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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
FOR THE FISCAL YEAR ENDED: COMMISSION FILE NUMBER:
DECEMBER 31, 1998 333-57099
</TABLE>
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CCPC HOLDING COMPANY, INC.
(Registrant)
<TABLE>
<S> <C>
DELAWARE 16-1403318
(State of incorporation) (I.R.S. Employer Identification No.)
ONE PYREX PLACE, P.O. BOX 1555, ELMIRA, NEW 14902-1555
YORK (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: 607-377-8000
------------------------
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 and (2) has been subject to the filing
requirements for at least 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 be contained, to the best
of registrant's knowledge, in any information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes
_X_ No ______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
24,000,000 shares of CCPC Holding Company, Inc.'s, $0.01 Par Value, were
outstanding as of March 29, 1999.
Documents incorporated by reference in this annual report--NONE
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<PAGE>
PART I
ITEM 1--BUSINESS
(ALL DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
GENERAL
CCPC Holding Company, Inc. (CCPC or the Company) is a leading manufacturer
and marketer of housewares, including bakeware, dinnerware and rangetop
cookware. The Company believes that its brands, including Corning
Ware-Registered Trademark-, Pyrex-Registered Trademark-,
Corelle-Registered Trademark-, Revere Ware-Registered Trademark- and
Visions-Registered Trademark-, constitute one of the broadest and best
recognized collection of brands in the U.S. housewares industry.
The Company's business began as an unincorporated division of Corning
Incorporated (Corning) in 1915 with the invention of the heat-resistant glass
that has become known as Pyrex-Registered Trademark- brand glassware. In 1958,
Corning introduced Corning Ware-Registered Trademark- bakeware, a versatile
glass-ceramic cookware product evolved from materials originally developed for a
U.S. ballistic missile program. Corelle-Registered Trademark- dinnerware, a
proprietary three-layer, two-glass product with high mechanical strength
properties and designed for everyday use, was launched in 1970.
Visions-Registered Trademark- cookware, a lower cost, clear glass-ceramic
cookware line, was introduced in 1982. In 1988, Corning supplemented its
cookware product lines with the acquisition of the Revere business, which
manufactures and distributes stainless steel cookware and rangetop products
(including, more recently, non-stick aluminum products) under the Revere
Ware-Registered Trademark- brand.
The Company was formed in 1991 when Corning, in an effort to expand the
international sales of its consumer products, entered into a joint venture with
Vitro S.A., the leading glass manufacturer in Mexico. In connection with that
joint venture (which was unwound in 1993 when it did not achieve its strategic
and financial objectives), Corning contributed or licensed to the Company
substantially all of its assets used in Corning's consumer products business. In
November 1994, Corning and the Company sold their European, Russian, Middle
Eastern and African consumer products businesses to Newell, a significant
competitor of the Company, and agreed for a 5-year period not to manufacture,
sell, or distribute competing products in such territories (other than through
Newell). Related license and other agreements further limit the Company's right
to do business in these territories.
On March 2, 1998, Corning, CCPC, Borden, Inc. (Borden), and CCPC Acquisition
Corp. entered into a Recapitalization Agreement pursuant to which on April 1,
1998 (Closing Date) CCPC Acquisition acquired 92% of the outstanding shares of
common stock, par value $0.01 per share, of CCPC from Corning for $110,400
(Recapitalization). The stock acquisition was financed by an equity investment
in CCPC Acquisition by BW Holdings LLC, an affiliate of Kohlberg, Kravis Roberts
& Co., L.P. (KKR) and the parent company of Borden and CCPC Acquisition.
Pursuant to the Recapitalization Agreement, CCPC paid a cash dividend to Corning
of $472,600 prior to the consummation of the Recapitalization. On July 10, 1998,
post-closing adjustments to the cash dividend were agreed upon by CCPC and
Corning, and the Company distributed $10,160 to Corning. As a result of the
Recapitalization, Corning continues to hold 8.0% of the outstanding shares of
common stock of CCPC.
Pursuant to the Recapitalization Agreement, the Company will change its
corporate name to remove the word "Corning" within three years of the Closing
Date (although the Company has retained the right to use the word "CorningWare"
in its corporate name). The Company is currently in the process of determining
its new corporate name.
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PRODUCTS
The Company's products are sold primarily in the bakeware, dinnerware and
rangetop cookware categories under five core brand names. The following table
sets forth the sales of the Company's products in their primary segments from
1996 through 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- ----------
NET SALES:
Bakeware................................................. $ 197,400 $ 206,499 $ 235,353
Dinnerware............................................... 163,336 186,642 187,202
Rangetop Cookware........................................ 100,721 109,667 140,577
Other.................................................... 71,611 70,052 69,274
---------- ---------- ----------
Total.............................................. $ 533,068 $ 572,860 $ 632,406
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
BAKEWARE
CORNING WARE-REGISTERED TRADEMARK-. Corning Ware-Registered Trademark-
bakeware was introduced in 1958 as a cookware that "does it all," going from
freezer to oven to stovetop to refrigerator to table. This versatility results
from the Corning Ware-Registered Trademark- manufacturing process, which creates
a glass-ceramic material with high resistance to thermal shock. This
glass-ceramic material was originally fabricated for missile nose cones due to
its ability to withstand thermal extremes. Corning Ware-Registered Trademark-
products include round, oval and square cooking/serving vessels with glass and
plastic covers and comprise four product lines: Corning
Ware-Registered Trademark- French White-TM-, Corning Ware-Registered Trademark-
Classics-TM-, Corning Ware-Registered Trademark- Pop-Ins-TM- and Corning
Ware-Registered Trademark- Casual Elegance.-TM-
PYREX-REGISTERED TRADEMARK-. Pyrex-Registered Trademark- products are made
of borosilicate and tempered soda lime glass and are available in a number of
colors, shapes and sizes. The Company's Pyrex-Registered Trademark- products
comprise four product lines: Pyrex-Registered Trademark- Originals-TM-,
Sculptured Pyrex-TM-, Storage Plus-Registered Trademark- and Pyrex
Portables-Registered Trademark-.
DINNERWARE
CORELLE-REGISTERED TRADEMARK-. Corelle-Registered Trademark-, the Company's
dinnerware product line developed in 1971, is produced using a proprietary
manufacturing process. This manufacturing process combines three layers of glass
and allows the Company to manufacture a dinnerware that is durable and
break/chip resistant, as well as light, thin and stackable.
OTHER DINNERWARE. CCPC manufactures a glass ceramic tableware product sold
to restaurants and other institutions under the Pyroceram-Registered Trademark-
trademark. Corelle-Registered Trademark- cups and mugs are also produced using
this material. The manufacturing process involves pressing and glazing the
shapes to yield a durable and aesthetically pleasing product.
RANGETOP COOKWARE
REVERE WARE-REGISTERED TRADEMARK-. The Company's Revere
Ware-Registered Trademark- brand products include stainless steel cookware that
is manufactured by the Company and aluminum non-stick cookware that is made by
other manufacturers.
The Company's Revere Ware-Registered Trademark- stainless steel cookware
products are comprised of the traditional Revere Ware-Registered Trademark-
product line and the Revere Ware-Registered Trademark- Solutions-TM- and Revere
Ware-Registered Trademark- Proline-TM- product lines. Certain Revere
Ware-Registered Trademark- Solutions-TM- products feature patented double
pourspouts and steam holes, steam venting nozzles and textured handles. Revere
Ware-Registered Trademark- Proline-TM- products are professional style,
stainless steel products which compete at higher price points.
3
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VISIONS-REGISTERED TRADEMARK-. Introduced in the United States in 1982,
Visions-Registered Trademark- products are made with a translucent glass-ceramic
material that allows customers to see what they are cooking. The Company manages
Visions-Registered Trademark- as a specialty line focused on promotional
programs and markets Visions-Registered Trademark- products in areas where
water-based cooking and simmering are relevant to a market's or community's
culture.
OTHER
The Company's "Other" sales include selected table top and kitchen
accessories manufactured by third parties which are coordinated with the
Corelle-Registered Trademark- line of dinnerware and the Revere
Ware-Registered Trademark- line of stainless steel cookware. These products,
which include ceramics, flatware, linens, storage ware and teapots, are sold
primarily in the Company's outlet stores and a small portion is sold under
license to other retailers.
NEW PRODUCT DEVELOPMENT
New products are developed using a disciplined development process adopted
by the Company. This process is designed to reduce the risk associated with new
product development projects through the early assessment of a product's market
viability, and to compress product development cycle time through the use of the
Company's proprietary design and modeling software. This new product development
process leverages the Company's extensive qualitative and quantitative research
knowledge and has reduced development time, focused resources on projects with
high market potential and decreased large expenditures on product concepts with
low market viability.
Additional information about CCPC and its products is discussed in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, appearing on pages 13 through 21, and Note 15 of the Notes to
Consolidated Financial Statements appearing on page 41.
MARKETING AND DISTRIBUTION
The Company's products are sold in the United States and in over 30 foreign
countries. In the United States (which accounted for approximately 80% of the
Company's net sales in 1998), the Company sells both on a wholesale basis to
retailers, distributors and other accounts that resell the Company's products
and on a retail basis through Company-operated outlet stores.
DOMESTIC WHOLESALE
In the United States, the Company sells to approximately 500 customers, made
up primarily of mass merchants, department stores, specialty retailers, as well
as through other channels, including retail food stores, catalog showrooms and
direct mail.
During the last three years, the Company has significantly narrowed the
number of U.S. customers it services directly (from approximately 900 accounts
in 1995 to approximately 500 as of December 31, 1998) enabling the Company to
focus on higher profit accounts while shifting many lower profit accounts to
distributors of the Company.
DOMESTIC RETAIL
The Company operates a network of outlet stores in 48 states, located
primarily in outlet malls. The Company's outlet stores, which carry an extensive
range of the Company's products, enable the Company to participate in broader
distribution and to profitably sell slower-moving inventory. The Company
believes that its outlet stores, which also sell complementary kitchen
accessories, have developed marketing and pricing strategies that generate sales
which supplement, rather than compete with, its wholesale customers. The
Company-operated outlet stores also promote and strengthen the Company's brands,
enabling the
4
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Company to provide customers a broader assortment of products beyond products
that are commonly stocked by third party retailers.
INTERNATIONAL
The Company's 30-person international sales force, together with localized
distribution and marketing capabilities, have allowed the Company to become an
established marketer of bakeware and dinnerware in Canada, Korea, Australia,
Japan, Singapore, Taiwan, Hong Kong, Mexico and Brazil. The Company believes
that developing localized distribution capabilities is critical to continued
growth in international markets and, as a result, has made investments in
localized distribution facilities in Brazil, Malaysia, Canada and Australia.
EUROPEAN, RUSSIAN, MIDDLE EASTERN AND AFRICAN CONSUMER PRODUCTS BUSINESS
In November 1994, Corning and the Company sold to Newell all of the
outstanding stock of Corning Consumer Limited ("CC Limited"), Corning Consumer
GmbH ("CC GmbH") and Corning Consumer S.A ("CCSA"), subsidiaries of Corning and
the Company through which the Company's consumer products business was conducted
in Europe, Russia, the Middle East, and Africa (collectively, the "Newell
Territory"). Corning and the Company granted to Newell, CC Limited, CC GmbH and
CCSA the exclusive right to use certain trademarks within the Territory. In
addition, Corning and the Company agreed for a five-year period (which expires
in November 1999), subject further to certain exclusive distribution agreements
with Newell, not to manufacture, sell or distribute competing products in the
Newell Territory. Currently, Newell serves as the exclusive sales representative
and distributor for certain of the Company's products in the Newell Territory,
which represented less than 1% of the Company's net sales in 1998.
CUSTOMER SERVICE: SALES AND MARKETING SUPPORT
Management believes that service is a key part of the Company's product
offering. The close relationships and frequent contact with its large customers
provide the Company with sales opportunities and application ideas. The Company,
through its sales team, provides its customers with sales and marketing support.
In addition, the Company has a dedicated consumer information center in
Waynesboro, Virginia staffed by approximately 60 consumer service
representatives who may be contacted through a toll-free number. The consumer
facility responds to consumer inquiries on topics such as warranty claims,
rebate programs and store referrals.
SALES
The Company's domestic customers are served by a combination of Company
salespeople and independent, commissioned representatives. The Company's top 100
accounts are serviced by the Company's direct sales force teams, each consisting
of four or five salespeople which are organized (i) by account, for the
Company's most significant customers and (ii) by region, for the balance of the
top 100 accounts. The teams are directly accountable for revenues, allowances,
promotional spending and account profitability. The Company's sales teams
dedicate their primary focus to the top 25 customers. Members of the sales teams
regularly call on the Company's customers to develop an in-depth understanding
of each customer's competitive environment and opportunities. Smaller wholesale
accounts are serviced by approximately 40 independent, commissioned sales
representatives. The Company's 30-person international sales force, with
personnel located in ten countries, work with local retailers and distributors
to optimize product assortment, consumer promotions and advertising for local
preferences.
MARKETING SUPPORT
The Company provides its customers with extensive marketing support. The
Company conducts extensive research on housewares industry trends, including
consumer color and design preferences.
5
<PAGE>
COMPETITION
The market for the Company's products is highly competitive and the
housewares industry is trending towards consolidation. Competition in the United
States is affected not only by domestic manufacturers but also by the large
volume of foreign imports. Recently the Company has experienced increased
competition in the United States from low-cost Far-Eastern competitors and
expects this trend to continue in the future. The market for housewares outside
the United States and Europe is relatively fragmented and differs by country and
region. Internationally, depending on the country or region, the Company
competes with other U.S. companies operating abroad, locally manufactured goods
and international companies competing in the worldwide bakeware, dinnerware and
rangetop cookware categories.
A number of factors affect competition in the sale of bakeware, dinnerware
and rangetop cookware manufactured and/or sold by the Company, including, but
not limited to quality, price competition and price point parameters established
by the Company's various distribution channels. Shelf space is a key factor in
determining retail sales of bakeware, dinnerware and rangetop cookware products.
A competitor that is able to maintain or increase the amount of retail space
allocated to its product may gain a competitive advantage for that product. In
addition, new product introductions are an important factor in the categories in
which the Company's products compete. Other important competitive factors are
brand identification, style, design, packaging and the level of service provided
to customers.
The Company has, from time to time, experienced price and market share
pressure from certain competitors in certain product lines, particularly in the
bakeware category where metal products of competitors have created retailer
price and margin pressures, and in the rangetop cookware category where
non-stick aluminum products have increased their share of rangetop cookware
sales at the expense of stainless steel products due to the durability and ease
of cleaning of new non-stick coatings.
Other important competitive factors are brand identification, style, design,
packaging and the level of service provided to customers. The importance of
these competitive factors varies from customer to customer and from product to
product.
CUSTOMERS
In the United States, CCPC sells to approximately 500 customers made up
primarily of mass merchants, department stores, specialty retailers, as well as
through other channels, including retail food stores, catalog showrooms, and
direct mail. In 1998, Wal-Mart Stores, Inc. and Kmart Corp. collectively
accounted for approximately 25% of the Company's net sales.
MANUFACTURING AND RAW MATERIALS
Sand, soda ash, borax, limestone, lithia-containing spars, alumina, cullet,
stainless steel, copper and corrugated packaging materials are the principal raw
materials used by the Company. The Company purchases its raw materials on the
spot market and through long-term contracts with suppliers. All of these
materials are available from various suppliers and the Company is not limited to
any single supplier for any of these materials. Management believes that
adequate quantities of these materials are and will continue to be available
from various suppliers. The Company's molded plastic products and certain
components of its kitchenware products are manufactured from plastic resin,
which is produced from petroleum-based raw materials. Plastic resin prices may
fluctuate as a result of changes in natural gas and crude oil prices and the
capacity, supply and demand for resin and the petrochemical intermediates from
which it is produced. The Company sources certain products, such as non-stick
aluminum rangetop products, from third party suppliers. The Company believes
that alternative sources of supply at competitive prices are available from
other manufacturers of substantially identical products.
The melting units operated by the Company require either electric or natural
gas energy input. Back-up procedures and systems to replace the primary source
of these energy inputs are in place in each
6
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of the Company's relevant facilities. Ongoing programs exist within each of the
Company's glass melting facilities to reduce energy consumption. Furthermore,
rates for electric and natural gas have been fixed contractually in each of the
Company's plants to avoid the negative impact of market fluctuations in prices.
The Company does not engage in any hedging activities for commodity trading
relating to its supply of raw materials.
However, the replacement of certain raw material suppliers has in the past,
and may in the future, have an adverse effect on the Company's operations and
financial performance and significant increases in the cost of any of the
principal raw materials used by the Company could have a material adverse effect
on its results of operations.
PATENTS AND TRADEMARKS
The Company owns numerous United States and foreign trademarks and trade
names and has applications for the registration of trademarks and trade names
pending in the United States and abroad. The Company's most significant owned
trademarks and/or tradenames include Corelle-Registered Trademark-,
Revere-Registered Trademark-, Revere Ware-Registered Trademark- and
Visions-Registered Trademark-. The other two most significant trademarks used by
the Company are Corning Ware-Registered Trademark- and
Pyrex-Registered Trademark-. Upon the consummation of the Recapitalization on
April 1, 1998, Corning granted to the Company fully paid, royalty-free licenses
to use the Corning Ware-Registered Trademark- trademark, servicemark and
tradename and the Pyroceram-Registered Trademark- trademark in the field of
housewares and to use the Pyrex-Registered Trademark- trademark in the field of
durable consumer products. These licenses are exclusive, worldwide licenses,
subject to the prior exclusive licenses granted to Newell and certain of its
subsidiaries in the Newell Territory and provide for renewable ten-year terms,
which the Company may renew indefinitely. In addition, in connection with the
Recapitalization, the Company entered into an agreement with Corning under which
the Company is licensed to continue to use "Corning" in connection with the
Company's business for three years after the Closing Date (or up to five years
in the case of certain molds used in the manufacturing process).
The Company also owns and has the exclusive right to use numerous United
States and foreign patents, and has patent applications pending in the United
States and abroad. In addition to its patent portfolio, the Company possesses a
wide array of unpatented proprietary technology and know-how. The Company also
licenses certain intellectual property rights to or from third parties.
Concurrently with the Recapitalization, Corning granted to the Company a
fully paid, royalty-free license of patents and know-how (including evolutionary
improvements) owned by Corning that pertain to or have been used in the
Company's business. Furthermore, the Company and Corning entered into a
five-year technology support agreement (renewable at the option of the Company
for an additional five years), pursuant to which Corning will provide to the
Company (at the Company's option) engineering, manufacturing technology, and
research and development services, among others, at Corning's standard internal
rates.
The Company believes that its patents, trademarks, trade names, service
marks and other proprietary rights are important to the development and conduct
of its business and the marketing of its products. As such, the Company
vigorously protects its intellectual property rights.
