<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1999
REGISTRATION NO. 333-76699
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
Amendment No. 1 to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
AMERICAN NATIONAL CAN GROUP, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3411 36-4287015
(State or Other Jurisdiction (Primary Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
Incorporation or Organization)
</TABLE>
ALAN H. SCHUMACHER
AMERICAN NATIONAL CAN GROUP, INC.
8770 W. BRYN MAWR AVENUE
CHICAGO, ILLINOIS 60631
TELEPHONE (773) 399-3000
(Address and telephone number of Registrant's principal executive offices)
------------------------------------
COPIES TO:
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<S> <C>
ROBERT C. TREUHOLD, ESQ. JOHN D. BRINITZER, ESQ.
SHEARMAN & STERLING CLEARY, GOTTLIEB, STEEN & HAMILTON
114, AVENUE DES CHAMPS-ELYSEES ONE LIBERTY PLAZA
75008 PARIS, FRANCE NEW YORK, NEW YORK 10006
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable on or after the effective date of this Registration
Statement.
------------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ---------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
- ---------
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SECURITY OFFERING PRICE(2) REGISTRATION FEE
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Common stock, nominal value $0.01
per share........................ $ $100,000,000 $27,800(3)
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</TABLE>
(1) Includes (i) shares of common stock to cover the Underwriters'
over-allotment option and (ii) shares of common stock which are to be
offered outside the United States but that may be resold from time to time
in the United States during the distribution. The shares of common stock
registered hereby are not being registered for the purpose of sales outside
of the United States.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act.
(3) Previously paid.
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy them in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED , 1999
SHARES
[AMERICAN NATIONAL CAN GROUP LOGO]
AMERICAN NATIONAL CAN GROUP, INC.
COMMON STOCK
------------------
This is our initial public offering. The shares of our common stock are
being sold by Pechiney, a French corporation. We will not receive any of the
proceeds from the sale of our shares of common stock by Pechiney.
The underwriters have an option to purchase additional shares
from Pechiney to cover over-allotments of shares.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $ and $ per share. We have made an application to list
our common stock on the New York Stock Exchange under the symbol "CAN."
INVESTING IN THESE SHARES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7.
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<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS PECHINEY
--------------- ------------- -----------
<S> <C> <C> <C>
Per Share.................................................. $ $ $
Total...................................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about ,
.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANC ALEX. BROWN
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
The date of this prospectus is , .
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 7
FORWARD-LOOKING STATEMENTS............ 13
REORGANIZATION OF ANC................. 14
RELATIONSHIP WITH PECHINEY............ 19
USE OF PROCEEDS....................... 21
DIVIDEND POLICY....................... 21
CAPITALIZATION........................ 22
UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION......................... 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 28
OVERVIEW OF THE GLOBAL BEVERAGE CAN
INDUSTRY............................ 44
</TABLE>
<TABLE>
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PAGE
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BUSINESS OF ANC....................... 49
MANAGEMENT AND CERTAIN SECURITY
HOLDERS............................. 63
PRINCIPAL STOCKHOLDERS................ 75
DESCRIPTION OF CAPITAL STOCK.......... 76
SHARES ELIGIBLE FOR FUTURE SALE....... 78
UNITED STATES TAX CONSEQUENCES TO
NON-U.S. HOLDERS OF COMMON STOCK.... 79
UNDERWRITING.......................... 82
NOTICE TO CANADIAN RESIDENTS.......... 85
ADDITIONAL INFORMATION................ 86
LEGAL MATTERS......................... 86
EXPERTS............................... 86
INDEX TO COMBINED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>
------------------------
We have compiled the market share, market size and competitive ranking data
in this prospectus using statistics and other information from several
third-party sources. The main third-party sources of information are independent
research organizations, including the Can Manufacturers' Institute, Beverage Can
Manufacturers Europe, as well as private consulting firms. We have also used our
estimates of our market share relative to other beverage can companies in light
of our experience.
Various amounts and percentages used in this prospectus have been rounded
and, accordingly, they may not total.
Coca-Cola and Pepsi-Cola are trademarks of The Coca-Cola Company and
PepsiCo, Inc., respectively. We are not affiliated with Coca-Cola or Pepsi.
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
------------------------
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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<PAGE> 4
PROSPECTUS SUMMARY
The following is a summary of this prospectus. Please do not rely on any
part of this summary without referring to the more detailed information
contained in the other sections of this prospectus.
OUR COMPANY
We believe we are the second largest producer of two-piece beverage cans
and ends in the world, based on 1998 net sales. In 1998, we sold 39 billion cans
worldwide. We are the second largest beverage can manufacturer in the United
States, with a market share of approximately 25%. In Europe, we are the largest
beverage can manufacturer, with approximately 31% of the market.
We have long-term customer relationships with global beverage producers.
The Coca-Cola Company and its affiliated bottlers make up 51% of our global
sales. We also enjoy strong relationships with major brewers in many of the
markets in which we supply cans. With 22 plants in the United States, 13 plants
in Europe, and operations in Mexico, Brazil, China, Japan and South Korea, we
are well-balanced to supply our geographically diverse customers' requirements.
We have an extensive presence in the beverage can markets in the Americas
and Europe/Asia, which accounted for 63% and 37%, respectively, of our net sales
in 1998. In the Americas, our activities are carried out principally through
American National Can Company in the United States and a wholly owned subsidiary
in Brazil. We have also formed joint ventures with Coors Brewing Company in the
United States and with Mexico's largest glass container manufacturer, Vitro S.A.
In Europe, our activities are carried out through wholly owned subsidiaries and
a majority owned subsidiary in Turkey. We also have a majority owned subsidiary
in China and equity participations in Japan and South Korea.
We are focused on reducing our cost base. We have undertaken three specific
cost reduction programs in the past five years. The goal of our first program,
called "Project Challenge," was to reduce costs other than metal by 20% before
the end of 1999, a goal which we achieved by the end of 1998. In 1998, we
introduced "Next Level," a continuous improvement process that seeks to increase
productivity and reduce costs while limiting additional capital expenditures.
This ongoing program already has produced concrete results in the United States,
including a 4% improvement in the number of cans produced per man-hour over
1997. Our third improvement program, "ANC Production System," implements the
principles of "Lean Manufacturing" through a comprehensive overhaul of our
production processes. Lean Manufacturing is the elimination of waste or anything
that does not add value to the customer, such as excess production, delays,
movement and transport, poor process design, excess working capital, inefficient
performance, or making defective items.
THE BEVERAGE CAN INDUSTRY
In 1998, worldwide industry shipments of two-piece beverage cans exceeded
200 billion cans. North America was the single largest market with approximately
114 billion cans shipped in 1998, including nearly 103 billion in the United
States alone, followed by Europe with approximately 33 billion cans. In 1998,
the U.S. and European markets, with a population base of around 600 million
people, consumed approximately 135 billion two-piece beverage cans, equivalent
to about 225 cans per person. Compared to the United States and Europe, per
capita consumption of beverage cans remains low in emerging countries. Outside
the United States and Europe per capita consumption is only about 15 cans per
person.
Soft drink cans and beer cans comprise almost all of the global beverage
can markets. In 1998, soft drink cans represented approximately 68% and beer
cans 32% of the total beverage can market in the United States. In Europe, the
proportions were approximately 57% and 43%, respectively. Throughout the world,
the beverage can competes with bottles made from glass or plastic.
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<PAGE> 5
The global beverage can industry is characterized by a number of factors,
which we believe generally favor the beverage can:
- Per capita consumption of carbonated soft drinks increased steadily each
year in the United States and Europe between 1990 and 1998.
- We anticipate that the market for carbonated soft drinks in Europe and
the emerging markets of Asia and Latin America, where consumption lags
significantly behind the United States, will grow substantially in the
long-term.
- We believe greater concentration among bottlers in the industry,
particularly in the carbonated soft drink markets, will provide the
beverage can with continued opportunities for growth.
- The can is firmly established in mass retail distribution channels in
the United States.
- We believe the beer markets in the United States and Europe show
favorable trends despite recent gradual decreases in consumption.
- Although the can has lost market share at the expense of the plastic
bottle in the carbonated soft drink markets in the United States and
Europe, it has continued to grow steadily in terms of units. In the beer
market, the can has declined relative to glass in the United States but
has grown in Europe.
- The can has several advantages over plastic and glass bottles that we
believe will continue to make it an attractive and competitive package
in both the carbonated soft drink and beer markets.
OUR STRATEGY
Our strategy aims to create shareholder value through superior
profitability and cash generation. To achieve this goal, we have developed the
following key initiatives:
- We intend to capitalize on favorable conditions in the developed
beverage can markets of the United States and Europe, which represent a
strong volume base and steady growth for the beverage can.
- We will pursue profitable growth opportunities in Europe and emerging
markets, where per capita beverage consumption and beverage can
penetration are substantially lower than in the United States.
- We intend to provide superior customer service and satisfaction, and
have forged successful long-term relationships with several global
beverage can customers.
- We continuously strive to improve productivity and reduce costs.
- We intend to attract and develop the best human capital, and are
strengthening our human resources through new leadership and performance
management.
OUR FORMATION AS A PUBLIC COMPANY
We have been making cans for over 100 years. Since 1988, we have been owned
by Pechiney, a global leader in the production of primary aluminum and
industrial aluminum products. Pechiney is selling a majority ownership stake in
us through this offering. In connection with this offering, we and Pechiney are
taking a number of reorganization actions to separate us from Pechiney.
Following this reorganization, we will conduct all of Pechiney's former global
beverage can operations and we will have transferred our prior non-beverage can
activities to Pechiney Plastic Packaging, Inc.
Our principal executive offices are located at 8770 W. Bryn Mawr Avenue,
Chicago, Illinois 60631 and our telephone number is (773) 399-3000.
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<PAGE> 6
SUMMARY OF THIS OFFERING
Shares offered............. Pechiney is offering a total of shares.
Additional shares.......... Pechiney has granted the underwriters an option to
purchase additional shares. The
underwriters have 30 days from the date of the
final prospectus to exercise this option. They may
only use these additional shares to cover sales of
shares that they have over-allotted.
Price to public............ The initial public offering price of the shares is
expected to be between $ and $ per share.
Selling stockholder........ Prior to this offering, Pechiney owned 100% of our
shares. After this offering, we expect that
Pechiney will retain % of our shares. If the
underwriters exercise their over-allotment option
in full, Pechiney will retain % of our shares.
Dividends.................. We intend to declare and pay quarterly cash
dividends consistent with the policies of
comparable packaging companies, depending on our
financial results and prospects. We expect the
first dividend to be payable with respect to the
quarter of 1999. With respect to dividend
payments, please consider the information under
"Risk Factors -- We may not be able to pay
dividends."
Voting rights.............. Each share permits the holder to cast one vote on
all matters brought before stockholders. For
further details, see "Description of Capital
Stock."
Listing of the shares...... There is currently no public market for our shares.
We have applied to list our shares on the New York
Stock Exchange under the symbol "CAN."
Use of proceeds............ The net proceeds from the sale of our shares will
be paid to Pechiney. We will not receive any
proceeds from this offering.
3
<PAGE> 7
SUMMARY SELECTED COMBINED FINANCIAL INFORMATION
The following table presents summary financial data for ANC. In this
prospectus, we present historical combined financial information and pro forma
financial information. You should also refer to the more complete information
contained in our combined financial statements and the sections entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Unaudited Pro Forma Combined Financial Information."
Our historical combined financial information can be divided into three
categories:
- The combined financial information for the years ended December 31,
1996, 1997 and 1998 and as at year-end 1997 and 1998 has been
prepared in accordance with U.S. GAAP and audited by
PricewaterhouseCoopers LLP. Beginning on page F-3 of this prospectus,
we show our combined statements of income, cash flows and changes in
owner's equity for these three years, as well as our balance sheets
as of December 31, 1997 and 1998 and the notes to those combined
financial statements. These financial statements show the financial
condition, results of operations and cash flows of Pechiney's
packaging group, from which our company was created.
In these financial statements, our beverage can activities are
treated as continuing operations. The plastics and other activities
to be retained by Pechiney are treated as discontinued operations.
Net income (loss) from discontinued operations is shown as a separate
line item on the combined statement of income. On our combined
balance sheet, the net current and non-current assets of the
discontinued operations are each presented as single line items. The
combined statement of cash flows sets forth separately the cash flows
of discontinued operations as single line items within each major
category of cash flows.
- We also present combined financial information for the years ended
December 31, 1994 and 1995 and as at year-end 1996. This information
is unaudited but is presented on the same basis of accounting as the
combined financial information for the audited periods; it has been
prepared in accordance with U.S. GAAP and reflects the activities to
be retained by Pechiney as discontinued operations.
- Finally, we present interim combined financial information for the
first three months of 1998 and 1999 and as at March 31, 1998 and
1999. This information is unaudited but is presented on the same
basis of accounting as the combined financial information for the
audited periods. Our management believes all adjustments necessary
for a fair presentation of results of the interim periods have been
made and such adjustments were of a normal and recurring nature.
Our combined financial information may not reflect what our results of
operations, financial position and cash flows would have been had we been
operating as a separate, stand-alone entity during the periods presented. Also,
it does not show what our results of operations, financial position and cash
flows will be in the future. This is because we did not operate as a single
stand-alone business for the periods shown.
Our pro forma financial information is unaudited. It reflects adjustments
to our corporate structure and debt that are based on assumptions intended to
show the effect of our reorganization. Please see "Unaudited Pro Forma Combined
Financial Information."
4
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<TABLE>
<CAPTION>
COMBINED FINANCIAL INFORMATION PRO FORMA FINANCIAL INFORMATION
------------------------------------------------------------ --------------------------------
THREE MONTHS YEAR ENDED THREE MONTHS
ENDED AND AS OF AND AS OF ENDED AND AS OF
YEAR ENDED AND AS OF DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31,
------------------------------------------ --------------- ------------- ----------------
1994 1995 1996 1997 1998 1998 1999 1998 1999
------ ------ ------ ------ ------ ------ ------ ------------- ----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
($ IN MILLIONS)
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COMBINED STATEMENT OF INCOME
DATA:
Net sales..................... $2,446 $2,677 $2,520 $2,465 $2,459 $ 543 $ 531 $2,459 $ 531
Cost of goods sold (excluding
depreciation)............... 2,164 2,281 2,190 2,069 1,985 448 433 1,985 433
Selling, general and
administrative expense...... 140 123 136 134 138 32 31 138 31
Research and development
expense..................... 25 24 22 20 15 4 4 15 4
Depreciation and
amortization................ 68 73 74 78 82 20 21 82 21
Goodwill amortization(1)...... 292 41 41 41 40 10 10 40 10
Restructuring charge (credit)
and write down of property
and equipment(2)............ 87 11 159 11 (2) -- -- (2) --
Operating income (loss) from
continuing operations....... (330) 124 (101) 112 201 29 32 201 32
Interest expense.............. 68 54 95 90 69 19 15 77 17
Interest income and other
financial income (expense),
net......................... 15 13 4 27 11 2 8 12 8
Income tax expense
(benefit)................... (23) 51 (35) 30 26 5 11 23 10
Equity in net earnings (loss)
of affiliates............... 6 5 1 (4) 4 (1) 2 4 2
Minority interest............. 7 8 7 5 5 1 -- 5 --
Income (loss) from continuing
operations before cumulative
effect of accounting
change...................... $ (361) $ 29 $ (163) $ 10 $ 116 $ 5 $ 16 $ 112 $ 15
COMBINED CASH FLOW DATA:
Net cash provided by (used in)
operating activities of
continuing operations....... (44) (12) 4 65 161 (74) (34) N/A N/A
Net cash (used in) investing
activities of continuing
operations.................. 23 910 (119) (57) (58) (11) (15) N/A N/A
Net cash provided by (used in)
financing activities of
continuing operations....... 29 (869) 99 (3) 26 69 48 N/A N/A
Additions to property, plant
and equipment............... 95 100 142 72 65 14 15 65 15
Depreciation and
amortization................ 360 114 115 119 122 30 31 122 31
EBITDA(3)..................... 30 238 14 231 323 60 64 323 64
EBITDA excluding restructuring
and write-downs(3).......... 117 249 173 242 321 60 64 321 64
COMBINED BALANCE SHEET DATA:
Cash and cash equivalents..... 20 49 66 106 171 70 157 N/A 104
Property, plant and equipment,
net......................... 899 934 909 846 836 826 807 N/A 807
Total assets.................. 4,643 4,121 3,901 3,891 3,927 3,950 3,965 N/A 3,300
Short-term financing and
current portion of long-term
debt........................ 1,883 759 744 770 687 925 781 N/A 457
Long-term debt (less current
portion).................... 485 1,006 1,073 890 551 333 527 N/A 662
Total debt.................... 2,368 1,765 1,817 1,660 1,238 1,258 1,308 N/A 1,119
Total equity.................. 867 932 816 948 1,538 1,410 1,520 N/A 1,044
</TABLE>
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(1) Substantially all of the goodwill reflected on our combined balance sheet
arose from the revaluation of our tangible assets acquired and liabilities
assumed as of the date of our acquisition by Pechiney in 1988. The initial
amount, which totaled approximately $1.6 billion, is being amortized over a
40-year period in an amount of approximately $40 million per year. In 1994,
goodwill amortization also included a non-recurring $257 million write-down
resulting from a review of the carrying value of assets. In 1998, goodwill
was reduced by $35.6 million as a result of the resolution of tax
contingencies originating from our acquisition by Pechiney. At March 31,
1999, $1,214 million of goodwill was recorded as an asset on our balance
sheet.
(2) The $159 million restructuring expense in 1996 is a reserve that was
established to cover the cost of plant closures, employee termination costs
and other costs associated with our restructuring plans. See Note 15 to our
combined financial statements for a more complete description of this
reserve.
(3) EBITDA is a non-GAAP measurement that we define as operating income (loss)
from continuing operations, excluding depreciation and amortization and
goodwill amortization. EBITDA excluding restructuring and write-downs is a
non-GAAP measurement that we define as EBITDA excluding restructuring charge
(credit) and write-down of property, plant and equipment. These measures do
not represent cash flow for the periods presented and should not be
considered as alternatives to net income (loss), as indicators of our
operating performance or as alternatives to cash flows as a source of
liquidity. Our EBITDA may not be comparable with EBITDA as defined by other
companies. We believe EBITDA is commonly used by financial analysts and
others in the packaging industry.
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<PAGE> 10
RISK FACTORS
Investing in our shares will provide you with an equity ownership interest
in ANC. As a stockholder of ANC, you may be exposed to risks inherent in our
business. The performance of your shares will reflect the performance of our
business relative to, among other things, competition, industry conditions and
general economic and market conditions. The value of your investment may
increase or decrease and could result in a loss. You should carefully consider
the following factors as well as other information contained in this prospectus
before deciding to invest in our shares.
RISK FACTORS RELATING TO OUR INDUSTRY
OUR PRINCIPAL MARKETS ARE SUBJECT TO OVERCAPACITY AND INTENSE PRICE COMPETITION,
WHICH COULD PUSH PRICES TO LESS PROFITABLE LEVELS AND AFFECT OUR FINANCIAL
RESULTS AND THE VALUE OF OUR SHARES.
Increases in the levels of overcapacity and price competition in our
principal markets could reduce selling prices and result in lower profits, which
could lead to a reduction in any dividends and lower share value. These factors
could also require us to take one-time restructuring charges or make other
expenditures in the future.
The worldwide beverage can market has experienced limited growth in demand
in recent years. This has led to overcapacity among beverage can producers, as
capacity growth, obtained principally through productivity improvements,
outpaced the growth in demand for beverage cans. As a result, the prices of
beverage cans have decreased. In addition, the beverage can is a standardized
product, allowing for relatively little differentiation among competitors.
The North American beverage can market, in particular, is generally
considered to be a mature market, characterized by slow growth and a
sophisticated distribution system, and in which the can has a significant share
of the soft drink and beer package mix. Price-driven competition has increased
as beverage can producers seek to capture more sales volumes in order to keep
their plants operating at optimal levels and reduce unit costs. In this
environment, a number of U.S. producers have merged or consolidated their
operations. With an increasingly smaller number of major can producers in the
market, competition has been aggressive.
WE ARE SUBJECT TO COMPETITION FROM ALTERNATIVE PRODUCTS WHICH COULD RESULT IN
LOWER PROFITS AND REDUCED CASH FLOWS.
Competition from alternative beverage containers could result in lower
profits, which could lead to a reduction in any dividends and lower share value.
The beverage can is subject to significant competition from substitute
products, particularly plastic soft drink bottles made from polyethylene
terephthalate and single serve beer bottles made of glass. Plastic bottle market
share in the U.S. and European soft drink container market, and glass bottle
market share in the U.S. beer container market, have both grown substantially
during the 1990s. Competition from plastic bottles is particularly intense in
the United States and the United Kingdom. For further information regarding the
beverage can and its competing products, see the section entitled "Overview of
the Global Beverage Can Industry" in this prospectus.
WE HAVE A RELATIVELY SMALL NUMBER OF CUSTOMERS. THE LOSS OF ONE OR MORE OF THEM
COULD RESULT IN LOWER SALES.
If we were to lose significant volume with a customer or if a major
customer were to fail to renew a major contract, and if another customer could
not be found to make up some or all of the lost sales, the resulting decline in
sales could lead to a reduction in any dividends and lower share value.
There are a small number of large independent beverage fillers in our
primary geographic markets, particularly in the soft drink industry, and the
industry may experience further consolidation. For example, the three largest
soft drink producers in the United States account for approximately 90% of the
U.S. soft drink
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market, while the three largest producers in Europe account for approximately
60% of the European soft drink market. Suppliers of Coca-Cola and related
products account for approximately 45% of the overall soft drink market in the
United States and approximately 49% in Europe. Similarly, Anheuser-Busch, Inc.,
The Miller Brewing Company and Coors Brewing Company, the three largest beer
producers in the United States, account for approximately 85% of the
non-imported beer market in the United States.
Accordingly, we and the other suppliers of beverage cans rely heavily on a
small number of customers. Each customer has significant bargaining power
relative to the packaging supplier, since a small number of contracts may
account for relatively large sales volume. In addition, we compete solely in the
beverage packaging market and currently manufacture one product, the beverage
can. Six of our 10 largest customers in terms of 1998 net sales are bottlers of
Coca-Cola products:
- Coca-Cola Enterprises Inc.
- Coca-Cola Bottlers of Spain
- Coca-Cola Bottling Co. Consolidated
- Coca-Cola Bottlers of Brazil
- Coca-Cola Bottling Company of Chicago
- Coca-Cola Bevande Italia.
Together, these six customers accounted for 45% of our 1998 net sales.
WE ARE DEPENDENT ON A RELATIVELY SMALL NUMBER OF SUPPLIERS FOR SOME OF OUR
PRINCIPAL RAW MATERIALS.
If any of our principal suppliers were to increase their prices
significantly or were unable to meet our requirements for raw materials, either
or both of our revenues or profits would decline. If we were unable to obtain
some of our principal raw materials from alternative sources, the resulting
decline in sales and profits could lead to a reduction in any dividends and
lower share value. This is particularly true of aluminum, ink and compounds.
Aluminum can and end sheet used in the production of beverage cans is
currently supplied by four principal suppliers in North America. There is one
dominant supplier for beverage can ink in North America and there is one
dominant worldwide supplier of beverage can end compound. For further details of
our raw materials supplies, see the section of this prospectus entitled
"Business of ANC -- Use and procurement of raw materials."
BAD WEATHER IN OUR PEAK SEASON MAY RESULT IN LOWER SALES.
Unseasonably cool weather during the summer months could result in lower
profits, which could lead to a reduction in any dividends and lower share value.
This is because sales of beverage cans are highest during the summer months.
Therefore, our sales for the second and third quarters of the year, which
include the warmer months in North America and Europe, are higher than in the
first and fourth quarters. In the past, significant changes in summer weather
conditions have caused variations in demand for beverage cans.
RISK FACTORS RELATING TO OUR REORGANIZATION AND OUR INITIAL PUBLIC OFFERING
EXPOSURE TO CONTINGENT LIABILITIES FOLLOWING THE REORGANIZATION MAY NEGATIVELY
AFFECT OUR FINANCIAL RESULTS.
The non-beverage cans business transferred to Pechiney Plastic Packaging
carried actual and potential liabilities, including unfunded post-employment
benefit obligations other than pensions, litigation and environmental
liabilities. There is a risk that we may still be held liable for any claims
made in relation to these matters. These claims could cause our financial
results to decline, which could lead to a reduction in any dividends and lower
share value.
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Pechiney Plastic Packaging has agreed to indemnify us for any losses that
we may incur with respect to the post-employment benefit obligations it will
assume, the Viskase patent infringement proceedings described under "Business of
ANC -- Legal Proceedings," and environmental liabilities relating to past and
present plastics operations and facilities. Pechiney has agreed to guarantee
Pechiney Plastic Packaging's indemnity obligations for the post-employment
benefits and the Viskase proceedings. Pechiney has also agreed to indemnify us
in part against any losses that we may incur with respect to unidentified
environmental liabilities for other non-beverage can operations and facilities.
If Pechiney Plastic Packaging does not fulfill its obligations under the
indemnities, and Pechiney does not fulfill its duty to guarantee those
indemnities where applicable, we may be held liable for any claims. We will also
remain exposed to unidentified environmental liabilities for other non-beverage
can operations and facilities if the amounts involved exceed Pechiney's partial
indemnity, or if Pechiney does not fulfill its obligations under that indemnity.
Other contingent liabilities related to the reorganization, such as tax
liabilities, may also arise. Any of these items could negatively affect our
financial results.
For further discussion of contingent liabilities and the indemnities
provided by Pechiney Plastic Packaging and Pechiney, please refer to the
sections of this prospectus entitled "Reorganization of ANC" and "Relationship
with Pechiney."
WE WILL NEED TO FIND ALTERNATIVE SOURCES OF DEBT FINANCING, WHICH MAY RESULT IN
INCREASED FINANCING COSTS.
We expect that our financing costs will increase following this offering,
since we will enter into new credit facilities to replace our existing
facilities. If we cannot obtain sufficient funding, or if we are unable to
obtain financing in the amounts desired or on acceptable terms, we may not be
able to fund our operations in full, which may lead to a reduction in any
dividends and lower share value.
In connection with this offering, we will terminate and repay our principal
long-term debt facility, a $500 million revolving credit facility. We will also
make an offer to prepay our $228 million of privately placed notes which, if
accepted, would require us to pay a make-whole premium. At current interest
rates, the make-whole premium would amount to $ million. We will also reduce
the size of our receivables sale program to approximately $50 million and
negotiate changes to its terms and conditions. In addition, we expect that our
debt financing from Pechiney will no longer be in place after this offering. The
debt financing from Pechiney aggregated $1,011 million outstanding as at March
31, 1999, of which $260 million will be transferred to Pechiney Plastic
Packaging before the offering.
We estimate that following this offering we will require a total of
approximately $1.3 billion of debt financing and available lines of credit,
taking into account seasonality of the business and peak financial needs. We are
engaged in negotiations with potential new third-party lenders to establish a
$1.3 billion credit facility.
WE EXPECT THAT PECHINEY WILL BE OUR LARGEST SHAREHOLDER AND WILL BE ABLE TO
INFLUENCE THE MANAGEMENT OF OUR BUSINESS. ITS INTERESTS MAY NOT BE THE SAME AS
INVESTORS' INTERESTS.
After this offering, Pechiney will be able to exercise significant
influence over our policies and business as a result of its significant
shareholding and board representation. Pechiney's interests may not be the same
as other shareholders' interests.
We expect that Pechiney will own % of our common stock after this
offering, assuming the underwriters do not exercise their over-allotment option.
As a result, Pechiney will only require the approval of a further % in
order to achieve a majority shareholders' vote, assuming that all shareholders
participate in the vote. Under an agreement between Pechiney and us, Pechiney
will have the right to propose four of the 13 members of our board of directors
for approval by the shareholders for as long as it owns 20% of our shares. As a
result, Pechiney will only require the approval of a further three board members
in order to achieve a majority vote in board meetings.
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PECHINEY MAY SELL MORE SHARES, WHICH COULD DEPRESS THE MARKET PRICE OF OUR
SHARES.
Pechiney may choose to sell more of our shares in the future. If Pechiney
sells additional shares on the public market after this offering, the trading
price of our shares may fall. The perception that Pechiney may sell substantial
amounts of shares may also cause the trading price of our shares to fall. We
have entered into a registration rights agreement with Pechiney which enables
Pechiney to require us to register additional shares of our stock owned by
Pechiney. In the underwriting agreement, however, Pechiney will agree to a
lock-up under which it may not dispose of additional shares for days
following the date of the final prospectus for this offering unless Credit
Suisse First Boston gives written approval.
THE ABSENCE OF AN ESTABLISHED TRADING MARKET FOR OUR SHARES MAY DEPRESS THE
MARKET PRICE OF OUR SHARES.
Before this offering, there was no public market for our shares. If no
active trading market develops or is maintained, the trading price of the shares
may fail to rise or may decline, and there may be fewer willing purchasers for
the shares. The market price of our shares after this offering may not be as
high as the public offering price.
PROVISIONS OF DELAWARE LAW AND OF OUR CORPORATE DOCUMENTS, AS WELL AS PECHINEY'S
VOTING POWER, COULD DELAY OR PREVENT A CHANGE OF CONTROL OF OUR COMPANY.
We will be subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which could delay or prevent a third party or
significant stockholder from acquiring control of our company. In addition, our
charter and by-laws contain several provisions which may discourage, delay or
prevent a takeover attempt that a stockholder might consider to be in its best
interests. These provisions include the requirements that:
- the board of directors is divided into three classes with staggered
terms
- any vacancy occurring on the board of directors may be filled only by
the remaining directors
- stockholders take all action only at an annual or special meeting, and
not by written consent in lieu of a meeting
- with respect to any stockholders' meeting, stockholders must comply with
advance notice and information disclosure requirements.
Our board of directors also has the authority to authorize the issuance of
preferred stock. The issuance of preferred stock may have the effect of
delaying, deferring or preventing a merger, tender offer or proxy contest
involving our company. This may cause the market price of our shares to fall,
and may dilute the voting rights of existing shareholders.
After this offering, assuming the underwriters do not exercise their
over-allotment option, Pechiney will hold approximately % of our common
stock. Since a majority is required to approve a change of control, Pechiney
will only require the approval of a further % in order to delay or prevent
a change in control of our company.
RISK FACTORS RELATING TO ANC
WE MAY NOT BE ABLE TO PAY DIVIDENDS.
We will only be able to pay dividends if our financial performance, general
business conditions and our management's business plans permit it. Because we
have no history of dividend payments as a publicly listed company, we can give
no assurance as to whether dividends will be declared or, if dividends are
declared, what amount per share will be distributed to stockholders. We intend
to declare and pay quarterly cash dividends consistent with the policies of
comparable packaging companies, depending on our financial results and
prospects. We expect the first dividend to be payable with respect to the
quarter of 1999.
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OUR PROFITS WILL DECLINE IF THE COST OF CAN SHEET RISES AND WE CANNOT INCREASE
THE SELLING PRICE OF BEVERAGE CANS.
Aluminum and steel can sheet are the principal raw materials used in
manufacturing beverage cans. If the cost of can sheet rises, it will cause our
operating expenses to increase. If we cannot increase the selling price of
beverage cans to offset the increased expenses, our profits will decline, which
could lead to a reduction in any dividends and lower share value.
Can sheet represents the majority of the manufacturing cost of the product.
Unless otherwise fixed by contract, can sheet prices vary in relation to the
market prices for aluminum and steel. The market price of aluminum has
historically been volatile.
CURRENCY FLUCTUATIONS MAY LEAD TO DECREASES IN OUR FINANCIAL RESULTS.
Currency fluctuations could result in lower profits and could lead to a
reduction in any dividends and lower share value, which could weaken our
financial condition.
A major component of the worldwide market price for aluminum can sheet is
U.S. dollar-based. Large portions of our sales and expenses are in European
currencies, most significantly the Euro and the British pound, and we also have
revenues in other currencies. To a lesser extent, portions of our sales are also
denominated in currencies that have experienced significant devaluation relative
to the U.S. dollar, including the Brazilian real, the Turkish lira, the Korean
won and the Mexican peso. These currencies have historically been volatile and
may devalue further. If the currency in which we sell cans falls in value
relative to the currency in which we incur expenses, our profits will decline.
Our currency of accounting is the U.S. dollar. Revenues and earnings
denominated in other currencies, particularly Euros and British pounds, are
translated into U.S. dollars in preparing our combined financial statements. If
these currencies fall in value relative to the U.S. dollar, our levels of net
sales reported in future financial results will decline. Similarly, exchange
rate fluctuations will affect dollar values of assets and liabilities
denominated in these currencies.
For further discussion of these matters and the measures we have taken to
seek to protect our business against these exchange rate risks, see the section
of this prospectus entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quantitative and Qualitative Disclosures
about Market Risk -- Foreign Exchange Rates."
WE ARE EXPOSED TO RISKS IN EMERGING MARKETS WHICH COULD AFFECT THE VALUE OF OUR
ASSETS THERE.
We have a number of operations or investments in emerging markets.
Developments in these markets may result in lower profits, which could lead to a
reduction in any dividends and lower share value.
Our operations in Brazil, China and Turkey represented approximately 9% of
our 1998 net sales. We also have equity interests in operations in Mexico and
South Korea. As compared to our North American and European markets, emerging
markets are more likely to suffer from social, political and economic risks,
such as inflation, restrictions on currency movements, difficulties in
operations including importing raw materials, risks of default by partners and
counterparties, and uncertainty stemming from local corporate, tax and labor
laws. In particular, the recent economic crisis in Brazil (including the
significant devaluation of the Brazilian real) has caused a drop in local
demand, resulting in lower net sales and lower profitability for our Brazilian
operations.
WE ARE SUBJECT TO COSTS AND LIABILITIES RELATED TO STRINGENT ENVIRONMENTAL AND
HEALTH AND SAFETY STANDARDS.
Environmental and health and safety laws and regulations expose us to the
risk of substantial costs and liabilities, including liabilities associated with
assets that have been sold and activities that have been discontinued. Our
accounting reserves may not be sufficient to cover future environmental and
health and safety liabilities. The amounts of these liabilities could result in
lower profits, a reduction in any dividends and lower share value.
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We are subject to a broad range of environmental and health and safety laws
and regulations in each of the jurisdictions in which we operate, imposing
increasingly stringent standards on us. They relate to, among other things, air
emissions from solvents used in coatings, inks and compounds, waste water
discharges from the can washing process, the use and handling of hazardous
materials, waste disposal practices, and clean-up of existing environmental
contamination.
Currently, we are involved in a number of compliance and remediation
efforts and legal proceedings concerning environmental matters. Based on
information presently available, we have budgeted capital expenditures for
environmental improvement projects and, in accordance with U.S. GAAP, have
established reserves for known environmental remediation liabilities that are
probable and reasonably capable of estimation. However, environmental matters
cannot be predicted with certainty, and these amounts may not be adequate for
all purposes. In addition, the development or discovery of new facts, events,
circumstances or conditions, and other developments such as changes in law,
could result in increased costs and liabilities. For further discussion of these
matters, please refer to the section of this prospectus entitled "Business of
ANC -- Environmental and Health and Safety Matters."
The European Packaging and Packaging Waste Directive sets targets for the
use of refillable containers in European Union member states, although the
current regulation allows the member states significant flexibility in setting
and applying quotas. The directive has required a significant increase in the
use of refillable containers in certain member states. A continuation of this
trend could limit potential growth opportunities for the beverage can in Europe,
which could result in lower profits, a reduction in any dividends and lower
share value.
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. Our actual results could differ materially from those anticipated
in the forward-looking statements. The forward-looking statements are affected
by risks, uncertainties and assumptions about our business, including, among
other things:
- our customers' financial condition
- our customers' can requirements
- the number of cans we will supply and the locations of our customers
- our ability to control costs
- the terms upon which we will acquire aluminum and our ability to reflect
those terms in can sales
- our debt levels and our ability to obtain financing and service debt
- competitive pressures in the beverage can business
- the successful implementation of our strategy to create shareholder
value through superior profitability and cash generation
- prevailing interest rates and currency exchange rates
- legal proceedings and regulatory matters
- general economic conditions, particularly the strength of the economies
in which we have operations
- the other risks described above in "Risk Factors."
We undertake no obligation to update publicly or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
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REORGANIZATION OF ANC
SUMMARY OF THE REORGANIZATION
Prior to this offering, we have been operated by Pechiney as part of its
U.S. packaging group. This operating group consisted of several direct and
indirect subsidiaries of Pechiney, as shown on Chart 1 below. The operating
group also conducted various other businesses, principally plastic packaging
operations in the United States. Pechiney will retain these other businesses
following this offering. In a reorganization to be carried out prior to this
offering, Pechiney will transfer all of the beverage can operations to us, and
will cause the non-beverage can operations to be transferred to a newly created
separate company called Pechiney Plastic Packaging, Inc.
Before commencing the reorganization and this offering, French labor laws
require Pechiney to consult with workers' committees. These consultations have
begun, and we do not expect them to delay the reorganization or this offering.
The reorganization will be effected through a series of transactions in a
number of countries, all of which will become effective on or before the closing
of this offering. Accordingly, for presentation purposes, this section of the
prospectus assumes the reorganization has been completed.
CHART 1: THE OPERATING GROUP PRIOR TO THE REORGANIZATION
[PRE-REORGANIZATION OPERATING GROUP FLOW CHART]
The principal steps comprising the reorganization were as follows:
STEP 1: THE U.S. NON-BEVERAGE CAN ACTIVITIES WERE SEPARATED FROM THE U.S.
BEVERAGE CAN OPERATIONS
(a) The U.S. operating company was originally 10% held by Pechiney
directly and 90% held by Pechiney North America, Inc., itself a
wholly owned subsidiary of Pechiney.
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(b) The U.S. operating company transferred its non-beverage can
activities to Pechiney Plastic Packaging, a newly formed corporation,
in return for all of Pechiney Plastic Packaging's share capital.
(c) The U.S. operating company transferred Pechiney Plastic Packaging to
Pechiney in exchange for Pechiney's 10% direct stake in the U.S.
operating company.
(d) At the end of Step 1, Pechiney directly owned Pechiney Plastic
Packaging, which held all of the non-beverage can activities, and
indirectly owned 100% of the U.S. operating company through Pechiney
North America.
STEP 2: PECHINEY TRANSFERRED ALL OF ITS BEVERAGE CANS OPERATIONS TO ANC
(a) Pechiney formed our new company and transferred the following to it:
- Pechiney North America (and thus indirectly the U.S. operating
company and its beverage can operations)
- Pechiney's interests in the European operating companies and their
beverage cans operations
- The can end operations in France, the Brazilian beverage cans
operating company, and Pechiney's interests in the joint venture
companies in Turkey, Mexico and South Korea.
(b) At the end of Step 2, ANC held all of Pechiney's beverage cans
operations, as indicated in Chart 2.
CHART 2. FOLLOWING THE REORGANIZATION AND PRIOR TO THIS OFFERING
[POST-REORGANIZATION OPERATING GROUP FLOW CHART]
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TAX TREATMENT
We expect that the 1999 reorganization of the beverage can operations and
plastic packaging operations as described above should not cause us to incur
material U.S. tax liabilities. In early 1998, we and Pechiney engaged in a
restructuring in which we transferred a portion of our ownership in various
European beverage can operating companies to French subsidiaries of Pechiney. At
that time, we received an opinion from Price Waterhouse LLP that these
transactions qualified for U.S. tax-free treatment and thus we should not
recognize any gain or income on the transfer of ownership of these companies. We
also received an opinion from the law firm of Kronish, Lieb, Weiner & Hellman
LLP confirming the Price Waterhouse LLP opinion. In connection with this
offering, we have received further opinions from PricewaterhouseCoopers LLP,
each confirmed by Kronish, Lieb, Weiner & Hellman LLP, that the formation of
Pechiney Plastic Packaging and the transfer to it of non-beverage can assets and
various obligations should qualify for U.S. tax-free treatment and that the 1999
reorganization of our European beverage can operating companies should not
affect their opinion as to the 1998 restructuring. However, there is no
guarantee that the Internal Revenue Service will not assert a contrary position.
If the Internal Revenue Service successfully asserts a contrary position with
respect to either or both of the 1998 and 1999 transactions, the resulting U.S.
federal income tax liability imposed on us would negatively affect our financial
results and could lead to a reduction in any dividends and lower share value.
PENSIONS AND OTHER POST-EMPLOYMENT BENEFITS
Prior to the reorganization, the U.S. operating company carried the assets
and liabilities for pension plans covering its employees. These plans can be
divided into three groups:
- plans relating to plastics employees only, which we transferred to
Pechiney Plastic Packaging, which assumed full contractual
responsibility for them as primary obligor.
- plans relating to beverage cans employees only, which we retained.
- co-mingled plans covering employees from both businesses as well as a
number of non-packaging employees. The benefits of plastics employees
for service accrued were frozen, subject to increases for certain future
service and pay. Pechiney Plastic Packaging set up equivalent plans
covering its employees' future benefits. We retain the co-mingled plans
and their related assets, and will be responsible for the payment of
benefits to all non-beverage can employees that accrued prior to the
reorganization.
The Pension Benefit Guaranty Corporation has requested information from us
with respect to the reorganization and its potential effect on the funding of
our pension plans.
A number of our employees are members of three multi-employer pension plans
sponsored by unions. We will continue to contribute to these three plans after
the reorganization. If, in the future, we were to discontinue contributions to
one of these plans, we could incur a withdrawal liability. For example, we may
discontinue contributions if we close a plant whose employees are covered by one
of these plans. The amount of this withdrawal liability, if any, would depend
upon a variety of factors including the funding status of the plan at that time.
Prior to the reorganization, the U.S. operating company also carried
unfunded obligations for other post-employment benefits totaling $697 million,
based on actuarial assumptions and as recorded in our combined financial
statements as at December 31, 1998. These obligations related to both beverage
can and non-beverage can employees. The benefits consist mainly of health and
medical coverage. As part of the reorganization, we entered into a Contribution,
Assignment and Assumption Agreement with Pechiney Plastic Packaging. Under that
agreement, among other things, we assigned the benefit obligations relating to
plastic packaging and a portion of the other non-beverage can employees to
Pechiney Plastic Packaging, which assumed liability for those obligations. The
amount of obligations assigned based on actuarial assumptions and as recorded in
our combined financial statements was $361 million. As a result, we retain $336
million of obligations. Because we could be subject to contingent liabilities
with respect to the obligations assigned to Pechiney Plastic Packaging, Pechiney
Plastic Packaging has also agreed to indemnify us on an after-tax
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basis against any losses we may incur if it fails to satisfy its obligations
under the Contribution, Assignment and Assumption Agreement. Pechiney has
guaranteed the performance by Pechiney Plastic Packaging of its obligation under
this indemnity.
CHANGE OF CONTROL MATTERS
In connection with this offering, we will terminate and repay our principal
long-term debt facility. We will also make an offer to prepay our $228 million
of privately placed notes which, if accepted, would require us to pay a
make-whole premium to be calculated on the prepayment date. At current interest
rates, the make-whole premium would amount to $ million. We will also reduce
the size of our receivables sale program to approximately $50 million and
negotiate changes to its terms and conditions. In addition, we expect that our
debt financing from Pechiney will no longer be in place after this offering. The
debt financing from Pechiney aggregated $1,011 million outstanding as at March
31, 1999, of which $260 million will be transferred to Pechiney Plastic
Packaging before the offering. We have therefore commenced negotiations with
potential new third-party lenders to establish a $1.3 billion credit facility.
Please refer to the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" for further discussion of these matters.
We have substantial net operating losses. This offering will result in a
change in control as defined under section 382 of the Internal Revenue Code. As
a result, the utilization of our net operating losses will be subject to annual
limitations. Please refer to the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Cash Flows" for further discussion of our net operating
losses.
The change of control will also allow our joint venture partners in Mexico
and Korea to exercise rights under the relevant joint venture agreements. The
transfer of Pechiney's shares in the Mexican joint venture to us will enable
Vitro, the other shareholder, to terminate the joint venture arrangements by
purchasing our interest in the joint venture at fair market value. However,
Vitro has granted us a waiver of its rights for this transfer. In the case of
Hanil Can Co., the Korean food and beverage can joint venture, the other
shareholders may exercise a right of preemption on the proposed transfer of
Pechiney's shares to us. They have agreed in principle not to exercise this
right, and we and Pechiney are working with them to formalize the agreement in
principle.
Finally, the change in control will give two of our customers the legal
right to terminate contracts.
- Under our Master Manufacturer's Authorization Agreement with The
Coca-Cola Company relating to the reproduction of the Coca-Cola
trade-mark and label designs, Coca-Cola is entitled to terminate the
agreement upon a change in control after giving 90 days' prior notice.
We have notified Coca-Cola of the expected change in control. Coca-Cola
has notified us in writing that it will not terminate the agreement.
- Our Master Supply Agreement with Anheuser Busch also allows the customer
to terminate the agreement upon a change in control. We have notified
the customer of the expected change in control and do not expect them to
terminate the agreement.
INDEMNITIES AND GUARANTEES FROM PECHINEY PLASTIC PACKAGING AND PECHINEY
Pechiney Plastic Packaging and Pechiney have agreed to indemnify us in
respect of the following matters:
- Post-employment benefits other than pensions. Pechiney Plastic
Packaging has agreed to assume post-employment benefit obligations other
than pensions for plastic employees and a portion of other non-beverage
can employees. Pechiney Plastic Packaging will indemnify us on an
after-tax basis for any losses we may incur with respect to
post-employment benefit obligations other than pensions. Pechiney has
agreed to guarantee this obligation of Pechiney Plastic Packaging.
