<PAGE> 1
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _________ to
_________
-----------------------------
COMMISSION FILE NUMBER 1-15163
AMERICAN NATIONAL CAN GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 36-4287015
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
8770 W. Bryn Mawr Avenue, Chicago, Illinois 60631
(Address of principal executive offices)
Registrant's telephone number, including area code: (773) 399-3000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] - No [ ]
The number of shares outstanding of the registrant's common stock as of November
9, 1999 was 55,000,000
================================================================================
<PAGE> 2
AMERICAN NATIONAL CAN GROUP, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Income (unaudited) for the three months and the nine
months ended September 30, 1999 and 1998 .................................................. 3
Consolidated Balance Sheets at September 30, 1999 (unaudited) and at December 31, 1998 .... 4
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months
ended September 30, 1999 and 1998 ......................................................... 5
Consolidated Statement of Changes in Equity for the nine months ended
September 30, 1999 (unaudited) ............................................................ 6
Notes to the Consolidated Financial Statements (unaudited) ................................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ..................................................................... 14
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .......................................................... 19
Signatures ......................................................................................... 20
</TABLE>
2
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
American National Can Group, Inc.
Consolidated Statements of Income
(In thousands of U.S. dollars, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- ------------------------------
1999 1998 1999 1998
-------------- -------------- ----------- ---------------
<S> <C> <C> <C> <C>
Net sales ................................................ $ 613,427 $ 672,823 $ 1,801,193 $ 1,927,552
Cost of goods sold (excluding depreciation) .............. 470,176 530,548 1,417,716 1,544,484
Selling, general and administrative expense .............. 26,386 30,429 88,144 102,590
Research and development expense ......................... 3,124 3,723 9,858 11,780
Depreciation and amortization ............................ 19,872 20,097 60,373 59,611
Goodwill amortization .................................... 10,347 9,980 30,747 30,496
Restructuring charge (credit) and writedown of
property and equipment ............................... 812 2,052 (320) (2,612)
----------- ----------- ----------- -----------
OPERATING INCOME FROM CONTINUING OPERATIONS ............ 82,710 75,994 194,675 181,203
Interest expense ......................................... 17,528 17,738 49,462 53,360
Interest income and other financial
income, net .......................................... 579 2,538 11,136 7,710
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES, EQUITY EARNINGS, MINORITY
INTEREST, EXTRAORDINARY CHARGE AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE .......................... 65,761 60,794 156,349 135,553
Income tax expense (benefit) ............................. 28,054 (7,188) 66,698 23,581
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE EQUITY
EARNINGS, MINORITY INTEREST, EXTRAORDINARY CHARGE
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE ........... 37,707 67,982 89,651 111,972
Equity in net earnings of affiliates ..................... 2,302 2,523 5,804 1,726
Minority interest ........................................ 19 (1,957) (1,482) (4,298)
----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY CHARGE AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE .......................... 40,028 68,548 93,973 109,400
Income (loss) from discontinued operations,
net of tax expense of $2,471, $3,984, $5,851
and $11,513 .......................................... (218) 553 2,617 429
Extraordinary charge, net of tax benefit of $982 ......... (1,823) -- (1,823) --
Cumulative effect of accounting change, net
of tax benefit of $1,382 ............................. -- -- -- (2,566)
----------- ----------- ----------- -----------
NET INCOME ............................................... $ 37,987 $ 69,101 $ 94,767 $ 107,263
=========== =========== =========== ===========
EARNINGS PER SHARE - BASIC AND ASSUMING DILUTION
Income from continuing operations before
extraordinary charge and cumulative effect of
accounting change .................................... $ 0.73 $ 1.25 $ 1.71 $ 1.99
Income (loss) from discontinued operations ............... (0.01) 0.01 0.04 0.01
Extraordinary charge ..................................... (0.03) -- (0.03) --
Cumulative effect of accounting change ................... -- -- -- (0.05)
----------- ----------- ----------- -----------
NET INCOME ............................................... $ 0.69 $ 1.26 $ 1.72 $ 1.95
=========== =========== =========== ===========
Weighted average shares outstanding -
basic (in thousands) ................................. 55,000 55,000 55,000 55,000
=========== =========== =========== ===========
Weighted average shares outstanding -
assuming dilution (in thousands) ..................... 55,122 55,000 55,041 55,000
=========== =========== =========== ===========
Dividends declared per share ............................. $ 0.28 $ -- $ 0.28 $ --
=========== =========== =========== ===========
</TABLE>
See notes to the Consolidated Financial Statements.
3
<PAGE> 4
American National Can Group, Inc.