ENVIRONMENTAL MATTERS
The Company's facilities and operations are subject to certain federal,
state, local and foreign laws and regulations relating to environmental
protection and human health and safety, including those governing wastewater
discharges, air emissions, and the use, generation, storage, treatment,
transportation and disposal of hazardous and non-hazardous materials and wastes
and the remediation of contamination associated with such disposal. Because of
the nature of its business, the Company has incurred, and will continue to
incur, capital and operating expenditures and other costs in complying with and
resolving liabilities under such laws and regulations. The Company believes it
is in substantial compliance with applicable environmental laws and regulations,
and does not believe it has material liabilities under such
7
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laws and regulations. However, there can be no assurance that compliance with,
or liabilities under, such laws and regulations, or the discovery of
contamination, will not have a material adverse effect on the Company in the
future.
Certain of the Company's facilities have lengthy manufacturing histories
and, over such time, have used or generated and disposed of substances which are
or may be considered hazardous. In addition, certain of these facilities are
located on properties that had been used for various industrial purposes prior
to the Company's occupancy. The Company has been involved in the remediation of
historic contamination at certain of these facilities and is currently
undertaking additional subsurface investigations in order to assess certain
potential soil and groundwater contamination at other facilities. Pursuant to
the terms and conditions of the Recapitalization Agreement, Corning has agreed
to indemnify the Company for certain costs and expenses that may be incurred in
the future by the Company arising from pre-Recapitalization environmental
events, conditions or matters and as to which notice is provided within
specified time periods. Corning has agreed to indemnify the Company for (i) 80%
of such costs and expenses up to an aggregate of $20.0 million and (ii) 100% of
such costs and expenses in excess of $20.0 million. The Company believes that,
based on currently available information and the terms and conditions of
Corning's indemnification obligations under the Recapitalization Agreement, any
liability of the Company that is reasonably likely to arise out of any of these
environmental conditions and activities would not result in a material adverse
effect on the Company. However, management cannot predict with certainty whether
future events, such as changes in existing laws and regulations, the discovery
of contamination or other environmental conditions not currently known to the
Company, the occurrence of new contamination or other environmental conditions
or developments that could impair the Company's ability to obtain
indemnification from Corning, may result in the Company having to bear
environmental costs not currently planned for by the Company. Accordingly, it is
possible that such additional environmental liabilities could result in a
material adverse effect on the Company.
GOVERNMENTAL REGULATIONS
The Company is subject to various federal, state and local laws affecting
its business, including various environmental, health, fire and safety
standards. See "Environmental Matters." The Company is also subject to the Fair
Labor Standards Act and various state laws governing such matters as minimum
wage requirements, overtime and other working conditions and citizenship
requirements. The Company believes that its operations are in material
compliance with applicable laws and regulations.
EMPLOYEES
At December 31, 1998, CCPC had approximately 3,200 full-time employees,
approximately half of which were covered by collective bargaining agreements.
The collective bargaining agreements will be renegotiated over the next 18
months.
OTHER
Additional information in response to Item 1 is found in Item 6, Five-Year
Selected Financial Data, appearing on page 12, Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations, appearing on
pages 13 through 21, and Note 15 of the Notes to Consolidated Financial
Statements appearing on page 41.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The factors discussed below,
among others, could cause actual results to differ materially from those
contained in forward-looking statements made in this report, including without
limitation, in "Management's Discussion and Analysis of Financial Condition and
Results of Operations,"
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in the Company's related press releases and in oral statements made by
authorized officers of the Company. When used in this report, any press release
or oral statement, the words "looking forward," "estimate," "project,"
"anticipate," "expect," "intend," "believe" and similar expressions are intended
to identify a forward-looking statement. Forward-looking statements are not
guarantees of future performance and are subject to risks, uncertainties and
other factors (many of which are beyond the Company's control) that could cause
actual results to differ materially from future results expressed or implied by
such forward-looking statements. The forward-looking statements regarding such
matters are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions and expected future developments, as well as other factors it
believes are appropriate in the circumstances. Whether actual results and
developments will conform with the Company's expectations and predictions,
however, is subject to a number of risks and uncertainties, in addition to the
risk factors discussed above, including: a global economic slowdown in any one,
or all, of the Company's sales categories; loss of sales as the Company
streamlines and focuses on strategic accounts; potential labor unrest;
unpredictable difficulties or delays in the development of new product programs;
increased difficulties in obtaining a consistent supply of basic raw materials
such as sand, soda ash, steel or copper and energy inputs such as electrical
power or natural gas at stable pricing levels; development by the Company of an
adequate administrative infrastructure; delays in implementation of
manufacturing restructuring projects; disruptions or delays in sourcing
arrangements for Revere Ware-Registered Trademark- products; technological
shifts away from the Company's technologies and core competencies; unforeseen
interruptions to the Company's business with its largest customers resulting
from, but not limited to, financial instabilities or inventory excesses; the
effects of extreme changes in monetary and fiscal policies in the United States
and abroad, including extreme currency fluctuations and unforeseen inflationary
pressures such as those recently experienced by certain Asian economies; drastic
and unforeseen price pressures on the Company's products or significant cost
increases that cannot be recovered through price increases or productivity
improvements; significant changes in interest rates or in the availability of
financing for the Company or certain of its customers; loss of any material
intellectual property rights; any difficulties in obtaining or retaining the
management or other human resource competencies that the Company needs to
achieve its business objectives; and other factors, many of which are beyond the
control of the Company. Consequently, all of the forward-looking statements made
in this Form 10-K are qualified by these cautionary statements, and there can be
no assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequences to or effects on the Company and its subsidiaries or their
business or operations.
ITEM 2--PROPERTIES
CCPC utilizes five primary manufacturing facilities (four in the United
States and one outside of the United States) and seven principal packaging and
distribution centers (two in the United States and five outside of the United
States).
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The table below summarizes certain data for each of the Company's principal
properties, including its manufacturing and distribution facilities:
<TABLE>
<CAPTION>
FACILITY
-------------------------
LOCATION PRIMARY USE SQ. FEET OWN/LEASE
- ------------------------------------------------------ ------------------------------ ---------- -------------
<S> <C> <C> <C>
DOMESTIC:
Charleroi, Pennsylvania............................... Manufacturing 603,332 Own
Clinton, Illinois(1).................................. Manufacturing/Distribution 660,000 Own
Corning, New York..................................... Manufacturing 375,000 Own
Corning, New York(2).................................. Headquarters 50,000 Lease
Greencastle, Pennsylvania............................. Distribution 1,210,000 Own
Martinsburg, West Virginia............................ Manufacturing 416,000 Own
Waynesboro, Virginia.................................. Consumer Service Center 89,800 Own
INTERNATIONAL:
Johor, Malaysia(3).................................... Manufacturing/Distribution 64,000 Own/Lease
Ontario, Canada(4).................................... Distribution 94,349 Lease
Johor, Malaysia....................................... Distribution 50,000 Lease
Sao Paulo, Brazil..................................... Distribution 2,000 Lease
Sydney, Australia..................................... Distribution 66,000 Lease
</TABLE>
- ------------------------
(1) The Company announced that this facility will be closed during 1999.
(2) The Company leased its corporate headquarters from Corning until April,
1999. The Company moved its headquarters to a leased 60,000 sq. foot
facility in Elmira, New York in March 1999.
(3) The building housing the Malaysia facility is owned by CIM, a subsidiary
that is 80% owned by the Company. The land on which the facility is located
is leased pursuant to a 60-year lease expiring in 2048.
(4) The Company plans to close the facility in the first half of 1999.
Distribution will be handled by the Greencastle, Pennsylvania facility.
In addition, the Company and Corning have entered into a supply contract
pursuant to which Corning will supply manufacturing capacity for
Pyrex-Registered Trademark-bakeware products at Corning's Greenville, Ohio
facility to the Company for three years. The Company plans to stop production in
Greenville in 1999.
ITEM 3--LEGAL PROCEEDINGS
There are no pending legal proceedings which are material in relation to the
consolidated financial statements of CCPC.
CCPC has been engaged in, and will continue to be engaged in, the defense of
product liability claims related to its products, particularly its bakeware and
cookware product lines. The Company maintains product liability coverage,
subject to certain deductibles and maximum coverage levels that the Company
believes is adequate and in accordance with industry standards.
In addition to product liability claims, from time to time the Company is
involved in various legal actions in the ordinary course of business. The
Company is not currently involved in any legal actions which, in the belief of
management, could have a material adverse impact on the Company.
On May 12, 1998, the Company received a claim from Rubbermaid Incorporated
alleging that Corning Ware-Registered Trademark- Pop-ins-TM- infringe four
patents owned by Rubbermaid Incorporated. On October 29, 1998, the Company and
Rubbermaid Incorporated reached a mutually agreed settlement of this issue. The
settlement did not have a material impact on CCPC's financial results for the
current year; and it has not
10
<PAGE>
adversely affected CCPC's sales of Corning Ware-Registered Trademark-
Pop-ins-TM- products or resulted in any additional production expenses.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
<PAGE>
PART II
ITEM 5--MARKET FOR THE REGISTRANTS' COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's authorized common stock consists of 45,000,000 shares with a
par value of $0.01 per share, 24,000,000 of which were issued and outstanding at
December 31, 1998 and controlled by affiliates of KKR. No shares of such common
stock trade on any exchange. No dividends were declared on common stock during
1998 other than those related to the Recapitalization.
ITEM 6--SELECTED FINANCIAL DATA
FIVE YEAR SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
SUMMARY OF OPERATIONS
Net sales.................................. $ 533,068 $ 572,860 $ 632,406 $ 608,720 $ 608,213
(Loss) income from continuing ops.(1)(2)... $ (33,312) $ 13,694 $ 3,122 $ (21,745) $ 2,923
(Loss) income applic. to common
stock(1)(2).............................. $ (36,094) $ 13,694 $ 3,122 $ (21,745) $ 2,923
(Loss) income from continuing operations
per common
share(1)(2)(3)........................... $ (1.39) $ 0.57 $ 0.13 $ (0.91) $ 0.12
Net (loss) income per common
share(1)(2)(3)........................... $ (1.50) $ 0.57 $ 0.13 $ (0.91) $ 0.12
Preferred dividends per preferred share.... $ 2.32 N/A N/A N/A N/A
Average number of common shares
outstanding(3)........................... 24,000,000 24,000,000 24,000,000 24,000,000 24,000,000
OTHER FINANCIAL DATA
EBITDA(1)(2)(4)............................ $ 35,016 $ 70,910 $ 55,900 $ 17,519 $ 46,284
FINANCIAL POSITION
Total assets............................... $ 495,259 $ 480,623 $ 512,768 $ 528,526 $ 521,621
Long-term debt............................. $ 433,656 $ 8,285 $ 13,474 $ 13,973 $ 14,589
</TABLE>
- ------------------------
(1) (Loss) income, EBITDA and per share data for 1994 through 1997 have been
restated to reflect the change from the LIFO to FIFO method of accounting
for inventories. The restatement (decreased) increased earnings by ($3,546),
($3,256), $1,502, and $656 respectively.
(2) Includes transaction related expenses of $28,866.
(3) Per share data for 1994 through 1997 were restated for the 24,000-for-1
stock split in March 1998.
(4) EBITDA represents operating income (loss) prior to deductions for
depreciation and amortization. EBITDA is presented because management
understands that such information is considered by certain investors to be
an additional basis for evaluating the Company's ability to pay interest and
repay debt. EBITDA should not be considered an alternative to measures of
operating performance as determined in accordance with generally accepted
accounting principles, including net income, as a measure of the Company's
operating results and cash flows or as a measure of the Company's liquidity.
Because EBITDA is not calculated identically by all companies, the
presentation herein may not be comparable to other similarly titled measures
of other companies.
12
<PAGE>
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(ALL DOLLAR AMOUNTS IN THOUSANDS, UNLESS OTHERWISE STATED)
CCPC is a leading manufacturer and marketer of oven/bakeware, dinnerware and
rangetop cookware. CCPC has strong positions in major channels of distribution
for its products in the United States and has also achieved a significant
presence in certain international markets, primarily Canada, Asia, Australia and
Latin America. In the United States, CCPC sells both on a wholesale basis to
retailers, distributors, and other accounts that resell the Company's products
and on a retail basis through company-operated outlet stores. In the
international market, CCPC has established its presence through an international
sales force along with localized distribution and marketing capabilities.
Prior to the Recapitalization, the Company operated as a wholly owned
subsidiary of Corning. During this period, Corning provided the Company with
certain administrative services which were not readily allocated to individual
transactions or events, such as legal, treasury and tax functions. For these
services the Company paid Corning the charges recorded as "Other corporate
administrative expenses," which were based on a percentage of the Company's
budgeted sales. "Other corporate administrative expenses" were $18,408 and
$20,904 in 1997 and 1996, respectively. Under the transition services agreement
with Corning entered into on the date of the Recapitalization, Corning will
continue for a two-year period to provide a portion of these services at
negotiated rates. In addition, the Company is developing its administrative
infrastructure and certain of these functions have been and will be assumed by
the Company or performed by third parties. In 1998, the Company performed many
of these administrative services (which are included in selling, general, and
administrative expense following the Recapitalization) for substantially less
than the costs previously charged by Corning.
In addition, prior to the Recapitalization, Corning performed, and under the
transition services agreement continues to perform, certain process-oriented
administrative support services, such as benefits administration, accounts
payable and accounts receivable functions. Corning has agreed pursuant to the
transition services agreement to continue to provide such services for up to two
years at rates (expiring in April 2000) calculated on the same basis as before
the Recapitalization. These services are reflected as expenses on the same terms
as prior to the Recapitalization.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- ----------
NET SALES
North America.............................................................. $ 471,987 $ 465,280 $ 533,504
Asia(1).................................................................... 20,725 57,702 53,951
Other International........................................................ 40,356 49,878 44,951
---------- ---------- ----------
Net Sales.............................................................. $ 533,068 $ 572,860 $ 632,406
---------- ---------- ----------
---------- ---------- ----------
OPERATING INCOME(2)
North America(3)........................................................... $ 26,192 $ 8,158 $ (4,609)
Asia(1)(3)................................................................. (2,262) 18,432 15,312
Other International........................................................ 6,560 8,614 9,426
---------- ---------- ----------
Operating Income....................................................... $ 30,490 $ 35,204 $ 20,129
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
(1) Excluding Japan.
(2) Excluding the impact of transaction related expenses.
(3) Including the effect of change in accounting principle from LIFO to FIFO
inventory costing in the amount of $656 and $1,502 in 1997 and 1996,
respectively.
13
<PAGE>
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
OVERVIEW
Net sales decreased $39,792 or 6.9% from 1997, as a result of weakness in
the international markets, particularly Asia. The $4,714 decrease in operating
income is the result of significant declines in Asia, including $2,480 in
restructuring charges incurred to consolidate and rationalize Far Eastern
operations. The declines in results for Asian operations were partially offset
by gains in North American operations due to CCPC's strategy of focusing on
profitable customers and by significant reductions in administrative costs.
Although CCPC's overall operating results declined in 1998, the North American
operations improved compared to 1997 and the rate of deterioration in Asia's
operating results was much less in the second half of 1998 relative to the first
half of 1998.
SALES
North American sales for 1998 increased $6,707 compared to 1997. This
improvement was attributable to significantly higher shipments to mass merchants
and increases in same store sales of company-operated outlet stores. The
increase was partially offset by CCPC's strategy of focusing on profitable
products and customers, which reduced the number of products offered, and the
number of customers serviced. The increase in shipments to mass merchants
reflects improved allocations of shelf space at key customers as a result of
stronger planograms (plan on which shelf space allocations are based) negotiated
for 1998. Sales at company-operated outlet stores benefited from CCPC's
inventory reduction program in 1998 as special promotional prices on overstocks
led to higher sales during 1998. CCPC's efforts to focus on profitable accounts
negatively impacted sales but improved gross profit margin.
Economic disruptions in Asia caused material declines in sales. Asian sales
for 1998 were $36,977 less than 1997. Although sales were materially lower than
the prior year, the gap narrowed throughout the year. Asian sales for the first
half of 1998 were 71% behind the same period in 1997 while the second half of
the year was 55% behind the same period in 1997.
Other international sales in 1998 were $9,522 below 1997 levels. The
reduction in sales is primarily a result of a significant decrease in sales to
CCPC's European distributor along with the currency impact of Asian economic
disruptions on other Far Eastern operations.
GROSS PROFIT (NET SALES LESS COST OF SALES)
Gross profit as a percentage of net sales for 1998 was 34.4%, consistent
with the 1997 gross profit percentage of 34.3%. CCPC's strategy of focusing on
profitable accounts offset (i) the decline in higher margin international sales
(ii) the impact of an inventory reduction program implemented in 1998 and
discussed below and (iii) a gross profit percentage reduction at
company-operated outlet stores due to a reduction in prices of slower-moving
items with the objective of reducing inventories. In the third quarter of 1998,
CCPC implemented an inventory reduction program by planned reduction in
production at CCPC's manufacturing facilities. The reduced production levels
resulted in higher cost of sales due to the allocation of fixed costs over a
smaller base of production. The longer-term effect of the program will be to
reduce inventory carrying costs and improve cash flow. The gross profit
percentages at company-operated outlet stores were negatively impacted by CCPC's
inventory reduction program. The inventory reduction program pushed a material
amount of close-out inventories, sold at lower margins, through the company-
operated outlet stores. The majority of the close-out activity occurred in 1998
and management does not expect the same level of activity in 1999.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES AND OTHER CORPORATE ADMINISTRATIVE
EXPENSES
In 1998, selling, general, and administrative expenses and other corporate
administrative expenses decreased $8,796 from 1997 levels. The decrease was
primarily due to CCPC's separation from Corning.
14
<PAGE>
CCPC now operates as an independent company and performs at a significantly
lower cost many of the administrative tasks that were previously handled by
Corning. The decrease was partially offset by increases in company-operated
outlet store expenses to support close-out programs. As a percentage of net
sales, selling, general, and administrative and other corporate administrative
expenses rose to 27.6% in 1998 from 27.2% in 1997 due to the decline in net
sales.
OPERATING INCOME
Total CCPC operating income, excluding transaction related expenses, in 1998
was $30,490 compared to $35,204 in 1997, a decrease of $4,714. Operating income
in North America increased by $18,034 in 1998 as compared to 1997. As noted
above the increase is due primarily to CCPC's strategy of focusing its sales
efforts on higher margin products and profitable customers while continuing to
actively manage its product assortment, customer base and administrative cost
savings. Operating income in North America also increased as a result of the
separation from Corning. Prior to the Recapitalization, CCPC received an
allocation of corporate expenses from Corning, which was calculated as a
percentage of budgeted sales per an agreement between both companies. Beginning
April 1, 1998, CCPC no longer received the allocation of corporate expenses from
Corning. Charges for services previously performed by Corning are classified as
selling, general, and administrative expenses in 1998. Charges for services
continuing to be performed by Corning are based on CCPC's transition services
agreement with Corning. CCPC has been able to significantly reduce costs by
performing many of the activities in house and by utilizing competitive rates in
the transition services agreement.