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- Viskase litigation. We are the defendant in patent infringement
proceedings brought by Viskase Corporation. The proceedings, which are
described under "Business of ANC -- Legal Proceedings" below, relate to
the plastic packaging business that we transferred to Pechiney Plastic
Packaging in the reorganization. Pechiney Plastic Packaging has agreed
to indemnify us on an after-tax basis for any payments we may be
required to make with respect to the proceedings. Pechiney has agreed to
guarantee this obligation of Pechiney Plastic Packaging.
- Environmental. Under U.S. environmental laws and regulations, we are
exposed to the risk of substantial costs and liabilities, including the
cost of remediating pollution damage related to our current or past
operations or facilities. These potential costs and liabilities extend
to assets that have been sold and activities that have been
discontinued.
-- Plastics operations. Pechiney Plastic Packaging has agreed to
indemnify us on an after-tax basis against any losses we may incur
with respect to environmental liabilities relating to past and
present plastics operations and facilities. This indemnity extends
to assets that have been sold and activities that have been
discontinued. It covers both identified and unidentified
liabilities. If Pechiney Plastic Packaging fails to satisfy its
indemnity obligation in full, we may be exposed to contingent
liability. Pechiney has not guaranteed and is not legally required
to support this obligation.
-- Other non-beverage can operations. To the extent that we have
identified environmental liabilities for other non-beverage can
operations and facilities that are probable and reasonably capable
of estimation, we have established accounting reserves that we
retained in the reorganization that we believe are consistent with
U.S. GAAP. These identified liabilities will be for our own account.
For any unidentified liabilities, Pechiney has agreed to indemnify
us in part, on an after-tax basis, against any losses we may incur.
This partial indemnity will be limited to 80% of any direct loss we
suffer and will be valid for ten years following the date of the
offering. Each claim will be subject to a $0.5 million deductible
and the indemnity will be limited to a maximum overall amount of $75
million. Pechiney's indemnity relates only to other non-beverage can
operations that we have transferred, sold or shut down in the past.
It does not include the plastics operations, which are covered by
Pechiney Plastic Packaging's indemnity only. We may be exposed to
contingent liability to the extent that the identified liabilities
exceed our reserved amounts, or any unidentified liabilities exceed
the partial indemnity from Pechiney.
-- Beverage can operations. Any environmental liabilities relating to
our past and present beverage can activities will be for our own
account. To the extent that these liabilities have been identified
and are probable and reasonably capable of estimation, we have
established accounting reserves that we believe are in accordance
with U.S. GAAP.
Based on the expected financial condition of Pechiney Plastic Packaging
immediately following our reorganization, we are not aware of any circumstances
or events that make it likely that Pechiney Plastic Packaging would default if
it were called upon to make payment under any of these indemnities. After this
offering, Pechiney Plastic Packaging will remain a part of the Pechiney group,
and we cannot give any assurance as to its future operations or financial
condition. However, Pechiney has indicated that plastic packaging is a strategic
focus and that it intends to accelerate the growth of its plastic packaging
activities in the future.
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RELATIONSHIP WITH PECHINEY
We have operated as a subsidiary of Pechiney since 1988. In recent years,
Pechiney provided us with treasury services, exchange rate protection services
and metal price hedging services. We have also shared corporate services,
payroll, retiree benefits services and related information technology services
with Pechiney's U.S. plastics operations. We have also purchased a portion of
our aluminum supply from Pechiney Rhenalu, a subsidiary of Pechiney.
Following this offering, our ongoing relationship with Pechiney will be
governed by a number of agreements whose material provisions are summarized
below. These agreements are included as exhibits to the registration statement
which contains this prospectus. Please refer to those exhibits for additional
details.
RELATIONSHIP WITH PECHINEY AS A PRINCIPAL SHAREHOLDER
Following the offering, we expect that Pechiney will retain % of our
shares assuming the underwriters do not exercise their over-allotment option.
Pechiney will have the right to elect four of the 13 members of our board of
directors. As a result, Pechiney will be able to exercise significant influence
over our policies and business.
AGREEMENTS WITH PECHINEY
Aluminum Purchase Agreements. Prior to this offering we purchased a
portion of our aluminum supplies from Pechiney Rhenalu, a subsidiary of
Pechiney, on an arm's-length basis and under normal market terms and conditions.
The aluminum purchased represented approximately 14% of our total aluminum
purchases in 1998. We expect to continue to purchase aluminum from Pechiney
Rhenalu on similar terms following this offering.
We also have an agreement with Pechiney World Trade, a subsidiary of
Pechiney, under which Pechiney World Trade procures used aluminum beverage cans
on the open market to satisfy a portion of our aluminum can sheet supply. This
is an arm's-length agreement.
Currency Protection Agreements. Prior to this offering, we entered into a
number of currency protection agreements with Pechiney under which Pechiney
agreed to purchase foreign currencies from us, or sell foreign currencies to us,
at specified rates in order to reduce our exposure to exchange rate
fluctuations. For further discussion of the measures we have taken to seek to
protect ourselves against exchange rate fluctuations, see the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quantitative and Qualitative Disclosures about Market Risk --
Foreign Exchange Rates." Following this offering, existing currency protection
agreements with Pechiney will remain in place until they mature, but we will
hedge new foreign currency exposures with third parties rather than with
Pechiney.
Agreement Regarding Plastic Beer Bottles. Both we and Pechiney will remain
free to enter this market either alone or with other partners. In connection
with this offering, we have entered into an agreement with Pechiney that may
give us access to Pechiney's multi-layer plastic beer bottle technology if we
choose to enter the market. Under the agreement, Pechiney may request us to form
a joint venture with them for multi-layer plastic beer bottles. If the parties
cannot agree on the terms of the joint venture, the agreement requires Pechiney
to license its multi-layer plastic beer bottle technology to us on market terms.
ANC Technology Agreement. In connection with this offering, we have agreed
to license technology that may be useful for non-beverage can operations, such
as drawn and wall-ironed aluminum can forming technology, to Pechiney on market
terms if requested.
Registration Rights. In connection with this offering, we have entered
into a registration rights agreement with Pechiney under which, if Pechiney
wishes to sell more shares of our common stock in the future, we will register
those shares. We have agreed to cooperate fully in connection with any
registration and with any related offering. Under the lock-up provisions of the
underwriting agreement, however, Pechiney
19
<PAGE> 23
may not dispose of any more of our shares for days following the date of the
final prospectus for this offering unless Credit Suisse First Boston gives prior
written approval.
Reorganization Agreements. The reorganization of Pechiney's U.S. packaging
group that led to our formation was effected by a number of agreements. These
agreements provided for the transfer of the non-beverage can activities to
Pechiney Plastic Packaging and the transfer of Pechiney Plastic Packaging to
Pechiney. These agreements also set out the various indemnities from Pechiney
Plastic Packaging and Pechiney that are described in the section entitled
"Reorganization of ANC -- Indemnities from Pechiney and Pechiney Plastic
Packaging" above. The principal agreements are:
- Contribution, Assignment and Assumption Agreement. We entered into a
contribution, assignment and assumption agreement with Pechiney Plastic
Packaging providing for the transfer of our plastic packaging operations
to Pechiney Plastic Packaging in exchange for 100% of Pechiney Plastic
Packaging's common stock. As a result of this agreement, we separated our
plastic packaging operations into a distinct, wholly owned subsidiary.
Among other things, this agreement also provides for the assignment to
Pechiney Plastic Packaging of the post-employment benefit obligations
other than pensions relating to plastics employees and some other
non-beverage can employees. Under the agreement, Pechiney Plastic
Packaging agrees to assume these obligations and to indemnify us against
any losses that we may incur with respect to them. The agreement also
contains Pechiney Plastic Packaging's indemnification of us with respect
to the Viskase proceedings and environmental liabilities described above.
- Stock Purchase Agreement. We entered into a stock purchase agreement
with Pechiney in which we sold all of our shares of Pechiney Plastic
Packaging common stock to Pechiney in exchange for all of the shares of
ANC common stock held by Pechiney prior to the sale. The effect of the
agreement was to complete the transfer of the plastic packaging
operations to Pechiney and to make ANC a 100% wholly owned subsidiary of
Pechiney North America.
- Pechiney Guaranty. Pechiney has guaranteed to us the indemnification
obligations undertaken by Pechiney Plastic Packaging with respect to
post-employment benefit obligations and the Viskase proceedings.
- FEEP Contribution Agreement. We entered into a contribution agreement
with Financiere Europeenne d'Emballages Pechiney, known as FEEP, in which
FEEP agreed to transfer to ANC all of its interests in three of its
beverage can group companies: ANC do Brasil, Nacanco Holding Europe and
Nacanco Holding France. In exchange, we issued to FEEP shares
of our common stock.
- Foreign Subsidiary Stock Transfer Agreements. We entered into six stock
transfer agreements with Pechiney in which Pechiney transferred all of
its interests in its international beverage can operations to us in
exchange for the sum of $ .
- Environmental Indemnity Agreement. In this agreement, Pechiney has
provided us with its partial indemnity with respect to unidentified
environmental liabilities, as described above.
Pechiney Nominee Directors. In connection with this offering, we have
entered into a director nomination agreement with Pechiney under which Pechiney
will have the right to propose four of the 13 members of our board of directors
for approval by the shareholders for as long as it holds 20% of our shares.
Services Agreements. Prior to the reorganization, Pechiney provided us
with treasury and exchange rate services. After the offering, we will obtain
these services from third party sources. We also shared a number of other
services with the non-beverage can activities in Pechiney's U.S. packaging
group. In connection with this offering, we have entered into two agreements
regarding these services:
- For most of the corporate services that we shared with Pechiney's U.S.
plastic packaging operations, the relevant service departments have been
divided between Pechiney Plastic Packaging and us. The payroll, retiree
benefit services and related information technology service departments,
employee benefit administration, employee and corporate communications
and legal services will be transferred
20
<PAGE> 24
to Pechiney Metals Corporation, a subsidiary of Pechiney. We will be able
to purchase those services from Pechiney Metals Corporation under a
shared services agreement. The agreement specifies that the services will
be provided on an arm's-length basis. We will have the right to terminate
the shared services agreement in part or in full with three or six
months' notice, depending on the service.
- We have also entered into a reciprocal services agreement with Pechiney
Plastic Packaging under which we and Pechiney Plastic Packaging provide
each other with other corporate services.
USE OF PROCEEDS
The net proceeds from the sale of our shares will be paid to Pechiney, the
selling stockholder. We will not receive any proceeds from this offering.
DIVIDEND POLICY
We intend to declare and pay quarterly cash dividends consistent with the
policies of comparable packaging companies, depending on our financial results
and prospects. We expect the first dividend to be payable with respect to the
quarter of 1999. We are a newly formed company and as such have never
declared or paid any cash dividends on our capital stock.
21
<PAGE> 25
CAPITALIZATION
The following table shows our capitalization as at March 31, 1999, stated
(a) on an actual basis and (b) as adjusted to reflect our reorganization. The
adjustments, which are the same as the adjustments effected in preparing our pro
forma combined financial information in this prospectus, consist of the
following:
- the reorganization of ANC
- the agreement by Pechiney Plastic Packaging to reimburse us on an
after-tax basis for any payments we make with respect to the Viskase
proceedings, together with Pechiney's guarantee of this obligation
- the payment of dividends totaling $111 million to Pechiney by a number
of its beverage can subsidiaries prior to this offering
- the transfer to Pechiney Plastic Packaging of $260 million of short-term
and long-term debt owed to Pechiney
- a new third-party credit facility providing for borrowings of up to $1.3
billion
- the prepayment of existing privately placed notes in the amount of $228
million
- the repayment of $751 million of short-term and long-term debt owed to
Pechiney and subsequent borrowing of third-party debt.
For further discussion of our financial condition, you should refer to the
more complete information contained in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" as
well as the pro forma combined financial information and the combined financial
statements.
<TABLE>
<CAPTION>
AS AT
MARCH 31, 1999
-------------------
ACTUAL PRO FORMA
------ ---------
($ IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents................................... $ 157 $ 104
====== ======
Short-term financing........................................ $ 775 $ 455
Current portion of long-term debt........................... 6 2
Long-term debt (excluding current portion).................. 527 662
------ ------
Total debt................................................ 1,308 1,119
------ ------
Owner's equity.............................................. 1,610 --
Common stock ( shares authorized, shares
issued and outstanding)................................... -- 10
Additional paid in capital.................................. -- 1,180
Receivable from Pechiney Plastic Packaging, Inc............. -- (62)
Accumulated other comprehensive loss........................ (90) (84)
------ ------
Total equity.............................................. 1,520 1,044
------ ------
Total capitalization...................................... $2,828 $2,163
====== ======
Total debt to capitalization ratio........................ 46.3% 51.7%
</TABLE>
22
<PAGE> 26
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Our pro forma combined financial information as of and for the three months
ended March 31, 1999 and for the year ended December 31, 1998, which is
unaudited, has been prepared from the combined financial statements which we
present elsewhere in this prospectus. This information reflects adjustments for
the following transactions:
- the reorganization of ANC
- the agreement by Pechiney Plastic Packaging to reimburse us on an
after-tax basis for any payments we make with respect to the Viskase
proceedings, together with Pechiney's guarantee of this obligation
- the payment of dividends totaling $111 million to Pechiney by a number
of its beverage can subsidiaries prior to this offering
- the transfer to Pechiney Plastic Packaging of $260 million of short-term
and long-term debt owed to Pechiney
- a new third party credit facility providing for borrowings of up to $1.3
billion
- the prepayment of existing privately placed notes in the amount of $228
million
- the repayment of $751 million of short-term and long-term debt owed to
Pechiney.
These adjustments are more fully described in the notes to the pro forma
combined financial information below.
For purposes of the pro forma combined statement of income, these
transactions are assumed to have occurred on the first day of each period
presented. For purposes of the pro forma combined balance sheet, they are
assumed to have occurred on March 31, 1999.
Our management believes that the assumptions used to prepare the pro forma
combined financial information are reasonable under the circumstances. The pro
forma combined financial information does not necessarily reflect what our
results of operations or financial position would have been if the transactions
had been completed as of the dates indicated, nor does it give effect to any
events other than those discussed in the notes to the pro forma combined
financial information below. The pro forma combined financial information may
not be indicative of our future operating results or financial position.
The pro forma combined financial information should be read in conjunction
with our combined financial statements and the sections entitled "Reorganization
of ANC" and "Management's Discussion and Analysis of Results of Operations and
Financial Condition" included elsewhere in this prospectus.
23
<PAGE> 27
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 THREE MONTHS ENDED MARCH 31, 1999
------------------------------------- -------------------------------------
REORGANIZATION PRO FORMA REORGANIZATION PRO FORMA
ACTUAL AND FINANCING AS ADJUSTED ACTUAL AND FINANCING AS ADJUSTED
------ -------------- ----------- ------ -------------- -----------
($ IN MILLIONS) ($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF
INCOME
Net sales........................... $2,459 -- $2,459 $531 -- $531
Costs of goods sold (excluding
depreciation)..................... 1,985 -- 1,985 433 -- 433
Selling, general and administrative
expense........................... 138 -- 138 31 -- 31
Research and development expense.... 15 -- 15 4 -- 4
Depreciation and amortization....... 82 -- 82 21 -- 21
Goodwill amortization............... 40 -- 40 10 -- 10
Restructuring charge (credit) and
writedown of property and
equipment......................... (2) -- (2) -- -- --
------ --- ------ ---- --- ----
OPERATING INCOME (LOSS) FROM
CONTINUING OPERATIONS............. 201 -- 201 32 -- 32
Interest expense.................... 69 $ 8(1) 77 15 $ 2(1) 17
Interest income and other financial
income (expense), net............. 11 1(2) 12 8 --(2) 8
------ --- ------ ---- --- ----
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES,
EQUITY IN EARNINGS OF AFFILIATES,
MINORITY INTEREST AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE....... 143 (7) 136 25 (2) 23
Income tax expense (benefit)........ 26 (3)(3) 23 11 (1)(3) 10
------ --- ------ ---- --- ----
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE EQUITY IN
EARNINGS OF AFFILIATES, MINORITY
INTEREST AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE................. 117 (4) 113 14 (1) 13
Equity in net earnings (loss) of
affiliates........................ 4 -- 4 2 -- 2
Minority interest................... (5) -- (5) -- -- --
------ --- ------ ---- --- ----
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE....... $ 116 $(4) $ 112 $ 16 $(1) $ 15
====== === ====== ==== === ====
Pro forma basic and diluted income
(loss) from continuing operations
before cumulative effect of
accounting change per share.......
Pro forma weighted average shares
outstanding.......................
</TABLE>
24
<PAGE> 28
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
----------------------------------------------------------------
PRO FORMA
ACTUAL REORGANIZATION FINANCING OFFERING AS ADJUSTED
------ -------------- --------- -------- -----------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED BALANCE SHEET
ASSETS:
CURRENT ASSETS
Cash and cash equivalents................. $ 157 $ (40)(4) $ (13)(8) -- $ 104
Accounts receivable....................... 174 -- -- -- 174
Other receivables and prepaid expenses.... 55 -- -- -- 55
Inventories............................... 249 -- -- -- 249
Net assets of discounted operations....... 73 (73)(5) -- -- --
Deferred income taxes..................... 102 -- -- -- 102
------ ------ ------ -------- ------
TOTAL CURRENT ASSETS................... 810 (113) (13) -- 684
Property, plant and equipment net........... 807 -- -- -- 807
Goodwill.................................... 1,214 -- -- -- 1,214
Investments in equity affiliates............ 109 -- -- -- 109
Pension asset............................... 214 -- -- -- 214
Net assets of discontinued operations....... 524 (524)(5) -- -- --
Deferred income taxes....................... 209 (26)(6) 2(8) -- 185
Other long-term assets...................... 78 -- 9(9) -- 87
------ ------ ------ -------- ------
TOTAL ASSETS........................... $3,965 $ (663) $ (2) -- $3,300
====== ====== ====== ======== ======
LIABILITIES AND OWNER'S EQUITY:
CURRENT LIABILITIES
Accounts payable -- trade................. $ 235 -- -- -- $ 235
Other payables and accrued liabilities.... 341 -- -- -- 341
Current portion of long-term debt......... 6 -- $ (4)(9) -- 2
Short-term financing:
External............................... 55 -- 400(9) -- 455
Related party.......................... 720 $ (260)(5) (460)(9) -- --
------ ------ ------ -------- ------
TOTAL CURRENT LIABILITIES............ 1,357 (260) (64) -- 1,033
Deferred income taxes....................... 56 -- -- -- 56
Postretirement benefit obligations.......... 308 -- -- -- 308
Other long-term liabilities................. 173 -- -- -- 173
Long-term debt:
External.................................. 240 71(4) 351(9) -- 662
Related party............................. 287 -- (287)(9) -- --
------ ------ ------ -------- ------
TOTAL LIABILITIES...................... 2,421 (189) -- -- 2,232
Minority interests.......................... 24 -- -- -- 24
Preferred stock............................. -- -- -- -- --
Common stock................................ -- -- -- $ 10(10) 10
Additional paid-in capital.................. -- 62(7) -- 1,118(10) 1,180
------ ------ ------ -------- ------
Less: Receivable from Pechiney Plastic
Packaging, Inc........................ -- (62)(7) -- -- (62)
Owner's equity.............................. 1,610 (480) (2)(9) (1,128)(10)
(4)(5)(6)
(7)(8)
Accumulated other comprehensive loss........ (90) 6(5) -- -- (84)
------ ------ ------ -------- ------
Total equity................................ 1,520 (474) (2) -- 1,044
------ ------ ------ -------- ------
TOTAL LIABILITIES AND EQUITY................ $3,965 $ (663) $ (2) -- $3,300
====== ====== ====== ======== ======
</TABLE>
25
<PAGE> 29
NOTES TO THE PRO FORMA COMBINED FINANCIAL INFORMATION
(1) Reflects the increase in interest expense based on the following:
- the transfer by ANC to Pechiney Plastic Packaging of $260 million of
intercompany debt payable to Pechiney
- the proceeds from a new $1.3 billion five-year revolving credit facility
- prepayment of $228 million of privately placed notes
- repayment of $751 million of related party debt.
The average borrowing for the year ended December 31, 1998 is assumed to be
$1,100 million. The average borrowing for the three months ended March 31,
1999 is assumed to be $1,060 million. The average debt levels are based on
historical daily average borrowing data which we have compiled for U.S.
operations and an estimate of the average borrowing for non-U.S.
operations. Our debt level varies based in part on the seasonality of our
business.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- ------------------
($ IN MILLIONS)
<S> <C> <C>
Assumed interest expense on average
borrowings.................................... $74 $16
Amortization of deferred financing costs........ 3 1
--- ---
77 17
Interest expense on historical debt............. (69) (15)
--- ---
Increase in interest expense.................... $ 8 $ 2
=== ===
</TABLE>
The interest rate used to calculate pro forma interest expense on the new
revolving credit facilities is libor plus 120 basis points, which is 6.70%
for the year ended December 31, 1998 and 6.30% for the first quarter of
1999. The rate on the revolving credit facilities is based on our
estimates, considering market conditions for similar facilities. A 0.5%
change in the interest rate on the revolving credit facilities would result
in a $5.6 million increase (or decrease) in the pro forma interest expense
for the year ended December 31, 1998 and a $1.4 million increase (or
decrease) for the first quarter of 1999.
(2) Reflects the decrease in interest income due to the use of $40 million of
cash at an assumed average interest rate of 3% for the payment of dividends
to Pechiney by a number of Pechiney's European beverage can subsidiaries.
(3) Reflects the estimated tax impact of pro forma adjustments using an
effective tax rate of 39.6%.
(4) Reflects the payment of dividends aggregating $111 million to Pechiney by a
number of Pechiney's European beverage can subsidiaries, consisting of an
assumed $40 million of existing cash and the borrowing of $71 million of
short-term external debt.
(5) Reflects (a) the contribution by ANC of its plastic packaging activities
and other operations to Pechiney Plastic Packaging in return for common
stock constituting 100% of the share capital of Pechiney Plastic Packaging;
(b) the transfer by ANC to Pechiney Plastic Packaging of $260 million of
short-term financing with Pechiney; and (c) the transfer by ANC of its
shares of Pechiney Plastic Packaging to Pechiney in exchange for shares of
ANC held directly by Pechiney.
(6) Reflects the use of net operating loss carryforwards related to the taxable
gain on the sale to another subsidiary of Pechiney of plastic packaging
technology with an estimated value of $65 million, using an effective tax
rate of 40%.
(7) Reflects the agreement by Pechiney Plastic Packaging to reimburse us on an
after-tax basis for any payments we make with respect to the Viskase
proceedings, together with Pechiney's guarantee of this obligation.
26
<PAGE> 30
(8) Reflects $9 million of debt issuance costs related to the new revolving
credit facility.
(9) Reflects (a) the repayment of intercompany debt with Pechiney of $751
million, the increase in short-term debt with others of $400 million and
the increase in long-term debt with others of $351 million; and (b) the
make-whole premium relating to the prepayment of our $228 million of
privately placed notes, which is assumed to amount to $4 million, or $2
million net of tax. This make-whole premium will be recorded as an
extraordinary loss in the period the notes are prepaid.
(10) Reflects the formation of our company and the issuance of million of our
shares of common stock, including million shares which we expect to sell
in this offering.
27
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
We manufacture beverage cans and beverage can ends and have an extensive
presence in the worldwide beverage can markets. Our activities are conducted in
several geographic areas, principally North America, South America, Europe and
the Far East. In 1998, our businesses in the United States and Brazil accounted
for 63% of our net sales, while Europe and Asia accounted for 37%. In the Far
East, we have a manufacturing subsidiary in China and equity positions in Japan
and South Korea.
Net Sales. Our net sales figures reflect the volume of cans and can ends
that we sell. In certain cases, we sell can ends separately. Net sales also
reflect the relative mix of different can prices. A higher proportion of larger
cans or cans with special features can lead to higher net sales figures even if
overall volumes remain stable.
Sales of beverage cans are highest during the summer months. Therefore, our
sales for the second and third quarters of the year, which include the warmer
months in North America and Europe, are higher than in the first and fourth
quarters. In the past, significant changes in summer weather conditions have
caused variations in demand for beverage cans and therefore in our net sales.
Some of our long-term sales contracts with customers contain formulas that
link the can price to our raw material cost, generally on the basis of
prevailing aluminum prices several months prior to the sale. These formulas can
lead to variations in net sales levels which, because they are generally offset
by corresponding variations in the cost of goods sold, do not necessarily affect
our operating income levels.
Significant portions of our sales are in European currencies, especially
currencies that now comprise the Euro, as well as the British pound. Revenues
denominated in foreign currencies are translated into U.S. dollars in preparing
our financial statements. Therefore, when these currencies fluctuate in value
relative to the U.S. dollar, our net sales figures may fluctuate accordingly.
Cost of Goods Sold (Excluding Depreciation). Our cost of goods sold
consists of raw materials costs, as well as other operating expenses and freight
charges. It does not include depreciation and amortization charges.
- The principal raw material used in manufacturing beverage cans is
aluminum can sheet for aluminum cans and ends, and steel can sheet for
steel cans. Metal generally represents between 60% and 70% of the
manufacturing cost of the beverage can, depending on the can size and
the type of metal used. We purchase most of our aluminum can stock
requirements from major aluminum can sheet producers in North America
and Europe and we purchase steel from major European producers. In
particular, we have long-term aluminum purchase contracts spanning three
to five years with the following companies:
- Alcan Rolled Products Company, which supplied approximately 47% of our
worldwide aluminum tonnage in 1998
- Aluminum Company of America (known as "Alcoa"), which supplied
approximately 29% of our worldwide aluminum tonnage in 1998
- Pechiney, which supplied approximately 14% of our worldwide aluminum
tonnage in 1998.
All of our purchase contracts are entered into on an arms'-length basis
on prevailing market terms. Unless otherwise fixed by contract, can and
end sheet prices vary in relation to the market prices for aluminum and
steel. Aluminum prices have historically fluctuated while steel prices
have been stable.
In addition to metals, we use other raw materials, principally compound,
inks, varnishes and coating materials.
- Other operating expenses include all other fixed and variable expenses
required to run our can and end plants, principally labor costs,
utilities and repair materials.
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<PAGE> 32
- Freight charges represent the cost of transporting cans from our
facilities to our customers' facilities, as well as warehouse rental,
storage and handling charges.
Selling, General and Administrative Expense. This item consists of selling
and administration compensation costs, together with all other administration
costs such as our headquarters costs, management information systems and
consulting fees. It does not include depreciation and amortization charges.
Research and Development Expense. This item includes our product
engineering costs in the United States, including our Beverage Technical Center
located near Chicago, as well as the cost of research services which we have
historically purchased from Pechiney's facility in Voreppe, France.
Depreciation and Amortization. This item consists of depreciation of our
productive and administrative capital assets, and amortization of purchased
software and other intangibles. It does not include goodwill amortization.
Goodwill Amortization. This item relates principally to the revaluation of
our tangible assets and liabilities as of the date of our acquisition by
Pechiney in 1988. The initial amount, which totaled approximately $1.6 billion,
is being amortized over a 40-year period, which results in an annual charge of
approximately $40 million. At March 31, 1999, our balance sheet reflected
approximately $1.2 billion of goodwill remaining to be amortized.
This goodwill amortization causes our effective tax rate to differ from the
statutory rate because our goodwill amortization, which is a relatively stable
amount in each period, is not deductible for tax purposes. This results in a
higher effective tax rate, particularly in periods where profits are lower. The
rate also fluctuates as a function of varying profit levels in foreign
countries, where the tax rates differ.
Restructuring Charge (Credit) and Writedown of Property and
Equipment. This item consists principally of restructuring charges related to
plant closures and other rationalization programs as well as gains and losses on
fixed asset sales, and asset impairment charges.
Accounting Change. Effective January 1, 1998, we adopted AICPA Statement
of Position 98-5, "Reporting of the Costs of Start-Up Activities," and wrote off
previously capitalized start-up expenses of $3 million, net of taxes of $1
million.
Acquisitions and New Operations.
- In February 1996, we acquired Sitac S.r.l., an Italian beverage can end
manufacturer, for a purchase price of $12 million, excluding cash
acquired. We recorded goodwill of $1.6 million in connection with the
transaction. We subsequently renamed the company Nacanco Italia S.r.l.
- In late 1996, our Brazilian subsidiary commenced operations. Pechiney
contributed $66 million in cash and equipment to finance the
construction of the Brazilian facility, and this contribution is
reflected in cash flows from financing activities in 1996. The facility
had minimal impact on 1996 sales, operated at a portion of maximum
capacity during its start-up year 1997, and came fully on-stream in
1998.
Cost Reduction Programs. In response to slowing growth rates, overcapacity
and price competition in our major markets, we have devoted substantial
attention to ongoing productivity improvement and cost reduction efforts across
our global network of facilities. In 1996 we introduced Project Challenge whose
objective was to reduce the 1995 cost base, excluding metal costs, by 20% before
the end of 1999, an outcome which we achieved by year-end 1998. In 1998, we
introduced "Next Level," a continuous improvement process through which we seek
to increase productivity and reduce costs while limiting additional capital
expenditures. This ongoing program has already produced concrete results in the
United States, including a 3.9% improvement in cans per man hour in 1998 over
1997, and a 2.4% improvement in the first quarter of 1999 over the first quarter
of 1998. We expect this program to result in continued productivity improvements
and cost reductions.
29
<PAGE> 33
RESULTS OF OPERATIONS
The following table shows our operating income (loss) from continuing
operations and various expense items as a percentage of our net sales for the
periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ------------------
1996 1997 1998 1998 1999
----- ----- ----- ------ ------
(PERCENTAGES OF NET SALES)
<S> <C> <C> <C> <C> <C>
Net sales.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold (excluding
depreciation)..................... 86.9 83.9 80.7 82.5 81.5
Selling, general and administrative
expense........................... 5.4 5.5 5.6 5.8 5.9
Research and development expense..... 0.9 0.8 0.6 0.7 0.7
Depreciation and amortization........ 2.9 3.2 3.3 3.7 3.9
Goodwill amortization................ 1.6 1.7 1.7 1.9 1.9
Restructuring charge (credit) and
writedown of property and
equipment......................... 6.3 0.4 (0.1) -- --
----- ----- ----- ----- -----
Operating income (loss) from continuing
operations........................... (4.0)% 4.5% 8.2% 5.4% 6.1%
===== ===== ===== ===== =====
EBITDA................................. 0.5% 9.4% 13.0% 11.0% 12.0%
EBITDA excluding restructuring and
write-downs.......................... 6.8 9.8 13.1 11.0 12.0
</TABLE>
RESULTS OF OPERATIONS IN THE FIRST THREE MONTHS OF 1998 AND 1999
Net Sales
Our net sales totaled $531 million in the first quarter of 1999, compared
with $543 million in the first quarter of 1998. The 2.2% decline was the result
of lower overall selling prices, although these were partially offset by volume
gains, primarily in Europe. Net sales in the Americas declined by $21 million,
or 5.9%, to $336 million compared with $357 million in the first quarter of
1998. This decline was a result of lower selling prices in the United States,
reflecting the low market price of aluminum which was passed on to customers
through contract pricing formulas. Prices in Brazil also declined when compared
with the first quarter of 1998. Volume gains in soft drinks in the United States
were offset by overall volume losses in Brazil and a slight decline in beer
volumes in the United States. Net sales in Europe and Asia increased by 4.8%, to
$195 million in the first quarter of 1999. Volumes increased in Spain and
Northern European countries other than the United Kingdom. This volume increase
was partly offset by a decline in selling prices in Turkey, where prices moved
toward levels generally prevailing in the European Union.
Operating Expenses
- Cost of goods sold amounted to $432 million in the first quarter of
1999, compared with $447 million in the first quarter of 1998. The $15
million decrease was principally due to a 4% reduction in total metal
costs. As a percentage of net sales, cost of goods sold decreased to
81.5% in the first quarter of 1999 from 82.5% in the first quarter of
1998. Cost of goods sold as a percentage of net sales is generally
higher in the first quarter than for the full year, since sales volumes
are lower in the winter months than in summer.
- Selling, general and administrative expenses declined 3.1% to $31
million in the first quarter of 1999, compared with $32 million in the
first quarter of 1998, reflecting our on-going cost reduction efforts.
- Research and development expense amounted to $4 million in the first
quarter of both 1999 and 1998.
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<PAGE> 34
Operating Income (Loss) from Continuing Operations
Our operating income from continuing operations totaled $32 million in the
first quarter of 1999, an increase of 10.3%, compared with $29 million in the
first quarter of 1998. Depreciation and amortization remained relatively stable
at $21 million in the first quarter of 1999 compared with $20 million in the
first quarter of 1988.
Income (Loss) from Continuing Operations before Cumulative Effect of Accounting
Change
- Interest expense totaled $15 million in the first quarter of 1999,
compared with $19 million in the first quarter of 1998. The decrease
reflects the reduction in our average debt levels as between the two
quarters. Our interest expense levels in 1999 and future years may be
significantly different from these historical figures because of the
change in our capital structure after this offering. In particular, we
expect that our financing will be provided entirely by third-party
lenders rather than Pechiney, which has provided a significant
proportion of our financing in recent years. You should also refer to
the discussion of our historical and prospective financing sources and
requirements in the "-- Liquidity and Capital Resources" discussion
below.
- Interest income and other financial income (expense), net amounted to $8
million in the first quarter of 1999, compared with $2 million in the
first quarter of 1998. The increase was due to the sale, effective March
31, 1999, of our 50% interest in the Container Recycling Alliance
partnership, a joint venture with Waste Management, Inc. for the
recycling of glass, at a gain of $5 million. The selling price was $9
million in cash, plus future payments to us based on Container Recycling
Alliance's operating results for the two years ending December 31, 2000.
The agreement specifies that these future payments will not be less than
$0.75 million in the aggregate.
- Income tax expense amounted to $11 million in the first quarter of 1999
compared with $5 million in the first quarter of 1998. Our effective tax
rate was 42.7% in the first quarter of 1999, compared with 41.2% in the
first quarter of 1998.
- Equity in net earnings (loss) of affiliates totaled $2 million in the
first quarter of 1999, compared with a loss of $1 million in the first
quarter of 1998. This item relates to our activities in Korea, Mexico
and Japan, where operations improved during the course of 1998.
- Minority interest remained relatively stable at $0.5 million in the
first quarter of both 1999 and 1998. This item relates to our activities
in Turkey and China.
Income (loss) from continuing operations before the cumulative effect of
the accounting change totaled $16 million in the first quarter of 1999, compared
with $5 million in the first quarter of 1998.
RESULTS OF OPERATIONS IN 1996, 1997 AND 1998
Net Sales
Our net sales totaled $2,459 million in 1998, compared with $2,465 million
in 1997 and $2,520 million in 1996. The 0.3% decline overall in 1998 reflected
mixed results in key market areas. Net sales in the Americas in 1998 were stable
at $1,560 million, compared with $1,554 million in 1997. In the United States,
although our product mix improved, this was offset by lower volumes in both soft
drink cans and beer cans. The lower volumes in soft drink cans resulted from a
loss of market share, while the decrease in beer can volume was due to an
overall decline in the market. Our loss of market share for soft drink cans
resulted from a 2.0 billion can volume loss with a specific customer due to
unfavorable terms in the proposed contract. We do not expect similar losses in
the near- to mid-term. Brazil reported good gains due to increased market demand
and the plant being on-line for the full year. Net sales in Europe and Asia
declined slightly by 1.1%, to $901 million in 1998. Strong market growth in
Southern Europe partially offset the negative impact of a less favorable product
mix and poor weather conditions in Northern Europe.
In 1997, the 2.2% decrease in net sales reflected a decline in our overall
selling prices, partly offset by total volume gains. In the Americas, net sales
decreased by 1.7% to $1,554 million in 1997 from
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<PAGE> 35
$1,581 million in 1996. This decrease reflected an increase in unit volumes,
more than offset by a decrease in selling prices. The lower selling prices
reflected the low market price of aluminum in late 1996 and early 1997 which was
largely passed on to customers through contract pricing formulas. The increase
in unit volumes was driven by soft drink can sales, which benefited from
sustained demand throughout most of the year. Beer can sales declined, however,
continuing the trend toward speciality and microbrew beers, which are generally
sold in glass, and away from budget priced beer, which is generally sold in
cans. Unit volumes were also spurred by increased can end sales and the
commercial start-up of the Brazilian facility.
In Europe and Asia, net sales decreased by 3.7% to $911 million in 1997
from $946 million in 1996, largely due to the depreciation in selling currencies
against the U.S. dollar -- notably the Spanish peseta, German mark and Italian
lira. This factor was partially offset by a slight increase in unit volumes,
driven by strong demand in Southern Europe.
Operating Expenses
- Cost of goods sold amounted to $1,984 million in 1998, compared with
$2,069 million in 1997 and $2,190 million in 1996. These figures
represent consistent reductions in cost of goods sold as a percentage of
net sales, which equaled 80.7% in 1998, 83.9% in 1997 and 86.9% in 1996.
The $85 million decrease in 1998 from 1997 included a 3% reduction in
total metal costs, a 10% reduction in labor and benefits expenses and an
11% reduction in distribution costs. In addition, pension interest income
increased by $14 million.
The $121 million decrease in 1997 from 1996 included a 4% reduction in
total metal costs, a 2% reduction in labor and benefits expenses and an
18% reduction in distribution costs. In addition, pension interest income
increased by $18 million.
- Selling, general and administrative expenses amounted to $138 million in
1998, compared with $134 million in 1997 and $136 million in 1996. The
slight increase in 1998 primarily reflected an increase in bad debt
expense of $7 million, together with increased consulting expenses
relating to Project Challenge. Excluding these factors, SG&A expenses
decreased by 4.5% in 1998, reflecting reduced labor and benefits
expenses due to our ongoing cost reduction efforts.
- Research and development expense amounted to $15 million in 1998,
compared with $20 million in 1997 and $22 million in 1996. In 1998, we
used fewer services from Pechiney's research center and were allocated a
lower portion of costs relating to this center. The lower charges in
1998 and 1997 also reflected our ongoing effort to share a larger
portion of development expenses with customers and suppliers.
Operating Income (Loss) from Continuing Operations
Our operating income from continuing operations totaled $201 million in
1998, compared with $112 million in 1997 and a loss of $101 million in 1996.
- Depreciation and amortization amounted to $82 million in 1998, compared
with $78 million in 1997 and $74 million in 1996. The $4 million
increases in each of 1998 and 1997 reflected capital expenditure levels,
including the Brazilian expansion and Project Challenge.
- Restructuring and write-down of property and equipment posted a credit
of $2 million in 1998, compared with charges of $11 million in 1997 and
$159 million in 1996. In 1998, we did the following:
- we recorded restructuring charges of $14 million for severance costs
associated with the Next Level program and an impairment charge of $4
million for lease termination costs and equipment writeoffs;
- we wrote back $17 million and $29 million in restructuring charges
previously taken for Project Challenge
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<PAGE> 36
- we recorded a new charge of $25 million to cover the costs of a new
plant closure related to Project Challenge.
The $2 million restructuring credit posted in 1998 represented the
overall effect of these items. The 1997 charge includes a $10 million
impairment writedown for our investment in China in light of economic
conditions there.
In the fourth quarter of 1996, we recorded a charge of $159 million for
restructuring and impairment of property and equipment related to actions
taken under Project Challenge. After years of strong growth, the beverage
can market in the United States and Canada had reached maturity. In 1996,
the market had increased only slightly over the prior year resulting in
an industry supply/demand imbalance, which led to our decision to reduce
annual capacity by in excess of three billion cans.
The restructuring charge related primarily to the planned shutdown of
five can manufacturing facilities to eliminate production overcapacity.
The facility at Jacksonville, Florida was shut down in December 1996. The
remaining reduction of capacity was planned to be accomplished by the
shut down of three plants in 1997 and one in 1998. In addition to the
cost of the five plant shutdowns, the restructuring charge covered the
reorganization of operations at plants which would continue operations,
and the elimination of executive and administrative functions at our
headquarters and other plants.
In May 1997, the San Juan, Puerto Rico facility was shut down. In the
fourth quarter of 1997, we decided to defer to 2000 the shutdown of the
remaining two plants originally scheduled for shutdown in 1997. These two
plants primarily produce special-sized cans under contracts that are
scheduled to expire in 2000. Our shutdown plan for one of the two plants
originally contemplated capital investments to expand another plant to
allow for the transfer of production of the special-sized cans. A
decision was made in 1997 not to make the necessary capital investment
and to continue to operate the plant. Our plan for the second plant was
to negotiate an early termination of the contract or to make alternative
supply arrangements. In 1997, we made a decision to continue to operate
the plants at approximately 50% of capacity, incurring cash losses, which
are recorded as incurred.
In 1998, based on a large customer's decision to reduce its purchases in
various geographic markets and on studies by outside consultants of
market demographics, our management decided not to close a plant provided
for in 1996 which at that time was expected to be closed in 1998, but
rather to temporarily curtail production at several lines in our
facilities. As a result, the reserve of $17 million previously
established for employee termination and severance programs, lease
termination costs, facility costs and other exit costs related to this
plant was restored to income. A further restoration of $29 million
related to adjustments to the restructuring reserve for changes in
estimates of the number of employees to be terminated at plants shut down
or to be shut down, and higher-than-expected proceeds on the sale of
several plant sites.
In connection with the 1998 decision not to close the previously
identified plant and in response to the continuing oversupply of can
production capacity, in 1998 our management decided to close a different
plant in late 1999. Accordingly, a charge of $25 million was recorded in
1998 to cover the costs of the new plant closure.
Please refer to note 15 of our combined financial statements for a
description of our cash payments for restructuring costs in 1996, 1997
and 1998. Our expected cash payments for restructuring costs in future
periods, excluding pension liabilities, are as follows:
<TABLE>
<S> <C>
1999........................................................ $23,640
2000........................................................ 12,783
2001........................................................ 11,891
2002........................................................ 5,989
2003........................................................ 1,100
2004 and beyond............................................. 14,978
</TABLE>
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<PAGE> 37
The results of our completed restructuring activities have been good.
Shutdown costs for both Jacksonville, Florida and San Juan, Puerto Rico
were less than anticipated, for two principal reasons. First, we were
able to sell plant and equipment at higher than expected prices. Second,
the rate of voluntary employee attrition was higher than expected,
leading to lower severance costs. As a result of these factors, we were
able to reverse restructuring provisions of $3 million for Jacksonville
and $9 million for San Juan. These amounts were included in the $29
million of provisions written back in 1998.
For further discussion of these items, please refer to note 15 to our
combined financial statements.
Income (Loss) from Continuing Operations before Cumulative Effect of Accounting
Change
- Interest expense totaled $69 million in 1998, compared with $90 million
in 1997 and $95 million in 1996. These decreases reflect the continued
reductions in our debt levels. The $21 million decline in 1998 also
reflects the repayment of $473 million of intra-group debt as part of a
capital reorganization. You should refer to note 1 to our combined
financial statements for a discussion of this capital reorganization.
- Interest income and other financial income (expense), net amounted to
$11 million in 1998, compared with $27 million in 1997 and $4 million in
1996. Within this item, interest income totaled $14 million in 1998,
compared with $8 million in 1997 and $9 million in 1996. Interest income
in each year was partly offset by expenses related to the sale of
accounts receivable under our receivables sales agreement. The 1997
income amount also included a $21 million nonrecurring gain relating to
foreign currency forward contracts.
- Income tax expense amounted to $27 million in 1998, compared with $30
million in 1997 and an income tax benefit of $35 million in 1996. In
1998, we received a favorable tax settlement from the Internal Revenue
Service pertaining to federal income tax returns for the years 1985
through 1995. This settlement enabled us to write back $32 million of
our reserves for income taxes, which was offset against our income tax
expenses in 1998. Excluding this effect, our 1998 income tax expense
would have been $59 million. The income tax benefit in 1996 reflects the
losses we incurred in that year, due principally to our restructuring
charge.
Our effective tax rate was 18.6% in 1998, compared with 61.4% in 1997 and
negative 18.3% in 1996. In 1998, excluding the favorable tax settlement
and the goodwill amortization effect, our effective tax rate would have
been 31.3%. In 1997, excluding the goodwill amortization effect, the rate
would have been 32.1%.
- Equity in net earnings (loss) of affiliates totaled $4 million in 1998,
compared with losses of $3 million in 1997 and earnings of $1 million in
1996. This item relates to our activities in Korea, Mexico and Japan. In
1998, operations improved in Mexico and Korea, compared with weak
performance in 1997 which related particularly to the devaluation of the
Korean won at the end of 1997.
- Minority interest remained relatively stable at $5 million in 1998 and
1997, compared with $7 million in 1996. This item relates to our
activities in Turkey and China.
Income (loss) from continuing operations before the cumulative effect of
the accounting change totaled $116 million in 1998, compared with $10 million in
1997 and a loss of $163 million in 1996. The cumulative effect of the accounting
change resulted in a $3 million charge in 1998, net of tax of $1 million.
EBITDA-RELATED ITEMS
Although EBITDA is a non-GAAP measurement, we believe it is an appropriate
financial measure of our operating performance, given our significant non-cash
depreciation and amortization charges and our significant goodwill amortization
charges. We define "EBITDA" as operating income (loss) from continuing
operations, excluding depreciation and amortization and goodwill amortization.
We define "EBITDA
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<PAGE> 38
excluding restructuring and write-downs" as EBITDA excluding restructuring
charge (credit) and write-down of property, plant and equipment. Our
discretionary use of funds depicted by EBITDA may be limited by working capital,
debt service, tax payment and capital expenditure requirements, and by
restrictions related to legal requirements, commitments and uncertainties. You
should refer to the section entitled "Prospectus Summary -- Summary Selected
Combined Financial Information" for a further discussion of these EBITDA-
related items.