Consolidated Balance Sheets
(In thousands of U.S. dollars, except share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents ........................... $ 163,416 $ 170,549
Accounts receivable ................................. 201,938 138,312
Other receivables and prepaid expenses .............. 43,776 42,232
Inventories ......................................... 204,899 236,340
Net current assets of discontinued operations ....... -- 46,454
Deferred income taxes ............................... 103,132 109,713
----------- -----------
TOTAL CURRENT ASSETS ................................ 717,161 743,600
Property, plant and equipment, net .................. 793,941 836,064
Goodwill, net ....................................... 1,228,451 1,224,348
Investments in equity affiliates .................... 110,817 112,541
Pension asset ....................................... 243,874 212,531
Net noncurrent assets of discontinued operations .... -- 536,397
Deferred income taxes ............................... 167,885 193,168
Other long-term assets .............................. 113,377 68,568
----------- -----------
TOTAL ASSETS ........................................ $ 3,375,506 $ 3,927,217
=========== ===========
LIABILITIES AND EQUITY:
CURRENT LIABILITIES
Accounts payable -- trade ............................ $ 241,993 $ 241,215
Other payables and accrued liabilities .............. 369,923 342,509
Current portion of long-term debt ................... 661 6,704
Short-term financing:
External ........................................ 33,683 20,258
Related party ................................... -- 659,783
----------- -----------
TOTAL CURRENT LIABILITIES ........................... 646,260 1,270,469
Deferred income taxes ............................... 56,967 59,900
Postretirement benefit obligations .................. 304,473 309,004
Other long-term liabilities ......................... 147,759 169,828
Long-term debt:
External ........................................ 1,133,402 259,921
Related party ................................... -- 291,277
----------- -----------
TOTAL LIABILITIES ................................... 2,288,861 2,360,399
----------- -----------
Minority interests .................................. 7,202 28,530
Commitments and contingencies ....................... -- --
EQUITY
Preferred stock (25,000,000 shares authorized, ...... -- --
none issued and outstanding)
Common stock ($0.01 par value, 1,000,000,000
shares authorized, 55,000,000 shares issued
and outstanding) ................................ 550 --
Additional paid in capital .......................... 1,211,632 --
Receivable from Pechiney Plastic Packaging, Inc. .... (61,825) --
Retained earnings ................................... 10,726 --
Owner's equity ...................................... -- 1,603,367
Accumulated other comprehensive loss ................ (81,640) (65,079)
----------- -----------
TOTAL EQUITY ........................................ 1,079,443 1,538,288
----------- -----------
TOTAL LIABILITIES AND EQUITY ........................ $ 3,375,506 $ 3,927,217
=========== ===========
</TABLE>
See notes to the Consolidated Financial Statements.
4
<PAGE> 5
American National Can Group, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations before extraordinary charge and
cumulative effect of accounting change ....................................... $ 93,973 $ 109,399
Minority interests ............................................................... 1,482 4,298
Equity in net earnings of affiliates ............................................. (5,804) (1,726)
Depreciation and amortization .................................................... 91,120 90,108
Restructuring charge (credit) and write down of property, plant
and equipment ................................................................ (320) (2,612)
Provision for deferred income taxes .............................................. 15,333 29,213
Reduction in income tax reserve .................................................. -- (32,206)
Prepayment penalty on early retirements of long-term debt ........................ (3,205) --
Other non-cash (income) expense, net ............................................. (36,752) (30,195)
Changes in assets and liabilities exclusive of effects from divestitures and
translation adjustments ...................................................... (62,798) (14,074)
----------- -----------
Net cash provided by operating activities of continuing operations .................. 93,029 152,205
Net cash provided by (used in) operating activities of discontinued operations ...... (13,669) 60,438
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........................................... 79,360 212,643
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ....................................... (38,935) (37,147)
Acquisition of minority interests in Turkey ...................................... (53,000) --
Proceeds from sale of joint venture .............................................. 9,000 --
Proceeds from sales of property, plant and equipment ............................. 1,660 6,238
----------- -----------
Net cash used in investing activities of continuing operations ...................... (81,275) (30,909)
Net cash used in investing activities of discontinued operations .................... (63,764) (71,062)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES ............................................... (145,039) (101,971)
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt ...................................................... 1,116,071 41,688
Payments on long-term debt ....................................................... (519,577) (404,032)
Debt issuance costs .............................................................. (8,922) --
Net decrease in short-term financing ............................................. (425,571) (113,286)
Proceeds from issuance of stock by subsidiary companies to Pechiney .............. -- 883,100
Capital contributions from Pechiney .............................................. 282 --
Dividends paid:
To Pechiney .................................................................. (121,522) (424,222)
To minority interests in subsidiaries ........................................ (4,775) (5,503)
----------- -----------
Net cash provided by (used in) financing activities of continuing operations ........ 35,986 (22,255)
Net cash provided by (used in) financing activities of discontinued operations ...... 34,084 (4,095)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ................................. 70,070 (26,350)
NET EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH .................................. (8,823) (3,603)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................ (4,432) 80,719
Increase in cash and cash equivalents of discontinued operations .................... (2,701) (2,725)
----------- -----------
Net increase (decrease) in cash and cash equivalents of continuing operations ....... (7,133) 77,994
Cash and cash equivalents at beginning of period .................................... 170,549 105,835
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................................... $ 163,416 $ 183,829
=========== ===========
</TABLE>
See notes to the Consolidated Financial Statements.
5
<PAGE> 6
American National Can Group, Inc.
