<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, 1999
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 February 29, 2000:
Common Stock, $.01 par value, 17,000,100 shares
DOCUMENTS INCORPORATED BY REFERENCE
None
Page 1
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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 Liquidating Trust, which is being liquidated in a proceeding under
Chapter 11 of the United States Bankruptcy Code of 1978, as amended.
Consumers U.S., has no independent operations, and is consolidated with
its majority-owned subsidiary, Anchor (together the "Company"). Consumers U.S.
holds 41.8% 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,
food, tea, liquor and beverages.
Anchor was formed in January 1997 to acquire certain assets and assume
certain liabilities of Old Anchor. 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 59% 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
Anchor announced in 1999 that it signed an agreement with
Anheuser-Busch Companies, Inc. ("Anheuser-Busch") to provide all the bottles for
Anheuser-Busch's Jacksonville, Florida and Cartersville, Georgia breweries for
at least five years, beginning in 2001 (the "Southeast Contract"). To meet the
expanded demand from the supply contract, Anchor will invest approximately $30.0
to $40.0 million in new equipment for its Jacksonville, Florida and Warner
Robins, Georgia plants over the next 18 months to increase production
efficiency. The funding for this project will be provided through certain
leasing transactions, the proceeds from the sale of Anchor's Houston plant (see
below) and internal cash flows.
In March 2000, Anheuser-Busch purchased the previously closed Houston,
Texas glass container manufacturing facility and certain related operating
rights. Anchor received proceeds of $10.0 million from the sale. Concurrently,
Consumers entered into a $15.0 million contract with Anheuser-Busch to manage
the renovation and provide the technical expertise in the re-opening of the
Houston facility. The Company expects to negotiate a contract with
Anheuser-Busch to provide management assistance in the operations of the
facility upon its refurbishment.
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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 years ended 1998 and 1999.
<TABLE>
<CAPTION>
February 5 to Years ended December 31,
Products December 31, 1997 1998 1999
- -------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Beer $ 202.0 35.5% $ 279.3 43.4% $ 294.1 46.8%
Liquor/Wine 125.8 22.1 111.0 17.3 79.5 12.7
Food 113.5 19.9 95.5 14.8 93.3 14.8
Tea 43.8 7.7 67.9 10.6 93.1 14.8
Beverage/Water 37.3 6.6 31.2 4.9 20.9 3.3
Other 47.0 8.2 58.4 9.0 47.8 7.6
-------- ----- -------- ----- -------- -----
Total $ 569.4 100.0% $ 643.3 100.0% $ 628.7 100.0%
======== ===== ======== ===== ======== =====
</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 2000 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 companies such as:
- Anheuser-Busch,
- Triarc Beverage,
- SOBE (Healthy Refreshment),
- Latrobe (Rolling Rock),
- Saxco International, Inc.,
- Alltrista Corporation,
- Jim Beam Brands,
- Specialty Products Company (Nabisco),
- Heaven Hill Distilleries, Inc. and
- The Coca-Cola Trading Company (non-carbonated).
The majority of the Company's glass container designs are produced to
customer specifications and sold on a contract basis.
The Company's largest customer, Anheuser-Busch, accounted for
approximately 29.0%, 17.1% and 8.8%, respectively, of its net sales for the
years ended December 31, 1999 and 1998 and the 1997 Period. The Stroh Brewery
Company ("Stroh's"), accounted for approximately 16.8% and 15.6%, respectively,
of its net sales for the year ended December 31, 1998 and the 1997 Period. In
1999, Stroh's sold its assets to Pabst Brewing Company ("Pabst") and Miller
Brewing Company ("Miller"). A portion of certain production for Stroh's has been
replaced with production for Pabst and Miller. The Company's ten largest
continuing customers, named above, accounted for approximately 61% of net sales
for the year ended December 31, 1999. The loss of a significant customer, if not
replaced, could have a material adverse effect of the Company's business,
results of operations and financial condition.
The Company has rebuilt relationships with some of Old Anchor's larger
volume customers including Anheuser-Busch. In 1999, Anchor entered into an
agreement with Anheuser-Busch, Inc. to provide all the bottles for
Anheuser-Busch's Jacksonville, Florida and Cartersville, Georgia breweries
beginning in
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2001. In March 2000, Anheuser-Busch purchased the previously closed Houston,
Texas glass container manufacturing facility and certain related operating
rights and Consumers entered into a $15.0 million contract with Anheuser-Busch
to manage the renovation and provide the technical expertise in the re-opening
of the Houston facility. Anchor expects to negotiate a contract with
Anheuser-Busch to provide management assistance in the operations of the
facility upon its refurbishment. 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 and the Southeast
Contract, Anheuser-Busch renegotiates with the Company 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 customer
service managers located in four sales service centers.
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 of glass container
manufacturers and he remains a member of its board. As a result of the Company's
affiliation with Consumers and GGC, L.L.C. ("GGC," which acquired the glass
manufacturing net operating assets of Glenshaw Glass Company, Inc. "Glenshaw"),
Consumers and GGC 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 plants, Consumers' plants and the GGC 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
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.
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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 increased in 1999 and are expected to
continue to increase in 2000, as compared to 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 glass
container manufacturers 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
1999, which included Anchor, estimated to have accounted for 95% of 1999
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." See Item 3. Legal Proceedings.
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 that 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 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.
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INTELLECTUAL PROPERTY
The Company operates under a Technical Assistance and License Agreement
(the "Technical Assistance Agreement") with Owens entitling Anchor to use
certain existing 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. This agreement has become
the subject of litigation between Anchor and Owens. See Item 3. Legal
Proceedings.
Anchor also has in place a glass technology agreement with Heye-Glas
International for a term of ten years, expiring December 31, 2008. It is the
technology under this agreement that has been and will be utilized in all of
Anchor's modernization and expansion plans.
While Anchor 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 29, 2000, Anchor employed approximately 3,000 persons on
a full-time basis. Approximately 570 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, 2002 and August 31, 2002, respectively.
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 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 Anchor. See Item 3. Legal
Proceedings.
Capital expenditures required for environmental compliance were
approximately $0.5 million for 1999 and are anticipated to be approximately $1.0
million annually in 2000 and 2001. However, there can be no assurance that
future changes in such laws, regulations or interpretations thereof or the
nature of Anchor's operations will not require Anchor to make significant
additional capital expenditures to ensure compliance in the future.
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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 has 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 Anchor'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 a 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 Anchor's obligations
under the $150.0 million aggregate principal amount, 11.25% First Mortgage Notes
due 2005 (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 were 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.
In March 2000, Anheuser-Busch purchased the Houston facility and
certain related operating rights. Anchor expects to negotiate a contract with
Anheuser-Busch to provide management assistance in the operations of the
facility upon its refurbishment.
The following table sets forth certain information about the facilities
owned and being operated by Anchor as of February 29, 2000. In addition to these
locations, facilities at Keyser, West Virginia, Gas City, Indiana, Cliffwood,
New Jersey, Royersford, Pennsylvania, Chattanooga, Tennessee and Dayville,
Connecticut are closed plants that are part of the collateral securing the First
Mortgage Notes and Anchor's obligations under the related indenture.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF BUILDING AREA
LOCATION FURNACES MACHINES (SQUARE FEET)
<S> <C> <C> <C>
Operating Plants:
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) Anchor removed one furnace and one machine from production at this facility
in each of December 1998 and in February 1997.
2) A portion of the site on which this facility is located is leased pursuant
to several long-term leases.
3) Anchor 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 it leases a portion of the headquarters facility for an
initial term of ten years.
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ITEM 3. LEGAL PROCEEDINGS.
On February 17, 2000, Owens commenced an action against Anchor and
certain of its affiliates, including Consumers and GGC, in the United States
District Court for the Southern District of New York. Owens alleges violations
of the Technical Assistance Agreement and its resulting termination. Owens is
seeking various forms of relief including (1) a permanent injunction restraining
Anchor and its affiliates from infringing Owens' patents and using or disclosing
Owens' trade secrets and (2) damages for breaches of the Technical Assistance
Agreement.
Anchor and its affiliates filed a demand for arbitration with the
American Arbitration Association on February 24, 2000. On March 15, 2000, the
Court ruled that the dispute as to whether there was a valid termination of the
Technical Assistance Agreement is subject to arbitration. Anchor has moved to
dismiss or stay the action pending arbitration. On March 31, 2000, Owens
submitted its answer and counterclaims in the arbitration. Owens has asserted
the position that (i) the Court referred to arbitration only the question
whether there was a valid termination of the Technical Assistance Agreement and
(ii) certain of Owens' claims are not arbitrable.
On April 14, 2000, Owens and Anchor and certain of its affiliates
consented to the entry of an order by the Court which effectively requires
compliance with the Technical Assistance Agreement until further order of the
Court. In addition, the order requires Anchor and certain of its affiliates to
inventory all equipment, other technology and documents subject to the Technical
Assistance Agreement and certify to the Court periodically that all royalties
have been paid and no unauthorized technology transfer has occurred. In
compliance with the order, Consumers' Italian subsidiary ceased using the
disputed technology.
The Company believes that it has meritorious defenses to the claims in
the action and intends to conduct a vigorous defense. An unfavorable outcome in
this matter could have a material and adverse effect on the Company's business
prospects and financial condition. In addition, even if the ultimate outcome of
the case were resolved in favor of the Company, the defense of such litigation
may involve considerable cost, which could be material, and could divert the
efforts of management.
In addition, 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. Anchor has assumed responsibility with respect to four sites.
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 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 operating 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.