Our EBITDA totaled $64 million in the first quarter of 1999, an increase of
6.7% compared with $60 million in the first quarter of 1998. For the full year
1998, our EBITDA totaled $323 million, compared with $231 million in 1997 and
$14 million in 1996. The 1998 figure represents an increase of 39.8% compared
with the full year 1997.
Our EBITDA excluding restructuring and write-downs totaled $64 million in
the first quarter of 1999, an increase of 6.7% compared with $60 million in the
first quarter of 1998. For the full year 1998, this item totaled $321 million,
compared with $242 million in 1997 and $173 million in 1996. These figures
reflect increases of 32.6% in 1998 and 39.9% in 1997.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL RESOURCES PRIOR TO THIS OFFERING
In recent years, our primary sources of cash have been cash flow from
operations, advances and other intra-group borrowings from Pechiney, and the
following third-party financing transactions:
- We have a $500 million revolving credit facility with a syndicate of
commercial banks led by The First National Bank of Chicago. The
available lines of credit are due to expire on various dates from 2001
through 2003. As at March 31, 1999, we had no amounts outstanding under
this facility. Drawings bear interest based on a spread over Libor, plus
other fees, as discussed in note 7 to our combined financial statements.
- We have $228 million of privately placed notes outstanding, which are
due to be repaid on various dates from 2000 through 2008, including $110
million to be repaid in December 2003. Interest rates under the notes
are fixed and vary from 5.69% to 6.64% according to the note series.
- We have a receivables sale facility under which we can sell up to $125
million of trade receivables to Windmill Funding Corporation and ABN
AMRO Bank N.V. As at March 31, 1999, we had $38 million outstanding
under this facility relating to our continuing operations and $33
million relating to the discontinued plastic operations.
- Vitro-American National Can, S.A. de C.V. has credit facilities totaling
$35 million from commercial banks that are partially guaranteed by
Pechiney.
The advances and other intra-group borrowings from Pechiney amounted to
$1,011 million at March 31, 1999.
In 1998, our debt to equity ratio was reduced to 0.80 at year end compared
to 1.75 at year end 1997 and 2.23 at year end 1996. At March 31, 1999, our debt
to equity ratio was 0.86. The improvement in the ratio in 1998 reflects improved
earnings and cash flows as well as the impact of the capital reorganization of
ANC which reduced debt and increased equity by $473 million. You should refer to
note 1 to our combined financial statements for a discussion of the capital
reorganization. In 1997, the reduction in the ratio was the result of
forgiveness of $152 million of debt by Pechiney.
LIQUIDITY AND CAPITAL RESOURCES FOLLOWING THIS OFFERING
As this offering will result in a change of control of our business, it
will affect our existing debt financing in the following ways:
- We will terminate and repay our $500 million revolving credit facility.
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<PAGE> 39
- We will reduce the size of our receivables sale program to approximately
$50 million and negotiate changes to its terms and conditions.
- We will be required to make an offer to prepay our $228 million of
privately placed notes, which, if accepted, would also require us to pay
a make-whole premium to be calculated on the basis of prevailing
interest rates. At current rates, the make-whole premium would amount to
$ million.
- The lenders under Vitro-American National Can's credit facilities will
be entitled to terminate the credit facilities when the offering is
completed.
- Pechiney has indicated that our intra-group advances and borrowings will
no longer be in place when the offering is completed. These items
aggregated $1,011 million outstanding as of March 31, 1999, of which
$260 million will be transferred to Pechiney Plastic Packaging and the
remainder will be terminated.
As a separate entity, we will have a capital structure and financial
policies that are reflective of an independent company, allowing us to make
better capital allocation and investment decisions. We estimate that following
this offering we will require a total of approximately $1.3 billion of debt
financing and available lines of credit. We are engaged in negotiations with
potential new third-party lenders to establish a $1.3 billion facility. In the
future, our debt requirements may change depending on our liquidity needs, our
capital expenditure requirements, and our cash flow from operations.
CAPITAL EXPENDITURES
Our business requires ongoing capital investments to maintain our existing
level of operations and implement productivity improvements. In the first three
months of 1999, these investments totaled $15 million, compared with $14 million
in the first three months of 1998.
These investments totaled $65 million in 1998, $72 million in 1997 and $142
million in 1996. The higher levels of spending in 1996 included investments for
construction and start-up of our Brazilian plant. Excluding the Brazilian
investment, our 1996 capital expenditures would have been $85 million. Our
reductions in capital spending over the three-year period reflects our drive for
further efficiency and productivity through lean manufacturing rather than high
levels of capital spending. Capital expenditures in 1998 focused on achieving
manufacturing improvements by installing equipment to improve quality and reduce
labor cost.
We currently expect capital expenditures for the full year 1999 to be in
the range of $100 million to $125 million. The increase over the 1998 amount
reflects planned expansion of existing facilities outside the United States.
CASH FLOWS
The following table shows selected cash flow data for our continuing
operations in the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------ ----------------
1996 1997 1998 1998 1999
------ ----- ----- ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating activities
of continuing operations........................... $ 4 $ 65 $161 $(74) $(34)
Net cash used in investing activities of continuing
operations......................................... (119) (57) (58) (11) (15)
Net cash provided by (used in) financing activities
of continuing operations........................... 99 (3) 26 69 48
</TABLE>
In the first quarter of 1999, net cash used in operating activities of
continuing operations totaled $34 million. Positive contributions of $16 million
of income from continuing operations and $31 million from depreciation and
amortization were offset by an increase in our net trade working capital of $62
million
36
<PAGE> 40
compared with the same period in 1998. We define net trade working capital as
inventories, accounts receivable and accounts payable. The increase in net trade
working capital reflects our normal build-up of inventories in anticipation of
higher summer sales. In the first quarter of 1998, net cash used in operating
activities of continuing operations totaled $74 million, driven by income from
continuing operations of $5 million and depreciation and amortization of $31
million offset by a $60 million increase in net trade working capital.
In 1998, net cash provided by operating activities of continuing operations
totaled $161 million, driven by $116 million of income from continuing
operations and depreciation and amortization of $123 million, together with a
$31 million provision for deferred income taxes. In 1998, we reduced our net
trade working capital by an aggregate of $9 million compared with 1997. This was
achieved principally through a decrease in inventory balances in the United
States as a result of the Project Challenge cost reduction program. Offsetting
these cash flows were $41 million of noncash pension income and $32 million
related to our favorable tax settlement from the Internal Revenue Service, which
was recorded as income but did not generate a cash benefit.
In 1997, net cash provided by operating activities of continuing operations
totaled $65 million, driven by income from continuing operations of $10 million
and depreciation and amortization of $119 million. Pension plan contributions of
$55 million reduced the cash provided by operating activities. Although our
trade working capital remained relatively stable on a net basis, both
receivables and payables increased during the year as a result of the start-up
in Brazil. Increased inventories in Brazil were more than offset by inventory
reductions achieved in the United States, which accounted for our overall $6
million reduction in inventories during the year.
In 1996, net cash provided by operating activities of continuing operations
totaled $4 million. The loss from continuing operations of $163 million was
partly offset by the $159 million restructuring provision and depreciation and
amortization of $115 million. We reduced our net trade working capital by $39
million. The cash generated by these items was principally used to fund pension
plan contributions of $119 million and $23 million of restructuring
expenditures. The fluctuations in trade working capital items during the year
were principally due to the decline in metals prices, which affect our inventory
carrying value and selling prices. The $81 million inventory reduction reflected
these lower metals prices as well as a decline in quantities. The $53 million
decrease in accounts receivable was attributable principally to lower selling
prices due to lower metals prices, as well as to reduced payment periods, while
accounts payable declined by $95 million due also to lower metals prices.
Net cash used in investing activities of continuing operations totaled $15
million in the first quarter of 1999, compared with $11 million in the first
quarter of 1998. This item includes our capital expenditures net of the proceeds
of sales of assets.
Net cash used in investing activities of continuing operations remained
relatively stable at $58 million in 1998 and $57 million in 1997. The increased
levels of capital expenditures in 1996 related to investments for construction
of our Brazilian plant.
Net cash provided by financing activities of continuing operations in the
first quarter of 1999 totaled $48 million compared to $69 million in the first
quarter of 1998. These amounts reflected increases in short term financing
required to finance our seasonal working capital and inventory build-up.
Net cash provided by financing activities of continuing operations in 1998
totaled $26 million, reflecting the reorganization of our capital structure in
Europe. In 1997, net cash used in financing activities of continuing operations
totaled $3 million. This amount included $28 million in payments on long-term
debt and $8 million in dividends paid. In 1996, net cash provided by financing
activities of continuing operations totaled $99 million, which included net new
long-term debt of $88 million offset by a $37 million decrease in short-term
debt, as well as a $66 million capital contribution from Pechiney related to the
new investment in Brazil.
As at December 31, 1998 and March 31, 1999, we had a total of $148 million
of net operating losses recorded on our balance sheet as deferred income taxes.
In conjunction with the reorganization of Pechiney's
37
<PAGE> 41
packaging operations which resulted in our formation, we expect that plastic
packaging technology with a currently estimated value of $65 million will be
sold to another subsidiary of Pechiney. This sale should give rise to a tax
charge of $26 million which we will offset against a portion of our net
operating losses. Following the reorganization, on a pro forma basis, we have a
total of $122 million of available U.S. net operating losses.
U.S. tax rules impose an annual limit on the amount of net operating loss
and tax credit carryforwards that may be used by a company following a change in
its ownership of more than 50%. These rules apply because Pechiney is selling
more than 50% of our shares. The annual limitation on tax benefits from these
carryforwards is calculated as follows:
federal long-term tax exempt rate
X
fair market value of the company on the date of the change in ownership
X
federal income tax rate
We do not expect this limitation to have a material impact on our ability
to utilize our net operating losses and tax credit carryforwards.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including fluctuations in metals
prices, foreign exchange rates and interest rates on our debt. Prior to this
offering, these risks were managed principally through Pechiney's risk
management system. We are currently implementing a worldwide ANC risk management
program to assess our exposure to market risk and implement protection policies.
METALS PRICES
The principal raw material used in manufacturing beverage cans is aluminum
can sheet and steel can sheet. Unless otherwise fixed by contract, can sheet
prices vary in relation to the market prices for aluminum and steel. The market
price of aluminum has historically been volatile, while the market price of
steel has been more stable.
We generally do not use commodity derivative instruments. We generally
limit our exposure to aluminum price fluctuations by matching the terms of our
aluminum purchase contracts with the terms of our customer sales contracts. In
the United States, several major suppliers of aluminum can stock offer pricing
systems which provide a "band" pricing formula. Under these contracts, the price
of aluminum can stock varies with aluminum quotations, but only within a band
(i.e., an upper limit and lower limit) for a period of up to five years. Other
suppliers offer to supply aluminum can stock on the basis of a capped ingot
price, but without a lower limit price. In the United States, we have entered
into long-term sales contracts with many of our customers, in which the selling
price for beverage cans is based on similar pricing formulas. These sales
contracts cover over 90% of our net sales in North America.
In Europe, over 60% of our net sales are made under long-term contracts of
varying lengths. Pricing on most of these contracts is determined on an annual
basis. We manage our exposure to aluminum price volatility in Europe by matching
aluminum purchases to sales agreements for similar periods. Steel prices have
historically been stable and we expect our existing long-term contracts to give
us continued price stability for steel.
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FOREIGN EXCHANGE RATES
We are exposed to two types of risks related to currency exchange rates:
transaction risk and translation risk.
Transaction Risk. Transaction risk occurs when one of our operating units
enters into a foreign currency denominated transaction, with the result that its
expenses are denominated in a different currency from its revenues. This risk is
not significant in our United States operations, since we both purchase raw
materials and sell cans in transactions denominated in U.S. dollars. The
introduction of the Euro on January 1, 1999 eliminated transaction risk between
the 11 European countries participating in the European Monetary Union (known as
the "Euro zone"). Therefore, in our business, this risk arises principally in
the United Kingdom.
Within the United Kingdom, where our functional currency is the British
pound, we purchase can sheet in Euros from suppliers in Euro zone countries. If
the Euro exchange rate rises against the British pound, the relative cost in
British pounds of the can sheet rises. To protect against this risk, when we
enter into a long-term agreement to purchase can sheet, we hedge the risk by
entering into a forward purchase of Euros. This effectively fixes the rate at
which we will be able to obtain the Euros we will require to make payments under
the contract, thereby eliminating the transaction risk.
Similarly, we sell a portion of our U.K. can production to customers in
Euro zone countries. These sales are denominated in Euros. If the Euro declines
in value against the British pound, the amount of revenues in British pounds
declines. When we enter into a long-term sales agreement, we hedge this risk
through a forward sale of Euros. This effectively fixes the rate at which we
will be able to sell the Euros we expect to receive in the future.
Our policy is to use currency exchange instruments only to hedge against
firm commitments under foreign currency denominated contracts to purchase raw
materials or sell beverage cans. Our policy is not to engage in speculative
foreign exchange transactions.
Translation Risk. Translation risk occurs when the functional currency of
a foreign business' financial statements is converted into our reporting
currency, the U.S. dollar. For example, the assets, liabilities, revenues and
expenses of our European operations must be translated into U.S. dollars for
inclusion in our combined financial statements. To the extent that the exchange
rates of the British pound and Euro relative to the U.S. dollar vary, the
reported values of European assets and liabilities and the amount of their
recorded earnings will change. We do not hedge against this particular
translation risk.
In Brazil and Turkey, which experience significant currency volatility, and
where our functional currency is the U.S. dollar, we attempt to balance local
currency denominated monetary assets and liabilities to manage translation risk.
When this is not possible, we hedge translation risks that could have a negative
impact on the cash flows of the business. For example, in Brazil, can sales and
metal prices are U.S. dollar indexed, but invoiced in Brazilian reais. We enter
into forward sales of Brazilian reais to hedge net cash flows.
39
<PAGE> 43
Our Currency Instruments. Approximately 90% of our currency hedging
instruments by nominal value have Pechiney as the counterparty. Following this
offering, our forward purchase contracts and forward sale contracts with
Pechiney will remain in place until they mature. At December 31, 1998, we held
forward contracts to purchase $321 million of foreign currency and to sell $90
million of foreign currency. These commitments extend through July 2003. The
carrying value of these instruments in our accounts is approximately equal to
their fair value, as illustrated by the tables below.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
--------------------------------------------
MATURING WITHIN MATURING BETWEEN
TOTAL 1 YEAR 1-5 YEARS
----- --------------- ----------------
($ IN MILLIONS)
<S> <C> <C> <C>
NOMINAL VALUE:
Forward purchases
Euros(1)........................................... $315 $230 $85
British pounds..................................... 1 1 --
Other.............................................. 5 5 --
---- ---- ---
Total........................................... $321 $236 $85
==== ==== ===
Forward sales
Euros(1)........................................... $ 24 $ 24 --
British pounds..................................... 22 22 --
Brazilian reais.................................... 42 42 --
Other.............................................. 2 2 --
---- ---- ---
Total........................................... $ 90 $ 90 --
==== ==== ===
FAIR VALUE:
Forward purchases
Euros(1)........................................... $ (2) $ 5 $(7)
British Pounds..................................... -- -- --
Other.............................................. -- -- --
---- ---- ---
Total........................................... $ (2) $ 5 $(7)
==== ==== ===
Forward Sales
Euros(1)........................................... -- -- --
British Pounds..................................... -- -- --
Brazilian reais.................................... -- -- --
Other.............................................. -- -- --
---- ---- ---
Total........................................... -- -- --
==== ==== ===
</TABLE>
- ------------------
(1) This item consists of contracts originally denominated in French francs,
German marks, Dutch guilders, Belgian francs and Spanish pesetas, which are
now denominations of the Euro.
Fair value amounts represent the sum that we would receive (or pay) if the
instrument were to be unwound as at December 31, 1998. Since these instruments
relate to firm commitments, any gain or loss arising from the mark-to-market
would be offset by a gain or loss on the foreign currency exposures they hedge.
40
<PAGE> 44
INTEREST RATE RISKS
Currently, approximately 80% of our debt is at variable interest rates,
which results in exposure to increases in interest rates. We hedge a small
portion of our current exposure using an interest rate cap instrument
denominated in French francs, as illustrated by the table below.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
--------------------------------------------
MATURING WITHIN MATURING BETWEEN
TOTAL 1 YEAR 1-5 YEARS
----- --------------- ----------------
($ IN MILLIONS)
<S> <C> <C> <C>
NOMINAL VALUE:
Purchase of caps..................................... $9 -- $9
-- -- --
Total.............................................. $9 -- $9
== == ==
FAIR VALUE:
Purchase of caps..................................... $0 -- $0
-- -- --
Total.............................................. $0 -- $0
== == ==
</TABLE>
Since our intra-group debt provided by Pechiney will be terminated or
transferred to Pechiney Plastic Packaging on completion of the offering, and we
are currently in negotiations with potential new third-party lenders, our
proportion of fixed and variable rate debt, and our exposure to increases in
interest rates, may be significantly different following this offering.
YEAR 2000
Many computerized systems and microprocessors that are embedded in a
variety of products that we use may experience operational problems if they
cannot handle the transition to the Year 2000. We are currently completing a
program designed to ensure that our internal software systems and installed
electronics will function properly with respect to dates in the year 2000 and
afterwards, and that our suppliers will be Year 2000 compliant. This program has
consisted of identifying potential risks and carrying out appropriate corrective
action.
Risk Analysis. The process of identifying risks covered all of our
information processing and automated industrial control systems, computer-based
management systems, communications networks and security and access control
systems. In 1996, we identified all systems at risk and planned appropriate
corrective action.
Corrective Action. Our corrective action program has covered internal
systems, installed electronic components and supplier compliance.
- We purchased new computer systems to replace our old mainframe systems
that were not compliant and which could not be upgraded practicably. In
1998, we purchased and installed a new SAP R/3 financial software
package in the United States. Currently, we are installing a new SAP
purchasing package in the United States and new SAP financial software
across Europe, except for England and Spain. We expect to have completed
installation of these packages by the end of the second quarter of 1999.
Our operations in the United Kingdom and Spain are upgrading their
Oracle financial software to a compliant version, and we expect to
complete the upgrade in July 1999. Finally, we are installing Paradigm
ERP software to replace our production, customer services, distribution
and sales invoicing systems worldwide. We expect to complete
installation of this software by the end of October 1999. We have
successfully tested these new systems in Europe for year 2000
compliance. However, we do not intend to conduct independent tests on
the SAP or Paradigm systems in the United States. Our contract with
Paradigm provides that the Paradigm system is year 2000 compliant. SAP
has also given us assurances that the SAP system is year 2000 compliant.
- We conducted an inventory of all ANC locations worldwide to identify all
items that contained electronic components using embedded date or time
codes. We then contacted the manufacturers of
41
<PAGE> 45
those components and sought written assurances of year 2000 compliance.
We are testing all major components identified in the course of the
inventory for year 2000 compliance, and we expect to complete this
testing by the end of August 1999. Where items were identified as
non-compliant, or where we received no response, we are implementing
corrective action consisting of reprogramming, removing or replacing the
item. We expect to have completed this process by the end of July 1999.
Non-compliant items represent less than 10% of the total items
identified in the course of the inventory.
- We have surveyed our major suppliers, including both hardware and
software suppliers, and have sought assurances that their systems will
be compliant. From the answers given, we believe that our major
suppliers will generally be in compliance. We classify a supplier as
year 2000 compliant only if the survey response provides a detailed
analysis that supports a claim of compliance. On the basis of the
responses, we have classified 70% of our major suppliers as compliant.
In 20% of the cases, we have not had a response or have not finished
evaluating the response. In a further 10% of cases, we have classified
the supplier as not compliant at this stage. In particular, the level of
compliance in emerging markets such as Brazil, Turkey and China is not
as high as in North America and Europe. We are continuing our audit and
repeating our requests for assurances in all cases where the response is
missing or non-compliant. This process will continue through the end of
1999.
Contingency Plans. We are currently drawing up contingency plans that
specify back-up procedures in the event that internal or external products,
processes, systems or services fail, particularly in cases where we are not able
to establish timely compliance through our audits and surveys. We expect to
complete these plans by the end of the second quarter of 1999, although we will
continue to refine them through the end of 1999 as our audits and surveys
continue.
Expenditures. On the basis of currently available information, our
budgeted spending on Year 2000 issues will amount to approximately $3 million
when all action is completed. Of this amount, we estimate that we had spent
almost $1.5 million as of March 31, 1999. We have financed this expenditure
using cash generated from operations, and intend to finance the remaining Year
2000 expenditure in the same way. These figures refer only to external costs
related directly to Year 2000 compliance issues, consisting of the cost of
purchasing hardware, software and outside consultant support for installation.
They do not include the cost of upgrading or replacing software and equipment,
which were commissioned independently, such as SAP and Paradigm. We estimate
that these separately commissioned costs will total approximately $18 million,
of which we spent approximately $10 million as of March 31, 1999.
Likely Effect on Our Business. In light of the foregoing, we do not
currently anticipate that we will experience a significant disruption to our
business as a result of the Year 2000 issue. Our most likely risk is a temporary
inability of suppliers to provide supplies of raw materials or of customers to
pay on a timely basis, particularly in emerging markets. We believe that we have
dedicated sufficient resources to deal with the Year 2000 issue in a timely
manner. However, our efforts are ongoing and will continue to evolve as new
information becomes available. There is still uncertainty about the broader
scope of the Year 2000 issue as it may affect us and third parties, including
our suppliers and customers. For example, lack of readiness by electrical and
water utilities and other providers of general infrastructure could, in some
geographic areas, pose significant impediments to our ability to carry on normal
operations in those areas, including temporary plant closures or delays in
receiving supplies or shipping beverage cans. This may particularly be the case
in emerging markets. Accordingly, while we believe our actions should
significantly lessen Year 2000 risks, we are unable to eliminate these risks or
to estimate their ultimate effect on our operating results.
INTRODUCTION OF THE EURO
On January 1, 1999, 11 member states of the European Union adopted a common
currency known as the Euro. Their previous national currencies became
denominations of the Euro for a transitional period expected to end on January
1, 2002, and the exchange rates between these currencies and the Euro were
fixed.
We conduct business in the majority of the countries concerned. We believe
that the introduction of the Euro will simplify the management of cash flows
among the ANC entities operating in the Euro zone.
42
<PAGE> 46
The Euro has become the prime currency for metal purchasing in the Euro zone,
and we have adopted it as the currency for all our intra-group billing in the
Euro zone. The absence of exchange rate fluctuations between these currencies
has eliminated the need for a large amount of currency hedging in our European
operations. However, the United Kingdom is not a part of the Euro zone and
currency fluctuation risk between the British pound and the Euro remains.
The introduction of the Euro is thought to have increased price
transparency between countries in the Euro zone, particularly for consumer
goods. We do not believe this will have a significant negative impact on our
results, since we sell beverage cans to large international buyers in a market
that is relatively insensitive to this increased price transparency.
SIGNIFICANT RECENTLY-ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires that all
derivatives be recognized as assets and liabilities and measured at fair value.
Changes in the fair value of derivatives not qualifying as hedges are required
to be reported in earnings. We will be required to adopt this standard in our
financial statements for the year ending December 31, 2001. Our management is in
the process of evaluating the standard and has not yet determined the future
impact on our financial statements.
43
<PAGE> 47
OVERVIEW OF THE GLOBAL BEVERAGE CAN INDUSTRY
OVERVIEW
In 1998, worldwide industry shipments of two-piece beverage cans exceeded
200 billion cans. North America was the single largest market with approximately
114 billion cans shipped in 1998, including nearly 103 billion in the United
States alone, followed by Europe with approximately 33 billion cans. The U.S.
and European markets, with a population base of approximately 600 million
people, or approximately 20% of the world population, accounted for
approximately 68% of worldwide industry shipments in 1998. The remaining market
was split among approximately 40 billion cans in the Asia-Pacific region,
approximately 13 billion cans in South America and approximately 7 billion cans
in Africa and the Middle East.
Soft drinks and beer comprise substantially all of the global beverage can
markets. In 1998, soft drink cans represented approximately 68% and beer cans
32% of the total beverage can market in the United States. In Europe, the
proportions were approximately 57% and 43%, respectively. Throughout the world,
the beverage can competes with bottles made from glass and plastic. For a
discussion of competing products, see "Business of ANC -- Competition" and "Risk
Factors -- We are subject to competition from alternative products which could
result in lower profits and reduced cash flows."
SIGNIFICANT INDUSTRY CONDITIONS
The global beverage can industry is characterized by a number of factors,
which we believe generally favor the beverage can:
- Strong and increasing carbonated soft drink consumption. Carbonated
soft drink consumption volumes and per capita consumption have increased
steadily each year in both the United States and Europe between 1990 and
1998. In addition to retail prices and weather conditions, advertising
and promotion by major soft drink producers have largely contributed to
these increases. These factors have continued to drive volume growth in
can shipments in both of our primary markets.
- Significant carbonated soft drink demand potential. In Europe, per
capita carbonated soft drink consumption is less than one-third that of
the United States. We believe the European market has strong growth
potential. In Eastern Europe and the emerging markets of Asia and Latin
America, consumption lags significantly behind the United States, and
the package mix is dominated by glass. We believe that in the long term
many of these markets will grow substantially, and that the appeal of
the can will offer long-term growth potential as economic and
demographic growth occurs over time.
- Continuing industry concentration and alignment. The carbonated soft
drink market is highly concentrated with Coca-Cola and Pepsi-Cola being
the principal owners of carbonated soft drink brands. The market leader,
Coca-Cola, had a global market share of 51% in 1998. Beverage can
bottlers, our customers, are also highly concentrated and many are
affiliates of Coca-Cola or Pepsi-Cola. We believe increased
concentration among major carbonated soft drink and beer bottlers will
provide the beverage can with continued opportunities for growth. In
addition, the industry has experienced greater concentration and
alignment between major carbonated soft drink bottlers and beverage can
producers, and we believe this trend will continue. The beer market,
which in Europe has traditionally been more fragmented than the
carbonated soft drink market, is experiencing similar trends.
- Established distribution channels. The can is firmly established in
mass retail distribution channels in the United States. In addition, the
can benefits from a large installed base of filling equipment at
beverage producers' plants. There is also a significant number of
existing can vending machines in the United States and, to a lesser
extent, in Europe.
- Favorable trends in beer markets. In Europe, despite a gradual decline
in consumption, the shift to take-home beer consumption has benefited
the can, spurring growth in both can shipment volumes and market share
between 1990 and 1998. In the United States, beer consumption decreased
slightly
44
<PAGE> 48
between 1990 and 1998, but we believe the beer market will increase as the
children of baby boomers reach the legal drinking age of 21 beginning in the
year 2000.
- Changing product mix. In the carbonated soft drink markets of the
United States and Europe, plastic has gained market share in the recent
past. Although the can has continued to experience steady growth in
terms of units, it has lost market share in these markets. Plastic
bottles have attributes that make them competitive against the can, in
particular in the single-serve beverage market, including resealability,
clarity and shapability. In addition, plastic is less expensive than the
can for larger-size containers on a per ounce basis. In the U.S. beer
market, the can has declined at the expense of glass. On the contrary,
the can is stable in the European beer market.
- Enhanced customer value. Although plastic bottles continue to gain
market share, the can maintains several competitive advantages over
plastic and glass. The can is generally less expensive than plastic and
glass bottles on a per package basis, and is generally priced
competitively in retail outlets, particularly for soft drink
multi-packs. The can demonstrates superior economics in shipping,
handling and stacking. Other advantages include: higher filling speeds
compared to narrow-necked glass and plastic bottles; lighter weight;
resistance to breakage; superior shelf life and product freshness
compared to plastic; large promotional space; and a high rate of
recycling. The can recycling rate was 63% in the United States in 1998
and over 80% in some European countries. Both carbonated soft drink and
beer producers create significant advertising awareness for the beverage
can by using it as a vehicle for promotional activities. We believe that
these attributes continue to make the can an attractive and competitive
package in both the carbonated soft drink and beer markets.
THE U.S. AND EUROPEAN BEVERAGE CAN MARKETS
The table below shows the volume of two-piece beverage can shipments for
carbonated soft drinks and beer in the United States and in Europe for the
1990-1998 period.
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994(1) 1995 1996 1997 1998
---- ---- ---- ---- ------- ---- ---- ----- -----
CANS (BILLIONS OF UNITS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UNITED STATES
Soft drinks.................................... 53.3 55.8 57.5 60.1 66.3 62.6 64.5 66.5 69.5
Beer........................................... 39.2 38.8 38.2 37.5 36.8 35.5 34.6 34.2 33.4
---- ---- ---- ---- ----- ---- ---- ----- -----
Total.......................................... 92.5 94.6 95.7 97.6 103.1 98.1 99.1 100.7 102.9
==== ==== ==== ==== ===== ==== ==== ===== =====
EUROPE
Soft drinks.................................... 12.3 14.2 14.5 14.8 16.9 18.6 17.9 19.0 19.0
Beer and other alcoholic drinks................ 8.6 9.8 10.2 10.6 12.2 13.7 14.1 14.1 14.1
---- ---- ---- ---- ----- ---- ---- ----- -----
Total.......................................... 20.9 24.0 24.7 25.4 29.1 32.3 32.0 33.1 33.1
==== ==== ==== ==== ===== ==== ==== ===== =====
</TABLE>
- ------------------
Source: Can Manufacturers' Institute and Beverage Can Manufacturers Europe
(1) In 1994, 2.8 billion units were purchased in advance in anticipation of a
metal price increase.
In the United States, the market for beverage cans grew from 92.5 billion
cans in 1990 to nearly 103 billion cans in 1998. This growth reflected increased
consumption of carbonated soft drinks and the growth of cans in mass merchandise
channels, particularly in supermarkets and warehouse clubs, where multi-pack
pricing is competitive. Beverage can shipments for soft drinks grew at a 3%
compound annual rate from 1990 to 1998, while beer can shipments experienced
gradual volume loss of approximately 2% annually. In the United States, limited
market growth -- particularly since 1993 -- as well as overcapacity and price
competition have created a more challenging marketplace.
In Europe, the market for beverage cans grew from approximately 21 billion
cans in 1990 to more than 33 billion cans in 1998. Total beverage can shipments
increased at a compound annual rate of approximately 6% from 1990 to 1998,
driven by an increase in per capita consumption of carbonated soft drinks
reflecting changes in customer lifestyle, increased use of the can in the beer
market compared to other packaging products, and the opening up of Eastern
European economies. Europe consists of many beverage can markets
45
<PAGE> 49
with varying characteristics and factors impacting growth. Northern Europe,
which consists of the U.K., France, Germany and Holland, has represented the
largest market for beverage cans in Europe since 1990. Beverage can penetration
is lower in Southern Europe, which consists of Italy, Spain and Portugal,
representing a potential growth opportunity for the industry.
THE CARBONATED SOFT DRINK MARKET
The table below shows, for the 1990-1998 period, total volumes and per
capita consumption of carbonated soft drink in the United States and Europe.
Volume is expressed in U.S. gallons and includes sales at soda fountains.
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UNITED STATES
Volume (billions of U.S. gallons)................. 12.0 12.2 12.4 12.7 13.3 13.8 14.2 14.7 15.2
Per capita (U.S. gallons)......................... 48.0 48.4 48.8 49.7 51.5 52.2 53.4 54.6 56.1
EUROPE
Volume (billions of U.S. gallons)................. 6.1 6.2 6.5 6.4 6.8 7.1 7.1 7.5 7.7
Per capita (U.S. gallons)......................... 14.2 14.3 14.8 14.7 15.4 16.0 15.9 16.7 17.0
</TABLE>
- ---------------
Source: Beverage Marketing Corporation and Canadean
Total gallonage of carbonated soft drink has increased at a compound annual
rate of approximately 3% in the United States since 1990. Per capita consumption
of carbonated soft drinks has grown at a compound annual rate of approximately
2% from 1990 through 1998, reaching 56.1 U.S. gallons (212 liters) per person in
1998. Changes in customer lifestyle and the increased number of younger
consumers in the United States fueled total volume growth and per capita
consumption of carbonated soft drinks during that period. On a year-on-year
basis, the principal factors driving changes in carbonated soft drink
consumption in the United States are retail price and weather conditions.
Another contributing factor is advertising and promotion by major soft drink
producers. In Europe, total carbonated soft drink volume has increased at a
compound annual rate of approximately 3% since 1990 and per capita consumption
of carbonated soft drinks has grown at a compound annual rate of approximately
2% during the same period, reaching 17 U.S. gallons (64 liters) per person in
1998. This increase is largely due to changes in customer lifestyle, promotional
activities of major carbonated soft drink producers and weather conditions.
Despite faster growth than in the United States, per capita consumption in
Europe in 1998 was less than one-third that of the United States.
The table below shows, for the 1990-1998 period, the carbonated soft drink
package mix in the United States and Europe.
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
(PERCENTAGES OF TOTAL GALLONAGE)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UNITED STATES
Cans.............................................. 54 54 53 53 53 51 50 49 48
Glass (single-serve).............................. 12 10 9 8 5 3 1 1 1
Plastic (non-returnable single serve)............. 3 4 5 6 8 11 13 16 18
Plastic (non-returnable multiple serve)........... 31 32 33 34 34 36 36 34 33
--- --- --- --- --- --- --- --- ---
Total............................................. 100 100 100 100 100 100 100 100 100
=== === === === === === === === ===
EUROPE
Cans.............................................. 18 19 19 19 19 20 19 19 19
Glass (single serve).............................. 21 16 14 14 13 12 11 10 10
Glass (multiple serve)............................ 30 28 25 21 18 14 12 11 10
Plastic (single serve)............................ 0 1 1 1 2 3 3 4 4
Plastic (multiple serve).......................... 31 36 40 45 48 51 55 56 57
--- --- --- --- --- --- --- --- ---
Total............................................. 100 100 100 100 100 100 100 100 100
=== === === === === === === === ===
</TABLE>
- ------------------
Sources: Our estimates based on the following external sources: Beverage
Marketing Corporation, Can Manufacturers' Institute, Container
Consulting, Canadean and customer interviews.
46
<PAGE> 50
In the United States, the can remains the dominant package in the single
serve category, but faces strong competition. While increasing on a unit basis,
the can lost more than 6% in market share between 1990 and 1998 to plastic
containers, particularly in the single-serve 20-oz size. The recloseable feature
of the plastic container has contributed to its growth in refrigerated
distribution channels for immediate consumption, particularly in convenience
stores. The 20-oz plastic container is also being established in the vending
machine distribution channel. In 1990, glass still held more than 10% of the
U.S. carbonated soft drink market, but it has since been virtually replaced by
plastic.
The can is firmly established in mass retail distribution channels, mostly
supermarkets and warehouse clubs, principally due to competitive multi-pack
pricing. More than 40% of the packaged carbonated soft drink volume in the U.S.
is distributed in supermarkets. Within this distribution channel, the can has a
55% share. In 1996, 50cl and 24-oz plastic multipacks were introduced in
supermarket distribution channels and priced directly against the twelve-can
multipack. However, the can has held its position in the mass retail
distribution channel. The market share of two-liter and three-liter multiple
serve plastic packages increased until 1995, but has recently declined.
In Europe, growth in the volume of can shipments since 1990 has reflected
volume growth of carbonated soft drink consumption, as the can has maintained a
steady market share of approximately 19% of the package mix. Refillable and
non-refillable plastic packaging, which accounted for approximately 61% of the
total soft drink package mix in 1998, has captured market share from refillable
glass since 1990. However, as multi-packing of cans is being introduced
gradually to continental Europe, we believe this packaging format, combined with
heightened customer marketing and the potential for increased per capita
consumption, creates potential opportunities for can growth in Europe. In
particular, the distribution and retail systems in Southern Europe require
longer shelf life and therefore favor the beverage can, with its superior shelf
life and product freshness, over plastic bottles.
THE BEER MARKET
The table below shows, for the 1990-1998 period, total volume and per
capita beer consumption in the United States and in Europe.
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UNITED STATES
Volume (billions of U.S. gallons)......... 6.0 5.9 5.8 5.8 5.9 5.8 5.9 5.9 6.0
Per capita (U.S. gallons)................. 24.0 23.2 23.0 22.6 22.5 21.9 22.0 22.0 23.0
EUROPE
Volume (billions of U.S. gallons)......... 8.6 8.4 8.5 8.3 8.4 8.4 8.2 8.3 8.2
Per capita (U.S. gallons)................. 19.9 19.4 19.5 18.8 19.0 18.8 18.3 18.4 18.2
</TABLE>
- ------------------
Source: Beverage Marketing Corporation and Canadean
The total U.S. beer market remained relatively flat from 1990 to 1998.
Although consumption of imported beer continued to grow, both premium and budget
domestic beers have suffered in recent years as U.S. consumers have favored more
sophisticated, higher-priced brands over low-cost, mass-produced brews. The
specialty segment, which includes microbrews, has grown significantly. The light
beer segment, with low-calorie versions of many premium brands, has also been
attracting a significant number of consumers.
In Europe, the overall market for beer has experienced a gradual decline in
consumption since 1990. However, the market has been characterized by a shift
from on-premise consumption in bars, cafes, restaurants and hotels to take-home
consumption, which has benefited the can.
47
<PAGE> 51
The table below shows, for the 1990-1998 period, the beer package mix in
the United States and in Europe.
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
(PERCENTAGES OF TOTAL GALLONAGE)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UNITED STATES
Cans...................................... 70 70 69 67 64 61 62 61 59
Glass (single serve)...................... 30 30 31 33 36 39 38 39 41
--- --- --- --- --- --- --- --- ---
Total..................................... 100 100 100 100 100 100 100 100 100
=== === === === === === === === ===
EUROPE
Cans...................................... 17 18 18 20 22 24 25 25 25
Glass (single serve)...................... 77 76 76 74 72 70 69 69 69
Glass (multiple serve).................... 6 6 6 6 6 6 6 6 6
--- --- --- --- --- --- --- --- ---
Total..................................... 100 100 100 100 100 100 100 100 100
=== === === === === === === === ===
</TABLE>
- ------------------
Sources: Our estimates based on the following external sources: Beverage
Marketing Corporation, Can Manufacturers' Institute, Canadean and
customer interviews.
In the United States, changes in the beer package mix have reflected
consumption trends. In the present strong economy, consumers have traded up to
premium and specialty brands and the introduction of new brands by major brewers
has benefited glass packaging. The can, the major container in the budget
segment, is experiencing volume losses as that category declines. The erosion of
the can's market share and volume slowed, however, between 1995 and 1998.
Packaged beer continues to take market share from draught beer in most
European countries. The take-home consumption trend has benefited the can. The
can has increased its share of the beer package mix from 17% in 1990 to 25% in
1998.
OTHER BEVERAGE CAN MARKETS
In 1998, the U.S. and European markets, with a population base of around
600 million people, consumed approximately 135 billion two-piece beverage cans,
equivalent to about 225 cans per person. Compared to the United States and
Europe, per capita consumption of beverage cans remains low in emerging
countries. Based on a global market of 200 billion two-piece beverage cans,
outside the United States and Europe annual per capita consumption is only about
15 cans per person. In these markets, glass dominates the package mix,
reflecting the traditional preference for less expensive multiple serve
returnable containers over the can, which is still perceived and marketed as a
premium product. However, we believe, over time, as Asian and Latin American
economies recover from their present economic difficulties, demographic growth
and the appeal of the can as a product representing a higher standard of living
offer substantial long-term growth potential for the beverage can.
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BUSINESS OF ANC
OUR KEY BUSINESS STRENGTHS
- ANC is a global leader. We believe we are the second largest producer
of two-piece beverage cans and ends in the world, based on 1998 net
sales. We are the second largest beverage can manufacturer in the United
States with a market share of approximately 25%. In Europe, we are the
largest beverage can manufacturer, with approximately 31% of the market.
- ANC has excellent customer alliances. We have long-term customer
relationships with global beverage producers. The Coca-Cola Company and
its affiliated bottlers make up 51% of our global portfolio. We also
enjoy strong relationships with major brewers in many of the markets in
which we supply cans.
- ANC has strategically located facilities. With 22 plants in the United
States, 13 plants in Europe, and operations in Mexico, Brazil, China,
Japan and South Korea, we are well-balanced to supply our geographically
diverse customers' requirements.
- ANC is a leader in product innovation and differentiation. As a part of
our customer-focused approach, we have sought to provide our customers
with the means to differentiate themselves through product innovation.
We were the first can manufacturer to introduce commercial shaped and
embossed cans to the marketplace. We are on the leading edge of
promotional concepts such as tab incising, colored tabs and ends, and
new ink technologies.
- ANC's management is focused on the beverage can. Our exclusive business
is the production and sale of beverage cans and ends. Our management is
dedicated to making the best strategic decisions for the supply of
quality beverage cans and ends to our customers.
OUR STRATEGY
Our strategy aims to create shareholder value through superior
profitability and cash generation. To achieve this goal, we have developed
several key strategic initiatives.
CAPITALIZE ON FAVORABLE CONDITIONS IN DEVELOPED MARKETS
We are a leader in the developed beverage can markets of the United States
and Northern Europe. These markets represent a strong volume base and steady
growth for the beverage can. We intend to continue to focus on maintaining our
strategically located facilities in these markets. We believe our network of
plants is poised to benefit from the steady growth of these stable markets with
limited additional capital expenditure.
PURSUE PROFITABLE GROWTH OPPORTUNITIES IN EUROPE AND EMERGING MARKETS
We believe Southern Europe and emerging markets in Asia and Latin America,
where per capita beverage consumption and beverage can penetration are lower
than in the United States, represent attractive opportunities for profitable
growth. We are the largest player in the growing market of Southern Europe. We
intend to add incremental capacity to our existing facilities to supply these
markets with only limited increases in our capital expenditures. We also
continue to monitor a number of emerging markets looking for attractive
strategic acquisitions or investments. We currently have strategic market
positions in emerging markets such as Mexico, Brazil and China. As our global
customers expand in these markets, we will be well-positioned to serve them and
participate in their growth.
PROVIDE SUPERIOR CUSTOMER SERVICE AND SATISFACTION
We have forged successful long-term relationships with several global
beverage producers. Our long-term customer relationships and outstanding service
capabilities make us a key player in our principal markets. We believe
outstanding customer service has been key to maintaining our close customer
relationships and represents a competitive strength. We have developed
value-added, innovative services for our customers, including a technical team
that leverages our manufacturing experience by providing them on-site production
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<PAGE> 53
assistance. We intend to enhance this strength by continuing to focus on greater
product quality, customer support, and product innovation to add value to our
customers' operations and enhance customer satisfaction.
CONTINUOUSLY IMPROVE PRODUCTIVITY AND REDUCE COSTS
We have undertaken three specific cost reduction programs in the past five
years: Project Challenge, Next Level, and our total quality production system
program, which we refer to as "ANC Production System." Project Challenge was
introduced in 1996 as a business-wide cost reduction program. The program's
objective was to reduce the 1995 cost base, excluding metal costs, by 20% before
the end of 1999, an outcome we achieved by year-end 1998. Building on the
success of Project Challenge, in 1998 we introduced "Next Level," a continuous
improvement process that seeks to increase productivity and reduce costs while
limiting additional capital expenditures. This ongoing program has already
produced concrete results in the United States, including a 4% improvement in
the number of cans produced per man-hour in 1998 over 1997. Our third
improvement program, ANC Production System, implements the principles of Lean
Manufacturing through a comprehensive overhaul of our production processes. We
believe the cost reductions we anticipate through ANC Production System will be
a significant competitive advantage for us.
ATTRACT AND DEVELOP THE BEST HUMAN CAPITAL
We recognize that achieving our objectives will depend in large part upon
maintaining the highest quality management team. To this end, we are
strengthening our human resources through new leadership and improved
performance management. We are changing our culture by blending the best of our
existing internal resources with externally recruited proven talent with new
ideas from benchmark companies. We are also committed to ongoing training for
our employees to improve their skills and create a results-oriented environment
in an effort to better meet the needs of our customers.
PRODUCTS
The beverage can is a standardized two-piece container produced by a
combination of drawing and ironing aluminum or steel can stock, and an end
closure which is seamed on to the can by the customer after filling. In the
United States, the beverage cans we produce are made exclusively from aluminum.
Our principal product in the United States is the two-piece, 12-oz aluminum
beverage can and end. We also produce an extensive range of other sizes, from
5.5-oz to 24-oz aluminum cans. In Europe, we produce beverage cans in both
aluminum and steel, in a range of seven different sizes but principally in 33cl
and 50cl sizes, as well as aluminum ends. In Europe, aluminum has gained market
share against steel in 1998 and accounted for approximately 51% of the cans
shipped in 1998.
Metal used in the production of beverage cans accounts for between 60% and
70% of the manufacturing cost of the beverage can, depending on can size, end
diameter and type of metal. To reduce our metal costs, we reduced raw material
usage and spoilage in our manufacturing processes as a part of Project
Challenge. These measures included lightweighting, which consists of reducing
the thickness of the can sheet and the diameter of the can top. In the United
States and Europe, we were the first beverage can manufacturer to reduce the
diameter of the can neck to 202 (2 2/16-inches), which has become the industry
standard in the U.S. soft drink market. Conversion to this new can format began
in 1993 and is virtually completed. The U.S. beer market generally utilizes a
204 (2 4/16-inches) can neck. In Europe, we have been converting can and end
production capacity to 202 necks since 1994, although the U.K. and Turkish beer
markets continue to use 206 (2 6/16-inches) ends.
