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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number : 0-233-59
ANCHOR GLASS CONTAINER CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 59-3417812
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Anchor Plaza, 4343 Anchor Plaza Parkway, Tampa, FL 33634-7513
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(Address of principal executive offices) (Zip Code)
813-884-0000
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(Registrant's telephone number, including area code)
None
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares outstanding of each class of common stock at October 31, 2000:
2,158,755 shares.
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ANCHOR GLASS CONTAINER CORPORATION
FORM 10-Q
For the Quarterly Period Ended September 30, 2000
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Statements of Operations and Comprehensive Income -
Three and Nine Months Ended September 30, 2000 and 1999 3
Condensed Balance Sheets -
September 30, 2000 and December 31, 1999 4
Condensed Statements of Cash Flows -
Nine Months Ended September 30, 2000 and 1999 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 13
PART II - OTHER INFORMATION 13
SIGNATURES 15
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANCHOR GLASS CONTAINER CORPORATION
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 492,712 $ 486,687 $ 163,729 $ 170,105
Costs and expenses:
Cost of products sold 453,487 448,465 150,635 156,782
Selling and administrative expenses 22,806 20,820 7,229 6,939
Litigation settlement 2,300 -- 2,300 --
Income from operations 14,119 17,402 3,565 6,384
Other income, net 6,293 150 11 337
Interest expense (22,169) (20,485) (7,783) (6,626)
----------- ----------- ----------- -----------
Net income (loss) (1,757) (2,933) (4,207) 95
Preferred stock dividends (10,514) (10,149) (3,543) (3,459)
----------- ----------- ----------- -----------
Loss applicable to common stock $ (12,271) $ (13,082) $ (7,750) $ (3,364)
=========== =========== =========== ===========
Basic net loss per share applicable
to common stock $ (2.34) $ (2.49) $ (1.48) $ (0.64)
=========== =========== =========== ===========
Basic weighted average number of
common shares outstanding 5,251,356 5,251,356 5,251,356 5,251,356
=========== =========== =========== ===========
Comprehensive income (loss) $ (1,757) $ (2,933) $ (3,125) $ 95
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Financial Statements.
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ANCHOR GLASS CONTAINER CORPORATION
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30,
2000 December 31,
(unaudited) 1999
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,228 $ 5,278
Accounts receivable 64,895 53,556
Inventories:
Raw materials and manufacturing supplies 23,798 24,415
Finished products 95,718 82,562
Other current assets 10,172 7,603
--------- ---------
Total current assets 195,811 173,414
Property, plant and equipment, net 299,384 320,001
Other assets 29,113 29,545
Advance to affiliate 17,648 17,571
Strategic alliances with customers 7,529 11,089
Goodwill 48,572 50,804
--------- ---------
$ 598,057 $ 602,424
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility $ 37,605 $ 40,895
Current maturities of long-term debt 1,946 2,029
Accounts payable 49,502 48,729
Accrued expenses 32,768 34,545
Accrued interest 8,961 5,953
Accrued compensation and employee benefits 25,979 23,895
--------- ---------
Total current liabilities 156,761 156,046
Long-term debt 208,926 210,208
Long-term pension liabilities 27,935 24,569
Long-term post-retirement liabilities 58,842 59,464
Other long-term liabilities 30,333 35,120
--------- ---------
326,036 329,361
Commitments and contingencies
Redeemable preferred stock 75,018 70,830
--------- ---------
Stockholders' equity:
Preferred stock 34 34
Issuable preferred stock 21,731 21,731
Common stock 216 216
Warrants 15,442 15,445
Capital in excess of par value 98,343 98,340
Accumulated deficit (95,524) (89,579)
--------- ---------
40,242 46,187
--------- ---------
$ 598,057 $ 602,424
========= =========
</TABLE>
See Notes to Condensed Financial Statements.