Asian and other international operating results for 1998 decreased $22,748
from 1997. Economic disruptions in Asia and throughout CCPC's Far Eastern
operations have had a material adverse effect on CCPC's operations. Although
CCPC believes that such markets offer long term growth potential, the
disruptions in the Asian economy have resulted in greater than anticipated sales
reductions and production cut backs. Actions taken to consolidate and
rationalize Asian operations resulted in the need for restructuring expenses of
$2,480 that had the immediate effect of further depressing operating results.
However, these actions taken by management are expected to improve future
operating results by streamlining operations and reducing administrative
expenses.
Transaction related expenses of $28,866 (which are excluded from operating
income in the table) primarily consist of cash and non-cash compensation,
financing costs and other cash expenses associated with the Recapitalization. In
1998, CCPC recorded a charge of $28,866 for certain cash and non-cash expenses,
including $17,400 of compensation payments reimbursed by Corning related to
arrangements entered into by Corning with certain Corning employees who accepted
employment with CCPC. The remaining transaction related expenses consisted of
costs incurred in 1998 for fees and services related to the Recapitalization and
the related financings.
CCPC is continuing its efforts to further reduce manufacturing, assembly,
and distribution costs. As a result of this effort CCPC recorded cash and
non-cash restructuring charges of $4,772 related to the consolidation and
rationalization of Asian operations and the consolidation of Canadian and U.S.
distribution facilities.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Net sales decreased by $59,546 to $572,860 in 1997 from $632,406 in 1996.
This decline was primarily due to decreased volume through the mass merchant,
department store and catalog showroom channels caused by the elimination of
stock-keeping units and customer accounts in accordance with CCPC's strategy, as
well as unplanned inventory reductions and shelf space losses due to competitive
factors, strategy changes at certain key customers (such as lower retailer
participation in promotional programs) and the liquidation or bankruptcy of
certain customers. Decreased sales through the mass merchant, department store
and catalog showroom channels were partially offset by increased sales in
international
15
<PAGE>
and through CCPC operated outlet stores. CCPC's average prices for products in
1997 remained comparable with average prices in 1996.
Gross profit as a percentage of sales increased to 34.3% in 1997 from 31.1%
in 1996 as a result of the continued impact of CCPC's strategy to focus on
profitable products and customers and associated manufacturing cost reduction
efforts. Manufacturing cost reductions resulted from systematic productivity
improvements concentrated on reducing labor, materials and overhead costs
through (i) process simplification, (ii) better process control and discipline,
(iii) workforce productivity improvements and (iv) improved raw material
sourcing.
Selling, general, administrative and research and development expenses and
other corporate administrative expenses decreased to 27.2% of net sales in 1997
from 27.7% of sales in 1996. The reduction in these expenses was primarily
achieved through the realignment of sales and administrative functions and the
elimination or outsourcing of non-critical administrative functions in
accordance with CCPC's strategic objectives of cost reduction and improved
customer service. The decline was also attributable to decreased
company-operated outlet store expenses due to a reduced number of outlet stores.
These decreases were partially offset by increased expenses associated with
incremental investment in international operations to support international
sales growth.
Operating income increased $15,075 in 1997 as compared to 1996 as a result
of the increase in gross profit as a percentage of sales and the reduction of
selling, general, administrative and other corporate administrative expenses
noted above.
TAXES ON INCOME
CCPC's effective tax rate varies between years due to certain tax
adjustments which were made as a result of the Recapitalization. For 1998, CCPC
recorded income tax expense of $947 on net pretax losses of $32,666. Income tax
expense for 1998 reflects certain non-deductible expenses relating to the
Recapitalization and an increase to the valuation allowance for net operating
loss carryforwards. The effective tax rate for 1997 was 48%. For periods prior
to the Recapitalization, CCPC was included in the consolidated federal income
tax return filed by Corning and maintained a tax sharing arrangement with
Corning which required CCPC to compute the provision for income taxes on a
separate return basis and pay to, or receive from, Corning the separate U.S.
federal income tax return liability or benefit, if any.
LIQUIDITY AND CAPITAL RESOURCES
RECAPITALIZATION
On March 2, 1998, Corning, Borden, the Company and CCPC Acquisition entered
into the Recapitalization Agreement, pursuant to which on April 1, 1998 CCPC
Acquisition acquired 92.0% of the outstanding shares of Common Stock of the
Company from Corning for $110,400. The stock acquisition was financed by an
equity investment in CCPC Acquisition by BW Holdings, an affiliate of KKR and
the parent company of Borden and CCPC Acquisition. Pursuant to the
Recapitalization Agreement, on the closing date prior to the consummation of the
stock acquisition, CCPC paid a cash dividend to Corning of $472,600. On July 10,
1998, post-closing adjustments to the cash dividend were agreed upon by CCPC and
Corning, and CCPC distributed $10,160 to Corning. As a result of the
Recapitalization, Corning continues to hold 8.0% of the outstanding shares of
common stock.
FINANCING ARRANGEMENTS
CCPC incurred substantial indebtedness as a result of the Recapitalization.
On April 1, 1998, CCPC entered into an interim financing agreement with Borden
and BW Holdings, an affiliate of Borden, providing $471,600 in financing at 9.5%
maturing December 31, 1998. The interim financing was repaid in May 1998 with
the proceeds of borrowings under senior credit facilities from a syndicate of
banks and
16
<PAGE>
other financial institutions and the issuance of senior subordinated notes in a
private placement. On October 23, 1998, CCPC exchanged the privately placed
senior subordinated notes for 9 5/8% Series B Senior Subordinated Notes due 2008
(the "Notes") which have been registered under the Securities Act.
The senior credit facilities provide term loans of $200,000 and a revolving
credit facility of up to $275,000 of which $29,400 was outstanding at December
31, 1998. The senior credit facilities provide for nominal annual amortization
of the term loans and final maturity in 2006. The senior credit facilities
contain provisions under which interest rates on the term loans and the
revolving credit loans are adjusted in increments based on the rate of
consolidated total debt to adjusted cash flow. At December 31, 1998, the term
loan rate was at 7.63% and the weighted average interest rate for the revolving
credit facility was 8.12%. The commitments for revolving credit loans expire in
2005. CCPC expects that its working capital needs and other requirements could
require it to obtain replacement revolving credit facilities at that time. The
9 5/8% Series B senior subordinated notes carry a principal amount of $200,000
and mature in 2008. The Notes are subordinate and junior in right of payment to
all existing and future Senior Indebtedness of CCPC, including all indebtedness
under the senior credit facilities.
The obligations of the Company under the Notes and the indenture relating to
the Notes have not been guaranteed by subsidiaries of the Company. The credit
facilities contain numerous financial and operating covenants that will limit
the discretion of the Company's management with respect to certain business
matters. These covenants place significant restrictions on, among other things,
the ability of the Company to incur additional indebtedness, pay dividends and
other distributions, prepay subordinated indebtedness, enter into sale and
leaseback transactions, create liens or other encumbrances, make capital
expenditures, make certain investments or acquisitions, engage in certain
transactions with affiliates, sell or otherwise dispose of assets and merge or
consolidate with other entities and otherwise restrict corporate activities. The
credit facilities also require the Company to meet certain financial ratios and
tests. The credit facilities and the indenture contain customary events of
default.
In addition, at December 31, 1998 and December 31, 1997, CCPC had
outstanding certain industrial development bonds bearing interest at an average
rate of 4.0% per annum. The bonds mature on various dates through 2005 and had
an outstanding aggregate balance of $8,242 and $10,300 at December 31, 1998 and
December 31, 1997, respectively.
The credit facilities contain numerous financial and operating covenants. In
addition, the credit facilities also require the company to meet certain
financial ratios and tests including a ratio of debt to EBITDA and EBITDA to
cash interest expense (where EBITDA represents adjusted cash flow as described
more fully in the credit facilities). CCPC was in compliance with its covenants
at December 31, 1998.
CASH FLOWS
Cash inflows generated from tightened cash management activities and the
inventory reduction program were partially offset by the decline in sales and
operating income as compared to 1997. In 1998, CCPC's operating activities
generated cash of $58,841 compared to cash provided by operating activities of
$67,419 during the same period in 1997. Investing activities used cash of
$23,237 in 1998 compared to $26,208 in 1997 due to lower capital expenditures in
1998. Net cash used in financing operations totaled $30,892 for 1998 compared to
$44,957 for the same period in 1997 due primarily to the transactions associated
with the Recapitalization and the subsequent reduction in borrowings under the
revolving credit facility with cash generated from operations.
In 1997 CCPC's operating activities provided $67,419 in cash compared to
$55,566 in 1996. Despite an increase in net income, operating cash flows
decreased as a result of $30,670 in net outflows to Corning to settle certain
intercompany trade liabilities. Investing activities used $26,208 in cash in
1997 compared to a use of $35,629 in 1996. This decrease was primarily the
result of higher 1996 capital expenditures resulting
17
<PAGE>
from the continuation of cost reduction initiatives in manufacturing facilities
and a decrease in capitalizable maintenance.
CCPC currently believes that cash flow from operating activities, together
with borrowings available under the revolving credit facility, will be
sufficient to fund CCPC's currently anticipated working capital requirements,
capital expenditures, interest payments and scheduled principal payments. Any
future acquisitions, joint ventures or other similar transactions will likely
require additional capital and there can be no assurance that any such capital
will be available to CCPC on acceptable terms or at all.
CCPC anticipates capital expenditures to approximate $39,000 in 1999.
CCPC may require cash for a potential payment of up to $15,000 to Corning in
2001 in the event that CCPC achieves a cumulative gross margin in excess of
$710,900 for the three-year period ended December 31, 2000.
RESTRUCTURING
In March 1999, CCPC initiated a plan to restructure its manufacturing and
supply organization designed to reduce costs through elimination of
under-utilized capacity, unprofitable product lines and increased utilization of
the remaining facilities. Management believes that the changes will increase the
Company's ability to compete by opening up diverse sources of supply both in the
United States and overseas.
The restructuring includes the discontinuation of the commercial tableware
product line and closure of the related portion of CCPC's manufacturing facility
in Charleroi, Pennsylvania. In order to optimize the utilization of the
Charleroi facility, CCPC will move Corelle-Registered Trademark- cup production
to its Martinsburg, West Virginia facility and third party suppliers, the supply
contract with Corning's Greenville, Ohio facility will be terminated and
Pyrex-Registered Trademark- production will be consolidated at Charleroi.
Additionally, CCPC will discontinue manufacturing rangetop cookware and close
its manufacturing and distribution center in Clinton, Illinois. Future supply
will be sourced from third party manufacturers.
CCPC will record a restructuring charge of approximately $75,000 in the
first quarter of 1999 to cover the cost of this reorganization. The majority of
the charge is expected to be related to asset disposals; however, CCPC expects
cash charges to approximate $25,000 over the life of the plan.
RISK MANAGEMENT
CCPC primarily has market risk in the areas of foreign currency and fixed
interest rate debt.
Currency exchange fluctuations significantly affect CCPC's foreign sales and
earnings. The increased strength of the U.S. dollar has, in 1998, and may in
future periods, increase the effective price of the Company's products sold in
U.S. dollars with the result of materially adversely affecting sales. CCPC's
costs are predominantly denominated in U.S. dollars. Thus, with respect to sales
conducted in foreign currencies, increased strength of the U.S. dollar decreases
CCPC's reported revenues and margins in respect of such sales to the extent CCPC
is unable or determines not to increase local currency prices.
At December 31, 1998, CCPC had $208,242 in fixed rate debt outstanding. CCPC
realizes gains and losses on these financial instruments as the market interest
rates fluctuate. The fair value of CCPC's fixed rate debt at December 31, 1998
was $220,772 resulting from changes in market conditions, primarily interest
rates.
18
<PAGE>
A summary of all the Company's outstanding debt is as follows. Fair values
are determined from quoted market interest rates at December 31, 1998.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE FAIR
YEAR DEBT INTEREST RATE VALUE
- ------------------------------ ---------- --------------- ----------
<S> <C> <C> <C>
1999.......................... $ 3,986 4.2% $ 3,986
2000.......................... 2,545 6.6% 2,618
2001.......................... 2,563 6.6% 2,636
2002.......................... 2,579 6.6% 2,652
2003.......................... 2,477 6.7% 2,550
2004 and thereafter........... 423,492 9.5% 442,920
---------- ----------
437,642 457,362
Current maturities............ (3,986) (3,986)
---------- ----------
$ 433,656 $ 453,376
---------- ----------
---------- ----------
</TABLE>
IMPACT OF THE YEAR 2000 ISSUE
OVERVIEW
The year 2000 issue is the result of computer programs written using two
digits rather than four to define the applicable year. Any of CCPC's computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. If not addressed, the Year 2000 issue
could have a material adverse impact on the business operations and financial
results of the Company.
To address this issue, CCPC's Year 2000 Program is a risk-based plan divided
into three phases that are being executed by both internal and external
resources. These phases are: Phase I--an inventory of all systems, assigning a
business priority for each system and performing a preliminary assessment of
Year 2000 susceptibility; Phase II--completion of a detailed Year 2000
susceptibility analysis and development of remediation plans and contingency
plans; and Phase III--implementation of the remediation plans and, if necessary,
contingency plan(s) and completing final system testing.
The Year 2000 efforts are divided into three areas that include, (1) systems
being replaced by new enterprise-wide system implementations; (2) systems that
will not be replaced by the new enterprise-wide system implementations,
including non-information technology systems such as plant process controls; and
(3) external suppliers and customers. A discussion of each area of activity
relative to the three phased approach follows.
ENTERPRISE-WIDE SYSTEMS
CCPC is in the process of implementing a comprehensive enterprise-wide
resource management system. The enterprise-wide system versions are represented
to be Year 2000 compliant by the vendor. Due to the relative complexity and
importance of the existing business and accounting systems to ongoing
operations, the new enterprise-wide system implementations will address the
significant majority of CCPC's internal Year 2000 risk associated with business
applications. Implementation of the new system is well underway except for the
development of certain contingency plans. This system will be substantially
completed by July 1, 1999.
19
<PAGE>
OTHER SYSTEMS
For the systems not to be replaced by enterprise-wide implementations, Phase
I is complete, Phase II is substantially complete, and Phase III remediation has
begun. As of December 31, 1998, CCPC completed approximately 69% of the needed
remediation work for these other systems. The remaining remediation work and all
system testing activities are planned to be completed by July 1, 1999.
SUPPLIERS AND CUSTOMERS
CCPC is in Phase I of the plan to assess and address the risks related to
third party suppliers and customers. As a result of initial inquiries, supplier
and customer responses have been received. These responses are being evaluated
and appropriate procedures will be performed to determine the extent to which
CCPC may be vulnerable to the failure of third parties to resolve their own Year
2000 issues. Efforts related to suppliers and customers, including development
of contingency plans where appropriate, are targeted for completion by June 30,
1999. Although the CCPC systems do not rely significantly on systems of other
companies, CCPC cannot provide assurance that failure of third parties to
address the Year 2000 issue will not have an adverse impact on business
operations and results.
COSTS
Significant investments in enterprise-wide information systems have been
made since 1996 that will total approximately $16,500 by December 31, 1999. The
cost to make the remaining systems Year 2000 compliant is estimated to be $625.
As of December 31, 1998, CCPC had incurred costs of approximately $11,729 for
enterprise-wide systems and approximately $281 for other systems and efforts.
RISKS
Due to the general uncertainty inherent in the Year 2000 problem, including
the uncertainty associated with suppliers and customers, the potential effect of
the Year 2000 issue on the financial results and condition of CCPC has not been
measured. CCPC intends its Year 2000 Program, as described above, to be
completed on a timely basis so as to significantly reduce the level of
uncertainty and the impact on business operations and financial results.
Contingency plans have been and will continue to be developed and implemented to
mitigate Year 2000 risks and the effect of Year 2000 issues. These contingency
plans generally include remediation of existing business systems in the event
the enterprise-wide implementations are delayed. To date, some of these
contingency plans have been implemented to reduce the risk of potential delays
in enterprise-wide system implementations.
Readers are cautioned that forward-looking statements contained in the Year
2000 Update should be read in conjunction with the disclosure under the heading:
"Forward-Looking and Cautionary Statements".
RECENTLY ISSUED ACCOUNTING STATEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" effective
for fiscal years beginning after June 15, 1999. This statement requires
recognition of all derivatives as either assets or liabilities in the balance
sheet measured at fair value. CCPC is currently considering the impact of this
pronouncement.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The factors discussed below,
among others, could cause actual results to differ materially from those
contained in forward-looking statements made in this report, including without
limitation, in "Management's Discussion and Analysis of Financial Condition and
Results of Operations,"
20
<PAGE>
in the Company's related press releases and in oral statements made by
authorized officers of the Company. When used in this report, any press release
or oral statement, the words "looking forward," "estimate," "project,"
"anticipate," "expect," "intend," "believe" and similar expressions are intended
to identify a forward-looking statement. Forward-looking statements are not
guarantees of future performance and are subject to risks, uncertainties and
other factors (many of which are beyond the Company's control) that could cause
actual results to differ materially from future results expressed or implied by
such forward-looking statements. The forward-looking statements regarding such
matters are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions and expected future developments, as well as other factors it
believes are appropriate in the circumstances. Whether actual results and
developments will conform with the Company's expectations and predictions,
however, is subject to a number of risks and uncertainties, in addition to the
risk factors discussed above, including: a global economic slowdown in any one,
or all, of the Company's sales categories; loss of sales as the Company
streamlines and focuses on strategic accounts; potential labor unrest;
unpredictable difficulties or delays in the development of new product programs;
increased difficulties in obtaining a consistent supply of basic raw materials
such as sand, soda ash, steel or copper and energy inputs such as electrical
power or natural gas at stable pricing levels; development by the Company of an
adequate administrative infrastructure; delays in implementation of
manufacturing restructuring projects; disruptions or delays in sourcing
arrangements for Revere Ware-Registered Trademark- products; technological
shifts away from the Company's technologies and core competencies; unforeseen
interruptions to the Company's business with its largest customers resulting
from, but not limited to, financial instabilities or inventory excesses; the
effects of extreme changes in monetary and fiscal policies in the United States
and abroad, including extreme currency fluctuations and unforeseen inflationary
pressures such as those recently experienced by certain Asian economies; drastic
and unforeseen price pressures on the Company's products or significant cost
increases that cannot be recovered through price increases or productivity
improvements; significant changes in interest rates or in the availability of
financing for the Company or certain of its customers; loss of any material
intellectual property rights; any difficulties in obtaining or retaining the
management or other human resource competencies that the Company needs to
achieve its business objectives; and other factors, many of which are beyond the
control of the Company. Consequently, all of the forward-looking statements made
in this Form 10-K are qualified by these cautionary statements, and there can be
no assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequences to or effects on the Company and its subsidiaries or their
business or operations.