MARKETS
We believe that, on the basis of 1998 net sales, we are the second largest
producer of two-piece beverage cans and ends in the world, the second largest
producer of beverage cans and ends in North America with a U.S. market share of
approximately 25%, and the largest producer of beverage cans and ends in Europe
with approximately 31% of the European market. The following table sets forth
selected data for our business, overall and by geographic region, for 1996, 1997
and 1998. All net sales numbers in this table exclude
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intracompany sales. Total cans shipped in the Americas includes cans shipped
through Valley Metal Container Partnership, our joint venture with Coors Brewing
Company, and Vitro-American National Can, S.A. de C.V., our joint venture with
Vitro S.A. in Mexico. Joint venture shipments are accounted for under the equity
method and as such are not included in net sales.
<TABLE>
<CAPTION>
YEAR ENDED AT DECEMBER 31,
--------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
TOTAL:
Net sales ($ in millions)................................. $2,520 $2,465 $2,459
Total cans shipped (billions of cans)..................... 38.5 39.1 38.7
Number of employees....................................... 5,230 4,956 4,735
THE AMERICAS:
Net sales ($ in millions)................................. $1,574 $1,554 $1,558
Total cans shipped (billions of cans)..................... 28.2 28.8 28.0
EUROPE AND ASIA:
Net sales ($ in millions)................................. $ 946 $ 911 $ 901
Total cans shipped (billions of cans)..................... 10.3 10.3 10.7
</TABLE>
We have an extensive presence in the beverage can markets in the Americas
and Europe/Asia, which accounted for 63% and 37%, respectively, of our net sales
in 1998. In the Americas, our activities are carried out principally through
American National Can Company in the United States and a wholly owned subsidiary
in Brazil. We have also formed joint ventures with Coors Brewing Company in the
United States and with Mexico's largest glass container manufacturer, Vitro S.A.
In Europe, our activities are carried out through wholly owned subsidiaries and
a majority owned subsidiary in Turkey. We also have a majority owned subsidiary
in China and equity participations in Japan and South Korea.
In 1998, we held 25% of the U.S. beverage can market. We believe our strong
customer relationships, our optimally located facilities and our technical
support services make us a strong player in this market. Since 1994, we have
operated the Valley Metal Container Partnership, a joint venture producing
beverage cans and ends near the Coors Brewery Company in Golden, Colorado. This
joint venture provides Coors Brewing Company with the benefits of our
technological expertise and a dedicated can and end supply, while allowing both
parties to benefit from the savings that our can and end making technology
generates.
Our market share in Europe was 31% in 1998. We believe three principal
factors position us to serve the European market: a geographically dispersed
network of manufacturing facilities located close to major bottlers; a strong
manufacturing presence in the higher-growth Southern European market; and a
relatively high market share among leading soft drink producers.
We are streamlining our business in mature markets while pursuing
development in markets which we believe have greater potential for growth,
particularly in Eastern Europe, Latin America and Asia. We commenced operations
in Mexico in 1995 through Vitro-American National Can, S.A. de C.V., a joint
venture with Vitro S.A., Mexico's largest glass container manufacturer. At
December 31, 1998, the facility, located in Queretaro, represented gross
investments in property, plant and equipment of $49.7 million and has the
capacity to produce approximately one billion cans per year. Prior to 1998,
operating performance was hampered by the weak Mexican economy and the resulting
overcapacity in the marketplace. In 1998, operations benefited from
organizational changes, productivity improvement programs and aggressive cost
cutting, along with renewed beverage promotional activity and increased demand
in Mexico. As a result, sales and earnings increased significantly over 1997.
Vitro-American National Can's share of the Mexican beverage can market was
approximately 14% in 1998.
Construction of a plant in Brazil commenced in the first quarter of 1996
and initial commercial production started in December 1996. At December 31,
1998, the facility represented gross investments in property, plant and
equipment of $73 million. The facility, located in Extrema, Minas Gerais, 60
miles northeast of Sao Paulo, has the capacity to produce 1.5 billion units per
year. While competitive production capacity increased significantly and created
margin pressure in 1997, high demand levels led to significantly
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improved results in 1998. This trend is not expected to continue in 1999 due to
the recent economic difficulties in Brazil. Our share of the Brazilian beverage
can market was approximately 17% in 1998.
Our operations in Asia consist of two joint ventures operating in Japan and
South Korea and one subsidiary in China. The Chinese subsidiary, which is 40%
owned by Guangdong City Blue Ribbon Group and 60%-owned by us, operates a plant
that produces 12-oz aluminum beverage cans for beer and carbonated soft drinks.
The Chinese market continues to grow -- it grew by approximately 7% in 1998 --
but overcapacity remains a factor prompting increased pressure on prices. The
Chinese subsidiary's share of the Chinese beverage can market was approximately
5% in 1998.
The 24.5% and 40% interests, respectively, in our Japanese and South Korean
joint ventures, operated with local majority partners, are accounted for under
the equity method. Since 1997, activity in Asia has slowed considerably due to
the economic crisis, poor weather conditions and overcapacity. Each joint
venture has reacted to weak business conditions with restructuring and
cost-cutting programs, initiated in 1997, and expected to continue throughout
1999. Our Japanese joint venture, a majority of which is owned by Asahi Brewers,
continues to expand its facilities to meet anticipated increases in demand from
Asahi.
CUSTOMERS
Our facilities are generally located in proximity to our major customers,
and ship cans directly to beverage fillers and producers under a variety of
multi-year supply contracts. In the carbonated soft drink market, the owners of
beverage brands generally own both the beverage trademark and the secret
formulas to concentrates. Owners of beverage brands either manufacture and sell
products themselves or rely on a network of bottlers, often their affiliates, to
sell, distribute and sometimes manufacture these products under licenses.
Consolidation trends among beverage can fillers have led to a highly
concentrated customer base. Our top ten global customers represented
approximately 67% of our 1998 net sales. Among these customers are six Coca-Cola
affiliated bottlers, which accounted for 45% of our 1998 net sales, with
Coca-Cola Enterprises Inc. alone representing 28%. No other customer represented
more than 10% of our 1998 net sales. Our top ten global customers in 1998 also
included Anheuser Busch, Beverage Associates Cooperative, Inc., The Pepsi
Bottling Group, Inc., and The Stroh Brewing Company, who together represented
22% of our 1998 net sales. In addition, we supply 100% of Coors Brewing
Company's can needs through our joint venture, Valley Metal Container
Partnership.
We have a strong supply relationship with The Coca-Cola Company and its
affiliated bottlers. Coca-Cola has numerous brands, including: Coca-Cola
Classic, Diet Coke, Sprite, Diet Sprite, Barq's, Mr. PiBB and Fanta. We believe
we are currently the largest supplier to the Coca-Cola system. Sales to
Coca-Cola and its affiliated bottlers represented 51% of our 1998 net sales. In
addition, we have been the largest supplier of cans to Coca-Cola Enterprises
Inc. for the past ten years. We believe this relationship will continue to
create long-term benefit to us on a global basis.
The market environments in which we operate are highly competitive. The
ability of can manufacturers to differentiate their products is limited. As a
result, we are focused on the differentiation of our services. We believe our
technical support provided within our customers' plants has aided us in building
solid customer relationships. We are also highly responsive to our customers'
quality, innovation and promotional needs, which helps to make us a preferred
supplier. We believe these strengths have been validated by our long-term
contracts with major customers.
COST IMPROVEMENT PROGRAMS
In response to slowing growth rates, overcapacity and price competition in
our major markets, we have devoted substantial attention to ongoing productivity
improvement and cost reduction efforts across our global network of facilities.
These initiatives involved three distinct programs.
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PROJECT CHALLENGE
The objective of Project Challenge was to reduce the 1995 cost base,
excluding metal costs, by 20% before the end of 1999. The program focused on
reduction of operating costs, working capital requirements and selling, general
and administrative expenditures. To achieve this objective, we implemented a
number of measures, including:
- best practice transfers: the identification and generalization across
all facilities of optimal manufacturing processes
- benchmarking: an internal and external comparative analysis of
manufacturing processes designed to identify cost reduction targets
- headcount reductions, both in our plants and through restructuring at
corporate offices
- worldwide sourcing of materials and parts
- lightweighting, or the reduction of metal per container
- logistics reduction, including warehousing, inventories and freight.
Project Challenge also honed our ability to track our business through
better quality measurements, spoilage reduction, and improved inventory
management. As part of this effort, we eliminated some of our higher-cost
production capacity through the closure of two manufacturing facilities and the
curtailment of several additional can making lines in the past three years. By
the end of 1998, we had met all of our Project Challenge objectives.
NEXT LEVEL
In 1998, building on the success of Project Challenge, we introduced "Next
Level," a continuous improvement process through which we seek to increase
productivity and reduce costs while limiting additional capital expenditures.
Next Level represents a more focused, analytical approach than its predecessor
cost reduction effort. An internal task force comprised of engineers,
manufacturing experts and plant staff spends several months in each of our
facilities to study and adopt best practices, optimize performance for each
piece of equipment, improve manufacturing techniques, and introduce superior
maintenance programs to reduce machine downtime. A by-product of these efforts
is the development and enhancement of new analytical and problem solving skills
at the plant level. The Next Level program also encompasses a number of measures
designed to enhance employee productivity through training, organizational
development and employee incentives, including newly adopted systems more
closely linking performance to reward. The objective of the Next Level program
is to institute a cost-focused culture within our organization.
The table below illustrates the productivity gains achieved through Project
Challenge and Next Level, expressed in percentage change in cans produced per
man-hour.
<TABLE>
<CAPTION>
CHANGE 1996/95 1997/96 1998/97
- ------ ------- ------- -------
<S> <C> <C> <C>
U.S. cans per man-hour................................... +0.1% +10.4% +3.9%
European cans per man-hour............................... -2.7% +2.3% +3.3%
</TABLE>
ANC PRODUCTION SYSTEM
In 1999, we introduced ANC Production System, which implements the
principles of Lean Manufacturing, targeting waste not only at the plant level,
but in every part of our organization. The aim of Lean Manufacturing is to
reduce costs by applying the specific tools of the Toyota Production System to
identify and eliminate waste on the factory floor and in the global production
system. The Toyota Production System, a manufacturing system pioneered by the
Toyota Motor Company, is centered around a philosophy of continual improvement.
Under this philosophy, every process is continually evaluated and improved in
terms of time required, resources used and product quality. From redundant
e-mails to unnecessary meetings to waiting for parts, we are focused on removing
waste from our practices. In our plants, our efforts focus on
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<PAGE> 57
reducing spoilage and equipment downtime, both sources of waste. Every ANC
employee will attend a three-day training seminar over the next 24 months to
learn the skills of Lean Management and its application to various tasks. We are
learning from the experience of other benchmark companies that have successfully
implemented Lean Manufacturing techniques and we have hired experts in lean
production from outside the can industry to bring new perspectives on waste
reduction.
RESTRUCTURING CHARGES
For Project Challenge, we recorded a restructuring charge of $159 million
in 1996. In 1998, we restored $21 million of this charge to income. For Next
Level, we recorded a restructuring charge of $14 million in 1998. The measures
we are taking under the ANC Production System program have not required any
restructuring charges. For further details of these charges, please refer to the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and note 15 to our combined financial statements. We
do not currently anticipate recording any additional charges exceeding our
current reserves for these programs.
RESEARCH AND DEVELOPMENT
Consistent with our emphasis on customer satisfaction and in order to
permit customers to increase market differentiation of their products, we
continuously pursue the development of innovations for beverage cans.
Our principal innovations include:
- shaped cans
- fluted cans
- registered embossing development
- large opening ends
- colored ends and tabs
- promotional "under-the-tab" printing
- aluminum beer widgets, a technology which replicates the foaming of
draught beer, which we developed jointly with a major U.K. brewer.
We believe our product performance and cost-effectiveness benefit from our
significant commitment to research and development, often conducted in
collaboration with our customers. At our Beverage Technical Center in Elk Grove
Village, Illinois, we design, develop and test new and improved beverage can and
can end products and processes, and qualify materials for customers around the
world. Our technical center operates a complete, bi-metal pilot can-making line
for comprehensive and efficient trials, as well as an advanced laboratory. We
also contract for the services of various research facilities, including
Pechiney's laboratory in Voreppe, France.
Our research and development expenditure amounted to $15 million in 1998,
compared with $20 million in 1997 and $22 million in 1996. This expenditure was
$14 million in the first quarter of 1999 and 1998.
In 1997, with the introduction of the Coca-Cola contour can, inspired by
Coca-Cola's contour bottle, we became the first manufacturer to commercially
produce shaped two-piece beverage cans. The shaped can represents a
technological breakthrough in two-piece beverage can making, retaining
structural stability and superior graphics without significantly affecting
production and filling speeds. We developed the can shaping technology with
Oberburg Engineering of Switzerland. Today, we have the exclusive rights to use
the shaping technology through the beginning of 2000, and we may extend these
rights to the beginning of 2002. Once we no longer have these exclusive rights,
Oberburg can sell machines which use the technology to other can manufacturers
by paying us a royalty. Coca-Cola has test-marketed the shaped can on a limited
basis in the United States. The shaped can remains a developmental project that
continues to attract customer interest.
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Also in 1997, we commenced production of registered embossed beverage cans
for Coca-Cola. Registered embossing aligns indentation with the can's graphics,
providing texture and differentiation to the package and allowing brewers and
soft drink companies to enhance the image of their brand. The process was
developed by Alcoa Packaging Machinery, a licensee under our can sidewall
reshaping technology.
Colored ends, which we introduced in 1997, allow customers to extend brand
image to the total package. Colored and printed tabs provide further promotional
opportunities such as proof of purchase and instant win games. In 1997, we also
introduced a 568ml can (one U.K. pint) as part of a joint development project
with one of our key beer customers. This new size has since been adopted by a
major cider customer.
In 1998, we produced the first commercial embossed two-piece beverage cans
in the United Kingdom for Whitbread Beer Company's Stella Artois premium lager
and were awarded the "Best in Metal" prize by the Metal Packaging Manufacturers
Association. The embossed can continues to attract customer interest worldwide.
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PRODUCTION FACILITIES
The competitiveness of can production depends in large part on the control
of transportation costs. We have built up a network of geographically dispersed
low cost facilities that allows us to minimize transportation costs by producing
can bodies in relative proximity to our customers in our principal markets.
The following maps illustrate our 22 facilities in the United States and 13
facilities in Europe, including location and product details for each facility:
UNITED STATES FACILITIES
[MAP OF USA FACILITIES]
UNITED STATES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LOCATION TYPE OF PLANT
-------- -------------
<S> <C>
Birmingham, Alabama End
Bishopville, South Carolina Can
Chatsworth, California Can
Chicago, Illinois Can
Fairfield, California Can
Forest Park, Georgia Can
Fremont, Ohio Can
Golden, Colorado (2 plants) Can & End
Houston, Texas Can
Kent, Washington Can
Longview, Texas Can
</TABLE>
<TABLE>
<CAPTION>
LOCATION TYPE OF PLANT
-------- -------------
<S> <C>
Monmouth Junction, New Jersey Can
Oklahoma City, Oklahoma Can
Olive Branch, Mississippi Can
Phoenix, Arizona Can
Piscataway, New Jersey Can
San Leandro, California End
St. Paul, Minnesota Can
Valparaiso, Indiana End
Whitehouse, Ohio Can
Winston-Salem, North Carolina Can
</TABLE>
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EUROPEAN FACILITIES
[MAP OF EUROPEAN FACILITIES]
EUROPE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LOCATION TYPE OF PLANT
-------- -------------
<S> <C>
Dunkerque, France Can
Mont, France End
Gelsenkirchen, Germany Can
Waterford, Ireland End
Nogara, Italy Can
Pianella, Italy End
San Martino, Italy Can
</TABLE>
<TABLE>
<CAPTION>
LOCATION TYPE OF PLANT
-------- -------------
<S> <C>
La Selva, Spain Can
Valdemorillo, Spain Can
Manisa, Turkey Can
Milton Keynes, United Kingdom Can
Runcorn, United Kingdom Can
Wakefield, United Kingdom Can
</TABLE>
We have three additional facilities in which we own a significant share. In
Queretaro, Mexico, we have a joint venture can plant owned on a 50/50 basis by
ourselves and Vitro, S.A. In Brazil, we have a wholly-owned plant in Extrema,
Minas Gerais, 60 miles northeast of Sao Paulo. In China, we have a joint venture
can plant with the Blue Ribbon Group in the city of Zhaoqing. We own 60% of this
venture.
As part of our quality management system and efforts to continuously
improve products and processes, we have sought quality certification from the
Geneva-based International Organization for Standardization. By the end of 1997,
all European facilities had obtained ISO 9002 certification. Currently, 19 of
our 38 facilities have obtained ISO 9002 certification, confirming that our
quality controls and manufacturing processes meet recognized international
standards.
We own all of our manufacturing facilities and generally own the land on
which those facilities are located, except for four facilities in the United
States that we operate under lease. We lease our corporate headquarters in
Chicago, Illinois. We believe our properties and facilities are in good
condition and have sufficient productive capacity to serve our current needs and
expected near-term growth.
Our ongoing productivity improvement and cost reduction efforts in recent
years have focused on improved raw material cost management, upgrading and
modernizing our facilities to improve costs,
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<PAGE> 61
efficiency and productivity, and phasing out non-competitive facilities. As part
of Project Challenge and in light of excess supply in the North American market,
we reduced our annual beverage can production capacity by approximately 3
billion cans in 1996 and 1997 by closing our Jacksonville, Florida and San Juan,
Puerto Rico can manufacturing facilities and by permanently curtailing
production on several lines at selected plant sites.
USE AND PROCUREMENT OF RAW MATERIALS
To reduce costs and optimize resources, we purchase our principal raw
materials on a centralized global basis. We purchase several categories of raw
materials including inks, varnishes, coatings, compounds and, most
significantly, metal.
The principal raw material used in manufacturing beverage cans is aluminum
can sheet for aluminum cans and steel can sheet for steel cans. Our aluminum
beverage can production activities in the United States and Europe consumed
approximately 581,200 metric tons of aluminum can sheet in 1998 and 587,000
metric tons in 1997, while steel beverage can production activities consumed
approximately 138,700 metric tons of steel in 1998 compared with 149,000 metric
tons in 1997. Part of the reduction in metal consumption can be attributed to
the lightweighting of cans. In the United States, we purchase the majority of
our aluminum can stock requirements from the major North American aluminum can
sheet producers. In Europe, we purchase aluminum can stock from European
producers, and we purchase steel can sheet from major European steel producers
pursuant to annual or long-term contracts at prevailing market prices and on
standard market terms. Our aluminum purchasing in Europe includes approximately
50% of our European supply purchased from an affiliate of Pechiney on
arm's-length terms. For further details of our future relationship with
Pechiney, including expected future purchasing of aluminum, see the section
entitled "Relationship with Pechiney."
Unless otherwise fixed by contract, aluminum can sheet prices will vary in
relation to the London Metal Exchange prices for primary aluminum. Steel can
sheet costs have historically been more stable and are not subject to the same
volatility as aluminum. If the cost of can sheet rises, it will cause our
operating expenses to increase. If we cannot increase the selling price of
beverage cans to offset the increased expenses, our profits will decline. For
further details of this risk, see the section entitled "Risk Factors -- Our
profits will decline if the cost of can sheet rises and we cannot increase the
selling price of beverage cans."
COMPETITION
The market for beverage cans is highly competitive. Competition is based
principally on price, product quality and service. The beverage can also
competes with bottles made from glass and plastic. See the sections entitled
"Overview of the global beverage can industry -- Significant industry conditions
- --Customer value" and "-- Changing product mix."
In 1998, the beverage can accounted for a significant majority of the North
American single-serve beer and soft drink market, followed by glass, while
plastic single-serve sizes continued to gain market share for soft drinks.
Plastic bottles constitute the vast majority of larger-size containers, which
compete with cans sold in multi-pack configurations. In Europe, we believe the
can, as part of the packaging mix, maintained its overall market share in the
packaged beer and carbonated soft drink market in 1998. In the European soft
drink market, plastic bottle growth is estimated to have slightly outperformed
market growth at the expense of glass. However, markets such as the United
Kingdom have experienced a more rapid gain in single-serve plastic bottles.
The production of beverage cans in the United States and Europe is highly
concentrated, with six leading producers of beverage cans, including us,
comprising virtually the entire market. Our principal U.S. competitors are:
- Ball Corporation, which recently purchased the North American beverage
can operations of Reynolds Metals Company
- Crown Cork and Seal Company, Inc.
- Metal Container Corporation, a subsidiary of Anheuser-Busch Company, Inc.
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In Europe, our principal competitors are:
- Carnaud Metalbox, which was acquired by Crown Cork and Seal in 1996
- Schmalbach-Lubeca Continental Can Europe (VIAG AG)
- PLM AB, which was recently acquired by Rexam Plc.
ENVIRONMENTAL AND HEALTH AND SAFETY MATTERS
Our operations are subject to numerous federal, state, local and foreign
environmental health and safety laws and regulations, including those pertaining
to the handling and disposal of hazardous and toxic materials, practices and
procedures applicable to the construction and operation of our facilities and
standards relating to the discharge of pollutants to the air, soil and water. In
addition, our operations are subject to environmental remediation laws such as
the federal Comprehensive Environmental Response, Compensation and Liability Act
of 1980 (known as "CERCLA"), and similar state laws that can impose liability
upon statutorily defined categories of parties for the entire cost of the
cleanup of a contaminated site without regard to fault or the lawfulness of the
original activity resulting in contamination. Pursuant to CERCLA and similar
state laws, we are currently undertaking or participating in remediation of
contamination at a number of our present and former operations and at several
third party waste disposal sites. We are also subject to liability for
environmental obligations in connection with previously divested businesses.
Based on information currently available, the sites at which we have,
relative to other sites, the largest potential liability for remediation of
contamination are third party disposal sites known as the Operating Industries,
Inc. Landfill Site in California, the Midco I and II/Midwest Solvents Recovery
Site, the Ninth Avenue Dump Landfill Site and the Fisher-Calo Site, each of
which is in Indiana, and the Ellisville Site in Missouri. Based on information
currently available regarding these sites and other sites at which we are
subject to known remediation liability, we do not expect that this liability
will materially damage our business, financial condition or results of
operations. In addition, under U.S. GAAP, we have established reserves for known
environmental remediation liabilities that are probable and reasonably capable
of estimation. Nonetheless, any future development in existing facts, events,
circumstances or conditions, or any new facts, events, circumstances or
conditions, may result in a significant increase in liability that would
materially harm our business, financial condition or results of operations.
As for environmental, health and safety laws and regulations applicable to
our ongoing operations and construction activities, while we believe that our
operations are in substantial compliance with these laws and regulations as
currently in effect, we are currently faced with instances of noncompliance at
our U.S. and non-U.S. facilities for which expenditures will be required, and
violations of these laws or regulations may occur in the future. Violations of
environmental, health and safety laws can lead to substantial fines or
penalties. Other developments, such as the promulgation of more stringent
requirements of environmental, health and safety laws and regulations and
increasingly strict enforcement by governmental authorities, could substantially
impact our operations.
We are currently handling the defense of a claim filed by governmental
authorities alleging improper handling and disposal of asbestos at our former
Englewood plant in Chicago, Illinois. The government initially sought a penalty
of approximately $1.5 million. While we intend to continue to vigorously defend
this claim, the claim is in a preliminary stage and we cannot predict its
outcome with certainty. We also have recently received a notification from the
Brazilian authorities that the wastewater effluent chemical oxygen demand at our
Extrema plant is above the limit incorporated in the plant's environmental
operating permit. We intend to implement additional wastewater treatment at an
estimated capital cost of $200,000 in order to correct this reported deficiency.
In addition, we are in the process of addressing noncompliance with occupational
safety and health laws, particularly as related to noise, electrical upgrade and
ventilation, at several of our facilities in Europe. We have budgeted capital
expenditures of approximately $25 million over the next five years for this
work.
Current or forthcoming U.S. regulations also may require action to address
air emissions of ethylene glycol monobutyl ether (known as "EGBE") and
formaldehyde from our facilities that manufacture can bodies. Under its current
draft schedule, in November 2001 the U.S. Environmental Protection Agency (known
as "EPA") will adopt new standards under the Federal Clean Air Act to require
2-piece can makers
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to implement maximum achievable control technology (known as "MACT") for
designated hazardous air pollutants, particularly EGBE and formaldehyde. Under
EPA's current draft schedule, we would have to comply with these standards by
November 2004. If these regulations are promulgated, we may have to spend up to
an estimated $70 million to purchase and install control equipment (thermal
oxidizers) between November 2001 and November 2004 to implement MACT for EGBE
and formaldehyde at our facilities that manufacture can bodies. We recently
carried out testing and determined that formaldehyde was being formed during the
process of curing the coatings and inks during can manufacture. As a result of
the finding and regardless of the adoption of the MACT standards, under current
state laws establishing formaldehyde emission limits, we may be subject to
fines, penalties or other actions requiring emission reductions. Pursuant to
these laws, we may have to spend up to $40 million to control formaldehyde
emissions beginning as early as 1999 if we are unable to change the formulation
of coatings and inks to reduce the emissions below state exposure limits, or if
the state exposure limits are not adjusted in response to new scientific data.
We and others in the industry are engaged in actions seeking to mitigate
these costs and liabilities. On November 12, 1996, a petition was filed with the
EPA requesting that the 2-piece can coating subcategory, or its EGBE emissions,
be removed from the list of regulated pollutants on the basis that, as used in
this process, it is non-hazardous. In March 1999, the EPA began formal
evaluation of the petition. It is required to issue its decision by the end of
February 2000. Regarding formaldehyde, a 45% emissions reduction has already
been accomplished by modifying the inside spray material, and work is underway
to reduce emissions from the use of varnish and ink. Further, EPA currently is
reviewing new scientific data showing formaldehyde to be significantly less
hazardous than would be predicted based on earlier data and is expected to
announce a decision by the end of 1999. If EPA accepts these new data and the
states adjust their regulations accordingly, we do not expect to incur
significant additional costs to reduce formaldehyde emissions. However, there
can be no assurance that the regulatory relief being sought will be granted, and
it is possible that the costs and liabilities associated with EGBE and
formaldehyde emissions will be higher than the current estimates.
New ambient air quality standards for particulate and ground level ozone
were adopted in 1997. In May 1999, a Federal Appeals Court in Washington, D.C.
set aside these standards. These new standards, if they survive the court
challenge, could require our U.S. facilities to install additional pollution
control equipment. Important aspects of the standards, including the deadlines
to conform, have not yet been stated. At this stage, the eventual financial
implications for us cannot be estimated.
While these matters and other developments, such as claims for damages to
property or injury to persons resulting from the environmental, health or safety
impacts of our operations or past contamination, could materially harm our
business, financial condition or results of operations, based on information
presently available, management does not anticipate any material harm.
One of our principal environmental goals is to progress beyond mere
compliance with applicable regulations and to establish procedures to
continuously improve our impact on the environment. We favor an approach that
would use market mechanisms, such as voluntary commitments and negotiable
permits. Accordingly, we have implemented an environmental management system at
our facilities, which fosters and monitors continuous improvement.
INSURANCE
To date, we have been able to obtain adequate insurance coverage for our
operations worldwide at levels which we consider to be prudent. We maintain
insurance covering various types of risk in respect of our operations. The
insurance coverage we maintain includes public and products liability,
transportation, material damage, business interruption and all-risks insurance,
as well as employer's liability insurance where required. We do not anticipate
any difficulty in obtaining adequate levels of insurance in the future.
INTELLECTUAL PROPERTY
Our intellectual property, including patents, designs, know-how and
trademarks, are important to our business. We have implemented vigorous policies
to protect our patent rights and intellectual property. We have long had
worldwide patent committees to coordinate intellectual property management with
our management, research and development, sales and marketing and legal
functions. In 1997, we began to
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coordinate the efforts more closely at the senior management levels. The
principal purpose of these committees is to protect and capitalize on our
intellectual property.
At December 31, 1998, we had a portfolio of approximately 250 patents and
100 patent applications in total. We have filed approximately 20 new patent
applications in 1998. The patent coverage on our most important technologies
will not expire within the next 10 years.
We are currently a party to a patent infringement action brought against us
by Viskase Corporation. See the section entitled "-- Legal proceedings" below.
EMPLOYEES
At December 31, 1998, we employed approximately 4,735 people. The table
below shows our number of employees by geographic location at December 31, 1996,
1997 and 1998.
<TABLE>
<CAPTION>
YEAR ENDED AT DECEMBER 31,
--------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
The Americas................................................ 3,100 2,843 2,614
Europe...................................................... 1,903 1,898 1,915
Asia........................................................ 227 215 206
----- ----- -----
Total..................................................... 5,230 4,956 4,735
===== ===== =====
</TABLE>
In the Americas, 66% of our employees were members of labor unions as of
year-end 1998, primarily the United Steel Workers' Association and the
International Association of Machinists. In Europe, membership of our employees
in labor unions varies from country to country, and a number of countries
prohibit us from keeping records of union membership. However, we estimate that
union membership among our employees in Europe is approximately 40%. We have
entered into various collective bargaining agreements in both the United States
and Europe. In most continental European countries, collective bargaining
agreements are imposed by law on the entire industry. We are not aware of any
material arrangements whose expiry is pending and which are not expected to be
satisfactorily renewed or replaced in a timely manner. Our labor relations
environment has been stable, no significant work stoppage has occurred since
1996, and we believe relations with our employees are good.
LEGAL PROCEEDINGS
In December 1993, Viskase Corporation, a subsidiary of Envirodyne
Industries, Inc., brought a patent infringement action against American National
Can Company in the U.S. District Court for the Northern District of Illinois.
Viskase alleged that we infringed its patents relating to the manufacture of
heat shrinkable bags for meat and poultry.
In November 1996, following a trial, the jury awarded Viskase $102 million
in damages and found willful infringement on our part. At December 31, 1996, we
recorded a provision in the amount of the jury's award plus estimated costs, in
addition to a $3 million reserve previously recorded. Under applicable law, the
jury's damage award may be reduced if the court finds the amount excessive, or
increased by up to a multiple of three, depending on the court's assessment of
the willful nature of the infringement. The parties filed various post-trial
motions and, among them, Viskase filed motions seeking prejudgment interest and
attorneys' fees.
On September 29, 1997, the judge ordered a new trial as to the alleged
infringement by our Affinity(TM)-containing products and on the amount of
damages. Viskase then filed a motion for summary judgment concerning the
Affinity(TM)-containing products. In August 1998, the court granted summary
judgment to Viskase on the Affinity(TM)-containing products. Viskase then filed
a motion for reinstatement of the $102 million damage award. On May 10, 1999,
the court granted reinstatement of the jury's damage award, and set a ruling
date of July 2, 1999 for Viskase's request for treble damages. Pechiney Plastic
Packaging has agreed to indemnify us on an after-tax basis for any payments we
may be required to make
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<PAGE> 65
with respect to the proceedings. Pechiney has agreed to guarantee this
obligation of Pechiney Plastic Packaging.
In addition, we have requested the U.S. Patent and Trademark Office (known
as the "PTO") to re-examine the claims of two of the patents that Viskase
alleged ANC infringed. In March 1999, a PTO Examiner issued an Office Action
that re-examined and rejected claims of one of the two patents, but the Office
Action is not final. Concerning the second patent, the PTO has also issued an
Office Action rejecting the Viskase claims, but the PTO recently granted
Viskase's petition to change the inventorship of the patent. Additional
proceedings are ongoing.
Because these legal proceedings relate to plastic packaging operations that
have been transferred to Pechiney Plastics Packaging as part of the
reorganization, Pechiney Plastics Packaging has agreed to reimburse us on an
after-tax basis for any payments we may make with respect to this litigation.
Pechiney has agreed to guarantee this obligation of Pechiney Plastics Packaging.
In any event, on the basis of the current facts and circumstances, we do not
believe that the provisions we made in 1996 based on the jury's damages award
require amendment.
Pechiney has received a notice of patent infringement for a number of
patents owned by the Lemelson Medical, Education & Research Foundation, Limited
Partnership. The notice of patent infringement may cover Pechiney's
subsidiaries, including our company. Lemelson has offered to grant us a license
to use the patents they claim we infringed. We do not expect this matter to have
a material effect on our business or financial condition.
We are involved on a regular basis in various claims and lawsuits
incidental to the ordinary course of our business. Except for the Viskase
proceedings, we are not involved in any legal or arbitration proceedings,
including environmental proceedings, which we expect could materially harm our
business, financial condition or results of operations, either individually or
in the aggregate.
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<PAGE> 66
MANAGEMENT AND CERTAIN SECURITY HOLDERS
DIRECTORS AND EXECUTIVE OFFICERS
The table below shows the names and ages of the members of our board of
directors and executive officers as of the date of this offering, and their
current positions.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jean-Pierre Rodier....................... 52 Chairman of the Board and Chief Executive
Officer
Edward A. Lapekas........................ 56 President, Chief Operating Officer and
Director
Christel Bories.......................... 35 Director
Frank W. Considine....................... 77 Director
Ronald J. Gidwitz........................ 54 Director
George D. Kennedy........................ 73 Director
Homer J. Livingston, Jr.................. 63 Director
Roland H. Meyer, Jr...................... 71 Director
James J. O'Connor........................ 62 Director
Alain Pasquier........................... 50 Director
Jean-Dominique Senard.................... 45 Director
James R. Thompson........................ 63 Director
Jack H. Turner........................... 64 Director
Curtis J. Clawson........................ 39 Executive Vice President and President --
Beverage Cans Americas
Michael D. Herdman....................... 49 Executive Vice President and President --
Beverage Cans Europe and Asia
Alan H. Schumacher....................... 52 Executive Vice President and Chief
Financial Officer
Dennis R. Bankowski...................... 52 Executive Vice President --
Administration and Chief Human Resources
Officer
</TABLE>
DIRECTORS
The following individuals have agreed to serve as directors of our company.
They were elected on April 14, 1999 and will hold office until the annual
meeting of our stockholders in the year 2000, 2001 or 2002, depending upon the
director class in which they serve following the offering.
JEAN-PIERRE RODIER will serve as Chairman of the Board and Chief Executive
Officer until the completion of the offering, at which time he will resign from
these positions and be replaced by Mr. Edward Lapekas. Since 1994, Mr. Rodier
has served as Chairman and Chief Executive Officer of Pechiney, formerly our
parent company. Prior to this offering, he served as Chairman of the Board and
Chief Executive Officer of American National Can Company. Before joining
Pechiney in 1994, Mr. Rodier served as Chairman and Chief Executive Officer of
Penarroya and Managing Director of Penarroya's parent company, Imetal. He has
also held the positions of Chairman of the Executive Board for Metaleurop France
and head of Union Miniere, the Belgian affiliate of Groupe Suez.
EDWARD A. LAPEKAS is President and Chief Operating Officer and has served
as Senior Executive Vice President and Chief Operating Officer -- Beverage Cans
Worldwide of American National Can Company since November 1996. He joined
American National Can Company in June 1996 as Senior Vice President -- Beverage
Cans Americas. Prior to joining American National Can Company, Mr. Lapekas
served as Vice
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Chairman of Schmalbach-Lubeca A.G. from July 1991 through June 1996. Prior to
that time, he held senior management positions throughout the world with
Continental Can Company from 1968 through 1991.
CHRISTEL BORIES has been Senior Executive Vice President, Chief Operating
Officer, Plastic Packaging of Pechiney since January 1999 and also served in a
similar position at American National Can Company. From April 1995 through
December 1998, she was Senior Executive Vice President, Strategy and Control of
Pechiney. From 1993 until March 1995, she was employed at Union Miniere as
Director Strategy and Control and member of the Direction Committee. Prior to
that time she was a consultant with Corporate Value Associates.
FRANK W. CONSIDINE was Chairman of the Board of American National Can
Company from 1983 to 1990, Honorary Chairman and Chairman of the Executive
Committee from 1990 to present, President from 1969 to 1988, and Chief Executive
Officer from 1973 to 1988. Mr. Considine is also a director of SEI Information
Technology and Scotsman Industries, Inc. and Chairman of the Board of Trustees
of Loyola University, Chicago, Vice President of the Lyric Opera of Chicago, and
a member of the Executive Committee of the Museum of Sciences and Industry,
Chicago, and the Board of Trustees of the Field Museum of Natural History,
Chicago.
RONALD J. GIDWITZ is a partner in GCG Partners, a private investment firm,
a position he has held since 1998. He previously served as President and Chief
Executive Officer of Helene Curtis Industries, Inc. from 1979 to 1998. He is
also a director of Continental Materials Corporation, Prairie Packaging
Corporation and SEI Consulting. Mr. Gidwitz is also a member of the Board of
Governors of Boys and Girls Clubs of America, the board of directors of Lyric
Opera of Chicago, the Field Museum of Natural History, the Museum of Sciences
and Industry, and the Board of Trustees of Rush-Presbyterian Medical Center.
GEORGE D. KENNEDY was Chairman and a director of Mallinckrodt Group Inc., a
producer of medical products and chemicals, from 1991 until his retirement in
October, 1994. He was Chairman and Chief Executive Officer of Mallinckrodt Group
Inc. from 1986 to 1991. Mr. Kennedy is also a director of the Kemper National
Insurance Companies and Scotsman Industries, Inc.
HOMER J. LIVINGSTON, JR. served as President and Chief Executive Officer
of the Chicago Stock Exchange in Chicago, Illinois from November 1992 until his
retirement in May 1995. From 1988 through 1992, Mr. Livingston was Chairman of
the Board and Chief Executive Officer of Livingston Financial Group. He has also
held the positions of Executive Vice President of First National Bank of
Chicago, Partner at Lehman Bros., Partner at William Blair & Co., President and
Chief Executive Officer of LaSalle National Bank and Trustee of Southern Pacific
Railroad. Mr. Livingston is also a director of EVEREN Capital Corporation and
Peoples Energy Corporation.
ROLAND H. MEYER, JR. served as President and Chief Operating Officer of
American National Can Company from 1989, and Chief Operating Officer from 1988,
until his retirement in 1992. Mr. Meyer joined American National Can Company in
1972 and from that time held various management positions in the Metal Container
Division including Manager -- Manufacturing, Vice President -- Operations, and
Vice Chairman -- Operations. Mr. Meyer is also a director of Uniroyal Technology
Corporation and Vice Chairman of First Commercial Bank of Tampa.
JAMES J. O'CONNOR is the retired Chairman and Chief Executive Officer of
Commonwealth Edison Company and Unicom Corporation, a holding company, where he
served from June 1994 until March 1998, and of Edison Company, an electric
utility, where he served from 1980 to March 1998. He is also a Director of
Corning Incorporated, EVEREN Capital Corporation, Scotsman Industries Inc.,
Smurfit-Stone Container Corporation, Tribune Company and UAL Corporation.
ALAIN PASQUIER has held various senior corporate management positions
within Pechiney's finance department since 1993. He currently serves as Senior
Vice President -- Corporate Finance of Pechiney, a position he has held since
1997. He is also a director of Impress Metal Packaging Holdings B.V. and Paribas
Capital Markets Ltd.
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JEAN-DOMINIQUE SENARD is Senior Executive Vice President and Chief
Financial Officer, and member of the Executive Committee of Pechiney since
October 1996. Prior to joining Pechiney in 1996, Mr. Senard was employed by the
French company Saint-Gobain as Director of Treasury and Financing from 1987
through 1994 and from 1995 until 1996 as Financial Director of Saint-Gobain's
General Delegation for Germany and Central Europe and member of the Management
Committee of Vegla GmbH. He commenced his career at Total where he served as
financial controller and later financial risk manager within the treasury group.
JAMES R. THOMPSON was Governor of Illinois during the period 1977 through
1991. Since January 1991, Mr. Thompson has been a partner in, and Chairman of
the Executive Committee of, Winston & Strawn, a Chicago, Illinois law firm, and
since January 1993, he has been Chairman of the firm. Mr. Thompson is also a
director of FMC Corporation, Prime Retail, Inc., Hollinger International, Inc.,
Jefferson Smurfit Group, Metzler Group, Prime Group Realty Trust and Union
Pacific Resources. He also serves as a Public Governor of the Chicago Board of
Trade and is the Chairman of the Public Review Board of the Hotel and Restaurant
Employees International Union. He is Chairman of the Board of Trustees of the
Illinois Mathematics and Science Academy Foundation, and serves as a trustee of
the Chicago Historical Society, Lyric Opera of Chicago, Museum of Contemporary
Art, the Art Institute of Chicago and the Economic Club of Chicago.
JACK H. TURNER served as President of American National Can Company and
Chief Operating Officer from 1992 until his retirement in 1995. From September
1989 through June 1992, he was Executive Vice President and Chief Operating
Officer of the beverage worldwide business. Mr. Turner joined American National
Can Company in February 1969 and has held numerous financial and operations
positions.
EXECUTIVE OFFICERS
In addition to Mr. Rodier and Mr. Lapekas, who are also Directors, the
following persons are executive officers of ANC. The executive officers were
appointed on April 14, 1999 and will hold office until the first annual meeting
of our stockholders following the offering.
CURTIS J. CLAWSON is Executive Vice President and President -- Beverage
Cans Americas. He joined American National Can Company in June 1998 as Senior
Vice President -- Beverage Cans Americas. From 1995 through 1997, he was an
employee of Allied Signal, Incorporated. From 1995 through 1996, his position
was President Filters and Spark Plugs, and in 1997 his position was President
Laminates. Prior to his employment with Allied Signal, he was an employee of
Arvin Industries, Incorporated. He held the positions of General Manager in
1994, Vice President in 1993 and Sales Manager in 1992.
MICHAEL D. HERDMAN is Executive Vice President and President -- Beverage
Cans Europe and Asia. Since 1991, Mr. Herdman has held the position of Senior
Vice President -- Beverage Cans Europe. In January 1997, he also assumed
responsibility for the beverage can business in Asia. Since joining American
National Can Company in 1972, Mr. Herdman's prior positions have included
Managing Director of Nacanco Ltd, Vice President of Business Development, Vice
President and General Manager -- Plastics, Managing Director -- Iberica, and
other sales and manufacturing management positions.
ALAN H. SCHUMACHER is Executive Vice President and Chief Financial Officer.
He has held this position in American National Can Company since July 1997. From
January 1988 through June 1997, he held the positions of Vice President,
Controller and Chief Accounting Officer. Positions held at American National Can
Company prior to 1988 include Assistant Corporate Controller, and Manager
Corporate Accounting. Prior to joining American National Can Company, Mr.
Schumacher was employed in the audit function of Price Waterhouse and Company.
DENNIS R. BANKOWSKI is Executive Vice President -- Administration and Chief
Human Resources Officer. He joined American National Can Company in 1991 as
Senior Vice President -- Human Resources. In January 1997, he was named Senior
Vice President -- Corporate Services. Before joining American National Can
Company, Mr. Bankowski was employed by BP America, a subsidiary of British
Petroleum, from 1981 through 1990 where he served in the positions of Director
of Compensation, Director of Organizational Development and Vice President of
Human Resources.
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BOARD OF DIRECTORS, DIRECTORS' COMPENSATION AND COMMITTEES OF THE BOARD
The company's board of directors consists of 13 members. Directors are
elected to serve until the expiration date of their terms as determined by their
respective classes, and until their successors are elected and qualified.
Officers of the company are elected or appointed by, and serve at the discretion
of, the board of directors.
As of the date of this offering, the board of directors is divided into
three staggered classes. The initial board will consist of the following:
- four Class I directors: Madame Bories and Messrs. Meyer, Pasquier and
Turner
- four Class II directors: Messrs. Considine, Kennedy, Livingston and
Senard
- five Class III directors: Messrs. Gidwitz, Lapekas, O'Connor, Rodier and
Thompson.
At each annual meeting of stockholders, a class of directors will be
elected for a three-year term to succeed the directors of the same class whose
terms are then expiring. The terms of the Class I directors, Class II directors
and Class III directors will expire upon the election and qualification of
successor directors at the annual meeting of stockholders to be held during
calendar years 2000, 2001 and 2002, respectively.
Each officer serves at the discretion of the board of directors and holds
office until his or her successor is elected and qualified or until his or her
earlier resignation or removal. There are no family relationships among any of
our directors or executive officers.
COMPENSATION OF DIRECTORS
Directors who are officers or employees of the company do not receive
compensation other than reimbursement for out-of-pocket expenses incurred by
them in connection with their travel to and attendance at meetings of the board
of directors or its committees.
In addition to the reimbursement of expenses, directors of our company who
are not officers or employees receive an annual cash retainer of $25,000 and an
annual grant of non-transferable stock with a fair market value of $15,000.
These shares cannot be sold or transferred until retirement from the board of
directors. The non-employee directors will also receive an annual stock option
grant with a Black-Scholes value equal to $30,000. The options will be granted
at the fair market value, will become exercisable immediately, and will have a
ten-year term. In addition, non-employee directors who chair any committee of
the board will receive a fee of $3,000 per year for each committee they chair.
Directors can elect to defer the receipt of their annual cash retainers and
chairman fees until retirement from the board of directors. Until distribution
of the deferred amounts following retirement, the deferred amounts will earn
interest based on mutual funds selected by the director from a company listing
of mutual funds approved for the deferral plan. The company provides each
non-employee director with $250,000 of accidental death and dismemberment
insurance coverage on a 24-hour basis for any period a non-employee director is
travelling on company business.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has established an audit committee, a compensation
committee and an executive committee. The functions of each of these committees
are described below.
The audit committee is responsible for reviewing the propriety and accuracy
of our consolidated financial statements. The audit committee is also
responsible for:
- reviewing the internal accounting controls and annual consolidated
financial statements
- reviewing the scope of the independent certified public accountants'
audit, their report and their recommendations
- considering the possible effect on the independence of the accountants in
approving non-audit services requested of them
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- recommending the action to be taken with respect to the appointment of
the independent certified public accountants.