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ANCHOR GLASS CONTAINER CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,757) $ (2,933)
Adjustments to reconcile net income (loss) to cash provided
by operating activities:
Depreciation and amortization 42,474 42,108
Gain on sale of property, plant and equipment (4,138) --
Litigation settlement 2,300 --
Other (222) 16
Decrease in cash resulting from changes in
assets and liabilities (20,201) (2,888)
-------- --------
18,456 36,303
Cash flows from investing activities:
Expenditures for property, plant and equipment (28,372) (32,920)
Deposit of sale proceeds into escrow account (10,000) --
Withdrawal of funds from escrow account 18,267 --
Proceeds from the sale of property, plant and
equipment 8,069 193
Stock in Parent, held for Pension Fund, pending
government approval -- (3,000)
Payments of strategic alliances with customers (2,750) (2,000)
Other (2,164) (912)
-------- --------
(16,950) (38,639)
Cash flows from financing activities:
Principal payments of long-term debt (1,488) (671)
Net repayments on revolving credit facility (3,290) (8,655)
Sale of note receivable -- 11,200
Other, primarily financing fees (778) (137)
-------- --------
(5,556) 1,737
Cash and equivalents:
Decrease in cash and cash equivalents (4,050) (599)
Balance, beginning of period 5,278 4,106
-------- --------
Balance, end of period $ 1,228 $ 3,507
======== ========
Supplemental disclosure of cash flow information:
Interest payments, net $ 19,161 $ 17,117
======== ========
</TABLE>
See Notes to Condensed Financial Statements.
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ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - MANAGEMENT'S RESPONSIBILITY
In the opinion of Management, the accompanying condensed financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of September
30, 2000 and the results of operations and cash flows for the three and nine
months ended September 30, 2000 and 1999 and cash flows for the nine months
ended September 30, 2000 and 1999.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these condensed
financial statements be read in conjunction with the Financial Statements of
Anchor Glass Container Corporation (the "Company") included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999. The results of
operations for the interim periods are not necessarily indicative of the
results for the full fiscal year.
Certain reclassifications have been made to prior year financial
statements to be consistent with the current year presentation.
NOTE 2 - ORGANIZATION OF THE COMPANY
The Company, a majority-owned subsidiary of Consumers Packaging Inc.
("Consumers"), was formed in January 1997 to acquire certain assets and assume
certain liabilities of the former Anchor Glass Container Corporation ("Old
Anchor"), which was subsequently liquidated in a proceeding under Chapter 11 of
the United States Bankruptcy Code of 1978, as amended.
On February 5, 1997, pursuant to an Asset Purchase Agreement dated
December 18, 1996, as amended (the "Asset Purchase Agreement"), among
Consumers, Owens-Brockway Glass Container Inc. ("Owens") and Old Anchor, the
Company (the rights and obligations of Consumers having been assigned to the
Company) and Owens acquired substantially all of the assets, and assumed
certain liabilities, of Old Anchor (the "Anchor Acquisition").
The Company is part of a group of glass manufacturing companies with
Consumers and GGC, L.L.C. ("GGC,") each of which is controlled through G&G
Investments, Inc. ("G&G"), the majority owner of Consumers. 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 the Company's mold and repair shops and the consolidation of
certain functions such as sales, engineering and management information
services.
NOTE 3 - REVOLVING CREDIT FACILITY
In conjunction with the Anchor Acquisition, the Company entered into a
credit agreement providing for a $110.0 million revolving credit facility (the
"Original Credit Facility"). In October 2000, the Company replaced the Original
Credit Facility with a credit facility under a Loan and Security Agreement
dated as of October 16, 2000, with Bank of America, National Association, as
agent (the "Loan and Security Agreement"), to provide a $100.0 million senior
secured revolving credit facility (the "Replacement Credit Facility"). The
Replacement Credit Facility enables the Company 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 $100.0 million. Advances
outstanding at any one time cannot exceed an amount equal to the borrowing base
as defined in the Loan and Security Agreement.
Revolving credit loans bear interest at a rate based upon the prime
rate or LIBOR rate, plus a variable margin, as defined. Interest is payable
monthly. An unused line fee of 0.5% on the unused portion of the
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facility and letter of credit fees, as defined, are payable monthly. The
Replacement Credit Facility expires October 16, 2003.