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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 two years ended December 31,
1999 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>
YEARS ENDED DECEMBER 31, PERIOD FROM
------------------------- FEBRUARY 5, 1997 TO
1999 1998 DECEMBER 31, 1997(1)
(dollars in thousands)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 628,728 $ 643,318 $ 569,441
Cost of products sold 582,975 594,256 523,709
Restructuring charges -- 4,400 --
Allocable portion of software write-off (2) 9,600 -- --
Selling and administrative expenses 28,465 30,246 25,120
--------- --------- ---------
Income from operations 7,688 14,416 20,612
Other income (expense), net 3,671 2,912 (2,602)
Interest expense (28,870) (27,098) (18,281)
--------- --------- ---------
Loss before extraordinary item (17,511) (9,770) (271)
Extraordinary item(3) -- -- (11,200)
--------- --------- ---------
Loss before preferred stock dividends of (17,511) (9,770) (11,471)
subsidiary and minority interest
Preferred stock dividends of subsidiary (5,598) (5,598) (5,062)
--------- --------- ---------
Loss before minority interest (23,109) (15,368) (16,533)
Minority interest 3,533 5,570 5,451
--------- --------- ---------
Net loss $ (19,576) $ 9,798 $ (11,082)
========= ========= =========
BALANCE SHEET DATA (at end of period):
Accounts receivable $ 53,556 $ 86,846 $ 56,940
Inventories 106,977 104,329 120,123
Total assets 601,716 640,254 614,730
Total debt 253,132 253,922 163,793
Total stockholders' equity 35,506 53,724 62,040
OTHER FINANCIAL DATA:
Depreciation and amortization $ 54,054 $ 53,881 $ 51,132
Capital expenditures 53,905 42,288 41,634
</TABLE>
- ------------
1) The Anchor Acquisition was consummated on February 5, 1997.
2) Represents Anchor's allocable portion of the write-off of costs relating to
a software system (SAP) that is being replaced by a corporate-wide system
(JDEdwards).
3) 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. The Company is a holding company whose only asset is the ownership
of 59.1% of its sole subsidiary, Anchor Glass Container Corporation ("Anchor").
On February 5, 1997, pursuant to an Asset Purchase Agreement, Anchor acquired
substantially all of the assets and assumed certain liabilities, of the former
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.
Anchor purchased eleven operating glass container manufacturing facilities and
other related assets (the "Anchor Acquisition"). Prior to the Anchor
Acquisition, neither Anchor nor the Company had any operations.
RESULTS OF OPERATIONS
1999 COMPARED 1998
Net Sales. Net sales for the year ended 1999 were $628.7 million
compared to $643.3 million for the year ended 1998. This year to year decline in
net sales of $14.6 million, or 2.3%, on slightly higher unit shipments reflects
a shift from higher priced product lines such as liquor to higher volume, lower
priced products, including beer and teas and the impact of the sale of the
consumers products line to a customer. While the Company continues to supply all
the glass containers relating to this consumers products line, it no longer
includes lids and cartons in either net sales or cost of products sold. This
resulted in a decline in net sales of approximately $10.0 million in 1999, with
a corresponding decrease in costs.
Cost of Products Sold. The Company's cost of products sold for the year
ended December 31, 1999 was $583.0 million (or 92.7% of net sales), while the
cost of products sold for the comparable period of 1998 was $594.3 million (or
92.4% of net sales). The increase in the percentage of cost of products sold as
a percentage of net sales principally reflects increases in labor and benefit
costs, as compared to the same period of 1998, as a result of scheduled
increases under a labor contract with hourly employees that became effective in
April 1999, as well as increases in the cost of cartons and natural gas. This
increase is partially offset by the benefits of productivity improvements that
have resulted from the cost saving strategies that the Company began to
implement during 1998.
Allocable Portion of Software Write-off. This write-off represents
Anchor's allocable portion of the write-off of costs relating to a software
system (SAP) that is being replaced by a corporate-wide system (JDEdwards).
Consumers implemented the SAP based software system with the intention that all
affiliated companies would adopt that system and share ratably in the initial
design, reengineering and implementation originated by Consumers. The SAP based
system has proven to be a complicated system requiring extensive and expensive
maintenance. Management of the affiliated companies continues to desire to have
one operating system and is in the process of transitioning to a JDEdwards based
system. As authorized by the Intercompany Agreement, Consumers has allocated
$9.6 million to Anchor representing Anchor's pro rata share of the original
implementation costs based upon number of plants, number of workstations and
sales.
Selling and Administrative Expenses. Selling and administrative
expenses for the year ended December 31, 1999 were $28.4 million (or 4.5% of net
sales) while expenses for the year ended 1998 were approximately $30.2 million
(or 4.7% of net sales). This decrease in selling and administrative expenses
principally reflects increased allocations of overhead expenses to affiliated
companies resulting from the integration of corporate functions, lower employee
benefit costs and lower management fees payable to G&G Investments, Inc.
("G&G"). This decrease is partially offset by costs associated with Year 2000
upgrades incurred in the first half of 1999.
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<PAGE> 13
Interest Expense. Interest expense for 1999 was approximately $28.9
million compared to $27.1 million in 1998, an increase of 6.5%. On March 16,
1998, Anchor completed an offering of an aggregate principal amount of $50.0
million of 9 7/8% Senior Notes due 2008 (the "Senior Notes") issued under an
Indenture dated as of March 16, 1998, among the Company, Consumers U.S., Inc.
and The Bank of New York, as Trustee. Annual interest expense on the Senior
Notes approximates $4.9 million. Additionally, interest expense has increased
based upon higher average outstanding borrowings under Anchor's $110.0 million
Revolving Credit Facility (the "Revolving Credit Facility") during 1999, as
compared to 1998.
Net Loss. The Company had a net loss in the year ended 1999 of
approximately $19.6 million, including the write-off of allocable software costs
of $9.6 million, compared to a net loss in 1998, of approximately $9.8 million,
including the restructuring charge of $4.4 million.
1998 COMPARED TO THE 1997 PERIOD
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 priced 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 in 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 9 7/8% Senior Notes. 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.
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<PAGE> 14
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 $11.0 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 1999, operating activities provided $53.1 million in cash as
compared to $14.5 million of cash used in the same period of 1998. This increase
in cash provided reflects adjustments for changes in working capital items and
the lower net loss in 1999 as compared to 1998, exclusive of the allocable
portion of the software write-off of $9.6 million. The balance of trade related
accounts receivable decreased approximately $33.3 million from year-end 1998
reflecting the receipt of $20.0 million of intercompany receivable balances and
the impact of credit terms of certain customers. Cash consumed in investing
activities in 1999 and 1998 were $51.1 million and $50.9 million, respectively,
principally reflecting the capital expenditures and payments in respect of
strategic alliances with customers in 1999 and 1998. Capital expenditures in
1999 and 1998 were $44.7 million and $42.3 million, respectively. Cash from
financing activities in 1999 included the sale of a note receivable partially
offset by net repayments under the Revolving Credit Facility.
In conjunction with the Anchor Acquisition, Anchor entered into the
Revolving Credit Facility. At February 29, 2000, advances outstanding under the
Revolving Credit Facility were $44.6 million, borrowing availability was $11.1
million and total outstanding letters of credit under this facility were $11.3
million.
In September 1998, G&G (acting on behalf of Consumers) entered into an
agreement to purchase a controlling interest in a European glass manufacturer
and advanced $17.3 million toward that end. This amount was funded by G&G
through a loan from Anchor of approximately $17.3 million in September 1998. The
loan is evidenced by a promissory note which originally matured in January 1999.
This loan was permitted through an amendment to the Intercompany Agreement,
which was approved by Anchor's Board of Directors. The repayment date of the
promissory note has been extended to December 31, 2000, consistent with a recent
amendment to the Revolving Credit Facility. The funds were obtained through
borrowings under the 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 % and has been paid through December 1999. A number of issues
have arisen and the transaction has not closed. Should the transaction not
close, the seller is obligated to return the advance to G&G. G&G has demanded
the return of the advance plus interest accrued to date and related costs
including costs related to the devaluation of the Deutschemark, and will upon
receipt, repay the loan from Anchor. Discussions have been held, but as of this
date outstanding issues have not been resolved. In March 2000, G&G commenced an
arbitration proceeding in accordance with the terms of the agreement to secure a
return of the advance.
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 fixed charge ratio. Anchor was in violation of one of these
covenants, having exceeded the allowed amount of capital expenditures, for which
it received a waiver.
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
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<PAGE> 15
- 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 2000, including
interest expense on the First Mortgage Notes, the Senior Notes and advances
under the Revolving Credit Facility and capital expenditures in the range of
$40.0 million to $45.0 million (a portion of which may be acquired through
capital leases). Anchor announced that it signed an agreement with
Anheuser-Busch to provide all the bottles for the Anheuser-Busch's Jacksonville,
Florida and Cartersville, Georgia breweries beginning in 2001. To meet the
expanded demand from the supply contract, Anchor will invest approximately $30.0
to $40.0 million in new equipment for its Jacksonville and Warner Robins plants
over the next 18 months to increase production efficiency. The funding for this
project will be provided through certain leasing transactions, the proceeds from
the sale of the Houston plant (see below) and internal cash flows. In December
1999, Anchor entered into a firm agreement with a major lessor for $30.0 million
of lease transactions. Under this agreement, Anchor sold, in December 1999, and
leased back under a capital lease, equipment located at the Warner Robins
facility, for a net selling price of approximately $8.2 million.
In March 2000, Anheuser-Busch purchased the previously closed Houston,
Texas glass container manufacturing facility and certain related operating
rights. Anchor received proceeds of $10.0 million from the sale. Concurrently,
Consumers entered into a $15.0 million contract with Anheuser-Busch to manage
the renovation and provide the technical expertise in the re-opening of the
Houston facility. Anchor expects to negotiate a contract with Anheuser-Busch to
provide management assistance in the operations of the facility upon its
refurbishment.
In addition, effective April 1, 1999, Anchor finalized its labor
contract with approximately 90% of its hourly personnel. As a result, the
Company experienced an increase in hourly labor costs and pension expense in
1999 and will incur increased costs in subsequent years.
Peak needs are in spring and fall at which time working capital
borrowings are estimated to be $20.0 million higher than at other times of the
year. The Company's principal sources of liquidity through the end of the year
are expected to be funds derived from operations, borrowings under the Revolving
Credit Facility, proceeds from the sale/leaseback transactions noted above and
proceeds from sales of discontinued manufacturing facilities.
