<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 1998
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
(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)
Registrant's telephone number, including area code 412-486-9100
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the 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 [ ].
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 30, 1999:
Common Stock, $.01 par value, 17,000,100 shares
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. BUSINESS.
COMPANY OVERVIEW
Consumers U.S., Inc. ("Consumers U.S."), a wholly-owned subsidiary of
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" or "New Anchor") which acquired certain assets and assumed certain
liabilities of the former Anchor Glass Container Corporation ("Old Anchor"), now
Anchor Resolution Corp.
Consumers U.S., has no independent operations, and is consolidated with
its majority-owned subsidiary, Anchor (together the "Company"). 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.
Anchor is the third largest manufacturer of glass containers in the
United States. Anchor produces a diverse line of flint (clear), amber, green and
other colored glass containers of various types, designs and sizes. The Company
manufactures and sells its products to many of the leading producers of beer,
liquor, food, tea, and beverages.
Anchor was formed in January 1997 to acquire certain assets and assume
certain liabilities of the former Anchor Glass Container Corporation ("Old
Anchor"), renamed Anchor Resolution Corp., which was a debtor-in-possession and
is now being liquidated under Chapter 11 of the United States Bankruptcy Code of
1978, as amended (the "Bankruptcy Code"). The Company purchased eleven operating
glass container manufacturing facilities and other related assets (the "Anchor
Acquisition"). Prior to the Anchor Acquisition on February 5, 1997, the Company
did not conduct any operations. Consumers, Canada's only glass container
manufacturer, currently owns approximately 58% of New Anchor indirectly on a
fully diluted basis.
Old Anchor was formed by members of the management of the Glass
Container Division of Anchor Hocking Corporation (the "Glass Container
Division") and persons associated with Wesray Corporation to carry out the
leveraged acquisition in 1983 of the business and certain of the assets of the
Glass Container Division. Old Anchor acquired Midland Glass Company, Inc. in
1984 and Diamond Bathurst, Inc. in 1987. In November 1989, Vitro S.A. acquired
substantially all of the stock of Old Anchor. Simultaneously, Vitro acquired all
of the stock of Latchford Glass Company, which was subsequently merged into Old
Anchor. In September 1996, Old Anchor filed for protection under Chapter 11 of
the Bankruptcy Code.
RECENT DEVELOPMENTS
The Anchor Acquisition. 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 the Company 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, valued at
approximately $6.1 million. In addition, the Company issued 525,000 warrants to
purchase additional shares of common stock to an affiliate of Consumers U.S.
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.
The Senior Notes and Exchange Offer. On March 16, 1998, Anchor issued
$50.0 million aggregate principal amount of its 9 7/8% Senior Notes due 2008
(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 equal with all existing and future senior
indebtedness of Anchor. Proceeds of the issuance of the Senior Notes were
used for capital expenditures and general corporate purposes. 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
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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 a 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.
PRODUCTS
The table below provides a summary by product group of net sales (in
millions of dollars) and approximate percentage of net sales by product group
for the Company for the period from February 5, 1997 to December 31, 1997 (the
"1997 Period") and the year ended 1998.
<TABLE>
<CAPTION>
February 5 to
Products December 31, 1997 1998
-------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Beer $202.0 35.5% $279.3 43.4%
Liquor/Wine 125.8 22.1 111.0 17.3
Food 113.5 19.9 95.5 14.8
Tea 43.8 7.7 67.9 10.6
Beverage/Water 37.3 6.6 31.2 4.9
Other 47.0 8.2 58.4 9.0
------- ------ ------ ------
Total $569.4 100.0% $643.3 100.0%
====== ====== ====== ======
</TABLE>
There can be no assurance that the information provided in the
preceding table is indicative of the glass container product mix of the Company
for 1999 or in subsequent years. Management's strategy is to focus on shifting
its product mix towards those products management believes likely to both
improve operating results and increase unit volume.
CUSTOMERS
The Company produces glass containers mainly for a broad base of
customers in the food and beverage industries in the United States. The
Company's ten largest continuing customers include well-known brand names such
as:
- - Anheuser-Busch Companies, Inc. ("Anheuser-Busch"),
- - The Stroh Brewery Company ("Stroh's"),
- - Latrobe (Rolling Rock),
- - The Coca-Cola Trading Company (non-carbonated),
- - SOBE (Healthy Refreshment),
- - Triarc Beverage,
- - Saxco International, Inc.,
- - Specialty Products Company (Nabisco),
- - Jim Beam Brands and
- - Hunt-Wesson.
The majority of the Company's glass container designs are produced to
customer specifications and sold on a contract basis.
The Company's two largest customers, Anheuser-Busch and Stroh's,
accounted for approximately 17.1% and 16.8%, respectively, of its net sales for
the year ended December 31, 1998 and 8.8% and 15.6%, respectively, of its net
sales for the period from February 5, 1997 to December 31, 1997. The loss of
either of such customers, if not replaced, could have a material adverse effect
of the Company's business, results of operations and financial condition. In
February 1999, Stroh's entered into an agreement to sell its assets to a
consortium made up of Pabst Brewing Company ("Pabst") and Miller Brewing Company
("Miller") which is expected to become final in the second quarter. Under the
terms of the agreement, Anchor does not expect to incur any write-off of its
assets. The Company anticipates that a significant portion of the near term
production for Stroh's will be replaced with production for Pabst and Miller.
The Company's
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ten largest customers, named above, accounted for approximately 57% of net sales
for the year ended December 31, 1998.
The Company has rebuilt relationships with some of Old Anchor's larger
volume customers including Anheuser-Busch, which purchased approximately 9.0
million gross and 4.0 million gross, respectively, during 1998 and the 1997
Period. In 1999, Anheuser-Busch is expected to purchase approximately 12.7
million gross. In February 1998, Anchor entered into a long-term contract with
Anheuser-Busch to serve its west coast needs and subcontracted this additional
production to its Mexican affiliate, Fevisa, for a commission. With the
exception of the Fevisa production, Anheuser-Busch renegotiates with Anchor each
year for the next year's purchase orders. Accordingly, past purchase orders
placed by Anheuser-Busch are not necessarily indicative of future purchase
orders.
MARKETING AND DISTRIBUTION
The Company's products are primarily marketed by an internal sales and
marketing organization that consists of 14 direct sales people and 22 business
managers who are organized into teams with responsibility for each specific
product line.
John J. Ghaznavi, Chairman and Chief Executive Officer of each of
Anchor and Consumers, has extensive industry and customer networks. From 1995
through 1997, he served as Chairman of the Board of Trustees of the Glass
Packaging Institute, the leading industry organization that includes as its
members manufacturers representing over 95% of North America's glass container
production and he remains a member of its board. As a result of the Company's
affiliation with Consumers and Glenshaw Glass Company, Inc. ("Glenshaw"),
Consumers and Glenshaw sales personnel will also market the capabilities of
Anchor with respect to certain production in exchange for a market-based
commission. See Item 13. - Certain Relationships and Related Transactions.
In addition, certain production has been and will continue to be
reallocated among the Company's ongoing plants, Consumers' plants and the
Glenshaw plant in order to maximize machine capability and geographic proximity
to customers. In each case, the entity shifting its existing production or
responsible for the new business will receive a market-based commission from the
entity to whom the existing production or new business was shifted.
The Company's manufacturing facilities are generally located in
geographic proximity to its customers due to the significant cost of
transportation and the importance of prompt delivery to customers. Most of the
Company's production is shipped by common carrier to customers generally within
a 300-mile radius of the plant in which it is produced.
SEASONALITY
Due principally to the seasonal nature of the brewing, iced tea and
other beverage 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 adversely affect profitability during the first and
fourth quarters. The Company has in the past and will continue in the future to
implement alternatives to reduce downtime during these periods in order to
minimize disruption to the production process and its negative effect on
profitability.
SUPPLIERS AND RAW MATERIALS
Sand, soda ash, limestone, cullet and corrugated packaging materials
are the principal materials used by the Company. All of these materials are
available from a number of suppliers and the Company is not dependent upon any
single supplier for any of these materials. Management believes that adequate
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quantities of these materials are and will be available from various suppliers.
Material increases in the cost of any of these items could have a significant
impact on the Company's operating results.
All of the Company's glass melting furnaces are equipped to burn
natural gas, which is the primary fuel used at its manufacturing facilities.
Backup systems are in place at most facilities to permit the use of fuel oil or
propane should that become necessary. Electricity is used in certain instances
for enhanced melting. The Company expects to be continually involved in programs
to conserve and reduce its consumption of fuel. Although natural gas remains
generally less expensive than electricity, prices for natural gas have
fluctuated in recent years. Prices have declined in 1999 and are expected to
remain under 1998 levels. While certain of these energy sources may become
increasingly in short supply, or subject to governmental allocation or excise
taxes, the Company cannot predict the effects, if any, of such events on its
future operations. In addition, the Company utilizes a natural gas risk
management program to hedge future requirements and to minimize fluctuation in
the price of natural gas.
COMPETITION
The glass container industry is a mature, low growth industry. This low
growth combined with excess capacity in the industry have made pricing an
important competitive factor. In addition to price, Anchor and the other
companies in the glass container manufacturing industry compete on the basis of
quality, reliability of delivery and general customer service. The Company's
principal competitors are Owens-Brockway Glass Container, Inc. ("Owens') and
Ball-Foster Glass Container Co., L.L.C. ("Ball-Foster"). These competitors are
larger and have greater financial and other resources than the Company. The
glass container industry in the United States is highly concentrated, with the
three largest producers in 1998, which included Anchor, estimated to have
accounted for 95% of 1998 domestic volume by management's estimate. Owens has a
relatively large research and development staff and has in place numerous
technology licensing agreements with other glass producers, including the
Company. See "--Intellectual Property."
The Company's business consists exclusively of the manufacture and sale
of glass containers. Certain other glass container manufacturers engage in more
diversified business activities than the Company (including the manufacture and
sales of plastic and metal containers). In addition, plastics and other forms of
alternative packaging have made substantial inroads into the container markets
in recent years and will continue to affect demand for glass container products.
Competitive pressures from alternative forms of packaging, including plastics,
as well as consolidation in the glass container industry, have resulted in
excess capacity and have led to severe pricing pressures on glass container
manufacturers. Although the Company believes that the market shift from glass to
alternative containers is substantially complete and that glass containers will
maintain a leading position in the high-end food and beverage segments due
primarily to the premium image of glass containers, no assurances can be given
that the Company will not lose further market share to alternative container
manufacturers. Further, management believes that consistent productivity
improvements among glass and glass alternatives can be expected to decrease
capacity utilization rates for the industry or result in additional plant
closures.
QUALITY CONTROL
The Company maintains a program of quality control with respect to
suppliers, line performance and packaging integrity for glass containers. The
Company's production lines are equipped with a variety of automatic and
electronic devices that inspect containers for dimensional conformity, flaws in
the glass and various other performance attributes. Additionally, products are
sample inspected and tested by Company employees on the production line for
dimensions and performance and are also inspected and audited after packaging.
Containers which do not meet quality standards are crushed and recycled as
cullet.
The Company monitors and updates its inspection programs to keep pace
with modern technologies and customer demands. Samples of glass and raw
materials from its plants are routinely
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chemically and electronically analyzed to monitor compliance with quality
standards. Laboratories are also maintained at each manufacturing facility to
test various physical characteristics of products.
INTELLECTUAL PROPERTY
Pursuant to a Technology Assistance and License Agreement between Owens
and Consumers, Anchor is entitled to use patents, trade secrets and other
technical information of Owens relating to glass manufacturing technology. The
agreement, entered into in February 1997, provides for a term of up to ten
years. In addition, Anchor has entered into a glass technology agreement with
Heye-Glas International for a term of ten years, expiring December 31, 2008.
While the Company holds various patents, trademarks and copyrights of
its own, it believes its business is not dependent upon any one of such patents,
trademarks or copyrights.
EMPLOYEES
As of February 28, 1999, Anchor employed approximately 3,000 persons on
a full-time basis. Approximately 500 of these employees are salaried office,
supervisory and sales personnel. The remaining employees are represented
principally by two unions, Glass Molders, Pottery, Plastics and Allied Workers
(the "GMP"), which represents approximately 90% of Anchor's hourly employees,
and the American Flint Glass Workers Union (the "AFGWU"), which represents
approximately 10% of the Company's hourly employees. Anchor's two labor
contracts with the GMP and its two labor contracts with the AFGWU have three
year terms expiring on March 31, 1999 and August 31, 1999, respectively.
Negotiations are presently being conducted with the GMP and no contract offer
has been advanced. If no satisfactory agreement is reached and work stoppage
ensues, the Company believes its cash position in the near term will be
sufficient to continue operations on a reduced basis.
Old Anchor was granted a deferral of the scheduled 1996 wage increase
under its collective bargaining agreements. Anchor granted the 1996 increase
effective as of the date of the Anchor Acquisition, and the 1997 increase
effective as of April 1, 1997. These two increases represent an approximate 7%
increase in wage rates as of April 1, 1997 as compared to 1996 wage rates.
ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS
Environmental Regulation and Compliance. Anchor's operations are
subject to increasingly complex and detailed Federal, state and local laws and
regulations including, but not limited to, the Federal Water Pollution Control
Act of 1972, as amended, the U.S. Clean Air Act, as amended, and the Federal
Resource Conservation and Recovery Act, as amended, that are designed to protect
the environment. Among the activities subject to regulation are the disposal of
checker slag (furnace residue usually removed during furnace rebuilds), the
disposal of furnace bricks containing chromium, the disposal of waste, the
discharge of water used to clean machines and cooling water, dust produced by
the batch mixing process, underground storage tanks and air emissions produced
by furnaces. In addition, Anchor is required to obtain and maintain permits in
connection with its operations. Many environmental laws and regulations provide
for substantial fines and criminal sanctions for violations. Anchor believes it
is in material compliance with applicable environmental laws and regulations. It
is difficult to predict the future development of such laws and regulations or
their impact on future earnings and operations, but Anchor anticipates that
these standards will continue to require increased capital expenditures. There
can be no assurance that material costs or liabilities will not be incurred.
Certain environmental laws, such as CERCLA or Superfund and analogous
state laws provide for strict, joint and several liability for investigation and
remediation of releases of hazardous substances into the environment. Such laws
may apply to properties presently or formerly owned or operated by an entity or
its predecessors, as well as to conditions at properties at which wastes
attributable to an entity or its predecessors were disposed. There can be no
assurance that Anchor or entities for which it may be
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responsible will not incur such liability in a manner that could have a material
adverse effect on the financial condition or results of operations of the
Company. See Item 3. Legal Proceedings.
Capital expenditures required for environmental compliance were
approximately $1.2 million for 1998 and are anticipated to be approximately $1.5
million annually in 1999 and 2000. However, there can be no assurance that
future changes in such laws, regulations or interpretations thereof or the
nature of operations will not require Anchor to make significant additional
capital expenditures to ensure compliance in the future.
Employee Health and Safety Regulations. Anchor's operations are subject
to a variety of worker safety laws. OSHA and analogous laws mandate general
requirements for safe workplaces for all employees. Anchor believes that it is
operating in material compliance with applicable employee health and safety
laws.
Deposit and Recycling Legislation. Over the years, legislation had been
introduced at the Federal, state and local levels requiring a deposit or tax, or
impose other restrictions, on the sales or use of certain containers,
particularly beer and carbonated soft drink containers. Several states have
enacted some form of deposit legislation. The enactment of additional laws or
comparable administrative actions that would require a deposit on beer or soft
drink containers, or otherwise restrict their use, could have a material adverse
effect on the Company's business. In jurisdictions where deposit legislation has
been enacted, the consumption of beverages in glass bottles has generally
declined due largely to the preference of retailers for handling returned cans
and plastic bottles. Container deposit legislation continues to be considered
from time to time at various governmental levels.
In lieu of this type of deposit legislation, several states have
enacted various anti-littering recycling laws that do not involve the return of
containers to retailers. The use of recycled glass, and recycling in general,
are not expected to have a material adverse effect on the Company's operations.
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ITEM 2. PROPERTIES.
Anchor's administrative and executive offices are located in Tampa,
Florida. Anchor owns and operates nine glass manufacturing plants. Anchor also
leases a building located in Streator, Illinois, that is used as a machine shop
to rebuild glass-forming related machinery and one mold shop located in
Zanesville, Ohio, as well as additional warehouses for finished products in
various cities throughout the United States. Substantially all of Anchor's owned
and leased properties are pledged as collateral securing the Company's
obligations under the First Mortgage Notes and the related indenture.
As part of its long-term business strategy, Anchor closed its Houston
plant effective as of February 1997 and its Dayville plant effective as of April
1997. Also in 1997, two furnaces and five machines had been removed from
service, one furnace and one machine at Anchor's Jacksonville plant and one
furnace and four machines at its Connellsville plant. In December 1998, one
furnace and one machine was removed from service at the Jacksonville plant. In
addition, management will continue to monitor business conditions and
utilization of plant capacity to determine the appropriateness of further plant
closings.
The following table sets forth certain information about the facilities
owned and being operated by Anchor as of February 28, 1999. In addition to these
locations, Keyser, West Virginia, Gas City, Indiana, Cliffwood, New Jersey,
Royersford, Pennsylvania, Chattanooga, Tennessee, Houston, Texas and Dayville,
Connecticut are closed plants that are part of the collateral securing the First
Mortgage Notes and the Company's obligations under the related indenture.
<TABLE>
<CAPTION>
------------------------------------------ ---------------- --------------- ------------------
NUMBER OF NUMBER OF BUILDING AREA
LOCATION FURNACES MACHINES (SQUARE FEET)
------------------------------------------ ---------------- --------------- ------------------
Operating Plants:
------------------------------------------ ---------------- --------------- ------------------
<S> <C> <C> <C>
Jacksonville, Florida (1) 2 4 624,000
------------------------------------------ ---------------- --------------- ------------------
Warner Robins, Georgia 2 8 864,000
------------------------------------------ ---------------- --------------- ------------------
Lawrenceburg, Indiana 1 4 504,000
------------------------------------------ ---------------- --------------- ------------------
Winchester, Indiana 2 6 627,000
------------------------------------------ ---------------- --------------- ------------------
Shakopee, Minnesota 2 6 360,000
------------------------------------------ ---------------- --------------- ------------------
Salem, New Jersey (2) 3 6 733,000
------------------------------------------ ---------------- --------------- ------------------
Elmira, New York 2 6 912,000
------------------------------------------ ---------------- --------------- ------------------
Henryetta, Oklahoma 2 6 664,000
------------------------------------------ ---------------- --------------- ------------------
Connellsville, Pennsylvania (3) 2 4 624,000
------------------------------------------ ---------------- --------------- ------------------
</TABLE>
- ------------------
1) The Company removed one furnace and one machine from production at
this facility in December 1998 and removed one furnace and one machine
from production in February 1997.
2) A portion of the site on which this facility is located is leased
pursuant to several long-term leases.
3) The Company removed one furnace and four machines from production at
this facility in February 1997.
Headquarters Lease. Anchor entered into a lease in January 1998
pursuant to which Anchor leases a portion of the headquarters facility for an
initial term of ten years.