The Company's obligations under the Loan and Security Agreement are
secured by a first priority lien on all of the Company's inventories and
accounts receivable and related collateral and a second priority pledge of all
of the issued and issuable Series B Preferred Stock of the Company and 902,615
shares of the Company's Common Stock. In addition, the Company's obligations
under the Loan and Security Agreement are guaranteed by Consumers U.S., Inc.,
the holder of the outstanding Series B Preferred Stock of the Company and
902,615 shares of the Company's Common Stock.
The Loan and Security Agreement contains certain covenants that
restrict the Company's ability to take 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, sales of assets and other
fundamental corporate changes, capital expenditures, operating lease payments
and transactions with affiliates. The Loan and Security Agreement also contains
a financial covenant that requires the Company to maintain a fixed charge
coverage ratio.
NOTE 4 - SALE OF CLOSED MANUFACTURING FACILITY
In March 2000, Anheuser-Busch Companies, Inc. ("Anheuser-Busch")
purchased the previously closed Houston, Texas glass container manufacturing
facility and certain related operating rights. The Company received proceeds of
$10.0 million from the sale. Concurrently, Consumers, the Company's indirect
parent, for an aggregate consideration of $15.0 million, entered into a
contract with Anheuser-Busch to manage the renovation and provide the technical
expertise in the re-opening of the Houston facility, while simultaneously
agreeing to give up all rights under a proposed joint venture agreement with
Anheuser-Busch to own and operate 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.
NOTE 5 - REDEEMABLE PREFERRED STOCK
The Company has designated 2,239,320 shares as Series A Preferred
Stock and 5,000,000 shares as Series B Preferred Stock. The Series A Preferred
Stock ranks, as to dividends and redemption and upon liquidation, prior to all
other classes and series of capital stock of the Company. The holders of Series
A Preferred Stock are entitled to receive, when and as declared by the Board of
Directors of the Company, cumulative dividends, payable quarterly in cash, at
an annual rate of 10%. Unpaid dividends have been accrued and included with the
value of the related preferred stock on the condensed balance sheets.
The Series B Preferred Stock ranks, as to dividends and redemption and
upon liquidation, junior to the Series A Preferred Stock but senior to all
other classes and series of capital stock of the Company. The holders of Series
B Preferred Stock are entitled to receive, when and as declared by the Board of
Directors of the Company, cumulative dividends, payable quarterly in cash, at
an annual rate of 8%. Dividends on the Series B Preferred Stock are recorded
within the caption Accumulated deficit on the condensed balance sheet until
declared.
NOTE 6 - COMMON STOCK
For the period from February 5, 1997 to February 5, 2000, the common
stock was divided into three classes, Class A and Class B, which were voting,
and Class C, which were non-voting. On February 5, 2000, the three classes of
common stock were consolidated into one single class of common stock with
identical rights.
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NOTE 7 - SUBSEQUENT EVENTS
On November 6, 2000, the Company and its affiliates, including
Consumers, reached a settlement concerning all aspects of the Owens dispute (see
Part II - Item 1 - Legal Proceedings). As part of the settlement, the Technical
Assistance and License Agreement will be amended and extended through 2005. The
amended agreement will cover technology now in place, at the same royalty rate.
Upon expiration of the agreement, the Company and its affiliates, including
Consumers, will receive a paid-up license for that technology. Documentation for
the amended agreement and mutual releases is expected to be completed by the end
of November 2000. Under the settlement, the Company, Consumers and GGC will pay
an aggregate of $5.0 million to Owens. The Company has estimated its allocation
of this settlement to be $2.3 million. This charge has been recorded in the
third quarter ended September 30, 2000. Consumers, GGC and another affiliate
will receive a refund of $1.213 million of royalties paid previously under
protest. The settlement terminates all litigation over the matter, including a
federal court suit and an overseas lawsuit, as well as arbitration proceedings.