Without taking into account the litigation with Owens, the impact of
which cannot be determined at this time, management believes that the cash flows
discussed above, will provide adequate funds for the Company's working capital
needs and capital expenditures. However, cash flows from operations depend on
future operating performance which is subject to prevailing conditions and to
financial, business and other factors, many 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 relatively low, 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 expects to continue in the future to implement alternatives to reduce
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<PAGE> 16
downtime during these periods in order to minimize disruption to the production
process and its negative effect on profitability.
16
<PAGE> 17
YEAR 2000
The Company did not experience any significant malfunctions or errors
in its operating or business systems when the date changed from 1999 to 2000.
Based on operations since January 1, 2000, the Company does not expect any
significant impact to its ongoing business as a result of the Year 2000.
However, it is possible that the full impact of the date change, which was of
concern due to computer programs that use two digits instead of four digits to
define years, has not been fully recognized. The Company believes that any such
problems are likely to be minor and correctable. The Company currently is not
aware of any significant Year 2000 or similar problems that have arisen for its
customers or suppliers.
The Company's aggregate expenditures for Year 2000 compliance and
system upgrades approximated $2.5 million from 1998 to 1999. All of these
expenditures had been funded through cash flows from operations.
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 June 15, 2000, 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.
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; 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
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<PAGE> 18
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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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 Certified Public Accountants F-2
Consolidated Statements of Operations and
Other Comprehensive Income-
Two Years ended December 31, 1999 and the
Period from February 5, 1997 to December 31, 1997 F-3
Consolidated Balance Sheets-
December 31, 1999 and 1998 F-4
Consolidated Statements of Cash Flows-
Two Years ended December 31, 1999 and the
Period from February 5, 1997 to December 31, 1997 F-6
Consolidated Statements of Stockholder's Equity-
Two Years ended December 31, 1999 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 Certified Public Accountants H-2
Consolidated Statements of Operations-
Period from January 1, 1997 to February 4, 1997 H-3
Consolidated Balance Sheets-
February 4, 1997 H-4
Consolidated Statements of Cash Flows-
Period from January 1, 1997 to February 4, 1997 H-6
Consolidated Statements of Stockholder's
Equity (Deficiency in Assets)-
Period from January 1, 1997 to February 4, 1997 H-7
Notes to Consolidated Financial Statements H-8
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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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 64 Chairman, Chief Executive Officer and Director
Patrick T. Connelly 47 Treasurer
David T. Gutowski 52 Director
C. Kent May 60 Secretary and Director
</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 a member of the Board
of Directors of the Glass Packaging Institute.
Patrick T. Connelly became Treasurer if Consumers U.S. in 1999. He
became a director of Anchor in March 2000. Mr. Connelly has been Chief Financial
Officer of Ghaznavi Investments, Inc. since 1995 and Chief Financial Officer of
G&G since 1998.
David T. Gutowski became a director of Consumers U.S. in January 1997.
He joined Anchor in January 1997 as a director and as a Vice President and
became Vice President-Administration in March 1997 and Senior Vice
President-Administration in June 1997 and in 1999 was appointed Vice President,
Finance and Chief Financial Officer of Consumers. 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.
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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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.
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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,
1999 by (i) each Director of Consumers U.S. and (ii) the Chief Executive Officer
of Consumers U.S.
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, 1999.
<TABLE>
<CAPTION>
CLASS AND AMOUNT OF
BENEFICIAL OWNERSHIP PERCENTAGE
------------------------- -----------------
Primary and Fully
NAME Actual Fully Diluted Primary Diluted
---- ------ ------------- ------- -------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
John J. Ghaznavi(1) - - - -
Patrick T. Connelly(2) - - - -
David T. Gutowski(3) - - - -
C. Kent May(4) - - - -
All Directors and executive officers as a group (4 persons) - - - -
GREATER THAN FIVE PERCENT STOCKHOLDERS
Consumers International Inc. 17,000,100 17,000,100 100.0% 100.0%
</TABLE>
(1) Through G&G, Ghaznavi Canada, Inc. and other affiliates, Mr. J. Ghaznavi
beneficially owns 23,575,345 shares of the voting common stock of
Consumers, including 1,588,126 shares issuable upon the exercise of
currently exercisable options. Mr. Ghaznavi is the controlling shareholder
of G&G and Anchor. G&G is also deemed to beneficially own shares of the
common stock owned by Consumers U.S.
(2) Mr. Connelly beneficially owns 10,500 shares of the voting common stock of
Consumers.
(3) Mr. Gutowski beneficially owns 162,460 shares of the voting common stock of
Consumers, including 125,000 shares issuable upon the exercise of currently
exercisable options.
(4) Mr. May beneficially owns 109,140 shares of the voting common stock of
Consumers, including 95,000 shares issuable upon the exercise of currently
exercisable options.
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<PAGE> 23
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 GGC, each of which is
controlled by Mr. J. Ghaznavi through G&G. The Company currently engages (and
intends to expand) in a variety of transactions with Consumers and GGC 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.
The Company has entered into an Intercompany Agreement (the
"Intercompany Agreement") with G&G, Consumers, Anchor, Consumers International
Inc., GGC, 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, up to 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,
design and implementation of certain software systems 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 mold 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 arm's 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 Facility and the
indentures 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 arm's 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, including the approval
of a majority 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. Transactions between the Company and these affiliates 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 up to $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
Facility and the indentures limit management fee payments by the Company under
the Management Agreement to $1.5 million per year unless Anchor meets certain
financial tests, in which case such fees will accrue. Payment of fees in excess
of $1.5 million are made based upon calculations of restricted payments under
the indentures. In 1999, certain tests were not met and the fees due under the
Management Agreement were limited to $1.5 million.
23
<PAGE> 24
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 June 1999, CUS II, Inc. a newly-formed U.S. wholly-owned subsidiary
of Consumers, acquired the net operating glass manufacturing assets of Glenshaw.
The purchase price of $54.3 million was paid in the form of interests in GGC,
that will be exchangeable for common shares of Consumers.
In March 2000, Anheuser-Busch purchased the previously closed Houston,
Texas glass container manufacturing facility and certain related operating
rights. See Item 1. Business-Recent Developments.
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.
INDEBTEDNESS OF MANAGEMENT
Indebtedness to the Corporation, of all directors and officers of
Anchor, entered into in connection with a securities purchase program of
Consumers common stock, aggregated $229,667 at February 29, 2000. Indebtedness,
in excess of $60,000, of directors and executive officers of Anchor under this
program consists of $72,094, outstanding at February 29, 2000 (which is the
largest amount outstanding during 1999) from Mr. Ghaznavi. This indebtedness is
secured by 47,130 shares of Consumers common stock. In addition, as described
under "Liquidity and Capital Resources," G&G funded an advance on the purchase
of a controlling interest in a European glass manufacturer through a loan from
Anchor of approximately $17.3 million. Mr. Ghaznavi controls G&G.
24
<PAGE> 25
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. Inc. and Anchor Resolution Corp. and the
Reports of Independent Certified 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 18.
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
Financial Statements of Consumers U.S. Inc. and the
Consolidated Financial Statements of Anchor Resolution Corp.
SCHEDULE II
CONSUMERS U.S., INC.
VALUATION AND QUALIFYING ACCOUNTS
TWO YEARS ENDED DECEMBER 31, 1999 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, 1999
Allowance for doubtful accounts $ 1,288 $ 125 $ -- $ 313(A) $ 1,100
Plant closing reserves 300 -- -- 300 --
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
25
<PAGE> 26
SCHEDULE II
ANCHOR RESOLUTION CORP.
VALUATION AND QUALIFYING ACCOUNTS
PERIOD FROM JANUARY 1, 1997 TO FEBRUARY 4, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- -------- -------- -------- -------- -------- --------
Additions
-------------------------
Balance at Charged to Charged to Balance at 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
</TABLE>
(A) Accounts written off
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.
26
<PAGE> 27
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 April 17, 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>
27
<PAGE> 28
<TABLE>
<CAPTION>
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.
</TABLE>
28
<PAGE> 29
<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 Amended and Restated Agreement effective as of September 12,
1996, by and between Fountain Associates I Ltd., Citicorp
Leasing Inc. and Old Anchor
10.38 Sixth Amendment to Lease and Second Amendment to Option
Agreement dated as of February 5, 1997, by and between Fountain
Associates I Ltd., Citicorp Leasing, Inc. and Old Anchor
10.39 Building Option Agreement dated March 31, 1988, by and between
Fountain Associates I, Ltd. and Old Anchor
10.40 First Amendment to Building Option Agreement effective as of
June 16, 1992, by and between Fountain Associates I. Ltd. and
Old Anchor
10.41+ Supply Agreement effective as of June 17, 1996 between The
Stroh Brewery Company and the Company
10.42 Supply Agreement between Bacardi International Limited and the
Company (Withdrawn upon the request of the registrant, the
Commission consenting thereto)
10.43 Warrant Agreement dated as of February 5, 1997 between the
Company and Bankers Trust Company
10.44 Form of Warrant issued pursuant to the Warrant Agreement
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 party 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 party to the Credit Agreement
</TABLE>
29
<PAGE> 30
<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 party 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
10.53*** Thirteenth Amendment and Waiver dated as of March 29, 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.
10.54*** Fourteenth Amendment and Waiver dated as of May 15, 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.
10.55*** Fifteenth Amendment and Waiver dated as of July 2, 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.
10.56***+ Southeast Glass Bottle Supply Agreement between Anheuser-Busch,
Incorporated and Anchor Glass Container Corporation.
10.57++ Sixteenth Amendment and Waiver dated as of August 8, 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.
10.58++ Seventeenth Amendment and Waiver dated as of October 11, 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.
10.59+++ Eighteenth Amendment and Waiver dated as of February 1, 2000,
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.
10.60+++ Nineteenth Amendment and Waiver dated as of March 10, 2000, 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 years ended December 31, 1999 and 1998 and the period
from February 5, 1997 to December 31, 1997
21.1 List of subsidiaries of the Company
</TABLE>
30
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
------ ----
<S> <C>
27.1++++ Financial Data Schedule of the Company
</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.