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ITEM 3. LEGAL PROCEEDINGS.
The Company is, and from time to time may be, a party to routine legal
proceedings incidental to the operation of its business. The outcome of these
proceedings is not expected to have a material adverse effect on the financial
condition or operating results of the Company, based on the Company's current
understanding of the relevant facts and law.
Anchor is engaged in investigation and remediation projects at plants
currently being operated and at closed facilities. In addition, Old Anchor was
named as a potentially responsible party (a "PRP") under CERCLA with respect to
a number of sites. Of these sites, Anchor has assumed responsibility with
respect to four sites that are currently active. While Anchor may be jointly and
severally liable for costs related to these sites, in most cases, it is only one
of a number of PRP's who are also jointly and severally liable. With respect to
the four currently active sites for which Anchor has assumed responsibility,
Anchor estimates that its share of the aggregate cleanup costs of such sites
should not exceed $2.0 million, and that the likely range after taking into
consideration the contributions anticipated from other potentially responsible
parties could be significantly less. However, no assurance can be given that the
cleanup costs of such sites will not exceed $2.0 million or that the Company
will have these funds available. Anchor has established reserves for
environmental costs which it believes are adequate to address the anticipated
costs of remediation of these operated and closed facilities and its liability
as a PRP under CERCLA. The timing and magnitude of such costs cannot always be
determined with certainty due to, among other things, incomplete information
with respect to environmental conditions at certain sites, new and amended
environmental laws and regulations, and uncertainties regarding the timing of
remedial expenditures.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
All of the issued capital stock of Consumers U.S. is owned by Consumers
International. All of such shares are pledged by Consumers International to
secure its obligations under the Consumers senior secured notes.
RECENT SALES OF UNREGISTERED SECURITIES
On various dates since January 1997, Consumers U.S. sold and issued
17,000,100 shares of common stock, par value $.01 per share, valued at $5.00 per
share. These shares were issued in an offering not involving a public offering
pursuant to Section 4 (2) of the Securities Act, to Consumers International. As
a condition to each of the above sales, the purchaser consented to a placement
of a restrictive legend on the certificate representing the securities.
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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 year ended December 31, 1998
and 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>
YEAR ENDED PERIOD FROM
DECEMBER 31, FEBRUARY 5, 1997 TO
1998 DECEMBER 31, 1997(1)
--------------------- ------------------------
(dollars in thousands)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C>
Net sales $ 643,318 $ 569,441
Cost of products sold 594,256 523,709
Restructuring charges 4,400 --
Selling and administrative expenses 30,246 25,120
---- ------ ----- ------
Income from operations 14,416 20,612
Other income (expense), net 2,912 (2,602)
Interest expense (27,098) (18,281)
-- -------- --- --------
Loss before extraordinary item (9,770) (271)
Extraordinary item(2) -- (11,200)
------------- -- --- --------
Loss before preferred stock dividends and minority (9,770) (11,471)
interest
Preferred stock dividends of subsidiary (5,598) (5,062)
---- ------- ---- ------
Loss before minority interest (15,368) (16,533)
Minority interest 5,570 5,451
------- ----- ------- -----
Net loss $(9,798) $ (11,082)
======== ==========
BALANCE SHEET DATA (at end of period):
Accounts receivable $ 86,846 $ 56,940
Inventories 104,329 120,123
Total assets 640,254 614,730
Total debt 253,922 163,793
Total stockholder's equity 53,724 62,040
OTHER FINANCIAL DATA:
Net cash provided by (used in) operating activities $ (14,511) $ 28,996
Net cash used in investing activities (50,870) (257,255)
Net cash provided by financing activities 68,427 229,319
Depreciation and amortization 53,881 51,132
Capital expenditures 42,288 41,634
</TABLE>
- --------------------------------------------------
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.
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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-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
year ended December 31, 1998 and the period from February 5, 1997 to December
31, 1997 (the "1997 Period"). Accordingly, operations for the Company for the
1997 Period are not directly comparable to operations for the year ended 1998.
RESULTS OF OPERATIONS
Net Sales. Net sales for the year ended 1998 were $643.3 million, or
approximately $12.4 million per week, compared to $569.4 million, or
approximately $12.1 million per week, for the 1997 Period. This slight increase
in net sales was principally as a result of higher sales of beer and tea
products in 1998 as compared to the 1997 Period. 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 for the year
ended December 31, 1998 was $594.3 million (or 92.4% of net sales), while the
cost of products sold for the 1997 Period was $523.7 million (or 92.0% of net
sales). The slight increase in the percentage of cost of products sold for 1998,
as compared with 1997, reflects higher freight costs and the impact of increased
sales of lower margin items, offset by 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. This
variation also reflects the impact of 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, and is partially
offset by the cost savings associated with the closing of the Dayville,
Connecticut plant effective during the second quarter of 1997. Additionally, a
modification in the handling of mold replacement parts resulted in an
approximate $3.5 million increase in costs in 1998.
Restructuring Charges. 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 was closed December 1998 and
approximately 100 hourly employees were terminated. The Company recorded a
restructuring charge of $4.4 million in 1998. 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, the Company recorded $0.4
million of the total restructuring charge in the fourth quarter of 1998 related
to certain employee costs.
Selling and Administrative Expenses. Selling and administrative
expenses for the year ended December 31, 1998 were $30.2 million (or 4.7% of net
sales) while expenses for the 1997 Period were approximately $25.1 million (or
4.4% of net sales). 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 1998 was approximately $27.1
million compared to $18.3 million in the 1997 Period, an increase on a
comparable basis of 34.0%. On March 16, 1998, Anchor completed an offering of an
aggregate principal amount of $50.0 million of its Senior Notes issued under an
12
<PAGE> 13
Indenture dated as of March 16, 1998, among Anchor 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 net loss in the year ended 1998 of
approximately $9.8 million, including the restructuring charge of $4.4 million,
compared to 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.
LIQUIDITY AND CAPITAL RESOURCES
In 1998, operating activities consumed $14.5 million in cash as
compared to $29.0 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 before the restructuring charge in the year ended 1998 as compared
with the loss before the extraordinary item in the 1997 Period. The balance of
trade related accounts receivable increased approximately $29.9 million from
year-end 1997 primarily reflecting higher intercompany receivable balances
carried by the Company and the impact of credit terms of certain customers. The
intercompany receivable balances were substantially paid in February 1999. The
balance of accounts payable decreased approximately $12.0 million from the 1997
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 1998 and
the 1997 Period were $50.9 million and $257.3 million, respectively, principally
reflecting the capital expenditures and payment in respect of strategic
alliances with customers in 1998 and 1997 and the cash component of the Anchor
Acquisition in the 1997 Period. In February 1997, the Company contributed $9.0
million in cash to the Company'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,
the Company made an additional pension contribution of $0.7 million in cash in
March 1998. Capital expenditures in 1998 and 1997 were $42.3 million and $41.6
million, respectively.
In conjunction with the Anchor Acquisition, Anchor entered into a
credit agreement providing for a $110.0 million Revolving Credit Facility (the
"Revolving Credit Facility"). At March 18, 1999, advances outstanding under the
Revolving Credit Facility were $59.1 million, outstanding letters of credit on
this facility were $11.3 million and the borrowing availability was $21.4
million.
Cash from financing activities increased in 1998 by $68.4 million
principally reflecting the issuance of the Senior Notes in March 1998 and
borrowings under the Revolving Credit Facility.
In September 1998, G&G (acting on behalf of Consumers) entered into an
agreement to purchase the controlling interest in a European glass manufacturer
and had advanced $17.3 million toward that end. This amount was funded by G&G
through an advance from Anchor of approximately $17.3 million in September 1998.
The advance is evidenced by a promissory note which originally matured in
January 1999. This advance was permitted through an amendment to the
intercompany agreement, which was approved by the Anchor's Board of Directors.
Anchor's management extended the maturity of the promissory note to March 31,
1999, and currently has an agreement in principle to further extend the
maturity to May 15, 1999. The funds were obtained through borrowings under
Anchor's Revolving Credit Facility. Anchor has pledged the promissory note to
the lenders under the Revolving Credit Facility and G&G has provided security
against the promissory note to the lenders. Interest on the note is payable at
the interest rate payable by Anchor on its revolving credit advances plus 1/2%.
A number of issues have arisen and the transaction has not closed. Should the
transaction not close, the sellers are obligated to return the advance to G&G.
G&G has demanded the return of the advance plus interest accrued to date, and
will upon receipt, repay the advance from Anchor. Discussions are continuing,
but as of this date outstanding issues have not been resolved. Failing a
resolution of the issues or a repayment of the advance, G&G intends to begin
an arbitration proceeding in accordance with the terms of the agreement to
secure a return of the advance.
In 1998, Anchor advanced $950 to Consumers, which was repaid in
February 1999.
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 subordinated
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<PAGE> 14
indebtedness of Anchor and equal with all existing and future senior
indebtedness of Anchor. Proceeds from the issuance of the Senior Notes were used
for growth capital expenditures and general corporate purposes.
The indentures covering the First Mortgage Notes and the Senior Notes
contain 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
contains other and more restrictive covenants, including certain financial
covenants that require Anchor 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 level of Anchor's indebtedness could have important consequences,
including:
- a substantial portion of Anchor's cash flow from operations
must be dedicated to debt service,
- Anchor's ability to obtain additional future debt financing
may be limited and
- the level of indebtedness could limit Anchor's flexibility in
reacting to changes in the industry and economic conditions in
general.
The Company expects significant expenditures in 1999, including
interest expense on the First Mortgage Notes, the Senior Notes and the Revolving
Credit Facility and capital expenditures of approximately $50.0 million (a
portion of which will be leased). Because of a change, effective January 1,
1998, to the market value asset valuation method for determining pension plan
contributions, no pension contributions will be required in 1999 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 1999 are expected to be funds derived from operations,
borrowings under the Revolving Credit Facility, payment of intercompany
receivables (which occurred in February 1999) and proceeds from sales of
discontinued manufacturing facilities.
Management believes that the cash flows discussed above, will provide
adequate funds for the Company's working capital needs and capital expenditures.
Cash flows from operations depend on future operating performance which is
subject to prevailing conditions and to financial, business and other factors,
some of which are beyond the Company's control.
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
other beverage 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 has in the past
and will continue in the future to implement alternatives to reduce downtime
during these periods in order to minimize disruption to the production process
and its negative effect on profitability.
14
<PAGE> 15
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.
The upgrade of certain hardware, including the personal computer-based
environment was completed in December 1998. The primary accounting software
applications have been upgraded to a Year 2000 certified compliant release in
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. Because we
have not yet completed our overall assessment of Year 2000 issues as they
relate to customers or vendors, we have not formulated contingency plans in
their entirety or determined the costs of these plans. The Company expects to
complete its contingency plan by the third quarter of 1999 and will continue to
evaluate and modify its planning as required by events and circumstances as
they emerge.
Expenditures for Year 2000 compliance will approximate $2.0 million in
the aggregate in 1998 and 1999, of which approximately $1.0 million has been
incurred. However, no assurance can be given that the Company's actual
expenditures for Year 2000 compliance will not be higher.
NEW ACCOUNTING STANDARDS
In September 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 September 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 or method of adoption. SFAS
133 could increase volatility in earnings and other comprehensive income.
15
<PAGE> 16
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:
- the Company's liquidity and capital resources,
- the Company's debt levels and ability to obtain financing and
service debt,
- competitive pressures and trends in the glass container industry,
- prevailing interest rates,
- legal proceedings and regulatory matters, and
- 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Anchor`s debt instruments are subject to fixed interest rates and, in
addition, the amount of principal to be repaid at maturity is also fixed.
Therefore, the Company is not subject to market risk from its debt instruments.
Less than 1% of the Company's sales are denominated in currencies other than the
U.S. dollar, and the Company does not believe its total exposure to be
significant.
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<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
Page No.
<S> <C>
Index to Financial Statements of Consumers U.S. F-1
Report of Independent Public Accountants F-2
Consolidated Statements of Operations and
Other Comprehensive Income -
Year ended December 31, 1998 and the
Period from February 5, 1997 to December 31, 1997 F-3
Consolidated Balance Sheets-
December 31, 1998 and 1997 F-4
Consolidated Statements of Cash Flows -
Year ended December 31, 1998 and the
Period from February 5, 1997 to December 31, 1997 F-6
Consolidated Statements of Stockholder's Equity -
Year ended December 31, 1998 and the
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
Year ended December 31, 1996 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
Year ended December 31, 1996 H-6
Consolidated Statements of Stockholder's Equity (Deficiency
in Assets)- Period from January 1, 1997 to February 4, 1997
and Year ended December 31, 1996 H-8
Notes to Consolidated Financial Statements H-9
</TABLE>
17
<PAGE> 18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Old Anchor's consolidated balance sheet as of December 31, 1996 and its
consolidated statements of operations, cash flows and stockholder's equity
(deficiency in assets) for the year ended December 31, 1996 included in this
Form 10-K have been previously audited by Deloitte & Touche LLP ("Deloitte"),
independent accountants to Old Anchor (whose report disclaimed an opinion on the
1996 consolidated financial statements of Old Anchor and included explanatory
paragraphs referring to the bankruptcy proceedings of Old Anchor and to the
remaining deficiency in assets after the sale of substantially all of the assets
and business of Old Anchor and the substantial doubt that it raised relative to
the ability of Old Anchor to continue as a going concern). Pursuant to the Asset
Purchase Agreement, the purchase price for the Anchor Acquisition was subject to
adjustment based on an audited balance sheet (the "Closing Balance Sheet") and
the parties were in settlement negotiations regarding the appropriate
adjustment. As Deloitte was engaged to audit the Closing Balance Sheet (however,
an audit opinion had not been issued) and continues to be the independent
accountants to Old Anchor, Old Anchor informed the Company that it was
inappropriate for Deloitte to provide its consent to the use of its audit report
for this period. Accordingly, Arthur Andersen LLP audited the financial
statements of Old Anchor for this period. There have not been any disagreements
with Deloitte on any matter of accounting principles, financial statement
disclosure or auditing scope or procedures.
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<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Directors and Executive Officers. The following table sets forth
certain information regarding each of the directors and executive officers of
Consumers U.S..
<TABLE>
<CAPTION>
------------------------------ ------ --------------------------------------------------------------
NAME AGE POSITION
------------------------------ ------ --------------------------------------------------------------
<S> <C> <C>
John J. Ghaznavi 63 Chairman, Chief Executive Officer and Director
------------------------------ ------ --------------------------------------------------------------
David T. Gutowski 51 Vice President- Treasurer, Assistant Secretary and Director
------------------------------ ------ --------------------------------------------------------------
C. Kent May 59 Secretary and Director
------------------------------ ------ --------------------------------------------------------------
M. William Lightner, Jr. 64 Vice President and Chief Financial Officer
------------------------------ ------ --------------------------------------------------------------
</TABLE>
Term of Office. Each director serves until the first annual meeting of
stockholders and until their successors are elected and qualified or until their
earlier resignation or removal, except as set forth in the Certificate of
Incorporation. Each officer serves until the first meeting of the Board of
Directors following the next annual meeting of the stockholders and until his
successor shall have been chosen and qualified.
John J. Ghaznavi became Chairman of the Board and Chief Executive
Officer of Consumers U.S. in January 1997. He has been Chairman and Chief
Executive Officer of each of Anchor, Consumers, Glenshaw and G&G since 1997,
1993, 1988 and 1987, respectively. Mr. Ghaznavi currently has served as
Chairman of the Board of Trustees of the Glass Packaging Institute.
David T. Gutowski became a director and Vice-President, Treasurer and
Assistant Secretary of Consumers U.S. in January 1997. He joined Anchor in
January 1997 as a director and as a Vice President and become Vice
President-Administration in March 1997 and Senior Vice President-Administration
in June 1997. He has been a director of Consumers since 1993. Mr. Gutowski
served as Treasurer and Chief Financial Officer of G&G since 1988.
C. Kent May became a director and Secretary of Consumers U.S. in
January 1997. He became Vice President, General Counsel and Secretary of Anchor
in March 1997. He became Senior Vice President in June 1997. Mr. May has served
as a director of Consumers since 1993 and he was appointed General Counsel of
Consumers in March 1997. Mr. May has been an associate, partner or member of the
law firm of Eckert Seamans Cherin & Mellott, LLC since 1964, and served as the
managing partner of such firm from 1991 to 1996.
M. William Lightner, Jr. became a director and Vice President and Chief
Financial Officer of Consumers U.S. in January 1997. He joined Anchor in January
1997 as a director and Vice President, Treasurer and Chief Financial Officer. He
became Vice President-Finance in March 1997 and Senior Vice President-Finance in
June 1997. Since July 1994, Mr. Lightner has been Vice President of Finance and
Chief Financial Officer of Consumers. From 1989 to 1992, Mr. Lightner served as
Chairman of MICA Resources, a privately held aluminum processor and brokerage
company. Mr. Lightner was a partner with Arthur Andersen & Co. from 1969 to
1989.
Officers of Consumers U.S. serve at the discretion of the Board of
Directors.
BOARD OF DIRECTORS OF CONSUMERS U.S.
Compensation of Directors. Directors of Consumers U.S. do not receive
any compensation or reimbursement.
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<PAGE> 20
ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
Consumers U.S. was organized in January 1997 as a holding company
for Anchor. Consumers U.S. does not conduct any operations. Officers and
directors for Consumers U.S. are not compensated for acting in such
capacity.
COMPENSATION OF DIRECTORS
There are no non-employee directors of Consumers U.S. Employee
directors are not compensated in such capacity.
EMPLOYMENT CONTRACTS
Consumers U.S. does not, as a general rule, enter into employment
agreements with its executive officers and/or other key employees.
20
<PAGE> 21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL STOCKHOLDERS OF CONSUMERS U.S.
All of the issued and outstanding capital stock of Consumers U.S. is
owned by Consumers International. All of such shares were pledged by Consumers
International to secure its obligations under the Consumers International Notes
and the Consumers International Indenture. The address of Consumers
International is 777 Kipling Avenue, Toronto, Ontario, Canada, M8Z 5Z4.
The following table sets forth information with respect to the
beneficial ownership of the Common Stock of Consumers U.S. as of December 31,
1998 by (i) each Director of Consumers U.S. and (ii) the Chief Executive Officer
of Consumers U.S.