Consolidated Statement of Changes in Equity
(In thousands of U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
Receivable
from
Pechiney Accumulated
Additional Plastic Other
Owner's Common Paid in Packaging, Retained Comprehensive
Equity Stock Capital Inc. Earnings Loss Total
----------- --------- ----------- ---------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 ......... $ 1,603,367 $ -- $ -- $ -- $ -- $ (65,079) $1,538,288
Reorganization and transfer of
discontinued plastic packaging
operations to Pechiney in
association with initial public
offering:
Transfer debt to plastic
packaging operations ........... 260,000 260,000
Transfer net assets of plastic
packaging operations to
Pechiney ............. ......... (660,411) 6,188 (654,223)
Capital contribution from
Pechiney ....................... 282 282
Dividends paid to Pechiney ........ (121,522) (121,522)
Net income January 1 through
July 28, 1999 ..................... 68,641 68,641
Pechiney indemnification of
Viskase obligation ................ 61,825 (61,825) --
Initial public offering .............. (1,150,357) 550 1,149,807 --
Net income July 29 through
September 30, 1999 ................ 26,126 26,126
Dividends declared to shareholders ... (15,400) (15,400)
Changes in accumulated other
comprehensive income:
Foreign currency translation
adjustment, net of tax
benefit of $4,135 .............. (30,756) (30,756)
Minimum pension liability
adjustment, net of tax
expense of ($5,232) ............ 8,007 8,007
----------- ----------- ----------- --------- -------- ----------- ----------
Balance at September 30, 1999 ....... $ -- $ 550 $ 1,211,632 $ (61,825) $ 10,726 $ (81,640) $1,079,443
=========== =========== =========== ========= ======== =========== ==========
</TABLE>
Accumulated other comprehensive income items comprise cumulative
translation adjustments of $47,455 and $75,976 and minimum pension liability
adjustments of $17,624 and $5,664 at December 31, 1998 and September 30, 1999,
respectively. Such amounts are net of tax aggregating $24,387 and $20,692 at
those dates, respectively. The net amounts applicable to the discontinued
plastics business referred to above includes $804 for cumulative translation
adjustments and $4,265 for minimum pension liability adjustments at December 31,
1998.
See notes to the Consolidated Financial Statements.
6
<PAGE> 7
American National Can Group, Inc.
Notes to the Consolidated Financial Statements
(In thousands of U.S. dollars, except share amounts)
(Unaudited)
NOTE 1: COMPANY FORMATION AND BASIS OF PRESENTATION
COMPANY FORMATION
American National Can Group, Inc. (the "Company" or "ANC") consists of the
former worldwide beverage can business of Pechiney. The Company was incorporated
with the issuance of 55,000,000 shares of ANC common stock and was formed
through a series of transactions (the "Reorganization") completed immediately
prior to the initial public offering (the "Offering" or the "IPO") by Pechiney
of a 54.5% ownership interest in the Company. Operations of the Company prior to
the Reorganization were conducted by (a) Pechiney North America, Inc. ("PNA") (a
wholly owned subsidiary of Pechiney), through its 90% owned subsidiary (Pechiney
owned directly the remaining 10%), American National Can Company ("ANCC") and
ANCC's various European (in which Pechiney held a minority interest) and Asian
subsidiaries, and (b) Pechiney through its subsidiaries in Turkey (65% owned),
France (100% owned) and Brazil (100% owned) and joint ventures in Mexico and
Korea. ANCC also owned and operated a plastics packaging business.
The Reorganization consisted of:
The payment of dividends to Pechiney aggregating $100,242 by certain of
Pechiney's European beverage can subsidiaries prior to completion of
the Offering. Such dividends were in addition to $21,280 of dividends
paid to Pechiney prior to the reorganization.
The transfer by Pechiney of (a) PNA, (b) its minority interests in the
ANCC European subsidiaries and (c) its subsidiaries in Turkey, France
and Brazil and investment in joint ventures to the Company.
The transfer by ANCC of its plastics packaging business along with
$260,000 of related party debt to Pechiney Plastic Packaging, Inc.
("PPPI") and transfer of the stock of PPPI to Pechiney in exchange for
Pechiney's 10% interest in ANCC.
On July 28, 1999, the Company acquired the remaining 35% minority interest
in its Turkish subsidiary for $53,000 in cash and is including 100% of the
Turkish subsidiaries operating results in the consolidated financial statements
thereafter.
On August 2, 1999, Pechiney completed the IPO by selling 30,000,000 shares
of ANC common stock for $17 per share less underwriting discounts and
commissions. ANC did not receive any proceeds from the IPO. Pechiney continues
to hold 25,000,000 shares of ANC common stock.
BASIS OF PRESENTATION
The accompanying financial statements include the combined accounts of PNA,
ANCC and the entities transferred by Pechiney to the Company for the periods
presented up to the IPO date and the consolidated accounts of the Company as of
and for the two months ended September 30, 1999. The former plastics operations
of ANCC have been presented as discontinued operations in the accompanying
financial statements. As a consequence, 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 balance sheet at
December 31, 1998. In the consolidated statements of income and of cash flows
for all periods presented, the operating results and cash flows of the plastics
business through July 28, 1999, the date of their transfer to Pechiney, have
been presented separately as single-line items.