James J. O'Connor is chairman of the audit committee, and the other members
are Homer J. Livingston, Jr. and Jean-Dominique Senard.
The compensation committee is responsible for:
- approving the compensation of all elected officers
- reviewing, advising and making recommendations with respect to elected
officer compensation plans, their benefits and standards and taking all
related actions that are not reserved for the board
- administering our annual incentive plan and the other salary,
compensation or benefit plans that it is designated to administer.
George D. Kennedy is chairman of the compensation committee. The other
members are Frank W. Considine, Ronald J. Gidwitz and Jean-Pierre Rodier.
During intervals between meetings of the board, the executive committee has
and exercises all the powers and authority of the board in the management of our
business and affairs, except as specifically limited in our by-laws. Frank W.
Considine is chairman of the executive committee. The other members are Edward
A. Lapekas and Jean-Pierre Rodier.
EXECUTIVE COMPENSATION
The following table shows information concerning the compensation paid for
services rendered in all capacities to American National Can Company and its
subsidiaries for the fiscal year ended December 31, 1998, for the individual
serving as Chief Executive Officer and the other four most highly compensated
executive officers, based on their employment by American National Can Company
or an affiliate of American National Can Company at December 31, 1998. The
compensation described in this table was paid by American National Can Company,
or an affiliate of American National Can Company.
The positions reflected in the table are the positions to be held by the
named executive officers with the company following the offering and were not
the positions held by the named executive officers during 1998, the period
covered by the table. Compensation reflected in the table for 1998 was paid by
American National Can Company to the named executive officers in the following
capacities:
- Mr. Lapekas, Senior Executive Vice President and Chief Operating Officer
-- Beverage Cans Worldwide
- Mr. Herdman, Senior Vice President -- Beverage Cans Europe and Asia
- Mr. Schumacher, Senior Vice President and Chief Financial Officer
- Mr. Bankowski, Senior Vice President -- Corporate Services.
Mr. Curtis J. Clawson, who is not listed here, joined American National Can
Company in June 1998. The pro-rata salary paid to Mr. Clawson for his seven
months of employment in 1998 was $ . A bonus of $ was paid
reflecting 1998 financial and individual performance. If Mr. Clawson had been
employed for the full fiscal year, his level of compensation would qualify him
as a named executive officer.
References to stock options relate to awards of Pechiney Options under the
Pechiney Stock Option Plan. This plan grants options to purchase Pechiney stock
on the Paris stock exchange. References to stock appreciation rights or SARs
relate to awards of Pechiney Stock Appreciation Rights under the American
National Can Company Long-Term Incentive Plan. SARs reflect the appreciation of
Pechiney American Depositary Shares as traded on the New York Stock Exchange.
The American Depositary Shares trade at a ratio of 2:1 to the Pechiney French
shares.
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<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
---------------------------------------------------------------------------------
ANNUAL COMPENSATION 1998 LONG-TERM COMPENSATION PAYOUTS
----------------------------------- -------------------------------------------
LONG-TERM
OTHER ANNUAL STOCK INCENTIVE
NAME AND SALARY BONUS COMPENSATION OPTIONS/SARS PLAN PAYOUTS ALL OTHER
PRINCIPAL POSITION(2) ($) ($) ($) (#)(1) ($) COMPENSATION
- --------------------- --------- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jean-Pierre Rodier................... $ $ $ 0 0/0 $ $ 0
Chairman and Chief Executive Officer
Edward A. Lapekas.................... $ $ $ 0 0/0 $ 0 $8,075.53(2)
President and Chief Operating Officer
Michael D. Herdman................... $ $ $ 0 0/0 $ 0 $8,075.53(2)
Executive Vice President and
President -- Beverage Cans Europe and
Asia
Alan H. Schumacher................... $ $ $ 0 0/0 $ 0 $8,075.53(2)
Executive Vice President and
Chief Financial Officer
Dennis R. Bankowski.................. $ $ $ 0 0/0 $ 0 $8,075.53(2)
Executive Vice President --
Administration and Chief Human
Resources Officer
</TABLE>
(1) All these options and stock appreciation rights will be converted to the
Company's restricted stock at the date of the offering. The method used to
convert the options or stock appreciation rights is described in the section
entitled "Stock Compensation Conversion Plan" below.
(2) Amounts contributed or accrued for fiscal year 1998 for the named executive
officers under the American National Can Company Capital Accumulation Plan
for Salaried Employees.
Effective on the date of this offering, the annual salaries of Messrs.
Rodier, Lapekas, Herdman, Schumacher and Bankowski will be $ ,
$ , $ , and $ , respectively.
GRANTS OF OPTIONS AND STOCK APPRECIATION RIGHTS
The table below shows information concerning grants of stock appreciation
rights made to the named executive officers during the fiscal year ended
December 31, 1998. They received no stock options in our company in 1998.
PECHINEY STOCK APPRECIATION RIGHTS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL POTENTIAL REALIZABLE
UNDERLYING SARS VALUE AT ASSUMED ANNUAL
SARS GRANTED TO EXERCISE OR RATES OF STOCK PRICE
GRANTED EMPLOYEES IN BASE PRICE MARKET PRICE EXPIRATION APPRECIATION FOR
NAME (#)(1) FISCAL YEAR(2) ($/SHARE) AT GRANT DATE SAR TERM ($)(3)
- ---- ------------ -------------- ----------- ------------ ---------- --------------------------
5% 10%
<S> <C> <C> <C> <C> <C> <C> <C>
Jean-Pierre Rodier.........
Edward A. Lapekas.......... $16.16 $16.16 11/25/02
Michael D. Herdman......... $16.16 $16.16 11/25/02
Alan H. Schumacher......... $16.16 $16.16 11/25/02
Dennis R. Bankowski........ $16.16 $16.16 11/25/02
</TABLE>
- ------------------
(1) All SARs granted to the named executive officers in 1998 were granted on
November 25, 1998 and become exercisable over two years.
(2) 850,000 SARs were granted to American National Can Company employees in
1998.
(3) The 5% and 10% rates of appreciation were set by the Securities and Exchange
Commission and are not intended to forecast future appreciation, if any, of
Pechiney capital stock. If Pechiney's capital stock does not increase in
value, then the SAR grants described in this table will be valueless.
As set forth in the Stock Compensation Conversion Plan, any Pechiney Option
granted since June 26, 1996, or SAR granted since September 16, 1997, and held
by an employee of our company at the time of the
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<PAGE> 72
offering, will be converted into restricted shares of the company. The terms,
vesting schedules, and method of conversion are described in the section
entitled "Stock Compensation Conversion Plan" below.
1999 EXTRAORDINARY SAR GRANT
On February 10, 1999 a grant of SARs was approved for selected executives
of American National Can Company. The grant, which was not made under the annual
long-term incentive plan, was named the Extraordinary Grant.
This grant was intended to increase the competitiveness of the long-term
incentive plan and was recommended after a review by an independent consulting
firm of the nature and competitiveness of long-term incentives in the United
States. American National Can Company recognized that the long-term incentive
targets for its executives had been set conservatively in recent years, while
competitive U.S. long-term incentive targets had increased rapidly during that
same time period. It also recognized that the opportunity for share price
appreciation with respect to SARs previously granted was limited since the SARs
granted under its plans had a term of three to four years. This term is shorter
than traditional stock options, which often have ten-year terms.
The Extraordinary Grant allowed executives to exchange some or all of their
outstanding SARs from the June 26, 1996 grant for Extraordinary SARs with a new
vesting and exercise schedule, a new grant price and a new four-year term.
As a result of this program, 118,700 of the 164,800 outstanding 1996 SARs
held by our executives have been exchanged. Some executives who have outstanding
1996 SARs were not selected to participate in the Extraordinary Grant. These
executives can retain their 1996 SARs and may exercise them until they expire on
June 26, 1999.
The Extraordinary SARs outstanding on the date of the offering will be
converted to restricted shares in the Company in accordance with the Stock
Compensation Conversion Plan described below.
STOCK COMPENSATION CONVERSION PLAN
Prior to the offering, our executives participated annually in a long-term
incentive plan. The plan granted them either options to purchase Pechiney
capital stock traded on the Paris stock exchange or SARs which provided them
with the opportunity to receive cash awards equal to the appreciation in
Pechiney American Depositary Shares traded on the New York Stock Exchange, or
both. At the time of the offering, we will convert the outstanding Pechiney
options granted since June 26, 1996 and the outstanding SARs granted since
September 16, 1997 to restricted shares in our company.
Additional outstanding SARs granted as part of the long-term incentive plan
on June 26, 1996 that were not exchanged in connection with the Extraordinary
Grant will not be converted under the Stock Compensation Conversion Plan and, if
unexercised, will expire on June 26, 1999.
The options and SARs were valued when originally granted using the
Black-Scholes methodology, a calculation that computes the present value of
stock options and SARs. Each executive with outstanding options or SARs will
receive a grant of restricted shares with an approximate Black-Scholes value
equal to the Black-Scholes value of their outstanding options and SARs. Due to
the lack of historical information about the trading and performance of our
stock, a true Black-Scholes value can only be approximated at the time of this
offering.
The vesting and exercise schedules of the restricted shares will
approximate those of the original grants.
Following the grant of restricted shares in our company, it is expected
that all Pechiney stock options granted since June 26, 1996 and all SARs granted
since September 16, 1997 to our employees will be canceled.
Non-employee directors who served on the board of directors for our prior
company earned a retirement benefit as part of their compensation. For those
same directors now serving on our company's board, the
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<PAGE> 73
present value of their accrued retirement benefit will be converted to
non-transferable shares of our company stock at the time of the offering.
OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning option and SAR
exercises with respect to Pechiney capital stock by the named executive officers
during the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
AGGREGATED PECHINEY OPTION NUMBER OF SECURITIES
STOCK APPRECIATION RIGHT UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
EXERCISES IN LAST FISCAL YEAR OPTION/SARS IN-THE-MONEY OPTION/SARS
-------------------------------- AT FISCAL YEAR END AT FISCAL YEAR-END
SHARES ACQUIRED --------------------------- ---------------------------
NAME ON EXERCISE (#) VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jean-Pierre Rodier(1)...... 0 FF 0/ 0/0 0/0 FF 0/ FF 0/
$0 $0 $0
Edward A. Lapekas.......... 0 FF 0/ $0 0/ 49,250 8,500/ FF 0/ FF 0/
24,250 $0 $0
Michael D. Herdman......... 0 FF 0/ 0/ 12,450 7,500/ FF 0/ FF 0/
$0 8,250 $0 $0
Alan H. Schumacher......... 0 FF 0/ 0/ 13,900 4,000/ FF 0/ FF 0/
$0 10,500 $0 $0
Dennis R. Bankowski........ 0 FF 0/ 0/ 5,000/ FF 0/ FF 0/
$0 31,050 13,050 $0 $0
</TABLE>
- ------------------
(1) Mr. Rodier has not been awarded any stock options or stock appreciation
rights in respect of services performed as an executive officer of ANC.
If the offering is completed all of these options and SARs will be canceled
and the holders will be granted restricted shares of the Company in accordance
with the provisions of the Stock Compensation Conversion Plan described above.
The closing price of Pechiney capital stock on December 30, 1998, its last
trading day prior to Pechiney's fiscal year end, was FF 182.50 per share on the
Paris stock exchange. The closing price of American Depositary Shares on
December 31, 1998, their last trading day prior to Pechiney's fiscal year end,
was $16.125 per American Depositary Share on the New York Stock Exchange.
RETIREMENT BENEFITS
Many of our salaried employees have been participants in the American
National Can Company Pension Plan for Salaried Employees. At or prior to the
consummation of the offering, we intend to adopt a salaried employees pension
plan and a pension equalization plan on terms substantially similar to the prior
plans.
Under the prior plan, when an executive retires at the normal retirement
age of 65, the approximate annual benefits payable for the following earnings
classifications and years of service are included in the table below. The
benefits reflect a reduction to recognize, in part, the cost of Social Security
benefits related to service for the company. The plans also provide for the
payment of benefits to an employee's surviving spouse.
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------------
REMUNERATION 10 YEARS 20 YEARS 30 YEARS 40 YEARS
- ------------ -------- -------- -------- ----------
<S> <C> <C> <C> <C>
$ 250,000 $ 35,029 $ 70,057 $107,495 $ 138,745
500,000 72,529 145,057 219,995 282,495
750,000 110,029 220,057 332,495 426,245
1,000,000 147,529 295,057 444,995 569,995
1,250,000 185,029 370,057 557,495 713,745
1,500,000 222,529 445,057 669,995 857,495
1,750,000 260,029 520,057 782,495 1,001,245
2,000,000 297,529 595,057 894,995 1,144,995
</TABLE>
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<PAGE> 74
Covered compensation includes salary and annual bonus. The calculation of
retirement benefits under the plans generally is based upon average earnings for
the highest five consecutive years of service. The years of credited service as
of January 1, 1999 for the named executive officers are as follows: 2 years for
Mr. Lapekas, 26 years for Mr. Herdman, 21 years for Mr. Schumacher and 8 years
for Mr. Bankowski. By contractual agreement, Mr. Rodier does not participate in
our retirement benefits.
Sections 401(a)(17) and 415 of the Internal Revenue Code limit the annual
benefits which may be paid from a tax-qualified retirement plan. As permitted by
the Employee Retirement Income Security Act of 1974, American National Can
Company, our prior company, had established and we will establish supplemental
plans which authorize the payment out of their respective general funds of any
benefits calculated under provisions of the applicable retirement plan which may
be above the limits under these sections.
NEW STOCK-BASED AND INCENTIVE PLANS OF ANC
THE LONG-TERM INCENTIVE PLAN
Generally. Our long-term incentive plan has been approved by the board of
directors. The plan provides for the grant of various types of long-term
incentive awards to key employees. These awards may include non-qualified
options to purchase shares of our common stock, performance units, incentive
stock options, stock appreciation rights, restricted stock grants and cash
awards. The term of the plan is five years. The plan will also be submitted to
our stockholders for approval at the annual meeting of stockholders in 2000.
This stockholder approval is required for purposes of Section 162(m) of the
Internal Revenue Code in order to ensure favorable tax treatment of amounts paid
under the plan after the first regularly scheduled meeting of stockholders that
occurs more than 12 months after the date of the offering. The plan is designed
to align the interests of executives with those of the stockholders through the
use of stock-based compensation. The plan presents executives and key employees
a significant long-term interest in our company's success and is designed to
assist in the retention of these key employees.
Administration. The plan vests broad powers in the compensation committee
of the board of directors to administer and interpret the plan. The committee's
powers include authority to select persons to be granted awards, to determine
terms and conditions of awards, including the type, size and term of awards, to
determine the time when awards will be granted and any conditions for receiving
awards, to establish objectives and conditions for earning awards, and to
determine whether these conditions have been met. The committee also has
authority to determine whether payment of an award will be made at the end of an
award period, or at the time of exercise, or deferred, and to determine whether
payment of an award should be reduced or eliminated. The plan grants powers to
the compensation committee to amend and terminate the plan.
In order to meet the requirements of Section 162(m) of the Internal Revenue
Code and the rules under Section 16 of the Securities Exchange Act of 1934, all
grants under the plan will be made by a grant committee consisting of those
members of the compensation committee who are both "outside directors" as
defined for purposes of Section 162(m) of the Internal Revenue Code and its
regulations and "non employee directors" as defined for purposes of Section 16
of the Securities Exchange Act.
Participation. The persons to whom grants are made under the plan will be
selected from time to time by the grant committee, based on recommendations by
the President and Chief Executive Officer, from among corporate officers and
other key employees of our company and its subsidiaries and affiliates. The
grant committee may also grant awards to employees of a joint venture or other
business in which we have a substantial investment, and may make awards to
non-executive employees who are in a position to contribute to the Company's
success.
Shares Subject to the Long-Term Incentive Plan. The plan authorizes the
issuance or transfer of an aggregate of 7 million shares of our common stock,
provided that the total number of shares as to which grants may be made under
the plan in any one fiscal year beginning in the year following the date of this
offering may not exceed 2.0% of the total outstanding and treasury shares of the
company.
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<PAGE> 75
STOCK OPTION GRANTS AS OF THE OFFERING
As of the offering, the compensation committee of the board of directors
has approved and will make the following stock option grants to the named
executive officers. This initial grant will replace future stock option grants
scheduled to be made under the long-term incentive plan in fiscal years 1999,
2000 and 2001.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE
UNDERLYING OPTIONS EXERCISE APPRECIATION FOR
OPTIONS GRANTED TO OR BASE OPTION TERM
GRANTED EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME (#)(1) FISCAL YEAR ($/SHARE)(2) DATE(1) 5%(3) 10%(3)
- ---- ---------- ------------ ------------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jean-Pierre Rodier......... TBD TBD $ $
Edward A. Lapekas.......... TBD TBD
Michael D. Herdman......... TBD TBD
Alan H. Schumacher......... TBD TBD
Dennis R. Bankowski........ TBD TBD
</TABLE>
- ------------------
(1) These options will be granted as of the date the offering is completed and
consist of non-qualified stock options. These options will become
exercisable over a five-year period at a rate of 20% per year. All of these
options expire ten years after the offering date.
(2) Based on an assumed public offering price of $ per share, the midpoint of
the range shown on the cover page of this prospectus.
(3) The 5% and 10% rates of appreciation were set by the Securities and Exchange
Commission and are not intended to forecast future appreciation, if any, of
our common stock. If our common stock does not increase in value, then the
option grants described in the table will be valueless.
ANC INCENTIVE COMPENSATION PLAN
Generally. The compensation committee intends to approve a new annual
incentive plan scheduled to be implemented in January 2000. The annual incentive
plan will also be submitted to the stockholders for approval at the annual
meeting of stockholders in 2000. This stockholder approval is necessary for
purposes of Section 162(m) of the Internal Revenue Code in order to ensure
favorable tax treatment of amounts paid under the annual incentive plan after
the first regularly scheduled meeting of stockholders that occurs more than 12
months after the date of this offering. The purposes of the annual incentive
plan are to provide a reward and an incentive to employees in managerial, staff
or technical capacities who have contributed in the then-current fiscal year
and, in the future, are likely to contribute to the success of our company. It
also serves to enhance our company's ability to attract and retain outstanding
employees to serve in such capacities.
The annual incentive plan rewards for performance against demanding
individual objectives and specific value management measures. These include
total shareholder return, total business return and cash flow return on
investment. Total shareholder return, equal to capital gains plus dividend
yield, will be measured relative to the Standard & Poor's 500 and/or a peer
group to determine that value has been created at a sufficient rate by our
management. Total business return measures the internal contributions of our
business units to actual total shareholder return and reflects the change in
estimated market value for each business unit. Cash flow return on investment is
a measure of cash profitability for our business units. Used by fund managers to
evaluate companies, cash flow return on investment measures the cash produced
each year relative to the cash that has been invested in the business.
The awards paid under our annual incentive plan will exceed competitive
levels when performance in these areas exceeds the targets. When performance
does not reach the expected levels, the awards paid to participants will range
from below competitive levels to zero.
Until January 2000, we will continue to utilize the annual incentive plan
of the prior company which measures the achievement of return on capital
employed and demanding individual objectives in the determination of awards for
participants.
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<PAGE> 76
Administration. The annual incentive plan vests broad powers in the
compensation committee to administer and interpret the annual incentive plan.
The compensation committee's powers include authority to select the persons to
be granted awards, to determine the time when awards will be granted, and to
determine and certify whether objectives and conditions for earning awards have
been met. The compensation committee also has authority to determine whether
payment of an award will be made at the end of an award period or deferred, and
to determine whether an award or payment of an award should be reduced or
eliminated. The annual incentive plan grants broad powers to the compensation
committee to amend and terminate the annual incentive plan.
In order to meet the requirements of Section 162(m) of the Internal Revenue
Code and the rules under Section 16 of the Securities Exchange Act, all grants
under the annual incentive plan will be made by a grant committee consisting of
those members of the compensation committee who are both "outside directors" as
defined for purposes of Section 162(m) of the Internal Revenue Code and its
regulations and "non employee directors" as defined for purposes of Section 16
of the Securities Exchange Act.
Eligibility. Any person in the salaried employ of the company during some
part of the fiscal year for which awards are made may be selected for an award
by the compensation committee. Unless also an employee of the company, no member
of the board of directors will be eligible to participate in the annual
incentive plan.
OTHER STOCK OWNERSHIP PROGRAMS
Ownership Guidelines Following the Offering. In order to align closely the
financial interests of our company's key executives with those of our
stockholders, the compensation committee has approved the following minimum
ownership guidelines requiring ownership of shares of our common stock with a
market value equal to the multiple of base salary indicated:
<TABLE>
<CAPTION>
MULTIPLE OF BASE SALARY
-----------------------
<S> <C>
President and Chief Executive Officer....................... 3
Subsidiary Presidents, Executive Vice Presidents and Senior
Vice Presidents........................................... 2
Vice Presidents............................................. 1
</TABLE>
Only shares owned directly, including restricted shares, or through our
savings plan, but not shares subject to unexercised stock options, will be
considered for determining whether an executive meets the ownership guidelines.
The approximately 45 executives who will be subject to the guidelines
immediately following the offering will have a transition period of 5 years
beginning on the offering date within which to meet the guidelines. Other
executives who become subject to the guidelines after the offering date will
also have a transition period of 5 years within which to meet the guidelines.
Executives who fail to meet the minimum ownership requirements will be
ineligible to participate in future long-term incentive stock option or
restricted share grants.
Founders Grant. The board of directors has approved and we will make a
one-time grant to every full-time employee of options to purchase 100 shares of
our common stock. These options will have an exercise price equal to the
offering price, and will vest 30 percent two years following the grant date, 30
percent three years following the grant date, and 40 percent four years
following the grant date. The options will be exercisable ten years after the
date of the grant.
Employee Stock Purchase Plan. The compensation committee has approved the
implementation of an employee stock purchase plan, which will give all qualified
full and part-time employees worldwide the opportunity to purchase shares of
stock in the company at a discount from the fair market price. The employee
stock purchase plan will be presented for stockholder approval at the first
regularly scheduled meeting of our stockholders following the offering.
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<PAGE> 77
EMPLOYMENT CONTRACTS, TERMINATION AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The company entered into individual agreements with Edward Lapekas, Curtis
Clawson, Michael Herdman, Alan Schumacher and Dennis Bankowski. Each agreement
is effective for an indefinite term. If the company terminates an executive for
any reason other than for cause, defined as serious misconduct, gross
negligence, willful disobedience or commission of a crime involving fraud or
moral turpitude, or if the executive voluntarily resigns for any of the reasons
indicated below, the agreements provide for continuation of compensation and
specific benefits for a period of time following termination, enhanced pension
benefits and, in the case of termination following a change of control, the
payment of an amount equal to the excise tax which may be allocable to any
payment or benefit paid as a result of Section 4999 of the Internal Revenue Code
or any similar tax that may be imposed.
Each executive may voluntarily resign for the following reasons and receive
the pay and benefits provided for in their agreement: material reduction in
status, duties or responsibilities; reduction in the executive's annual targeted
compensation opportunity, defined as the sum of base salary, targeted annual
incentive award and targeted long-term incentive award; relocation to a location
more than 50 miles from their current offices without their prior consent
following a change of control; the failure of the company to pay any amount due
under the agreement; the failure of the company to obtain an agreement from any
successor company to expressly assume the executive agreement; or material
breach of the agreement by the company.
The length of the period during which the executives will continue to
receive their salary, targeted bonuses and accrue pension benefits is equal to
24 months or, in the case of Edward Lapekas following a change of control, 36
months. The length of the continuation period for an executive's inclusion in
medical, dental and life insurance benefit programs is until age 55, at which
time they would become eligible for similar programs under the retiree plans of
the company.
The enhanced pension benefit is calculated as if the executive had reached
the greater of his actual age or age 60, while still employed by the company,
and as if he had service of 30 years or his actual service including the 24- or
36-month period of continuation, whichever is greater.
The agreements also provide that if the executive resigns or retires from
our company for any reason after reaching age 60, for which he does not qualify
to receive pay and benefits during a continuation period, he will be entitled to
an enhanced pension benefit equal to his actual service or 30 years, whichever
is greater.
Our prior company has also entered into an individual agreement with
Jean-Pierre Rodier. The agreement provides that the prior company will pay an
annual base salary and bonus to Mr. Rodier in respect of services performed for
the prior company. If Mr. Rodier's employment is terminated by the prior company
for reasons other than cause, he is entitled to payment of any unpaid annual
salary earned or accrued but not paid through the termination date, and any
unpaid incentive award for the year prior to termination. He is entitled to a
severance payment if he is terminated from all members of the Pechiney Group
companies and provided that the Pechiney board of directors authorizes the
severance payment. The amount of the severance payment shall be determined by
the board of directors at the time of termination, but can not exceed two times
his rate of annual base salary in effect at the time of termination. Cause is
defined as his commission of any act or omission that would constitute gross
misconduct under the labor laws of France with respect to his employment with
the company or any other Pechiney Group company or his conviction of, guilty
plea or indictment for, a felony or a fraud against the company or any other
Pechiney Group company.
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<PAGE> 78
PRINCIPAL STOCKHOLDERS
The following table sets forth the number of shares of our common stock
which we expect the following to own, directly or indirectly, following the
offering:
- Pechiney
- each director
- each named executive officer
- all of the above, as a group.
This information reflects all of the shares they beneficially own,
including shares which they have the right to acquire, for example through the
exercise of stock options, conversions of securities or trust arrangements,
within the meaning of Rule 13d-3(d)(1) under the Securities Exchange Act.
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------
NAME SHARES PERCENT OF CLASS(1)
- ---- -------- --------------------
<S> <C> <C>
Pechiney
7, Place du Chancelier Adenauer
75218 Paris Cedex 16, France..............................
Jean-Pierre Rodier..........................................
Christel Bories.............................................
Frank W. Considine..........................................
Ronald J. Gidwitz...........................................
George D. Kennedy...........................................
Homer J. Livingston, Jr.....................................
Roland H. Meyer, Jr.........................................
James J. O'Connor...........................................
Alain Pasquier..............................................
Jean-Dominique Senard.......................................
James R. Thompson...........................................
Jack H. Turner..............................................
Edward A. Lapekas...........................................
Michael D. Herdman..........................................
Alan H. Schumacher..........................................
Dennis R. Bankowski.........................................
All of the above and other executive officers as a group (7
persons)..................................................
</TABLE>
- ---------------
(1) The shares owned and the shares included in the number of shares outstanding
have been adjusted in accordance with Rule 13d-3(d)(1) under the Securities
Exchange Act. The percentage of shares owned, where it exceeds 0.1%, has
also been computed in accordance with Rule 13d-3(d)(1) under the Securities
Exchange Act.
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<PAGE> 79
DESCRIPTION OF CAPITAL STOCK
As of the date of this offering, the authorized capital stock of the
Company consists of 1,000,000,000 shares of common stock, $0.01 par value per
share, and 25,000,000 shares of preferred stock, $0.01 par value per share. As
at , 1999, there were outstanding shares of common stock and
options to purchase an aggregate of shares of common stock.
In this section, we summarize the material provisions of our certificate of
incorporation and by-laws, included as exhibits to the registration statement
which contains this prospectus. Please refer to these exhibits for additional
details.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the common stock entitled to vote
in any election of directors may elect all of the directors standing for
election. Holders of common stock are entitled to receive proportionately any
dividends declared by the board of directors, subject to any preferential
dividend rights of outstanding preferred stock, if any. In the event of
liquidation, dissolution or winding up, the holders of common stock are entitled
to receive ratably our net assets available after the payment of all debts and
other liabilities and subject to the prior rights of any outstanding preferred
stock, if any. Holders of common stock have no preemptive, subscription,
redemption or conversion rights. Our outstanding shares of common stock are, and
the shares offered by us in this offering will be, when issued and paid for,
fully paid and non-assessable. The rights, preferences and privileges of holders
of common stock are subject to the rights of the holders of shares of any series
of preferred stock which we may designate and issue in the future.
PREFERRED STOCK
Under the terms of the certificate of incorporation, the board of directors
is authorized to issue shares of preferred stock in one or more series without
stockholder approval. The board has discretion to determine the number of
shares, rights, preferences, privileges and restrictions, including voting
rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences of each series of shares of preferred stock.
The purpose of authorizing the board of directors to issue stock and
determine its rights and preferences is to eliminate delays associated with a
stockholder vote on specific issuances. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could make it more difficult for a third party to
acquire, or could discourage a third party from acquiring, a majority of our
outstanding voting stock. We do not presently have plans to issue any shares of
preferred stock.
DELAWARE LAW AND PROVISIONS OF OUR CHARTER AND BY-LAWS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the person becomes an interested stockholder, unless
the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to specified
exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock.
The by-laws divide the board of directors into three classes with staggered
three-year terms. See "Management and Certain Security Holders." The directors
are removable only for cause upon the affirmative vote of the holders of at
least a majority of the voting power of all outstanding shares then entitled to
vote at an election of directors. Under the by-laws, any vacancy on the board of
directors, including a vacancy
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<PAGE> 80
resulting from an enlargement of the board of directors, may only be filled by
vote of a majority of the directors then in office.
Section 203 of the Delaware General Corporation Law and our staggered board
provisions could make it more difficult for a third party to acquire, or
discourage a third party from making a tender offer for our common stock or
otherwise seeking to acquire, control of our company.
The certificate of incorporation and by-laws also provide that stockholders
may take action only at an annual meeting or special meeting, and not by written
action in lieu of a meeting. The by-laws further provide that only the Chairman
of the Board, the President or the board of directors may call a special meeting
of the stockholders.
A stockholder must comply with advance notice and information disclosure
requirements in order for any matter to be considered "properly brought" before
a meeting. The stockholder must deliver written notice to us between 60 and 90
days prior to the meeting. If we give less than 70 days' notice or prior public
disclosure of the meeting date, the stockholder must deliver written notice to
us within 10 days following the date on which the notice of the meeting was
mailed or the public disclosure was made, whichever occurs first. If the matter
relates to the election of our directors, the notice must set forth specific
information regarding each nominee and the nominating shareholder. For any other
matter, the notice must set forth a brief description of the proposed
stockholder and specified information regarding the proponent stockholder. These
provisions could delay until the next stockholders meeting stockholder actions
which are favored by the holders of a majority of our outstanding voting
securities. These provisions could also discourage a third party from making a
tender offer for our common stock, because even if it acquired a majority of our
outstanding voting securities, the third party would be able to take action as a
stockholder only at a duly called stockholders' meeting and not by written
consent.
The certificate of incorporation contains provisions permitted under the
Delaware General Corporation Law relating to the liability of directors. The
provisions permit us to limit or eliminate a director's liability for monetary
damages for a breach of fiduciary duty as a director, except in circumstances
involving wrongful acts, such as the breach of a director's duty of loyalty or
acts or omissions which involve intentional misconduct or a knowing violation of
law. Further, the certificate of incorporation and the by-laws contain
provisions to indemnify our directors and officers to the fullest extent
permitted by the Delaware General Corporation Law. We believe these provisions
will assist in attracting and retaining qualified individuals to serve as
directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is .
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<PAGE> 81
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our shares. After
completion of this offering we will have shares of our common stock
outstanding. If the underwriters exercise their overallotment option in full, we
will have a total of shares of our common stock outstanding. Of these
shares, the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act of 1933, as
amended. However, any shares held by our "affiliates," as that term is defined
in Rule 144 under the Securities Act, may generally only be sold in compliance
with the limitations of Rule 144, unless those shares have been registered for
sale under the Securities Act.
SALES OF SHARES
All of our shares offered by this prospectus will be freely tradable in the
open market. The remaining shares of common stock owned by Pechiney that will be
outstanding after this offering will be subject to the resale limitations of
Rule 144 under the Securities Act, since Pechiney is an affiliate. Rule 144
defines an affiliate as a person that directly or indirectly, through one or
more intermediaries, controls or is controlled by, or is under common control
with, the issuer. As such, Pechiney's ability to sell its shares is limited
unless we register them for sale under the Securities Act. Under the
registration rights agreement with Pechiney, we have agreed to register
Pechiney's remaining shares for sale under the Securities Act if Pechiney wishes
to sell its shares in the future. See "Relationship with Pechiney -- Agreements
with Pechiney." Pechiney is not under any contractual obligation to retain our
common stock, except during the -day "lock-up" period described in the
section entitled "Underwriting" of this prospectus.
If Pechiney does not request us to register shares held by it, as an
affiliate it may only sell shares pursuant to Rule 144, subject to the
limitations described below or pursuant to another exemption from registration.
In general, a stockholder subject to Rule 144 who has owned common stock of
an issuer for at least one year may, within any three-month period, and subject
to requirements regarding the manner of sale and notice, sell up to the greater
of:
- 1% of the total number of shares of common stock then outstanding; and
- the average weekly trading volume of the common stock during the four
weeks preceding the stockholder's required notice of sale.
Rule 144 requires stockholders to aggregate their sales with other
affiliated stockholders for purposes of complying with this volume limitation. A
stockholder who has owned common stock for at least two years, and who has not
been an affiliate of the issuer for at least three months, may sell common stock
free from the volume limitation, manner of sale and notice requirements of Rule
144.
We cannot estimate the number of shares of our common stock that Pechiney
or other third parties may sell in the future because any sales will depend on
market prices, the circumstances of sellers and other factors.
OPTIONS
After this offering, an aggregate of shares of our common stock
may be issued under our Long-Term Incentive Plan and our Stock Option Plan. We
may choose to file Form S-8 registration statements, under which the shares
issued upon the exercise of stock options or under the plan will be eligible for
resale in the public market without restriction, subject to Rule 144 limitations
for affiliates if applicable.
EFFECT OF SALES OF SHARES
Before this offering, there was no public market for our shares. We cannot
predict the effect, if any, that future sales of our shares or the availability
of our shares for sale would have on the prevailing market price of our shares.
Nevertheless, if we or Pechiney sell substantial amounts of our common stock,
the trading price of our shares may fall. The possibility that we or Pechiney
may sell substantial amounts of shares may also cause the trading price of our
share to fall.
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<PAGE> 82
UNITED STATES TAX CONSEQUENCES TO
NON-U.S. HOLDERS OF COMMON STOCK
GENERAL
The following is a general discussion of the principal U.S. Federal income
and estate tax consequences of the ownership and disposition of our common stock
that may be relevant to you if you are a non-U.S. Holder. For purposes of this
discussion, a non-U.S. holder is a beneficial owner of common stock that is any
of the following for U.S. Federal income tax purposes:
- a nonresident alien individual
- a foreign corporation
- a nonresident alien fiduciary of a foreign estate or trust
- a foreign partnership one or more of the members of which is, for U.S.
Federal income tax purposes, a nonresident alien individual, a foreign
corporation or a nonresident alien fiduciary of a foreign estate or
trust.
This discussion does not address all aspects of U.S. federal income and
estate taxation that may be relevant to you in light of your particular
circumstances, and does not address any foreign, state or local tax
consequences. Furthermore, this discussion is based on provisions of the
Internal Revenue Code, Treasury regulations and administrative and judicial
interpretations as of the date of this prospectus. All of these are subject to
change, possibly with retroactive effect, or different interpretations. If you
are considering buying common stock you should consult your own tax advisor
about current and possible future tax consequences of holding and disposing of
common stock in your particular situation.
DISTRIBUTIONS
If distributions are paid on the shares of our common stock, these
distributions generally will constitute dividends for U.S. federal income tax
purposes to the extent paid from our current or accumulated earnings and
profits, as determined under U.S. federal income tax principles, and then will
constitute a return of capital that is applied against your basis in the common
stock to the extent these distributions exceed those earnings and profits.
Dividends paid to a non-U.S. holder that are not effectively connected with a
U.S. trade or business of the non-U.S. holder will be subject to United States
withholding tax at a 30% rate or, if a tax treaty applies, a lower rate
specified by the treaty. To receive a reduced treaty rate, a non-U.S. holder
must furnish to us or our paying agent a duly completed Form 1001 or Form W-8BEN
or substitute form certifying to its qualification for the reduced rate.
Currently, withholding is generally imposed on the gross amount of a
distribution, regardless of whether we have sufficient earnings and profits to
cause the distribution to be a dividend for U.S. federal income tax purposes.
However, withholding on distributions made after December 31, 2000 may be on a
less than the gross amount of the distribution if the distribution exceeds a
reasonable estimate made by us of our accumulated and current earnings and
profits.
Dividends that are effectively connected with the conduct of a trade or
business within the U.S. and, if a tax treaty applies, are attributable to a
U.S. permanent establishment of the non-U.S. holder, are exempt from U.S.
federal withholding tax, provided that the non-U.S. holder furnishes to us or
our paying agent a duly completed Form 4224 or Form W-8ECI or substitute form
certifying the exemption. However, dividends exempt from U.S. withholding
because they are effectively connected or they are attributable to a U.S.
permanent establishment are subject to U.S. federal income tax on a net income
basis at the regular graduated U.S. federal income tax rates. Any such
effectively connected dividends received by a foreign corporation may, under
certain circumstances, be subject to an additional "branch profits tax" at a 30%
rate or a lower rate specified by an applicable income tax treaty.
Under current U.S. Treasury regulations, dividends paid before January 1,
2001 to an address outside the United States are presumed to be paid to a
resident of the country of address for purposes of the withholding
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<PAGE> 83
discussed above and for purposes of determining and applicability of a tax
treaty rate. However, U.S. Treasury regulations applicable to dividends paid
after December 31, 1999 eliminate this presumption, subject to transition rules
and a non-U.S. holder who wishes to claim the benefit of an applicable treaty
rate, and avoid back-up withholding, as discussed below, would be required to
satisfy applicable certification and other requirements.
For dividends paid after December 31, 2000, a non-U.S. holder generally
will be subject to U.S. backup withholding tax at a 31% rate under the backup
withholding rules described below, rather than at a 30% rate or a reduced rate
under an income tax treaty, as described above, unless the non-U.S. holder
complies with Internal Revenue Service certification procedures or, in the case
of payments made outside the U.S. with respect to an offshore account,
documentary evidence procedures. Further, to claim the benefit of a reduced rate
of withholding under a tax treaty for dividends paid after December 31, 2000, a
non-U.S. holder must comply with modified IRS certification requirements.
Special rules also apply to dividend payments made after December 31, 2000 to
foreign intermediaries, U.S. or foreign wholly owned entities that are
disregarded for U.S. federal income tax purposes and entities that are treated
as fiscally transparent in the U.S., the applicable income tax treaty
jurisdiction, or both. You should consult your own tax advisor concerning the
effect, if any, of the rules affecting post-December 31, 2000 dividends on your
possible investment in common stock.
A non-U.S. holder eligible for a reduced rate of U.S. withholding tax under
an income tax treaty may obtain a refund of any excess amounts withheld by
filing an appropriate claim for refund along with the required information with
the IRS.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax
with respect to gain recognized on a sale or other disposition of our common
stock unless one of the following applies:
- If the gain is effectively connected with a trade or business of the
non-U.S. holder in the United States and, if a tax treaty applies, the
gain is attributable to a U.S. permanent establishment maintained by the
non-U.S. holder. The non-U.S. holder will, unless an applicable treaty
provides otherwise, be taxed on its net gain derived from the sale under
regular graduated U.S. federal income tax rates. If the non-U.S. holder
is a foreign corporation, it may be subject to an additional branch
profits tax equal to 30% of its effectively connected earnings and
profits within the meaning of the Internal Revenue Code for the taxable
year, as adjusted for specified items, unless it qualifies for a lower
rate under an applicable income tax treaty and duly demonstrates that it
qualifies.
- If a non-U.S. holder who is an individual and holds our common stock as
a capital asset is present in the United States for 183 or more days in
the taxable year of the sale or other disposition, and specified other
conditions are met, the non-U.S. holder will be subject to a flat 30%
tax on the gain derived from the sale, which may be offset by certain
U.S. capital losses, despite the fact that the individual is not
considered a resident of the United States.
- If we are or have been a "U.S. real property holding corporation" for
U.S. federal income tax purposes at any time during the shorter of the
five-year period ending on the date of the disposition or the period
during which the non-U.S. holder held the common stock. We believe that
we never have been and are not currently a U.S. real property holding
corporation for U.S. federal income tax purposes. Although we consider
it unlikely based on our current business plans and operations, we may
become a U.S. real property holding corporation in the future. Even if
we were to become a U.S. real property holding corporation, any gain
recognized by a non-U.S. holder still would not be subject to U.S. tax
if the shares were considered to be "regularly traded on an established
securities market" and the non-U.S. holder did not own, actually or
constructively, at any time during the shorter of the periods described
above, more than five percent of our common stock.
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FEDERAL ESTATE TAX
Common stock owned by an individual who is not a citizen or resident, as
defined for U.S. estate tax purposes, of the United States at the time of death
will be included in that individual's gross estate for U.S. federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under U.S. Treasury regulations, we must report annually to the IRS and to
each non-U.S. holder the amount of dividends paid to that holder and the tax
withheld with respect to those dividends. These information reporting
requirements apply even if withholding was not required because the dividends
were effectively connected dividends or withholding was reduced or eliminated by
an applicable income tax treaty. Pursuant to an applicable tax treaty, that
information may also be made available to the tax authorities in the country in
which the non-U.S. holder resides.
United States federal backup withholding generally is a withholding tax
imposed at the rate of 31% on specified payments to persons that fail to furnish
required information under the U.S. information reporting requirements. See the
discussion under "Distributions" above for rules regarding backup withholding on
dividends paid to non-U.S. holders, after December 31, 1999.
As a general matter, information reporting and backup withholding will not
apply to a payment by or through a foreign office of a foreign broker of the
proceeds of a sale of our common stock effected outside the U.S. However,
information reporting requirements, but not backup withholding, will apply to a
payment by or through a foreign office of a broker of the proceeds of a sale of
our common stock effected outside the U.S. if that broker:
- is a U.S. person
- is a foreign person that derives 50% or more of its gross income for
specified periods from the conduct of a trade or business in the U.S.
- is a "controlled foreign corporation" as defined in the Internal Revenue
Code; or
- is a foreign partnership with specified U.S. connections, for payments
made after December 31, 2000.
Information reporting requirements will not apply in the above cases if the
broker has documentary evidence in its records that the beneficial owner is a
non-U.S. holder and specified conditions are met or the beneficial owner
otherwise establishes an exemption.
Payment by or through a U.S. office of a broker of the proceeds of a sale
of our common stock is subject to both backup withholding and information
reporting unless the holder certifies to the payor in the manner required as to
its non-U.S. status under penalties of perjury or otherwise establishes an
exemption.
Amounts withheld under the backup withholding rules do not constitute a
separate U.S. federal income tax. Rather, any amounts withheld under the backup
withholding rules will be refunded or allowed as a credit against the holder's
U.S. federal income tax liability, if any, provided the required information or
appropriate claim for refund is filed with the IRS.
THE FOREGOING DISCUSSION IS A SUMMARY OF THE PRINCIPAL TAX CONSEQUENCES OF
THE OWNERSHIP, SALE OR OTHER DISPOSITION OF OUR COMMON STOCK BY NON-U.S. HOLDERS
FOR U.S. FEDERAL INCOME AND ESTATE TAX PURPOSES. YOU ARE URGED TO CONSULT YOUR
OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO YOU OF
OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK, INCLUDING THE EFFECT OF ANY
STATE, LOCAL, FOREIGN OR OTHER TAX LAWS.
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<PAGE> 85
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, the selling stockholder has agreed to sell to
the underwriters named below, for whom Credit Suisse First Boston Corporation,
and are acting as representatives, the following respective
numbers of ANC's shares:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ----------
<S> <C>
Credit Suisse First Boston Corporation.....................
Deutsche Bank Securities Inc...............................
Goldman, Sachs & Co. ......................................
Lehman Brothers Inc. ......................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Salomon Smith Barney Inc...................................
----------
Total....................................................
==========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
The selling stockholder has granted to the underwriters a 30-day option to
purchase on a pro rata basis up to additional outstanding shares from
the selling stockholder at the initial public offering price, less the
underwriting discounts and commissions. The option may be exercised only to
cover any over-allotments of common stock.
The underwriters propose to offer our shares initially at the public
offering price on the cover page of this prospectus and to selling group members
at that price less a concession of $ per share. The underwriters and selling
group members may allow a discount of $ per share on sales to other broker/
dealers. After the initial public offering, the public offering price and
concession and discount to dealers may be changed by the representatives.
The following table summarizes the compensation and estimated expenses we
and the selling stockholder will pay.
<TABLE>
<CAPTION>
WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT
-------------- --------------
<S> <C> <C>
Expenses payable by us...................................... $ $
Underwriting discounts and commissions paid by selling
stockholder............................................... $ $
Expenses payable by the selling stockholder................. $ $
</TABLE>
Each of the underwriters severally represents and agrees that:
- it has not offered or sold and prior to the date six months after the
date of issue of the common stock will not offer or sell any common stock
to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses
or otherwise in circumstances which have not
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<PAGE> 86
resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations
1995
- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the common stock in, from or otherwise involving the United
Kingdom
- it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issue
of the common stock to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued or passed on.
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We and Pechiney have agreed, subject to specified exceptions, that we and
it will not offer, sell, contract to sell, announce an intention to sell, pledge
or otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any additional shares of our common stock or securities convertible into or
exchangeable or exercisable for any of our common stock without the prior
written consent of Credit Suisse First Boston Corporation for a period of
days after the date of this prospectus. Pechiney has not indicated any intention
to seek written consent for any of these items during the lock-up period.