On October 13, 2000, certain stockholders of the Company, specifically
Comac Partners, L.P., Comac Endowment Fund, L.P., Comac Opportunities Fund,
L.P., Comac International, N.V., Carl Marks Strategic Investments, LP, Carl
Marks Strategic Investments II, LP, Varde Partners, L.P., Varde Fund (Cayman)
Ltd., Pequod Investments, L.P., Pequod International Ltd., Cerberus Partner
L.P. and Cerberus International Ltd. (collectively, the "Plaintiffs"),
commenced a shareholder derivative action against certain of the Company's
directors, officers and certain related entities in The Court of Chancery of
the State of Delaware in and for New Castle County. The action seeks recovery
to the Company, which is named as a party to the action in the capacity of a
nominal defendant, for damages Plaintiffs allege the Company suffered through
breach of fiduciary duties, unjust enrichment and usurpation of a corporate
opportunity of the Company. The Company is named as a party to the case for
procedural purposes but no recovery is sought from the Company. The Company has
been advised by the other defendants that they will vigorously defend the
action and that they believe they have meritorious defenses.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company was formed in January 1997 to consummate the Anchor
Acquisition. Prior to the Anchor Acquisition, the Company had no operations.
RESULTS OF OPERATIONS
Net Sales. Net sales for the 2000 third quarter were $163.7 million
compared to $170.1 million for the third quarter of 1999, a decrease of $6.4
million, or 3.7%. Net sales for the nine months ended September 30, 2000 were
$492.7 million, an increase of $6.0 million or 1.2% from $486.7 million for the
comparable period of 1999. This increase in year to date net sales was
principally as a result of the increase in shipment volume, particularly in the
beer and tea product lines. Also, this improvement reflects some minor
increases in pricing. The decrease in net sales in the 2000 third quarter
compared to the same period of 1999 reflects relatively level overall
shipments, with a slight change in mix towards lower priced product lines.
Cost of Products Sold. The Company's cost of products sold in the
third quarter and first nine months of 2000 were $150.6 million and $453.5
million, respectively (or 92.2% and 92.1% of net sales), while the cost of
products sold for the third quarter of 1999 and first nine months of 1999 were
$156.7 million and $448.4 million, respectively (or 92.2% and 92.1% of net
sales). This level percentage of cost of products sold principally reflects the
benefits of the cost savings strategies that the Company began to implement in
prior years and improved margins in the beer and tea product lines. These cost
decreases have been offset by increases in other manufacturing costs. The
Company experienced significant increases in the cost of natural gas as well as
increases in the cost of corrugated packaging material as compared to the same
periods of the preceding year. Effective April 1, 1999, the Company 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
beginning in the second quarter of 1999.
Selling and Administrative Expenses. Selling and administrative
expenses for the nine months ended September 30, 2000 were approximately $22.8
million (or 4.6% of net sales), while selling and administrative expenses for
the comparable period of 1999 were $20.9 million (or 4.3% of net sales). This
increase in selling and administrative expenses, in total dollars and as a
percentage of net sales, reflects increased legal costs as a result of the
legal proceedings discussed in Part II - Item 1 and higher overall employee
related costs.
Interest Expense. Interest expense for the third quarter of 2000 was
approximately $7.8 million compared to $6.6 million in the third quarter of
1999, an increase of 17.5%. Interest expense for the first nine months of 2000
was approximately $22.2 million compared to $20.5 million in the first nine
months of 1999, an increase of 8.2%. Interest expense has increased due to
higher interest rates, offset by slightly lower average outstanding borrowings
under our revolving credit facility during 2000, as compared to 1999.