7
<PAGE> 8
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of the Company as of September 30, 1999 and the results of
its operations for the three month and nine month periods ended September 30,
1999 and 1998 and cash flows for the nine months ended September 30, 1999 and
1998. All adjustments reflected in the accompanying unaudited consolidated
financial statements are of a normal recurring nature. Results of operations for
interim periods are not necessarily indicative of the results to be expected for
the full year. Certain information and footnote disclosures, normally included
in financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted. The unaudited
consolidated financial statements should be read in conjunction with the
combined financial statements and the related notes included in the Company's
Form S-1 Registration Statement as amended as of August 2, 1999.
NOTE 2: DISCONTINUED OPERATIONS
On July 28, 1999, ANCC transferred $260,000 of related party debt to PPPI
and transferred the stock of PPPI to Pechiney in exchange for Pechiney's 10%
interest in ANCC. As a result, net current and non-current assets of the
discontinued plastics operations of $660,411 were removed form the Company's
balance sheet along with related party short term financing of $260,000 and
other accumulated comprehensive losses of $6,188. There is no impact on the
Condensed Consolidated Statements of Cash Flows for these transactions since
they were non-cash transfers.
Net sales for the plastics business included in the statements of income
were $69,731 and $204,828 for the month of July, 1999 and the third quarter
ended September 30, 1998, respectively, and $497,710 and $620,457 for the seven
and nine month periods ended July 28, 1999 and September 30, 1998, respectively.
Net loss from discontinued operations for the three months ended September 30,
1999 includes a $1,701 loss, net of tax, from the results of the plastics
operations up to their transfer date; $5,714 of income, net of tax, relating to
the revision of estimates for certain tax audits and accrued costs associated
with properties of previously disposed of businesses; and a $4,231 loss, net of
tax, on the transfer of the plastics business to Pechiney. Net income (loss)
from discontinued operations for all other periods represents the net income of
the plastics operations for the period, net of tax. Intercompany borrowings of
the plastics operations from ANCC are included in financing activities from
continuing operations in the statements of cash flows for all periods presented.
NOTE 3: COMPREHENSIVE INCOME
Comprehensive income for the three months ended September 30, 1999 and 1998
and the nine months ended September 30, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 37,987 $ 69,101 $ 94,767 $ 107,263
Other comprehensive income:
Foreign currency translation adjustment 12,719 29,384 (34,891) 29,308
Foreign currency translation adjustment
tax effect (10,415) (4,049) 4,135 (3,658)
--------- --------- --------- ---------
Foreign currency translation, net of tax 2,304 25,335 (30,756) 25,650
--------- --------- --------- ---------
Minimum pension liability adjustment -- -- 13,239 2,632
Minimum pension liability adjustment
tax effect -- -- (5,232) (1,040)
--------- --------- --------- ---------
Minimum pension liability, net of tax -- -- 8,007 1,592
--------- --------- --------- ---------
Comprehensive income $ 40,291 $ 94,436 $ 72,018 $ 134,505
========= ========= ========= =========
</TABLE>
8
<PAGE> 9
NOTE 4: EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and assuming dilution earnings per share from continuing operations
computations (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INCOME (NUMERATOR):
Income from continuing operations before
extraordinary charge and cumulative effect of
accounting change ................................ $ 40,028 $ 68,548 $ 93,973 $109,400
SHARES (DENOMINATOR):
Weighted average number of shares outstanding
during the period ................................ 55,000 55,000 55,000 55,000
Incremental common shares attributable to
dilutive stock awards ............................ 122 -- 41 --
-------- -------- -------- --------
Diluted number of shares outstanding
during the period ................................ 55,122 55,000 55,041 55,000
======== ======== ======== ========
Basic earnings per common share ..................... $ 0.73 $ 1.25 $ 1.71 $ 1.99
Earnings per common share assuming dilution ......... $ 0.73 $ 1.25 $ 1.71 $ 1.99
</TABLE>
Prior to the IPO and as of September 30, 1999, no additional dilutive
securities were outstanding.
NOTE 5: DEBT
The Company's primary source of debt financing is $1,300,000 in aggregate
commitments under bank credit facilities entered into on July 22, 1999. The
credit facilities consist of a $650,000 five-year credit facility and a $650,000
364-day credit facility.
The five-year facility consists of a $600,000 revolving credit facility and
a $50,000 corporate loan option facility. Up to $100,000 is available for the
issuance of standby letters of credit. Up to $300,000 is available in Euros and
up to $100,000 in Eurosterling, or Euro if the United Kingdom adopts the Euro.
The 364-day facility consists of a $600,000 revolving credit facility and a
$50,000 corporate loan option facility. Up to $25,000 is available as swingline
loans. The facility is extendable for an additional 364 days at the discretion
of each lender, and is convertible at the Company's option into a term loan with
a maximum maturity of 364 days from conversion.