<TABLE>
<CAPTION>
- ---------------------------------------- ---------------------- ----------------------- -----------------------
CLASS AND AMOUNT OF
BENEFICIAL PERCENTAGE PERCENTAGE
OWNERSHIP(1) (BY CLASS) (1) (BOTH CLASSES) (1)
- ---------------------------------------- --------- ------------ ----------- ----------- ------------ ----------
Primary
and Fully Fully Fully
NAME(1) Actual Diluted Primary Diluted Primary Diluted
- ------- ------ ------- ------- ------- ------- -------
- ---------------------------------------- --------- ------------ ----------- ----------- ------------ ---------
DIRECTORS AND EXECUTIVE OFFICERS:
- ---------------------------------------- --------- ------------ ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
John J. Ghaznavi(2) - - - - - -
- ---------------------------------------- --------- ------------ ----------- ----------- ------------ ---------
David T. Gutowski(3) - - - - - -
- ---------------------------------------- --------- ------------ ----------- ----------- ------------ ---------
C. Kent May(4) - - - - - -
- ---------------------------------------- --------- ------------ ----------- ----------- ------------ ---------
M. William Lightner, Jr.(5) - - - - - -
- ---------------------------------------- --------- ------------ ----------- ----------- ------------ ---------
All directors and executive officers - - - - - -
as a group (4 persons)
- ---------------------------------------- --------- ------------ ----------- ----------- ------------ ---------
</TABLE>
(1) Unless otherwise indicated in these footnotes, each stockholder has
sole voting and investment power with respect to shares beneficially
owned and all addresses are in care of the Company. All primary share
amounts and percentages reflect beneficial ownership determined
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All fully diluted share amounts and
percentages reflect beneficial ownership of Voting Common Stock
determined on a fully diluted basis. All information with respect to
beneficial ownership has been furnished by the respective Director,
executive officer or stockholder, as the case may be, as of December
31, 1998.
(2) Through G&G, Ghaznavi Canada, Inc. and other affiliates, Mr. Ghaznavi
beneficially owns 21,619,584 shares of the voting common stock of
Consumers, including 1,588,126 shares issuable upon the exercise of
currently exercisable options.
(3) Mr. Gutowski beneficially owns 131,300 shares of the voting common
stock of Consumers, including 120,000 shares issuable upon the exercise
of currently exercisable options..
(4) Mr. May beneficially owns 97,600 shares of the voting common stock of
Consumers, including 90,000 shares issuable upon the exercise of
currently exercisable options.
(5) Mr. Lightner beneficially owns 143,800 shares of the voting common
stock of Consumers, including 140,000 shares issuable upon the exercise
of currently exercisable options, but not including 2,000 shares owned
by Mr. Lightner's spouse with respect to which Mr. Lightner disclaims
beneficial ownership.
21
<PAGE> 22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company is part of a group of glass manufacturing companies (the
"Affiliated Glass Manufacturers") with Consumers and Glenshaw, each of which is
controlled by Mr. Ghaznavi through G&G. The Company currently engages (and
intends to expand) in a variety of transactions with Consumers and Glenshaw as a
part of its strategy to achieve synergies among the companies. These expected
transactions may include bulk purchasing of raw and packaging materials,
provision of technical and engineering services, joint utilization of Anchor's
mold and repair shops and the possible consolidation of certain functions such
as sales, engineering and management information services.
Consumers U.S. has entered into an Intercompany Agreement (the
"Intercompany Agreement") with G&G, Consumers, Anchor, Consumers International,
Glenshaw, Hillsboro Glass Company ("Hillsboro"), I.M.T.E.C. Enterprises, Inc., a
machinery manufacturer majority-owned by G&G, and certain related companies
which establishes standards for certain intercompany transactions. Pursuant to
the Intercompany Agreement, the Company may, from time to time, fill orders for
customers of Affiliated Glass Manufacturers and Affiliated Glass Manufacturers
may, from time to time fill orders for customers of the Company. In such case,
where the customer is not a common customer, the company that does the
manufacturing will pay a market commission, set at 5% of the invoiced amount, to
the company that referred the customer. In the event of a transfer of a customer
to the Company by an Affiliated Glass Manufacturers or to an Affiliated Glass
Manufacturers by the Company, the transfer is treated as though the transferee
had filled the orders for the transferred customer.
In connection with any bulk purchasing of raw materials, packaging
materials, machinery, insurance, maintenance services, environmental services
and other items and services used in this business, each of the Affiliated Glass
Manufacturers will share out-of-pocket costs of the purchasing activities
without payment of commissions. Similarly, in connection with the provision of
technical, engineering or model design services, the company providing the
services will receive reasonable per diem fees and costs for the employees
provided. For services such as the provision of molds, the company providing the
service will receive cost plus a reasonable market mark-up.
Transactions carried out in accordance with the Intercompany Agreement
do not require approval of the board of directors or fairness opinions. Any
amendment to the Intercompany Agreement is subject to the Indenture requirement
that it be in writing, on terms no less favorable to the Company than could have
been obtained in a comparable arms' length transaction between the Company and
third parties and is subject to the approval of the Board of Directors
("Affiliate Transaction Provisions"). The Revolving Credit Agreement and the
Indenture require that transactions between the Company and an affiliate be in
writing on no less favorable terms to the Company than would be obtainable in a
comparable arms' length transaction between the Company and a person that is not
an affiliate. In addition, transactions exceeding certain threshold values
require the approval of the Company's board of directors, the approval of the
Company's independent directors or an independent fairness opinion.
Certain affiliates of the Company are engaged in businesses other than
the manufacture of glass containers, such as manufacturing or rehabilitating
manufacturing equipment, automobile and truck leasing, shipping and real estate
management. These transactions are subject to the Affiliate Transaction
Provisions of the indentures.
Anchor is party to the Management Agreement with G&G. Pursuant to the
Management Agreement, G&G is to provide specified managerial services for the
Company. For these services, G&G is entitled to receive an annual management fee
of $3.0 million and to reimbursement of its out-of-pocket costs plus an
administrative charge not to exceed 10% of those costs. The Revolving Credit
Agreement and the indentures limit management fee payments by Anchor under the
Management Agreement to $1.5 million per year unless Anchor meets certain
financial tests, in which case such fees will accrue. In 1998, such tests were
waived under the Revolving Credit Agreement and the fees due under the
Management Agreement of $3.0 million were accrued. Payment of fees in excess of
$1.5 million are made based upon calculations of restricted payments under the
indentures.
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<PAGE> 23
In September 1997, Hillsboro, a glass container manufacturing plant
owned by G&G, discontinued manufacturing. All of Hillsboro's rights and
obligations to fill orders under a supply contract between Consumers and one of
its major customers have been purchased by Consumers and Anchor. In addition, in
connection with a plan to simplify the corporate ownership structure of
Consumers, Anchor and their affiliates, it is anticipated that the operating
assets and liabilities of Glenshaw will be acquired by a newly-formed U.S.
wholly-owned subsidiary of Consumers. The purchase price of $54.3 million will
be paid in the form of interests in a newly-formed U.S. subsidiary that will be
exchangeable for common shares of Consumers. We cannot assure you as to when or
if this transaction will be consummated.
The Company from time to time has engaged the law firm of Eckert
Seamans Cherin and Mellott, LLC, to represent it on a variety of matters. C.
Kent May, an executive officer and director of the Company, is a member of such
law firm.
23
<PAGE> 24
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 included on page 17.
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 YEAR ENDED DECEMBER 31, 1996
(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 end
beginning of costs and other of
Description period expenses accounts Deductions period
- ----------- ------ -------- -------- ---------- ------
<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
</TABLE>
- -------------------------------
(A) Accounts written off
24
<PAGE> 25
SCHEDULE II
CONSUMERS U.S., INC.
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1998 AND
THE 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 Balance at
beginning of costs and to other end
Description period expenses accounts Deductions of period
- ----------- ------ -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Allowance for doubtful accounts $2,025 $ (525) $ -- $ 212(A) $ 1,288
Plant closing reserves 5,000 4,700 300
Period from February 5, 1997 to
December 31, 1997
Allowance for doubtful accounts $ 1,630 $ 375 $ 360(B) $ 340(A) 2,025
Plant closing reserves 25,800 20,800 5,000
</TABLE>
- --------------------
(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.
25
<PAGE> 26
3. Exhibits
<TABLE>
<CAPTION>
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
2.6* Stipulation and Order of United States Bankruptcy Court for the
District of Delaware relating to the Settlement
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
3.7* Amendment to Certificate of Designation for Series A 10% Cumulative
Convertible Preferred Stock
3.8* Amendment to Certificate of Designation for Series B 8% Cumulative
Convertible Preferred Stock
3.9* Certificate of Amendment of Certificate of Incorporation of the Company
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 February 5, 1997 among the Company,
Bankers Trust Company, as Collateral 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
</TABLE>
26
<PAGE> 27
EXHIBIT
NUMBER ITEM
------ -----
[S] [C]
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
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 Company, Bankers Trust Company, BT Commercial
Corporation, and PNC Bank, National 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 Company, Bankers Trust Company, BT Commercial Corporation,
and PNC Bank, National 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.
27
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
------ -----
<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 mended 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
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 Company, Bankers Trust Company, BT Commercial Corporation,
and PNC Bank, National 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 Company, Bankers Trust Company, BT Commercial Corporation,
and PNC Bank, National Association and the various financial
institutions part to the Credit Agreement
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
------ -----
<S> <C>
10.48## Seventh Amendment to the Credit Agreement dated as of April 1, 1998
among the Company, Bankers Trust Company, BT Commercial Corporation,
and PNC Bank, National Association and the various financial
institutions part to the Credit Agreement
10.49* First Amendment to Intercompany Agreement dated as of April 6, 1998
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. Inc., The Company, BT
Securities Corporation and The Bank of New York, as trustee under the
indentures.
10.50**+ Eleventh Amendment and Waiver dated as of September 8, 1998, to the
Credit Agreement dated as of February 7, 1997, among the Company, the
financial institutions party to the Credit Agreement, Bankers Trust
Company, BT Commercial Corporation and PNC Bank, National Association
(Amendments numbered eighth, ninth and tenth do not exist).
10.51** Second Amendment to Intercompany Agreement dated as of September 8,
1998 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., Inc., the
Company, BT Commercial Corporation and PNC Bank.
10.52*** Twelfth Amendment and Waiver dated as of January 6, 1999, to the Credit
Agreement dated as of February 7, 1997, among the Company, the
financial institutions party to the Credit Agreement, Bankers Trust
Company, BT Commercial Corporation and PNC Bank, National Association
12.1*** Statement re: computation of ratio of earnings to fixed charges for the
year ended December 31, 1998 and the period from February 5, 1997 to
December 31, 1997
21.1 List of subsidiaries of the Company
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.
# - Previously filed as an exhibit to Anchor's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 and incorporated herein by reference.
## - Previously filed as an exhibit to the Company's Registration Statement on
Form S-4 (Reg. No. 333-50663) originally filed with the Securities and Exchange
Commission on April 21, 1998 and incorporated herein by reference.
* - Previously filed as an exhibit to Anchor `s Registration Statement on Form
10 and incorporated herein by reference.
** - Previously filed as an exhibit to Anchor's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998 and incorporated herein by reference.
*** - Filed herewith.
All other exhibits are incorporated herein by reference 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.
(b) Reports on Form 8-K
None
29
<PAGE> 30
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 Statements of Operations
and Other Comprehensive Income-
Year ended December 31, 1998 and the
Period from February 5, 1997 to December 31, 1997 F-3
Consolidated Balance Sheets-
December 31, 1998 and 1997 F-4
Consolidated Statements of Cash Flows -
Year ended December 31, 1998 and the
Period from February 5, 1997 to December 31, 1997 F-6
Consolidated Statements of Stockholder's Equity -
Year ended December 31, 1998 and the
Period from February 5, 1997 to December 31, 1997 F-8
Notes to Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE> 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Consumers U.S., Inc.:
We have audited the accompanying consolidated balance sheets of Consumers U.S.,
Inc. (a Delaware corporation) as of December 31, 1998 and 1997, and the related
consolidated statements of operations and other comprehensive income,
stockholder's equity and cash flows for the year ended December 31, 1998 and the
period from February 5, 1997 to 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Consumers U.S., Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the year ended December 31, 1998 and the period from February 5, 1997 to
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
February 26, 1999
F-2
<PAGE> 32
CONSUMERS U.S., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
PERIOD FROM
YEAR ENDED FEBRUARY 5, 1997
DECEMBER 31, 1998 TO DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales ................................................. $ 643,318 $ 569,441
Costs and expenses:
Cost of products sold .............................. 594,256 523,709
Restructuring charges .............................. 4,400 --
Selling and administrative expenses ................ 30,246 25,120
--------- ---------
Income from operations .................................... 14,416 20,612
Other income (expense), net ............................... 2,912 (2,602)
Interest expense .......................................... (27,098) (18,281)
--------- ---------
Loss before extraordinary item ............................ (9,770) (271)
Extraordinary item-
Write-off deferred financing costs ................. -- (11,200)
--------- ---------
Loss before preferred stock dividends and minority interest (9,770) (11,471)
Preferred stock dividends of subsidiary ................... (5,598) (5,062)
Loss before minority interest ............................. (15,368) (16,533)
Minority interest ......................................... 5,570 5,451
--------- ---------
Net loss .................................................. $ (9,798) $ (11,082)
========= =========
Other comprehensive income (loss):
Net loss ........................................... $ (9,798) $ (11,082)
Other comprehensive income (loss):
Minimum pension liability adjustment ........... 382 (540)
--------- ---------
Comprehensive income (loss) ............................... $ (9,416) $ (11,622)
========= =========
- -----------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 33
CONSUMERS U.S., INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
December 31,
Assets 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................... $ 4,106 $ 1,060
Accounts receivable, less allowance for doubtful
accounts of $1,686 and $2,025, respectively ... 86,846 56,940
Advance to affiliate ................................ 17,866 --
Inventories:
Raw materials and manufacturing supplies ...... 23,099 23,303
Finished products ............................. 81,230 96,820
Other current assets ................................ 8,304 8,082
--------- ---------
Total current assets ...................... 221,451 186,205
- ----------------------------------------------------------------------------------------
Property, plant and equipment:
Land .......................................... 7,769 7,769
Buildings ..................................... 63,721 63,438
Machinery, equipment and molds ................ 334,714 297,317
Less accumulated depreciation ................. (89,499) (43,653)
--------- ---------
316,705 324,871
- ----------------------------------------------------------------------------------------
Other assets ........................................ 22,839 22,462
Strategic alliance with customers, net of accumulated
amortization of $5,063 and $811, respectively . 26,187 25,389
Goodwill, net of accumulated
amortization of $5,625 and $2,857, respectively 53,072 55,095
--------- ---------
$ 640,254 $ 614,022
========= =========
- ----------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 34
CONSUMERS U.S., INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
December 31,
----------------------------
Liabilities and Stockholder's Equity 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Revolving credit facility .................................................. $ 50,162 $ 10,468
Current maturities of long-term debt ....................................... 840 567
Accounts payable ........................................................... 51,838 63,796
Accrued expenses ........................................................... 39,971 67,588
Accrued interest ........................................................... 5,970 4,576
Accrued compensation and employee benefits ................................. 27,249 25,185
--------- ---------
Total current liabilities ............................................ 176,030 172,180
- ---------------------------------------------------------------------------------------------------------------
Long-term debt ............................................................. 202,920 152,758
Long-term pension liabilities .............................................. 33,855 48,826
Long-term post-retirement liabilities ...................................... 59,853 57,900
Other long-term liabilities ................................................ 47,896 57,522
--------- ---------
344,524 317,006
Commitments and contingencies
- ---------------------------------------------------------------------------------------------------------------
Redeemable preferred stock of subsidiary, Series A, $.01 par value;
authorized, issued and outstanding 2,239,320 shares:
$25 liquidation and redemption value ................................. 55,983 55,983
--------- ---------
Minority interest .......................................................... 9,993 6,813
--------- ---------
Stockholder's equity:
Common stock, $.01 par value; authorized 20,000,000 shares;
issued and outstanding 17,000,100 shares ............................. 170 170
Capital in excess of par value ............................................. 87,430 86,330
Accumulated deficit ........................................................ (33,718) (23,920)
Additional minimum pension liability ....................................... (158) (540)
--------- ---------
53,724 62,040
--------- ---------
$ 640,254 $ 614,022
========= =========
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE> 35
CONSUMERS U.S., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
PERIOD FROM
YEAR ENDED FEBRUARY 5, 1997 TO
DECEMBER 31, 1998 DECEMBER 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................................... $ (9,798) $ (11,082)
Extraordinary item ......................................................... -- 11,200
Adjustments to reconcile loss before extraordinary item to net cash provided
by (used in) operating activities:
Depreciation and amortization ....................................... 53,881 51,132
Restructuring charges ............................................... 4,400 --
Dividends accrued on preferred stock of subsidiary .................. 5,598 5,062
Other ............................................................... 183 3,101
Minority interest ................................................... (5,570) (5,451)
Decrease in cash resulting from changes
in assets and liabilities ............................................... (63,205) (24,966)
--------- ---------
(14,511) 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 ............................. (41,367) (40,519)
Payments of strategic alliance with customers .............................. (10,000) (6,000)
Proceeds from the sale of property, plant and equipment .................... 2,723 --
Acquisition related contribution to pension plans .......................... (745) (9,056)
Other ...................................................................... (1,481) (1,210)
--------- ---------
(50,870) (257,255)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ................................... 50,000 280,000
Principal payments of long-term debt ....................................... (540) (130,278)
Advance to affiliate ....................................................... (17,330) --
Proceeds from issuance of common stock ..................................... -- 85,000
Net draws on revolving credit facility ..................................... 39,694 10,468
Distribution to shareholder ................................................ -- (3,513)
Other, primarily financing fees ............................................ (3,397) (12,358)
--------- ---------
68,427 229,319
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents:
Increase in cash and cash equivalents ...................................... 3,046 1,060
Balance, beginning of period ............................................... 1,060 --
--------- ---------
Balance, end of period ..................................................... $ 4,106 $ 1,060
========= =========
- ---------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
F-6
<PAGE> 36
CONSUMERS U.S., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PERIOD FROM
YEAR ENDED FEBRUARY 5, 1997 TO
DECEMBER 31, 1998 DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ................................................................ $ 23,973 $ 11,702
======== ========
Income tax payments (refunds), net ...................................... $ -- $ --
======== ========
Increase (decrease) in cash resulting from changes in assets and liabilities:
Accounts receivable ..................................................... $(30,443) $ (9,635)
Inventories ............................................................. 15,794 (1,241)
Other current assets .................................................... (161) (620)
Accounts payable, accrued expenses and other current liabilities ........ (35,031) (13,682)
Other, net .............................................................. (13,364) 512
-------- --------
$(63,205) $(24,666)
======== ========
- -------------------------------------------------------------------------------------------------------------------------
Supplemental noncash activities:
Non-cash equipment financing ................................................ $ 930 $ 1,115
======== ========
</TABLE>
In 1997, 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. In 1998, in
settlement of the Anchor Acquisition purchase price, Anchor issued 1,225,000
warrants valued at $6,125 and 525,000 warrants to an affiliate, valued at
$2,625.
<TABLE>
Anchor Acquisition:
<S> <C>
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 the Company's defined benefit pension 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 Loan Facility.
The Company considers short-term investments with the original maturities of
ninety days or less as the date of purchase to be classified as cash
equivalents.