ITEM 7A--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to the "Risk Management" section included in Item 7--Management's
Discussion and Analysis of Financial Condition and Results of Operations.
21
<PAGE>
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF OPERATIONS
CCPC HOLDING COMPANY, INC.
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
------------- ------------- -------------
REVENUES
Net sales......................................................... $ 533,068 $ 572,860 $ 632,406
DEDUCTIONS
Cost of sales..................................................... 349,953 376,304 434,365
Selling, general and administrative expenses...................... 146,927 137,315 154,159
Other corporate administrative expenses........................... -- 18,408 20,904
Provision for restructuring costs................................. 4,772 -- 2,146
Transactions related expenses..................................... 28,866 -- --
Other, net........................................................ 926 5,629 703
------------- ------------- -------------
Operating income.................................................... 1,624 35,204 20,129
Interest expense.................................................... 34,290 8,481 10,721
------------- ------------- -------------
(Loss) income before taxes on income................................ (32,666) 26,723 9,408
Income tax expense.................................................. 947 12,734 6,181
------------- ------------- -------------
(Loss) income before minority interest.............................. (33,613) 13,989 3,227
Minority interest in earnings of subsidiary......................... 301 (295) (105)
------------- ------------- -------------
Net (loss) income................................................... (33,312) 13,694 3,122
Preferred stock dividends........................................... (2,782) -- --
------------- ------------- -------------
Net (loss) income applicable to common stock........................ $ (36,094) $ 13,694 $ 3,122
------------- ------------- -------------
------------- ------------- -------------
Basic and diluted (loss) earnings per common share.................. $ (1.50) $ 0.57 $ 0.13
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common shares outstanding during the
period............................................................ 24,000,000 24,000,000 24,000,000
</TABLE>
The accompanying notes are an integral part of these statements.
22
<PAGE>
CONSOLIDATED BALANCE SHEETS
CCPC HOLDING COMPANY, INC.
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................................ $ 9,057 $ 4,345
Accounts receivable, net of allowances--$11,172/1998 and $7,304/1997..... 62,511 68,340
Inventories.............................................................. 132,035 133,117
Prepaid expenses and other current assets................................ 7,412 8,695
Deferred taxes on income................................................. 8,181 8,633
----------------- --------
Total current assets................................................. 219,196 223,130
----------------- --------
PROPERTY AND EQUIPMENT, NET................................................ 141,402 153,332
DEFERRED TAXES ON INCOME................................................... 40,867 29,273
GOODWILL, NET OF ACCUMULATED AMORTIZATION $8,369/1998 AND $6,663/1997...... 58,717 60,424
OTHER ASSETS............................................................... 35,077 14,464
----------------- --------
TOTAL ASSETS......................................................... $ 495,259 $ 480,623
----------------- --------
----------------- --------
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses.................................... $ 104,324 $ 79,153
Due to Corning Incorporated.............................................. -- 87,142
----------------- --------
Total current liabilities............................................ 104,324 166,295
LONG-TERM DEBT............................................................. 433,656 8,285
ACCRUED POSTRETIREMENT LIABILITY........................................... 31,432 59,641
OTHER LIABILITIES.......................................................... 4,599 18,243
MINORITY INTEREST IN SUBSIDIARY COMPANY.................................... 745 1,046
COMMITMENTS (NOTE 10)
STOCKHOLDERS' (DEFICIT) EQUITY
Preferred Stock--5,000,000 shares authorized; 1,200,000 shares issued...... 32,782 --
Common Stock--$0.01 par value/1998; $0.00 par value/1997 45,000,000 shares
authorized; 24,000,000 shares issued..................................... 240 --
Contributed capital........................................................ 453,655 274,070
Accumulated deficit........................................................ (564,013) (45,159)
Accumulated other comprehensive income..................................... (2,161) (1,798)
----------------- --------
Total stockholders' (deficit) equity................................. (79,497) 227,113
----------------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY................. $ 495,259 $ 480,623
----------------- --------
----------------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
CCPC HOLDING COMPANY, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- ----------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net (loss) income........................................................... $ (33,312) $ 13,694 $ 3,122
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization............................................. 33,392 35,706 35,771
Amortization of deferred financing fees................................... 3,214 -- --
Minority interest in (earnings) losses of subsidiary...................... (301) 295 105
Loss on disposition of plant and equipment................................ 791 1,596 1,570
Deferred tax assets....................................................... 2,329 5,562 (1,511)
Provision for restructuring costs......................................... 4,281 -- 2,146
Provision for postretirement benefits, net of cash paid................... 4,438 3,274 3,459
Change in accounting for inventories...................................... -- (656) (1,502)
Changes in operating assets and liabilities:
Accounts receivable....................................................... 9,920 12,084 16,100
Inventories............................................................... 1,082 (1,843) (5,839)
Prepaid expenses and other current assets................................. (2,202) 2,159 3,938
Accounts payable and accrued expenses..................................... 29,174 (4,072) (8,938)
Other liabilities......................................................... 6,035 (380) 7,145
---------- ---------- ----------
Net Cash Provided by Operating Activities............................... 58,841 67,419 55,566
---------- ---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property and equipment and other assets........................ (23,237) (28,600) (35,827)
Other, net.................................................................. -- 2,392 198
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES................................... (23,237) (26,208) (35,629)
---------- ---------- ----------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Issuance of long-term debt.................................................. 427,177 -- --
Repayment of long-term debt................................................. (1,806) (5,189) (511)
Interim financing........................................................... 471,600 -- --
Repayment of interim financing.............................................. (471,600) -- --
Dividend to Corning Incorporated............................................ (482,760) -- --
Decrease in net amounts due to Corning Incorporated......................... (87,142) (40,178) (21,989)
Shareholder capital contribution............................................ 100,736 410 --
Issuance of preferred stock................................................. 30,000 -- --
Issuance of common stock.................................................... 240 -- --
Deferred financing fees..................................................... (17,337) -- --
---------- ---------- ----------
NET CASH USED IN FINANCING ACTIVITIES................................... (30,892) (44,957) (22,500)
---------- ---------- ----------
Effect of accounting calendar change on cash.................................. -- -- (205)
Net change in cash and cash equivalents....................................... 4,712 (3,746) (2,768)
Cash and cash equivalents at beginning of year................................ 4,345 8,091 10,859
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR...................................... $ 9,057 $ 4,345 $ 8,091
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
24
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
CCPC HOLDING COMPANY, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DATA:
Income taxes paid (received), net........................................... $ 850 $ 380 $ (1,632)
Interest paid............................................................... $ 32,860 $ 8,283 $ 6,674
Non-cash activity:
Net increase to deferred taxes resulting from the Recapitalization.......... $ 13,471 $ -- $ --
Adjustment to postretirement liability for amounts assumed by Corning....... $ 31,998 $ -- $ --
Adjustment to pension liability for amounts assumed by Corning.............. $ 17,669 $ -- $ --
Adjustment to accounts payable for liabilities retained by Corning.......... $ 7,913 $ -- $ --
Preferred stock dividends................................................... $ 2,782 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these statements.
25
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
CCPC HOLDING COMPANY, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
OTHER STOCKHOLDERS'
PREFERRED COMMON CONTRIBUTED ACCUMULATED COMPREHENSIVE (DEFICIT)
STOCK STOCK CAPITAL DEFICIT INCOME EQUITY
----------- ----------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995................. $ -- $ -- $ 272,204 $ (55,987) $ (1,012) $ 215,205
Net income................................. 3,122 3,122
Foreign currency translation adjustment,
net of tax............................... 218 218
------------
Total comprehensive income................. 3,340
Capital contribution....................... 1,456 1,456
Change in accounting principle............. (5,179) (5,179)
Accounting calendar change................. (809) (809)
----------- ----- ----------- ------------ ------------- ------------
Balance, December 31, 1996................. $ -- $ -- 273,660 (58,853) (794) 214,013
Net income................................. 13,694 13,694
Foreign currency translation adjustment,
net of tax............................... (1,004) (1,004)
------------
Total comprehensive income................. 12,690
Capital contribution....................... 410 410
----------- ----- ----------- ------------ ------------- ------------
Balance, December 31, 1997................. $ -- $ -- 274,070 (45,159) (1,798) 227,113
Net loss................................... (33,312) (33,312)
Foreign currency translation adjustment,
net of tax............................... (363) (363)
------------
Total comprehensive income................. (33,675)
24,000-for-one stock split................. 240 (240) --
Issuance of preferred stock................ 30,000 30,000
Preferred stock dividends.................. 2,782 (2,782) --
Capital contribution....................... 179,825 179,825
Dividend to Corning Incorporated........... (482,760) (482,760)
----------- ----- ----------- ------------ ------------- ------------
Balance, December 31, 1998................. $ 32,782 $ 240 $ 453,655 $ (564,013) $ (2,161) $ (79,497)
----------- ----- ----------- ------------ ------------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(1) NATURE OF OPERATIONS AND BASIS OF PRESENTATION
CCPC Holding Company, Inc. (CCPC or the Company) is a leading manufacturer
and marketer of housewares, including bakeware, dinnerware and rangetop
cookware. The Company believes that its brands, including Corning
Ware-Registered Trademark-, Pyrex-Registered Trademark-,
Corelle-Registered Trademark-, Revere Ware-Registered Trademark- and
Visions-Registered Trademark-, constitute one of the broadest and best
recognized collection of brands in the U.S. housewares industry.
Subsequent to April 1, 1998, Corning Consumer Products Company changed its
name to CCPC Holding Company, Inc. The consolidated balance sheet at December
31, 1998, the consolidated statement of operations for the year ended December
31, 1998, the consolidated statement of cash flows for the year ended December
31, 1998, and the consolidated statement of changes in stockholders' equity for
the year ended December 31, 1998, reflect the Recapitalization (see Note 2). The
consolidated balance sheet at December 31, 1997, the consolidated statements of
operations for years ended December 31, 1997 and 1996, the consolidated
statements of cash flows for the years ended December 31, 1997 and 1996, and the
consolidated statement of changes in stockholders' equity for the years ended
December 31, 1997 and 1996 present CCPC as a wholly-owned subsidiary of Corning
Incorporated (Corning) prior to the Recapitalization.
(2) RECAPITALIZATION
On March 2, 1998, Corning, CCPC, Borden Inc. (Borden), and CCPC Acquisition
Corp. entered into a Recapitalization Agreement.
On March 16, 1998, the CCPC board of directors approved a 24,000-for-1
common stock split. This increased the common shares outstanding from 1,000 to
24,000,000. In addition, the Board of Directors approved an increase in the
number of authorized shares from 1,000 to 45,000,000 and an increase in the par
value from $0.00 to $0.01 per share. Share amounts have been restated for all
periods presented.
On April 1, 1998, pursuant to the Recapitalization Agreement, CCPC
Acquisition Corp. acquired 22,080,000, or 92%, of the outstanding shares of
common stock of CCPC from Corning for $110,400. CCPC then borrowed $471,600 and
paid a cash dividend to Corning of $472,600. Corning retained 1,920,000, or 8%,
of the outstanding shares of common stock of CCPC. Also on April 1, 1998, CCPC
issued and sold 1,200,000 shares of junior preferred stock to CCPC Acquisition
Corp. for $30,000. CCPC paid an additional $10,160 to Corning in July 1998
relating to certain provisions of the Recapitalization Agreement.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements were prepared in accordance with
generally accepted accounting principles, the most significant of which include:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all entities
controlled by CCPC. All significant intercompany accounts and transactions are
eliminated. Certain subsidiaries of CCPC are consolidated at dates up to one
month earlier than the consolidated financial statements.
27
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 estimates.
TRANSLATION OF FOREIGN CURRENCIES
Balance sheet accounts of foreign subsidiaries are translated at current
exchange rates and income statement accounts are translated at average exchange
rates for the year. Translation gains and losses are accumulated in a separate
component of stockholders' equity. Foreign currency transaction gains and losses
affecting cash flows are included in current earnings.
CASH EQUIVALENTS
Cash equivalents consist of government securities with original maturities
of three months or less.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
Effective April 1, 1998, the Company changed its method of determining the cost
of inventories from the LIFO method to the FIFO method for the predominant
portion of its inventories. The Company believes that the change to the FIFO
method is preferable because of planned inventory reductions, recent historical
and forecasted low inflation, and because it better reflects current inventory
values. All previously reported results have been restated to reflect the
retroactive application of this accounting change as required by generally
accepted accounting principles. The impact of the accounting change increased
cost of sales for 1998 by $176 or $0.01 per share. Net income previously
reported for 1997 was increased by $656 or $0.03 per share and net income for
1996 was increased by $1,502 or $0.06 per share.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is calculated
using straight-line and accelerated methods based on the estimated useful lives
of the assets as follows: buildings, 8-30 years; equipment 3-25 years; and
leasehold improvements, over the lease periods. Precious metals are recorded at
cost and consist of platinum, rhodium, and palladium. Precious metals are used
in CCPC's manufacturing processes and are expensed to operations based on
utilization.
GOODWILL AND OTHER ASSETS
The amortization period assigned to goodwill is 40 years. Trademarks and
other assets are amortized using the straight-line method over the estimated
economic useful life of the assets which ranges from 3 to 32.5 years.
28
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT ACCOUNTING
CCPC reviews the recoverability of its long-lived assets, including goodwill
and other intangible assets, when events or changes in circumstances occur that
indicate that the carrying value of the asset may not be recoverable. The
assessment of possible impairment is based on CCPC's ability to recover the
carrying value of the asset from the expected future pre-tax cash flows
(undiscounted and without interest charges) of the related operations. If the
expected undiscounted pre-tax cash flows are less than the carrying value of
such assets, an impairment loss is realized for the difference between estimated
fair value and carrying value. The measurement of impairment requires management
to make estimates of expected future cash flows related to long-lived assets. It
is at least reasonably possible that future events or circumstances could cause
these estimates to change.
STOCK BASED COMPENSATION
Certain employees of CCPC participate in stock compensation plans. CCPC
accounts for compensation cost under these plans using the intrinsic value
method of accounting prescribed by Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees." Compensation expense is recorded for
awards of shares over the period earned. During 1996, the Company adopted the
disclosure provisions of Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" (FAS 123) which defines a fair
value-based method of accounting for stock-based compensation.
ADVERTISING AND PROMOTION COSTS
Expenditures for advertising and promotions are charged to operations as
incurred.
INCOME TAXES
CCPC uses the asset and liability approach to account for income taxes.
Under this method, deferred tax assets and liabilities are recognized for the
expected future tax consequences of differences between the carrying amounts of
assets and liabilities and their respective tax bases using enacted tax rates in
effect for the year in which the differences are expected to reverse. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period when the change is enacted. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized.
EARNINGS PER SHARE
CCPC adopted Financial Accounting Standard (FAS) No. 128, "Earnings per
Share," (FAS 128) in 1997. FAS 128 revised the standards for the computation and
presentation of earnings per share (EPS), requiring the presentation of both
basic and diluted earnings per share.
Basic earnings per share is computed by dividing net income, less dividends
on preferred stock, by the weighted average number of common shares outstanding
during each period. Diluted earnings per share is computed by dividing net
income, less dividends on preferred stock, by the weighted average number of
common shares outstanding during the period after giving effect to dilutive
stock options.
29
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZED COMPUTER SOFTWARE COSTS
Capitalized computer software costs consist of costs to purchase and develop
software. CCPC capitalizes internally developed software costs based on a
project-by-project analysis of each project's significance to the Company and
its estimated useful life. All capitalized software costs are amortized on a
straight-line basis over a period between three and seven years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by reference to
various market data and other valuation techniques, as appropriate. Unless
otherwise disclosed, the fair value of short-term instruments approximates their
recorded values due to the nature of the instruments.
RECENTLY ISSUED ACCOUNTING STATEMENTS
In the first quarter of 1998, the Company adopted FAS No. 130, REPORTING
COMPREHENSIVE INCOME, and restated prior years' consolidated financial
statements to conform to the new reporting standard. FAS No. 130 establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general purpose financial statements. Comprehensive income
includes all changes in stockholders' equity during a period except those
resulting from investments by owners and distributions to owners. The adoption
of FAS No. 130 resulted in revised and additional disclosures but had no effect
on the consolidated financial position, results of operations, or cash flows of
the Company.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" effective
for fiscal years beginning after June 15, 1999. This statement requires
recognition of all derivatives as either assets or liabilities in the balance
sheet measured at fair value. CCPC is currently considering the impact of this
pronouncement.
(4) SIGNIFICANT CUSTOMERS
Approximately 25% of CCPC's sales during the year ended December 31, 1998
were to two customers, each of which individually accounted for 17% and 8% of
net sales. In comparison, approximately 21% and 20% of sales for the years ended
December 31, 1997 and 1996 were to these two customers, individually accounting
for 15% and 6% of net sales in 1997 and 13% and 7% of net sales in 1996. The
aggregate accounts receivable balance at December 31, 1998 and 1997 related to
these customers was approximately $18,000 and $22,000, respectively.
30
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(5) SUPPLEMENTAL BALANCE SHEET DATA
INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1998 1997(1)
---------- ----------
Finished goods........................................................ $ 68,869 $ 59,822
Work in process....................................................... 44,821 54,165
Raw materials......................................................... 7,720 5,030
Supplies and packing materials........................................ 10,625 14,100
---------- ----------
$ 132,035 $ 133,117
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(1) Includes a $3,021 reduction in inventory related to accounting change.
PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1998 1997
----------- -----------
Land................................................................ $ 2,453 $ 2,453
Buildings........................................................... 61,591 57,941
Equipment........................................................... 258,581 230,428
Leasehold improvements.............................................. 12,293 11,547
Precious metals..................................................... 11,933 11,990
----------- -----------
346,851 314,359
Accumulated depreciation and related accumulated amortization....... (205,449) (161,027)
----------- -----------
$ 141,402 $ 153,332
----------- -----------
----------- -----------
</TABLE>
Depreciation and related amortization expense for the years ended December
31, 1998, 1997 and 1996 was $28,500, $30,400 and $30,500, respectively.
OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Trademarks.............................................................. $ 8,356 $ 8,682
Computer software....................................................... 12,854 5,708
Deferred financing fees and other....................................... 13,867 74
--------- ---------
$ 35,077 $ 14,464
--------- ---------
--------- ---------
</TABLE>
Amortization expense related to these assets for the years ended December
31, 1998, 1997 and 1996 was $6,400, $3,600 and $3,600, respectively.