Interest rates for U.S. dollar borrowings are equal to the LIBOR rate,
adjusted for reserves, plus a margin that varies from 0.80% to 1.20% for the
five-year revolving credit facility, and from 0.80% to 1.25% for the 364-day
revolving credit facility, according to a pricing grid based on the ratio of the
Company's average total net debt to capital, or the corporate rate published by
Bank One from time to time.
Euro borrowing rates are based on the Euribor rate, adjusted for reserves,
plus a margin. Eurosterling borrowing rates are based on the Libor rate adjusted
for reserves, plus a margin. In each case, the margin varies from 0.80% to 1.20%
for the five-year revolving credit facility, and from 0.80% to 1.25% for the
364-day revolving credit facility, according to a pricing grid based on the
ratio of the Company's average total net debt to capital.
9
<PAGE> 10
The Company pays a facility fee on each lender's commitment, irrespective
of usage. The facility fee varies from 0.20% to 0.30% for the five year
revolving credit facility and from 0.15% to 0.25% for the 364-day revolving
credit facility, according to a pricing grid based on the ratio of the Company's
average total net debt to capital.
The credit facilities include the following financial covenants:
- The Company's ratio of EBITDA to interest expense must not be
less than 3.5 to 1.0 for the three, six and nine month periods
ending September 30, 1999, December 31, 1999 and March 31, 2000,
respectively, and not less than 4.0 to 1.0 for the twelve month
periods ending on each quarter end thereafter, beginning on June
30, 2000. For this purpose, EBITDA is defined as follows:
net income, plus interest expense, tax charges, depreciation
expense, amortization expense, other non-cash charges, and
nonrecurring after-tax losses deducted in computing net
income, minus other extraordinary non-cash credits and
nonrecurring after-tax gains added in computing net income.
- The Company's consolidated net worth must not be less than $950
million plus 50% of positive net income earned after June 30,
1999. For this purpose, our consolidated net worth is defined as
shareholder's equity on our balance sheet, excluding foreign
currency translation adjustments and adjustments for minimum
pension liability accounts.
- The Company's ratio of total net debt to capital must not be more
than 0.55 to 1.0. For this purpose, total net debt is defined as
funded indebtedness plus guarantees, less cash and cash
equivalents. Capital is defined as total net debt plus
consolidated net worth, as defined above, plus minority
interests.
These financial covenant ratios are generally calculated without giving
effect to the financial statement impact of any obligations indemnified by
Pechiney Plastic Packaging or guaranteed by Pechiney.
The debt under the 364-day facility is classified as long-term in the
balance sheet because it is management's intention to extend these borrowings
beyond one year.
NOTE 6: INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Raw materials ...... $ 40,925 $ 36,244
Spare parts ........ 42,474 40,065
Work-in-process .... 640 1,974
Finished goods ..... 120,860 158,057
-------- --------
$204,899 $236,340
======== ========
</TABLE>
10
<PAGE> 11
NOTE 7: RESTRUCTURING
The activity in the restructuring reserve for continuing operations for the
three months ended March 31, 1999, June 30, 1999 and September 30, 1999 was as
follows:
<TABLE>
<CAPTION>
Employee Equipment
termination dismantle
and Lease Environmental and Other Non-cash
severance termination testing and Facility disposal exit asset
programs cost remediation costs costs costs writedowns Total
----------- ----------- ------------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 35,437 $ 13,349 $ 5,200 $ 16,864 $ 2,140 $ 1,209 $ -- $ 74,199
Cash payments (4,649) -- -- (500) -- -- -- (5,149)
Non-cash utilized (29) -- -- -- -- -- -- (29)
-------- -------- -------- -------- -------- -------- -------- --------
Balance at March 31, 1999 30,759 13,349 5,200 16,364 2,140 1,209 -- 69,021
Charge to income 2,710 -- -- 1,216 -- -- 280 4,206
Credit to income (635) (1,008) -- (3,106) (174) -- (415) (5,338)
-------- -------- -------- -------- -------- -------- -------- --------
Net charge (credit) 2,075 (1,008) -- (1,890) (174) -- (135) (1,132)
-------- -------- -------- -------- -------- -------- -------- --------
Cash payments (4,660) -- -- (429) (1) -- -- (5,090)
Non-cash utilized 32 -- (5,200) -- -- -- 135 (5,033)
-------- -------- -------- -------- -------- -------- -------- --------
Balance at June 30, 1999 28,206 12,341 -- 14,045 1,965 1,209 -- 57,766
Charge to income 955 -- -- -- -- -- 449 1,404
Credit to income (445) -- -- (147) -- -- -- (592)
Cash payments (2,876) -- -- (367) -- -- -- (3,243)
Non-cash utilized (471) -- -- (1,362) -- -- (449) (2,282)
-------- -------- -------- -------- -------- -------- -------- --------
Balance at September 30, 1999 $ 25,369 $ 12,341 $ -- $ 12,169 $ 1,965 $ 1,209 $ -- $ 53,053
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The non-cash activity in environmental testing and remediation reflects the
balance sheet reclassification between this restructuring reserve and the
Company's environmental reserve included in other long-term liabilities.
ANC has segregated the restructuring activities into three separate
programs: (1) the pre-1996 program, (2) the 1996-1997 program and (3) the 1998
program.