F-7
<PAGE> 37
CONSUMERS U.S., INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Series B Capital - Minimum Total
Preferred In-Excess Accumulated Pension Stockholder's
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
Acquisition of
manufacturing rights ............ -- -- (9,325) -- (9,325)
Distribution to
Shareholder...................... -- -- (3,513) -- (3,513)
Net loss ........................ -- -- (11,082) -- (11,082)
Amount related to minimum
pension liability ............... -- -- -- (540) (540)
-------- -------- -------- -------- --------
Balance, December 31, 1997 ...... $ 170 $ 86,330 $(23,920) $ (540) $ 62,040
-------- -------- -------- -------- --------
Net loss ........................ -- -- (9,798) -- (9,966)
Contribution from shareholder
related to profit on
intercompany sales .............. -- 1,100 -- -- 1,100
Amount related to minimum
pension liability ............... -- -- -- 382 382
-------- -------- -------- -------- --------
Balance, December 31, 1998 ...... $ 170 $ 87,430 $(33,718) $ (158) $ 53,724
======== ======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE> 38
CONSUMERS U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE PERIOD FROM FEBRUARY 5, 1997 TO DECEMBER 31, 1997 (THE
"1997 PERIOD")
(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
55.3% 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
transactions, the amount of minority interest recognized by the Company was
$21,014, consisting of $2,983 attributable to minority common stockholders and
$18,031 attributable to Anchor warrant holders. Given the ownership percentages
through the third quarter of 1998, 35.2% of the losses of Anchor attributable to
common stockholders were credited to the Company's statement of operations. In
October 1998, certain warrant holders exercised their warrants into common
stock, increasing the minority interest ownership percentage to 44.7%. As a
result of this increase, the amount by which the minority common stockholders
can participate in the losses attributable to common stockholders of Anchor,
from its inception, is limited to $11,021, consisting of $2,983 attributable to
minority common stockholders and 44.7% of the value of the warrants, after which
the Company absorbs all of Anchor's losses. The minority stockholders were
charged with Anchor losses attributable to common stockholders of approximately
$5,570 and $5, 451, respectively, for the year ended December 31, 1998 and the
1997 Period. The remaining carrying value of minority interest related to the
warrants will not be adjusted by any further losses attributable to common
stockholders of Anchor. However, if future earnings do materialize, the Company
will recognize 100% of these earnings, to the extent of such minority interest
losses charged to the Company.
Should the warrant holders exercise additional options to convert to 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.
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, liquor, food, tea, and beverage
industries. The Company markets its products throughout the United States. The
Company's international and export sales are insignificant. Sales to
Anheuser-Busch Companies, Inc. and The Stroh Brewery Company ("Stroh's")
represented approximately 17.1% and 16.8%, respectively, of total net sales for
the year ended December 31, 1998 and 8.8% and 15.6%, respectively, of total net
sales for the 1997 Period. 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> 39
In February 1999, Stroh's entered into an agreement to sell its assets to a
consortium made up of Pabst Brewing Company ("Pabst") and Miller Brewing Company
("Miller") which is expected to become final in the second quarter. Under the
terms of the agreement, Anchor does not expect to incur any write-off of its
assets. The Company anticipates that a significant portion of the near term
production for Stroh's will be replaced with production for Pabst and Miller.
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,
except for molds for which depreciation is recorded on a unit of production
method based on units of glass produced with a minimum depreciation charge of
50% of the straight line rate, 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 1 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 the Company effective December 31, 1997. The
purchase price of Anchor's portion of this contract was $12,525, of which $8,550
was paid in 1998. Although the purchase price 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 had been treated as a distribution to a shareholder in
1997.
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 year ended December 31, 1998
and the 1997 Period were $2,768 and $2,857, respectively.
Accounts Payable
Accounts Payable includes the amount of checks issued and outstanding.
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.
F-10
<PAGE> 40
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, under certain conditions.
Post-retirement Benefits
Statement of Financial Accounting Standards No. 106 - Employers' Accounting for
Post-retirement Benefits Other Than Pensions ("SFAS 106") requires accrual of
post-retirement 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 post-retirement 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. Long-term debt is estimated to have a fair value of approximately
$212,000 as of December 31, 1998. The carrying amount of other financial
instruments, except for the natural gas futures discussed in Note 13,
approximate their estimated fair values.
The fair value information presented herein is based on information available to
management as of December 31, 1998. 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 is 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
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.
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
F-11
<PAGE> 41
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 ("Series A Preferred Stock") and $2,500
of common stock (490,898 shares with an estimated value of $5.00 per share) (the
"Class A Common Stock") of Anchor.
In June 1998, as part of an adjustment to the purchase price for the Anchor
Acquisition, the Company paid to Old Anchor an additional $1,000 in cash and
issued 1,225,000 warrants to purchase additional shares of common stock, valued
at approximately $6,100. In addition, the Company issued 525,000 warrants to
purchase additional shares of common stock to an affiliate of Consumers U.S.,
valued at approximately $2,600. None of the warrants to be issued will require
any payment upon exercise. The effects of the settlement have been reflected in
the financial statements for the period ended December 31, 1997.
The Company obtained the cash portion of the purchase price principally from an
$85,000 cash investment by Consumers in $84,000 face amount (3,360,000 shares)
of redeemable 8% cumulative convertible preferred stock (the "Series B Preferred
Stock") and $1,000 of common stock (200,000 shares) (the "Class B Common Stock")
and a $130,000 bank loan.
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 assets purchased of approximately $59,000 is classified as
Goodwill on the accompanying balance sheet.
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 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
F-12
<PAGE> 42
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 - RESTRUCTURING CHARGES
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 ceased operation in December 1998 and approximately 100 hourly
employees were terminated. The Company has recorded a restructuring charge in
1998 of $4,400. 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, the
Company recorded $400 of the total restructuring charge in the fourth quarter of
1998 related to certain employee costs.
NOTE 4- 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.
At December 31, 1998, advances outstanding under the Revolving Credit Facility
were $50,162 and the borrowing availability was $21,320. The total outstanding
letters of credit on this facility were $11,100. At December 31, 1998, the
weighted average interest rate on borrowings outstanding was 7.5%. During 1998,
average advances outstanding were $39,354, the average interest rate was 7.8%
and the highest month-end advance was $54,818.
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 the
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 the 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
Anchor 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.
F-13
<PAGE> 43
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
--------- ---------
<S> <C> <C>
$150,000 First Mortgage Notes, interest at 11 1/4% due 2005 ..... $ 150,000 $ 150,000
$50,000 Senior Notes, interest at 9 7/8% due 2008 ............... 50,000 --
Other ...................................................... 3,760 3,325
203,760 153,325
Less current maturities .................................... 840 567
--------- ---------
$ 202,920 $ 152,758
========= =========
</TABLE>
Effective March 16, 1998, Anchor completed an offering of an aggregate principal
amount of $50,000 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. and The Bank of New York, as Trustee. The Senior Notes are unsecured
obligations of Anchor ranking equal in right of payment with all existing and
future senior indebtedness of Anchor and senior in right of payment to all
existing and future subordinated indebtedness of Anchor. Proceeds from the
issuance of the Senior Notes have been used for growth capital expenditures and
general corporate purposes.
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.
In connection with the Anchor Acquisition, Anchor entered into a Senior Credit
Agreement, dated as of February 5, 1997, with BTCo, 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 1/4%
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 the Company
and equal 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.
F-14
<PAGE> 44
Anchor entered into a Registration Rights Agreement on April 17, 1997. Following
the issuance of the First Mortgage Notes, the Company filed, with the Securities
and Exchange Commission, an exchange offer registration statement, declared
effective on February 12, 1998, with respect to an issue of 11 1/4% 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. In March 1998, Anchor completed 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. As a result of delays
in having the registration statement declared effective and in consummating the
related exchange offer within prescribed periods, additional interest was
payable to the holders of the First Mortgage Notes in 1998.
Interest on the First Mortgage Notes accrues at 11 1/4% 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 on the March 15 and September 15
immediately preceding the applicable interest payment date.
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, Anchor entered
into an interest rate swap agreement to partially protect Anchor 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 the
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 equal with the security interest in favor of the Revolving
Credit Facility.
The indentures covering the First Mortgage Notes and the Senior Notes, subject
to certain exceptions, restrict Anchor 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 $840 in 1999, $885 in 2000,
$620 in 2001, $633 in 2002 and $240 in 2003. Payments to be made in 2004 and
thereafter are $200,542.
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 already incurred the internal general and
administrative expenses related to the issuance of the First Mortgage Notes, the
issuance of the shares to Consumers U.S. was treated as a shareholder
distribution. 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 6 - 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. Although no dividends have been
declared or paid as of December 31, 1998 they have been accrued.
F-15
<PAGE> 45
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 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, Anchor registered all of the shares of
the Class A Common Stock, Class C Common Stock and Series A Preferred Stock
under the Securities Exchange Act and is obligated to qualify the shares for
listing on a nationally recognized United States securities exchange or on The
NASDAQ Stock Market's National Market.
The Series B Preferred Stock ranks, as to dividends and redemption and upon
liquidation, junior to the Series A Preferred Stock but senior to all other
classes and series of capital stock of the Company. The holders of Series B
Preferred Stock are entitled to receive cumulative dividends, payable quarterly
at an annual rate of 8%. During the period from February 5, 1997 through and
including December 31, 1999, the dividend is payable in additional shares of
Series B Preferred Stock. Thereafter, the dividends will be payable in cash when
and as declared by the Board of Directors. Holders of Series B Preferred Stock
are not entitled to vote, except as defined in its Certificate of Designation.
Shares of Series B Preferred Stock are not subject to mandatory redemption. On
or after February 5, 2000, the Company may, at its option, redeem outstanding
shares of Series B Preferred Stock at a price of $25.00 per share, if the
trading price of the common stock equals or exceeds $5.50 per share. Shares of
Series B Preferred Stock are convertible into shares of Class B Common Stock, at
the option of the holder, at a ratio determined by dividing the liquidation
value of the Series A Preferred Stock by $5.50 and such ratio is subject to
adjustment from time to time.
NOTE 7 - 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 the Revolving Credit Facility and the
indentures limit the management fee annual payment to $1,500 unless certain
financial maintenance tests are met. The Company has recorded an expense of
$3,000 and $2,750, respectively, for this agreement for the year ended December
31, 1998 and the 1997 Period, of which $1,875 remains outstanding.
Related party transactions with affiliates of G&G, including Interstate Express
and Glenshaw are summarized as follows:
<TABLE>
<CAPTION>
Year ended 1997
December 31, 1998 Period
----------------- ----------
<S> <C> <C>
Purchases of freight ............................... $3,340 $ 1,367
Payable for freight ................................ 82 78
Purchases of inventory and other ................... 2,363 2,853
Payable for inventory and other .................... 83 1,034
Allocation of aircraft charges ..................... 745 270
Sales of inventory and allocation of expenses ...... 4,144 15,038
Receivable from sales of inventory and allocations.. 2,047 3,678
</TABLE>
F-16
<PAGE> 46
Other affiliates
Related party transactions with Consumers and its affiliates are summarized as
follows:
<TABLE>
<CAPTION>
Year ended 1997
December 31, 1998 Period
----------------- -------
<S> <C> <C>
Purchases of inventory and other.................. $ 1,818 $ 982
Payable for inventory and other................... 141 170
Sales of molds and inventory...................... 14,200 5,276
Receivable from sales of molds and inventory...... 12,792 2,113
Allocation of expenses and other.................. 11,167 --
Receivable from allocation of expenses and other.. 10,060 --
</TABLE>
The receivables owed to the Company by Consumers and its affiliates were
substantially paid in February 1999.
In September 1998, G&G (acting on behalf of Consumers) entered into an agreement
to purchase the controlling interest in a European glass manufacturer and had
advanced $17,300 toward that end. This amount was funded by G&G through an
advance from Anchor of approximately $17,300 in September 1998. The advance is
evidenced by a promissory note which originally matured in January 1999. This
advance was permitted through an amendment to the intercompany agreement, which
was approved by the Anchor's Board of Directors. Anchor's management extended
the maturity of the promissory note to March 31, 1999, and currently has an
agreement in principle to further extend the maturity to May 15, 1999. The funds
were obtained through borrowings under Anchor's Revolving Credit Facility.
Anchor has pledged the promissory note to the lenders under the Revolving
Credit Facility and G&G has provided security against the promissory note to
the lenders. Interest on the note is payable at the interest rate payable by
Anchor on its revolving credit advances plus 1/2%. A number of issues have
arisen and the transaction has not closed. Should the transaction not close, the
sellers are obligated to return the advance to G&G. G&G has demanded the return
of the advance plus interest accrued to date, and will upon receipt, repay the
advance from Anchor. Discussions are continuing, but as of this date outstanding
issues have not been resolved. Failing a resolution of the issues or a repayment
of the advance, G&G intends to begin an arbitration proceeding in accordance
with the terms of the agreement to secure a return of the advance.
In 1998, Anchor advanced $950 to Consumers, which was repaid in February 1999.
All transactions with the Company and its affiliates are conducted on terms
which, in the opinion of management, are no less favorable than with third
parties. The sale of molds to Consumers is invoiced as cost plus a profit
mark-up. The amount of this mark-up, $1,100, has been recorded as a contribution
from shareholder and included in capital in excess of par value.
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. Options to purchase
51,000 shares of Consumers common stock at an exercise price of $9.75 were
granted in 1998. The Company has elected to follow Accounting Principals Board
Opinion No. 25 - Accounting for Stock Issued to Employees ("APB 25"). Under APB
25, because the exercise price of employee stock options equals the market price
of the stock on the date of the grant, no compensation expense is recorded. The
Company adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123 - Accounting for Stock-Based Compensation ("SFAS
123").
F-17
<PAGE> 47
Information related to stock options for the periods ended December 31, 1998
follow:
<TABLE>
<CAPTION>
Weighted Weighted
Number Average Average
of Exercise Fair
Shares Price (Cdn$) Value (Cdn$)
--------- ----------- -----------
<S> <C> <C> <C>
Options outstanding, February 5, 1997 ......................... -- --
Granted ................................................. 1,066,500 $ 12.95 $ 4.43
Exercised ............................................... -- --
Forfeited ............................................... -- --
--------- ---------
Options outstanding, December 31,1997 ......................... 1,066,500 $ 12.95
========= =========
Granted ................................................. 51,000 $ 9.75 $ 4.35
Exercised ............................................... -- --
Forfeited ............................................... (47,500) 13.50 $ 4.53
--------- ---------
Options outstanding, December 31,1998 ......................... 1,070,000 $ 12.77
</TABLE>
339,667 of options are exercisable at December 31, 1998 and the weighted average
remaining contractual life of the options is 8.9 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 periods ended December 31, 1998. 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 rate of 5.76%, (ii) expected option life of 5
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
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year ended 1997
December 31, 1998 Period
<S> <C> <C>
Net loss
As
reported.......................................... $ ( 9,798) $ (11,082)
Pro forma............................................ (10,886) (11,228)
</TABLE>
NOTE 8 - PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS
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. Effective December 31, 1998, the salary and
hourly plans were merged. Benefits are calculated on a salary-based formula for
salaried participants and on a service-based formula for hourly participants.
Anchor provides other post-retirement benefits to substantially all salaried,
and certain hourly employees under several plans. SFAS 106 requires accrual of
post-retirement benefits (such as healthcare benefits) during the years an
employee provides services. Currently, Anchor funds these healthcare benefits on
a pay-as-you-go basis. Anchor also contributes to a multi-employer trust, and
under the requirements of SFAS 106, recognizes as post-retirement benefit cost
the required annual contribution. The Company's cash flows are not affected by
implementation of SFAS 106. The components of net periodic benefit costs are
summarized below:
F-18
<PAGE> 48
<TABLE>
<CAPTION>
Pensions Post-retirement
---------------------- ----------------------
Year ended 1997 Year Ended 1997
1998 Period 1998 Period
----------- -------- ---------- --------
<S> <C> <C> <C> <C>
Service cost-benefits earned during the year... $ 4,137 $ 3,934 $ 737 $ 755
Interest cost on projected benefit obligation 29,689 28,219 3,905 3,855
Return on plan assets.......................... (37,526) (29,087) -- --
--------- -------- -------- --------
Total periodic benefit cost............... $ (3,700) $ 3,066 $ 4,642 $ 4,610
========== ======== ======== ========
</TABLE>
Anchor has 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,
under certain conditions, and will increase the premiums paid to the PBGC.
Excluding payments made as part of the Anchor Acquisition, Anchor funded
required contributions of approximately $10,900 and $20,000, respectively, in
1998 and 1997. Effective January 1, 1998, a change to the market value asset
valuation method for determining pension plan contributions was made. As a
result, no further pension contributions were required in 1998 with respect to
either current funding or past underfundings.
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 the Company default on its obligations.
Consequently, the PBGC agreed not to terminate the plans as a result of the
acquisition and the assumption of the plans by Anchor. The agreement with the
PBGC requires Anchor to appoint an independent trustee to hold the Series A
Preferred Stock. Anchor is in the process of selecting a trustee, but has not
yet done so.
F-19
<PAGE> 49
The funded status of Anchor's pension and post-retirement plans, at December 31,
are as follows:
<TABLE>
<CAPTION>
Pensions Post-retirement
------------------------ -----------------------
Year ended 1997 Year Ended 1997
1998 Period 1998 Period
---------- --------- ---------- --------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year ...................... $ 439,730 $ 424,831 $ 61,690 $ 60,559
Service cost .............................................. 4,137 3,934 737 755
Interest cost ............................................. 29,689 28,219 3,905 3,855
Actuarial gain (loss) ..................................... (1,431) 11,956 49
Benefits paid ............................................. (33,111) (29,210) (3,328) (3,479)
--------- --------- -------- --------
Benefit obligation at end of year ............................ 439,014 439,730 63,053 61,690
========= ========= ======== ========
Change in plan assets:
Fair value of plan assets at beginning of year ............... 401,788 358,047 -- --
Actual return on plan assets .............................. 35,863 51,310 -- --
Employer contributions .................................... 10,886 21,641 -- --
Benefits paid ............................................. (33,111) (29,210) -- --
--------- ---------
Fair value of plan assets at end of year ..................... 415,426 401,788 -- --
========= =========
Funded status ................................................ 23,588 37,942 63,053 61,690
Unrecognized actuarial loss ............................... 10,267 10,884 -- --
--------- --------- -------- --------
Net amount recognized ........................................ 33,855 48,826 63,053 61,690
========= ========= ======== ========
Amounts recognized in the balance sheet consists of:
Accrued benefit liability .................................... 33,697 48,286 63,053 61,690
Additional minimum pension liability ......................... 158 540 -- --
--------- --------- -------- --------
Net amount recognized ............................................ $ 33,855 $ 48,826 $ 63,053 $ 61,690
========= ========= ======== ========
</TABLE>
Significant assumptions used in determining net periodic benefit cost and
related obligations for the plans are as follows:
<TABLE>
<CAPTION>
Pensions Post Retirement
-------------------- ---------------------
Year ended 1997 Year Ended 1997
1998 Period 1998 Period
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Discount rate.............................................. 7.00% 7.25% 7.00% 7.25%
Expected long-term rate of return
on plan assets............................................. 9.5 9.0 -- --
</TABLE>
Pension 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. Anchor has received a valuation of the
contributed Series A Preferred Stock in the fourth quarter of 1997. Based upon
this valuation, Anchor was required to contribute approximately $745 to bring
the total value of the Series A Preferred Stock contribution up to the $9,000
contributed value.