** - Previously filed as an exhibit to Anchor's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998 and incorporated herein by reference.
*** - Previously filed as an exhibit to Anchor's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999 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, 1999 and incorporated herein by reference.
+++ - Filed as an exhibit to Anchor's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999 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
31
<PAGE> 32
INDEX TO FINANCIAL INFORMATION FOR CONSUMERS U.S.
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Financial Statements of Consumers U.S.:
Report of Independent Certified Public Accountants F-2
Consolidated Statements of Operations
and Other Comprehensive Income -
Two Years ended December 31, 1999 and the
Period from February 5, 1997 to December 31, 1997 F-3
Consolidated Balance Sheets -
December 31, 1999 and 1998 F-4
Consolidated Statements of Cash Flows -
Two Years ended December 31, 1999 and the
Period from February 5, 1997 to December 31, 1997 F-6
Consolidated Statements of Stockholder's Equity -
Two Years ended December 31, 1999 and the
Period from February 5, 1997 to December 31, 1997 F-8
Notes to Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE> 33
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, 1999 and 1998, and the related
consolidated statements of operations and other comprehensive income, cash flows
and stockholder's equity for the years ended December 31, 1999 and 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the results of its operations and its cash flows
for the years ended December 31, 1999 and 1998, and the period from February 5,
1997, to December 31, 1997, in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Tampa, Florida
February 25, 2000 (except for the
matters discussed in Note 13,
as to which the date is April 14, 2000)
F-2
<PAGE> 34
CONSUMERS U.S., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Years Ended
December 31, Period from
----------------------------- February 5, 1997 to
1999 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales ................................................. $ 628,728 $ 643,318 $ 569,441
Costs and expenses:
Cost of products sold .............................. 582,975 594,256 523,709
Restructuring charges .............................. -- 4,400 --
Allocable portion of software write-off ............ 9,600 -- --
Selling and administrative expenses ................ 28,465 30,246 25,120
--------- --------- ---------
Income from operations .................................... 7,688 14,416 20,612
Other income (expense), net ............................... 3,671 2,912 (2,602)
Interest expense .......................................... (28,870) (27,098) (18,281)
--------- --------- ---------
Loss before extraordinary item ............................ (17,511) (9,770) (271)
Extraordinary item-
Write-off deferred financing costs ................. -- -- (11,200)
--------- --------- ---------
Loss before preferred stock dividends and minority interest (17,511) (9,770) (11,471)
Preferred stock dividends of subsidiary ................... (5,598) (5,598) (5,062)
--------- --------- ---------
Loss before minority interest ............................. (23,109) (15,368) (16,533)
Minority interest ......................................... 3,533 5,570 5,451
--------- --------- ---------
Net loss .................................................. $ (19,576) $ (9,798) $ (11,082)
========= ========= =========
Other comprehensive income (loss):
Net loss ........................................... $ (19,576) $ (9,798) $ (11,082)
Other comprehensive income (loss):
Minimum pension liability adjustment ........... 158 382 (540)
--------- --------- ---------
Comprehensive income (loss) ............................... $ (19,418) $ (9,416) $ (11,622)
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 35
CONSUMERS U.S., INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
December 31,
-----------------------------
Assets 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................ $ 5,278 $ 4,106
Accounts receivable, less allowance for doubtful
accounts of $1,100 and $1,288, respectively ...... 53,556 86,846
Advance to affiliate ................................. 17,571 17,866
Inventories:
Raw materials and manufacturing supplies ......... 24,415 23,099
Finished products ................................ 82,562 81,230
Other current assets ................................. 7,603 8,304
--------- ---------
Total current assets .......................... 190,985 221,451
- ---------------------------------------------------------------------------------------------
Property, plant and equipment:
Land ............................................. 7,769 7,769
Buildings ........................................ 64,719 63,721
Machinery, equipment and molds ................... 369,042 334,714
Cash held in escrow .............................. 8,258 --
Less accumulated depreciation .................... (129,787) (89,499)
--------- ---------
320,001 316,705
- ---------------------------------------------------------------------------------------------
Other assets ......................................... 29,545 22,839
Strategic alliances with customers, net of accumulated
amortization of $11,526 and $5,063, respectively . 11,089 26,187
Goodwill, net of accumulated
amortization of $8,601 and $5,625, respectively .. 50,096 53,072
--------- ---------
$ 601,716 $ 640,254
========= =========
- ---------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 36
CONSUMERS U.S., INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
-----------------------------
Liabilities and Stockholder's Equity 1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Revolving credit facility ................................. $ 40,895 $ 50,162
Current maturities of long-term debt ...................... 2,029 840
Accounts payable .......................................... 48,729 51,838
Accrued expenses .......................................... 38,058 39,971
Accrued interest .......................................... 5,953 5,970
Accrued compensation and employee benefits ................ 23,895 27,249
--------- ---------
Total current liabilities ............................. 159,559 176,030
- --------------------------------------------------------------------------------------------------
Long-term debt ............................................ 210,208 202,920
Long-term pension liabilities ............................. 24,569 38,855
Long-term post-retirement liabilities ..................... 59,464 59,853
Other long-term liabilities ............................... 35,120 37,236
--------- ---------
329,361 344,524
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 .................. 70,830 66,643
--------- ---------
Minority interest ......................................... 6,460 9,993
--------- ---------
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 ............................ 88,630 87,430
Accumulated deficit ....................................... (53,294) (33,718)
Additional minimum pension liability ...................... -- (158)
--------- ---------
35,506 53,724
--------- ---------
$ 601,716 $ 640,254
========= =========
- --------------------------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE> 37
CONSUMERS U.S., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Years Ended
December 31, Period from
---------------------------- February 5, 1997 to
1999 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ....................................................... $(19,576) $ (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 ........................... 54,054 53,881 51,132
Restructuring charges ................................... -- 4,400 --
Allocable portion of software write-off ................. 9,600 -- --
Dividends accrued on preferred stock of subsidiary ...... 5,598 5,598 5,062
Minority interest ....................................... (3,533) (5,570) (5,451)
Other ................................................... 2,136 183 3,101
Decrease in cash resulting from changes
in assets and liabilities ................................... 4,863 (63,205) (24,966)
-------- --------- ---------
53,142 (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 ................. (44,709) (41,367) (40,519)
Proceeds from the sale of property, plant and equipment ........ 8,533 2,723 --
Deposit of sale proceeds into escrow account ................... (8,258) -- --
Payments of strategic alliances with customers ................. (2,000) (10,000) (6,000)
Stock in Parent, held for Pension Fund ......................... (3,000) -- --
Acquisition related contribution to pension plans .............. -- (745) (9,056)
Other .......................................................... (1,644) (1,481) (1,210)
-------- --------- ---------
(51,078) (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 ........................... (984) (540) (130,278)
Advance to affiliate ........................................... -- (17,330) --
Sale of note receivable ........................................ 11,200 -- --
Dividends paid on Series A Preferred Stock ..................... (1,411) -- --
Proceeds from issuance of common stock ......................... -- -- 85,000
Net draws on revolving credit facility ......................... (9,267) 39,694 10,468
Distribution to shareholder .................................... -- (3,513)
Other, primarily financing fees ................................ (430) (3,397) (12,358)
-------- --------- ---------
(892) 68,427 229,319
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents:
Increase in cash and cash equivalents .......................... 1,172 3,046 1,060
Balance, beginning of period ................................... 4,106 1,060 --
-------- --------- ---------
Balance, end of period ......................................... $ 5,278 $ 4,106 $ 1,060
======== ========= =========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 38
CONSUMERS U.S., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended
December 31, Period from
----------------------- February 5, 1997 to
1999 1998 December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ................................................................ $ 26,775 $ 23,973 $ 11,702
======== ======== ========
Income tax payments (refunds), net ...................................... $ -- $ -- $ --
======== ======== ========
Increase (decrease) in cash resulting from changes in assets and liabilities:
Accounts receivable ..................................................... $ 12,013 $ (3,044) $ (7,523)
Accounts receivable, intercompany ....................................... 11,466 (27,399) (2,112)
Inventories ............................................................. (2,648) 15,794 (1,241)
Other current assets .................................................... 931 (161) (620)
Accounts payable, accrued expenses and other
current liabilities .................................................. (13,211) (35,031) 3,688
Other, net .............................................................. (3,688) (13,364) (20,671)
-------- -------- --------
$ 4,863 $(63,205) $(28,479)
======== ======== ========
Supplemental noncash activities:
Non-cash equipment financing ................................................ $ 9,196 $ 930 $ 1,115
======== ======== ========
</TABLE>
In 1997, in connection with the Anchor Acquisition, the Company 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, the Company issued 1,405,229 warrants to the lenders valued at
$7,012. In 1998, in settlement of the Anchor Acquisition purchase price, the
Company issued 1,225,000 warrants valued at $6,125 and 525,000 warrants to an
affiliate, valued at $2,625.
<TABLE>
<S> <C>
Anchor Acquisition:
Fair value of assets acquired ................... $ 525,500
Acquisition costs accrued ....................... (62,500)
Goodwill ........................................ 59,000
Purchase price .................................. (250,000)
---------
Liabilities assumed ............................. $ 272,000
=========
</TABLE>
In February 1997, the Company 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, the Company
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, the Company
recorded an extraordinary loss for the write-off of deferred financing fees
of the Anchor Loan Facility.
The Company considers short-term investments with original maturities of ninety
days or less as the date of purchase to be classified as cash equivalents.
F-7
<PAGE> 39
CONSUMERS U.S., INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Capital - Minimum Total
Common 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) -- (9,798)
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
----------------------------------------------------------------------------------
Net loss -- -- (19,576) -- (19,576)
Contribution from shareholder
related to profit on
intercompany sale -- 1,200 -- -- 1,200
Amount related to minimum
pension liability -- -- -- 158 158
----------------------------------------------------------------------------------
Balance, December 31, 1999 $170 $88,630 $(53,294) $ -- $ 35,506
==================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE> 40
CONSUMERS U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 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 Liquidating Trust, which is being liquidated in a
proceeding under Chapter 11 of the United States Bankruptcy Code of 1978, as
amended.