A summary of the activity in the reserve relating to the pre-1996 program
is as follows:
<TABLE>
<CAPTION>
Employee Equipment
termination dismantle
and Environmental and Other Non-cash
severance testing and Facility disposal exit asset
programs remediation costs costs costs writedowns Total
----------- ------------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 53 $ 2,000 $ 1,979 $ 174 $ 1,209 $ -- $ 5,415
Cash payments -- -- (139) -- -- -- (139)
------- ------- ------- ------- ------- ------- -------
Balance at March 31, 1999 53 2,000 1,840 174 1,209 -- 5,276
Charge to income -- -- 200 -- -- -- 200
Credit to income (56) -- (495) (174) -- (415) (1,140)
------- ------- ------- ------- ------- ------- -------
Net charge (credit) (56) -- (295) (174) -- (415) (940)
------- ------- ------- ------- ------- ------- -------
Cash payments -- -- (120) -- -- -- (120)
Non-cash utilized -- (2,000) -- -- -- 415 (1,585)
------- ------- ------- ------- ------- ------- -------
Balance at June 30, 1999 (3) -- 1,425 -- 1,209 -- 2,631
Cash payments 3 -- (63) -- -- -- (60)
Non-cash utilized -- -- (1,362) -- -- -- (1,362)
------- ------- ------- ------- ------- ------- -------
Balance at September 30, 1999 $ -- $ -- $ -- $ -- $ 1,209 $ -- $ 1,209
======= ======= ======= ======= ======= ======= =======
</TABLE>
The charge for facility costs was based on a revised estimate of the costs
to maintain the Danbury, CT facility that was closed in 1994.
The credit to income includes $415 of proceeds on the sale of the
Zanesville, OH facility and a reduction in expected costs at three other
locations previously closed.
The non-cash utilization of facility costs represents the reclassification
of a reserve for lease costs at the Greenwich, CT office to discontinued
operations. The original charge related to this facility had been recorded as
income (loss) from discontinued operations in the consolidated income statement
in a prior year.
11
<PAGE> 12
A summary of the activity in the reserve relating to the 1996-1997 program
is as follows:
<TABLE>
<CAPTION>
Employee Equipment
termination dismantle
and Lease Environmental and Non-cash
severance termination testing and Facility disposal asset
programs cost remediation costs costs writedowns Total
----------- ----------- ------------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 13,579 $ 7,743 $ 3,000 $ 11,701 $ 1,001 $ -- $ 37,024
Cash payments (1,860) -- -- (361) -- -- (2,221)
Non-cash utilized (29) -- -- -- -- -- (29)
-------- -------- -------- -------- -------- --------- --------
Balance at March 31, 1999 11,690 7,743 3,000 11,340 1,001 -- 34,774
Charge to income 28 -- -- 1,016 -- -- 1,044
Credit to income (579) (1,008) -- (2,611) -- -- (4,198)
-------- -------- -------- -------- -------- --------- --------
Net charge (credit) (551) (1,008) -- (1,595) -- -- (3,154)
-------- -------- -------- -------- -------- --------- --------
Cash payments (1,165) -- -- (309) (1) -- (1,475)
Non-cash utilized 32 -- (3,000) -- -- -- (2,968)
-------- -------- -------- -------- -------- --------- --------
Balance at June 30, 1998 10,006 6,735 -- 9,436 1,000 -- 27,177
Credit to income (445) -- -- (147) -- -- (592)
Cash payments (260) -- -- (303) -- -- (563)
Non-cash utilized (471) -- -- -- -- -- (471)
-------- -------- -------- -------- -------- --------- --------
Balance at September 30, 1999 $ 8,830 $ 6,735 $ -- $ 8,986 $ 1,000 $ -- $ 25,551
======== ======== ======== ======== ======== ========= ========
</TABLE>
The second quarter credit to income for employee termination and severance
programs relates primarily to the excess employee benefit cost reserves of the
Jacksonville, FL plant that was closed in the fourth quarter of 1996. Employee
benefit costs include supplemental unemployment benefits that are paid over a
period of approximately two years after plant shutdown.
The second quarter credit for lease termination costs relates to leased
equipment at a shutdown plant that has been put back into service at other ANC
plants.
The second quarter charge to income for facility costs relates primarily to
a revised estimate of future sublease income on space at the corporate
headquarters building that is not being used by ANC. The charge was calculated
by comparing the estimated future rental costs related to the space not occupied
by ANC as of the IPO date, less estimated future sublease rental income. The
second quarter credit to income for facility costs relates to a planned plant
shutdown where a favorable lease position will enable the generation of proceeds
to offset future facility costs.
The third quarter non-cash utilization of employee termination costs
represents reserves related to an employee transferred to PPPI. The third
quarter credits to income reflect the reversal of excess employee costs and
facility costs.