31
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(5) SUPPLEMENTAL BALANCE SHEET DATA (CONTINUED)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
<S> <C> <C>
1998 1997
---------- ---------
Trade accounts payable................................................. $ 41,925 $ 16,691
Trade accounts payable due to Corning.................................. -- 11,431
Wages and employee benefits............................................ 22,954 22,652
Accrued advertising and promotion...................................... 13,363 11,078
Taxes on income........................................................ 323 3,189
Current portion of long-term debt...................................... 3,986 2,022
Other accrued expenses................................................. 21,773 12,090
---------- ---------
$ 104,324 $ 79,153
---------- ---------
---------- ---------
</TABLE>
Payable due to Corning relates to amounts paid by Corning on CCPC's behalf.
(6) SUPPLEMENTAL INCOME STATEMENT DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Interest income.................................................................. $ (291) $ (493) $ (1,656)
Interest expense incurred........................................................ 35,287 9,914 13,609
Interest capitalized............................................................. (706) (940) (1,232)
--------- --------- ---------
Interest expense, net............................................................ $ 34,290 $ 8,481 $ 10,721
--------- --------- ---------
--------- --------- ---------
Advertising and promotion expenses............................................... $ 9,963 $ 11,794 $ 13,489
--------- --------- ---------
--------- --------- ---------
Research and development expenses................................................ $ 411 $ 380 $ 2,082
--------- --------- ---------
--------- --------- ---------
</TABLE>
(7) RELATED PARTY TRANSACTIONS
The following transactions with Corning and Borden are included in the
consolidated statements of operations for the years ended December 31, 1998,
1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Centralized services............................................................. $ 14,194 $ 19,201 $ 19,454
Other corporate administrative expenses.......................................... -- $ 18,408 $ 20,904
Interest income from Corning..................................................... -- $ 323 $ 1,313
Interest expense to Corning...................................................... $ 1,296 $ 7,833 $ 11,778
Interest expense to Borden, Inc. and an affiliate of Borden, Inc................. $ 2,368 -- --
Commission expense............................................................... $ 1 $ 731 $ 622
Management fees to Corning....................................................... $ 437 -- --
Management fees to Borden........................................................ $ 1,125 -- --
</TABLE>
Corning provided and continues to provide certain administrative and
operating support (reflected above as centralized services) including financial
services, information systems support, risk management,
32
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(7) RELATED PARTY TRANSACTIONS (CONTINUED)
purchasing, transportation, benefit plans administration, and engineering
services. Prior to the Recapitalization, CCPC was charged for this support using
various allocation bases including number of employees, related payroll costs,
and direct efforts expended. These costs, which are included in cost of sales
and selling, general, and administrative expenses are currently charged to CCPC
by Corning under a transition services agreement using negotiated rates agreed
upon by the management of CCPC. Management believes that the methodology used to
allocate the costs is reasonable, but may not necessarily be indicative of the
costs that would have been incurred had these functions been performed by CCPC.
Other corporate administrative expenses related to certain corporate
oversight costs such as tax, treasury, legal, and technical support provided by
Corning to CCPC. CCPC is developing its administrative infrastructure and
certain of these functions have been and will be assumed by CCPC or performed by
third parties. In 1998 CCPC performed many of the administrative services (which
are included in SG&A following the Recapitalization) at a lower cost than
charged by Corning.
Prior to the Recapitalization, amounts due to and from Corning resulting
from intercompany transactions carried interest at a rate based on the 30-day
London Interbank Offered Rate (LIBOR) plus 3/8%.
Interest expense due to Borden, Inc. and affiliates of Borden, Inc. related
to interim financing of $471,600 at 9.5% which was borrowed and repaid during
the second quarter of 1998.
Prior to the Recapitalization, sales were made by CCPC to certain Corning
subsidiaries which subsequently resold the products to third parties. CCPC paid
these subsidiaries a sales commission for sales made on CCPC's behalf. In
addition, Corning utilized the CCPC Canada operations as a sales office and paid
commissions on Corning sales generated.
In the first quarter of 1998, CCPC paid Corning $437 in management fees.
Beginning in the second quarter of 1998, CCPC paid Borden, Inc. a management fee
of $375 per quarter.
(8) STOCKHOLDERS' (DEFICIT) EQUITY
On March 2, 1998, Corning, CCPC, Borden, and CCPC Acquisition Corp. entered
into a Recapitalization Agreement. On March 16, 1998, the CCPC board of
directors approved a 24,000-for-1 common stock split. This increased the common
shares outstanding from 1,000 to 24,000,000. In addition, the Board of Directors
approved an increase in the number of authorized shares from 1,000 to 45,000,000
and an increase in the par value from $0.00 to $0.01 per share. Share amounts
have been restated for all periods presented.
On April 1, 1998, pursuant to the Recapitalization Agreement, CCPC
Acquisition Corp. acquired 22,080,000, or 92%, of the outstanding shares of
common stock of CCPC from Corning for $110,400. Also on April 1, 1998, CCPC
issued and sold 1,200,000 shares of junior preferred stock to CCPC Acquisition
Corp. for $30,000. CCPC then borrowed $471,600 and paid a cash dividend to
Corning of $472,600. Corning retained 1,920,000, or 8%, of the outstanding
shares of common stock of CCPC. CCPC paid an additional $10,160 dividend to
Corning in July 1998 relating to certain provisions of the Recapitalization
Agreement.
As a result of the Recapitalization, contributed capital increased by
$179,825. The net capital contribution consisted of the assumption of certain
indebtedness, certain post-retirement medical and life insurance liabilities,
certain pension liability obligations, workers' compensation, and product
liability obligations by Corning.
33
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(8) STOCKHOLDERS' (DEFICIT) EQUITY (CONTINUED)
CCPC has authorized for issuance 5,000,000 shares of preferred stock with a
$25.00 par value. At December 31, 1998, 1,200,000 shares of preferred stock were
outstanding. The preferred stock has a liquidation preference of $25.00 per
share plus accumulated dividends, is senior to all common stock, and carries no
voting or conversion rights. Holders of preferred stock are entitled to receive
cumulative dividends at the rate of $0.75 per share per calendar quarter which
may be paid in cash, additional shares of preferred stock, or in a combination
thereof. CCPC declared $2,782 of preferred stock dividends in 1998. There were
no preferred dividends paid in 1998.
(9) BORROWINGS
CCPC incurred substantial indebtedness as a result of the Recapitalization.
On April 1, 1998, CCPC entered into an interim financing agreement with Borden,
Inc. and an affiliate of Borden, Inc. providing $471,600 in financing at 9.5%
maturing December 31, 1998. The interim financing was repaid in May 1998 with
the proceeds of borrowings under senior credit facilities from a syndicate of
banks and other financial institutions and the issuance of senior subordinated
notes in a private placement. On October 23, 1998, CCPC exchanged the privately
placed senior subordinated notes for 9 5/8% Series B Senior Subordinated Notes
due 2008 which have been registered under the Securities Act.
The senior credit facilities provide term loans of $200,000 and a revolving
credit facility of up to $275,000 of which $29,400 was outstanding at December
31, 1998. The senior credit facilities provide for nominal annual amortization
of the term loans and final maturity in 2006. The senior credit facilities
contain provisions under which interest rates on the term loans, and the
revolving credit loans, are adjusted in increments based on the rate of
consolidated total debt to adjusted cash flow. At December 31, 1998, the term
loan rate was at 7.63% and the weighted average interest rate for the revolving
credit facility was 8.12%. The commitments for revolving credit loans expire in
2005. The 9 5/8% Series B senior subordinated notes carry a principal amount of
$200,000 and mature in 2008.
In addition, at December 31, 1998 and December 31, 1997, CCPC had
outstanding certain industrial development bonds bearing interest at an average
rate of 4.0% per annum. The bonds mature on various dates through 2005 and had
an outstanding aggregate balance of $8,242 and $10,300 at December 31, 1998 and
December 31, 1997, respectively.
Long-term debt maturing in each of the years subsequent to December 31, 1998
is as follows:
<TABLE>
<S> <C>
1999 calendar year................................................ $ 3,986
2000 calendar year................................................ 2,545
2001 calendar year................................................ 2,563
2002 calendar year................................................ 2,579
2003 calendar year................................................ 2,477
2004--2008........................................................ 423,492
---------
$ 437,642
Less: current maturities.......................................... (3,986)
---------
$ 433,656
---------
---------
</TABLE>
Based on borrowing rates currently available to CCPC for loans with similar
terms and maturities, the fair value of loans payable beyond one year was
$453,376 at December 31, 1998.
34
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(9) BORROWINGS (CONTINUED)
In March 1997, CCPC consolidated certain outstanding notes and debentures,
which had previously been allocated to CCPC by Corning. The notes and debentures
were combined into CCPC's revolving credit agreement which was increased to
provide for borrowings of up to $200,000 at a rate of 30-day LIBOR plus 3/8% due
on demand. At December 31, 1997, the aggregate amount of intercompany debt
outstanding was $87,142. The fair value of the intercompany debt is impractical
to determine.
(10) COMMITMENTS
The Company is a defendant or plaintiff in various claims and lawsuits
arising in the normal course of business. The Company believes, based upon
information it currently possesses, and taking into account established reserves
for estimated liabilities and its insurance coverage, that the ultimate outcome
of the proceedings and actions is unlikely to have a material adverse effect on
the Company's financial statements.
CCPC is a party to certain non-cancellable lease agreements which expire at
various dates through 2005. Minimum rental commitments outstanding at December
31, 1998 are as follows:
<TABLE>
<S> <C>
1999 calendar year................................................. $ 18,351
2000 calendar year................................................. 13,935
2001 calendar year................................................. 9,218
2002 calendar year................................................. 6,011
2003 calendar year................................................. 4,117
2004 and thereafter................................................ 2,385
---------
Net minimum lease commitments...................................... $ 54,017
---------
---------
</TABLE>
Rental expense was $25,000, $24,000, and $24,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
(11) EMPLOYEE RETIREMENT PLANS
Prior to the Recapitalization, the majority of CCPC's U.S. workforce
participated in Corning's employee benefit plans, including Corning's North
American defined-benefit pension plan and Corning's postretirement medical and
life insurance benefit plan. As a result of the Recapitalization, all pension
liabilities and related pension plan assets at April 1, 1998, with the exception
of those related to separate pension plans at two of CCPC's manufacturing
facilities, were transferred to Corning. In addition, all postretirement benefit
liabilities for retirees and active employees that were eligible to retire at
April 1, 1998 were also transferred to Corning. Subsequent to the
Recapitalization, CCPC established its own pension and postretirement plans that
provide benefits which are substantially similar in economic value to those
provided by Corning.
CCPC also has defined-benefit pension plans for its employees at certain
wholly-owned subsidiaries.
Certain CCPC employees also participate in a Corning sponsored retirement
savings plan. Charges to operations for matching contributions in 1998, 1997 and
1996 amounted to $2,240, $2,575 and $2,787, respectively.
Relative to the pension plan, CCPC's funding policy is to contribute
annually an amount determined jointly by management and its consulting
actuaries. Unrecognized prior service cost and net actuarial gains and losses
from changes in actuarial assumptions are deferred and amortized to pension
expense over the remaining service life of plan participants, if they exceed
certain limits. Plan assets are comprised principally of publicly traded debt
and equity securities.
35
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(11) EMPLOYEE RETIREMENT PLANS (CONTINUED)
As of January 1, 1998, CCPC adopted FAS 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement requires companies
to disclose certain information about pensions and other postretirement
benefits. Relevant data for CCPC's substantive pension and postretirement
medical benefit plans at September 30, 1998 and December 31, 1997, respectively,
is as follows:
<TABLE>
<CAPTION>
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year........................... $ 58,059 $ 51,213 $ 57,675 $ 53,136
Service cost...................................................... 3,601 3,411 1,799 2,041
Interest cost..................................................... 1,814 3,604 2,634 3,464
Plan participants' contributions.................................. 99 219 5 200
Actuarial loss (gain)............................................. 619 (98) 1,315 1,170
Benefits paid..................................................... (959) (1,855) (184) (2,217)
Amendments........................................................ 356 -- -- --
Divestitures and Settlements...................................... (45,158) -- (31,618) --
---------- ---------- ---------- ----------
Benefit obligations at end of year................................ $ 18,431 $ 56,494 $ 31,626 $ 57,794
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.................... $ 37,580 $ 29,820 -- --
Actual return on plan assets...................................... (628) 2,464 -- --
Employer contributions............................................ 584 5,063 179 2,017
Plan participants' contributions.................................. 99 219 5 200
Benefits paid..................................................... (959) (1,855) (184) (2,217)
Divestitures (transferred to Corning)............................. (22,520) -- -- --
---------- ---------- ---------- ----------
Fair value of plan assets at end of year.......................... $ 14,156 $ 35,711 $ -- $ --
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Funded status..................................................... $ (4,275) $ (20,783) $ (31,626) $ (57,794)
Unrecognized net actuarial (gain)/loss............................ (717) (6,699) 194 (1,654)
Unrecognized prior service cost................................... 1,174 9,343 -- (193)
---------- ---------- ---------- ----------
Net amount recognized............................................. $ (3,818) $ (18,139) $ (31,432) $ (59,641)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
WEIGHTED AVERAGE ASSUMPTIONS AT SEPTEMBER 30, 1998 AND DECEMBER 31, 1997,
RESPECTIVELY:
<TABLE>
<CAPTION>
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Discount rate............................................................... 6.75% 7.50% 6.75% 7.50%
Expected return on plan assets.............................................. 8.50% 9.00% 8.50% 9.00%
Rate of compensation increase............................................... 4.25% 4.50% 4.25% 4.50%
</TABLE>
36
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(11) EMPLOYEE RETIREMENT PLANS (CONTINUED)
COMPONENTS OF NET PERIODIC BENEFIT COST AT SEPTEMBER 30, 1998 AND DECEMBER 31,
1997, RESPECTIVELY:
<TABLE>
<CAPTION>
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Service cost............................................................. $ 3,601 $ 3,411 $ 1,799 $ 2,041
Interest cost............................................................ 1,814 3,604 2,634 3,464
Expected return on plan assets........................................... (1,649) (2,464) -- --
Amortization of prior service cost....................................... 281 778 (56) (226)
Recognized net actuarial (gain)/loss..................................... (84) (5) 1 11
Settlement / curtailment gain............................................ -- -- (441) --
--------- --------- --------- ---------
Net periodic benefit cost................................................ $ 3,963 $ 5,324 $ 3,937 $ 5,290
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The consolidated postretirement benefit obligation attributable to CCPC's
workforce is determined by application of the terms of health care and life
insurance plans, together with relevant actuarial assumptions and health care
cost trend rates. The annual rate of medical inflation used to determine the
year-end results was assumed to be 7.67% for 1998, decreasing gradually to a net
of 4.75% per year at 2004 and remaining at that level thereafter. Assumed health
care cost trend rates have a significant effect on the amounts reported for
health care plans. A one-percentage point change in the assumed health care cost
trend rates would have the following effects:
<TABLE>
<CAPTION>
ONE-PERCENTAGE ONE-PERCENTAGE
POINT INCREASE POINT DECREASE
--------------- --------------
<S> <C> <C>
Effect on total service cost and interest cost components of postretirement
benefit expense................................................................ $ 550 $ (569)
Effect on postretirement benefit obligation...................................... $ 3,067 $ (3,099)
</TABLE>
(12) STOCK COMPENSATION PLANS
1998 PLANS
During 1998 certain members of management were granted options to purchase
common stock in CCPC. Fixed stock options were granted to purchase shares at a
$5.00 exercise price. The options were issued at fair value, vest over five
years and expire ten years from the date of the grant. There are 2,672,000
options currently outstanding and 208,000 available for future grants.
CCPC adopted the disclosure-only provisions of FAS 123, "Accounting for
Stock-Based Compensation." Accordingly, no compensation cost has been recognized
for the stock option plan because all stock options were granted at fair value.
Had compensation cost for CCPC's stock option plan been determined
37
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(12) STOCK COMPENSATION PLANS (CONTINUED)
based on the fair value at the grant date consistent with the provisions of FAS
123, CCPC's net loss would have been $33,897 or $1.41 per basic and diluted
share for the year ended December 31, 1998.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- -----------------
<S> <C> <C>
Options outstanding, beginning of year............................................. -- --
Options granted.................................................................... 2,672,000 $ 5.00
Options exercised.................................................................. -- --
Options forfeited.................................................................. -- --
----------
Options outstanding, end of year................................................... 2,672,000 $ 5.00
----------
----------
</TABLE>
The following table summarizes information about fixed-price stock options
at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICE FAIR VALUE AT GRANT NUMBER OUTSTANDING REMAINING LIFE EXERCISE PRICE
- --------------- ------------------- ------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
$ 5.00 $ 1.60 2,672,000 6.32 years $ 5.00
</TABLE>
Options were granted at July 1 and October 1, 1998. There were no options
exercisable at December 31, 1998.
The fair value at the dates of grant were calculated using the Black-Scholes
option pricing model. The risk-free interest rates used in the model range from
4.8% to 5.7%. The expected life of the options is seven years. CCPC common stock
is not publicly traded and does not declare dividends on a regular basis.
1997 AND 1996 PLANS
During 1997 and 1996, certain employees of CCPC participated in the stock
compensation plans of Corning. Under Corning's stock option plan, non-qualified
and incentive stock options to purchase unissued Corning shares at the market
price on the date of grant generally become exercisable in installments from one
to two years from the grant date. The maximum term of non-qualified and
incentive stock options issued by Corning is generally 10 years from the grant
date.
At December 31, 1997, CCPC employees held options to acquire 351,000 shares
of Corning common stock at exercise prices ranging from $14.95 per share to
$54.81 per share. These outstanding options had a weighted-average exercise
price of $28.50 per share and a weighted-average remaining contractual life of
7.1 years at December 31, 1997. Of these outstanding options, at December 31,
1997, 173,000 represented vested options with a weighted-average exercise price
of $27.00 per share.
The number and exercise price of all Corning options outstanding were
adjusted for the distributions of certain Corning subsidiaries at December 31,
1996. This adjustment increased the number of Corning options outstanding and
held by CCPC employees by approximately 69,000 and decreased the exercise price
of the options by approximately 18%.
Certain employees of CCPC were granted 38,000 Corning options in the years
ended December 31, 1997 and 1996. The weighted-average exercise price of option
grants in the years ended December 31, 1997 and 1996 were $42.08 and $34.44,
respectively. CCPC employees exercised 80,400 and 17,100 Corning
38
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(12) STOCK COMPENSATION PLANS (CONTINUED)
options in the years ended December 31, 1997 and 1996, respectively. The
weighted-average exercise prices of these exercises in the years ended December
31, 1997 and 1996 were $24.25 and $23.00, respectively.