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
45.5% 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%. Through
the third quarter of 1999, certain warrant holders exercised warrants for common
stock, increasing the minority interest ownership percentage to 58.2%. As a
result of the exercise of warrants in 1999 and 1998, the Company recorded a
dilution gain of approximately $3,533 and $5,570, respectively, for the years
ended December 31, 1999 and 1998. 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 previously charged to the Company.
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. ("Anheuser-Busch") and The Stroh Brewery Company
("Stroh's") represented approximately 29.0% and 6.6%, respectively, of total net
sales for the year ended December 31, 1999, 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. The loss of a significant
customer, unless replaced, could have a material adverse effect on the Company's
business.
Revenue Recognition
Revenues are recognized as product is shipped to customers.
F-9
<PAGE> 41
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 supplemented by a net realizable formula
to cover technical obsolescence, while accelerated depreciation methods are
principally used for tax purposes. Generally, annual depreciation rates range
from 2.5% for buildings and 6.3% to 20% for machinery and equipment. 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 Alliances with Customers
The Company 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 12 years, based upon
shipments.
On April 30, 1999, Stroh's closed on an agreement to sell its assets to Pabst
Brewing Company ("Pabst") and Miller Brewing Company ("Miller"). Under the terms
of this agreement, Anchor received $5,000 in cash and a non-interest bearing
note of $14,000 from Miller in satisfaction of the unamortized balance of the
Stroh's strategic alliance agreement. The note was sold to a third party in the
second quarter of 1999. In satisfaction of a portion of the Stroh's outstanding
trade accounts receivable, Anchor received from Pabst, a five year note for
$5,000 and an additional 68 month note for $5,000 representing a strategic
alliance with Pabst. Pabst is committed to take a specified quantity of
production during the note period or repay the strategic alliance note.
Acquisition of Manufacturing Rights
In September 1997, Hillsboro Glass Company ("Hillsboro"), a glass-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 was purchased by Consumers and Anchor effective December 31,
1997. The purchase price of Anchor's portion of this contract was $12,525, of
which $11,550 has been paid through 1999. 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 two years ended December 31,
1999 and 1998 and the 1997 Period were $2,976, $2,768 and $2,857, respectively.
F-10
<PAGE> 42
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.
Accounts Payable
Accounts payable includes the amount of checks issued and outstanding.
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
Anchor 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
$163,000 as of December 31, 1999. The carrying amount of other financial
instruments, except for the natural gas futures discussed in Note 12,
approximate their estimated fair values.
The fair value information presented herein is based on information available to
management as of December 31, 1999. 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.
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 June 15, 2000, 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,
F-11
<PAGE> 43
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.
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.
Reclassifications
Certain reclassifications have been made to prior year financials statements to
be consistent with the current year presentation.
NOTE 2 - ALLOCABLE PORTION OF SOFTWARE WRITE-OFF
The Company recorded a write-off in 1999 of its allocable share of parent
company software costs. Consumers implemented the SAP based software system with
the intention that all affiliated companies would adopt that system and share
ratably in the initial design, reengineering and implementation originated by
Consumers. The SAP based system has proven to be a complicated system requiring
extensive and expensive maintenance. Management of the affiliated companies
continues to desire to have one operating system and is in the process of
transitioning to a JDEdwards based system, currently in place in Anchor. As
authorized by the Intercompany Agreement (see Note 7), Consumers has allocated
$9,600 to Anchor representing Anchor's pro forma share of the original
implementation costs based upon number of plants, number of workstations and
sales.
NOTE 3 - PURCHASE OF ASSETS
During 1997, 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 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) of Anchor.
In June 1998, as part of an adjustment to the purchase price for the Anchor
Acquisition, Anchor 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, Anchor issued 525,000 warrants to purchase
additional shares of common stock to an affiliate of Consumers U.S. valued at
approximately $2,600. No payment is required upon exercise of these warrants.
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 of Anchor (the "Series B
Preferred Stock") and $1,000 of common stock of Anchor (200,000 shares) and a
$130,000 bank loan.
F-12
<PAGE> 44
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 the Company. However, the PBGC reached an
agreement with Vitro, S.A., the parent of Old Anchor, in which Vitro, S.A.
agreed to provide a limited guaranty to the PBGC with respect to the unfunded
benefit liabilities of Anchor's defined benefit plans, if the plans, or any one
of them, are terminated before August 1, 2006. Consequently, the PBGC agreed not
to terminate the plans as a result of the Asset Purchase Agreement and the
assumption of the plans by Anchor. In conjunction with the purchase, Anchor
assumed all liabilities of the plans and funded $9,056 of plan contributions,
previously unfunded following Old Anchor's filing of Chapter 11. Additionally,
Anchor issued to the plans $9,000 face amount (360,000 shares) of Series A
Preferred Stock.
NOTE 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
F-13
<PAGE> 45
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, 1999, advances outstanding under the Revolving Credit Facility
were $40,895 and the borrowing availability was $5,611. The total outstanding
letters of credit on this facility were $11,300. At December 31, 1999, the
weighted average interest rate on borrowings outstanding was 8.6%. During 1999,
average advances outstanding were approximately $51,150, the average interest
rate was 7.8% and the highest month-end advance was $69,036.
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.
and 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 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 fixed
charge ratio. Anchor was in violation of one of these covenants, having exceeded
the allowed amount of capital expenditures, for which it received a waiver.
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998
-------- --------
<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 50,000
Other ..................................................................... 12,237 3,760
-------- --------
212,237 203,760
Less current maturities ................................................... 2,029 840
-------- --------
$210,208 $202,920
======== ========
</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.
F-14
<PAGE> 46
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 were 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 1997.
Effective April 17, 1997, Anchor completed an offering of the First Mortgage
Notes, issued under an indenture dated as of April 17, 1997, 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 the Company. 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.
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
F-15
<PAGE> 47
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 $2,029 in 2000, $1,816 in
2001, $1,963 in 2002, $2,036 in 2003 and $2,000 in 2004. Payments to be made in
2005 and thereafter are $202,393.
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 was
deferred and is amortized over the life of the First Mortgage Notes.
Other long-term debt includes capital leases, which have imputed interest rates
ranging from 6.0% to 9.0%. Imputed interest on capital leases as of December 31,
1999 was $4,346.
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 Anchor. 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. Anchor has paid one quarterly dividend in
1999 of approximately $1,411. Unpaid dividends have been accrued and included
with the value of the related preferred stock on the balance sheets.
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.
NOTE 7 - RELATED PARTY INFORMATION
The Company has entered into an Intercompany Agreement (the "Intercompany
Agreement") with G&G, Consumers, Anchor, Consumers International Inc., GGC,
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, up to 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, design and
implementation of certain software systems and
F-16
<PAGE> 48
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.
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 the Company. 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
$1,500, $3,000 and $2,750, respectively, for this agreement for the two years
ended December 31, 1999 and the 1997 Period, of which $375 remains outstanding.
Related party transactions with affiliates of G&G, including Interstate Express,
and including Glenshaw for the year ended December 31, 1998 and the 1997 Period,
are summarized as follows:
<TABLE>
<CAPTION>
Years ended
---------------------- 1997
1999 1998 Period
-------- -------- ------
<S> <C> <C> <C>
Purchases of freight ............................. $3,904 $3,340 $ 1,367
Payable for freight .............................. 131 82 78
Purchases of inventory and other ................. 879 2,363 2,853
Payable for inventory and other .................. 1,018 83 1,034
Allocation of aircraft charges ................... 727 745 270
Sales of inventory and allocation of expenses .... 2,093 4,144 15,038
Receivable from sales of inventory and allocations 623 2,047 3,678
</TABLE>
Other affiliates
Related party transactions with Consumers and its affiliates, including GGC, for
the year ended December 31, 1999, are summarized as follows:
<TABLE>
<CAPTION>
Years ended
----------------------- 1997
1999 1998 Period
-------- ------- ------
<S> <C> <C> <C>
Purchases of inventory and other .................. $ 2,234 $ 1,818 $ 982
Payable for inventory and other ................... 37 141 170
Sales of molds and inventory ...................... 13,448 14,200 5,276
Receivable from sales of molds and inventory ...... 6,232 12,792 2,113
Allocation of expenses and other .................. 2,500 11,167 --
Receivable from allocation of expenses and other .. 500 10,060 --
Payable for allocable portion of software write-off 9,600 -- --
</TABLE>
The receivables owed to the Company by Consumers and its affiliates, as of
December 31, 1998, were substantially paid in February 1999.
In September 1998, G&G (acting on behalf of Consumers) entered into an agreement
to purchase a controlling interest in a European glass manufacturer and had
advanced $17,300 toward that end. This amount was funded by G&G through a loan
from Anchor of approximately $17,300 in September 1998. The loan is evidenced by
a promissory note which originally matured in January 1999. This loan was
permitted through an amendment to the Intercompany Agreement, which was approved
by Anchor's Board of Directors. The repayment date of the promissory note has
been extended to December 31, 2000, consistent with a recent amendment to the
Revolving Credit Facility. The funds were obtained through borrowings under the
Revolving Credit Facility. Anchor has pledged the promissory note to the lenders
F-17
<PAGE> 49
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 % and has been
paid through December 1999. A number of issues have arisen and the transaction
has not closed. Should the transaction not close, the seller is obligated to
return the advance to G&G. G&G has demanded the return of the advance plus
interest accrued to date and related costs including costs related to the
devaluation of the Deutschemark, and will upon receipt, repay the loan from
Anchor. Discussions have been held, but as of this date outstanding issues have
not been resolved. In March 2000, G&G commenced 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 amounts of these mark-ups, $1,200 and $1,100, respectively, for the
years ended December 31, 1999 and 1998, have been recorded as contributions from
shareholder and included in capital in excess of par value.