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 matched employees' basic contributions to the plan in an amount
equal to 150% (through December 31, 1997) of the first 4% of an employee's
compensation. Effective January 1, 1998, the Anchor match was reduced to 100% of
the first 4% of an employee's compensation. Expenses under the savings programs
for the year ended December 31, 1998 and the 1997 Period were approximately
$2,010 and $2,000, respectively.
F-20
<PAGE> 50
The Company also contributes to a multi-employer trust which provides certain
other post-retirement benefits to retired hourly employees. Expenses under this
program for the year ended December 31, 1998 and the 1997 Period were $4,107 and
$3,781, respectively.
The assumed healthcare cost trend used in measuring the accumulated
post-retirement benefit obligation as of December 31, 1998 was 7.5% declining
gradually to 5.0% 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, 1998 by approximately $3,600 and the net post-retirement healthcare
cost for the year ended December 31, 1998 by approximately $800. A one
percentage point decrease in the assumed healthcare cost trend rate for each
year would decrease the accumulated post-retirement benefit obligation as of
December 31, 1998 by approximately $12,800 and the net post-retirement
healthcare cost for the year ended December 31, 1998 by approximately $660.
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, 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 12,700
</TABLE>
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, 1998,
management has deemed it appropriate to establish a valuation allowance against
the net tax asset.
F-21
<PAGE> 51
The following significant components of the deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Pension and post-retirement liabilities ...... $ 8,400 $ 1,200
Reserves and allowances ...................... 7,900 17,700
Inventory uniform capitalization ............. 2,500 --
Other ........................................ -- 300
Tax loss carryforwards ....................... 32,800 2,900
-------- --------
51,600 22,100
Deferred tax liabilities:
Accumulated depreciation and amortization .... 21,100 (600)
Other current assets ......................... 1,700 --
Other assets ................................. -- 200
-------- --------
22,800 (400)
-------- --------
Net deferred tax assets ......................... 28,800 22,500
Valuation allowance ............................. (28,800) (22,500)
-------- --------
Net deferred tax assets after valuation allowance $ -- $ --
======== ========
</TABLE>
The effective tax rate reconciliation is as follows:
<TABLE>
<CAPTION>
Year ended 1997
December 31, 1998 Period
----------------- ------
<S> <C> <C>
Federal rate ..................................................... (34)% (34)%
State rate ....................................................... (5) (5)
Permanent differences ............................................ 12 25
----- -----
(27) (14)
Valuation allowance ............................................. 27 14
----- -----
Effective rate .................................................. -- % -- %
===== =====
</TABLE>
NOTE 12 - 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>
1999....................................................... $ 15,600
2000....................................................... 12,000
2001....................................................... 10,900
2002....................................................... 10,300
2003....................................................... 10,000
After 2003................................................. 7,800
---------
$ 66,600
</TABLE>
Rental expense for all operating leases for the year ended December 31, 1998 and
the period from February 5, 1997 to December 31, 1997 were $17,745 and $17,547,
respectively.
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 expired February 1,
1998. In January 1998, Anchor exercised its option to purchase the headquarters
facility
F-22
<PAGE> 52
and assigned such option to a third party purchaser of the facility. Anchor has
entered into a ten year lease pursuant to which Anchor leases a portion of the
headquarters facility.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company 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.
Anchor's labor contract with approximately 90% of its hourly personnel expires
on March 31, 1999. Negotiations are presently being conducted, although a
contract offer has yet to be advanced. If no satisfactory agreement is reached,
and a work stoppage ensues, Anchor believes that its cash position in the near
term will be sufficient to continue operations on a reduced basis.
At December 31, 1998, the Company has hedged certain of its 1999 and 2000
estimated natural gas purchases through the purchase of natural gas futures in
the amount of $19,033. These future contracts are accounted for as hedges of
future production costs and accordingly, the unrealized loss of $1,528 on these
contracts is deferred and will be included in the cost of inventory production
in the month of the related future contract.
F-23
<PAGE> 53
INDEX TO FINANCIAL INFORMATION FOR OLD ANCHOR
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants H-2
Consolidated Statements of Operations -
Period from January 1, 1997 to February 4, 1997 and
Year Ended December 31, 1996 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
Year Ended December 31, 1996 H-6
Consolidated Statements of Stockholder's
Equity (Deficiency in Assets)-
Period from January 1, 1997 to February 4, 1997 and
Year Ended December 31, 1996 H-8
Notes to Consolidated Financial Statements H-9
SELECTED CONSOLIDATED FINANCIAL DATA H-25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS H-28
</TABLE>
H-1
<PAGE> 54
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Anchor Glass Container Corporation:
We have audited the accompanying consolidated balance sheets of Anchor
Resolution Corp. (Debtor-in-Possession) (the Company) as of February 4, 1997
and December 31, 1996, and the related consolidated statements of operations,
stockholder's equity (deficiency in assets) and cash flows for the period from
January 1, 1997 to February 4, 1997, and the year ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to report on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our report.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Anchor Resolution Corp. as of February 4, 1997, and December 31, 1996, and the
results of its operations and its cash flows for the period from January 1,
1997, to February 4, 1997, and the year ended December 31, 1996 in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
experienced significant losses in the last three fiscal years, and has a net
deficiency in assets of $284,959,000 at February 4, 1997. As described in Notes
2 and 3 to the accompanying consolidated financial statements, in September
1996, the Company filed a voluntary petition for relief under Chapter 11 of the
United States Bankruptcy Code. Furthermore, as discussed in Note 2, on February
5, 1997, the Company sold substantially all of its assets and certain
liabilities. The Company's bankruptcy petition and remaining deficiency in
assets after this sale raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
March 27, 1998
H-2
<PAGE> 55
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Period from January 1, Year Ended
to February 4, December 31,
1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales .................................................... $ 62,560 $ 814,370
Costs and expenses:
Cost of products sold ................................... 70,608 831,612
Selling and administrative expenses ..................... 3,745 39,570
Restructuring and other charges ......................... -- 49,973
Impairment of long-lived assets ......................... -- 490,232
Write-up assets held for sale ........................... -- (8,967)
Loss from operations ......................................... (11,793) (588,050)
Other income (expense), net .................................. (595) (10,020)
Interest expense (1997 and 1996 contractual interest
of $5,353 and $57,768, respectively) .................... (2,437) (48,601)
-------- ---------
Loss before reorganization items, income taxes
and extraordinary items ................................. (14,825) (646,671)
Reorganization items ......................................... (827) (5,008)
-------- ---------
Loss before income taxes and extraordinary item .............. (15,652) (651,679)
Income taxes ................................................. -- 1,825
-------- ---------
Loss before extraordinary item ............................... (15,652) (653,504)
Extraordinary item-
Write-off of deferred financing fees, net of nil tax .... -- (2,336)
-------- ---------
Net loss ..................................................... $(15,652) $(655,840)
======== =========
</TABLE>
See Notes to Consolidated Financial Statements
H-3
<PAGE> 56
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
February 4, December 31,
Assets 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................... $ 3,449 $ 4,898
Accounts receivable, less allowance for doubtful accounts
of $1,630 and $1,503 .................................... 60,978 55,851
Inventories-
Raw materials and manufacturing supplies ................ 29,649 28,528
Semi-finished and finished products ..................... 119,082 115,891
Other current assets ......................................... 19,184 18,593
-------- ---------
Total current assets ................................ 232,342 223,761
- ---------------------------------------------------------------------------------------------------------------------
Property, plant and equipment:
Land and land improvements .............................. 10,405 10,405
Buildings ............................................... 120,377 120,377
Machinery, equipment, and molds ......................... 531,827 524,643
Less accumulated depreciation ........................... (350,967) (344,655)
-------- ---------
311,642 310,770
- ---------------------------------------------------------------------------------------------------------------------
Other assets ................................................. 50,943 52,072
Intangible pension asset ..................................... 17,140 17,140
Investment in joint venture .................................. 39,734 39,725
-------- ---------
$651,801 $ 643,468
======== =========
</TABLE>
See Notes to Consolidated Financial Statements
H-4
<PAGE> 57
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
February 4, December 31,
Liabilities and Stockholders' Equity (deficiency in assets) 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities not subject to compromise:
Current liabilities:
Debtor-in-Possession Facility ................................ $107,939 $ 90,455
Senior Secured Notes ......................................... 158,025 158,025
Accounts payable ............................................. 32,558 25,727
Accrued expenses ............................................. 35,192 32,740
Accrued interest ............................................. 914 1,510
Accrued compensation and employee benefits ................... 58,545 60,423
-------- ---------
Total current liabilities ............................... 393,173 368,880
- ------------------------------------------------------------------------------------------------------------
Pension liabilities .......................................... 44,198 44,179
Other long-term liabilities .................................. 120,206 119,722
-------- ---------
164,404 163,901
Liabilities subject to compromise ............................ 379,183 379,994
-------- ---------
Total liabilities .......................................... 936,760 912,775
Commitments and contingencies
- ------------------------------------------------------------------------------------------------------------
Stockholder's Equity (deficiency in assets):
Common stock - $.10 par value: authorized 1,000 shares,
issued and outstanding, 1 share ......................... -- --
Capital in excess of par value ............................... 576,300 576,300
Accumulated deficit .......................................... (838,865) (823,213)
Amount related to minimum pension liability .................. (22,394) (22,394)
-------- ---------
(284,959) (269,307)
-------- ---------
$651,801 $ 643,468
======== =========
</TABLE>
H-5
<PAGE> 58
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Period from January 1, Year Ended
to February 4, December 31,
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Loss before extraordinary item ............................. $(15,652) $(653,504)
Adjustments to reconcile loss before extraordinary
Item to net cash provided by (used in) operating activities:
Impairment of long-lived assets ................... -- 490,232
Write-up of assets held for sale .................. -- (8,967)
Restructuring and other charges ................... -- 49,973
Depreciation ...................................... 6,312 72,537
Amortization ...................................... 1,293 29,119
Other ............................................. 127 3,131
Decrease in cash resulting from changes
in assets and liabilities .................................. (3,507) (19,697)
Increase in cash resulting from changes
in prepetition liabilities ................................. -- 8,765
-------- ---------
(11,427) (28,411)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Expenditures for property, plant and equipment ............. (7,186) (46,254)
Proceeds from sales of property, plant and
equipment ............................................. -- 14,022
Investment in joint venture ................................ (10) (18,552)
Other ...................................................... (304) (13,108)
-------- ---------
(7,500) (63,892)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ................... -- 80,000
Principal payments on long-term debt ....................... (6) (92,191)
Capital contribution from Vitro S.A ........................ -- 92,484
Sale of accounts receivable ................................ -- --
Net draws on Debtor-In-Possession Facility ................. 17,484 90,455
Draws on Prepetition Credit Agreement ...................... -- --
Repayments on Prepetition Credit Agreement ................. -- (83,000)
Other, primarily financing fees ............................ -- (8,862)
-------- ---------
17,478 78,886
Cash and cash equivalents:
Increase (decrease) in cash and cash equivalents ........... (1,449) (13,417)
Balance, beginning of period ............................... 4,898 18,315
-------- ---------
Balance, end of period ..................................... $ 3,449 $ 4,898
======== =========
</TABLE>
H-6
<PAGE> 59
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Period from January 1, Year Ended
to February 4, December 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by (used in) operating activities reflects net cash payments for interest and taxes as follows:
Interest ..................................................... $ 3,033 $ 51,412
Income taxes (refunds), net .................................. $ -- $ (209)
In addition, the Company had the following non-cash activities:
Extraordinary item write-off of deferred financing
Fees ....................................................... $ -- $ 2,336
Increase (decrease) in cash resulting from changes
in assets and liabilities:
Accounts receivable ........................................ $ (5,127) $ (15,351)
Inventories ................................................ (4,312) 36,154
Other current assets ....................................... (591) (1,623)
Accounts payable, accrued expenses and
other current liabilities ............................. 6,645 (26,246)
Other, net ................................................... (122) (12,631)
-------- ---------
$ (3,507) $ (19,697)
======== =========
</TABLE>
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.
See Notes to Consolidated Financial Statements.
H-7
<PAGE> 60
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Total
Stockholder's
Common Capital in Retained Minimum Equity
Stock Excess of Earnings Pension (Deficiency
(A) Par Value (Deficit) Liability in Assets)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $ -- $483,816 $(167,373) $(26,840) $ 289,603
Capital contributions from Vitro, S.A -- 92,484 -- -- 92,484
Amount related to minimum
pension liability -- -- -- 4,446 4,446
Net loss -- -- (655,840) -- (655,840)
- ---------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 -- 576,300 (823,213) (22,394) (269,307)
Net loss -- -- (15,652) -- (15,652)
- ---------------------------------------------------------------------------------------------------------------
Balance, February 4, 1997 $ -- $576,300 $(838,865) $(22,394) $(284,959)
</TABLE>
- -----------------
(A) One share, $.10 par value outstanding
See Notes to Consolidated Financial Statements
H-8
<PAGE> 61
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements are prepared on a historical
cost basis of accounting and reflect adjustments for the impairment of goodwill
and other long-lived assets. As discussed in Note 3, Anchor Resolution Corp.
(formerly known as Anchor Glass Container Corporation) (the "Company") is
operating as a debtor-in-possession under Chapter 11 of the United States
Bankruptcy Code ("Chapter 11"). The accompanying consolidated financial
statements do not purport to reflect or provide for the consequences of the
bankruptcy proceedings. In particular, the consolidated financial statements do
not purport to show (a) as to assets, the remaining assets, their realizable
value on a liquidation basis or their availability to satisfy liabilities; (b)
as to prepetition liabilities, the amounts that may be allowed for claims or
contingencies, or the status and priority thereof; or (c) as to stockholder's
accounts, the effect of any changes that may be made in the capitalization of
the Company; or (d) as to operations, the effect of any changes that may be
made in the Company's remaining business.
Organization of the Company
At February 4, 1997, the Company is a wholly-owned subsidiary of Container
Holdings Corp. ("Container") which is a direct wholly-owned subsidiary of
Vitro, Sociedad Anonima ("Vitro"), a limited liability corporation incorporated
under the laws of the United Mexican States. On September 13, 1996, the Company
filed a voluntary petition for reorganization under Chapter 11 of the United
States Bankruptcy Code ("Chapter 11") (See Note 3). On February 5, 1997,
Consumers Packaging Inc. ("CPI") and Owens-Brockway Glass Container, Inc.
("OI") acquired substantially all of the assets and business of the Company in
accordance with the terms of the Agreement (See Note 2). The financial
statements for the period from January 1, 1997 to February 4, 1997 (the "1997
Interim Period") represent the final period of operations of the Company.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany accounts
and transactions have been eliminated in consolidation.
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,
wine and soft drink industries. The Company markets its products throughout the
United States. The Company's international operations and export sales are
insignificant. Sales to Anheuser-Busch represented 6% and 11% of total net
sales for the 1997 Interim Period and the year ended 1996, respectively. As a
result of the current highly competitive environment, the Company had been
informed by Anheuser-Busch that the Company's 1996 and future volume
allocations would be reduced. Additionally, sales to The Stroh Brewery Company
represented 10.0% and 10.8% of total net sales for the 1997 Interim Period and
the year ended 1996.
H-9
<PAGE> 62
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 last-in, first-out ("LIFO") method. At February
4, 1997 and December 31, 1996 the estimated current cost of these inventories
exceeds their stated value determined on the LIFO basis by approximately
$16,740. Manufacturing supplies and certain other inventories are valued at
weighted average actual or standard costs that approximate actual 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 recorded as a charge to accumulated depreciation. Annual depreciation rates
for such expenditures range from 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.
Excess of Cost Over Fair Value of Net Assets Acquired (Goodwill)
As a result of the declining profitability, diminishing cash flows and the
Company's bankruptcy as discussed in Note 3, the recoverable value of the
carrying amount of long-lived assets and intangibles was reviewed for
impairment.
Prior to the sale of substantially all of its assets, the Company used
projected undiscounted earnings before interest, income taxes, depreciation and
amortization but after maintenance capital expenditures as compared to the
unamortized balance of goodwill and other long-lived assets, to measure any
impairment, and as of December 31, 1995, no impairment was calculated. As a
result of the sale of the Company's assets, in late 1996, the Company used
projected proceeds from the sale as a measure of impairment of goodwill.
Based upon this review, the amount of remaining excess of purchase price over
fair value of net assets acquired of $457,232 and other long-lived assets of
$33,000 were written off in the year ended December 31, 1996.
The excess of cost over fair value of net assets acquired had been amortized on
a straight line basis over a 40 year period. Amortization expense, included as
a component of cost of products sold, for the year ended December 31, 1996 was
$13,920.
Income Taxes
Statement of Financial Accounting Standards No. 109 - Accounting for Income
Taxes ("SFAS 109") 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. In general, SFAS 109 requires that each company
within a consolidated group recognize tax expense based on its own income. The
Company and its subsidiaries file a consolidated tax return with Container and
its subsidiaries. To the extent that current operating loss benefits of the
consolidated group or post acquisition loss carryforwards are allocated to the
Company as a reduction of current income taxes payable, such benefits are
reflected as a contribution of capital. The Company's tax benefits arising
prior to acquisition (preacquisition losses) are reflected as a reduction in
goodwill when the losses are utilized. Post acquisition losses of the Company
are used to offset current or future income tax provisions.
H-10
<PAGE> 63
Retirement Plans
The Company 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. As a result of the Bankruptcy Proceedings (See
Note 3), certain plan contributions were not made as of February 4, 1997 (See
Note 12). At February 4, 1997 and December 31, 1996, the Company has recorded
an additional minimum pension liability for underfunded plans representing the
excess of the underfunded liability over previously recorded accrued pension
costs.
Post-retirement Benefits
Statement of Financial Accounting Standards No. 106 - Employers' Accounting for
Post-retirement Benefits Other Than Pensions ("SFAS 106") requires accrual of
post-retirement benefits (such as healthcare benefits) during the period that
an employee provides service. The transition obligation from the adoption of
SFAS 106 approximated $3,400 and is being amortized on a straight-line basis
over a period of twenty years. This accounting method has no effect on the
Company's cash outlays for these retirement 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. Based on the uncertainty of the ultimate outcome of the Bankruptcy
Proceedings, discussed in Note 3, the Company is unable to estimate the fair
value of long-term debt at February 4, 1997 and December 31, 1996. 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 February 4, 1997. 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. As a result of the Bankruptcy
Proceedings discussed in Note 3, the ultimate value of these financial
instruments is dependent upon the payment under the Company's future plan of
reorganization.
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 - SALE OF ASSETS
On February 5, 1997, OI and Anchor Glass Acquisition Corporation ("New
Anchor"), a majority-owned subsidiary of CPI, acquired substantially all of the
assets and business of the Company, pursuant to the Asset Purchase Agreement
dated December 18, 1996, as amended (the "Agreement").
New Anchor purchased eleven operating glass container manufacturing facilities,
five idled glass container manufacturing facilities and other related assets.