A summary of the activity in the reserve relating to the 1998 program is as
follows:
<TABLE>
<CAPTION>
Employee Equipment
termination dismantle
and Lease Environmental and Non-cash
severance termination testing and Facility disposal asset
programs cost remediation costs costs writedowns Total
----------- ----------- ------------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 21,806 $ 5,606 $ 200 $ 3,184 $ 965 $ - $ 31,761
Cash payments (2,789) - - - - - (2,789)
--------- --------- ---------- ------- --------- ---------- ---------
Balance at March 31, 1999 19,017 5,606 200 3,184 965 - 28,972
Charge to income 2,682 - - - - 280 2,962
Cash payments (3,495) - - - - - (3,495)
Non-cash utilized - - (200) - - (280) (480)
--------- --------- ---------- ------- --------- ---------- ---------
Balance at June 30, 1999 18,204 5,606 - 3,184 965 - 27,959
Charge to income 955 - - - - 449 1,404
Cash payments (2,620) - - - - - (2,620)
Non-cash utilized - - - - - (449) (449)
--------- --------- ---------- ------- --------- ---------- ---------
Balance at September 30, 1998 $ 16,539 $ 5,606 $ - $ 3,184 $ 965 $ - $ 26,294
========= ========= ========== ======= ========= ========== =========
</TABLE>
12
<PAGE> 13
The charges to income for employee termination and severance programs are
for severance costs for additional plant, sales and administrative employees
identified to be terminated and revisions to the original cost estimates.
Approximately 20 additional employees were identified in the second quarter.
The second quarter charge to income for non-cash asset write-downs
represents the loss on the expected sale of the Bellwood, IL facility. The third
quarter charge represents losses on the disposal of fixed assets.
NOTE 8: 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 packaging 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 charge was recorded in discontinued
operations in the statement of income and in other payables and accrued
liabilities of the continuing business in the balance sheet. PPPI has agreed to
indemnify ANC on a net of tax basis for any payments ANC may be required to make
with respect to these proceedings. Pechiney has agreed to guarantee this
obligation of PPPI. ANC has reflected this indemnification within equity as a
capital contribution and a receivable from PPPI. Future adjustments, if any, of
the Viskase litigation reserve will be recorded as income (loss) from
discontinued operations in the Company's financial statements. Future
indemnification payments, if any, from PPPI related to the Viskase litigation
will be recorded as a reduction in the receivable from PPPI in the Company's
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. Viskase
moved for the damage award to be reinstated, and ANCC opposed that motion. On
May 10, 1999, the court granted reinstatement of the jury damage award in the
Viskase litigation. On July 1, 1999, the court entered a judgment in favor of
Viskase in the amount of $164,926, which includes the $102,385 damages award,
$36,881 of prejudgment interest and $25,660 of additional and enhanced damages.
The Company has filed its notice of appeal, and believes it has strong arguments
on appeal. 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. The Company continues to believe its existing reserve
relating to these proceedings is adequate.
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 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 results of discontinued operations in a future
reporting period.
13
<PAGE> 14
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD-LOOKING STATEMENTS
This discussion and the information contained in the preceding notes to the
financial statements include forward-looking statements based on current
expectations about future events. 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 ANC's
business, including, among other things:
- our customers' financial condition
- 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 reliance on third-party vendors for various services
- 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
- payment of dividends
- stock repurchases
- the effect of any acquisitions, investments and divestitures on our
results of operations and financial condition
- legal proceedings and regulatory matters
- general economic conditions, particularly the strength of the
economies in which we have operations
- risks and costs associated with the transition to the year 2000.
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 herein might not occur.
RESULTS OF OPERATIONS
Sales of beverage cans are highest during the summer months. Therefore,
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.
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net sales decreased by 8.8% to $613 million in the third quarter of 1999,
compared with $673 million in the third quarter of 1998. This reduction was
driven primarily by lower selling prices due to the pass-through of lower metal
prices to customers, by volume decreases in the Americas, by price decreases in
specific markets, and by an $11 million adverse impact of foreign currency
exchange rates, predominately in Europe. Total unit sales in the third quarter
decreased by 5.1% compared with the prior year quarter. In the United States,
beer can sales volumes declined quarter on quarter while soft drink can sales
volume increased slightly. Third quarter sales volumes in Brazil and Europe
remained constant compared to the prior year third quarter. Selling prices in
Turkey continued to decline in the third quarter as pricing continues to move
towards levels generally prevailing throughout Europe.
Cost of goods sold of $470 million in the third quarter of 1999 declined
$61 million, or 11.4%, compared with cost of goods sold of $531 million for the
third quarter of 1998 due primarily to the metal cost decreases and
manufacturing improvements. Cost of goods sold as a percentage of net sales also
declined to 76.6% for the third quarter of 1999 compared with 78.9% for the
comparable period last year. Gross margins were $143 million and $142 million in
the third quarters of 1999 and 1998, respectively.
14
<PAGE> 15
Operating income from continuing operations increased by $7 million, or
8.8%, to $83 million in the third quarter of 1999, compared with $76 million in
the third quarter of 1998. Selling, general and administrative expenses declined
by $4 million, or 13.3% quarter on quarter. The 1999 results include a $1
million restructuring charge, compared to a $2 million charge in the third
quarter of 1998. Total depreciation and amortization, including goodwill
amortization, remained stable at $30 million in both periods. Exchange rate
changes adversely impacted operating income by $2 million compared with the
third quarter of 1998.