Stock Option Plan
Employees of Anchor participate in the Director and Employee Incentive Stock
Option Plan, 1996 of Consumers. Options to purchase 1,066,500 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. Options to purchase 123,000 shares of Consumers
common stock at an exercise price of $8.00 were granted in 1999. These options
generally have a life of 10 years and vest ratably over three years. Additional
options to purchase 70,000 shares of Consumers common stock at an exercise price
of $3.80 were granted in 1999. The Company has elected to follow Accounting
Principals Board Opinion No. 25 - Accounting for Stock Issued to Employees ("APB
25"). Under APB 25, because the exercise price of employee stock options equals
the market price of the stock on the date of the grant, no compensation expense
is recorded. The Company adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123 - Accounting for Stock-Based Compensation
("SFAS 123").
Information related to stock options for the periods ended December 31, 1999 is
as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Number Average Average
of Exercise Fair
Shares Price (Cdn$) Value (Cdn$)
------ ------------ ------------
<S> <C> <C> <C>
Options outstanding, February 5, 1997 -- --
Granted ....................... 1,066,500 $8.00 $5.63
Exercised ..................... -- --
Forfeited ..................... -- --
--------- -----
Options outstanding, December 31,1997 1,066,500 $8.00
========= =====
Granted ....................... 51,000 $8.00 $4.90
Exercised ..................... -- --
Forfeited ..................... (47,500) 8.00 $5.60
--------- -----
Options outstanding, December 31,1998 1,070,000 $8.00
========= =====
Granted ....................... 193,000 $6.48 $2.53
Exercised ..................... -- --
Forfeited ..................... (161,500) 8.00 $5.15
--------- -----
Options outstanding, December 31,1999 1,101,500 $7.78
========= =====
</TABLE>
At the Annual Shareholders Meeting of Consumers in June 1999, the Director and
Employee Incentive Stock Option Plan was amended whereby the exercise price of
certain outstanding stock options issued
F-18
<PAGE> 50
under the plan for which the current exercise price exceeds $8.00 (Canadian
dollars) were reduced to an exercise price of $8.00 (Canadian dollars). Pursuant
to SFAS 123, incremental compensation expense will be recognized between 1999
and 2003 on a pro forma basis in the amount of $961 related to the amended
exercise price.
Approximately 458,000 of the options are exercisable at December 31, 1999 and
the weighted average remaining contractual life of the options is 8.2 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, 1999In 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 ranging from 5.57% to 5.99%, (ii) expected
option life of 4 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>
Years ended
------------------------- 1997
1999 1998 Period
-------- -------- ---------
<S> <C> <C> <C>
Net loss
As reported ................................... $(17,511) $ (9,770) $(11,471)
Pro forma ..................................... (19,234) (10,858) (11,617)
Loss applicable to common stock
As reported ................................... $(31,161) $(22,807) $(22,773)
Pro forma ..................................... (32,884) (23,895) (22,919)
Basic net loss per share applicable to common stock
As reported ................................... $ (5.93) $ (5.12) $ (7.11)
Pro forma ..................................... (6.26) (5.36) (7.16)
</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
F-19
<PAGE> 51
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:
<TABLE>
<CAPTION>
Pensions Post-retirement
-------------------------------------- --------------------------------
Years Ended Years Ended
----------------------- 1997 -------------------- 1997
1999 1998 Period 1999 1998 Period
-------- -------- -------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Service cost-benefits
earned during the year ..... $ 5,001 $ 4,137 $ 3,934 $ 861 $ 737 $ 755
Interest cost on projected
benefit obligation ......... 32,745 29,689 28,219 3,907 3,905 3,855
Return on plan assets ........ (38,139) (37,526) (29,087) -- -- --
Amortization of:
Actuarial gains ............ -- -- -- (568) -- --
Prior service cost ......... 2,458 -- -- -- -- --
-------- -------- -------- ------- ------ ------
Total periodic benefit cost $ 2,065 $ (3,700) $ 3,066 $ 4,200 $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.
Effective January 1, 1998, a change to the market value asset valuation method
for determining pension plan contributions was made. As a result, there were no
required pension contributions in 1999 with respect to either current funding or
past underfundings. Excluding payments made as part of the Anchor Acquisition,
Anchor funded contributions of approximately $10,800, $10,900 and $20,000,
respectively, in 1999, 1998 and 1997. The 1999 contribution of $10,800
represented a voluntary contribution, the effect of which is to limit
contributions in the immediate future.
As an objection to the sale, the PBGC entered a determination to terminate Old
Anchor's qualified defined benefit pension plans. However, in conjunction with
the sale, Anchor assumed all liabilities of the plans and funded $9,056 of plan
contributions, previously unfunded following Old Anchor's filing of Chapter 11.
Additionally, Anchor issued $9,000 face amount of Series A Preferred Stock and
Vitro, the parent of Old Anchor, has guaranteed to fund certain qualified
defined benefit plan obligations, should Anchor default on its obligations.
Consequently, the PBGC agreed not to terminate the plans as a result of the
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 which was completed in 1999.
F-20
<PAGE> 52
The funded status of Anchor's pension and post-retirement plans, at December 31,
are as follows:
<TABLE>
<CAPTION>
Pensions Post-retirement
--------------------------- -------------------------
Year ended Year ended
--------------------------- -------------------------
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year ........ $ 439,014 $ 439,730 $ 57,828 $ 61,122
Service cost ................................ 5,001 4,137 861 737
Interest cost ............................... 32,745 29,689 3,907 3,910
Plan amendments ............................. 31,544 -- -- --
Actuarial gain (loss) ....................... (16,378) (1,578) (8,925) (4,613)
Benefits paid ............................... (33,230) (32,964) (3,889) (3,328)
--------- --------- -------- --------
Benefit obligation at end of year .............. 458,696 439,014 49,782 57,828
--------- --------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning of year . 415,426 401,788 -- --
Actual return on plan assets ................ 37,399 37,933 -- --
Employer contributions ...................... 11,193 10,886 3,889 3,328
Benefits paid ............................... (35,234) (35,181) (3,889) (3,328)
--------- --------- -------- --------
Fair value of plan assets at end of year ....... 428,784 415,426 -- --
--------- --------- -------- --------
Funded status .................................. (29,912) (23,588) (49,782) (57,828)
Unrecognized actuarial (gain) loss .......... (23,697) (10,267) (13,582) (5,225)
Unrecognized prior service cost ............. 29,040 -- -- --
--------- --------- -------- --------
Net amount recognized .......................... (24,569) 33,855 (63,364) (63,053)
--------- --------- -------- --------
Amounts recognized in the balance sheet consists of:
Accrued benefit liability ...................... (24,569) (33,855) (63,364) (63,053)
Additional minimum pension liability ........... (158) (382) -- --
Accumulated other comprehensive income ......... 158 382 -- --
--------- --------- -------- --------
Net amount recognized .............................. $ (24,569) $ (33,855) $(63,364) $(63,053)
========= ========= ======== ========
</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
1999 1998 Period 1999 1998 Period
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Discount rate ................... 7.75% 7.00% 7.25% 7.75% 7.00% 7.25%
Expected long-term rate of return
on plan assets .................. 9.50 9.50 9.00 -- -- --
</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 dividends for
one quarter only have been paid during the current year. Anchor receives annual
valuations of the contributed Series A Preferred Stock. Based upon the 1997
valuation, Anchor was required to contribute approximately $745 in 1998 to bring
the total value of the Series A Preferred Stock contribution up to the $9,000
contributed value.
In 1999, Anchor purchased 1,842,000 shares of Consumers common stock for $3,000.
These shares are held pending government approval for contribution into Anchor's
defined benefit pension plan in 2000. At December 31, 1999, these shares are
included in other assets on the balance sheet.
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
F-21
<PAGE> 53
the plan in an amount equal to 150% (through December 31, 1997) of the first 4%
of an employee's compensation (increased to 5% effective July 1, 1999).
Effective January 1, 1998, Anchor match was reduced to 100% of the first 4% of
an employee's compensation. Expenses under the savings programs for the years
ended December 31, 1999 and 1998 and the 1997 Period were approximately $2,130,
$2,010 and $2,000, respectively.
Anchor also contributes to a multi-employer trust that provides certain other
post-retirement benefits to retired hourly employees. Expenses under this
program for the years ended December 31, 1999 and 1998 and the 1997 Period were
$3,999, $4,107 and $3,781, respectively.
The assumed healthcare cost trend used in measuring the accumulated
post-retirement benefit obligation as of December 31, 1999 was 7.0% 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, 1999 by approximately $5,000 and the net post-retirement healthcare
cost for the year ended December 31, 1999 by approximately $540. 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, 1999 by approximately $4,300 and the net post-retirement healthcare
cost for the year ended December 31, 1999 by approximately $470.
NOTE 9 - RESTRUCTURING CHARGES AND PLANT CLOSING COSTS
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.
As of December 31, 1999, $1,219 has been charged against this liability.
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. Substantially all of the hourly
and salaried employees at these plants, approximately 600 in total, have been
terminated. Closure of these facilities have resulted in the consolidation of
underutilized manufacturing operations and was completed in 1999. Exit charges
and the amounts charged against the liability as of December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
Amount Charged
Exit Charges Against Liability
------------ -----------------
<S> <C> <C>
Severance and employee benefit costs $13,000 $13,000
Plant shutdown costs related to consolidation
and discontinuation of manufacturing facilities 12,800 12,800
</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 as of December 31, 1999,
management has deemed it appropriate to establish a valuation allowance against
the net deferred tax asset.