OI purchased assets and assumed liabilities of the Company's Antioch,
California and Hayward, California facilities and purchased certain other
existing inventories. OI also purchased the Company's investment in Rocky
Mountain Bottle Company, a joint venture with Coors Brewing Company ("Coors"),
and assumed the Company's agreement to manufacture Coors' glass packaging
products in the United States.
H-11
<PAGE> 64
The total purchase price approximated $378,000, excluding fees of approximately
$1,500. The purchase price received from OI amounted to approximately $128,000
and was received in cash. The remaining purchase price of approximately
$250,000 from New Anchor was comprised of: approximately $200,500 in cash,
$47,000 face amount (1,879,320 shares) of mandatorily redeemable 10% cumulative
convertible preferred stock and $2,500 of common stock (490,898 shares with an
estimated value of $5.00 per share) of New Anchor.
The purchase price paid by New Anchor in connection with the Anchor Acquisition
is subject to adjustment. On June 13, 1997, the Company delivered to New Anchor
the closing balance sheet which indicated that the Company believed that it was
entitled to additional payments from New Anchor and Owens totaling
approximately $76,300. On July 28, 1997, New Anchor delivered its notice of
disagreement to the Company, 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 New
Anchor to the Company of an additional $1,000 in cash and the issuance of
1,225,000 warrants for the purchase of additional shares of common stock. None
of the warrants to be issued will require any payment upon exercise. The
Proposed Settlement is subject to final approval by the Company, New Anchor and
the bankruptcy court.
Proceeds from the sale were used to repay the outstanding balance of the DIP
Facility and accrued interest thereon, of approximately $109,000 at February 4,
1997. The remainder of the proceeds will be used against prepetition
liabilities, as ultimately determined under the Company's Plan of
Reorganization (see Note 3).
Upon consummation of the purchase and effective February 6, 1997, New Anchor
changed its name to Anchor Glass Container Corporation and the Company changed
its name to Anchor Resolution Corp.
As an objection to the sale, the Pension Benefit Guaranty Corporation ("PBGC")
entered a determination to terminate the Company's qualified defined benefit
pension plans. However, in conjunction with the sale, New Anchor assumed all
liabilities of the plans and funded approximately $9,100 of plan contributions,
previously unfunded following the Company's filing of Chapter 11 (see Note 3).
Additionally, New Anchor issued to the plans $9,000 face amount (360,000
shares) of mandatorily redeemable 10% cumulative preferred stock and Vitro
agreed to provide a limited guaranty to the PBGC with respect to the unfunded
benefit liabilities of the Company's defined benefit plans. Consequently, the
PBGC agreed not to terminate the plans as a result of the Agreement and the
assumption of the plans by New Anchor.
On October 4, 1996, the Company entered into an asset purchase agreement with
Ball-Foster Glass Container Co. L.L.C., ("Ball-Foster"). Pursuant to that
agreement, Ball-Foster was to acquire substantially all of the assets of the
Company for $365 million in cash at closing, subject to adjustment, as set
forth in that agreement. In addition, Ball-Foster was to assume specified
liabilities of the Company. Payment of the purchase price was guaranteed by
Saint-Gobain Corporation, parent company of Ball-Foster.
Also on October 4, 1996, the Company filed a motion with the Bankruptcy Court
seeking an order (i) authorizing the sale to Ball-Foster, subject to higher and
better bids, of substantially all of the Company's assets free and clear of
certain liens, claims and encumbrances and (ii) authorizing assumption and
assignment of certain unexpired leases and executory contracts. The Court had
entered several amended scheduling orders which established a timetable for the
sale process. The amended deadline for submissions of higher and better bids
was December 12, 1996. At that time, the Company received a higher and better
offer from CPI and OI. Ball-Foster received a termination fee of $3,000 from
the proceeds of the transaction.
H-12
<PAGE> 65
The following unaudited pro forma condensed balance sheet gives effect to the
sale of assets and business and payoff of the DIP Facility (as defined)
described above as if such transactions occurred on February 4, 1997:
<TABLE>
<S> <C>
Cash ..................................................................................... $ 223,000
Other current assets ..................................................................... 7,500
Investment in Common Stock of Anchor Glass Container Corporation ......................... 2,500
Investment in Preferred Stock of Anchor Glass Container Corporation ...................... 47,000
Property, plant and equipment ............................................................ 7,000
Other assets ............................................................................. 10,000
---------
Total assets .................................................................... $ 297,000
---------
Liabilities not subject to compromise:
Current liabilities ...................................................................... $ 165,000
Other long-term liabilities .......................................................... 16,000
Liabilities subject to compromise .................................................... 375,000
---------
Total liabilities ............................................................... 556,000
---------
Deficiency in assets ............................................................ $(259,000)
=========
</TABLE>
The Company's remaining deficiency in assets after this sale raises substantial
doubt about its ability to continue as a going concern. The consolidated
financial statements do not include adjustments that might result from the
outcome of this uncertainty.
NOTE 3 - BANKRUPTCY PROCEEDINGS
As a result of the continued decline in the Company's results of operations
from the effect of the highly competitive glass container market and the
Company's high debt level, on September 13, 1996 (the "Petition Date"), the
Company filed a voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). On September 30, 1996, Anchor
Recycling Corporation, a wholly-owned subsidiary of the Company, also filed a
voluntary petition to reorganize under Chapter 11 in the same court. The
Chapter 11 proceedings are being jointly administered, with the Company
managing the business in the ordinary course as a debtor-in-possession under
the supervision of the Bankruptcy Court. Vitro and the Company concluded that
the Chapter 11 filing was necessary in order to preserve the value of its
assets and to ensure that the business has sufficient cash resources to
continue operations while it completed the sale of the business discussed in
Note 2.
Under Chapter 11 proceedings, litigation and actions by creditors to collect
certain claims existing at the Petition Date are stayed, without specific
Bankruptcy Court authorization to pay such claims. The Company had received
authorization, pursuant to first day orders, to pay certain claims related to
wages, salaries, vacation, sick pay and other claims. As a
debtor-in-possession, the Company has the right, subject to Bankruptcy Court
approval, and certain other limitations, to assume or reject certain executory
contracts, including unexpired leases. Any claim for damages resulting from the
rejection of an executory contract or an unexpired lease is treated as a
general unsecured claim in the Chapter 11 proceedings.
On September 26, 1996 the United States Trustee appointed a single unsecured
creditors' committee (the "Creditors Committee"). The Creditors' Committee has
the right to review and object to certain business transactions and has
participated in the negotiation of the Company's plan of reorganization. The
Creditors Committee has retained the firm of Wachtell, Lipton, Rosen & Katz as
its counsel and Smith Barney Inc. as its financial advisors.
The Company obtained debtor-in-possession ("DIP") financing from Foothill
Capital Corporation, as agent and Congress Financial Corporation, as co-agent,
(the "Lender Group") which provided for a $130,000 DIP Credit Facility (the
"DIP Facility"), and was approved by the Bankruptcy Court on November 15, 1996.
The DIP Facility, which expires September 30, 1997, provides up to $130,000
under a borrowing base formula, less prepetition advances under the Company's
then existing New Senior Credit Facility (the "Prepetition Credit Facility")
with the Lender Group, on terms substantially the same as the Prepetition
Credit Facility. On February 5, 1997, the DIP Facility was repaid in full with
proceeds from the sale as discussed in Note 2.
H-13
<PAGE> 66
The DIP Facility and prepetition secured claims are collateralized by
substantially all of the assets of the Company including accounts receivable,
inventories and property, plant and equipment. The Company has continued to
accrue interest on its prepetition secured debt obligations. Because of the
Chapter 11 filing, there has been no accrual of interest on prepetition
unsecured debt subsequent to the Petition Date.
Of the cash proceeds received from the sale of substantially all the assets and
business of the Company (see Note 2), approximately $109,000 was used to repay
in full the DIP Facility and approximately $11,000 was applied to the
prepayment of real estate taxes, certain costs related to the Company's
partnership with Coors (see Note 8) and the termination fee payable to
Ball-Foster (see Note 2). The balance of the net proceeds of the sale remaining
after application to the costs of the winddown and to other administrative and
priority claims will be distributed to the creditors of the Company, including
the holders of approximately $158,000 principal amount of the Company's Senior
Secured Notes and holders of other secured and unsecured claims, pursuant to a
Plan of Reorganization which is being developed by the Company in conjunction
with the Creditors Committee.
The Company has separately reported, as reorganization items on the
consolidated statement of operations, professional fees and similar types of
expenditures relating directly to the Chapter 11 filing. The Company's policy
is to expense all such expenditures as incurred. These expenses are primarily
for legal, claims and accounting services.
NOTE 4 - PREPETITION LIABILITIES
Prepetition liabilities subject to compromise include the following:
<TABLE>
<CAPTION>
February 4, December 31,
1997 1996
----------- ------------
<S> <C> <C>
$100,000 10.25% Senior Notes $100,000 $100,000
$200,000 9.875% Senior Subordinated Debentures 200,000 200,000
Other debt 4,368 4,368
Trade payables 67,890 68,701
Accrued interest 6,925 6,925
-------- --------
$379,183 $379,994
======== ========
</TABLE>
Because of the Chapter 11 proceedings, there has been no accrual of interest on
the $100,000 10.25% Senior Notes or the $200,000 9.875% Senior Subordinated
Debentures since September 12, 1996. If accrued, interest expense would have
increased $2,916 and $9,167, respectively, during the 1997 Interim Period and
the year ended December 31, 1996. Additionally, the amounts reflected as
prepetition liabilities do not include amounts related to potential claims,
which are substantially in excess of the recorded liabilities at February 4,
1997.
NOTE 5- LONG-TERM DEBT
At February 4, 1997 and December 31, 1996, all debt which, by its terms was
previously classified as long-term at the Petition Date, is classified as
prepetition liabilities in the accompanying balance sheet.
As a result of the Bankruptcy Proceedings (See Note 3), the Company is in
default of various covenants relating to its outstanding prepetition debt.
However, under Chapter 11 proceedings, litigation or actions by creditors
related to these defaults are stayed. In addition, the DIP Facility required
that the Company's collateral value and availability, as defined, could not be
less than a specified amount and the outstanding credit facility balance could
not be more than a specified amount as measured on a rolling four-week period
throughout the term of the DIP Facility. Prior to the repayment of the DIP
Facility, the Company was in full compliance with these covenants.
H-14
<PAGE> 67
Effective January 12, 1996, the Company and the holders of the Senior Secured
Notes entered into a Noteholder Restructuring Agreement which provides for,
among other things, consent by the holders to the replacement of the then
current Credit Agreement with a new $130,000 credit facility (subsequently
replaced by the DIP Facility) and waiver by the holders to identified defaults
or events of default existing on the effective date or which may occur during
the waiver period which expired not later than January 31, 1998. The
restructuring period was defined as the period between the effective date and
the termination date, which would have occurred no later than June 30, 1998
(the "Restructuring Period"). The following events occurred in connection with
the effectiveness of the Noteholder Restructuring Agreement:
- execution of the $130,000 Prepetition Credit Facility
- mandatory prepayment on January 12, 1996 of the aggregate
principal amount of the Senior Secured Notes as follows:
- Series A $12,160; Series B $64,640 and Series C $3,200;
- payment of a restructuring fee of 1.75% of the principal
amount of the consenting noteholders' Senior Secured Notes
outstanding prior to giving effect to the prepayments above,
approximately $4,100, and
- $40,000 capital contribution from Vitro and a commitment from
Vitro to contribute an additional $25,000 on or before
January 31, 1997. Capital contributions in 1996 amounted to
$92,484.
Compliance with the financial maintenance tests as defined in the amendments to
the Note Purchase Agreement, including fixed charge coverage, net worth,
current ratio and debt to equity were waived through the period ending January
31, 1998. However, the Company was required to maintain capital expenditures
and net worth in amounts not less than those defined in the Noteholder
Restructuring Agreement.
During the Restructuring Period, the Series A Notes and Series C Notes bore a
floating rate of interest at the one-month LIBOR rate, as defined, plus 2.0%.
The interest rate was adjusted monthly. Interest on the Series B Notes is fixed
at 9.91% per annum. Interest during the Restructuring Period is payable on the
15th of each month.
Effective January 12, 1996, and concurrent with the Noteholder Restructuring
Agreement, the Company entered into a Loan Agreement with Foothill Capital
Corporation, as agent and Congress Financial Corporation, as co-agent, to
provide for the $130,000 Prepetition Credit Facility. $80,000 of proceeds from
the Prepetition Credit Facility were used to prepay at closing a significant
portion of certain payments of the Senior Secured Notes originally scheduled to
be made in July 1996 and July 1997 and the remaining $50,000 was used to
finance working capital and other general corporate purposes. Advances
outstanding at any one time are not to exceed an amount equal to the Borrowing
Base as defined in the Prepetition Credit Facility. Interest, at prime plus
1.125%, as defined, is payable monthly. A commitment fee of .5% of the unused
portion of the Prepetition Credit Facility is payable monthly. The Prepetition
Credit Facility (which was subsequently replaced with the DIP Facility) was
repaid February 5, 1997 with proceeds from the sale discussed in Note 2.
Through February 5, 1997 the Company had borrowings outstanding under the DIP
Facility. At February 4, 1997 and December 31, 1996, advances outstanding under
the DIP Facility were $107,939 and $90,455, respectively. At December 31, 1996,
the weighted average interest rate on borrowings outstanding was 9.375%.
In March 1994, Vitro provided a one year, $20,000 letter of credit facility on
behalf of the Company, thereby effectively increasing the Company's letter of
credit availability by $20,000. Outstanding letters of credit under this
facility at December 31, 1996 were $15,000. In February 1997, the Company
received an additional capital contribution of $8,400 in satisfaction of
obligations outstanding under the letter of credit facility, which was
terminated at that time.
H-15
<PAGE> 68
The Senior Secured Notes are collateralized by the property, plant and
equipment of the Company with a secondary interest in inventories and accounts
receivable. The DIP Facility is collateralized by inventories and accounts
receivable with a secondary interest in the property, plant and equipment of
the Company. Both the Note Purchase Agreement and the DIP Facility provide for
various covenants that restrict the Company's ability to incur additional
indebtedness, sell or transfer assets, make investments, enter into
transactions with or make distributions to affiliates and pay dividends or make
other distributions in respect of its capital stock, as well as require it to
meet various financial maintenance tests. Effective with the Noteholder
Restructuring Agreement, the holders of the Senior Secured Notes waived
compliance with the financial maintenance covenants through January 31, 1998.
However, the Company must maintain capital expenditures and net worth in
amounts not less than those defined in the Noteholder Restructuring Agreement.
Effective June 18, 1992, the Company issued $100,000 aggregate principal amount
of 10.25% Senior Notes due June 30, 2002 (the "Exchange Notes"). The Company
then completed an exchange offer with the exchange of all Exchange Notes for a
like principal amount of 10.25% Senior Notes due 2002, Series A (the "Senior
Notes"), issued under an Indenture dated as of October 15, 1992 between the
Company and Continental Bank, National Association, as Trustee. The Senior
Notes are unsecured obligations of the Company ranking senior in right of
payment to the Debentures (described below) and equal with all other existing
and future senior indebtedness of the Company. Interest is payable
semi-annually in arrears on each June 30 and December 31. Interest has not been
paid or accrued following the Petition Date.
Effective December 2, 1993, the Company completed a public offering of $200,000
aggregate principal amount of 9.875% Senior Subordinated Debentures due
December 15, 2008 (the "Debentures") under an Indenture dated December 1, 1993
between the Company and Chemical Bank, as Trustee. The Debentures are unsecured
obligations, subordinate in right of payment to all existing and future senior
debt, as defined, of the Company. Interest on the Debentures is payable
semi-annually on June 15 and December 15. Interest has not been paid or accrued
following the Petition Date.
All of the Company's debt agreements contain cross-default provisions.
NOTE 6 - RESTRUCTURING AND OTHER CHARGES
In January 1996, formal plans were approved to further restructure certain of
the Company's operations to respond to the continued decline in the industry
sales volume combined with the loss of a significant portion of the business of
the Company's largest customer. The Company closed its Cliffwood, New Jersey
plant effective January 1996, and substantially all hourly and salaried
employees of that plant, approximately 350, were terminated. A restructuring
charge of approximately $50,000 was recorded in the 1996. Of this amount,
approximately $24,900 related to the writedown to net realizable value of
certain manufacturing assets.
During 1994, formal plans were approved to significantly reduce the Company's
cost structure and to improve productivity. This restructuring program relates
primarily to consolidation of underutilized manufacturing operations and
provided for the closure of three of the Company's 17 manufacturing plants then
operating. The Company closed its Waukegan, Illinois and Los Angeles,
California plants in the second quarter of 1995 and its Keyser, West Virginia
plant in the third quarter of 1995. In the 1994 fourth quarter, the Company
recorded a restructuring charge of $79,599 and in the 1995 first quarter, an
additional $10,300 charge was recorded to reflect the benefit arrangements for
employees affected by this plan. In total, substantially all hourly and
salaried employees of these plants, approximately 725, were terminated. Of the
total $89,800 charge, approximately $50,600 related to the writedown to net
realizable value of certain manufacturing assets.
The Keyser and Cliffwood plants have been recorded at net realizable value and
are held for sale. The Waukegan plant was sold in 1996 and the Los Angeles
plant will be retained by the Company as part of the acquisition discussed in
Note 2 to the consolidated financial statements.
H-16
<PAGE> 69
The following represents information regarding amounts charged against the
restructuring liability for the Company's restructuring plans.
<TABLE>
<CAPTION>
Amount
Charged
Restructuring Against
Charges Liability
------------- -----------
<S> <C> <C>
1996 RESTRUCTURING PLAN
Severance and employee benefit costs $ 10,800 $ 10,800
Plant shutdown costs related to consolidation
and discontinuation of manufacturing activities $ 14,300 $ 12,600
1994/1995 RESTRUCTURING PLAN
Severance and employee benefit costs $ 18,300 $ 18,300
Plant shutdown costs related to consolidation
and discontinuation of manufacturing activities $ 20,900 $ 18,500
</TABLE>
NOTE 7 - CAPITAL CONTRIBUTION
As a condition of closing to the Noteholder Restructuring Agreement, as
discussed in Note 5, in January 1996, the Company received a $40,000 cash
capital contribution from Vitro and received a commitment from Vitro to
contribute an additional $25,000 on or before January 31, 1997. During 1996,
Vitro provided capital contributions of $92,484.
NOTE 8 - INVESTMENT IN JOINT VENTURE
In March 1995, the Company and Coors entered into a long-term partnership (the
"Partnership") to produce glass bottles at the Coors glass manufacturing
facility in Wheat Ridge, Colorado. The Partnership will employ the Company's
technology, along with capital contributions from both companies, to increase
the efficiency, capacity and volume of the Coors facility. Coors has
contributed, as its capital contribution, the facility's machinery, equipment
and certain personal property. The Company's required capital contribution was
approximately $54,000 in cash for capital spending needs over the first three
years of the partnership, of which approximately $36,015 has been contributed
through capital expenditures through December 31, 1996. The Company's
investment in the joint venture is accounted for on the equity method. Capital
contributions are recorded as the investment is funded. The Partnership has an
initial term of ten years, which can be extended for additional terms of two
years each, and the partners will share the cost benefit of achieved
operational efficiencies. In addition, Coors has entered into a separate
long-term preferred supplier agreement with the Company. The preferred supplier
agreement has an initial term of ten years, which can be extended for
additional terms of two years each. This agreement will allow the Company to
supply 100% of Coors' glass container requirements (exceeding the Partnership's
production) beginning January 1, 1996.