Under Corning's incentive stock plans, stock grants are made to certain
employees of CCPC, either determined by specific performance goals or issued
directly, in most instances subject to the possibility of forfeiture and without
cash consideration. In the years ended December 31, 1997 and 1996, grants of
26,500 and 23,625 shares, respectively, were made under these plans. The
weighted-average fair value of options granted was $35.32 and $33.20 per share
in 1997 and 1996, respectively. At December 31, 1997 the unamortized cost of
prior stock grants amounted to approximately $1,700.
The costs related to the above plans have been allocated to CCPC by Corning
within the other corporate administrative expense described in Note 8.
In addition to the stock option plan and incentive stock plans, Corning has
an employee stock purchase plan ("ESPP"), in which certain employees of CCPC
participated. Under the ESPP, certain employees of CCPC could elect to have up
to 10% of their annual wages withheld to purchase Corning common stock. The
purchase price of the stock was 85% of the lower of the beginning-of-quarter or
end-of-quarter market price.
If CCPC had accounted for compensation cost under the provisions of FAS 123,
the pro forma net income (loss) would have been $13,200 in 1997 and $2,902 in
1996. The pro forma effect of accounting for such costs using the fair value
method of FAS 123 may not be representative of the effect in future years.
Under FAS 123, the weighted-average fair values of options granted in the
years ended December 31, 1997 and 1996 were $13.60 and $10.77 per share,
respectively. For purposes of determining fair value at the grant date, the
Black-Scholes option pricing model was used with the following weighted-average
assumptions for grants in the years ended December 31, 1997 and 1996,
respectively: risk free interest rate of 6.6% and 6.6%; dividend yield of 1.6%
and 2.3%; expected volatility of 24.5% and 25%; and expected life of 6 and 7
years.
(13) INCOME TAXES
Prior to April 1, 1998, CCPC was included in the consolidated federal income
tax return filed by Corning. CCPC and its subsidiaries had a tax sharing
arrangement with Corning pursuant to which CCPC was required to compute their
provision for income taxes on a separate return (i.e., subconsolidation) basis
and pay to, or receive from Corning the separate U.S. federal income tax return
liability or benefit so computed, if any.
39
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(13) INCOME TAXES (CONTINUED)
The Company's tax accounts have been prepared on a separate company basis
and do not necessarily reflect the Company's actual tax position as determined
on a consolidated basis with Corning in 1997 and 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
INCOME (LOSS) BEFORE TAXES:
U.S. companies.................................................................. $ (30,124) $ 15,483 $ (3,125)
Non-U.S. companies.............................................................. (2,542) 11,240 12,533
---------- --------- ---------
Income (loss) before taxes.................................................... $ (32,666) $ 26,723 $ 9,408
---------- --------- ---------
---------- --------- ---------
</TABLE>
The components of income tax expense consist of the following items:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CURRENT AND DEFERRED TAX EXPENSE:
Current:
U.S............................................................................. $ 126 $ 3,859 $ 232
State and municipal............................................................. -- 2,996 2,909
Foreign......................................................................... 969 4,122 4,159
Deferred:
U.S............................................................................. -- 42 1,595
State and municipal............................................................. -- 1,574 (3,061)
Foreign......................................................................... (148) 141 347
--------- --------- ---------
Net tax expense................................................................... $ 947 $ 12,734 $ 6,181
--------- --------- ---------
--------- --------- ---------
</TABLE>
The income tax provision at the effective rate differs from the income tax
provision at the U.S. federal statutory tax rate in effect during the years
ended December 31, 1998, 1997, and 1996 for the following reasons:
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
EFFECTIVE TAX RATE RECONCILIATION:
Taxes at U.S. statutory tax rate @ 35%.......................................... $ (11,433) $ 9,353 $ 3,293
Increase (reduction) in income taxes resulting from:
State taxes, net of federal benefit........................................... -- 3,998 (172)
Taxes on foreign subsidiary and FSC earnings.................................. 947 2,775 2,954
Non-deductible transactions related expenses.................................. 6,464 -- --
Other......................................................................... 453 (3,261) (3,645)
Change in the valuation allowance for deferred tax assets..................... 4,516 (131) 3,751
---------- --------- ---------
Income tax expense............................................................ $ 947 $ 12,734 $ 6,181
---------- --------- ---------
---------- --------- ---------
</TABLE>
40
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(13) INCOME TAXES (CONTINUED)
For federal income tax purposes, CCPC has elected to treat the
Recapitalization as an asset acquisition by making a Section 338(h)(10)
election. As a result, there is a difference between the financial reporting and
tax bases of CCPC's assets. The difference results in future deductible amounts
for tax purposes which creates a deferred tax asset for financial reporting
purposes.
The tax effects of temporary differences and carryforwards that give rise to
significant portions of the deferred tax assets and liabilities at December 31,
1998 and 1997 are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Fixed and intangible assets............................................................... $ 99,124 $ --
Postretirement, pension and other employee benefits....................................... 15,805 34,957
Loss and tax credit carryforwards......................................................... 11,043 22,871
Inventory reserves........................................................................ 6,853 1,881
Other..................................................................................... 11,987 4,824
---------- ----------
Gross deferred tax assets............................................................... 144,812 $ 64,533
Deferred tax assets valuation allowance................................................... (95,764) (13,432)
---------- ----------
Deferred tax assets..................................................................... 49,048 51,101
---------- ----------
Fixed assets.............................................................................. -- (13,195)
---------- ----------
Deferred tax liabilities................................................................ -- (13,195)
---------- ----------
Net deferred tax assets............................................................... $ 49,048 $ 37,906
---------- ----------
---------- ----------
</TABLE>
The net change in the total valuation allowance for years ended December 31,
1998 and 1997 was an increase of $82,332 and $5,200, respectively. Management
believes that the net deferred tax assets are recoverable given the current
estimates of future taxable income.
Net operating losses in the amount of $13,839 are available to offset
taxable income, if any, in future years. These net operating losses begin to
expire in 2018.
CCPC currently provides income taxes on the earnings of foreign subsidiaries
and associated companies to the extent they are currently taxable or expected to
be remitted. Taxes have not been provided on $10,780 of accumulated foreign
unremitted earnings which are expected to remain invested indefinitely. It is
not practicable to estimate the amount of additional tax that might be payable
on these foreign earnings if they were to be remitted.
There were no taxes paid to Corning in 1998. In 1997, CCPC paid $6,700 of
income taxes to Corning.
(14) RESTRUCTURING AND TRANSACTIONS RELATED EXPENSES
CCPC is continuing its efforts to further reduce manufacturing, assembly,
and distribution costs. As a result of this effort CCPC recorded a restructuring
charge of $4,772 related to the consolidation and rationalization of Asian
operations and the consolidation of Canadian and U.S. distribution facilities.
The restructuring program was substantially complete at December 31, 1998.
41
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(14) RESTRUCTURING AND TRANSACTIONS RELATED EXPENSES (CONTINUED)
Transactions related expenses of $28,866 primarily consist of cash and
non-cash compensation, financing costs and other cash expenses associated with
the Recapitalization. The charge included $17,400 of compensation payments
reimbursed by Corning related to arrangements entered into by Corning with
certain Corning employees who accepted employment with CCPC. The remaining
transaction related expenses consisted of costs incurred in 1998 for fees and
services related to the Recapitalization and the related financings.
(15) SEGMENT INFORMATION
CCPC manages its business on the basis of one reportable segment-the
worldwide manufacturing and marketing of consumer housewares. The Company
markets its products chiefly in the United States but also has significant
business in international markets such as Canada, Asia, Australia, and Latin
America. CCPC is exposed to the risk of changes in social, political, and
economic conditions inherent in foreign operations and the value of its foreign
assets are affected by fluctuations in foreign currency exchange rates. Net
sales by geographic area are presented by attributing revenues from external
customers on the basis of where the products are sold. In 1998, 1997, and 1996,
one customer, Wal-Mart Stores, Inc., accounted for approximately 17%, 15%, and
13%, respectively, of the Company's consolidated net sales.
42
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(15) SEGMENT INFORMATION (CONTINUED)
The following information is presented in accordance with FAS 131,
"Disclosure about Segments of an Enterprise and Related Information," which the
Company has adopted in the current year:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
GEOGRAPHIC AREAS: 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES:
United States................................................................ $ 440,110 $ 431,926 $ 500,401
Canada....................................................................... 31,877 33,354 33,103
---------- ---------- ----------
North America.............................................................. 471,987 465,280 533,504
Other International.......................................................... 61,081 107,580 98,902
---------- ---------- ----------
Total.................................................................... $ 533,068 $ 572,860 $ 632,406
---------- ---------- ----------
---------- ---------- ----------
<CAPTION>
AS OF DECEMBER 31,
----------------------
<S> <C> <C> <C>
1998 1997
---------- ----------
LONG-LIVED ASSETS:(1)
United States................................................................ $ 271,443 $ 252,206
Canada....................................................................... 736 765
---------- ----------
North America.............................................................. 272,179 252,971
Other International.......................................................... 3,884 4,522
---------- ----------
Total.................................................................... $ 276,063 $ 257,493
---------- ----------
---------- ----------
<CAPTION>
CLASSES OF SIMILAR PRODUCTS:
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
NET SALES:
Bakeware..................................................................... $ 197,400 $ 206,499 $ 235,353
Dinnerware................................................................... 163,336 186,642 187,202
Rangetop Cookware............................................................ 100,721 109,667 140,577
Other(2)..................................................................... 71,611 70,052 69,274
---------- ---------- ----------
Total...................................................................... $ 533,068 $ 572,860 $ 632,406
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
(1) Includes property and equipment, deferred taxes on income, goodwill and
other assets.
(2) "Other" sales include selected tabletop and kitchen accessories manufactured
by third parties which are principally coordinated with the
Corelle-Registered Trademark- line of dinnerware and the Revere
Ware-Registered Trademark- line of stainless steel cookware.
43
<PAGE>
CCPC HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
(16) SUBSEQUENT EVENT
In March 1999, CCPC initiated a plan to restructure its manufacturing and
supply organization designed to reduce costs through elimination of
under-utilized capacity, unprofitable product lines and increased utilization of
the remaining facilities. Management believes that the changes will increase the
Company's ability to compete by opening up diverse sources of supply both in the
United States and overseas.
The restructuring includes the discontinuation of the commercial tableware
product line and closure of the related portion of CCPC's manufacturing facility
in Charleroi, Pennsylvania. In order to optimize the utilization of the
Charleroi facility, CCPC will move Corelle-Registered Trademark- cup production
to its Martinsburg, West Virginia facility and third party suppliers, the supply
contract with Corning's Greenville, Ohio facility will be terminated and
Pyrex-Registered Trademark- production will be consolidated at Charleroi.
Additionally, CCPC will discontinue manufacturing rangetop cookware and close
its manufacturing and distribution center in Clinton, Illinois. Future supply
will be sourced from third party manufacturers.
44
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
CCPC Holding Company, Inc.
We have audited the accompanying consolidated balance sheet of CCPC Holding
Company, Inc. as of December 31, 1998 and the related consolidated statements of
operations, changes in stockholders' (deficit) equity, and cash flows for the
year then ended. Our audit also included the financial statement schedule listed
in the index at item 14. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such 1998 consolidated financial statements present fairly,
in all material respects, the consolidated financial position of the Company at
December 31, 1998, and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also audited the adjustments described in Note 3 that were applied to
restate the 1997 and 1996 consolidated financial statements to give retroactive
effect to the change in the method of accounting for inventories. In our
opinion, such adjustments are appropriate and have been properly applied.
Deloitte & Touche, LLP
January 29, 1998
(March 19, 1999 as to Note 16)
45
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
CCPC Holding Company, Inc., formerly named
Corning Consumer Products Company
In our opinion, the consolidated balance sheet and the related consolidated
statements of operations and of cash flows, prior to restatement (not presented
separately herein), present fairly, in all material respects, the financial
position, results of operations and cash flows of CCPC Holding Company, Inc. as
of and for each of the two years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of CCPC Holding
Company. Inc., for any period subsequent to December 31, 1997 nor have we
examined any adjustments applied to the 1997 financial statements.
PricewaterhouseCoopers LLP
New York, New York
January 19, 1998 except for the first paragraph
of Note 2, as to which the date is March 16, 1998
46
<PAGE>
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 1, 1998, the Board of Directors of the Company approved the
dismissal of its independent accountants, PricewaterhouseCoopers LLP, and
approved the appointment of Deloitte & Touche LLP. There were no disagreements
with PricewaterhouseCoopers LLP on any matter of accounting principles,
financial statement disclosure or auditing scope or procedure.
47
<PAGE>
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the executive officers
and directors of the Company following the Recapitalization.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- --- ----------------------------------------------------------------
<S> <C> <C>
C. Robert Kidder................ 54 Director and Chairman of the Board
Peter F. Campanella............. 53 Director, President and Chief Executive Officer
Edward A. Gilhuly............... 38 Director
Clifton S. Robbins.............. 40 Director
Scott M. Stuart................. 39 Director
William H. Carter............... 45 Director
Nancy A. Reardon................ 46 Director
William F. Stoll, Jr............ 50 Director
Anthony P. Deasey............... 49 Senior Vice President--Finance and Chief Financial Officer
Stephen A. Morocco.............. 47 Senior Vice President--International
Clark S. Kinlin................. 39 Senior Vice President--Sales and Marketing
Twilver Gordon.................. 58 Vice President--Manufacturing and Engineering
Thomas C. O'Brien............... 54 Vice President, Secretary and General Counsel
</TABLE>
C. Robert Kidder was elected a Director and Chairman of the Board of the
Company on April 1, 1998. He was elected a Director, Chairman of the Board and
Chief Executive Officer of Borden, Inc. on January 10, 1995, and continues in
those positions. Prior to that he was Chairman of the Board of Duracell
International, Inc. and Duracell, Inc. from August 1991 through October 1995;
Chairman of the Board and Chief Executive Officer of both companies from April
1992 through September 30, 1995; Chairman of the Board, President and Chief
Executive Officer of both companies from August 1991 until April 1992; and
President and Chief Executive Officer of both companies from June 1988 until
August 1991. He is also a director of Electronic Data Systems Corporation, AEP
Industries Inc. and Morgan Stanley, Dean Witter & Co.
Peter F. Campanella was elected a Director of the Company on April 1, 1998,
and has been its President and Chief Executive Officer since April 1996. From
1994 to 1996, he was Senior Vice President and General Manager of Corning's
Science Products Division, and from 1990 to 1994, he was Vice President and
General Manager of that division. He joined Corning in 1971 and has held various
sales, marketing and general management positions.
Edward A. (Ned) Gilhuly has been a director of the Company since April 1,
1998. He has been a member of KKR & Co., LLC, the limited liability company
which serves as the general partner of KKR, since 1996, was a General Partner of
KKR and has been a General Partner of KKR Associates, L.P. since January 1995.
For 1993 and 1994, he was an executive of KKR. He is a Director of
Owens-Illinois, Inc., Union Texas Petroleum and Layne Christensen Company.
Clifton S. Robbins has been a director of the Company since April 1, 1998.
He has been a member of KKR & Co., LLC, the limited liability company which
serves as the general partner of KKR, since 1996, was a General Partner of KKR
and has been a General Partner of KKR Associates, L.P. since January 1995. He
began as an Executive with KKR & Co. in 1987. He has been a Director of Borden,
Inc. since December 1994, and is also a Director of AEP Industries Inc., Borden,
Inc., IDEX Corporation, KinderCare Learning Centers, Inc., Newsquest PLC and
Regal Cinemas, Inc.
Scott M. Stuart has been a director of the Company since April 1, 1998. He
has been a member of KKR & Co., LLC, the limited liability company which serves
as the general partner of KKR, since 1996,
48
<PAGE>
was a General Partner of KKR, and has been a General Partner of KKR Associates,
L.P. since January 1995. He has been a Director of Borden, Inc. since December
1994, and is also a Director of AEP Industries Inc., The Boyds Collection, Ltd.,
KSL Recreation Corporation, Newsquest PLC and World Color Press, Inc.
William H. Carter has been a director of the Company since April 1, 1998. He
was elected Executive Vice President and Chief Financial Officer of Borden, Inc.
effective April 3, 1995. Prior to that, since 1987, he was a partner in Price
Waterhouse LLP.
Nancy A. Reardon has been a director of the Company since April 1, 1998. She
was elected Senior Vice President, Human Resources and Corporate Affairs, of
Borden, Inc. effective March 3, 1997. Previously she was Senior Vice
President-Human Resources and Communications for Duracell International, Inc.
from 1991 through February 1997.
William F. Stoll, Jr. has been a director of the Company since April 1,
1998. He was elected Senior Vice President and General Counsel of Borden, Inc.
effective July 1, 1996. Prior to joining Borden at that time, he was a Vice
President of Westinghouse Electric Corporation since 1993, and served as its
Deputy General Counsel from 1988 to 1996.
Anthony P. Deasey was elected Senior Vice President--Finance and Chief
Financial Officer on June 8, 1998. Prior to joining the Company he was Senior
Vice President--Finance and Chief Financial Officer of Rollerblade, Inc. from
April 1996 to March 1998. Prior to that he was Vice President, Chief Financial
Officer of Church and Dwight Co. Inc., the manufacturer and marketer of Arm &
Hammer-Registered Trademark- brand consumer and industrial products, from 1988
to November 1995. From November 1995 to March 1996, Mr. Deasey was engaged in
pursuing personal interests.
Stephen A. Morocco was elected Senior Vice President--International on
September 28, 1998. Prior to joining the Company, he was Vice President of
Duracell Battery Operations in the Middle East, Africa, Eastern Europe, the
former Soviet Union and India for the Gillette Company from July 1996 to
September 1998. Prior to that he was President of Duracell Canada from March
1994 to June 1996. From 1990 through 1994 he served in Duracell International's
Asia Headquarters first as Managing Director of Asia (1990-1993) and then, as
Vice President, Greater China (1993-1994).
Clark S. Kinlin was elected Senior Vice President--Sales and Marketing of
the Company on April 1, 1998. Prior to that he was Vice President--Sales and
Marketing of the Company since September 1997, and from 1995 to 1997, he was
Vice President of Marketing. From 1993 to 1995, he was Director of Retail
Development of the Company, and from 1990 to 1993, he was Manager of Sales and
Marketing of Corning's Telecommunications Products Division. He joined Corning
in 1981.
Twilver Gordon was elected Vice President--Manufacturing and Engineering of
the Company on April 1, 1998. Prior to that he was Director--Manufacturing and
Engineering since June 1996. From 1995 to 1996, he was Manufacturing Manager of
the Company; from 1993 to 1995, he was plant manager at the Company's Corning,
New York, Pressware facility; and from 1988 to 1993, he was Director--Customer
Services and Distribution at the Company's Greencastle, Pennsylvania, facility.