We and Pechiney have agreed to indemnify the underwriters against
liabilities under the Securities Act, or contribute to payments which the
underwriters may be required to make in that respect.
We have made an application to list our shares of common stock on the New
York Stock Exchange under the symbol "CAN."
In connection with the listing of the common stock on the New York Stock
Exchange, the underwriters will undertake to sell round lots of 100 shares or
more to a minimum of 2,000 beneficial owners.
A number of the U.S. and international underwriters have from time to time
performed, and continue to perform, financial advisory, investment banking and
commercial banking services for us, Pechiney and our respective subsidiaries,
for which customary compensation has been received. A member of the Board of
Directors of Credit Suisse, an affiliate of Credit Suisse First Boston
Corporation, is also a member of the Board of Directors of Pechiney.
The price to the public will be determined by Pechiney and ANC in
consultation with the representatives. Among the factors expected to be
considered in determining the price to the public are:
- prevailing market conditions, particularly market conditions for initial
public offerings and for securities of companies in the metal packaging
industry
- the history of and prospects for ANC's business and for the metal
packaging industry in general
- the past and present operations of ANC
- the past and present earnings and current financial position of ANC
- an assessment of ANC's management
Credit Suisse First Boston Corporation, on behalf of the underwriters, may
engage in over-allotment, stabilizing transactions, syndicate covering
transactions and penalty bids in accordance with Regulation M under the
Securities Exchange Act. Over-allotment involves syndicate sales in excess of
the offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum price. Syndicate covering
transactions involve purchases of the common stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the representatives to reclaim a
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<PAGE> 87
selling concession from a syndicate member when the common stock originally sold
by that syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions. These stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the common stock
to be higher than it would otherwise be in the absence of these transactions.
These transactions may be effected on the New York Stock Exchange or otherwise
and, if commenced, may be discontinued at any time.
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<PAGE> 88
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the shares in Canada is being made only on a private
placement basis exempt from the requirement that ANC and Pechiney prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of shares are effected. Accordingly, any resale of the shares in
Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
shares.
REPRESENTATIONS OF PURCHASERS
Each purchaser of shares in Canada who receives a purchase confirmation
will be deemed to represent to ANC and Pechiney and the dealer from whom such
purchase confirmation is received that (a) such purchaser is entitled under
applicable provincial securities laws to purchase such shares without the
benefit of a prospectus qualified under such securities laws, (b) where required
by law, such purchaser is purchasing as principal and not as an agent, and (c)
such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by the
Ontario Securities Laws. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of ANC's directors and officers as well as the experts named herein and
Pechiney may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada upon
the issuer or such persons. All or a substantial portion of the assets of ANC,
Pechiney and such persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against ANC, Pechiney or such persons
in Canada or to enforce a judgment obtained in Canadian courts against ANC,
Pechiney or such persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of shares to whom the Securities Act (British Columbia) applies
is advised that such purchaser is required to file with the British Columbia
Securities Commission a report within ten days of the sale of any shares
acquired by such purchaser pursuant to this offering. Such report must be in the
form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from ANC. Only one such report must be
filed in respect of shares acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of shares should consult their own legal and tax
advisers with respect to the tax consequences of an investment in the shares in
their particular circumstances and with respect to the eligibility of the shares
for investment by the purchaser under relevant Canadian legislation.
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<PAGE> 89
ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission. This prospectus, which is a part of the registration
statement, does not contain all of the information included in the registration
statement. For all of the information, you should refer to the registration
statement and its exhibits. You may review a copy of the registration statement,
including exhibits, at the SEC's public reference room at Judiciary Plaza, 450
Fifth Street, N.W., Washington D.C. 20549 or Seven World Trade Center, 13th
Floor, New York, New York 10048 or Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of the public reference rooms.
As a result of the offering of shares in the United States, we will become
subject to the reporting requirement of the Securities Exchange Act, and
therefore, we will also file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information on file at the public reference rooms.
You can also request copies of these documents, for a copying fee, by writing to
the SEC.
Our SEC filings and the registration statement can also be reviewed by
accessing the SEC's Internet site at http:/www.sec.gov, which contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC.
Our shares will be traded on the New York Stock Exchange and reports and
other information concerning our company will be available for inspection at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
LEGAL MATTERS
The validity of our shares offered hereby will be passed upon for us and
the selling stockholder by Shearman & Sterling, Paris, France and for the
underwriters by Cleary, Gottlieb, Steen & Hamilton, New York, New York.
EXPERTS
The Combined Financial Statements as of December 31, 1997 and 1998 and for
each of the three years in the period ended December 31, 1998 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
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<PAGE> 90
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Report of Independent Accountants........................... F-2
Combined Statements of Income for the years ended December
31, 1998, 1997 and 1996 and the three-month periods ended
March 31, 1999 and 1998................................... F-3
Combined Balance Sheets at December 31, 1998 and 1997 and
March 31, 1999; Pro Forma Balance Sheet at March 31,
1999...................................................... F-4
Combined Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 and the three-month
period ended March 31, 1999............................... F-5
Combined Statements of Changes in Owner's Equity for the
years ended December 31, 1998, 1997 and 1996 and the
three-month period ended March 31, 1999................... F-7
Notes to the Combined Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 91
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of American National Can Group, Inc.
In our opinion, the combined financial statements listed in the Index to
Combined Financial Statements appearing on Page F-1 of this prospectus present
fairly, in all material respects, the financial position of American National
Can Group, Inc. and combined companies ("ANC") at December 31, 1997 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of ANC'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 audits 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.
As discussed in Note 1, effective January 1, 1998, ANC adopted AICPA
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities."
PricewaterhouseCoopers LLP
Chicago, Illinois
April 19, 1999
F-2
<PAGE> 92
AMERICAN NATIONAL CAN GROUP, INC.
COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------------ -------------------
NOTES 1996 1997 1998 1998 1999
----- ---------- ---------- ---------- -------- --------
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net sales......................................... $2,520,290 $2,465,018 $2,458,849 $542,558 $530,642
Cost of goods sold (excluding depreciation)....... 2,189,605 2,069,206 1,984,369 447,459 432,268
Selling, general and administrative expense....... 136,427 134,221 138,257 31,580 31,207
Research and development expense.................. 21,652 19,514 15,224 3,652 3,563
Depreciation and amortization..................... 73,958 77,656 82,057 20,327 20,986
Goodwill amortization............................. 41,033 41,035 40,474 10,258 10,201
Restructuring charge (credit) and writedown of
property and equipment.......................... 5,15 158,706 10,924 (2,437) 154 --
---------- ---------- ---------- -------- --------
OPERATING INCOME (LOSS) FROM CONTINUING
OPERATIONS...................................... (101,091) 112,462 200,905 29,128 32,417
Interest expense.................................. 10 95,324 90,433 68,773 19,326 15,318
Interest income and other financial income
(expense), net.................................. 11 4,321 26,880 10,634 1,770 8,156
---------- ---------- ---------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES, EQUITY EARNINGS, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE...... (192,094) 48,909 142,766 11,572 25,255
Income tax expense (benefit)...................... 9 (35,191) 30,027 26,546 4,762 10,774
---------- ---------- ---------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
EQUITY EARNINGS, MINORITY INTEREST AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE.......... (156,903) 18,882 116,220 6,810 14,481
Equity in net earnings (loss) of affiliates....... 6 993 (3,475) 4,465 (1,265) 1,976
Minority interest................................. (7,209) (5,352) (4,997) (580) (470)
---------- ---------- ---------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
CUMULATIVE EFFECT OF ACCOUNTING CHANGE.......... (163,119) 10,055 115,688 4,965 15,987
Income (loss) from discontinued operations, net of
tax expense (benefit) of ($32,454), $8,715,
$13,599, $3,232 and $1,309...................... 2 (60,803) 2,392 527 (901) 1,098
Cumulative effect of accounting change, net of tax
of $1,381....................................... 1 (2,566) (2,566) --
---------- ---------- ---------- -------- --------
NET INCOME (LOSS)................................. $ (223,922) $ 12,447 $ 113,649 $ 1,498 $ 17,085
========== ========== ========== ======== ========
</TABLE>
See notes to the Combined Financial Statements.
F-3
<PAGE> 93
AMERICAN NATIONAL CAN GROUP, INC.
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------- MARCH 31, 1999
NOTES 1997 1998 1999 PRO FORMA
----- ---------- ---------- ---------- ----------
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents................. $ 105,835 $ 170,549 $ 156,912 $ 103,912
Accounts receivable....................... 3 135,549 138,312 173,585 173,585
Other receivables and prepaid expenses.... 36,537 42,232 55,795 55,795
Inventories............................... 4 256,354 236,340 249,281 249,281
Net current assets of discontinued
operations.............................. 2 13,670 46,454 72,685 --
Deferred income taxes..................... 9 119,116 109,713 102,073 102,073
---------- ---------- ---------- ----------
TOTAL CURRENT ASSETS...................... 667,061 743,600 810,331 684,646
Property, plant and equipment, net........ 5,15 845,849 836,064 806,926 806,926
Goodwill, net............................. 1 1,300,471 1,224,348 1,214,041 1,214,041
Investments in equity affiliates.......... 6 98,153 112,541 109,372 109,372
Pension asset............................. 12 194,356 212,531 214,343 214,343
Net noncurrent assets of discontinued
operations.............................. 2 511,787 536,397 524,236 --
Deferred income taxes..................... 9 202,057 193,168 208,577 184,421
Other long-term assets.................... 71,685 68,568 77,539 86,539
---------- ---------- ---------- ----------
TOTAL ASSETS.............................. $3,891,419 $3,927,217 $3,965,365 $3,300,288
========== ========== ========== ==========
LIABILITIES AND OWNER'S EQUITY:
CURRENT LIABILITIES
Accounts payable -- trade................. $ 250,733 $ 241,215 $ 235,332 $ 235,332
Other payables and accrued liabilities.... 13 416,830 342,509 340,963 340,963
Current portion of long-term debt......... 7,8 7,403 6,704 6,200 1,616
Short-term financing:..................... 7
External................................ 24,435 20,258 54,657 454,657
Related party........................... 738,563 659,783 719,816 --
---------- ---------- ---------- ----------
TOTAL CURRENT LIABILITIES................. 1,437,964 1,270,469 1,356,968 1,032,568
Deferred income taxes..................... 9 53,089 59,900 55,959 55,959
Postretirement benefit obligations........ 12 308,847 309,004 307,646 307,646
Other long-term liabilities............... 14 225,020 169,828 173,505 173,505
Long-term debt:........................... 7,8
External................................ 318,198 259,921 239,856 662,591
Related party........................... 571,591 291,277 287,204 --
---------- ---------- ---------- ----------
TOTAL LIABILITIES......................... 2,914,709 2,360,399 2,421,138 2,232,269
---------- ---------- ---------- ----------
Minority interests........................ 29,042 28,530 24,221 24,221
Commitments and contingencies............. 18
Owner's equity............................ 1,031,646 1,603,367 1,610,260 1,127,447
Accumulated other comprehensive loss...... (83,978) (65,079) (90,254) (83,649)
---------- ---------- ---------- ----------
Total equity.............................. 947,668 1,538,288 1,520,006 1,043,798
---------- ---------- ---------- ----------
Total liabilities and equity.............. $3,891,419 $3,927,217 $3,965,365 $3,300,288
========== ========== ========== ==========
</TABLE>
See notes to the Combined Financial Statements.
F-4
<PAGE> 94
AMERICAN NATIONAL CAN GROUP, INC.
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------
1996 1997 1998 1998 1999
--------- --------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing
operations before cumulative
effect of accounting change....... $(163,119) $ 10,055 $115,688 $ 4,965 $ 15,987
Minority interests................... 7,209 5,352 4,997 580 470
Equity in net (earnings) loss of
affiliates........................ (993) 3,475 (4,465) 1,265 (1,976)
Depreciation and amortization........ 114,991 118,691 122,531 30,585 31,187
Restructuring charge (credit) and
write down of property, plant and
equipment......................... 158,706 10,924 (2,437) 154 --
Pension expense (income)............. (3,234) (21,768) (40,847) (7,022) (4,131)
Provision (benefit) for deferred
income taxes...................... (38,076) (7,310) 30,691 2,664 1,492
Reduction in income tax reserve...... -- -- (32,206) -- --
Other non-cash (income) expense,
net............................... 17,063 13,060 17,824 (2,125) (1,901)
Changes in assets and liabilities
exclusive of effects from
acquisitions, divestitures and
translation adjustments:
Decrease (increase) in inventories... 81,443 6,434 23,243 (32,539) (21,023)
Decrease (increase) in accounts
receivable........................ 52,756 (45,696) (3,140) (43,223) (42,585)
(Decrease) increase in accounts
payable........................... (95,104) 39,386 (10,958) 15,923 1,775
Other changes in assets and
liabilities....................... 8,767 (3,446) (41,741) (36,424) (3,766)
Restructuring expenditures........... (23,303) (22,553) (12,059) (4,862) (5,149)
Pension funding...................... (119,408) (54,865) (14,610) (3,586) (3,968)
Dividends received from
unconsolidated affiliates......... 6,203 13,493 8,243 -- --
--------- --------- -------- -------- --------
Net cash provided by (used in)
operating activities of continuing
operations........................... 3,901 65,232 160,754 (73,645) (33,588)
Net cash provided by (used in)
operating activities of discontinued
operations........................... 8,451 96,704 24,725 9,486 (1,635)
--------- --------- -------- -------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES................. 12,352 161,936 185,479 (64,159) (35,223)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment......................... (142,387) (71,861) (65,196) (14,331) (14,540)
Proceeds from sales of property,
plant and equipment............... 27,842 8,538 6,998 3,398 --
Acquisition of businesses............ (12,012) -- -- -- --
Other................................ 7,218 6,320 -- -- 29
--------- --------- -------- -------- --------
Net cash used in investing activities
of continuing operations............. (119,339) (57,003) (58,198) (10,933) (14,511)
Net cash provided by (used in)
investing activities of discontinued
operations........................... 40,812 (55,062) (84,758) (25,717) (10,878)
--------- --------- -------- -------- --------
NET CASH USED IN INVESTING
ACTIVITIES........................... (78,527) (112,065) (142,956) (36,650) (25,389)
</TABLE>
See notes to the Combined Financial Statements.
F-5
<PAGE> 95
AMERICAN NATIONAL CAN GROUP, INC.
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------- ---------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Additions to long-term debt....... 120,000 1,037 265,295 31,442 --
Payments on long-term debt........ (32,052) (27,732) (595,951) (585,599) (25,115)
Net increase (decrease) in
short-term financing........... (36,941) 34,284 (95,644) 161,132 87,589
Proceeds from issuance of common
and preferred stock by
subsidiary companies to
Pechiney....................... -- -- 883,100 883,100 --
Capital contributions from
Pechiney....................... 66,000 602 -- --
Dividends paid:
To parent company.............. (12,442) (7,658) (425,028) (417,637) (10,192)
To minority interests in
subsidiaries................. (5,680) (4,016) (5,503) (3,513) (4,776)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities of continuing
operations........................ 98,885 (3,483) 26,269 68,925 47,506
Net cash provided by (used in)
financing activities of
discontinued operations........... (15,172) (3,282) (5,079) (2,002) (2,061)
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES.............. 83,713 (6,765) 21,190 66,923 45,445
Net effect of foreign currency
translation on cash............... (63) (4,133) 1,161 9 1,495
--------- --------- --------- --------- ---------
Net increase in cash and cash
equivalents....................... 17,475 38,973 64,874 (33,877) (13,672)
Change in cash and cash equivalents
of discontinued operations........ (88) 454 (160) (2,344) (896)
--------- --------- --------- --------- ---------
Net increase in cash and cash
equivalents of continuing
operations........................ 17,387 39,427 64,714 (36,221) (14,568)
Cash and cash equivalents at
beginning of year................. 49,021 66,408 105,835 105,835 170,549
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF
YEAR.............................. $ 66,408 $ 105,835 $ 170,549 $ 69,614 $ 155,981
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES
Cash payments during the year for:
Interest.......................... $ 95,380 $ 89,646 $ 67,545
Income taxes...................... 31,883 25,054 41,141
Non-cash transactions:
Forgiveness of debt by Pechiney... 152,000
Contribution by Pechiney of its
minority interest in European
subsidiaries................... 883,100
</TABLE>
See notes to the Combined Financial Statements.
F-6
<PAGE> 96
AMERICAN NATIONAL CAN GROUP, INC.
COMBINED STATEMENT OF CHANGES IN OWNER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
OWNER'S COMPREHENSIVE COMPREHENSIVE
EQUITY INCOME INCOME TOTAL
---------- ------------- ------------- ----------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C> <C>
Balance at January 1, 1996................................ $1,044,619 $(112,247) $ 932,372
Net loss.................................................. (223,922) $(223,922) (223,922)
Changes in accumulated other comprehensive income:
Foreign currency translation adjustment, net of tax of
$1,686................................................ (4,006) (4,006) (4,006)
Minimum pension liability adjustments, net of tax of
$36,706............................................... 57,655 57,655 57,655
---------
Comprehensive income (loss)............................... $(170,273)
=========
Capital contribution from Pechiney relating to Brazilian
subsidiary.............................................. 66,000 66,000
Dividends paid to Pechiney................................ (12,442) (12,442)
--------- ----------
Balance at December 31, 1996.............................. 874,255 (58,598) 815,657
Net income................................................ 12,447 12,447 12,447
Changes in accumulated other comprehensive income:
Foreign currency translation adjustment, net of tax of
($7,496).............................................. (56,353) (56,353) (56,353)
Minimum pension liability adjustment, net of tax of
$18,690............................................... 29,552 29,552 29,552
---------
Comprehensive income (loss)............................... $ (14,354)
=========
Capital contribution from Pechiney relating to forgiveness
of debt ($152,000) and Brazilian subsidiary ($602)...... 152,602 152,602
Dividends paid to Pechiney................................ (7,658) (7,658)
Impact of divestiture..................................... 1,421 1,421
---------- --------- ----------
Balance at December 31, 1997.............................. 1,031,646 (83,978) 947,668
Net income................................................ 113,649 $ 113,649 113,649
Changes in accumulated other comprehensive income:
Foreign currency translation adjustment, net of tax of
$4,263................................................ 29,892 29,892 29,892
Minimum pension liability adjustment, net of tax of
($7,207).............................................. (10,993) (10,993) (10,993)
---------
Comprehensive income...................................... $ 132,548
=========
Contribution by Pechiney of minority interest in European
subsidiaries............................................ 883,100 883,100
Dividends paid to Pechiney................................ (425,028) (425,028)
---------- --------- ----------
Balance at December 31, 1998.............................. 1,603,367 (65,079) 1,538,288
Net income................................................ 17,085 $ 17,085 17,085
Changes in accumulated other comprehensive income:
Foreign currency translation adjustment, net of tax of
$(16,451)............................................. (25,175) (25,175) (25,175)
Minimum pension liability adjustment.................... -- -- --
---------
Comprehensive income...................................... $ 8,090
=========
Dividends paid to Pechiney................................ (10,192) (10,192)
---------- --------- ----------
Balance at March 31, 1999 (unaudited)..................... $1,610,260 $ (90,254) $1,520,006
========== ========= ==========
</TABLE>
Accumulated other comprehensive income items comprise cumulative
translation adjustments of $18,409, $22,415, $77,347, $47,455 and $72,630 and
minimum pension liability adjustments of $93,838, $36,183, $6,631 $17,624 and
$17,624 at January 1, 1996 and December 31, 1996, 1997, and 1998, and March 31,
1999, respectively. Such amounts are net of tax aggregating $71,029, $32,637,
$21,443, $24,387 and $40,838 at those dates, respectively. The net amounts for
minimum pension liability adjustments referred to above include $2,935, $2,673,
$3,469, $4,265 and $4,265 applicable to the discontinued Plastics business.
See notes to the Combined Financial Statements.
F-7
<PAGE> 97
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF U.S. DOLLARS)
NOTE 1 -- BASIS OF PRESENTATION
REPORTING STRUCTURE AND NATURE OF BUSINESS
American National Can Group, Inc. (the "Company"), a newly formed Delaware
company, will become the holding company for the worldwide beverage can business
of Pechiney, a French company, through a series of transactions in a number of
countries (the "Reorganization") to be completed immediately prior to the
initial public offering (the "Offering") by Pechiney of a majority ownership in
the Company. The beverage can business consists of the manufacture and sale of
aluminum and steel beverage cans for the soft drink, beer, fruit drink and tea
markets. Operations of this business have been conducted by (a) Pechiney North
America, Inc. ("PNA") (a wholly owned subsidiary of Pechiney) through its 90%
owned subsidiary (Pechiney owns directly the remaining 10%), American National
Can Company ("ANCC") and ANCC's various European (in which Pechiney has a
minority interest) and Asian subsidiaries and (b) Pechiney through its
subsidiaries in Turkey (65% owned), France (100% owned) and Brazil (100% owned)
and its joint ventures in Mexico (50% interest) and Korea (40% interest).
ANCC also operates a plastics packaging business which consists of the
manufacture and sale of flexible plastics (flexible packaging for the food,
meat, dairy and healthcare markets), plastic bottles (plastic barrier bottles
for food companies) and tubes (plastic and laminated tubes for the
pharmaceutical, cosmetics and toiletries markets).
The Reorganization consists of:
-- The payment of dividends aggregating $111,000 to Pechiney by certain of
Pechiney's European beverage can subsidiaries prior to completion of the
Offering, which will result in a reduction of owner's equity of
$111,000. This is in addition to $10,192 that was paid during the first
quarter of 1999.
-- Transfer by Pechiney of (a) PNA, (b) its minority interests in the ANCC
European subsidiaries and (c) its aforementioned subsidiaries and
investments in joint ventures to ANC, Inc.
-- Transfer by ANCC of the Plastics business along with approximately
$260,000 of related party debt to a newly created wholly owned
subsidiary of ANCC (Pechiney Plastic Packaging, Inc.) and transfer of
the stock in the newly created subsidiary to Pechiney in exchange for
Pechiney's 10% ownership interest in ANCC. No gain/loss related to the
transfer of the Plastics operations will be recognized for financial
reporting purposes. The transfer of the Plastics operations would result
in a reduction of owner's equity of approximately $322,000 as at
December 31, 1998. No gain for income tax purposes is expected to result
from the transfer. However, in conjunction with the Reorganization,
Pechiney Plastic Packaging, Inc. intends to sell technology to another
subsidiary of Pechiney, resulting in a taxable gain currently estimated
to be $65,000. Such gain would result in no cash outlay, but would
reduce the deferred tax asset for net operating loss carryforwards by
$26,000.
Accordingly, the accompanying combined financial statements include the
accounts of PNA, ANCC and the entities to be transferred by Pechiney for the
periods presented. The combined entity is referred to hereinafter as "ANC." The
Plastics operations have been presented as discontinued operations in the
accompanying combined financial statements as they represent a separate segment.
As a consequence, in the combined balance sheets at December 31, 1997 and 1998,
the amounts of the net current and net non-current assets and liabilities of the
Plastics operations have been aggregated and presented as single-line items. In
the combined statement of income for all periods presented, the operating
results of the Plastics business have been presented separately as single-line
items. The combined statement of cash flows sets forth separately the cash flows
of the continuing and discontinued operations for all periods presented.
F-8
<PAGE> 98
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
In February 1998, Pechiney reorganized the ownership of its beverage can
European subsidiaries. As a result of that reorganization, newly created foreign
subsidiaries of ANC, which own all the stock of the European subsidiaries,
issued common and preferred stock to Pechiney for $883,100, representing a 44%
ownership interest in the subsidiaries. The proceeds were lent by ANC to PNA.
PNA utilized the proceeds to repay debt owing to Pechiney ($473,100) and for
payment of a dividend to Pechiney ($410,000). As referred to above, Pechiney
will transfer its minority interest in the European subsidiaries to the Company
and, accordingly, $883,100 was recorded in the combined financial statements as
a contribution to capital. The combined financial statements reflect ANC's 100%
ownership of the European subsidiaries after considering the contribution to
capital.
In February 1996, an Italian subsidiary of ANC acquired the capital stock
of SITAC, an Italian company engaged in the manufacture of beverage can ends.
The purchase price, exclusive of cash acquired, was $12,012. Goodwill of $1,600
was recorded in connection with the transaction.
ACCOUNTING PRINCIPLES
The combined financial statements of ANC are prepared in accordance with
accounting principles generally accepted in the United States of America ("U.S.
GAAP").
NEWLY ISSUED ACCOUNTING PRINCIPLES
- - In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued its Statement of Position 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use". The statement
requires capitalization of external direct costs of materials and services
consumed in the development or obtainment of internal use computer software,
payroll and payroll-related costs for employees who are directly associated
with and who devote time to the internal-use computer software project and
interest costs incurred during the development of the computer software for
internal use. Adoption of this statement will be required in ANC's financial
statements for the year ending December 31, 1999 and is not expected to have
a significant effect.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement requires that all
derivatives be recognized as assets and liabilities and measured at fair
value. Changes in the fair value of derivatives not qualifying as hedges
are required to be reported in earnings. Adoption of the standard will be
required in ANC's financial statements for the year ending December 31,
2001. Management is in the process of evaluating this standard and has not
yet determined the future impact on ANC's combined financial statements.
In April 1998, the AICPA issued its Statement of Position 98-5, "Reporting
on the Costs of Start-up Activities". This statement requires the cost of
start-up activities and organization costs to be expensed as incurred. ANC
adopted this statement effective January 1, 1998 and unamortized costs that
were previously capitalized through that date were written off as a
cumulative effect of an accounting change. This resulted in a charge of
$2,566 (net of taxes of $1,381) to continuing operations and $1,481 (net of
taxes of $971) to discontinued operations.
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of the entities
referred to above under Reporting Structure and Nature of Business. The equity
method of accounting is used for unconsolidated companies in which ANC exercises
significant influence. All significant intercompany transactions and profits
have been eliminated.
F-9
<PAGE> 99
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
REVENUE RECOGNITION
Revenues are recognized when goods are shipped.
TRANSLATION
Asset and liability accounts denominated in non-U.S. currencies are
translated into U.S. dollars at year-end exchange rates, while revenues and
costs are translated at average rates of exchange in effect during the period.
The net effect of translating non-U.S. currencies is recorded as a cumulative
adjustment within accumulated other comprehensive income, net of applicable
income taxes.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost including interest incurred
on funds borrowed during the period that major items are constructed for their
intended use. No interest costs were capitalized during 1996, 1997 and 1998.
Capitalized leases are stated at the present value of future minimum lease
payments. Depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the assets (buildings -- 40 years and
machinery and equipment -- 4 to 25 years).
Whenever events or changes in circumstances indicate that the carrying
amount of long-lived assets may not be recoverable, this carrying amount is
compared with management's best estimates of the future cash flows (undiscounted
and without interest charges) expected to result from the use of the assets and
their eventual disposition. If the sum of expected future cash flows is less
than the carrying amount of the assets, an impairment loss is recognized based
on the fair value of the assets; when a market value is not available, the fair
value is generally estimated as the present value of expected future cash flows.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of
substantially all U.S. inventories, other than spare parts, is determined by the
last-in, first-out (LIFO) method. The cost of substantially all other
inventories is determined by the first-in, first-out (FIFO) method. At December
31, 1997 and 1998, inventories stated at LIFO comprised approximately 30% and
36%, respectively, of combined inventories.
GOODWILL
The difference between the purchase price and the book value of net assets
acquired is allocated to tangible and intangible assets and to assumed
liabilities for which a fair value can be specifically determined. The excess of
the purchase price over the fair value of net assets acquired is allocated to
goodwill. Goodwill is amortized on a straight-line basis over a period not
exceeding 40 years.
Substantially all of the goodwill reflected on the combined balance sheet
arose from the revaluation of the tangible assets and assumed liabilities of ANC
as of the date of its acquisition by Pechiney in 1988. At December 31, 1997 and
1998, accumulated amortization of goodwill aggregated $430,290 and $470,764,
respectively.
The carrying value of goodwill is reviewed regularly to reflect changes
which may have permanently impaired the profitability and the value of the
related assets:
-- the carrying value of goodwill is compared with the fair value of the
corresponding entities, estimated on the basis of management's best
estimates of the market value of these entities or comparable entities,
when available, or using other techniques such as the discounted cash
flow method which is based on management's best estimates of future cash
flows;
F-10
<PAGE> 100
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
-- in addition, goodwill associated with property, plant and equipment is
reviewed for impairment jointly with the property, plant and equipment
with which it is associated.
No writedowns were required in the periods presented as a result of the
evaluations performed under these two methodologies.
During 1998, certain income tax uncertainties related to the 1988
acquisition of ANC by Pechiney were resolved and the related liabilities
established at the acquisition date were reversed resulting in a net $46,122
reduction in goodwill, of which $35,649 was allocated to continuing operations
based on the relationship of goodwill for continuing operations to total
goodwill for continuing and discontinued operations (Note 9).
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
DEFERRED INCOME TAXES
Deferred income taxes are accounted for using the liability method on
temporary differences between the financial statement and tax bases. These
deferred taxes are measured by applying currently enacted tax laws. Valuation
allowances are established on deferred tax assets when management estimates that
it is more likely than not that the related benefit will not be realized.
FINANCIAL INSTRUMENTS
ANC's financial instruments include cash, current accounts and notes
receivable, noncurrent receivables, accounts payable, short-term and long-term
debt, and foreign currency exchange contracts. The market value of cash and
current receivables and payables are considered to be identical to the book
value due to the short-term nature of those instruments. The market value for
noncurrent receivables and short-term and long-term debt, based on current
interest rates available to ANC for similar instruments, approximated their
carrying value at December 31, 1998.
ANC enters into foreign currency exchange contracts, primarily with
Pechiney, as a hedge against firm currency commitments which are primarily for
the purchase of raw materials and the sale of finished goods. ANC's foreign
currency exchange contracts do not subject ANC to significant risk due to
exchange rate movements because gains and losses on these contracts are deferred
and offset against gains and losses on the transactions being hedged. At
December 31, 1997, ANC had forward exchange contracts with maturity dates
through March 1999 to purchase $233,000 and to sell $152,000 of various foreign
currencies. At December 31, 1998, ANC had forward exchange contracts, with
maturity dates through July 2003, to purchase $321,000 and to sell $90,000 of
various foreign currencies. The carrying value of ANC foreign currency exchange
contracts approximate their fair value at December 31, 1997 and 1998.
PREPAID CUSTOMER INCENTIVES
Included in prepaid expenses and other long-term assets are prepaid
customer incentives, representing payments to certain customers in exchange for
entering into long-term sales contracts requiring purchases of guaranteed
minimum quantities. These incentive payments are capitalized upon payment and
amortized over the length of the underlying contract on a straight-line basis.
UNCERTAINTIES RESULTING FROM THE 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
F-11
<PAGE> 101
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates and assumptions.
Estimates and assumptions are particularly significant with respect to
estimating liabilities such as provisions and accruals for litigation or
environmental reserves. They are also significant with respect to assessing the
recoverability of the carrying value of property, plant and equipment,
intangible assets and deferred tax assets, which, to a large extent, is based on
estimates of expected future net income or cash flows. Actual future net income
and cash flows could vary significantly from the estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash and cash equivalents
include all financial instruments with an initial maturity of 90 days or less.
EARNINGS PER SHARE
Basic and diluted earnings per share have been calculated by eliminating
net income (loss) by average shares outstanding after the Offering.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of March 31, 1999 and for each of the three
months ended March 31, 1999 and 1998 is unaudited. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation of results of the interim periods have been made and
such adjustments were of a normal and recurring nature. The results of
operations and cash flows for the three months ended March 31, 1999 are not
necessarily indicative of the results that can be expected for the entire fiscal
year ending December 31, 1999.
F-12
<PAGE> 102
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
NOTE 2 -- DISCONTINUED OPERATIONS
The Plastics business of ANC will be transferred to Pechiney (Note 1).
These operations have been reflected as discontinued operations for all periods
presented in the combined financial statements. The net assets of the
discontinued business at December 31, 1997 and 1998 comprise:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Net current assets
Cash........................................................ $ 1,349 $ 1,509
Accounts receivable, net.................................... 14,273 12,623
Inventories:
Raw materials............................................. 26,203 38,054
Spare parts............................................... 6,410 7,326
Work-in-process........................................... 27,612 25,950
Finished goods............................................ 65,132 64,801
-------- --------
Total inventories........................................... 125,357 136,131
Other receivables and prepaid expenses...................... 12,383 20,261
Deferred income taxes....................................... 10,005 7,682
Accounts payable-trade...................................... (60,651) (48,692)
Postretirement benefit obligations.......................... (29,000) (29,000)
Other payables and accrued liabilities...................... (51,614) (46,320)
Current portion of long-term debt........................... (4,096) (4,388)
Short-term financing -- External............................ (4,336) (3,352)
-------- --------
Net current assets.......................................... $ 13,670 $ 46,454
======== ========
Net noncurrent assets
Property, plant and equipment............................... $408,481 $449,264
Goodwill.................................................... 349,542 327,060
Deferred income taxes....................................... 114,028 118,952
Pension asset............................................... 631 177
Other long-term assets...................................... 55,180 43,781
Post retirement benefit obligations......................... (335,031) (331,797)
Other long-term liabilities................................. (13,182) (7,565)
Long-term debt -- Related party............................. (67,862) (63,475)
-------- --------
Net noncurrent assets....................................... $511,787 $536,397
======== ========
</TABLE>
In December 1995, ANC entered into an agreement with PMC Lease Co., a
related party, for the sale and leaseback of certain Plastics business machinery
and equipment. Based on an independent valuation, the final selling price of
these assets was $79,260, which approximated their book value. PMC Lease Co.
paid ANC $14,631 in 1995 and issued a note receivable for the balance. The note
is repayable in annual installments over 10 years, with the final installment
due in December 2005, and bears interest at 6.1%. The lease has been recorded as
a capital lease. The recorded assets and liabilities related to this agreement
have been included in the net assets of discontinued operations in the combined
balance sheet at December 31, 1997 and 1998.
In December 1996, PNA sold the capital stock of Intsel Southwest, a 100%
owned subsidiary engaged in the metal distributions business, for $61,396 of
cash. The gain on sale of this business, together with its net income from 1996
operations, has been presented as a discontinued operation in the combined
statement of income for 1996. Net sales of Intsel Southwest for 1996 were
$99,015.
F-13
<PAGE> 103
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
Cash flows from investing activities of discontinued operations for 1996
include proceeds from sales of businesses of $97,462, comprising $61,396
pertaining to the sale of Intsel Southwest by PNA and $35,526 in final
settlement of ANC's selling price of its Food Metal & Specialty business unit
and its Glass business unit. These ANC business units have been accounted for as
discontinued operations since June 30, 1995.
In December 1996, Pechiney authorized the sale of ANC's 51% interest in an
Italian subsidiary engaged in the manufacture of food cans and a provision for
loss of $6,300 related to income taxes was recorded. The sale was completed in
1997 and proceeds were $3,239, net of $13,000 of subsidiary cash. An additional
loss of $100 was recorded in 1997.
In December 1996, the plastics business recorded a restructuring charge of
$32,412. The 1996 charge resulted from Project Challenge initiatives and
comprised the cost to close the Mt. Vernon, OH plant, sever an additional 89
employees primarily in plants other than Mt. Vernon, and to writedown equipment
in other plants to fair value. Costs to close the Mt. Vernon plant include fixed
asset impairments to reduce fixed assets to estimated fair values, severance
costs for 222 employees, and other plant closing costs such as asset dismantling
costs. The plant was closed during the fourth quarter of 1998. Remaining
restructuring reserves included in the liabilities of the discontinued business
were $12,163 and $6,751 at December 31, 1997 and 1998, respectively. Management
believes that the remaining reserve at December 31, 1998 will be substantially
utilized in 1999.
The activity in the restructuring reserve for the plastics business was as
follows:
<TABLE>
<CAPTION>
UTILIZED
12/31/95 NET -------------------- 12/31/96
BEGINNING CHARGE TO CREDIT TO CHARGE CASH ENDING
BALANCE INCOME INCOME (CREDIT) PAYMENTS NON-CASH BALANCE
--------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Employee termination
and severance
programs........... 875 6,199 6,199 (1,269) 5,805
Facility costs....... 284 2,000 2,000 (141) 2,143
Equipment dismantle
and disposal
costs.............. 2,202 3,370 3,370 (379) 5,193
Non-cash asset write-
downs.............. 20,843 20,843 (20,843)
------ ------ ----- ------ ------ -------- ------
3,361 32,412 32,412 (1,789) (20,843) 13,141
====== ====== ===== ====== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
UTILIZED
12/31/96 NET -------------------- 12/31/97
BEGINNING CHARGE TO CREDIT TO CHARGE CASH ENDING
BALANCE INCOME INCOME (CREDIT) PAYMENTS NON-CASH BALANCE
--------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Employee termination
and severance
programs........... 5,805 (244) (141) 5,420
Facility costs....... 2,143 (168) 1,975
Equipment dismantle
and disposal
costs.............. 5,193 (425) 4,768
Non-cash asset write-
downs..............
------ ------ ----- ------ ------ -------- ------
13,141 (837) (141) 12,163
====== ====== ===== ====== ====== ======== ======
</TABLE>
F-14
<PAGE> 104
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
UTILIZED
12/31/97 NET -------------------- 12/31/98
BEGINNING CHARGE TO CREDIT TO CHARGE CASH ENDING
BALANCE INCOME INCOME (CREDIT) PAYMENTS NON-CASH BALANCE
--------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Employee termination
and severance
programs........... 5,420 (700) (700) (977) (1,371) 2,372
Facility costs....... 1,975 (1,765) 210
Equipment dismantle
and disposal
costs.............. 4,768 (599) 4,169
Non-cash asset write-
downs.............. 0 0
------ ------ ----- ------ ------ -------- ------
12,163 0 (700) (700) (3,341) (1,771) 6,751
====== ====== ===== ====== ====== ======== ======
</TABLE>
Income (loss) from discontinued operations as presented in the combined
statement of income comprises:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Plastics business
Income (loss) before income taxes.................... $(130,003) $ 11,107 $ 16,578
(Provision) benefit for income taxes................. 45,315 (8,715) (14,570)
--------- --------- ---------
Income (loss) before cumulative effect of accounting
change............................................ (84,688) 2,392 2,008
Cumulative effect of accounting change, net of tax of
$971 (Note 1)..................................... (1,481)
--------- --------- ---------
Income (loss)........................................ (84,688) 2,392 527
Intsel Southwest
Income before income taxes........................... 13,480
Provision for income taxes........................... 4,718
---------
Income............................................... 8,762
---------
Gain on sale......................................... 23,266
Provision for income taxes........................... 8,143
---------
Net gain............................................. 15,123
---------
23,885
--------- --------- ---------
Income (loss) from discontinued operations............. $ (60,803) $ 2,392 $ 527
========= ========= =========
</TABLE>
Net sales for the Plastics business were $878,080, $846,409 and $827,233
for the years ended December 31, 1996, 1997 and 1998 respectively.
Certain data processing, human resources, payroll, accounting and tax
service functions are centralized. The direct cost of these services is charged
to the Plastics business using varying bases, primarily the number of
transactions processed. The costs for these services are negotiated and agreed
to by the business and the service provider. Selling, general and administrative
expenses included $8,499, $9,683 and $9,698 in 1996, 1997 and 1998,
respectively, for these charges. No amounts have been allocated to the Plastics
business for general corporate overhead.
The loss before income taxes of the Plastics business for 1996 includes a
provision for loss of $103,768 pertaining to the Viskase litigation (Note 18).
F-15
<PAGE> 105
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
NOTE 3 -- ACCOUNTS RECEIVABLE
In June 1997, ANC began selling all of its U.S. receivables (including
those related to its Plastics business) to American National Can Receivables
Corporation ("ANCRC"), a wholly owned nonconsolidated subsidiary of ANC. ANCRC
entered into a Receivables Sale Agreement with a financial institution under
which it is able to sell through October 1999, with limited recourse, an
undivided interest of up to $125,000 in the receivables that it purchases from
ANC. At December 31, 1997 and 1998, ANCRC had sold to the financial institution,
undivided interests of $45,096 and $37,768, respectively, in the receivables
that it purchased from ANC. At December 31, 1997 and 1998, accounts receivable
as shown in the combined balance sheet included $50,266 and $67,704,
respectively, due from ANCRC. ANC has retained the collection responsibility
with respect to the receivables sold to ANCRC.
Before June 1997, ANC had an agreement with a financial institution to sell
U.S. trade accounts receivable, with limited recourse, on a revolving basis.
Under the agreement, the maximum amount of receivables that could be sold at any
point in time was $175,000.
An analysis of the allowances for doubtful current and noncurrent
receivables follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year................................ $ 9,059 $22,486 $24,840
Provision charged to income................................. 12,418 2,774 10,049
Writeoff of uncollectible receivables, net of recoveries.... 507 (249) (2,032)
Other....................................................... 502 (171) 52
------- ------- -------
Balance at end of year...................................... $22,486 $24,840 $32,909
======= ======= =======
</TABLE>
The allowance for doubtful receivables has been determined recognizing that
ANC has retained substantially the same risk of credit loss as if the U.S.
receivables had not been sold.
NOTE 4 -- INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------- -----------
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials............................................ $ 52,408 $ 36,244 $ 43,636
Spare parts.............................................. 51,208 40,065 41,082
Work-in-progress......................................... 4,729 1,974 863
Finished goods........................................... 148,009 158,057 163,700
-------- -------- --------
$256,354 $236,340 $249,281
======== ======== ========
</TABLE>
The LIFO inventory carrying value exceeded its FIFO basis by approximately
$3,506, $6,366 and $7,582 (unaudited) at December 31, 1997 and 1998 and March
31, 1999, respectively.
F-16
<PAGE> 106
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Land........................................................ $ 41,161 $ 40,473
Buildings................................................... 242,510 249,396
Machinery and equipment..................................... 1,031,878 1,110,795
Construction in progress.................................... 55,347 42,965
Less accumulated depreciation............................... (533,361) (614,058)
---------- ----------
837,535 829,571
---------- ----------
Assets under capital leases................................. 22,053 20,471
Less accumulated amortization............................... (13,739) (13,978)
---------- ----------
8,314 6,493
---------- ----------
$ 845,849 $ 836,064
========== ==========
</TABLE>
Assets under capital leases primarily represent buildings, machinery and
equipment.
NOTE 6 -- INVESTMENTS IN EQUITY AFFILIATES
Investments in equity affiliates and ANC's percentage of ownership were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
% OWNED 1997 1998
------- ------- --------
<S> <C> <C> <C>
Hanil Can Company, Ltd. (Korea)............................ 40.0 $22,128 $ 33,712
Valley Metal Container Partnership (Coors)................. 50.0 24,296 24,867
Nippon National Seikan Co., Ltd. (Japan)................... 24.5 25,222 26,957
ANC Receivables Corporation (Note 3)....................... 100.0 14,096 14,289
Vitro-American National Can (Mexico)....................... 50.0 8,953 8,394
Container Recycling Alliance L.P........................... 50.0 3,458 4,322
------- --------
$98,153 $112,541
======= ========
</TABLE>
As a result of applying the purchase method of accounting, the carrying
value of these investments exceeded ANC's proportionate share of underlying
equity at December 31, 1998 by an aggregate of $17,656, which is being amortized
over a forty-year period.
Equity in net earnings of affiliates included in the combined statement of
income aggregated $12,774, $9,569 and $10,950 in the years ended December 31,
1996, 1997 and 1998, respectively. These amounts included earnings from
partnerships which produce and sell packaging products of $11,781, $13,044 and
$6,485 in the years ended December 31, 1996, 1997 and 1998, respectively, which
were recorded as a reduction of cost of goods sold.
Dividends received from equity affiliates aggregated $6,203, $13,493 and
$8,243 for the years ended December 31, 1996, 1997 and 1998, respectively.
Effective March 31, 1999, ANC sold its 50% interest in the Container
Recycling Alliance partnership at a gain of approximately $4,800. The selling
price was $9,000 in cash, plus future payments to ANC based on
F-17
<PAGE> 107
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
the partnership's operating results for the two years ended December 31, 2000.
The agreement specifies that such future payments will not be less than $750 in
the aggregate.
The following table includes financial information relating to ANC's
unconsolidated equity affiliates as of December 31, 1997 and 1998 and for each
of the three years in the period ended December 31, 1998.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Balance Sheet:
Current assets......................................... $288,860 $303,294
Noncurrent assets...................................... 216,964 264,958
Current liabilities.................................... 257,581 259,419
Noncurrent liabilities................................. 76,225 80,309
Statement of Income:
Net revenues........................................... $689,489 $674,090 $602,708
Net income............................................. 32,847 23,915 34,313
</TABLE>
F-18
<PAGE> 108
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
NOTE 7 -- LONG-TERM DEBT
A summary of long-term debt outstanding was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
EXTERNAL:
Note Purchase Agreements of ANC with various insurance
companies:
5.69% Senior Notes due December 2000...................... $ 38,000 $ 38,000
6.33% Senior Notes due December 2003...................... 110,200 110,200
6.46% Senior Notes due December 2005...................... 41,800 41,800
6.64% Senior Notes due December 2008...................... 38,000 38,000
Revolving bank borrowings of ANC, bearing interest based on
spreads over LIBOR, under a credit agreement expiring in
June 2003................................................. 85,000 20,000
Bank borrowings of Brazilian subsidiary due January 2001 at
0.75% over Libor.......................................... -- 9,996
Capital leases.............................................. 2,984 2,294
Other....................................................... 5,034 1,752
-------- --------
321,018 262,042
Less: amounts due within one year........................... (2,820) (2,121)
-------- --------
$318,198 $259,921
======== ========
RELATED PARTY:
Revolving borrowings from Pechiney, bearing interest based
on .675 over Libor under a credit agreement expiring
December 2000............................................. $500,000 $ --
Revolving borrowings from Pechiney, bearing interest based
on .125 over Libor under a credit agreement expiring
January 2001.............................................. -- 200,000
Subordinated notes with Pechiney, bearing interest based on
.625 over Libor, due in annual payments through October
2002...................................................... 50,663 46,079
Other borrowings from Pechiney, bearing interest at a rate
of 10.5% expiring December 2004........................... 20,000 20,000
Deutschmark denominated note with Pechiney bearing interest
based on Fibor plus 0.3%, expiring February 2003.......... -- 23,911
Other....................................................... 5,511 5,870
-------- --------
576,174 295,860
Less: amounts due within one year......................... (4,583) (4,583)
-------- --------
$571,591 $291,277
======== ========
</TABLE>
At December 31, 1998 the maturities of long-term debt during the next five
years, excluding obligations under capital leases, were as follows:
<TABLE>
<S> <C>
1999........................................................ $ 6,078
2000........................................................ 42,829
2001........................................................ 215,225
2002........................................................ 52,570
2003........................................................ 134,315
</TABLE>
During the year ended December 31, 1997, long-term debt owing to Pechiney
of $152,000 was forgiven and recorded as a capital contribution.