As discussed in Note 2, effective February 5, 1997, OI purchased the Company's
investment in the joint venture (including the assumption of related
obligations) and the preferred supplier agreement.
NOTE 9 - SALE AND LEASEBACK
In July and August 1995, the Company entered into sale and leaseback
transactions of certain manufacturing equipment located at four of the
Company's manufacturing facilities. Under the sale agreements, the Company sold
the equipment at an aggregate net selling price of approximately $48,300. In
addition, the Company entered into agreements to lease back the equipment for a
nine-year term at an average annual rental of approximately $7,600. The
deferred gain of approximately $14,200, representing the excess of the selling
price over the net book value of the equipment, is being amortized at
approximately $1,600 annually over the nine year operating lease term.
H-17
<PAGE> 70
NOTE 10 - RELATED PARTY INFORMATION
Container
There have been no material transactions between the Company and Container or
its subsidiaries in the 1997 Interim Period and in the year ended 1996. During
1996, the Company sold a previously closed manufacturing facility to Container
for proceeds of approximately $750 of cash and a note receivable of $2,800.
Vitro
Related party transactions with Vitro and its consolidated subsidiaries for the
year ended December 31, 1996 are summarized as follows:
<TABLE>
<S> <C>
Purchases of equipment.................. $ 7,183
Payable for equipment................... 2,078
Purchases of inventory.................. 6,978
Payable for inventory................... 1,582
Sales of inventory...................... 23,376
Receivable from sales of inventory...... 3,100
Other receivables....................... --
Equipment deposits...................... 2,187
</TABLE>
The nature and amount of related parties transactions during the 1997 Interim
Period were not material.
Sale of Accounts Receivable
In December 1995, approximately $30,700 of eligible trade receivables was sold
to Factoraje Serfin, S.A. de C.V., a wholly-owned subsidiary of Grupo
Financiero Serfin, S.A. de C.V., an associated company in which Vitro owns a
minority interest. This transaction resulted in net proceeds to the Company of
$30,000. These receivables were sold without recourse and the proceeds were
used to fund working capital needs.
NOTE 11 - INCOME TAXES
The consolidated group of companies, of which the Company is a member, 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.
The Company had previously recognized approximately $1,825 as a deferred tax
asset, net of the valuation allowance. As a result of continuing losses,
management has determined it was no longer more likely than not that the value
of the remaining deferred tax asset would be realized. As a result, the Company
recorded an additional valuation allowance of $1,825, which is reflected as a
provision for income taxes in the Consolidated Statement of Operations for the
year ended December 31, 1996.
H-18
<PAGE> 71
The significant components of the deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
February 4, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Deferred tax assets:
Acquired tax benefits...................................... $ 27,700 $ 27,700
Post acquisition loss carryforwards....................... 112,000 106,000
Pension and post-retirement liabilities.................... 55,300 55,300
Accruals and reserves...................................... 50,300 50,300
--------- ---------
245,300 239,300
Valuation allowance........................................ (158,400) (152,400)
--------- ---------
86,900 86,900
--------- ---------
Deferred tax liabilities:
Property, plant and equipment.............................. 55,000 55,000
Inventories................................................ 22,300 22,300
Receivables and other assets............................... 9,600 9,600
--------- ---------
86,900 86,900
--------- ---------
Net deferred tax asset............................................ $ -- $ --
========= =========
</TABLE>
At February 4, 1997, the Company had unused net operating losses and investment
tax credit carryforwards of approximately $340,000 and $5,200, respectively,
expiring at various dates through 2011. Of these amounts, $275,000 and $0,
respectively, are not restricted as to use and expire at various dates through
2011. The balance of the carryforwards amounting to $65,000 and $5,200,
respectively, expire at various dates through 2004, and are restricted to
offsetting future taxable income of the respective companies which generated
the carryforwards.
NOTE 12 - PENSION PLANS
The Company 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. Effective December 31, 1994,
the Company changed its defined benefit plans for salaried employees resulting
in the freezing of benefits, as discussed below. Pension costs incurred in the
1997 Interim Period were $848. Pension costs for the year ended December 31,
1996 are summarized below.
<TABLE>
<CAPTION>
<S> <C>
Service cost-benefits earned during the year.................. $ 5,266
Interest cost on projected benefit obligation................. 28,646
Return on plan assets......................................... (28,270)
Net amortization and deferral................................. 2,442
Curtailment (gain) loss....................................... 964
---------
Total pension cost......................................... $ 9,048
=========
</TABLE>
The Company has substantial unfunded obligations related to its employee
pension plans. The Retirement Protection Act of 1994 requires the Company to
make significant additional funding contributions into its underfunded defined
benefit retirement plans and will increase the premiums paid to the PBGC.
Subsequent to the Petition Date, the Company did not make scheduled
contribution payments to its employee pension plans. Scheduled plan
contribution payments not made in the year ended December 31, 1996, amounted to
$16,330. Of the scheduled January 15, 1997 contribution, $3,599 was not paid.
As an objection to the sale, the PBGC entered a determination to terminate the
Company's qualified defined benefit pension plans. However, in conjunction with
the sale, New Anchor assumed all liabilities of the plans
H-19
<PAGE> 72
and funded approximately $9,100 of plan contributions, previously unfunded
following the Company's filing of Chapter 11 (see Note 3). Additionally, New
Anchor issued $9,000 face amount of mandatorily redeemable 10% cumulative
convertible preferred stock and Vitro has guaranteed to fund qualified defined
benefit plan obligations up to $70,000, should New 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 New Anchor.
Effective December 31, 1994, the Company changed its salaried retirement and
savings programs, resulting in the freezing of benefits under its three defined
benefit pension plans for salaried employees and amending its defined
contribution savings plan for salaried employees. The freezing of benefits
under the defined benefit pension plans for salaried employees resulted in a
curtailment gain of $3,588. Effective December 31, 1996, the Company merged the
Latchford Glass Company Salaried Employees' Pension Plan into the Anchor Glass
Container Corporation Retirement Plan for Salaried Employees. Also effective
December 31, 1994, the Company merged the Diamond Bathurst Salaried Employees
Retirement Plan into the Anchor Glass Container Corporation Retirement Plan for
Salaried Employees. Under the amended savings plan, the Company will match,
beginning in 1995, employees' basic contributions to the plan in an amount
equal to 150% of the first 4% of an employee's compensation.
The funded status of the Company's pension plans at December 31, 1996, the
latest valuation date, follows:
<TABLE>
<CAPTION>
1996
---------------------------------
Accumulated Assets Exceed
Benefits Accumulated
Exceed Assets Benefits
------------- -------------
<S> <C> <C>
Actuarial present value of accumulated plan benefits:
Vested benefit obligation............................ $ 290,589 $ 107,015
========= =========
Accumulated benefit obligation....................... $ 301,349 $ 107,015
========= =========
Projected benefit obligation............................... 301,349 107,015
Plan assets at fair value.................................. 218,013 116,139
--------- ---------
Projected benefit obligation in excess of
(less than) plan assets.............................. 83,336 (9,124)
Amounts not recognized -
Subsequent losses.................................... (22,394) (3,817)
Prior service cost................................... (17,140) --
Additional minimum liability............................... 39,534 --
--------- ---------
Accrued (prepaid) pension cost ............................ $ 83,336 $ (12,941)
========= =========
</TABLE>
Significant assumptions (weighted average rates) used in determining net
pension cost and related pension obligations for the benefit plans for 1996
were as follows:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Discount rate .................................... 7.50%
Expected long-term rate of return
on plan assets ................................ 9.0
Rate of increase on compensation
level ......................................... 5.0
</TABLE>
The Company recognized an additional minimum liability that is equal to the
difference between the accumulated benefit obligation over plan assets in
excess of accrued (prepaid) pension cost. A corresponding amount is recognized
as either an intangible asset or a reduction of equity. Pursuant to this
requirement, the Company recorded, as of February 4, 1997 and December 31,
1996, an additional liability of $39,534, an intangible pension asset of
$17,140, and an equity reduction of $22,394. Plan assets are held by
independent trustees and consist principally of investments in equities, fixed
income and government securities.
The Company also sponsors two defined contribution plans covering substantially
all salaried and hourly employees. Expenses under these programs for the 1997
Interim Period and the year ended December 31, 1996 were approximately $237 and
$2,817, respectively.
H-20
<PAGE> 73
NOTE 13 - POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides benefits to substantially all salaried, and certain hourly
employees under several plans. SFAS 106 requires accrual of post-retirement
benefits (such as healthcare benefits) during the years an employee provides
services. Currently, the Company funds these healthcare benefits on a
pay-as-you-go basis. The Company also contributes to a multi-employer trust,
and under the requirements of SFAS 106, recognizes as post-retirement benefit
cost the required annual contribution.
SFAS 106 allows recognition of the cumulative effect of this liability in the
year of adoption or the amortization of the net initial transition obligation
over a period of up to twenty years. The Company elected to recognize the net
initial transition obligation of approximately $3,400 on a straight-line basis
over a period of twenty years. The Company's cash flows are not affected by
implementation of SFAS 106.
The accumulated post-retirement benefit obligation at December 31, 1996, the
latest valuation date, is as follows:
<TABLE>
<CAPTION>
December 31,
1996
- ------------------------------------------------------------------------------------
<S> <C>
Retirees ......................................... $ 38,403
Eligible plan participants ....................... 8,743
Other active plan participants ................... 14,273
--------
61,419
Unrecognized gain ................................ 4,698
Unrecognized transition obligation ............... (2,695)
--------
Accrued post-retirement benefit costs ............ $ 63,422
========
</TABLE>
Net post-retirement benefit costs for the 1997 Interim Period were $643. Net
post-retirement benefit costs for the year ended December 31, 1996 consist of
the following components:
<TABLE>
- ------------------------------------------------------------------------------------
<S> <C>
Service cost - benefits earned during the year ............. $1,052
Interest cost on accumulated post-retirement
benefit obligation ..................................... 4,200
Net amortization and deferral .............................. 168
------
$5,420
======
</TABLE>
The assumed healthcare cost trend used in measuring the accumulated
post-retirement benefit obligation as of December 31, 1996 was 9.0% 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, 1996 by approximately 12% and the net post-retirement healthcare
cost for the year ended December 31, 1996 by approximately 13%. The assumed
discount rate used in determining the accumulated post-retirement benefit
obligation was 7.25% for 1996.
The Company also contributes to a multi-employer trust which provides certain
other post-retirement benefits to retired hourly employees. Expenses under this
program for the 1997 Interim Period and the year ended December 31, 1996, were
$360 and $4,990, respectively.
NOTE 14 - 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.
H-21
<PAGE> 74
Future minimum lease payments under non-cancelable operating leases are as
follows:
<TABLE>
<S> <C>
1997................................................................ $22,100
1998................................................................ 17,600
1999................................................................ 13,300
2000................................................................ 9,700
2001................................................................ 8,600
After 2001.......................................................... 20,300
-------
$91,600
=======
</TABLE>
Rental expense for all operating leases for the 1997 Interim Period and the
year ended December 31, 1996 was $3,012 and $19,770, respectively.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
The Company 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 16 - SUBSEQUENT EVENT
Effective January 30, 1998, all of the remaining assets of the Company were
transferred to Anchor Liquidating Trust.
H-22
<PAGE> 75
ANCHOR RESOLUTION CORP.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain historical financial
information of Old Anchor. The selected financial data for the period from
January 1, 1997 to February 4, 1997 (the "Interim Period 1997") and the three
years ended December 31, 1996 has been derived from Old Anchor's consolidated
financial statements. The following information should be read in conjunction
with Old Anchor's consolidated financial statements, including notes thereto,
and the related Old Anchor Management's Discussion and Analysis of Financial
Condition and Results of Operations, included elsewhere in this report.
<TABLE>
<CAPTION>
INTERIM
YEARS ENDED DECEMBER 31, PERIOD
-------------------------------------------------------------
1994 1995 1996 1997
----------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 1,089,317 $ 956,639 $ 814,370 $ 62,560
Cost of products sold 996,780 906,393 831,612 70,608
Selling and administrative expenses 52,371 48,998 39,570 3,745
Restructuring and other charges(1) 79,481 10,267 49,973 --
Impairment of long-lived assets(2) -- -- 490,232 --
Write-up of assets held for sale(1) -- -- (8,967) --
----------- ----------- --------- ---------
Income (loss) from operations (39,315) (9,019) (588,050) (11,793)
Other income (expense), net (2,385) 171 (10,020) (595)
Interest expense(3) (56,070) (56,871) (48,601) (2,437)
----------- ----------- --------- ---------
Income (loss) before reorganization
items, income taxes, extraordinary
items and cumulative effect of
accounting change (97,770) (65,719) (646,671) (14,825)
Reorganization items -- -- (5,008) (827)
Income taxes(4) (250) (250) (1,825) --
Extraordinary items(5) -- -- (2,336) --
Cumulative effect of accounting
change(4) -- -- -- --
----------- ----------- --------- ---------
Net income (loss) $ (98,020) $ (65,969) $(655,840) $ (15,652)
=========== =========== ========= =========
OTHER FINANCIAL DATA:
Net cash provided by (used in)
operating activities $ 27,914 $ 430 $ (28,411) $ (11,427)
Net cash used in investing activities (96,655) (48,500) (63,892) (7,500)
Net cash provided by financing
activities 28,467 52,198 78,886 17,478
Depreciation and amortization 100,476 99,915 101,656 7,605
Capital expenditures 93,833 70,368 46,254 7,186
BALANCE SHEET DATA (AT END OF PERIOD):
Accounts receivable $ 66,618 $ 40,965 $ 55,851 $ 60,978
Inventories 176,769 180,574 144,419 148,731
Total assets 1,264,488 1,208,348 643,468 651,801
Total debt(6) 584,671 557,450 552,848 570,335
Total stockholder's equity (deficiency
in assets) 324,554 289,603 (269,307) (284,959)
</TABLE>
- -------------------------
(1) Restructuring and other charges reflects Old Anchor's implementation
of a series of restructuring plans in an effort to respond to the
continued decline in the industry sales volume combined with, in
H-23
<PAGE> 76
1996, the loss of a significant portion of the business of Old
Anchor's largest customer. The following represents information
regarding the amounts charged against the restructuring liability for
old Anchor's restructuring plans:
<TABLE>
<CAPTION>
AMOUNT CHARGED
AGAINST LIABILITY
RESTRUCTURING AS OF DECEMBER 31,
CHARGES 1996
------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1996 RESTRUCTURING PLAN
Plant shutdown costs, including severance costs and
pension curtailment losses $25,100 $20,100
Writedown of certain manufacturing assets to net
realizable value 24,900 --
1994/1995 RESTRUCTURING PLAN
Plant shutdown costs, including severance costs and
pension curtailment losses $39,200 $33,700
Writedown of certain manufacturing assets to net
realizable value 36,600 --
Writedown of previously shutdown manufacturing
facilities to net realizable value 14,000 --
</TABLE>
During the year ended December 31, 1996, Old Anchor recorded an
adjustment to the carrying value of certain idled facilities held for
sale. These assets were previously written down to an estimated net
realizable value. Upon a current evaluation of quotes and offers on
these properties in 1996, Old Anchor increased their net carrying
value by approximately $9.0 million. The balance of the restructuring
liability is anticipated to be expended and charged against the
liability over the next three years.
(2) Impairment of long-lived assets reflects the adjustment for the
write-off of goodwill and other long-lived assets. As a result of the
declining profitability, diminishing cash flow and the bankruptcy
proceedings, the recoverable value of the carrying amount of
long-lived assets and intangibles was reviewed for impairment. Based
upon this review, the amount of remaining excess of the purchase price
over the fair value of net assets acquired at December 31, 1996, of
$457.2 million and other long-lived assets of $33.0 million were
written off in the year ended December 31, 1996. The excess cost over
fair value of net assets acquired had been amortized on a
straight-line basis over a 40 year period. Amortization expense,
included as a component of cost of products sold, was approximately
$13.9 million for each of the years ended December 31, 1996, 1995 and
1994. See Old Anchor's Notes to the Consolidated Financial Statements.
(3) Because of Chapter 11 proceedings, there has been no accrual of
interest on the $100.0 million 10.25% Senior Notes or the $200.0
million 9.875% Senior Subordinated Debentures since September 12,
1996. If accrued, interest expense would have increased $2.9 million
and $9.2 million, respectively during the 1997 Interim Period and the
year ended December 31, 1996.
(4) Income tax provision reflects any additional valuation allowances
required to be recorded under SFAS 109. The adoption of SFAS 109
effective January 1, 1993 resulted in an increase in the cumulative
net deferred tax asset by $1.8 million. Under SFAS 109, deferred
income taxes reflect the net tax effects of temporary differences
between 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. 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.
(5) Extraordinary item in the year ended December 31, 1996, results from
the write-off of financing costs related to debt extinguished during
the relevant periods, net of taxes.
(6) Total debt as of December 31, 1996 includes $462.3 million of
prepetition liabilities and $90.5 million outstanding under Old
Anchor's debtor-in-possession credit facility.
H-24
<PAGE> 77
ANCHOR RESOLUTION CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1996
RESULTS OF OPERATIONS
Introduction
The following table sets forth certain information derived from the
Consolidated Financial Statements of Anchor Resolution Corp., formerly Anchor
Glass Container Corporation and currently a debtor-in-possession under Chapter
11 of the Bankruptcy Code ("Old Anchor"), for the two years ended December 31,
1996. The following discussion should be read in conjunction with the
Consolidated Financial Statements of Old Anchor and notes thereto, included
elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1995 1996
---- ----
AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- -------
(dollars in millions)
<S> <C> <C> <C> <C>
Net sales $ 956.6 100.0% $ 814.4 100.0%
Cost of products sold 906.4 94.8 831.6 102.1
Selling and administrative expenses 49.0 5.1 39.6 4.9
Restructuring and other charges 10.3 1.1 50.0 6.1
Impairment of long-lived assets -- -- 490.2 60.2
Write-up of assets held for sale -- -- (9.0) (1.1)
Loss from operations (9.1) (1.0) (588.0) (72.2)
Interest expense 56.8 5.9 48.6 6.0
Loss before reorganization items,
income taxes and extraordinary items (65.7) (6.9) (646.7) (79.4)
Loss before extraordinary items (66.0) (6.9) (653.5) (80.2)
Net loss (66.0) (6.9) (655.8) (80.5)
</TABLE>
The net loss for the year ended December 31, 1996 was $655.8 million
compared to a net loss of $66.0 million for 1995. Included in the loss for 1996
is the impairment of long-lived assets of $490.2 million. Included in the 1996
and 1995 results were first quarter charges of $50.0 million and $10.3 million,
respectively, for Old Anchor's s 1996 and 1995 restructuring programs.