He joined Corning in 1968.
Thomas C. O'Brien was elected Vice President, Secretary and General Counsel
of the Company on April 1, 1998. Prior to that he had been Assistant General
Counsel of Corning since February 1993, and Secretary and Legal Counsel of the
Company since January 1992. He joined Corning in 1977.
ITEM 11--EXECUTIVE COMPENSATION
The following tables and charts set forth information with respect to
benefits made available, and compensation paid or accrued, by the Company during
the years ended December 31, 1998, 1997 and 1996
49
<PAGE>
for services by each of the chief executive officer and the four other most
highly compensated executive officers whose total salary and bonus exceeded
$100,000.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ANNUAL COMPENSATION AWARDS
----------------------------------------------------------------- ----------------------------
OTHER RESTRICTED SECURITIES INCENTIVE
ANNUAL STOCK UNDERLYING PLAN
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) AWARDS OPTIONS PAYOUTS
- ----------------------------- --------- --------- ----------- ----------------- ----------- ----------- ---------------
PETER F. CAMPANELLA 1998 $ 377,500 $ 1,739,236 $ 111,451 $ 0 180,000 $ 0
Chief Executive Officer 1997 $ 246,666 $ 358,162 $ 0 $ 664,313 8,000 $ 0
1996 $ 180,000 $ 203,271 $ 33,416 $ 942,005 0 $ 0
CLARK S. KINLIN 1998 $ 219,225 $ 599,986 $ 18,750 $ 0 80,000 $ 0
Sr. Vice President Sales & 1997 $ 150,333 $ 115,769 $ 338 $ 166,078 4,000 $ 0
Marketing 1996 $ 104,556 $ 65,981 $ 1,706 $ 94,359 0 $ 0
TWILVER GORDON 1998 $ 187,275 $ 543,386 $ 0 $ 0 45,000 $ 0
VP Manufacturing & 1997 $ 137,325 $ 114,122 $ 0 $ 0 0 $ 0
Engineering 1996 $ 97,033 $ 54,013 $ 0 $ 0 0 $ 0
GARY P. VOGT 1998 $ 161,625 $ 510,961 $ 205 $ 0 45,000 $ 0
VP Logistics & Procurement 1997 $ 124,392 $ 83,833 $ 436 $ 0 0 $ 0
1996 $ 88,291 $ 41,776 $ 0 $ 0 0 $ 0
THOMAS C. O'BRIEN 1998 $ 158,708 $ 299,659 $ 0 $ 0 25,000 $ 0
VP Secretary & General 1997 $ 133,633 $ 10,230 $ 0 $ 23,287 0 $ 0
Counsel 1996 $ 128,067 $ 41,283 $ 999 $ 0 0 $ 0
<CAPTION>
<S> <C>
PAYOUTS
-----------------
ALL
OTHER
NAME AND PRINCIPAL POSITION COMPENSATION(3)
- ----------------------------- -----------------
PETER F. CAMPANELLA $ 16,332
Chief Executive Officer $ 29,430
$ 16,554
CLARK S. KINLIN $ 5,880
Sr. Vice President Sales & $ 8,236
Marketing $ 7,465
TWILVER GORDON $ 9,880
VP Manufacturing & $ 12,396
Engineering $ 10,575
GARY P. VOGT $ 9,880
VP Logistics & Procurement $ 8,647
$ 8,411
THOMAS C. O'BRIEN $ 1,880
VP Secretary & General $ 7,880
Counsel $ 8,574
</TABLE>
- ------------------------------
(1) 1998 bonus includes retention and transition compensation arrangements for
Messrs. Campanella, Kinlin, Gordon, Vogt, and O'Brien of $1,666,636;
$566,636; 515,136, $490,136; and $281,818 respectively. These expenses were
reimbursed in full by Corning.
(2) Includes tax gross-up payments for participants employed with the Company
for six months following the Closing Date and perquisite allowances.
(3) Represents amounts contributed by the Company as matching contributions to
CCPC's tax-qualified Investment Plan and amounts paid in cash for benefits
which would have been available pursuant to the terms of the Investment Plan
absent certain limitations on compensation which may be taken into account
under tax-qualified plans as imposed pursuant to the Internal Revenue Code.
EMPLOYEE AGREEMENTS
The Company has in place a severance practice pursuant to which it will
provide to all salaried employees upon certain terminations of employment,
compensation in amounts ranging between eight weeks of base salary (for
employees with at least one year of service) and 52 weeks of base salary (for
employees with at least 20 years of service).
50
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL RATES OF STOCK PRICE
NUMBER OF OPTIONS APPRECIATION FOR
SECURITIES GRANTED TO OPTION TERM(2)
UNDERLYING EMPLOYEES ------------------------
OPTIONS IN FISCAL EXERCISE EXPIRATION GAIN AT GAIN AT
NAME GRANTED YEAR PRICE DATE 5% 10%
- ---------------------------------------- ----------- ----------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Peter F. Campanella..................... 180,000 18.1% $ 5.00 4/1/08 $ 566,005 $ 1,434,368
Clark S. Kinlin......................... 80,000 8.0% $ 5.00 4/1/08 $ 251,558 $ 637,497
Twilver Gordon.......................... 45,000 4.5% $ 5.00 4/1/08 $ 141,501 $ 358,592
Gary P. Vogt............................ 45,000 4.5% $ 5.00 4/1/08 $ 141,501 $ 358,592
Thomas C. O'Brien....................... 25,000 2.5% $ 5.00 4/1/08 $ 78,612 $ 199,218
</TABLE>
- ------------------------
(1) No SARs were granted in 1998 to any of the named executive officers.
(2) The dollar amounts set forth under these columns are the result of
calculations at 5% and at 10% rates established by the Securities and
Exchange Commission and therefore are not intended to forecast future
appreciation of CCPC's stock price. The Company did not use any alternative
formula for grant date valuation as it is unaware of any formula which would
determine with reasonable accuracy a present value based upon future unknown
factors.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES(1)(2)
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY
NUMBER OF SECURITIES OPTIONS
UNDERLYING UNEXERCISED AT FISCAL YEAR
SHARES OPTIONS AT FISCAL YEAR END END
ACQUIRED VALUE -------------------------------- ---------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE
- --------------------------------------- ----------------- ------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Peter F. Campanella.................... 0 $ 0 0 180,000 $ 0
Clark S. Kinlin........................ 0 $ 0 0 80,000 $ 0
Twilver Gordon......................... 0 $ 0 0 45,000 $ 0
Gary P. Vogt........................... 0 $ 0 0 45,000 $ 0
Thomas C. O'Brien...................... 0 $ 0 0 25,000 $ 0
<CAPTION>
NAME UNEXERCISABLE
- --------------------------------------- -----------------
<S> <C>
Peter F. Campanella.................... $ 0
Clark S. Kinlin........................ $ 0
Twilver Gordon......................... $ 0
Gary P. Vogt........................... $ 0
Thomas C. O'Brien...................... $ 0
</TABLE>
- ------------------------
(1) There are no SARs outstanding.
(2) In addition, each individual has grants under Corning Incorporated. Messrs.
Kinlin and O'Brien exercised 1,198 and 2,396 options respectively in 1998.
The value realized was $21,983 and $36,642, respectively. Messrs.
Campanella, Kinlin, Gordon, Vogt, and O'Brien have 57,780; 29,133; 8,485;
4,646; and 5,721 exercisable Corning Incorporated options, respectively,
valued at $690,123; $504,972; $128,597; $62,036; and $86,191, respectively.
Messrs. Campanella, Gordon, Vogt, and O'Brien have 64,608; 1,000; 750; and
750 unexercisable Corning Incorporated options, respectively, valued at
$1,199,032; $0; $0; and $0, respectively.
CORNING INCORPORATED PERFORMANCE PLAN ACTIVITY TABLE
This Table illustrates the number of performance-based shares awarded under
the Corning Incorporated Corporate Performance Plan. The number of shares earned
or which may be earned by the named executive was determined by the achievement
of specific return on equity, earnings per share or other
51
<PAGE>
objective goals for the Corning Incorporated. The percentage of awards that may
be earned ranged from 0% to 150% of target.
<TABLE>
<CAPTION>
NUMBER NUMBER NUMBER
GRANT OF SHARES PERFORMANCE OF SHARE OF SHARES
NAME YEAR DATE GRANTED PERIOD FORFEITED EARNED
- -------------------------------------------------- --------- --------- ----------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Peter F. Campanella............................... 1998 N/A 0 1998 0 0
1997 2/5/97 12,000 1997 0 18,000
1996 12/6/95 14,250 1996 0 14,250
Clark S. Kinlin................................... 1998 N/A 0 1998 0 0
1997 2/5/97 3,000 1997 0 4,500
1996 12/6/95 2,250 1996 0 2,250
Twilver Gordon.................................... 1998 N/A 0 1998 0 0
1997 N/A 0 1997 0 0
1996 N/A 0 1996 0 0
Gary P. Vogt...................................... 1998 N/A 0 1998 0 0
1997 N/A 0 1997 0 0
1996 N/A 0 1996 0 0
Thomas C. O'Brien................................. 1998 N/A 0 1998 0 0
1997 N/A 0 1997 0 0
1996 N/A 0 1996 0 0
</TABLE>
PENSION PLAN
The Company maintains a Pension Plan, a defined benefit plan, under which
benefits are paid based upon career earnings (regular salary and cash awards
such as those paid under the Company's Variable Compensation Plans) and years of
credited service. Employees are required to contribute an amount equal to 2% of
compensation in excess of the social security wage base up to the compensation
limits imposed by the Internal Revenue Code. Salaried employees may contribute
2% of their annual earnings up to the social security wage base. The benefit
formula is reviewed and adjusted periodically for inflationary and other
factors. The Company's contributions to the Plan are determined by the Plan's
actuaries and are not determined on an individual basis. The amounts of benefits
payable under the Plan and attributable to the Company's contributions is
subject to the provisions of the Employee Retirement Income Security Act and
limits imposed by the Internal Revenue Code.
Borden, Inc. maintains a non-qualified Supplemental Pension Plan (the
"Supplemental Plan"), pursuant to which it will pay to certain executives,
including each of the named executive officers, amounts approximately equal to
the difference between the benefits provided for under the CCPC Pension Plan and
benefits which would have been provided thereunder but for limitations on
benefits which may be provided under tax-qualified plans, as set forth in the
Internal Revenue Code.
The table below sets forth aggregate annual amounts payable under the
Pension Plan and the Supplemental Pension Plan under the straight life annuity
option, assuming retirement during 1998 of participants who have met the
eligibility requirement for unreduced benefits under the Plans. Additional
benefits may be payable to participants who have elected to contribute
voluntarily to the Pension Plan. The
52
<PAGE>
benefits set forth in the table are not subject to any deduction for social
security or other offset amounts. The normal retirement age specified in the
Plans is age 65 with 5 years of credited service.
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE ----------------------------------------------------------------------
PAY 15 20 25 30 35 40
- ---------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 500,000 $ 110,200 $ 146,900 $ 183,600 $ 220,400 $ 257,100 $ 294,600
600,000 132,700 176,900 221,100 265,400 309,600 354,600
700,000 155,200 206,900 258,600 310,400 362,100 414,600
800,000 177,700 236,900 296,100 355,400 414,600 474,600
900,000 200,200 206,900 333,600 400,400 467,100 534,600
1,000,000 222,700 296,900 371,100 445,400 519,600 594,600
1,100,000 245,200 326,900 408,600 490,400 572,100 654,600
1,200,000 267,700 356,900 446,100 535,400 624,600 714,600
1,300,000 290,200 386,900 483,600 580,400 677,100 774,600
1,400,000 312,700 416,900 521,100 625,400 729,600 834,600
1,500,000 335,200 446,900 558,600 670,400 782,100 894,600
</TABLE>
The compensation covered by the Pension Plan and the Supplemental Pension
Plan for each of the named executive officers is the total of salary and bonus
as set forth in the Summary Compensation Table. The amount of bonus is included
as compensation covered by such Plans in the calendar year in which it is paid.
Messrs. Campanella, Kinlin, Gordon, O'Brien, and Vogt have 27.8, 17.4, 30.3,
25.3 and 22.2 years of credited service, respectively.
COMPENSATION OF MEMBERS OF BOARD
Members of the Board will receive no cash compensation for their service on
the Board or its committees. Members of the Board will receive reimbursement for
traveling costs and other out-of-pocket expenses incurred in attending Board and
committee meetings.
53
<PAGE>
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of the Company's Common Stock as of December 31, 1998 by (i) each
person who is known by the Company to beneficially own more than 5% of the
Company's Common Stock, (ii) each of the Company's directors who own Common
Stock, (iii) each of the named executive officers who own Common Stock and (iv)
all directors and executive officers as a group. Unless otherwise indicated, the
address of each person named in the table below is Corning Consumer Products
Company, One Pyrex Place, P.O. Box 1555, Elmira, New York 14902.
<TABLE>
<CAPTION>
BENEFICIAL PERCENTAGE OF
OWNERSHIP OF COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK(1) OUTSTANDING
- --------------------------------------------------------------------------------- ---------------- ---------------
<S> <C> <C>
KKR Associates, L.P.(2).......................................................... 21,477,000 89.5%
c/o Kohlberg Kravis Roberts & Co., L.P.
9 West 57th Street
New York, New York 10019
Edward A. Gilhuly.............................................................. -- --
Clifton S. Robbins............................................................. -- --
Scott M. Stuart................................................................ -- --
Corning Incorporated............................................................. 1,920,000 8.0%
One Riverfront Plaza
Corning, NY 14831
Peter F. Campanella(3)........................................................... 180,000 *
Anthony P. Deasey(3)............................................................. 80,000 *
Stephen A. Morocco(3)............................................................ 60,000 *
Clark S. Kinlin(3)............................................................... 80,000 *
Twilver Gordon(3)................................................................ 45,000 *
Thomas C. O'Brien(3)............................................................. 25,000 *
All executive officers and directors as a group (10 persons, excluding Messrs.
Gilhuly, Robbins and Stuart)................................................... 470,000 2.0%
</TABLE>
- ------------------------
* Less than 1%.
(1) The amounts and percentages of common stock beneficially owned are reported
on the basis of regulations of the Commission governing the determination of
beneficial ownership of securities. Under the rules of the Commission, a
person is deemed to be a "beneficial owner" of a security if that person has
or shares "voting power," which includes the power to vote or to direct the
voting of such security, or "investment power," which includes the power to
dispose of or to direct the disposition of such security. A person is also
deemed to be a beneficial owner of any securities of which that person has a
right to acquire beneficial ownership within 60 days. Under these rules,
more than one person may be deemed to be a beneficial owner of securities as
to which such person has an economic interest. The percentage of class
outstanding is based on 24,000,000 shares of common stock outstanding at
December 31, 1998.
(2) Shares of common stock shown as owned by KKR Associates, L.P. ("KKR
Associates") are owned of record by CCPC Acquisition. KKR Associates is the
sole general partner of Whitehall Associates, L.P., which is the managing
member of BW Holdings, LLC. BW Holdings, LLC owns 100% of the outstanding
capital stock of CCPC Acquisition. Messrs. Gilhuly, Robbins and Stuart (who
are directors of CCPC) and Messrs. Henry R. Kravis, George E. Roberts, James
H. Greene, Jr., Paul E. Raether, Michael W. Michelson, Michael T. Tokarz,
Perry Golkin and Robert I. MacDonnel, as
54
<PAGE>
general partners of KKR Associates, may be deemed to share beneficial
ownership of any shares beneficially owned by KKR Associates, but disclaim
any such beneficial ownership. The address of KKR Associates is 9 West 57th
Street, New York, New York 10019.
(3) The Company has granted Messrs. Campanella, Deasey, Morocco, Kinlin, Gordon,
and O'Brien options to purchase 540,000, 240,000, 180,000, 240,000, 135,000,
and 75,000 shares of common stock, respectively, of which 20% will vest each
year beginning one year after the date of grant.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
BETWEEN CORNING AND THE COMPANY
Historically, Corning has provided the Company with certain administrative,
technical and other services, as well as providing office space and
manufacturing capacity in facilities owned or leased by Corning. Additionally,
Corning has made available to the Company certain manufacturing technology and
other intellectual property, including the Pyrex-Registered Trademark- and
Corning Ware-Registered Trademark- trademarks. In connection with the
Recapitalization, Corning and CCPC entered into several agreements relating to
the provision by Corning of goods and services to CCPC, the sharing of certain
facilities with CCPC and the royalty-free license to use certain trademarks,
tradenames, service marks, patents and know-how of Corning, in each case, on
terms substantially as described below.
HEADQUARTERS LEASE AND TRANSITION SERVICES AGREEMENT. Corning has entered
into agreements with CCPC pursuant to which Corning will continue to make
available certain facilities until October 1, 1999 and certain administrative
services which CCPC currently obtains from or through Corning until April 1,
2000. Corning has agreed to provide these facilities and these services on
substantially the same terms as offered by Corning during the 12-month period
immediately prior to the Recapitalization and reflected in the Company's
historical financial statements. CCPC has the right to terminate the facilities'
lease on 30 days' notice and the right to terminate the receipt of specific
administrative services on 90 days' notice.
SUPPLY AGREEMENT. Certain of the Company's Pyrex-Registered Trademark-
bakeware products are manufactured at a facility owned by Corning in Greenville,
Ohio. The Company and Corning entered into a supply agreement pursuant to which
Corning will supply the Company with manufacturing capacity for these products
for three years. Orders under the supply agreement will be billed at Corning's
actual cost (consisting of standard costs plus variances allocable to production
of the Company's products) determined in the same manner as during the 12-month
period immediately prior to the Recapitalization and reflected in the Company's
historical financial statements. CCPC plans to cease production at the
Greenville, Ohio facility during 1999.
TECHNOLOGY SUPPORT AGREEMENT. The Company obtains certain manufacturing
technology, engineering and research and development services from Corning. The
Company and Corning entered into a technology support agreement pursuant to
which Corning will continue to make these manufacturing and technology services
available to the Company. In addition, the technology support agreement will
provide for Corning and the Company to conduct an annual technology review, for
each other's benefit, relating to patents and technical know-how in the field of
the Company's products. The manufacturing technology and engineering services to
be provided by Corning will be made available to the Company on the same basis
as has been made available to the Company during the 12-month period immediately
prior to the Recapitalization. The technology support agreement will have a term
of five years and will be renewable for an additional five-year term at the
option of the Company.
