect which the failure of its larger
customers to remediate their own Year 2000 problems could have on the Company's
operations. Despite, these efforts, there can be no assurance that the systems
of other companies on which the Company relies will be timely converted, or
that a failure to remediate by one or more of the Company's customers or
suppliers would not have a material adverse effect on the Company.
Expenditures for Year 2000 compliance will approximate $1.5 million in
the aggregate in 1998 and 1999, of which approximately $0.4 million has been
incurred. However, no assurance can be given that the Company's actual
expenditures for Year 2000 compliance will not be higher.
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 including, statements
concerning (a) the Company's liquidity and capital resources, (b) the Company's
debt levels and ability to obtain financing and service debt, (c) competitive
pressures and trends in the glass container industry, (d) prevailing interest
rates, (e) legal proceedings and regulatory matters and (f) general economic
conditions. 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, may
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.
11
<PAGE> 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is a respondent in various environment-related
cases. 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.
Item 2. Changes in Securities.
None
Item 3. Default Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27 Financial Data Schedule (for SEC use only)
b. Reports on Form 8-K
None
12
<PAGE> 13
SIGNATURES
----------
Pursuant to the requirements 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: November 14, 1998 /s/ M. William Lightner, Jr.
---------------------------------------
M. William Lightner, Jr.
Vice President and Chief Financial
Officer (Principal Financial
Officer and Duly Authorized Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CONSUMERS U.S., INC. INCLUDED IN FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 4,492
<SECURITIES> 0
<RECEIVABLES> 79,691
<ALLOWANCES> 2,108
<INVENTORY> 105,851
<CURRENT-ASSETS> 214,601
<PP&E> 390,795
<DEPRECIATION> 79,250
<TOTAL-ASSETS> 626,864
<CURRENT-LIABILITIES> 160,153
<BONDS> 202,930
55,983
0
<COMMON> 170
<OTHER-SE> 51,570
<TOTAL-LIABILITY-AND-EQUITY> 626,864
<SALES> 493,613
<TOTAL-REVENUES> 493,613
<CGS> 456,270
<TOTAL-COSTS> 456,270
<OTHER-EXPENSES> 4,000
<LOSS-PROVISION> 250
<INTEREST-EXPENSE> 19,947
<INCOME-PRETAX> (8,646)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,646)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,300)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