Excluding the effect of these items, net loss would have been $115.6 million
compared to $55.7 million for 1995.
The decline in Old Anchor's operations is a direct result of Old
Anchor's high debt levels and industry-wide volume declines that have led to
severe competitive pricing pressures, negatively impacting operating results.
Net sales for 1996 decreased 14.9% compared to 1995, on a volume decline of
approximately 14%, primarily in the beer, iced tea and soft drink markets. As
an example, Old Anchor's 1996 volume allocation from its largest customer in
1995, Anheuser-Busch, has been significantly reduced. The softness in overall
industry volume shipments has led to severe competitive pricing pressures,
negatively impacting operating margins. In accordance with its restructuring
plans, Old Anchor closed its Cliffwood, New Jersey plant in January 1996, and
closed its Waukegan, Illinois, Los Angeles, California and Keyser, West
Virginia plants in 1995.
NET SALES
Net sales for 1996 were $814.4 million, a decrease of 14.9% compared
to $956.6 million for 1995. The decrease in net sales principally reflects the
softening in 1996 of the year-to-year demand for glass containers which has
resulted in increased competition for market share and lower pricing trends. In
addition, as described above, Anheuser-Busch has significantly reduced its
purchases from Old Anchor.
H-25
<PAGE> 78
COST OF PRODUCTS SOLD
Cost of products sold as a percentage of net sales were 102.1% for
1996 compared to 94.8% for 1995. This increase principally reflects the impact
of reduced shipping volumes and lower pricing trends, as described above.
Partially offsetting this increase is the impact of Old Anchor's strategic
initiatives and cost savings derived from Old Anchor's restructuring plans and
re-engineering program.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses declined $9.4 million, or 19.2% in
1996 compared to 1995. This decrease principally reflects lower personnel and
fringe benefit costs as a result of headcount reductions associated with Old
Anchor's re-engineering and cost reduction programs.
RESTRUCTURING AND OTHER CHARGES
In the 1995 first quarter, an additional $10.3 million charge was
recorded to reflect the benefit arrangements for employees affected by this
plan. In January 1996, formal plans were approved to further restructure
certain of Old Anchor's operations to respond to the continued decline in the
industry sales volume combined with the loss of a significant portion of the
business of Old Anchor's largest 1995 customer. A restructuring charge of
approximately $50.0 million has been recorded in the 1996 Consolidated
Statement of Operations for the closure of the Cliffwood, New Jersey plant and
other restructuring obligations.
IMPAIRMENT OF LONG-LIVED ASSETS
As a result of declining profitability, diminishing cash flows and the
bankruptcy proceedings, the entire $457.2 million of goodwill and $33.0 million
of other long-lived assets were written off.
WRITE-UP OF ASSETS HELD FOR SALE
In December 1996, Old Anchor wrote up the value of certain assets held
for sale by $9.0 million.
INTEREST EXPENSE
Interest expense was $48.6 million for 1996 compared to $56.8 million
for 1995. Because of the Bankruptcy Proceedings, there has been no accrual of
interest on the $100.0 million 10.25% Senior Notes or the $200.0 million 9.857%
Senior Subordinated Debentures since September 12, 1996. If accrued, interest
expense would have increased by $9.1 million in 1996.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the continued decline in Old Anchor's results of
operations from the effect of the highly competitive glass container market,
and Old Anchor's high debt level, on September 13, 1996 (the "Petition Date"),
Old Anchor filed a voluntary petition for reorganization under Chapter 11 of
the United States Bankruptcy Code ("Chapter 11") in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). On
September 30, 1996, Anchor Recycling Corporation, a wholly-owned subsidiary of
Old Anchor, also filed a voluntary petition to reorganize under Chapter 11 in
the same court. The Chapter 11 proceedings are being jointly administered, with
Old Anchor managing the business in the ordinary course as a
debtor-in-possession under the supervision of the Bankruptcy Court. Old Anchor
concluded that the Chapter 11 filing was necessary in order to preserve the
value of its assets and to ensure that the business had sufficient cash
resources to continue operations while it completed the sale of the business
discussed in Note 2 to the Notes to the Consolidated Financial Statements,
appearing elsewhere herein.
Old Anchor obtained debtor-in-possession ("DIP") financing from
Foothill Capital Corporation, as agent and Congress Financial Corporation, as
co-agent (the "Lender Group") to provide for a $130.0
H-26
<PAGE> 79
million DIP Credit Facility (the "DIP Facility"), which was approved by the
Bankruptcy Court on November 15, 1996. The DIP Facility, which would expire
September 30, 1997, provided up to 130.0 million under a borrowing base
formula, less prepetition advances under Old Anchor's then existing Prepetition
Credit Facility with the Lender Group, on terms substantially the same as the
Prepetition Credit Facility.
Advances outstanding at any one time were not to exceed an amount
equal to the Borrowing Base, consisting of accounts receivable and finished
product inventory, as defined in the Prepetition Credit Facility, and amended
by the DIP Facility. At December 31, 1996, Old Anchor's available borrowing
base, as defined under the DIP Facility was approximately $113.7 million
against which $90.5 was outstanding. Interest, at prime plus 1.125%, as
defined, was payable monthly. A commitment fee of 0.5% of the unused portion of
the DIP Facility was payable monthly.
On February 5, 1997, Anchor Glass Container Corporation ("New
Anchor"), a wholly-owned subsidiary of Consumers Packaging, Inc. ("CPI"), and
Owens-Brockway Glass Container, Inc. ("OI") acquired substantially all of the
assets and business of Old Anchor in accordance with the terms of the Asset
Purchase Agreement, dated December 18, 1996 (the "Agreement") as discussed in
Note 2 to the Notes to Consolidated Financial Statements. The total purchase
price approximated $387.0 million, excluding fees of approximately $9.9
million. The purchase price received from OI amounted to approximately $128.4
million and was received in cash. The remaining purchase price of approximately
$250.0 million from New Anchor was comprised of approximately $200.5 million in
cash, $47.0 million face amount (1,879,320 shares) of mandatorily redeemable
10% cumulative convertible preferred stock and $2.5 million of common stock
(490,898 shares with an estimated value of $5.00 per share) of New Anchor. The
purchase price is subject to adjustment as defined in the Agreement.
Proceeds from the sale were used to repay the outstanding balance of
the DIP Facility and accrued interest thereon, at February 5, 1997, of
approximately $109.0 million. The remainder of the proceeds will be used to
satisfy prepetition liabilities, as to be determined under Old Anchor's Plan of
Reorganization. Old Anchor's principal sources of liquidity through February 5,
1997 were funds derived from operations and borrowings under the DIP Facility.
In 1996, operating activities consumed $28.4 million in cash compared
to $0.4 million of cash provided in 1995. These increases in cash consumed
reflect the increase in losses and the changes in working capital items during
the periods compared.
Capital expenditures in 1996 were $46.3 million compared to $70.4
million in 1995. In addition, in 1996, Old Anchor invested approximately $18.6
million in the joint venture with Coors Brewing Company ("Coors"). Old Anchor
invested $20.0 million in the joint venture in 1995. Also in 1995, Old Anchor
entered into sale and leaseback transactions, with respect to certain of its
glass manufacturing equipment, with an aggregate net selling price of
approximately $48.3 million.
Cash flows from financing activities for the years ended December 31,
1996 and 1995 were $78.9 million and $52.2 million, respectively. The 1996 cash
flows from financing activities principally reflects a $92.5 million capital
contribution received from Vitro, Sociedad Anonima and borrowings under the
Prepetition Credit Facility, modified by the DIP Facility. In February 1997,
Old Anchor received an additional capital contribution of $8.4 million in
satisfaction of obligations outstanding under the $20.0 million letter of
credit facility, which was terminated at that time.
As a result of the Bankruptcy Proceedings, Old Anchor is in default of
various covenants relating to Old Anchor's outstanding prepetition debt.
However, under Chapter 11 proceedings, litigation or actions by creditors
related to theses defaults are stayed. In addition, the DIP Facility required
that Old Anchor's collateral value and availability, as defined, could not be
less than a specified amount as measured on a rolling four-week period
throughout the term of the DIP Facility. Prior to the repayment of the DIP
Facility, Old Anchor was in full compliance with these covenants.
H-27
<PAGE> 80
IMPACT OF INFLATION
The impact of inflation on the costs of Old Anchor, 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 since Old Anchor's formation in 1983, Old
Anchor has generally been unable, since the end of 1991, to fully pass on
inflationary cost increases as a result of competitive pricing pressures. This
has negatively impacted Old Anchor's operating results.
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,
Old Anchor's shipment volume is typically highest in the second and third
quarters. Consequently, Old Anchor historically builds inventory during the
first quarter in anticipation of seasonal demands during the second and third
quarters. However, industry patterns existing over the last 18 months have
somewhat altered the normal seasonal trends. In addition, Old Anchor 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.
H-28
<PAGE> 81
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: March 30, 1999 By /s/ M. William Lightner, Jr.
------------------------------------
M. William Lightner, Jr.
Senior Vice President, Finance
Chief Financial Officer and Treasurer
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 dates indicated.
/s/ John J. Ghaznavi
- --------------------------------------
John J. Ghaznavi
Chairman and Chief Executive Officer
(Principal Executive Officer)
March 30, 1999
/s/ M. William Lightner, Jr.
- --------------------------------------
M. William Lightner, Jr.
Senior Vice President, Finance
Chief Financial Officer and Treasurer
Directors:
/s/ John J. Ghaznavi
- --------------------------------------
John J. Ghaznavi
/s/ David T. Gutowski
- --------------------------------------
David T. Gutowski
/s/ M. William Lightner, Jr.
- --------------------------------------
M. William Lightner, Jr.
/s/ C. Kent May
- --------------------------------------
C. Kent May
<PAGE> 1
EXHIBIT 10.52
TWELFTH AMENDMENT AND WAIVER
TWELFTH AMENDMENT AND WAIVER (this "Amendment"), dated as
of January 28, 1999, among ANCHOR GLASS CONTAINER CORPORATION, f/k/a Anchor
Glass Acquisition Corporation, a Delaware Corporation (the "Borrower"), the
financial institutions party to the Credit Agreement referred to below (the
"Lenders"), BANKERS TRUST COMPANY ("BTCC"), as an Issuing Bank (an "Issuing
Bank"), BT COMMERCIAL CORPORATION, acting as Co-Syndication Agent and Agent
(the "Agent"), and PNC BANK, NATIONAL ASSOCIATION, as Co-Syndication Agent and
as an Issuing Bank (an "Issuing Bank"). All capitalized terms used herein and
not otherwise defined shall have the respective meanings provided such terms in
the Credit Agreement referred to below.
W I T N E S S E T H :
WHEREAS, the Borrower, the Lenders, the Issuing Banks and the
Agent are parties to a Credit Agreement, dated as of February 5, 1997 (as
amended, modified or supplemented through the date hereof, the "Credit
Agreement");
WHEREAS, Consumers Packaging Inc. ("Consumers"), G&G
Investments, Inc. ("G&G"), Glenshaw Glass Company, Hillsboro Glass Company,
Consumers International Inc., Consumers U.S. Inc., U.S. Holdco, I.M.T.E.C.
Enterprises Inc., the Borrower and the Agent are parties to an Intercompany
Agreement dated as of April 17, 1998, (the "Intercompany Agreement"), whereby
the Affiliate Companies acknowledged the restrictions regarding "Affiliate
Transactions" contained in the Credit Agreement, the Anchor Indenture and the
Consumers Indenture, and agreed that they would not enter into any transaction
in violation of such restrictions;
WHEREAS, G&G and the Borrower are parties to an Intercompany
Note, dated as of September 8, 1998 (the "Intercompany Note"), in the principal
amount of U.S. $17,330,021.37, between G&G, as Maker, and the Borrower, as
Holder; and
WHEREAS, the parties hereto wish to amend and/or waive
certain provisions of the Credit Agreement as herein provided, subject to and
on the terms and conditions set forth herein;
NOW, THEREFORE, it is agreed:
1. Notwithstanding anything to the contrary contained
in the Credit Agreement, the undersigned Lenders hereby waive compliance with
the Interest Coverage Ratio for December 31, 1998, set forth in Section 8.11,
provided that such waiver will terminate and will cease to be effective, and
any Default or Event of Default which would have occurred under Section 8.11
but for such waiver will be reinstated:
<PAGE> 2
(A) unless the Borrower shall have received a cash
payment of at least $20 million in settlement of outstanding receivables owing
on the date hereof from certain of the Affiliates on or before February 3,
1999; or
(B) if the amounts owing to the Borrower under
intercompany receivables from its Affiliates (x) increases above the amount
outstanding on the date hereof or (y) increases with respect to the
intercompany receivables arising from the manufacturing of molds, after the
payments thereof required under clause (A) above, and such increase remains
outstanding for more than 45 days or the aggregate amount of such intercompany
receivables exceed $ 3,000,000.
2. Section 8.7 (b) Clause (w) of the Credit
Agreement is hereby amended by adding the following text at the end thereof:
"provided that the Borrower shall not be required to comply
with this clause (w) in respect of the Interest Coverage
Ratio on December 31, 1998 in connection with the making of
payments under the Management Agreement if (A) the Borrower
has received a cash payment of $20 million in repayment of
intercompany receivables owing to it from its Affiliates and
if (B) the Available Borrowing Amount less Outstandings at
such time (both before and after giving effect to any
payment) is more than $28,000,000, and the Borrower shall
deliver a certificate to the Administration Agent, in form
and substance satisfactory to it, showing the calculation
thereof, and the then outstanding trade payable balances,
which shall verify that they are normal and customary for the
Borrower."
3. Notwithstanding any provision of the Credit
Agreement, the Borrower may amend the Intercompany Note to extend the Maturity
Date thereof to March 31, 1999.
4. The undersigned Lenders hereby authorize the Agent
to execute the Third Amendment to the Intercompany Agreement in the form of
Exhibit A hereto.
5. In order to induce the Lenders to enter into this
Amendment, the Borrower hereby represents and warrants that (i) the
representations, warranties and agreements contained in Article 6 of the Credit
Agreement are true and correct in all material respects on and as of the
Twelfth Amendment Effective Date (as defined in Section 9 of this Amendment and
after giving effect thereto) (it being understood and agreed that any
representation or warranty which by its terms is made as of a specified date
shall be required to be true and correct in all material respects only as of
such specified date) and (ii) there exists no Default or Event of Default on
the Twelfth Amendment Effective Date, after giving effect to this Amendment.
6. This Amendment is limited as specified and shall
not constitute a modification, acceptance or waiver of any other provision of
the Credit Agreement or any other Credit Document.
7. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which counterparts when executed
-2-
<PAGE> 3
and delivered shall be an original, but all of which shall together constitute
one and the same instrument. A complete set of counterparts shall be lodged
with the Borrower, the Agent and each Lender.
8. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAW OF THE STATE OF NEW YORK.
9. This Amendment shall become effective on the date
(the "Twelfth Amendment Effective Date") when (i) the Borrower and the Required
Lenders shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Agent at its address for notice provided for in
the Credit Agreement; (ii) the Agent shall have received a legal opinion,
substantially in the form of Exhibit B to this Amendment, from Eckert Seamans
Cherin & Mellot, LLC; and (iii) the Agent shall have received a fee equal to
$137,500 for pro rata distribution among the Lenders according to their
respective Commitments under the Credit Agreement.
10. From and after the Twelfth Amendment Effective Date,
all references in the Credit Agreement and each of the Credit Documents to the
Credit Agreement shall be deemed to be references to the Credit Agreement as
amended hereby.
* * *
-3-
<PAGE> 4
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.
ANCHOR GLASS CONTAINER CORPORATION
By /s/ M. William Lightner, Jr.
Name: M. William Lightner, Jr.
Title: Senior Vice President-Finance
and Chief Financial Officer
BT COMMERCIAL CORPORATION,
Individually, as Agent
and as Co-Syndication Agent
By /s/ Frank A. Chiovari
Name: Frank A. Chiovari
Title: V.P.
PNC BANK, NATIONAL ASSOCIATION,
Individually, as
Co-Syndication Agent and
Issuing Bank
By /s/ L. E. Susack
Name: L. E. Susack
Title: Sr. Vice President
BANKERS TRUST COMPANY, as Issuing Bank
By /s/ Frank A. Chiovari
Name: Frank A. Chiovari
Title: V.P.
<PAGE> 5
THE CIT GROUP/BUSINESS CREDIT, INC.
By /s/ Karen Hoffman
Name: Karen Hoffman
Title: AVP
CORESTATES BANK, N.A.
By /s/ Jennifer R. Avrigian
Name: Jennifer R.Avrigian
Title: AVP
FLEET BANK
By______________________________
Name:
Title:
KEY CORPORATE CAPITAL, INC.
By______________________________
Name:
Title:
MELLON BANK, N.A.
By /s/ Thomas J. Bugieda
Name: Thomas J. Bugieda
Title: Assn. Vice President
<PAGE> 6
NATIONAL BANK OF CANADA
By______________________________
Name:
Title:
By______________________________
Name:
Title:
NATIONAL CITY COMMERCIAL FINANCE, INC.
By /s/ Joseph L. White
Name: Joseph L. White
Title: Senior Vice President
SUMMIT COMMERCIAL/GIBRALTAR CORP.
By______________________________
Name:
Title:
<PAGE> 1
EXHIBIT 12.1
CONSUMERS U.S., INC.
STATEMENT RE COMPUTATION OF RATIOS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 5, TO 1997
YEAR ENDED TO
DECEMBER 31, 1998 DECEMBER 31, 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
EARNINGS -
Loss before extraordinary item $ (9,770) $ (271)
Interest and amortization of debt expense 27,098 18,281
Rental expense representative of interest factor 5,915 5,849
-------- --------
Total earnings $ 23,243 $ 23,859
FIXED CHARGES -
Interest and amortization of debt expense $ 27,098 $ 18,281
Rental expense representative of interest factor 5,915 5,849
-------- --------
Total fixed charges $ 33,013 $ 24,130
======== ========
RATIO OF EARNINGS TO FIXED
CHARGES -- --
======== ========
DEFICIENCY OF EARNINGS AVAILABLE
TO COVER FIXED CHARGES $ 9,770 $ 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.
<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>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 4,106
<SECURITIES> 0
<RECEIVABLES> 104,712
<ALLOWANCES> 1,686
<INVENTORY> 104,329
<CURRENT-ASSETS> 221,451
<PP&E> 406,204
<DEPRECIATION> 89,499
<TOTAL-ASSETS> 640,254
<CURRENT-LIABILITIES> 176,030
<BONDS> 202,920
55,983
0
<COMMON> 170
<OTHER-SE> 53,724
<TOTAL-LIABILITY-AND-EQUITY> 640,254
<SALES> 643,318
<TOTAL-REVENUES> 643,318
<CGS> 594,256
<TOTAL-COSTS> 594,256
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (525)
<INTEREST-EXPENSE> 27,098
<INCOME-PRETAX> (9,768)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,768)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,768)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