F-19
<PAGE> 109
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
The Note Purchase Agreements with various insurance companies, the credit
agreement with banks and the Receivables Sales Agreement (Note 3) contain
various restrictions, among others, on the (a) sale of ANC assets, including
specific restrictions on the amount of receivables to be sold in relation to net
sales, (b) issuance of guarantees and (c) the maintenance of ANC consolidated
net worth.
External lines of credit available to ANC under borrowing arrangements and
the usage thereof at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
TOTAL
AVAILABLE USED UNUSED
--------- ------- --------
<S> <C> <C> <C>
U.S. -- long-term......................................... $500,000 $20,000 $480,000
U.S. -- short-term........................................ 89,000 15,525 73,475
International -- short-term............................... 160,112 4,733 155,379
</TABLE>
The U.S. long-term line is available under the credit agreement expiring in
June 2003. At December 31, 1998, borrowings under this agreement are at an
interest rate of Libor plus .17%. The agreement requires payment of a facility
fee of .08% per annum of the commitment amount (whether used or unused) and a
utilization fee of .05% per annum of average borrowings if such borrowings
exceed 60% of the commitment. ANC maintains lines of credit in the United States
and in a number of foreign countries. Foreign borrowings are generally overdraft
facilities at rates competitive in the countries in which ANC operates.
Generally, each foreign line is available only for borrowings related to
operations of a specific country. U.S. lines are overnight facilities at market
rate. The weighted average interest rate on short-term borrowings outstanding as
of December 31, 1997 and 1998 was approximately 5.9% and 5.6%, respectively.
As the Offering will result in a change in control of ANC, it will give
rise to new financial covenants under the $500 million revolving credit
facility. These covenants will require ANC to maintain a specified EBITDA
interest coverage ratio and a specified debt to equity ratio. The change of
control will also require ANC to make an offer to prepay the $228 million of
notes with insurance companies. ANC is currently negotiating with its existing
lenders with respect to these matters. In addition, Pechiney has indicated that
all the debt financing it provides on an intra-group basis will terminate when
the Offering is complete. Accordingly, the Company has commenced negotiations
with potential new third-party lenders to obtain some or all of the total
funding requirements when the Offering is complete.
F-20
<PAGE> 110
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
NOTE 8 -- LEASES
ANC leases manufacturing, warehouse and office facilities, and equipment.
Future minimum lease payments required under capital leases and operating leases
having initial or remaining noncancelable lease terms in excess of one year are
set forth below. Such future minimum lease payments have not been reduced by
sublease rentals to be received subsequent to December 31, 1998 of $26,275 for
operating leases.
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1999........................................................ $ 826 $ 32,031
2000........................................................ 253 29,772
2001........................................................ 243 27,283
2002........................................................ 242 29,367
2003........................................................ 203 28,428
2004 and beyond............................................. 2,637 114,310
------- --------
Total minimum rentals....................................... 4,404 $261,191
========
Less: amount representing interest.......................... (2,110)
-------
Present value of future minimum payments (Note 7)........... 2,294
Less: current portion....................................... (626)
-------
Long-term obligations under capital leases.................. $ 1,668
=======
</TABLE>
Rental expense under operating leases was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Gross rental expense........................................ $39,443 $40,240 $34,676
Less: sublease rental income................................ (3,031) (3,138) (3,443)
------- ------- -------
$36,412 $37,102 $31,233
======= ======= =======
</TABLE>
Rental expense under operating leases included in the results of
discontinued operations was $8,027, $6,899 and $7,363 for the years ended
December 31, 1996, 1997 and 1998, respectively.
F-21
<PAGE> 111
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
NOTE 9 -- INCOME TAXES
The provision (benefit) for taxes on income (loss) from continuing
operations was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Current income taxes:
United States:
Federal.............................................. $(19,573) $ 2,674 $(40,650)
State................................................ (408) 358 (144)
Other................................................... 22,866 34,305 36,649
-------- -------- --------
2,885 37,337 (4,145)
-------- -------- --------
Deferred income taxes:
United States........................................... (41,025) (11,027) 23,401
Other................................................... 2,949 3,717 7,290
-------- -------- --------
(38,076) (7,310) 30,691
-------- -------- --------
$(35,191) $ 30,027 $ 26,546
======== ======== ========
</TABLE>
The provision (benefit) for taxes on income (loss) from continuing
operations differs from the U.S. statutory rate for the following reasons:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Statutory tax rate...................................... (35.0%) 35.0% 35.0%
State taxes, net of federal tax effect.................. (3.0) 6.0 1.8
Goodwill amortization................................... 7.5 29.3 9.9
Foreign tax rate differential........................... 3.6 (15.4) (4.2)
Adjustment of prior year taxes.......................... -- -- (22.6)
Other................................................... 8.6 6.5 (1.3)
-------- -------- --------
Effective tax rate...................................... (18.3%) 61.4% 18.6%
======== ======== ========
</TABLE>
U.S. federal income taxes which may be incurred upon remittance of
approximately $137,500 of accumulated earnings of ANC's foreign subsidiaries
have not been provided at December 31, 1998 because such earnings are considered
to be permanently invested.
F-22
<PAGE> 112
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
Deferred tax assets (liabilities) consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS
Deductible temporary differences:
Employee benefits......................................... $152,454 $149,503
Restructuring reserves.................................... 36,405 29,383
Other..................................................... 139,612 134,657
Tax loss and credit carryforwards:
U.S. federal net operating losses......................... 135,262 148,227
U.S. federal alternative minimum tax credits.............. 6,838 7,587
U.S. federal general business credits..................... 5,738 5,738
U.S. state net operating losses........................... 7,901 7,901
Valuation allowances........................................ (18,455) (18,455)
-------- --------
Total....................................................... 465,755 464,541
-------- --------
DEFERRED TAX LIABILITIES
Taxable temporary differences:
Fixed assets.............................................. (86,829) (100,674)
Inventories............................................... (15,632) (14,065)
Employee benefits......................................... (61,327) (76,682)
Other..................................................... (33,883) (30,139)
-------- --------
Total....................................................... (197,671) (221,560)
-------- --------
Net deferred tax asset...................................... $268,084 $242,981
======== ========
</TABLE>
The U.S. federal net operating loss carryforwards expire as follows:
<TABLE>
<S> <C>
2003........................................................ $ 28,871
2009........................................................ 109,909
2011........................................................ 201,626
2012........................................................ 47,311
2018........................................................ 35,789
</TABLE>
The U. S. federal alternative minimum tax credit carryforwards of $7,587
have an unlimited carryover period.
The general business credits of $5,738 expire 1999 through 2007, including
$2,970 and $1,789 in 2000 and 2001, respectively.
As a result of the Offering, U.S. tax regulations will limit the amount of
net operating loss and tax credit carryforwards available to ANC going forward
on an annual basis.
At December 31, 1998, valuation allowances have been provided for the tax
assets attributed to (a) the U.S. federal net operating loss carryforwards
expiring in 2003, which can be utilized solely against the taxable income of a
component member of the consolidated taxpayer group ($10,105), (b) the general
business credits, substantially all of which also can be used solely against the
taxes payable by a component member of the taxpayer group ($5,738), and (c)
certain U.S. state income tax net operating loss carryforwards ($2,612). No
other valuation allowances were deemed necessary as management believes that it
is more likely
F-23
<PAGE> 113
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
than not that, based upon prior earnings history, future taxable income will be
more than sufficient to utilize the tax loss carryforwards and the deductible
temporary differences not offset by future reversals of taxable temporary
differences.
As a result of the receipt in August 1998 of Joint Committee approval for
the settlement of various issues pertaining to federal income tax returns for
the years 1985 through 1995, income tax liabilities were reduced by $78,328. Of
this amount, $46,122 pertained to issues for which tax reserves had been
established in the purchase accounting for the acquisition of ANC by Pechiney in
1988, which was recorded as a reduction of goodwill during 1998 ($35,649
pertained to continuing operations -- Note 1). The $32,206 remainder of the tax
reserve reduction pertained to expense provisions recorded in prior years and
was recorded as a reduction of the provision for income taxes in the combined
statement of income for the year ended December 31, 1998.
Included in income (loss) from continuing operations before income taxes,
equity earnings, minority interest and cumulative effect of accounting change in
1996, 1997 and 1998, was $42,963, $75,572 and $119,497, respectively, of income
from foreign sources, none of which was remitted to ANC.
NOTE 10 -- INTEREST EXPENSE
Interest expense consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Interest cost incurred
External............................................... $ 26,599 $ 23,011 $ 19,710
Related party.......................................... 68,258 67,053 48,720
Interest imputed on obligations under capital leases..... 321 268 241
Deferred financing cost amortization..................... 146 101 102
-------- -------- --------
Total interest expense................................. $ 95,324 $ 90,433 $ 68,773
======== ======== ========
</TABLE>
Discontinued operations reflect interest expense of $28,477, $25,219 and
$18,930 for the years ended December 31, 1996, 1997 and 1998, respectively. Such
amounts give recognition to the debt of the Plastics operations, as well as an
allocation of combined entity interest based primarily on the net assets of the
component entities.
NOTE 11 -- INTEREST INCOME AND OTHER FINANCIAL INCOME (EXPENSE), NET
Interest income and other financial income (expense), net, consisted of the
following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Interest income:
External............................................... $ 7,253 $ 6,555 $ 8,641
Related party.......................................... 1,309 1,515 5,056
Expense related to the sale of accounts receivable....... (3,966) (3,038) (2,513)
Foreign currency exchange gains (losses)................. (1,811) 21,332 515
Other.................................................... 1,536 516 (1,065)
-------- -------- --------
$ 4,321 $ 26,880 $ 10,634
======== ======== ========
</TABLE>
F-24
<PAGE> 114
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
Foreign currency exchange gains (losses) for the year ended December 31,
1997 includes a $21,020 non-recurring gain relating to foreign currency forward
contracts.
NOTE 12 -- PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
ANC has defined benefit and defined contribution retirement plans covering
substantially all current and retired U.S. employees and certain U.S. employees
of businesses that have been sold. The plans provide benefits that are based on
the employee's years of service and compensation during employment with ANC. ANC
makes contributions to the defined benefit plans at least equal to the minimum
funding requirements under the Employee Retirement Income Security Act of 1974.
Costs for government-sponsored pension plans of ANC's international operations
are expensed on a current basis. ANC's Plastics business sponsors defined
benefit retirement plans covering certain hourly employees of that business. The
remaining hourly employees of that business are included in ANC-sponsored
defined benefit plans or multi-employer union plans. The salaried employees of
the Plastics business are included in defined benefit and defined contribution
plans which cover substantially all of the salaried employees of ANC.
Obligations of the plans sponsored by the Plastics business, as well as
obligations under multi-employer plans, will remain with that business and be
included in the operations being transferred to Pechiney (Note 1). These
liabilities aggregated $4,154 at December 31, 1998 and are included in the net
assets of discontinued operations in the combined balance sheet at that date.
Benefits of Plastics business participants included in the ANC-sponsored plans
will be frozen as of the Plastics business transfer with respect to service
accrued before that date (subject to adjustments for certain future service and
pay) and new mirror offset plans will be created by the Plastics business for
those employees.
ANC provides certain healthcare and life insurance benefits for
substantially all retired U.S. employees and their dependents, including those
of the Plastics business, under various postretirement benefit plans based on
age and length of service. Certain of the plans require retiree contributions.
Benefits for employees in non-U.S. countries are generally limited due to
coverage which is already provided by national health programs. The liability
for benefits for active and retired employees of the Plastics business,
aggregating $83,561 at December 31, 1998 will be included in the liabilities
transferred to Pechiney Plastic Packaging, Inc. Further, liability for benefits
for certain additional retired employees relating primarily to closed plants
aggregating $277,236 at December 31, 1998 will also be transferred to and be
assumed by Pechiney Packaging, Inc. These liabilities aggregating $360,797 have
been included in the net assets of the discontinued operations (Note 2).
Pechiney has agreed to guarantee this obligation of Pechiney Plastic Packaging,
Inc.
F-25
<PAGE> 115
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
Net pension expense (income) for benefit pension plans and net
postretirement benefit expense for the years ended December 31, 1996, 1997 and
1998 consisted of the following:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
--------------------------------- ---------------------------
1996 1997 1998 1996 1997 1998
--------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Service cost........................ $ 18,337 $ 19,475 $ 18,130 $ 2,800 $ 2,759 $ 2,549
Interest cost....................... 128,001 133,154 132,523 24,276 24,146 21,364
Expected return on plan assets...... (157,571) (180,474) (193,680) -- -- --
Amortization of:
Unrecognized transition
obligation..................... (867) (867) (819) -- -- --
Unrecognized prior service cost
(benefit)...................... 1,407 1,574 2,449 (196) (936)
Unrecognized net loss............. 4,961 5,946 (226) (199)
--------- --------- --------- ------- ------- -------
Net periodic benefit (income)
expense........................... (5,732) (21,192) (41,623) $26,880 $26,706 $22,977
======= ======= =======
Net curtailment loss................ (3,934) (1,837)
--------- --------- ---------
(5,732) (25,126) (43,460)
Defined contribution and
multi-employer plans.............. 2,498 3,358 2,613
--------- --------- ---------
Total benefit expense (income)...... $ (3,234) $ (21,768) $ (40,847)
========= ========= =========
</TABLE>
Total benefit expense (income) above excludes amounts attributed to
discontinued operations comprising pension expense of the Plastics business
sponsored plans and multi-employer union plans and Plastics business employees
who are active participants in the ANC sponsored plans. Other benefits expense
attributed to discontinued operations comprises the expense related to active
and retired employees of the Plastics business as well as for the additional
retired employees of closed plants referred to above.
F-26
<PAGE> 116
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
The following table sets forth the funded status of ANC's defined benefit
pension plans and postretirement benefit obligation and the amounts recognized
in the combined balance sheet at December 31, 1997 and 1998.
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------ ------------------------
1997 1998 1997 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at January 1......... $1,802,925 $1,970,724 $ 337,166 $ 352,735
Service cost -- continuing operations... 19,475 18,130 2,759 2,549
Service cost -- discontinued
operations............................ 6,336 5,204 -- --
Interest cost........................... 133,154 132,522 24,146 21,364
Plan participants' contributions........ -- -- 1,549 1,568
Plan amendments......................... 3,085 7,506 -- (7,263)
Actuarial loss.......................... 150,410 114,663 12,529 (13,655)
Benefits paid........................... (144,661) (152,518) (25,414) (24,388)
---------- ---------- ---------- ----------
Benefit obligation at December 31,...... 1,970,724 2,096,231 352,735 332,910
---------- ---------- ---------- ----------
CHANGE IN PLAN ASSETS
Fair value of plan assets at January
1,.................................... 1,775,606 2,045,173 -- --
Actual return on plan assets............ 359,363 180,709 -- --
Employer contribution................... 54,865 14,610 23,865 22,820
Plan participants' contributions........ -- -- 1,549 1,568
Benefits paid........................... (144,661) (152,518) (25,414) (24,388)
---------- ---------- ---------- ----------
Fair value of plan assets at December
31,................................... 2,045,173 2,087,974 -- --
---------- ---------- ---------- ----------
Funded status........................... 74,449 (8,257) (352,735) (332,910)
Unrecognized actuarial loss............. 81,132 202,431 18,807 5,178
Unrecognized prior service cost
(benefit)............................. 9,462 13,669 (2,119) (8,472)
Unrecognized transition asset........... (10,934) (12,772) -- --
---------- ---------- ---------- ----------
Net asset (liability) recognized........ $ 154,109 $ 195,071 $ (336,047) $ (336,204)
========== ========== ========== ==========
Amounts recognized in the statement of
financial position consist of:
Prepaid benefit cost.................... $ 194,356 $ 212,531 $ -- $ --
Accrued benefit liability............... (50,518) (43,710) (336,047) (336,204)
Intangible asset........................ 4,968 4,133 -- --
Accumulated other comprehensive
income................................ 5,303 22,117 -- --
---------- ---------- ---------- ----------
Net amount recognized................... $ 154,109 $ 195,071 $ (336,047) $ (336,204)
========== ========== ========== ==========
Weighted-average assumptions as of
December 31:
Discount rate......................... 7.0% 6.5% 7.0% 6.5%
Expected return on plan assets........ 10.0% 10.0%
Expected increase in future
salaries........................... 5.0% 5.0%
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $239,859, $232,716 and $195,964 respectively, as
of December 31, 1997 and $79,068, $69,682 and $34,705, respectively, as of
December 31, 1998.
F-27
<PAGE> 117
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
The following table shows the other major assumptions used to develop the
accumulated postretirement benefit obligation and the net postretirement benefit
expense in 1998 and 1997.
<TABLE>
<CAPTION>
MANAGED
UNDER CARE UNDER OVER
AGE 65 AGE 65 AGE 65
------ ---------- ------
<S> <C> <C> <C>
Current year health care trend rate -- 1998................. 7.71% 6.86% 6.29%
Current year health care trend rate -- 1997................. 8.29% 7.14% 6.71%
Ultimate trend rate......................................... 6.00% 6.00% 5.00%
Year ultimate trend rate is achieved........................ 2001 2001 2001
</TABLE>
Assumed health care trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rate would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- --------------
<S> <C> <C>
Effect on total of service and interest cost components..... $ 2,227 ($ 2,057)
Effect on postretirement benefit obligation................. 25,948 (23,991)
</TABLE>
NOTE 13 -- OTHER PAYABLES AND ACCRUED LIABILITIES
Other payables and accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Accrued payroll and employee benefits....................... $ 78,255 $ 65,187
Postretirement benefit obligation (Note 12)................. 27,200 27,200
Pension liabilities (Note 12)............................... 37,596 6,555
Restructuring reserves (Note 15)............................ 22,043 28,913
Litigation reserves (Note 18)............................... 104,249 102,013
Income taxes................................................ 59,322 27,742
Accrued rent................................................ 18,646 14,254
Accrued taxes other than income............................. 11,295 10,430
Other....................................................... 58,224 60,215
-------- --------
$416,830 $342,509
======== ========
</TABLE>
NOTE 14 -- OTHER LONG-TERM LIABILITIES
Other long-term liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Restructuring reserves (Note 15)............................ $ 69,888 $ 45,286
Environmental reserves...................................... 54,748 50,057
Income taxes................................................ 45,446 --
Pension liabilities (Note 12)............................... 12,922 37,155
Other long-term employee costs.............................. 13,803 13,598
Other....................................................... 28,213 23,732
-------- --------
$225,020 $169,828
======== ========
</TABLE>
F-28
<PAGE> 118
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
Laws and regulations expose ANC to the risk of substantial environmental
costs and liabilities, including liabilities associated with past activities.
ANC is involved in judicial and administrative proceedings concerning
environmental compliance and the remediation of contamination at ANC properties
and other sites. The related charges are reserved when known to the extent they
can be reasonably estimated. The types of costs accrued are expenditures for
clean up of environmental contamination and other remediation activities. The
estimated reserves are based on current environmental laws and regulatory
requirements and currently available technology. The accrued costs do not
include potential recoveries from insurers and have not been discounted to their
present values.
The precision and reliability of the loss estimates varies from site to
site, depending on such factors as the quantity of data concerning contamination
at the site, the extent to which remedial requirements have been identified or
agreed upon with regulatory authorities and the availability and likelihood of
contribution from other responsible parties. ANC believes, however, that the
amount it has reserved will enable it to satisfy its known and anticipated
environmental liabilities to the extent they can be estimated. Because
environmental matters cannot be predicted with certainty, there can be no
assurance that these amounts will be adequate for all purposes. In addition, the
discovery of new sites or future developments at known sites, such as changes in
law or environmental conditions, could result in increased environmental costs
and liabilities in excess of accrued environmental reserves that could have a
material effect on ANC's results of operations in any given year or its combined
financial position, although the amount of such increases cannot be estimated.
NOTE 15 -- RESTRUCTURING
In the fourth quarter of 1996, ANC recorded a charge of $158,706 for
restructuring and impairment of property and equipment related to actions taken
under Pechiney's Challenge program. The Challenge program was announced in 1996
and was designed to eliminate production overcapacity, reduce costs and improve
productivity and utilization of assets. After years of strong growth, the
beverage can market in the United States and Canada had reached maturity. In
1996, the market increased only slightly over the prior year resulting in an
industry supply/demand imbalance, which led to the decision by ANC to reduce
annual capacity by in excess of three billion cans. Other costs of the
restructuring plan, which include relocation of personnel and equipment,
training, process reengineering, consulting costs, and capital expenditures are
being recognized as incurred.
The activity in the restructuring reserve for continuing operations
including prior year activity as described below for the year ended December 31,
1996 was as follows:
<TABLE>
<CAPTION>
UTILIZED
CHARGE CREDIT NET -------------------
BEGINNING TO TO CHARGE CASH NON- ENDING
BALANCE INCOME INCOME (CREDIT) PAYMENTS CASH BALANCE
--------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Employee termination and severance programs..... $32,454 $ 58,895 $ -- $ 58,895 $(13,129) $(13,173) $ 65,047
Lease termination costs......................... 762 14,563 -- 14,563 -- -- 15,325
Environmental testing and remediation........... 2,000 3,000 -- 3,000 -- -- 5,000
Facility costs.................................. 13,099 19,340 -- 19,340 (8,410) -- 24,029
Equipment dismantle and disposal costs.......... 3,793 5,750 -- 5,750 (1,764) -- 7,779
Other exit costs................................ 1,246 -- -- -- -- -- 1,246
Non-cash asset write-downs...................... -- 57,158 -- 57,158 -- (57,158) --
------- -------- -------- -------- -------- -------- --------
$53,354 $158,706 $ -- $158,706 $(23,303) $(70,331) $118,426
======= ======== ======== ======== ======== ======== ========
</TABLE>
The restructuring charge related primarily to the planned shutdown of five
can manufacturing facilities to eliminate production overcapacity. One of these
facilities (Jacksonville, FL) was shut down in December 1996. The remaining
reduction of capacity was planned to be accomplished by the shutdown of three
plants
F-29
<PAGE> 119
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
in 1997 and one in 1998. In addition to the cost of the five plant shutdowns,
the restructuring charge covered the reorganization of operations at certain
other existing plants which would continue operations and the elimination of
certain executive and administrative functions at ANC's headquarters and other
plants as a result of cost reduction initiatives.
The severance and other employee-related costs (primarily enhanced pension
and postretirement benefits) provided for a reduction of 540 employees at the
five plants, 120 people at plants that will remain open and 130 employees at
ANC's administrative offices. Severance costs for employees covered by
collective bargaining agreements were determined based on the terms of the
agreements. Severance costs for salaried and hourly employees not covered by a
collective bargaining agreement were determined by the existing ANC severance
plan.
The impairment charge for property and equipment represents the writedown
to fair value of property and equipment to be disposed of or scrapped and the
recognition of impairment losses for assets to be used up to the plant closing
date for plants to be closed. The fair value of such depreciable assets that
remain in use are depreciated over the asset's remaining useful life. Fair
values for land and buildings were determined based on consultations with local
real estate agents. Fair values for equipment were determined based on
management's best estimates considering the used equipment market.
Cash payments during 1996 related primarily to benefits paid to terminated
employees of the closed Danbury, CT, Gateway and St. Louis, MO, plants that had
been provided for in 1994. Payments also included amounts for corporate employee
severance and rental charges for vacated space. Non-cash transfers related
primarily to (a) the transfer of enhanced pension benefit amounts based upon
final actuarial determinations to the separately classified pension liability
account and (b) the writedown of plant and equipment to fair value.
The activity in the restructuring reserve for the year ended December 31,
1997 was as follows:
<TABLE>
<CAPTION>
UTILIZED
CHARGE NET -------------------
BEGINNING TO CREDIT TO CHARGE CASH ENDING
BALANCE INCOME INCOME (CREDIT) PAYMENTS NON-CASH BALANCE
--------- --------- --------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Employee termination and
severance programs.......... $ 65,047 $ -- $ -- $ -- $(15,616) $ (3,942) $45,489
Lease termination costs....... 15,325 -- -- -- -- -- 15,325
Environmental testing and
remediation................. 5,000 -- -- -- -- -- 5,000
Facility costs................ 24,029 -- -- -- (5,704) -- 18,325
Equipment dismantle and
disposal costs.............. 7,779 -- -- -- (1,233) 6,546
Other exit costs.............. 1,246 -- -- -- -- -- 1,246
Non-cash asset write-downs.... -- 10,924 -- 10,924 -- (10,924) --
-------- ------- ------- ------- -------- -------- -------
$118,426 $10,924 $ -- $10,924 $(22,553) $(14,866) $91,931
======== ======= ======= ======= ======== ======== =======
</TABLE>
In 1997, the charge of $10,924 for restructuring and writedown of property
and equipment included a $10,000 impairment loss related to ANC's operations in
China.
Cash payments for 1997 relate to the shutdown of the San Juan, Puerto Rico
plant effective May, 1997 and continuing payments related to previously closed
plants. The non-cash impairment relates to the aforementioned writedown of
property, plant and equipment.
In May 1997, the San Juan, Puerto Rico facility was shutdown. In the fourth
quarter of 1997, ANC made a decision to defer to 2000 the shutdown of the
remaining two plants originally scheduled for shutdown
F-30
<PAGE> 120
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
in 1997. These two plants primarily produce special-sized cans under contracts
that are scheduled to expire in 2000. ANC's shutdown plan for one of the two
plants originally contemplated certain capital investments to be made to expand
another plant to allow for the transfer of production of the special-sized cans.
A decision was made in 1997 not to make the necessary capital investment and to
continue to operate the plant. ANC's plan for the second plant was to negotiate
an early termination of the contract or to make alternative supply arrangements.
In 1997, ANC made a decision to continue to operate the plants at approximately
50% of capacity incurring cash losses which are recorded as incurred.
The activity in the restructuring reserve for the year ended December 31,
1998 was as follows:
<TABLE>
<CAPTION>
UTILIZED
NET -------------------
BEGINNING CHARGE TO CREDIT TO CHARGE CASH ENDING
BALANCE INCOME INCOME (CREDIT) PAYMENTS NON-CASH BALANCE
--------- --------- --------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Employee termination and
severance programs.......... $45,489 $22,610 $(18,496) $ 4,114 $ (9,556) $(4,610) $35,437
Lease termination costs....... 15,325 5,606 (7,293) (1,687) (289) -- 13,349
Environmental testing and
remediation................. 5,000 200 -- 200 -- -- 5,200
Facility costs................ 18,325 3,184 (2,852) 332 (1,793) -- 16,864
Equipment dismantle and
disposal costs.............. 6,546 965 (4,950) (3,985) (421) -- 2,140
Other exit costs.............. 1,246 -- (37) (37) -- -- 1,209
Non-cash asset write-downs.... -- 10,781 (12,155) (1,374) -- 1,374 --
------- ------- -------- ------- -------- ------- -------
$91,931 $43,346 $(45,783) $(2,437) $(12,059) $(3,236) $74,199
======= ======= ======== ======= ======== ======= =======
</TABLE>
In 1998, management, based on a large customer's decision to reduce its
purchases in various geographic markets and on studies by outside consultants of
market demographics, decided not to close a plant provided for in 1996 which at
that time was expected to be closed in 1998, but rather to temporarily curtail
production at several lines in our facilities. As a result, the reserve of
$17,118 previously established for employee termination and severance programs,
lease termination costs, facility costs and other exit costs related to this
plant was restored to income. A further restoration of $28,665 related to
adjustments to the restructuring reserve for changes in estimates of the number
of employees to be terminated at plants shut down or to be shut down, and
higher-than-expected proceeds on the sale of several plant sites.
In connection with the 1998 decision to not close the previously identified
plant and in response to the continuing oversupply of can production capacity,
in 1998 management decided to close a different plant in late 1999. Accordingly,
a charge of $24,846 was recorded in 1998 to cover the costs of the new plant
closure. The plant closure costs cover severance and other employee related
costs to provide for the reduction of 115 employees and to write down property
and equipment to fair value. In addition, a charge of $14,100 was recorded in
1998 for severance costs for approximately 150 plant, sales and administrative
employees and an impairment charge of $4,400 was recorded relating to lease
termination costs and equipment write-offs for permanently idle equipment.
The number of employees terminated under these restructuring programs
through December 31, 1998 was 378.
The Company remains committed to closing one plant in late 1999 and the
remaining two plants in 2000.
F-31
<PAGE> 121
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
Expected cash payments for restructuring costs in future periods, exclusive
of pension liabilities, are as follows:
<TABLE>
<S> <C>
1999........................................................ $23,640
2000........................................................ 12,783
2001........................................................ 11,891
2002........................................................ 5,989
2003........................................................ 1,100
2004 and beyond............................................. 14,978
</TABLE>
NOTE 16 -- SEGMENT AND RELATED INFORMATION
In 1998, ANC adopted SFAS No. 131 -- "Disclosures about Segments of an
Enterprise and Related Information" (Note 1) and reflected its provisions
retroactively in these combined financial statements. SFAS No. 131 establishes
standards for reporting information about operating segments. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. ANC's continuing operations, consisting of
its worldwide beverage can business, comprise one reportable segment.
Following are net sales and long-lived asset information by geographic
area.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net sales
United States...................................... $1,573,882 $1,504,427 $1,453,992
United Kingdom..................................... 383,810 374,654 369,316
Others............................................. 562,598 585,937 635,541
---------- ---------- ----------
$2,520,290 $2,465,018 $2,458,849
========== ========== ==========
Long-lived assets
Continuing operations
United States................................... $1,069,892 $1,054,393 $ 999,151
United Kingdom.................................. 390,196 387,053 366,569
Others.......................................... 762,926 704,874 694,692
Discontinued operations............................ 776,320 758,023 776,324
---------- ---------- ----------
$2,999,334 $2,904,343 $2,836,736
========== ========== ==========
</TABLE>
Net sales are based on the country in which the legal subsidiary is
domiciled.
NOTE 17 -- CONCENTRATIONS OF RISK
One of the principal raw materials used in ANC's production process is
aluminum. Currently, we generally limit our exposure to the fluctuations in the
market price of aluminum by matching its contracts to supply cans to its
customers with aluminum forward purchase supply contracts with similar terms.
ANC had sales in excess of 10% of net sales from continuing operations to
one customer amounting to approximately $1,010,614, $1,048,168 and $1,253,200
for the years ended December 31, 1996, 1997 and 1998, respectively.
F-32
<PAGE> 122
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
NOTE 18 -- COMMITMENTS AND CONTINGENCIES
In 1993, Viskase Corporation ("Viskase") brought a patent infringement
lawsuit against ANCC alleging infringements related to patents held by Viskase,
a unit of Envirodyne Industries, Inc., for heat shrinkable meat bags utilized in
the Plastics business. In November 1996, a federal court jury in Chicago,
Illinois awarded Viskase $102,385 in damages and found willful infringement.
Based on the facts and circumstances, ANCC recorded a charge to expense of
$103,768 in 1996 which represented the amount of the damages awarded as well as
certain out-of-pocket costs. This was recorded in discontinued operations in the
accompanying combined statement of income and in other payables and accrued
liabilities of the continuing business in the combined balance sheet. Pechiney
Plastic Packaging has agreed to indemnify ANC on a net of tax basis for any
payments we may be required to make with respect to these proceedings. Pechiney
has agreed to guarantee this obligation of Pechiney Plastic Packaging. Future
adjustments, if any, of the Viskase litigation reserve will be recorded as
income (loss) from discontinued operations in the Company's combined financial
statements. Future indemnification payments, if any, from Pechiney Plastic
Packaging related to the Viskase litigation will be recorded as a capital
contribution in the Company's combined financial statements.
In September 1997, the court granted ANCC's motion for a new trial on
liability as to part of the case and ordered a new trial on damages. In August
1998, the trial judge granted Viskase's motion for summary judgment on the
doctrine of equivalents. Viskase has moved for the damage award to be
reinstated, and ANCC has opposed that motion. No ruling has been made. In
addition, ANCC has requested the U.S. Patent and Trademark Office (known as the
"PTO") to re-examine the claims of two of the patents that Viskase alleged ANCC
infringed. In March 1999, a PTO Examiner issued an Office Action that
re-examined and rejected claims of one of the two patents, but the Office Action
is not final. Concerning the second patent, the PTO has also issued an Office
Action rejecting the Viskase claims, but the PTO recently granted Viskase's
petition to change the inventorship of the patent. Additional proceedings are
ongoing. In view of the uncertainties related to this matter, no adjustments
have been made to the reserve in 1998 and 1997, other than payments for certain
out-of-pocket costs.
In addition to the above matter, the Company and its subsidiaries are
involved in various other legal and administrative proceedings which have arisen
in the ordinary course of business. While any litigation contains an element of
uncertainty, ANC believes that the outcome of such proceedings will not have a
material adverse effect on ANC's combined financial position, or cash flows. The
Viskase proceeding, if resolved in a manner different from the estimate, could
have a material adverse effect on the operating results of discontinued
operations in a future reporting period.
ANC has two agreements to purchase certain information technology services
through September 2002. Total commitments under the agreements approximated
$31,200 as of December 31, 1998.
ANC is contingently liable with respect to guarantees of indebtedness of
other companies in the amount of $26,555 at December 31, 1998.
Unaudited:
On May 10, 1999, the court granted reinstatement of the jury damage award
in the Viskase litigation, and set a ruling date of July 2, 1999 for Viskase's
request for treble damages with respect to a portion of the award. This amount
cannot currently be determined. Pechiney Plastic Packaging has agreed to
indemnify the Company on an after-tax basis for any payments the Company may be
required to make with respect to the proceedings. Pechiney has agreed to
guarantee this obligation of Pechiney Plastic Packaging.
F-33
<PAGE> 123
AMERICAN NATIONAL CAN GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
NOTE 19 -- RELATED PARTY TRANSACTIONS
Significant transactions and balances with Pechiney and its affiliates,
other than those presented on the face of the combined balance sheets or
described elsewhere in the notes to the combined financial statements, included
the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Sales.................................................... $ 7,651 $ 804 $ 5,474
Purchases................................................ 249,535 151,420 165,794
Selling, general and administrative expenses............. 856 2,128 577
Charges from Pechiney for research and development
expenses............................................... 5,178 5,283 4,039
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1998
------ ------
<S> <C> <C>
Receivables................................................. 10,626 7,447
Noncurrent assets........................................... 3,000 187
Accounts payable............................................ 23,915 18,985
Other payables and accrued expenses......................... 6,406 7,535
</TABLE>
F-34
<PAGE> 124
[American National Can Group logo]
<PAGE> 125
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
An itemized statement of the estimated amount of all expenses in connection
with the distribution of the Securities registered hereby is as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $27,800
New York Stock Exchange Listing Fee......................... *
National Association of Securities Dealers, Inc. Filing
Fee....................................................... 30,500
Transfer Agent and Registration Fee......................... *
Printing Expenses........................................... 30,000
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Miscellaneous............................................... 25,000
-------
Total....................................................... $ *
=======
</TABLE>
- ------------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if the person acted in good
faith and in a manner the person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe the person's conduct was
unlawful. Section 145 further provides that a corporation similarly may
indemnify any such person serving in any such capacity who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgement in its
favor, against expenses (including attorneys' fees) actually and reasonably
incurred in connection with the defense or settlement of such action or suit if
the person acted in good faith and in a manner the person reasonably believed to
be in or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omission not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
liability for unlawful payment of dividends and unlawful stock purchase and
redemption) or (iv) for any transaction from which the director derived an
improper personal benefit.
The Company's Certificate of Incorporation provides that the Company's
directors shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director to the fullest
II-1
<PAGE> 126
extent permitted by the DGCL as it existed on the date of, or is or has been
amended from time to time after, the filing of the Certificate of Incorporation.
The Certificate of Incorporation and the Company's By-Laws further provide that
the Company shall indemnify its directors and officers to the fullest extent
permitted by the DGCL.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the formation of the Company and the reorganization of
Pechiney's packaging operations, American National Can Group, Inc. will issue
shares to Pechiney. The consideration for this issuance will be the transfer to
the Company by Pechiney of all its beverage can operations.
In the foregoing transaction, the securities will be offered and sold
pursuant to section 4(2) of the Securities Act of 1933, as amended. No
underwriting discounts or commissions will be paid in connection with such
transaction.
ITEM 16. EXHIBITS AND FINANCIAL DATA SCHEDULE.
(a) EXHIBITS
<TABLE>
<C> <S>
1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Registrant+
3.2 By-Laws of the Registrant+
4.1 Form of Registration Rights Agreement
4.2 Specimen of stock certificate for the common stock of the
Company*
5.1 Amended opinion of Shearman & Sterling as to the legality of
the securities being offered
8.1 Opinion of Shearman & Sterling with respect to certain U.S.
federal income tax matters*
10.1 Aluminum Purchase/Sales Supply Agreement between American
National Can Company and Alcan Rolled Products Company
(confidential treatment of certain portions requested)+
10.2 Aluminum Purchase Agreement between American National Can
Company and Aluminum Company of America (confidential
treatment of certain portions requested)+
10.3 Can Supply Agreement between American National Can Company
and Coca-Cola Enterprises Inc. (confidential treatment of
certain portions requested)+
10.4 Form of Shared Services Agreement with Pechiney Metals Co.*
10.5 Form of Services Agreement with Pechiney Plastic Packaging,
Inc.*
10.6 Form of Foreign Currency Forward Sale Agreements and Foreign
Currency Forward Purchase Agreements with Pechiney*
10.7 Form of Contribution, Assignment and Assumption Agreement*
10.8 Form of Plastic Beer Bottle Agreement*
10.9 Form of ANC Technology Agreement*
10.10 Form of Director Nomination Agreement*
10.11 Form of Stock Purchase Agreement
10.12 Form of Pechiney Guaranty*
10.13 Form of FEEP Contribution Agreement
10.14 Foreign Subsidiary Stock Transfer Agreements*
10.15 Form of Environmental Indemnity Agreement*
10.16 American National Can Company Long-Term Incentive Plan*
10.17 American National Can Group Incentive Compensation Plan*
10.18 American National Can Group Directors Stock Option Plan*
10.19 American National Can Company Stock Compensation Conversion
Plan*
10.20 Employment Agreement dated between American
National Can Company and Jean-Pierre Rodier*
10.21 Employment Agreement dated between American
National Can Company and Edward A Lapekas*
</TABLE>
II-2
<PAGE> 127
<TABLE>
<C> <S>
10.22 Employment Agreement dated between American National Can Company and Michael D. Herdman*
10.23 Employment Agreement dated between American National Can Company and Alan H. Schumacher*
10.24 Employment Agreement dated between American National Can Company and Dennis R. Bankowski*
10.25 Employment Agreement dated between American National Can Company and Allan J. Bohner*
10.26 Pechiney 1998 Stock Option Plan*
21 Subsidiaries of the Registrant*
23.1 Consent of Shearman & Sterling (included in Exhibits 5.1 and 8.1)+
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Coca Cola Enterprises
23.4 Consent of Can Manufacturers' Institute
23.5 Consent of Beverage Can Manufacturers Europe
23.6 Consent of Beverage Marketing Corporation
23.7 Consent of Container Consulting*
23.8 Consent of Canadean
23.9 Consent of Kronish, Lieb, Weiner & Hellman LLP
24 Powers of Attorney (included on page II-4 of the original filing)+
27 Financial Data Schedule+
</TABLE>
- ------------------
* To be filed by amendment.
+ Previously filed.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under "Item 14, Indemnification
of Directors and Officers" above, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it
was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) It will provide to the underwriter at the closing specified in the
underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to each purchaser.
II-3
<PAGE> 128
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Chicago, Illinois on June 4, 1999.
AMERICAN NATIONAL CAN GROUP, INC.
*
By:
--------------------------------------
Jean-Pierre Rodier
Chief Executive Officer
POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and Chief June 4, 1999
- --------------------------------------------- Executive Officer
Jean-Pierre Rodier
/s/ EDWARD A. LAPEKAS President and Chief Operating Officer June 4, 1999
- ---------------------------------------------
Edward A. Lapekas
* Senior Vice President and Chief June 4, 1999
- --------------------------------------------- Financial Officer
Alan H. Schumacher
* Vice President, Controller and Chief June 4, 1999
- --------------------------------------------- Accounting Officer
John G. LaBahn
* Director June 4, 1999
- ---------------------------------------------
Christel Bories
* Director June 4, 1999
- ---------------------------------------------
Frank W. Considine
* Director June 4, 1999
- ---------------------------------------------
Ronald J. Gidwitz
* Director June 4, 1999
- ---------------------------------------------
George D. Kennedy
</TABLE>
II-4
<PAGE> 129
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director June 4, 1999
- ---------------------------------------------
Homer J. Livingston, Jr.
* Director June 4, 1999
- ---------------------------------------------
Roland H. Meyer, Jr.
Director June 4, 1999
- ---------------------------------------------
James J. O'Connor
Director June 4, 1999
- ---------------------------------------------
Alain Pasquier
* Director June 4, 1999
- ---------------------------------------------
Jean-Dominique Senard
* Director June 4, 1999
- ---------------------------------------------
James R. Thompson
* Director June 4, 1999
- ---------------------------------------------
Jack H. Turner
</TABLE>
- ---------------
* -- Signed by Edward A. Lapekas as Attorney-in-Fact.
II-5
<PAGE> 130
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
FILED WITH
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERICAN NATIONAL CAN GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction
of incorporation or organization)
<PAGE> 131
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBITS PAGE NUMBER
- -------- -----------
<C> <S> <C>
1 Form of Underwriting Agreement*.............................
3.1 Certificate of Incorporation of the Registrant+.............
3.2 By-Laws of the Registrant+..................................
4.1 Form of Registration Rights Agreement.......................
4.2 Specimen of stock certificate for the common stock of the
Company*....................................................
5.1 Amended opinion of Shearman & Sterling as to the legality of
the securities being offered................................
8.1 Opinion of Shearman & Sterling with respect to certain U.S.
federal income tax matters*.................................
10.1 Aluminum Purchase/Sales Supply Agreement between American
National Can Company and Alcan Rolled Products Company
(confidential treatment of certain portions requested)+.....
10.2 Aluminum Purchase Agreement between American National Can
Company and Aluminum Company of America (confidential
treatment of certain portions requested)+...................
10.3 Can Supply Agreement between American National Can Company
and Coca-Cola Enterprises Inc. (confidential treatment of
certain portions requested)+................................
10.4 Form of Shared Services Agreement with Pechiney Metals
Co.*........................................................
10.5 Form of Services Agreement with Pechiney Plastic Packaging,
Inc.*.......................................................
10.6 Form of Foreign Currency Forward Sale Agreements and Foreign
Currency Forward Purchase Agreements with Pechiney*.........
10.7 Form of Contribution, Assignment and Assumption
Agreement*..................................................
10.8 Form of Plastic Beer Bottle Agreement*......................
10.9 Form of ANC Technology Agreement*...........................
10.10 Form of Director Nomination Agreement*......................
10.11 Form of Stock Purchase Agreement............................
10.12 Form of Pechiney Guaranty*..................................
10.13 Form of FEEP Contribution Agreement.........................
10.14 Foreign Subsidiary Stock Transfer Agreements*...............
10.15 Form of Environmental Indemnity Agreement*..................
10.16 American National Can Company Long-Term Incentive Plan*.....
10.17 American National Can Group Incentive Compensation Plan*....
10.18 American National Can Group Directors Stock Option Plan*....
10.19 American National Can Company Stock Compensation Conversion
Plan*.......................................................
10.20 Employment Agreement dated between American
National Can Company and Jean-Pierre Rodier*................
10.21 Employment Agreement dated between American
National Can Company and Edward A Lapekas*..................
10.22 Employment Agreement dated between American
National Can Company and Michael D. Herdman*................
10.23 Employment Agreement dated between American
National Can Company and Alan H. Schumacher*................
10.24 Employment Agreement dated between American
National Can Company and Dennis R. Bankowski*...............
10.25 Employment Agreement dated between American
National Can Company and Allan J. Bohner*...................
10.26 Pechiney 1998 Stock Option Plan*............................
21 Subsidiaries of the Registrant*.............................
23.1 Consent of Shearman & Sterling (included in Exhibits 5.1 and
8.1)........................................................