F-22
<PAGE> 54
The significant components of the deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Pension and post-retirement liabilities ...... $ -- $ 8,400
Reserves and allowances ...................... 18,400 7,900
Inventory uniform capitalization ............. 5,900 2,500
Tax loss carryforwards ....................... 36,400 32,800
-------- --------
60,700 51,600
Deferred tax liabilities:
Accumulated depreciation and amortization .... 24,300 21,100
Pension and post-retirement liabilities ...... 3,200 --
Other current assets ......................... 2,000 1,700
-------- --------
29,500 22,800
Net deferred tax assets ......................... 31,200 28,800
Valuation allowance ............................. (31,200) (28,800)
-------- --------
Net deferred tax assets after valuation allowance $ -- $ --
======== ========
</TABLE>
The effective tax rate reconciliation is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------ 1997
1999 1998 Period
---- ---- ------
<S> <C> <C> <C>
Federal rate ........ (34)% (34)% (34)%
State rate .......... (5) (5) (5)
Permanent differences 18 12 25
--- --- ---
(21) (27) (14)
Valuation allowance . 21 27 14
--- --- ---
Effective rate ...... -- % -- % -- %
=== === ===
</TABLE>
NOTE 11 - LEASES
The Company leases distribution and office facilities, machinery,
transportation, data processing and office equipment under non-cancelable leases
which expire at various dates through 2008. 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
includes capital leases in other long-term debt (see Note 5).
Future minimum lease payments under non-cancelable operating leases are as
follows:
<TABLE>
<S> <C>
2000 .............................. $13,900
2001 .............................. 10,700
2002 .............................. 10,100
2003 .............................. 9,300
2004 .............................. 8,000
After 2004 ........................ 13,100
-------
$65,100
=======
</TABLE>
Rental expense for all operating leases for the years ended December 31, 1999
and 1998 and the 1997 Period were $15,300, $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
F-23
<PAGE> 55
expired February 1, 1998. In January 1998, Anchor exercised its option to
purchase the headquarters facility and assigned such option to a third party
purchaser of the facility. Anchor has entered into a ten year lease pursuant to
which the Company leases a portion of the headquarters facility.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Anchor announced in 1999, that it signed an agreement with Anheuser-Busch, Inc.
to provide all the bottles for the brewer's Jacksonville, Florida and
Cartersville, Georgia breweries beginning in 2001. To meet the expanded demand
from the supply contract, Anchor will invest approximately $30,000 to $40,000 in
new equipment for its Jacksonville, Florida and Warner Robins, Georgia plants
over the next 18 months to increase production efficiency. The funding for this
project will be provided through certain leasing transactions, the proceeds from
the sale of the Houston plant and internal cash flows. In December 1999, Anchor
entered into a firm agreement with a major lessor for $30,000 of lease
transactions. Under this agreement, Anchor sold, in December 1999, and leased
back under a capital lease, equipment located at the Warner Robins facility, for
a net selling price of approximately $8,200. Proceeds of the sale were deposited
into an escrow account that will be used to fund future capital expenditures, as
defined in the indentures covering the First Mortgage Notes and the Senior
Notes.
Anchor is a respondent in various environment-related cases. The measurement of
liabilities in these cases and other environmental concerns is based on
available facts of each situation and considers factors such as prior experience
in remediation efforts and presently enacted environmental laws and regulations.
In the opinion of management, based upon information presently known, the
Company has adequately provided for environmental liabilities. The Company is
not otherwise party to, and none of its assets are subject to any other pending
legal proceedings, other than ordinary routine litigation incidental to its
business and against which the Company is adequately insured and indemnified or
which is not material. The Company believes that the ultimate outcome of these
cases will not materially affect future operations. See Note 14 - Subsequent
Event.
At December 31, 1999, Anchor has hedged certain of its 2000 estimated natural
gas purchases through the purchase of natural gas futures in the amount of
$3,811. These future contracts are accounted for as hedges of future production
costs, and accordingly, the unrealized loss of $444 on these contracts is
deferred and will be included in the cost of inventory production in the month
related to the future contract.
NOTE 13 - SUBSEQUENT EVENTS
On February 17, 2000, Owens commenced an action against Anchor and certain of
its affiliates, including Consumers and GGC, in the United States District Court
for the Southern District of New York. Owens alleges violations of the Technical
Assistance Agreement resulting in its termination. Owens is seeking various
forms of relief including (1) a permanent injunction restraining Anchor and its
affiliates from infringing Owens' patents and using or disclosing Owens' trade
secrets and (2) damages for breaches of the Technical Assistance Agreement.
Anchor and its affiliates filed a demand for arbitration with the American
Arbitration Association on February 24, 2000. On March 15, 2000, the Court ruled
that the dispute as to whether there was a valid termination of the Technical
Assistance Agreement is subject to arbitration. Anchor has moved to dismiss or
stay the action pending arbitration. On March 31, 2000, Owens submitted its
answer and counterclaims in the arbitration. Owens has asserted the position
that (i) the Court referred to arbitration only the question whether there was a
valid termination of the Technical Assistance Agreement and (ii) certain of
Owens' claims are not arbitrable.
On April 14, 2000, Owens and Anchor and certain of its affiliates
consented to the entry of an order by the Court which effectively requires
compliance with the Technical Assistance Agreement until further order of the
Court. In addition, the order requires Anchor and certain of its affiliates to
inventory all equipment, other technology and documents subject to the Technical
Assistance Agreement and certify to the Court periodically that all royalties
have been paid and no unauthorized technology transfer has occurred. In
compliance with the order, Consumers' Italian subsidiary ceased using the
disputed technology.
Anchor believes that it has meritorious defenses to the claims in the action and
intends to conduct a vigorous defense. An unfavorable outcome in this matter
could have a material and adverse effect on Anchor's business prospects and
financial condition. In addition, even if the ultimate outcome of the case
F-24
<PAGE> 56
were resolved in favor of Anchor, the defense of such litigation may involve
considerable cost, which could be material, and could divert the efforts of
management.
In March 2000, an affiliate of Anheuser-Busch purchased the previously closed
Houston, Texas glass manufacturing facility and certain related operating
rights. Anchor received proceeds of $10,000 from the sale. Concurrently,
Consumers entered into a $15,000 contract with Anheuser-Busch to manage the
renovation and provide the technical expertise in the re-opening of the Houston
facility. The Company expects to negotiate a contract with Anheuser-Busch to
provide management assistance in the operations of the facility upon its
refurbishment.
F-25
<PAGE> 57
INDEX TO FINANCIAL INFORMATION FOR OLD ANCHOR
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants H-2
Consolidated Statement of Operations -
Period from January 1, 1997 to February 4, 1997 H-3
Consolidated Balance Sheet-
February 4, 1997 H-4
Consolidated Statement of Cash Flows -
Period from January 1, 1997 to February 4, 1997 H-6
Consolidated Statement of Stockholder's
Equity (Deficiency in Assets)-
Period from January 1, 1997 to February 4, 1997 H-7
Notes to Consolidated Financial Statements H-8
SELECTED CONSOLIDATED FINANCIAL DATA H-20
</TABLE>
H-1
<PAGE> 58
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Anchor Glass Container Corporation:
We have audited the accompanying consolidated balance sheet of Anchor
Resolution Corp. (Debtor-in-Possession) (the Company) as of February 4, 1997 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. 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 audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit 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 the results of its operations and
its cash flows for the period from January 1, 1997, to February 4, 1997 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> 59
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM JANUARY 1, 1997 TO FEBRUARY 4, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Net sales ............................................................ $ 62,560
Costs and expenses:
Cost of products sold ........................................... 70,608
Selling and administrative expenses ............................. 3,745
---------
Loss from operations ................................................. (11,793)
Other income (expense), net .......................................... (595)
Interest expense (contractual interest of $5,353) .................... (2,437)
---------
Loss before reorganization items ..................................... (14,825)
Reorganization items ................................................. (827)
---------
Net loss ............................................................. $ (15,652)
=========
- -------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
H-3
<PAGE> 60
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONSOLIDATED BALANCE SHEETS
AT FEBRUARY 4, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Assets
- -------------------------------------------------------------------------------------------
<S> <C>
Current assets:
Cash and cash equivalents ............................................ $ 3,449
Accounts receivable, less allowance for doubtful accounts
of $1,630 ....................................................... 60,978
Inventories-
Raw materials and manufacturing supplies ........................ 29,649
Semi-finished and finished products ............................. 119,082
Other current assets ................................................. 19,184
---------
Total current assets ........................................ 232,342
- -------------------------------------------------------------------------------------------
Property, plant and equipment:
Land and land improvements ...................................... 10,405
Buildings ....................................................... 120,377
Machinery, equipment, and molds ................................. 531,827
Less accumulated depreciation ................................... (350,967)
---------
311,642
- -------------------------------------------------------------------------------------------
Other assets ......................................................... 50,943
Intangible pension asset ............................................. 17,140
Investment in joint venture .......................................... 39,734
---------
$ 651,801
=========
- -------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
H-4
<PAGE> 61
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONSOLIDATED BALANCE SHEETS
AT FEBRUARY 4, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity (Deficiency in Assets)
- -------------------------------------------------------------------------------------------
<S> <C>
Liabilities not subject to compromise:
Current liabilities:
Debtor-in-Possession Facility ........................................ $ 107,939
Senior Secured Notes ................................................. 158,025
Accounts payable ..................................................... 32,558
Accrued expenses ..................................................... 35,192
Accrued interest ..................................................... 914
Accrued compensation and employee benefits ........................... 58,545
---------
Total current liabilities ....................................... 393,173
- -------------------------------------------------------------------------------------------
Pension liabilities .................................................. 44,198
Other long-term liabilities .......................................... 120,206
---------
164,404
Liabilities subject to compromise .................................... 379,183
---------
Total liabilities .................................................. 936,760
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
Accumulated deficit .................................................. (838,865)
Amount related to minimum pension liability .......................... (22,394)
---------
(284,959)
---------
$ 651,801
=========
- -------------------------------------------------------------------------------------------
</TABLE>
H-5
<PAGE> 62
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM JANUARY 1, 1997 TO FEBRUARY 4, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss .......................................................................... $ (15,652)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation ............................................................. 6,312
Amortization ............................................................. 1,293
Other .................................................................... 127
Decrease in cash resulting from changes
in assets and liabilities ......................................................... (3,507)
---------
(11,427)
- ----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Expenditures for property, plant and equipment .................................... (7,186)
Investment in joint venture ....................................................... (10)
Other ............................................................................. (304)
---------
(7,500)
- ----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on long-term debt .............................................. (6)
Net draws on Debtor-In-Possession Facility ........................................ 17,484
---------
17,478
Cash and cash equivalents:
Decrease in cash and cash equivalents ............................................. (1,449)
Balance, beginning of period ...................................................... 4,898
---------
Balance, end of period ............................................................ $ 3,449
=========
- ----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Net cash used in operating activities reflects net cash payments for interest and taxes as follows:
Interest ............................................................................ $ 3,033
=========
Increase (decrease) in cash resulting from changes
in assets and liabilities:
Accounts receivable ............................................................... $ (5,127)
Inventories ....................................................................... (4,312)
Other current assets .............................................................. (591)
Accounts payable, accrued expenses and
other current liabilities .................................................... 6,645
Other, net .......................................................................... (122)
---------
$ (3,507)
=========
- ----------------------------------------------------------------------------------------------------------
</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-6
<PAGE> 63
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)
PERIOD FROM JANUARY 1, 1997 TO FEBRUARY 4, 1997
(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, 1997 $ -- $ 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-7
<PAGE> 64
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 The Stroh Brewery Company and Anheuser-Busch represented
10.0% and 6% of total net sales, respectively for the 1997 Interim Period. 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.