Net Income (Loss). As a result of the foregoing, the Company had a
loss in the third quarter of 2000 of approximately $4.2 million as compared to
essentially break even results in the same period of 1999 and a year to date
net loss of approximately $1.8 million compared to a net loss of $2.9 million
in the comparable period of 1999. The results of the 2000 first quarter
included a gain on sale of the previously closed Houston, Texas glass container
manufacturing facility of approximately $4.1 million and a gain of
approximately $2.0 million on the sale of certain operating rights related to
the Texas facility, both included in Other income, net. Excluding the gains on
these sales transactions, the Company would have reported a loss of
approximately $7.9 million for the nine months ended September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
In the first nine months of 2000, operating activities provided $18.5
million in cash as compared to $36.3 million in the same period of 1999. This
decrease in cash provided reflects the improvement in earnings adjusted for
changes in working capital items. Accounts receivable at September 30, 2000
increased approximately $11.0 million as compared with the December 1999 year
end, primarily reflecting the increased
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sales. Accounts receivable at September 1999 decreased by approximately $18.1
million from year end 1998 primarily reflecting the receipt of $20.0 million of
intercompany receivable balances.
Cash consumed in investing activities for the first nine months of
2000 and 1999 were $17.0 million and $38.6 million, respectively. Capital
expenditures in the nine months ended September 30, 2000 were $28.4 million
compared to $32.9 million in the comparable period of 1999. In the first nine
months of 2000, the Company applied cash that had been deposited into escrow,
as provided for under the terms of the indentures, to fund capital
expenditures. These escrowed funds resulted from the proceeds of asset sales in
the fourth quarter of 1999 and the first quarter of 2000.
In conjunction with the Anchor Acquisition, the Company entered into a
credit agreement providing for a $110.0 million revolving credit facility (the
"Original Credit Facility"). In October 2000, the Company replaced the Original
Credit Facility with a credit facility under a Loan and Security Agreement
dated as of October 16, 2000, with Bank of America, National Association, as
agent (the "Loan and Security Agreement"), to provide a $100.0 million senior
secured revolving credit facility (the "Replacement Credit Facility"). The
Replacement Credit Facility enables the Company 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 $100.0 million. Advances
outstanding at any one time cannot exceed an amount equal to the borrowing base
as defined in the Loan and Security Agreement.
At October 27, 2000, advances outstanding under the Replacement Credit
Facility were $49.2 million, borrowing availability was $26.0 million and total
outstanding letters of credit on this facility were $11.3 million. Net cash of
$5.6 million was used in financing activities in the first nine months of 2000,
principally reflecting repayments under the Original Credit Facility.
The Company's obligations under the Replacement Credit Facility are
secured by a first priority lien on all of the Company's inventories and
accounts receivable and related collateral and a second priority pledge of all
of the issued and issuable Series B Preferred Stock of the Company and 902,615
shares of the Company's Common Stock. In addition, the Company's obligations
under the Loan and Security Agreement are guaranteed by Consumers U.S., Inc.,
the holder of the outstanding Series B Preferred Stock of the Company and
902,615 shares of the Company's Common Stock.
The Loan and Security Agreement contains certain covenants that
restrict the Company's ability to take 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, sales of assets and other
fundamental corporate changes, capital expenditures, operating lease payments
and transactions with affiliates. The Loan and Security Agreement also contains
a financial covenant that requires the Company to maintain a fixed charge
coverage ratio.
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 the Company of approximately $17.3 million in September
1998. The funds were obtained through a borrowing under the Original Credit
Facility. The loan was evidenced by a promissory note that originally matured
in January 1999. This loan was permitted through an amendment to the
Intercompany Agreement, which was approved by the Company's Board of Directors.
In connection with the pledge of the note to Bank of America, National
Association, as agent under the Loan and Security Agreement, the original
promissory note was replaced by a promissory note (the "Replacement Note").
G&G has provided security against the Replacement Note to Bank of America,
National Association, as agent under the Loan and Security Agreement.
The maturity date of the Replacement Note is October 31, 2003.
Interest on the Replacement Note is payable at the interest rate payable by the
Company on advances under the Loan and Security Agreement plus 1/2 % and has
been paid through September 2000. 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 the Company. 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.