</TABLE>
<PAGE> 132
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBITS PAGE NUMBER
- -------- -----------
<C> <S> <C>
23.2 Consent of PricewaterhouseCoopers LLP.......................
23.3 Consent of Coca Cola Enterprises............................
23.4 Consent of Can Manufacturers' Institute.....................
23.5 Consent of Beverage Can Manufacturers Europe................
23.6 Consent of Beverage Marketing Corporation...................
23.7 Consent of Container Consulting*............................
23.8 Consent of Canadean.........................................
23.9 Consent of Kronish, Lieb, Weiner & Hellman LLB..............
24 Powers of Attorney (included on page II-4 of the original
filing)+....................................................
27 Financial Data Schedule+....................................
</TABLE>
- ------------------
* To be filed by amendment.
+ Previously filed.
<PAGE> 1
Exhibit 4.1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of June ___, 1999, by and between AMERICAN NATIONAL CAN GROUP,
INC., a Delaware corporation (the "Company"), and PECHINEY S.A., a French
corporation ("Pechiney").
RECITALS
A. In connection with the initial public offering of shares of
common stock by the Company (the "Initial Public Offering"), the Company desires
to grant to Pechiney certain registration rights with respect to the common
stock of the Company acquired or held directly or indirectly by Pechiney from
time to time (collectively, the "Shares").
B. The parties hereto desire to set forth the terms and conditions
of the Company's covenants and agreements in respect of the registration of the
Shares with the Securities and Exchange Commission and all applicable state
securities agencies.
C. In consideration of the premises and the mutual agreements
contained herein, the parties hereby agree as follows:
AGREEMENT
1. Definitions
As used in this Agreement, the following capitalized terms shall
have the following meanings:
Advice: See the last paragraph of Section [5] hereof.
Agents: Any Person authorized to act and who acts on behalf of
Pechiney with respect to the transactions contemplated by this
Agreement.
Common Stock: Shares of the Company's common stock, par value
$.01 per share, as the same may be constituted from time to time.
Demand Registration: See Section 3(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder as in effect from time to
time.
<PAGE> 2
2
Person: An individual, partnership, corporation trust or
unincorporated organization, or a government or agency or political
subdivision thereof.
Prospectus: The prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement and all other
amendments and supplements to the Prospectus, including post-effective
amendments and all material incorporated by reference in such
Prospectus.
Registrable Securities: (i) The Shares and (ii) any securities
issued or issuable with respect to the Shares by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization, until
such Shares or other securities are not Restricted Securities as
defined in Section 2.
Registration Expenses: See Section [6] hereof.
Registration Statement: Any registration statement of the
Company which covers Registrable Securities pursuant to the provisions
of this Agreement, including (i) the Prospectus, (ii) amendments and
supplements to such Registration Statement, (iii) post-effective
amendments, (iv) all exhibits and all material incorporated by
reference in such Registration Statement and (v) any registration
statement pursuant to a Demand Registration.
Restricted Securities: The Registrable Securities upon
original issuance thereof, subject to the provisions of Section 2
hereof.
Securities Act: The Securities Act of 1933, as amended from
time to time.
SEC: The Securities and Exchange Commission.
Shares: See Recital A.
Underwritten Offering: The offering and sale of securities of
the Company covered by any Registration Statement pursuant to a firm
commitment underwriting to an underwriter at a fixed price for
reoffering or pursuant to agency or best efforts arrangements with an
underwriter.
Unless the context otherwise requires: (i) "or" is not exclusive; and (ii) words
in the singular include the plural and in the plural include the singular.
<PAGE> 3
3
2. Securities Subject to this Agreement
Registrable Securities. The securities entitled to the
benefits of this Agreement are the Registrable Securities but, with respect to
any particular Registrable Security, only so long as such security continues to
be a Restricted Security. A Registrable Security ceases to be a Restricted
Security when (i) it has been effectively registered under the Securities Act
and disposed of in accordance with the Registration Statement covering it, (ii)
it has been distributed pursuant to Rules 144 or 144A (or any similar provisions
then in force) under the Securities Act or (iii) it has otherwise been
transferred and a new certificate or other evidence of ownership for it not
bearing a legend restricting transfer under the Securities Act and not subject
to any stop transfer order has been delivered by or on behalf of the Company and
no other restriction on transfer exists.
3. Demand Registration
(a) Requests for Registration. At any time Pechiney may make a
written request for registration with the SEC under and in accordance with the
provisions of the Securities Act of all or part of its Registrable Securities (a
"Demand Registration"). All requests made pursuant to this Section 3(a) shall
specify the number of Registrable Securities to be registered and the intended
methods of disposition thereof. All such requests shall be delivered to the
Company in accordance with the provisions of Section [9](d) of this Agreement.
(b) Number of, and Limitations on, Registrations. Pechiney
will be entitled to request a total of [ ] Demand Registrations. The Company
will not be obligated to register any Registrable Securities pursuant to such a
Demand Registration (i) unless there is requested to be included in such
registration at least [ ] Shares (subject to such adjustments as may be
necessary by reason of the occurrence of an event contemplated by clause (ii) of
the definition of Registrable Securities) (unless, at the time of such request,
Pechiney holds less than [ ] Shares, in which case such request must be for such
lesser amount) or (ii) if a prior Demand Registration was declared effective
within a period commencing [12] months prior to the date of the written request
for such Demand Registration and such prior Demand Registration was maintained
effective for a period of not less than [180] days, or such shorter period
during which all Registrable Securities covered by such prior Demand
Registration were sold or withdrawn.
(c) Effective Registration - Expenses. In any registration
initiated as a Demand Registration, Pechiney will pay all Registration Expenses,
whether or not the Registration Statement has become effective.
<PAGE> 4
4
(d) Selection of Underwriters. If any of the Registrable
Securities covered by a Demand Registration are to be sold in an underwritten
offering, or in a best efforts underwritten offering, the investment banker or
investment bankers and manager or managers that will administer the offering
will be selected by Pechiney. If Pechiney disapproves of the terms and
conditions of the underwriting, Pechiney may elect to withdraw all its
Registrable Securities by written notice to the Company and the managing
underwriter. The Registrable Securities withdrawn shall also be withdrawn from
registration.
[4. Incidental Registration. Add provisions if applicable]
[4. Piggyback Rights. Add provisions if applicable]
5. Registration Procedures
Whenever Pechiney has requested that any Registrable
Securities be registered pursuant to this Agreement, the Company will promptly
take all such actions as may be necessary or desirable to permit the sale of
such Registrable Securities in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company will as expeditiously as
possible:
(a) with respect to a request to file a Registration Statement
covering Registrable Securities made pursuant to Section 3, use its
best efforts to prepare and file with the SEC not later than [90] days
after receipt of such request (which [90]-day period may be extended by
the Company for up to an additional [90] days if at the time of such
request the Company is engaged in negotiations looking toward its
participation in a material merger, acquisition or other form of
business combination or, if by reason of such transaction, the Company
is not in a position to timely prepare and file the Registration
Statement and the Company furnishes to Pechiney a certificate signed by
the president or a vice president of the Company stating that in the
good faith opinion of the board of directors of the Company such
registration would interfere with such transaction then being pursued
by the Company) a Registration Statement on a form for which the
Company then qualifies which is satisfactory to the Company and
Pechiney (unless the offering is made on an underwritten basis,
including on a best efforts underwriting basis, in which event the
managing underwriter or underwriters may determine the form to be used)
and which form shall be available for the sale of the Registrable
Securities in accordance with the intended method or methods of
distribution thereof, and use its best efforts to cause such
Registration Statement to become effective; the Company shall not file
any Registration Statement pursuant to Section 3 or any amendment
thereto or any Prospectus or any supplement thereto (including such
documents incorporated by reference) to which Pechiney or the
<PAGE> 5
5
underwriters, if any, shall reasonably object in light of the
requirements of the Securities Act or any other applicable laws or
regulations;
(b) before filing a Registration Statement or Prospectus or
any amendments or supplements thereto (excluding documents to be
incorporated by reference therein, except in the case of the
preparation of the initial Registration Statement), the Company will,
within [five] days of filing, furnish to Pechiney and the underwriters,
if any, copies of all such documents in substantially the form proposed
to be filed (including documents incorporated therein by reference), to
enable Pechiney and the underwriters, if any, to review such documents
prior to the filing thereof, and the Company shall make such reasonable
changes thereto (including changes to, or the filing of amendments
reflecting such changes to, documents incorporated by reference) as may
be reasonably requested by Pechiney and the managing underwriter or
underwriters, if any;
(c) subject to the proviso to paragraph (b) above, prepare and
file with the SEC such amendments and post-effective amendments to the
Registration Statement as may be necessary to keep the Registration
Statement continuously effective for a period of not less than 180 days
or such longer period as is required for the intended method of
distribution, or such shorter Period which will terminate when all
Registrable Securities covered by such Registration Statement have been
sold or withdrawn; cause the Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 under the Securities Act; and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable
period in accordance with the intended methods of disposition by
Pechiney thereof set forth in such Registration Statement or supplement
to the Prospectus;
(d) notify Pechiney and the managing underwriters, if any,
promptly, and (if requested by any such Person) confirm such advice in
writing, (1) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to the
Registration Statement or any post-effective amendment, when the same
has become effective, (2) of any request by the SEC for amendments or
supplements to the Registration Statement or the Prospectus or for
additional information, (3) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement
or the initiation of any proceedings for that purpose, (4) if at any
time the representations and warranties of the Company contemplated by
paragraph (o) below cease to be true and correct, (5) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose, and (6) of the happening of any event which makes any
statement
<PAGE> 6
6
made in the Registration Statement, the Prospectus or any document
incorporated therein by reference untrue or which requires the making
of any changes in the Registration Statement, the Prospectus or any
document incorporated therein by reference in order to make the
statements therein not misleading;
(e) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement at
the earliest possible moment;
(f) as promptly as practicable after filing with the SEC of
any document which is incorporated by reference into the Registration
Statement or the Prospectus (after initial filing of the Registration
Statement) provide copies of such document to counsel to Pechiney and
to the managing underwriters;
(g) furnish to Pechiney and each managing underwriter, without
charge, at least one signed copy of the Registration Statement and any
post-effective amendment thereto, including financial statements and
schedules, all documents incorporated therein by reference and all
exhibits (including those incorporated by reference) and a reasonable
number of conformed copies of all such documents;
(h) deliver to Pechiney and the underwriters, if any, as many
copies of the Prospectus (including each preliminary prospectus) and
any amendment or supplement thereto as such Persons may reasonably
request; the Company consents to the use of the Prospectus or any
amendment or supplement thereto by Pechiney and the underwriters, if
any, in connection with the offering and sale of the Registrable
Securities covered by the Prospectus or any amendment or supplement
thereto;
(i) prior to the date on which the Registration Statement is
declared effective, use its best efforts to register or qualify, or
cooperate with Pechiney and the underwriters, if any, and their
respective counsel in connection with the registration or qualification
of, such Registrable Securities for offer and sale under the securities
or blue sky laws of such jurisdictions as any seller or underwriter
reasonably requests in writing and do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions
of the Registrable Securities covered by the Registration Statement;
provided that the Company will not be required to qualify generally to
do business in any jurisdiction where it is not then so qualified or to
take any action which would subject it to general service of process in
any such jurisdiction where it is not then so subject; provided,
further, that the Company will not be required to qualify such
Registrable Securities in any jurisdiction in which the securities
regulatory authority requires that Pechiney submit any shares of its
Registrable Securities to the terms, provisions and restrictions of any
escrow, lock-up or similar
<PAGE> 7
7
agreement(s) for consent to sell Registrable Securities in such
jurisdiction unless Pechiney agrees to do so;
(j) cooperate with Pechiney and the managing underwriters, if
any, to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing any
restrictive legends; and enable such Registrable Securities to be in
such denominations and registered in such names as the managing
underwriters may request at least two business days prior to any sale
of Registrable Securities to the underwriters;
(k) use its best efforts to cause the Registrable Securities
covered by the Registration Statement to be registered with or approved
by such other governmental agencies or authorities within the United
States as may be necessary to enable the seller or sellers thereof or
the underwriters, if any, to consummate the disposition of such
Registrable Securities;
(1) upon the occurrence of any event contemplated by paragraph
(d)(6) above, prepare a supplement or post-effective Amendment to the
Registration Statement or the Prospectus or any document incorporated
therein by reference or file any other required document so that, as
thereafter delivered to the purchasers of the Registrable Securities,
the Prospectus will not contain an untrue statement of a material fact
or omit to state any material fact necessary to make the statements
therein not misleading;
(m) use its best efforts to cause all Registrable Securities
covered by the Registration Statement to be listed on each securities
exchange on which similar securities issued by the Company are then
listed if requested by Pechiney or the managing underwriters, if any;
(n) provide a transfer agent and registrar for all Registrable
Securities;
(o) enter into such agreements (including an underwriting
agreement) and take all such other actions in connection therewith as
Pechiney or the managing underwriters, if any, reasonably request in
order to expedite or facilitate the disposition of such Registrable
Securities and in such connection, whether or not an underwriting
agreement is entered into and whether or not the registration is an
underwritten registration (1) make such representations and warranties
to Pechiney and the underwriters, if any, in form, substance and scope
as are customarily made by issuers to underwriters in primary
underwritten offerings (including, without limitation, an agreement to
not sell equity securities during a customary lock-up period) and
confirm the accuracy of the same if and when requested, and matters
relating to the compliance of the Registration Statement and the
Prospectus with the Securities Act; (2) obtain
<PAGE> 8
8
opinions of counsel to the Company, and updates thereof (which counsel
and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters) addressed to Pechiney and
the underwriters, if any, covering the matters customary in
underwritten primary offerings and such other matters as may be
reasonably requested by Pechiney and underwriters, if any; (3) obtain
"cold comfort" letters and updates thereof from the Company's
independent certified public accountants addressed to Pechiney and the
underwriters, if any, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters by
underwriters in connection with primary underwritten offerings; (4) if
an underwriting agreement is entered into, the same shall set forth in
full the indemnification provisions and procedures of Section [7]
hereof with respect to all parties to be indemnified pursuant to said
Section; and (5) the Company shall deliver such documents and
certificates as may be requested by Pechiney and the managing
underwriters, if any, to evidence compliance with clause (1) above and
with any customary conditions contained in the underwriting agreement
or other agreement entered into by the Company. The above shall be done
at each closing under such underwriting or similar agreement or as and
to the extent required thereunder;
(p) make available for inspection during normal business hours
by Pechiney, any underwriter participating in any disposition pursuant
to such registration statement, and any attorney, accountant or other
agent retained by Pechiney or any such underwriter, all financial and
other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to
supply all information reasonably requested by Pechiney or any such
underwriter, attorney, accountant or agent in connection with such
registration statement; provided that any records, information or
documents that are designated by the Company in writing as confidential
shall be kept confidential by such Persons;
(q) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make generally
available to its security holders, earnings statements satisfying the
provisions of Section 11(a) of the Securities Act, no later than 45
days after the end of any 12-month period (1) commencing at the end of
any fiscal quarter in which Registrable Securities are sold to
underwriters in a firm or best efforts underwriting offering, and (2)
beginning with the first month of the Company's first fiscal quarter
commencing after the effective date of the Registration Statement,
which statements shall cover said 12-month periods; and
(r) take such other reasonable steps that are necessary or
advisable to permit the sale of such Registrable Securities.
<PAGE> 9
9
The Company may require Pechiney to furnish to the Company
such information and documents regarding the distribution of such securities and
Pechiney as the Company may from time to time reasonably request in writing.
Pechiney agrees by acquisition of such Registrable Securities
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section [5](d)(6) hereof, Pechiney will forthwith
discontinue disposition of Registrable Securities until Pechiney's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
[5](l) hereof, or until it is advised in writing (the "Advice") by the Company
that the use of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings which are incorporated by reference in the
Prospectus, and, if so directed by the Company, Pechiney will, or will request
the underwriters to, deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in Pechiney's possession, of the
Prospectus covering such Registrable Securities current at the time of receipt
of such notice. If the Company shall give such notice, the time periods
mentioned in Section [5](c) hereof shall be extended by the number of days
during the period from and including the date of the giving of such notice
pursuant to Section [5](d)(6) to and including the date when Pechiney shall have
received the copies of the supplemented or amended prospectus contemplated by
Section [5](l) hereof or the Advice.
6. Expenses
Except as otherwise provided herein, all expenses incident to
the Company's performance of or compliance with this Agreement including without
limitation all registration and filing fees, including with respect to filings
required to be made with the National Association of Securities Dealers, fees
and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel for the underwriters in connection
with blue sky qualifications of the Registrable Securities and determination of
their eligibility for investment under the laws of such jurisdictions as the
managing underwriters or holders of a majority of the Registrable Securities
being sold may designate), printing expenses, messenger, telephone and delivery
expenses, and fees and disbursements of counsel for the Company, Pechiney and of
all independent certified public accountants (including the expenses of any
special audit and "cold comfort" letters required by or incident to such
performance), the fees and expenses incurred in connection with the listing of
the securities to be registered on each securities exchange on which similar
securities issued by the Company are then listed, rating agency fees, securities
acts liability insurance if Pechiney so requires, the reasonable fees and
expenses of any special experts retained by Pechiney or by the Company at the
request of the managing underwriters in connection with such registration and
fees and expenses of other Persons retained by Pechiney (all such expenses being
herein called "Registration Expenses") will be borne by Pechiney. The Company
shall, in any event, pay its internal expenses (including, without limitation,
all salaries and expenses of its officers and
<PAGE> 10
10
employees performing legal or accounting duties) and the expense of any annual
audit which are not "Registration Expenses" for purposes of this Agreement. In
no event shall the Company be liable for the payment of any discounts,
commissions or fees of underwriters, selling brokers, dealer managers or similar
industry professionals relating to the distribution of the Registrable
Securities. Pechiney shall be liable for the cost and expense of the time spent
by its officers, employees and Agents incurred in connection with the
registration of Registrable Securities owned by it.
7. Indemnification
(a) Indemnification by Company. The Company will indemnify and
hold harmless, to the full extent permitted by law, Pechiney, its officers and
directors, their Agents and each Person who controls Pechiney (within the
meaning of the Securities Act) against all losses, claims, damages, liabilities
(or actions in respect thereto) and expenses to which any such Person may be
subject, under the Securities Act or otherwise, and reimburse all such Persons
for any legal or other expenses incurred with investigating or defending against
any such losses, claims, damages or liabilities, insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue or alleged
untrue statement of a material fact contained in a Registration Statement,
Prospectus or preliminary prospectus or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as the same arise out of
or are based upon an untrue statement of a material fact or omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, which statement or omission is made therein in reliance
upon and in conformity with information furnished in writing to the Company by
Pechiney, expressly for use therein. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of Pechiney,
Pechiney's directors and officers, their Agents or a controlling Person, and
shall survive the transfer of such securities by Pechiney. The Company will also
indemnify underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in the distribution, their officers and
directors and each Person who controls such Persons (with the meaning of the
Securities Act) to the same extent as provided above with respect to the
indemnification of Pechiney of Registrable Securities.
(b) Indemnification by Pechiney. Pechiney will indemnify and
hold harmless, to the full extent permitted by law, the Company, its directors
and officers and each Person who controls the Company (within the meaning of the
Securities Act) against any losses, claims, damages, liabilities (or actions in
respect thereto) and expenses to which any such Person may be subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue or alleged untrue
statement of a material fact contained in a Registration Statement or Prospectus
or preliminary prospectus or any omission or alleged omission of a material fact
required to be stated therein
<PAGE> 11
11
or necessary to make the statements therein not misleading, to the extent, but
only if and to the extent, that such untrue or alleged untrue statement or
omission or alleged omission is made therein in reliance upon and in conformity
with the information furnished in writing by Pechiney specifically for inclusion
therein. In no event shall the liability of Pechiney hereunder be greater in
amount than the dollar amount of the proceeds received by Pechiney upon the sale
of the Registrable Securities giving rise to such indemnification obligation.
The Company shall be entitled to receive indemnities from underwriters, selling
brokers, dealer managers and similar securities industry professionals
participating in the distribution, to the same extent as provided above with
respect to information so furnished in writing by such Persons.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder will (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) unless in such indemnified party's reasonable judgment a conflict of
interest may exist between such indemnified and indemnifying parties with
respect to such claim, permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified party and in
that case the indemnified party shall have the right to participate in the
conduct of such defense provided that it will pay for the fees of its own
counsel. Whether or not such defense is assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld). No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving of
the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation. An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of such additional counsel or counsels. The failure
to notify an indemnifying party promptly of the commencement of any such action,
if and to the extent prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section, but the omission so to notify the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section.
(d) Contribution. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims, damages
or liabilities in such proportion as is appropriate to reflect the relative
fault of the indemnifying party and indemnified party in connection with the
<PAGE> 12
12
actions which resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of material fact or omission or alleged omission to
state a material fact, has been made, or relates to information supplied by,
such indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses, claims,
damages or liabilities referred to above shall be deemed to include any legal or
other fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section [7](d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
8. Transfer of Registration Rights
The registration rights of Pechiney under this Agreement with
respect to any Registrable Securities may be transferred to any transferee of
such Registrable Securities, including any affiliate of Pechiney; provided,
however, that (i) Pechiney shall give the Company written notice at or prior to
the time of such transfer stating the name and address of the transferee and
identifying the securities with respect to which the rights under this Agreement
are being transferred and (ii) such transferee shall agree in writing, in form
and substance reasonably satisfactory to the Company, to be bound by the
provisions of this Agreement.
9. Miscellaneous
(a) Remedies. Pechiney shall be entitled to exercise all
rights provided herein or granted by law, including recovery of damages, and
each will be entitled to specific performance of their rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or
after the date of this Agreement enter into any agreement with respect to its
securities which is inconsistent with the rights granted to Pechiney in this
Agreement or otherwise conflicts with the provisions
<PAGE> 13
13
hereof. The Company has not previously entered into any agreement with respect
to its securities granting any registration rights to any Person.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of
Pechiney.
(d) Notices. All notices, requests, demands and other
communications provided for by this Agreement shall be in writing (including
telecopier or similar writing) and shall be deemed to have been given at the
time when mailed in any general or branch office of the United States Postal
Service, enclosed in a registered or certified postpaid envelope, or sent by
Federal Express or other similar overnight courier service, addressed to the
address of the parties stated below or to such changed address as such party may
have fixed by notice or, if given by telecopier, when such telecopy is
transmitted and the appropriate answerback is received.
(i) If to Pechiney:
Pechiney S.A.
7 place du Chancelier Adenauer
75218 Paris cedex 16
France
Attn: [ ]
(ii) If to the Company:
American National Can Group, Inc.
8770 W. Bryn Mawr Avenue
Chicago, Illinois 60631
Attn: Alan H. Schumacher
(e) Successors and Assigns. This Agreement is solely for the
benefit of the parties and their respective successors and assigns. Nothing
herein shall be construed to provide any rights to any other entity or
individual.
(f) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
<PAGE> 14
14
(g) Headings. Section headings are for convenience only and do
not control or affect the meaning or interpretation of any terms or provisions
of this Agreement.
(h) Governing Law. This Agreement shall be governed by the
laws of the State of New York.
(i) Severability. Should any part, term or condition hereof be
declared illegal or unenforceable or in conflict with any other law, the
validity of the remaining portions or provisions of this Agreement shall not be
affected thereby, and the illegal or unenforceable portions of the Agreement
shall be and hereby are redrafted to conform with applicable law, while leaving
the remaining portions of this Agreement intact.
(j) Entire Agreement. This Agreement constitutes the entire
understanding between the parties and supersedes all proposals, commitments,
writings, negotiations and understandings, oral and written, and all other
communications between the parties relating to the subject matter of this
Agreement. This Agreement may not be amended or otherwise modified except
writing duly executed by all of the parties. A waiver by any party of any breach
or violation of this Agreement shall not be deemed or construed as a waiver of
any subsequent breach or violation thereof.
(k) Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof or
thereof is validly asserted as a defense, the successful party shall be entitled
to recover reasonable attorneys, fees in addition to any other available remedy.
<PAGE> 15
15
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
AMERICAN NATIONAL CAN GROUP, INC.
By:
------------------------------------
[Title]
PECHINEY S.A.
By:
------------------------------------
[Title]
<PAGE> 1
Exhibit 5.1
April 21, 1999
To the Board of Directors
of American National Can Group, Inc.
Ladies and Gentlemen:
We are acting as counsel for American National Can Group, Inc. (the
"Company") in connection with the Registration Statement on Form S-1 (the
"Registration Statement") being filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended,
relating to the offering by the selling stockholder of the Company listed in the
Registration Statement (the "Selling Stockholder") of the Company's common
stock, nominal value $0.01 per share (the "Common Stock").
We are familiar with the corporate proceedings of the Company to date
with respect to the proposed issuance and sale of the Common Stock, including
resolutions of the Board of Directors of the Company (the "Resolutions")
authorizing the issuance, offering and sale of the Common Stock, and we have
examined such corporate records of the Company and such other documents and
certificates as we have deemed necessary as a basis for the opinions hereinafter
expressed.
Based on the foregoing, and having regard for such legal considerations
as we have deemed relevant, we are of the opinion that:
1. The Common Stock has been duly authorized and when duly executed by
the Company pursuant to the authority granted in the Resolutions and delivered
by the Selling Stockholder to and paid for by the purchasers thereof, will
constitute valid and legally binding obligations of the Company and will be
legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the prospectus contained therein.
Very truly yours,
/s/ Shearman & Sterling
<PAGE> 1
Exhibit 10.11
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of June __, 1999, (the
"Agreement") between American National Can Company, a Delaware corporation
("ANC") and Pechiney, a French societe anonyme ("Pechiney").
W I T N E S S E T H :
WHEREAS, ANC is the beneficial owner of all issued and
outstanding shares of common stock (the "Shares") of Pechiney Plastic Packaging,
Inc., a Delaware corporation ("Pechiney Plastics"); and
WHEREAS, ANC wishes to sell and Pechiney wishes to purchase
the Shares, upon the terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in reliance upon the representations and
warranties made herein and in consideration of the mutual agreements herein
contained, the parties agree as follows:
ARTICLE I
TRANSFER AND PURCHASE OF SHARES
SECTION 1.01 Sale and Purchase. Upon the terms contained
herein, ANC hereby sells and transfers to Pechiney, and Pechiney hereby
purchases and accepts, all right, title and interest in and to the Shares free
and clear of all liens, claims and encumbrances for the Purchase Price, as
defined in and provided in Section 1.02.
SECTION 1.02 Purchase Price and Payment for Shares. In
consideration of the sale and transfer pursuant to Section 1.01, Pechiney is
hereby delivering to ANC all of the shares of common stock of ANC of which
Pechiney is the registered owner (the "ANC Stock" or the "Purchase Price").
Receipt of such Purchase Price and a duly executed stock transfer power or
similar instrument of transfer is hereby acknowledged by ANC.
<PAGE> 2
2
SECTION 1.03 Delivery of Shares. ANC is contemporaneously
causing the record ownership of the Shares to be transferred to Pechiney by a
duly executed stock transfer power or similar instrument of transfer. Such
transfer and receipt of the Shares is hereby acknowledged by Pechiney.
ARTICLE 2
MISCELLANEOUS
SECTION 2.01 Expenses. Each of the parties hereto shall pay
all expenses incurred by it in connection with the negotiation, preparation and
execution of this Agreement and the consummation of the transactions
contemplated hereby.
SECTION 2.02 Applicable Law. The rights and duties of ANC and
Pechiney under this Agreement shall be governed by and construed in accordance
with the internal substantive laws and not the choice of law rules of the State
of Illinois.
SECTION 2.03 Amendments. This Agreement may be amended only by
a written instrument executed by the parties or their respective successors or
assigns.
SECTION 2.04 Counterparts. This Agreement may be executed in
one or more counterparts and each counterpart shall be deemed to be an original.
SECTION 2.05 Relationship Between the Parties. The parties
agree that this is an arm's length transaction in which the parties' rights,
undertakings and obligations are limited to those which are set forth in this
Agreement.
<PAGE> 3
3
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
AMERICAN NATIONAL CAN COMPANY
By:__________________________
Name:
Title:
PECHINEY
By:__________________________
Name:
Title:
<PAGE> 1
Exhibit 10.13
CONTRIBUTION AGREEMENT
CONTRIBUTION AGREEMENT, dated as of June __, 1999, between
Financiere Europeenne d'Emballages Pechiney, a French societe anonyme ("FEEP")
and American National Can Group, Inc., a Delaware corporation ("ANC Group").
W I T N E S S E T H:
WHEREAS, FEEP desires to contribute, transfer and assign to
ANC Group, and ANC Group desires to acquire from FEEP, all right, title and
interest of FEEP in and to the capital stock (the "Stock") of the Contributed
Subsidiaries (as such term is hereinafter defined), upon the terms and subject
to the conditions set forth herein;
WHEREAS, in consideration for the contribution and transfer by
FEEP of the Stock to ANC Group, ANC Group agrees to issue to FEEP [ ] shares of
the common stock of ANC Group (the "Shares");
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements and covenants contained herein, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. The following terms
shall have the meanings defined for such terms in the Sections of this Agreement
set forth below:
"Action" means any action, suit, arbitration, inquiry,
proceeding or investigation by or before any Governmental Authority.
"Affiliate" means, with respect to any specified Person, any
other Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.
"Agreement" means this Contribution Agreement, including any
amendments hereto and each Schedule and Exhibit attached hereto.
<PAGE> 2
2
"Contributed Subsidiaries" means the corporations, limited
liability companies, partnerships, associations and other entities specified in
Schedule 1.01A.
"Encumbrance" means any security interest, pledge, mortgage,
lien (including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, preferential arrangement, or restriction of any
kind, including, without limitation, any arrangement, restriction on the use,
voting, transfer, receipt of income or other exercise of any attributes of
ownership.
"Governmental Authority" means any United States federal,
state or local or any foreign government, governmental, regulatory or
administrative authority, agency or commission or any court, tribunal, or
judicial or arbitral body.
"Governmental Order" means any order, writ, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
"Law" means any federal, state, local or foreign statute, law,
ordinance, regulation, rule, code, order, requirement or rule of common law.
"Person" means any individual, partnership, limited liability
company, firm, corporation, association, trust, unincorporated organization or
other entity, as well as any syndicate or group that would be deemed to be a
person under Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended.
SECTION 1.02. Other Defined Terms. The following terms shall
have meanings defined for such terms in the Sections of this Agreement set forth
below:
Term Section
---- -------
ANC Group Preamble
FEEP Preamble
Shares Recitals
Stock Recitals
ARTICLE II
CONTRIBUTION OF STOCK; ISSUANCE OF SHARES
<PAGE> 3
3
SECTION 2.01. Contribution, Transfer and Assignment of Stock.
FEEP does hereby sell, assign, transfer, convey, grant, bargain, set over,
release, deliver and confirm unto ANC Group, its successors and permitted
assigns, as a capital contribution, the entire right, title and interest of FEEP
in and to the Stock.
SECTION 2.02. Issuance of Shares. As of the date hereof, ANC
Group has authorized 1,000,000,000 shares of Common Stock, par value $0.01 per
share. In exchange for the Stock, ANC Group shall issue to FEEP, effective as of
the date hereof, the Shares. ANC Group agrees to cause a certificate for such
Shares to be issued to FEEP upon consummation of the transactions contemplated
by this Agreement. Such Shares, when issued, will be fully paid and
non-assessable.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FEEP
FEEP represents and warrants as follows:
SECTION 3.01. Incorporation and Authority of FEEP. FEEP is a
corporation duly incorporated and validly existing under the laws of its
jurisdiction of incorporation, and has all necessary corporate power and
authority to enter into this Agreement, to carry out its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement by FEEP, the performance
by FEEP of its obligations hereunder and thereunder and the consummation by FEEP
of the transfers contemplated hereby and thereby have been duly authorized by
all requisite corporate action on the part of FEEP. This Agreement has been
duly executed and delivered by FEEP, and (assuming due authorization, execution
and delivery by ANC Group) this Agreement constitutes, legal, valid and binding
obligations of FEEP, enforceable against FEEP in accordance with their terms.
SECTION 3.02. Incorporation and Qualification of the
Contributed Subsidiaries. Each Contributed Subsidiary is a corporation duly
incorporated and validly existing under the laws of its jurisdiction of
incorporation.
SECTION 3.03. Stock of the Contributed Subsidiaries. The Stock
has been duly authorized and validly issued and is fully paid and was not issued
in violation of any pre-emptive rights. FEEP beneficially owns the Stock free
and clear of Encumbrances except for Encumbrances arising out of, under or in
connection with this Agreement or created by or through ANC Group or any of its
subsidiaries. There are no voting trusts, stockholder agreements, proxies or
other agreements in effect with respect to the voting or transfer of the Stock.
Upon payment for the Stock as contemplated by this Agreement, ANC Group will
<PAGE> 4
4
acquire from FEEP good and marketable title to the Stock, free and clear of all
Encumbrances, except Encumbrances arising by or through ANC Group or any of its
subsidiaries.
SECTION 3.04. No Conflict. Assuming all consents, approvals,
authorizations and other actions described in Section 3.05 have been obtained,
and except as may result from any facts or circumstances relating to ANC Group
or as described in Schedule 3.04, the execution, delivery and performance of
this Agreement by FEEP does not and will not (a) violate or conflict with the
charter or other constitutive documents or by-laws of FEEP or any Contributed
Subsidiary, (b) conflict with or violate any material Law or Governmental Order
applicable to FEEP or any Contributed Subsidiary or (c) result in any breach of,
or constitute a default (or event which with the giving of notice or lapse of
time, or both, would become a default) under, or give to any Person any rights
of termination, amendment, acceleration or cancellation, or give to any Person
any additional rights or entitlement to increased, additional, accelerated or
guaranteed payments under, or result in the creation of any Encumbrance on any
Stock pursuant to, any note, bond, contract, license, permit, franchise or other
instrument to which FEEP or any Contributed Subsidiary is a party or by which
any of such Stock is bound or affected, except as would not, individually or in
the aggregate impair the ability of FEEP to consummate the contribution and
transfer of the Stock to ANC Group as contemplated by this Agreement.
SECTION 3.05. Consents and Approvals. The execution and
delivery of this Agreement by FEEP do not, and the performance of this Agreement
by FEEP will not, require any material consent, approval, authorization or other
action by, or filing with or notification to, any Governmental Authority, except
(a) as described in Schedule 3.05, (b) where failure to obtain such consent,
approval, authorization or action, or to make such filing or notification, would
not, individually or in the aggregate, prevent FEEP from performing its
obligations under this Agreement or (c) as may be necessary as a result of any
facts or circumstances relating solely to ANC Group or its subsidiaries.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ANC GROUP
ANC Group represents and warrants as follows:
SECTION 4.01. Organization. ANC Group is a corporation duly
formed, validly existing and in good standing under the laws of the State of
Delaware. This Agreement constitutes the legal, valid and binding obligation of
ANC Group, enforceable in accordance with its terms.
<PAGE> 5
5
SECTION 4.02. Authorization of Transaction. The execution and
delivery of this Agreement and all other instruments and documents contemplated
herein by ANC Group have been duly authorized by all necessary corporate action
of ANC Group. Neither the execution nor delivery of this Agreement nor the
fulfillment of nor compliance with the terms hereof will conflict with or result
in a breach of the terms, conditions or provisions of or constitute a default
under or any agreement or instrument to which ANC Group is a party.
SECTION 4.03. Securities Matters. ANC Group understands that
the offering and sale of the Stock hereunder is intended to be exempt from the
registration requirements of the Securities Act of 1933, as amended, (the
"Securities Act") pursuant to Section 4(2) thereof. The Stock is being acquired
by ANC Group for its own account and without a view to the public distribution
of the Stock or any interest therein. ANC Group has sufficient knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of their investments in the Stock, and ANC Group is capable
of bearing the economic risks of such investments, including a complete loss of
its investment in the Stock. In evaluating the suitability of an investment in
the Stock, ANC Group has relied solely upon the representations, warranties,
covenants and agreements made by FEEP herein and not upon any other
representations or other information (whether oral or written and including any
projections or supplemental data) made or supplied by or on behalf of FEEP or
any of its Affiliates, employees, agents or other representatives. ANC Group
understands and agrees that it may not sell or dispose of any of the Stock other
than pursuant to a registered offering or in a transaction exempt from the
registration requirements of the Securities Act.
ARTICLE V
COVENANTS OF THE PARTIES
SECTION 5.01. Further Assurances. FEEP agrees to perform such
other acts and to execute, acknowledge and/or deliver such other instruments,
documents and other materials, all at ANC Group's expense, which ANC Group, its
successors or assigns, may deem proper for the collection or reduction to
possession of collection and enforcement of any claim or right of any kind
hereby sold, conveyed, transferred, assigned and delivered, or intended so to
be.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.01. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Illinois,
applicable to contracts executed in and to be performed entirely within that
state.
<PAGE> 6
6
SECTION 6.02. Currency. Unless otherwise specified in this
Agreement, all references to currency, monetary values and dollars set forth
herein mean United States (U.S.) Dollars and all payments hereunder shall be
made in United States Dollars.
SECTION 6.03. Specific Performance. Each of the parties
acknowledges that money damages would not be a sufficient remedy for any breach
of this Agreement and that irreparable harm would result if this Agreement were
not specifically enforced. Therefore, the rights and obligations of the parties
under this Agreement shall be enforceable by a decree of specific performance
issued by any court of competent jurisdiction, and appropriate injunctive relief
may be applied for and granted in connection therewith. A party's right to
specific performance shall be in addition to all other legal or equitable
remedies available to such party.
SECTION 6.04. Waiver of Jury Trial. Each of the parties
irrevocably waives to the extent permitted by law all rights to trial by jury in
any action, proceeding or counterclaim arising out of or relating to this
Agreement.
SECTION 6.05. Headings. The article and section headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
SECTION 6.06. Entire Agreement. This Agreement embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein and therein and supersede all prior agreements
and understandings between the parties with respect to the subject matter hereof
and thereof.
SECTION 6.07. Severability. If any one or more provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement, but
this Agreement shall be construed as if such invalid, illegal, or unenforceable
provision had never been contained herein.
SECTION 6.08. No Third Party Beneficiaries. This Agreement
shall be binding upon and inure solely to the benefit of the parties hereto and
their permitted assigns and nothing herein, express or implied, is intended to
or shall confer upon any other Person any legal or equitable right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 6.09. Arbitration. (a) Any controversy, claim or
dispute arising out of or in connection with this Agreement or the breach,
termination, enforceability or validity hereof, including without limitation the
determination of the scope or applicability of the agreement to arbitrate set
forth in this Section 6.09, shall be fully and finally determined exclusively by
<PAGE> 7
7
binding arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association (the "AAA Rules"). The seat of the arbitration
shall be the City of Chicago, State of Illinois. The arbitral tribunal shall be
comprised of three arbitrators appointed in accordance with the AAA Rules.
(b) No provision of, nor the exercise of any rights under,
this Section 6.09 shall limit the right of any party to request and obtain from
a court of competent jurisdiction in the City of Chicago, State of Illinois
(which shall have exclusive jurisdiction for purposes of this Section 6.09(b))
before, during or after the pendency of any arbitration, solely for the purpose
of seeking provisional or conservatory remedies in aid of the arbitration,
including, but not limited to, injunctive relief, in accordance with the AAA
Rules. The institution and maintenance of an action or judicial proceeding for,
or pursuit of, provisional or conservatory remedies shall not constitute a
waiver of the right of any party, even if it is the plaintiff, to submit the
dispute to arbitration if such party would otherwise have such right.
(c) Judgment upon the award rendered may be entered in any
court having jurisdiction. The parties hereby expressly consent to the
nonexclusive jurisdiction of the state and federal courts situated in the City
of Chicago, State of Illinois for this purpose and waive objection to the venue
of any proceeding in such court or that such court provides an inconvenient
forum.
(d) Each of the parties shall, subject to the award of the
arbitrators, pay an equal share of the arbitrators' fees. The arbitrators shall
have the power to award recovery of all costs (including attorneys' fees,
administrative fees, arbitrators' fees and court costs) to the prevailing party.
SECTION 6.10. Assignment. This Agreement or any rights or
obligations arising hereunder may not be assigned by operation of Law or
otherwise without the express written consent of FEEP and ANC Group (which
consent may be granted or withheld in the sole discretion of FEEP and ANC
Group); provided, however, that (i) FEEP may assign this Agreements, in whole
and not in part, or any of its rights hereunder, to an Affiliate of FEEP,
without the consent of ANC Group (provided that FEEP shall nevertheless remain
obligated to perform its obligations hereunder following any such assignment),
and (ii) ANC Group may assign this Agreement, in whole and not in part, to a
Person who acquires all or substantially all of the assets and liabilities of
ANC Group, without the consent of FEEP.
SECTION 6.11. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument and shall become a
binding Agreement when one or more of the counterparts have been signed by each
of the parties and delivered to the other party.
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
FINANCIERE EUROPEENNE D'EMBALLAGES
PECHINEY
By: _____________________________________
Name:
Title:
AMERICAN NATIONAL CAN GROUP, INC.
By: _____________________________________
Name:
Title:
<PAGE> 9
SCHEDULE 1.01A
CONTRIBUTED SUBSIDIARIES
<TABLE>
<CAPTION>
Name Jurisdiction of Interest Contributed
- ---- Organization --------------------
---------------
<S> <C> <C>
ANC do Brasil Ltda. Brazil 68,255,990 quotas
Nacanco Holding Europe France 43,707,528 "B" Class Shares (preference shares),
each of a nominal value of FF 100
Nacano Holding France France 10,252,377 "A" Class Shares (ordinary shares),
each of a nominal value of FF 100
</TABLE>
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated April 19, 1999, relating
to the combined financial statements of American National Can Group, Inc.,
which appears in the Prospectus. We also consent to the references to us under
the headings "Experts", "Summary Selected Combined Financial Information" and
"Reorganization of ANC" in such Prospectus. However, it should be noted that
PricewaterhouseCoopers LLP has not prepared or certified such "Summary Selected
Combined Financial Information."
PricewaterhouseCoopers LLP
Chicago, Illinois
June 4, 1999
<PAGE> 1
Exhibit 23.3
We confirm that American National Can has been the largest supplier of cans to
Coca-Cola Enterprises Inc. for the past 10 years. We further confirm that
American National Can Group, Inc. may include this disclosure in the final
prospectus for its initial public offering.
By: /s/ Raymond J. Malone
--------------------------
Date: 6/1/99
-------------------------
<PAGE> 1
Exhibit 23.4
From: Robert Budway [email protected]
To: "'[email protected]'" [email protected]
Date: June 2, 1999 1:29 pm
Subject: IPO/CMI data
Hugh,
Just to reconfirm, we do not forsee any issues in regards to ANCC using CMI
shipment or other data in the filing for the IPO.
Hope it goes well and please let us know if there is anything else we can do to
help.
Robert Budway
<PAGE> 1
Exhibit 23.5
[BEVERAGE CAN MAKERS EUROPE LETTERHEAD]
BEVERAGE CAN MAKERS EUROPE
Nacanco Services (Europe) Limited
Mr. M.D. Herdman
100 Capability Green
Luton
Beds. LU1 3LG
UK
Fax (44) 1582-725977
Brussels, June 2 1999
Dear Mr. Herdman
BCME incorporates the four major can makers in Europe. The market statistics
will include some small percentage estimate for those can makers who do not
submit these statistics to the independent auditor.
Notwithstanding this, BCME are in agreement to their name being used in the
flotation document.
Sincerely yours
/s/ Bob Schmitz
Bob Schmitz
Permanent Delegate
<PAGE> 1
Exhibit 23.6
Beverage Marketing Corp. of New York
850 Third Avenue
New York, NY 10022
Tel: 212 688-7640 Fax: 212 826-1255
9 April 1999
Ms. Polly Moles
Communications Manager
American National Can Company
8770 West Bryn Mawr Avenue
Chicago, IL 60631
Dear Ms. Moles:
American National Can Company has permission to reprint certain data related to
the U.S. beverage industry that Beverage Marketing has compiled. The data
should be credited to Beverage Marketing Corporation.
Thanks for your consideration.
Sincerely,
/s/ Gary A. Hemphill
Gary A. Hemphill
Vice President
[BEVERAGE MARKETING LOGO]
<PAGE> 1
Exhibit 23.8
[CANADEAN]
12 Faraday Court Rankina Road, Danesfill
Bashingstoke, Hants, RG24 8PF, UK
Tel:+44(0) 1256 384200
Fax:+44(0) 1258 394201
e-mail: canadean.com
Website: www.canadean.com
Fax to Brian Stone Fax from Kelsey van
Musschenbroek
- --------------------------------------------------------------------------------
Company Nacanco Company Canadean
Limited
- --------------------------------------------------------------------------------
Fax No. 01582-725971 Fax No. +44(0)1256 394201/2
- --------------------------------------------------------------------------------
Date 1st April, 1999 No. of Pages 1
- --------------------------------------------------------------------------------
Dear Brian,
Thanks for your fax. We have been through the numbers and are in agreement to
their being used in the Nacanco flotation document, on the understanding that
Canadean will be quoted as the source. Kind regards and Happy Easter.
Kelsey
<PAGE> 1
[KRONISH LIEB WEINER & HELLMAN LETTERHEAD]
Exhibit 23.9
June 4, 1999
American National Can Group, Inc.
8770 W. Bryn Mawr Avenue
Chicago, Illinois
60631, USA
Dear Sirs:
We consent to the use of the name of our firm in American National Can
Group, Inc.'s registration statement on Form S-1 No. 333-76699.
Very truly yours,
/s/ Kronish Lieb Weiner & Hellman LLP
-------------------------------------
Kronish Lieb Weiner & Hellman LLP
1114 Avenue of the Americas, New York, NY 10036-7798
- --------------------------------------------------------------------------------
Phone: (212) 479-6000 - Fax: (212) 479-6275