H-8
<PAGE> 65
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, 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.
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.
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, the Company had 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
H-9
<PAGE> 66
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. 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.
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).
H-10
<PAGE> 67
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.
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
H-11
<PAGE> 68
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.
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.
H-12
<PAGE> 69
NOTE 4 - PREPETITION LIABILITIES
Prepetition liabilities subject to compromise include the following:
<TABLE>
<CAPTION>
February 4,
1997
-----------
<S> <C>
$100,000 10.25% Senior Notes $100,000
$200,000 9.875% Senior Subordinated Debentures 200,000
Other debt 4,368
Trade payables 67,890
Accrued interest 6,925
--------
$379,183
========
</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 during the 1997 Interim Period. 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, 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.
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.
H-13
<PAGE> 70
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, advances outstanding under the DIP Facility were
$107,939. At February 4, 1997, 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.
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
H-14
<PAGE> 71
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.
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 - 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
H-15
<PAGE> 72
approximately $54,000 in cash for capital spending needs over the first three
years of the partnership. 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 8 - 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.
NOTE 9 - 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 significant components of the deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
February 4,
1997
---------
<S> <C>
Deferred tax assets:
Acquired tax benefits .............................................. $ 27,700
Post acquisition loss carryforwards ................................ 112,000
Pension and post-retirement liabilities ............................ 55,300
Accruals and reserves .............................................. 50,300
---------
245,300
Valuation allowance ................................................ (158,400)
---------
86,900
---------
Deferred tax liabilities:
Property, plant and equipment ...................................... 55,000
Inventories ........................................................ 22,300
Receivables and other assets ....................................... 9,600
---------
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
H-16
<PAGE> 73
2004, and are restricted to offsetting future taxable income of the respective
companies which generated the carryforwards.
NOTE 10 - 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.
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 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. 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>
H-17
<PAGE> 74
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, 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 were approximately $237.
NOTE 11 - 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.
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.
H-18
<PAGE> 75
The Company also contributes to a multi-employer trust that provides certain
other post-retirement benefits to retired hourly employees. Expenses under this
program for the 1997 Interim Period were $360.
NOTE 12 - LEASES
The Company leases distribution and office facilities, machinery,
transportation, data processing and office equipment under non-cancelable leases
that expire at various dates through 2004. These leases generally provide for
fixed rental payments and include renewal and purchase options at amounts that
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>
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 was $3,012.
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.
NOTE 14 - SUBSEQUENT EVENT
Effective January 30, 1998, all of the remaining assets of the Company were
transferred to Anchor Liquidating Trust.
H-19
<PAGE> 76
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 two 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
----------------------------------------------------
1995 1996 1997
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ....................................................... $ 956,639 $ 814,370 $ 62,560
Cost of products sold ........................................... 906,393 831,612 70,608
Selling and administrative expenses ............................. 48,998 39,570 3,745
Restructuring and other charges(1) .............................. 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 ................................... (9,019) (588,050) (11,793)
Other income (expense), net ..................................... 171 (10,020) (595)
Interest expense(3) ............................................. (56,871) (48,601) (2,437)
----------- ----------- -----------
Income (loss) before reorganization
items, income taxes, extraordinary items
and cumulative effect of accounting change.................... (65,719) (646,671) (14,825)
Reorganization items ............................................ -- (5,008) (827)
Income taxes(4) ................................................. (250) (1,825) --
Extraordinary items(5) -- (2,336) --
----------- ----------- -----------
Net income (loss) ............................................... $ (65,969) $ (655,840) $ (15,652)
=========== =========== ===========
OTHER FINANCIAL DATA:
Net cash provided by (used in)
operating activities ........................................ $ 430 $ (28,411) $ (11,427)
Net cash used in investing activities ........................... (48,500) (63,892) (7,500)
Net cash provided by financing
activities ................................................... 52,198 78,886 17,478
Depreciation and amortization ................................... 99,915 101,656 7,605
Capital expenditures ............................................ 70,368 46,254 7,186
BALANCE SHEET DATA (AT END OF PERIOD):
Accounts receivable ............................................. $ 40,965 $ 55,851 $ 60,978
Inventories ..................................................... 180,574 144,419 148,731
Total assets .................................................... 1,208,348 643,468 651,801
Total debt(6) ................................................... 557,450 552,848 570,335
Total stockholder's equity (deficiency
in assets) ................................................... 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 1996, the loss of a
significant portion of the business of Old Anchor's largest customer. The
H-20
<PAGE> 77
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-21
<PAGE> 78
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.
ANCHOR GLASS CONTAINER CORPORATION
Date: April 12, 2000 By /s/ M. William Lightner, Jr.
-------------------------------------------
M. William Lightner, Jr.
Senior Vice President, Finance
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on April 12, 2000.
<TABLE>
<S> <C>
/s/ Patrick T. Connelly /s/ Jonathan K. Hergert
- ------------------------------------------- -------------------------------------------
Patrick T. Connelly Jonathan K. Hergert
Director Director
/s/ Richard M. Deneau /s/ M. William Lightner, Jr.
- ------------------------------------------- -------------------------------------------
Richard M. Deneau M. William Lightner, Jr.
Director, Director and
President and Chief Operating Officer Senior Vice President, Finance
/s/ Roger L. Erb /s/ Christopher M. Mackey
- ------------------------------------------- -------------------------------------------
Roger L. Erb Christopher M. Mackey
Director Director
/s/ Paul H. Farrar /s/ C. Kent May
- ------------------------------------------- -------------------------------------------
Paul H. Farrar C. Kent May
Director Director
/s/ Steven J. Friesen /s/ Robert C. Ruocco
- ------------------------------------------- -------------------------------------------
Steven J. Friesen Robert C. Ruocco
Director Director
/s/ John J. Ghaznavi /s/ William J. Shaw
- ------------------------------------------- -------------------------------------------
John J. Ghaznavi William J. Shaw
Director Director
/s/ Ahmad Ghaznavi /s/ Myron M. Sheinfeld
- ------------------------------------------- -------------------------------------------
Ahmad Ghaznavi Myron M. Sheinfeld
Director Director
/s/ David T. Gutowski
- -------------------------------------------
David T. Gutowski
Director
</TABLE>
H-22
<PAGE> 79
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: April 14, 2000 By /s/ C. Kent May
-------------------------
C. Kent May
Secretary
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 April 14, 2000.
/s/ John J. Ghaznavi
- -----------------------------------------
John J. Ghaznavi
Chairman, Chief Executive Officer and Director
/s/ Patrick T. Connelly
- -----------------------------------------
Patrick T. Connelly
Director
/s/ David T. Gutowski
- -----------------------------------------
David T. Gutowski
Director
/s/ C. Kent May
- -----------------------------------------
C. Kent May
Director
<PAGE> 1
EXHIBIT 12.1
CONSUMERS U.S.,INC.
STATEMENT RE COMPUTATION OF RATIOS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, FEBRUARY 5, TO 1997
------------------------- TO
1999 1998 DECEMBER 31, 1997
---- ---- -------------------
<S> <C> <C> <C>
EARNINGS -
Loss before extraordinary item $(17,511) $ (9,770) $ (271)
Interest and amortization of debt expense 28,870 27,098 18,281
Rental expense representative of interest factor 5,088 5,915 5,849
-------- -------- --------
Total earnings $ 16,447 $ 23,243 $ 23,859
FIXED CHARGES -
Interest and amortization of debt expense $ 28,870 $ 27,098 $ 18,281
Rental expense representative of interest factor 5,088 5,915 5,849
-------- -------- --------
Total fixed charges $ 33,958 $ 33,013 $ 24,130
======== ======== ========
RATIO OF EARNINGS TO FIXED
CHARGES -- -- --
======== ======== ========
DEFICIENCY OF EARNINGS AVAILABLE
TO COVER FIXED CHARGES $ 17,511 $ 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 (A) THE
FINANCIALS STATEMENTS OF CONSUMER U.S. INCLUDED IN FORM 10-K AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1999.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 5,278
<SECURITIES> 0
<RECEIVABLES> 53,556
<ALLOWANCES> 1,100
<INVENTORY> 106,977
<CURRENT-ASSETS> 190,985
<PP&E> 449,788
<DEPRECIATION> 129,787
<TOTAL-ASSETS> 601,716
<CURRENT-LIABILITIES> 159,559
<BONDS> 210,208
70,830
0
<COMMON> 170
<OTHER-SE> 35,336
<TOTAL-LIABILITY-AND-EQUITY> 601,716
<SALES> 628,728
<TOTAL-REVENUES> 628,728
<CGS> 582,975
<TOTAL-COSTS> 582,975
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 125
<INTEREST-EXPENSE> 28,870
<INCOME-PRETAX> (17,511)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,511)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,576)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