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The indentures covering the $150.0 million aggregate principal amount
of 11 1/4 % First Mortgage Notes due 2005 (thE "First Mortgage Notes") and
$50.0 million aggregate principal amount of 9 7/8% Senior Notes due 2008 (the
"Senior Notes") contain certain covenants that restrict the Company from taking
various actions, including, subject to specified exceptions and limits, 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, asset sales and transactions with affiliates.
The level of the Company's indebtedness could have important
consequences, including:
o a substantial portion of the Company's cash flow from operations
must be dedicated to debt service,
o the Company's ability to obtain additional future debt financing
may be limited and
o the level of indebtedness could limit the Company'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 Credit Facility, capital expenditures in the range of $28.0
million to $31.0 million, any additional capital expenditures beyond this level
will be financed from sources outside the Company and the payment of the
litigation settlement of $2.3 million, as discussed in Part II-Item 1.-Legal
Proceeding. The Company announced that it signed an agreement with
Anheuser-Busch to provide all the bottles for the Anheuser-Busch Jacksonville,
Florida and Cartersville, Georgia breweries, beginning in 2001. To meet the
expanded demand from the supply contract, the Company will invest approximately
$18.0 million in new equipment for its Jacksonville plant to increase production
efficiency. Of this amount, approximately $8.0 million has been spent. To date,
the funding for this project has been provided through the proceeds from the
sale of the Houston plant (see below), certain leasing transactions and
internal cash flows. In December 1999, the Company entered into an agreement
with a major lessor for $30.0 million of lease transactions. Under this
agreement, the Company 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. The Company is continuing discussions
with certain co-lessors identified as part of the $30.0 million transaction
for the remaining Jacksonville expansion funding.
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, for an aggregate consideration of $15.0 million, entered into a
contract with Anheuser-Busch to manage the renovation and provide the technical
expertise in the re-opening of the Houston facility, while simultaneously
agreeing to give up all rights under a proposed joint venture agreement with
Anheuser-Busch to own and operate 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.
Effective April 1, 1999, the Company 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
Replacement Credit Facility, proceeds from the sale/leaseback transactions
noted above and proceeds from sales of discontinued manufacturing facilities.
Management believes that the cash flows discussed above, will provide
adequate funds for the Company's working capital needs and capital
expenditures. 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.
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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 while it has not been fully able to pass on
inflationary cost increases to its customers, it did realize some price relief
in 2000.
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.
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:
o the Company's liquidity and capital resources,
o the Company's debt levels and ability to obtain financing and
service debt,
o competitive pressures and trends in the glass container industry,
o prevailing interest rates,
o legal proceedings and regulatory matters, and
o 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 industry and the intense competition
from makers of alternative forms of packaging; the Company's focus on the beer
industry and its dependence on certain key customers; the seasonal nature of
brewing, iced tea and other beverage industries; the Company's dependence on
certain executive officers; and changes in environmental and other government
regulations. The Company operates in a very competitive environment in which
new risk factors can emerge from time to time. It is not possible for
management to predict all such risk factors, nor can it assess the impact of
all such risk factors on the Company's business or the extent to which any
factor, or a combination of factors, may cause actual results to differ
materially from those contained in forward-looking statements. Given these
risks and uncertainties, readers are cautioned not to place undue reliance on
forward-looking statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's long-term 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
long-term 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On October 13, 2000, certain stockholders of the Company, specifically
Comac Partners, L.P., Comac Endowment Fund, L.P., Comac Opportunities Fund,
L.P., Comac International, N.V., Carl Marks Strategic Investments, LP, Carl
Marks Strategic Investments II, LP, Varde Partners, L.P., Varde Fund (Cayman)
Ltd., Pequod Investments, L.P., Pequod International Ltd., Cerberus Partner
L.P. and Cerberus International Ltd. (collectively, the "Plaintiffs"),
commenced a shareholder derivative action against certain of the Company's
directors, officers and certain related entities in The Court of Chancery of
the State of Delaware in and for New Castle County. The action seeks recovery
to the Company, which is named as a party to the action in the capacity of a
nominal defendant, for damages Plaintiffs allege the Company suffered through
breach of fiduciary duties, unjust enrichment and usurpation of a corporate
opportunity of the Company. The Company is named as a party to the case for
procedural purposes but no recovery is sought from the Company. The Company has
been advised by the other defendants that they will vigorously defend the
action and that they believe they have meritorious defenses.