ADMINISTRATIVE SERVICES AGREEMENT. In order to enable the Company to
continue its sales operations in Australia, Brazil, Mexico, China, Hong Kong,
India, Japan, Korea, Singapore and Taiwan, Corning or its affiliates will
provide certain administrative and distribution services and sublease space to
the Company. The administrative services agreement governing these arrangements
has a term of two years expiring on
55
<PAGE>
April 1, 2000 and is on terms designed to replicate substantially the economic
terms of the arrangements in effect during the 12 months immediately prior to
the Recapitalization.
SHARED FACILITY AGREEMENT. The Company's Corning, New York manufacturing
facility is adjacent to, and shares certain assets and infrastructure (e.g.,
waste disposal and utility service facilities) with, Corning's Fall Brook Plant.
The Company and Corning have entered into a shared facility agreement pursuant
to which the parties have provided for the continued use and sharing of these
assets and infrastructure facilities and the allocation of the costs associated
with these items (which costs are generally allocated according to the parties'
relative use of such shared asset) until April 1, 2008, or until such earlier
time as the Company or Corning shall have terminated its obligation to accept or
provide such assets and infrastructure facilities in accordance with the
agreement.
LICENSE AGREEMENTS. Corning and the Company entered into certain license
agreements pursuant to which Corning granted to the Company exclusive licenses
to use the Corning Ware-Registered Trademark- trademark, service mark and trade
name and Pyroceram-Registered Trademark- trademark in the field of housewares
and the Pyrex-Registered Trademark- trademark in the field of durable consumer
products (which the Company currently does not sell) for ten years (each
renewable at the option of the Company on the same terms and conditions for an
unlimited number of successive ten-year terms). In addition, Corning entered
into agreements with the Company providing for the Company's continued use of
the Corning name for up to three years (and up to five years for molds and
molded products with the Corning name embedded thereon). Corning granted to the
Company a fully paid, royalty free license of patents and know-how (including
evolutionary improvements) owned by Corning that pertain to or have been used in
the Company's business.
CORNING GLASS CENTER AND SUPPLY ARRANGEMENTS. Pursuant to the
Recapitalization Agreement, the Company will maintain its commercial
arrangements with the Corning Glass Center (the Corning employee store) for a
period of ten years ending March 31, 2008 on a pricing basis of the Company's
standard costs plus 15% and will continue to sell products to Corning's
manufacturing facilities for a period of five years in substantially the same
quantities and terms as during the twelve month period prior to March 31, 1998.
BETWEEN BORDEN AND THE COMPANY
In connection with the Recapitalization, the Company and Borden entered into
an agreement pursuant to which Borden will provide management, consulting and
financial services to the Company. Services will be provided in such areas as
the preparation and evaluation of strategic, operating, financial and capital
plans and the development and implementation of compensation and other incentive
programs. In consideration for such services, Borden will be entitled to an
annual fee of $1.5 million, plus reimbursement for certain expenses and
indemnification against certain liabilities. This agreement is terminable by
either party upon 30 days written notice. In connection with the
Recapitalization and in consideration of services provided by Borden in
arranging, structuring and negotiating the terms of the Recapitalization and the
related financing transactions, the Company paid Borden transaction and
financing fees and expenses of $8.0 million. The transaction and financing fees
and expenses were included in the fees and expenses incurred in connection with
the Recapitalization. In addition, Borden and its affiliates provided all of the
interim debt financing for the Recapitalization, a portion of which was
refinanced by borrowings under the Credit Facilities and the remainder was
refinanced with the proceeds of the credit facilities.
TAX SHARING AGREEMENT
The Company and certain of its subsidiaries have entered into a tax sharing
arrangement with CCPC Acquisition pursuant to which the Company and such
subsidiaries will be required to compute their provision for income taxes on a
separate return basis and pay to, or receive from, CCPC Acquisition the
56
<PAGE>
separate U.S. federal and applicable state and local income tax return liability
or credit so computed, if any.
STOCKHOLDERS' AGREEMENT; REGISTRATION RIGHTS AGREEMENT
The Company, CCPC Acquisition and Corning entered into the Stockholders'
Agreement which provides for certain restrictions and rights regarding the
transfer of Common Stock, including a right of first refusal in favor of, first,
the Company and, if the Company refuses, then CCPC Acquisition with respect to
the Common Stock owned by Corning. In addition, the Stockholders' Agreement
provides Corning with unlimited "piggy back" registration rights and one demand
registration right.
CCPC Acquisition has the right, under certain circumstances and subject to
certain conditions, to require the Company to register under the Securities Act
shares of common stock held by it pursuant to the CCPC Acquisition Registration
Rights Agreement. Such registration rights will generally be available to CCPC
Acquisition until registration under the Securities Act is no longer required to
enable it to resell the common stock owned by it without restriction. The CCPC
Acquisition Registration Rights Agreement provides, among other things, that the
Company will pay all registration expenses in connection with the first six
demand registrations requested by CCPC Acquisition and in connection with any
registration commenced by the Company as a primary offering in which CCPC
Acquisition participates through "piggy back" registration rights granted under
the CCPC Acquisition Registration Rights Agreement.
OTHER
Since April 1, 1998, the Company has obtained legal services relating to
various contract and potential litigation matters from the law firm of Certilman
Balin Adler & Hyman LLP of East Meadow, New York. Mr. Lewis Campanella, who is a
partner in this firm, is a brother of Peter Campanella, the Chief Executive
Officer of CCPC. Matters are assigned to the firm as needed. Billings by the
firm from April 1, 1998 through January 31, 1999 amounted to $122,600.
57
<PAGE>
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
14(A) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
1. Financial Statements
All financial statements of the registrant are set forth under Item 8,
Financial Statements and Supplementary Data of this Report on Form 10-K.
2. Schedule II Valuation accounts and reserves.
14(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the fourth quarter
of 1998.
58
<PAGE>
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.
CCPC HOLDING COMPANY, INC.
By /s/ PETER F. CAMPANELLA President and Chief
-------------------------- Executive Officer March 29, 1999
(Peter F. Campanella)
By /s/ ANTHONY P. DEASEY Senior Vice President and
-------------------------- Chief Financial Officer March 29, 1999
(Anthony P. Deasey)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
CAPACITY DATE
------------------------- -----------------
By /s/ C. ROBERT KIDDER Director and Chairman of
-------------------------- the Board March 29, 1999
(C. Robert Kidder)
By /s/ PETER F. CAMPANELLA President, Chief
-------------------------- Executive Officer, and March 29, 1999
(Peter F. Campanella) Director
By EDWARD A. GILHULY Director
-------------------------- March 29, 1999
(Edward A. Gilhuly)
By CLIFTON S. ROBBINS Director
-------------------------- March 29, 1999
(Clifton S. Robbins)
By SCOTT M. STUART Director
-------------------------- March 29, 1999
(Scott M. Stuart)
By /s/ WILLIAM H. CARTER Director
-------------------------- March 29, 1999
(William H. Carter)
By /s/ NANCY A. REARDON Director
-------------------------- March 29, 1999
(Nancy A. Reardon)
By /s/ WILLIAM F. STOLL Director
-------------------------- March 29, 1999
(William F. Stoll)
59
<PAGE>
SCHEDULE II
CCPC HOLDING COMPANY, INC.
VALUATION ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
YEAR ENDED DECEMBER 31, 1998 12/31/97 ADDITIONS DEDUCTIONS 12/31/98
- ------------------------------------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Doubtful accounts and allowances.................................. $ 7,304 $ 17,950 $ (14,082) $ 11,172
Deferred tax assets valuation allowance........................... 13,432 95,764 (13,432) 95,764
Accumulated amortization of goodwill and other intangibles........ 8,625 2,033 -- 10,658
Accumulated amortization of software.............................. 10,771 2,856 (316) 13,311
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
YEAR ENDED DECEMBER 31, 1997 12/31/96 ADDITIONS DEDUCTIONS 12/31/97
- ------------------------------------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Doubtful accounts and allowances.................................. $ 7,848 $ 10,418 $ (10,962) $ 7,304
Deferred tax assets valuation allowance........................... 8,267 5,805 (640) 13,432
Accumulated amortization of goodwill and other intangibles........ 6,592 2,033 -- 8,625
Accumulated amortization of software.............................. 8,338 3,244 (811) 10,771
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
YEAR ENDED DECEMBER 31, 1996 12/31/95 ADDITIONS DEDUCTIONS 12/31/96
- ------------------------------------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Doubtful accounts and allowances.................................. $ 13,299 $ 11,189 $ (16,640) $ 7,848
Deferred tax assets valuation allowance........................... 4,500 10,104 (6,337) 8,267
Accumulated amortization of goodwill and other intangibles........ 4,556 2,036 -- 6,592
Accumulated amortization of software.............................. 5,440 3,289 (391) 8,338
</TABLE>
60
<PAGE>
14(C) EXHIBITS FILED AS PART OF THIS REPORT
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
*2.1 Recapitalization Agreement dated as of March 2, 1998, among Corning Consumer Products Company, Corning
Incorporated, Borden, Inc. and CCPC Acquisition Corp. which appears as Exhibit 2.1 to the Registration
Statement on Form S-4, dated June 18, 1998, is incorporated herein by reference in this Annual Report
on Form 10-K.
*2.2 Amendment to the Recapitalization Agreement dated March 31, 1998 which appears as Exhibit 2.2 to the
Registration Statement on Form S-4, dated June 18, 1998, is incorporated herein by reference in this
Annual Report on Form 10-K.
*2.3 Assignment and Assumption Agreement dated as of April 1, 1998 between the Company and Corning which
appears as Exhibit 2.3 to the Registration Statement on Form S-4, dated June 18, 1998, is incorporated
herein by reference in this Annual Report on Form 10-K.
*3.1 Amended and Restated Certificate of Incorporation of the Company which appears as Exhibit 3.1 to the
Registration Statement on Form S-4, dated June 18, 1998, is incorporated herein by reference in this
Annual Report on Form 10-K.
*3.2 By-Laws of the Company which appears as Exhibit 3.2 to the Registration Statement on Form S-4, dated
June 18, 1998, is incorporated herein by reference in this Annual Report on Form 10-K.
*3.3 Certificate of Amendment of Certificate of Incorporation which appears as Exhibit 3.3 to Amendment No.
3 to the Registration Statement on Form S-4, dated September 16, 1998, is incorporated herein by
reference in this Annual Report on Form 10-K.
*4.1 Indenture dated as of May 5, 1998 between the Company and The Bank of New York, as Trustee which
appears as Exhibit 4.1 to the Registration Statement on Form S-4, dated June 18, 1998, is incorporated
herein by reference in this Annual Report on Form 10-K.
*4.2 Form of 9 5/8% Senior Subordinated Note due 2008 (included in Exhibit 4.1) which appears as Exhibit 4.2
to the Registration Statement on Form S-4, dated June 18, 1998, is incorporated herein by reference in
this Annual Report on Form 10-K.
*4.3 Form of 9 5/8% Series B Senior Subordinated Note due 2008 (included in Exhibit 4.1) which appears as
Exhibit 4.3 to the Registration Statement on Form S-4, dated June 18, 1998, is incorporated herein by
reference in this Annual Report on Form 10-K.
*10.1 Credit Facility, dated as of April 9, 1998, among the Company, the several lenders from time to time
parties thereto, and the Chase Manhattan Bank, as administrative agent, which appears as Exhibit 10.1
to the Registration Statement on Form S-4, dated June 18, 1998, is incorporated herein by reference in
this Annual Report on Form 10-K.
*10.2 Stockholders' Agreement, dated as of April 1, 1998 among the Company, CCPC Acquisition Corp. and
Corning Incorporated which appears as Exhibit 10.2 to the Registration Statement on Form S-4, dated
June 18, 1998, is incorporated herein by reference in this Annual Report on Form 10-K.
*10.3 Form of Management Stockholder's Agreement among the Company, CCPC Acquisition Corp. and certain
officers of the Company which appears as Exhibit 10.3 to the Registration Statement on Form S-4, dated
June 18, 1998, is incorporated herein by reference in this Annual Report on Form 10-K.
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
*10.4 Non-Qualified Stock Option Agreement dated as of April 1, 1998 between the Company and certain
employees of the Company which appears as Exhibit 10.4 to the Registration Statement on Form S-4, dated
June 18, 1998, is incorporated herein by reference in this Annual Report on Form 10-K.
*10.5 1998 Stock Purchase and Option Plan for Key Employees of the Company and Subsidiaries which appears as
Exhibit 10.5 to the Registration Statement on Form S-4, dated June 18, 1998, is incorporated herein by
reference in this Annual Report on Form 10-K.
*10.6 Registration Rights Agreement between the Company and CCPC Acquisition Corp. dated as of April 1, 1998
which appears as Exhibit 10.6 to the Registration Statement on Form S-4, dated June 18, 1998, is
incorporated herein by reference in this Annual Report on Form 10-K.
*10.7 Tax Sharing Agreement among the Company, CCPC Acquisition Corp. and Revere Ware Corporation, dated as
of April 30, 1998 which appears as Exhibit 10.7 to the Registration Statement on Form S-4, dated June
18, 1998, is incorporated herein by reference in this Annual Report on Form 10-K.
*10.8 Form of Sale Participation Agreement between the Company and certain officers of the Company which
appears as Exhibit 10.8 to the Registration Statement on Form S-4, dated June 18, 1998, is incorporated
herein by reference in this Annual Report on Form 10-K.
**12 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends.
*16 Letter re: change in certifying accountant which appears as Exhibit 16 to the Registration Statement on
Form S-4, dated June 18, 1998, is incorporated herein by reference in this Annual Report on Form 10-K.
**18 Letter re: change in accounting principle.
**21 Subsidiaries of the registrant.
**27 Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed and incorporated by reference
** Filed herewith
62
<PAGE>
EXHIBIT #12
CCPC HOLDING COMPANY, INC.
COMPUTATION OF RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DEC. 31, DEC. 31, DEC. 31, DEC. 31, JAN 1,
1998 1997 1996 1995 1995
---------- --------- --------- ---------- ---------
(Loss) income before taxes on income..................... $ (32,666) $ 26,723 $ 9,408 $ (23,250) $ 7,271
Adjustments:
Distributed income of less than 50% owned companies.... 301 (295) (105) (133) --
Fixed charges net of capitalized interest.............. 46,230 16,974 20,377 16,914 18,205
---------- --------- --------- ---------- ---------
Earnings before taxes and fixed charges as adjusted...... $ 13,865 $ 43,402 $ 29,680 $ (6,469) $ 25,476
---------- --------- --------- ---------- ---------
FIXED CHARGES:
Interest incurred........................................ $ 35,287 $ 9,914 $ 13,609 $ 12,478 $ 12,849
Portion of rent expense which represents interest
factor................................................. 8,435 8,000 8,000 6,000 6,342
Amortization of debt costs............................... 3,214 -- -- -- --
---------- --------- --------- ---------- ---------
Total fixed charges...................................... 46,936 17,914 21,609 18,478 19,191
Capitalized interest..................................... (706) (940) (1,232) (1,564) (986)
---------- --------- --------- ---------- ---------
Total fixed charges net of capitalized interest.......... $ 46,230 $ 16,974 $ 20,377 $ 16,914 $ 18,205
---------- --------- --------- ---------- ---------
---------- --------- --------- ---------- ---------
Preferred dividends:
Preferred dividend requirements.......................... $ 2,782 -- -- -- --
Ratio of pre-tax income to income before minority
interest and equity earnings........................... 1.7 -- -- -- --
---------- --------- --------- ---------- ---------
Pre-tax preferred dividend requirement................... 4,637 -- -- -- --
Total fixed charges...................................... 46,936 $ 17,914 $ 21,609 $ 18,478 $ 19,191
---------- --------- --------- ---------- ---------
Fixed charges and pre-tax preferred dividend
requirement............................................ $ 51,573 $ 17,914 $ 21,609 $ 18,478 $ 19,191
---------- --------- --------- ---------- ---------
---------- --------- --------- ---------- ---------
Ratio of earnings to combined fixed charges and preferred
dividends.............................................. -- 2.4x 1.4x -- 1.3x
Deficiency of earnings to combined fixed charges and
preferred dividends.................................... $ 37,708 -- -- $ 24,947 --
</TABLE>
63
<PAGE>
EXHIBIT #18
January 29, 1999
(March 19, 1999 as to Note 16)
CCPC Holding Company, Inc.
One Pyrex Place
P.O. Box 1555
Elmira, New York 14902-1555
Dear Sirs:
We have audited the consolidated financial statements of CCPC Holding
Company, Inc. as of December 31, 1998 and for the year then ended, included in
your Annual Report on Form 10-K to the Securities and Exchange Commission and
have issued our report thereon dated January 29, 1999 (March 19, 1999 as to Note
16). The consolidated balance sheet as of December 31, 1997 and the consolidated
statements of operations and cash flows for each of the two years in the period
ended December 31, 1997 were audited by other auditors whose report, dated
January 19, 1998 (and March 16, 1998 for the first paragraph of Note 2),
expressed an unqualified opinion on those statements. Note 3 to such financial
statements contains a description of your adoption during the year ended
December 31, 1998 of a change in accounting method from the last-in, first-out
method of inventory valuation to the first-in, first-out method. In our
judgment, such change is to an alternative accounting principle that is
preferable under the circumstances.
Yours truly,
Deloitte & Touche, LLP
64
<PAGE>
EXHIBIT #21
CCPC HOLDING COMPANY, INC.
SUBSIDIARIES OF THE REGISTRANT AS OF DECEMBER 31, 1998 ARE LISTED BELOW:
1. Corning Consumer Products Company (Delaware)
2. Corning Consumer Canada Inc. (Canada)
3. CCPC (Asia) Pte. Ltd. (Singapore)
4. Corning Consumer Australia Pty. Ltd. (Australia)
5. CCPC Iwaki Malaysia SDN BHD (Malaysia)
6. Mundial Brasil Produtos de Consumo Ltda. (Brazil)
7. CCPC (Korea) Co., Ltd. (Republic of Korea)
8. CCPC FSC Inc.
65
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998, AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,057
<SECURITIES> 0
<RECEIVABLES> 62,511
<ALLOWANCES> 11,172
<INVENTORY> 132,035
<CURRENT-ASSETS> 219,196
<PP&E> 141,402
<DEPRECIATION> 205,449
<TOTAL-ASSETS> 495,259
<CURRENT-LIABILITIES> 104,324
<BONDS> 433,656
0
32,782
<COMMON> 240
<OTHER-SE> (112,519)
<TOTAL-LIABILITY-AND-EQUITY> 495,259
<SALES> 533,068
<TOTAL-REVENUES> 533,068
<CGS> 349,953
<TOTAL-COSTS> 349,953
<OTHER-EXPENSES> 181,491
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,290
<INCOME-PRETAX> (32,666)
<INCOME-TAX> 947
<INCOME-CONTINUING> (33,312)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,312)
<EPS-PRIMARY> (1.50)
<EPS-DILUTED> (1.50)
</TABLE>