On February 16, 2000, Owens commenced an action against the Company
and certain of its affiliates, including Consumers and GGC, L.L.C., in the
United States District Court for the Southern District of New York. Owens
alleged violations of the Technical Assistance and License Agreement ("TALA")
and its resulting termination. Owens is seeking various forms of relief
including (1) a permanent injunction restraining the Company and its affiliates
from infringing Owens' patents and using or disclosing Owens' trade secrets and
(2) damages for breaches of the TALA.
The Company 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
TALA is subject to 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 TALA and (ii) certain of Owens' claims are not arbitrable.
On May 1, 2000, the Company and its affiliates submitted Claimants' Reply to
the counterclaim in the arbitration. The hearing on the merits in the
arbitration is scheduled to begin in November 2000.
On April 14, 2000, Owens and the Company and certain of its affiliates
consented to the entry of an order by the Court which requires compliance with
the TALA until further order of the Court. In addition, the order requires the
Company and its affiliates to inventory all equipment, other technology and
documents subject to the TALA 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.
On November 6, 2000, the Company and its affiliates, including
Consumers, reached a settlement concerning all aspects of the Owens dispute. As
part of the settlement, the TALA will be amended and extended through 2005. The
amended agreement will cover technology now in place, at the same royalty rate.
Upon expiration of the agreement, the Company and its affiliates, including
Consumers, will receive a paid-up license for that technology. Documentation
for the amended agreement and mutual releases is expected to be completed by
the end of November 2000. Under the settlement, the Company, Consumers and GGC
will pay an aggregate
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of $5.0 million to Owens. The Company has estimated its allocation of this
settlement to be $2.3 million. This charge has been recorded in the third
quarter ended September 30, 2000. Consumers, GGC and another affiliate will
receive a refund of $1.213 million of royalties paid previously under protest.
The settlement terminates all litigation over the matter, including a federal
court suit and an overseas lawsuit, as well as arbitration proceedings.
Item 2. Changes in Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
--------
4.14 Amendment No. 2 to Intercreditor Agreement, dated as of
October 16, 2000 by and between The Bank of New York and Bank
of America, National Association.
10.64 Loan and Security Agreement dated as of October 16, 2000,
among the Financial Institutions named therein, as the
Lenders and Bank of America, National Association, as the
Agent and Anchor Glass Container Corporation, as the
Borrower.
10.65 Restated Intercompany Agreement dated as of October 16, 2000.
10.66 Consumers U.S., Inc. Guaranty and Pledge Agreement dated as
of October 16, 2000 among Consumers U.S., Inc. and Bank of
America, National Association, as agent.
10.67 Irrevocable Proxy and Pledge Agreement dated as of October
16, 2000 by and between Anchor Glass Container Corporation
and Bank of America, National Association, as agent.
27 Financial Data Schedule
b. Reports on Form 8-K
Current Report on Form 8-K dated October 13, 2000 (filed
October 24, 2000) reporting a stockholder derivative action
against certain of the Company's directors, officers and
certain related entities commenced by certain stockholders of
the Company. See Note 7 to the Condensed Financial Statement
and Part II - Item 1. - Legal Proceedings.
Current Report on Form 8-K dated and filed November 8, 2000,
filing, as an exhibit, a press release regarding the
settlement of the litigation with Owens dated November 8,
2000. See Note 7 to the Condensed Financial Statements and
Part II - Item 1. - Legal Proceedings.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANCHOR GLASS CONTAINER CORPORATION
Date: November 14, 2000 /s/ Lawrence M. Murray
----------------------------------
Lawrence M. Murray
Senior Vice President - Finance
(Principal Financial Officer and
Duly Authorized Officer)
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