Income from continuing operations before extraordinary charge and
cumulative effect of accounting changes decreased to $40 million in the third
quarter of 1999, compared with $69 million in the third quarter of 1998. The
third quarter 1998 results include a $32 million favorable tax settlement with
the Internal Revenue Service pertaining to federal tax returns for the years
1985 through 1995, which was offset against third quarter 1998 income tax
expense. Interest expense was $18 million in both the third quarters of 1999 and
1998. Interest income and other financial income decreased to $1 million in the
third quarter of 1999 from $3 million in the same period in 1998. Income tax
expense of $28 million in the third quarter of 1999 compares to an income tax
benefit of $7 million in the third quarter of 1998. Excluding the tax
settlement, income tax expense in the third quarter was $25 million and the
worldwide effective tax rate increased to 42.7% in the third quarter of 1999
compared with 41.2% in the third quarter of 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net sales for the first nine months of 1999 decreased by 6.6% to $1,801
million compared with $1,928 million for the first nine months of 1998. The
lower sales resulted primarily from the pass-through of metal price decreases to
customers. Sales volume declines in the United States and Brazil and a $22
million unfavorable impact from European exchange rates also contributed to the
lower sales. Total beverage can unit sales decreased 2.0% compared to last year.
In the United States, beer can sales volume was down year over year while soft
drink volume rose. The unsteady economic situation in Brazil resulted in a
significant volume decline compared to last year as well as lower selling
prices. Increased sales volume in Europe and Asia partially offset the overall
volume declines in the Americas.
Cost of goods sold of $1,418 million declined $127 million, or 8.2%, in the
first nine months of 1999 compared with cost of goods sold of $1,544 million for
the comparable period last year due primarily to lower metal costs as well as
improved manufacturing efficiencies. Cost of goods sold as a percentage of net
sales declined to 78.7% for the first nine months of 1999 compared with 80.1%
for the comparable 1998 period. Gross margin was $383 million in both
year-to-date periods.
Operating income from continuing operations improved to $195 million for
the first nine months of 1999 compared with $181 million a year ago, a 7.4%
increase. Selling, general and administrative expenses declined by $14 million
due in part to a $9 million bad debt provision taken in the first nine months of
1998 with no provision taken in the current year. A net restructuring credit of
less than $1 million in the nine month period of 1999 compares to a net
restructuring credit of $3 million in the same period last year. Total
depreciation and amortization, including goodwill amortization, increased
slightly to $91 million in the first nine months of 1999 from $90 million for
the first nine months of 1998. Exchange rate changes in Europe had an adverse
impact of $3 million on year to date 1999 operating income from continuing
operations.
Income from continuing operations before extraordinary charge and
cumulative effect of accounting changes decreased to $94 million in the first
nine months of 1999, a $15 million decrease compared with $109 million in the
same period in 1998. A favorable tax settlement of $32 million from the Internal
Revenue Service pertaining to federal tax returns for the years 1985 through
1995 was offset against income tax expense recorded for the first nine months of
1998. Interest expense declined to $49 million in the first nine months of 1999
from $53 million in the first nine months of 1998. Interest income and other
financial income increased to $11 million in the first nine months of 1999
versus $8 million in the first nine months of 1998 due primarily to a gain of $5
million recorded on the sale, effective March 31, 1999, of ANC's 50% interest in
the Container Recycling Alliance partnership, a glass recycling joint venture
with Waste Management, Inc. Income tax expense increased to $67 million in the
first nine months of 1999 compared with $24 million for the first nine months of
1998 due to the favorable tax settlement in 1998. The effective tax rate was
42.7% for the first nine months of 1999 compared with 17.4% for the first nine
months of 1998, or 41.2% excluding this one-time tax settlement.
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $163 million at September 30, 1999, a
decrease of $7 million compared with $171 million at December 31, 1998.
In July 1999, the Company entered into $1.3 billion in aggregate credit
facility commitments from a consortium of banks. Total debt of $1,168 million at
September 30, 1999 decreased by $70 million compared with total debt of $1,238
million at December 31, 1998. In July 1999, the reorganization and transfer of
the plastic packaging operations to Pechiney resulted in a $260 million
reduction and transfer of debt to Pechiney. An increase in trade working capital
requirements of $36 million and dividend payments of $122 million contributed to
increased debt requirements from year-end.
Primarily as a result of the IPO and reorganization, total equity declined
$459 million from $1,538 million at December 31, 1998 to $1,079 million at
September 30, 1999. The reorganization and transfer of the discontinued plastic
packaging operations to Pechiney resulted in a total reduction in equity of $494
million, including dividend payments to Pechiney of $100 million. Net income
through the first nine months of 1999 of $95 million was offset by dividends
paid to Pechiney prior to the reorganization of $21 million and common dividends
declared but to be paid subsequent to September 30, 1999 of $15 million.
At December 31, 1998 the Company's total debt to equity ratio was 0.80. The
total debt to equity ratio increased to 1.08 at September 30, 1999 due primarily
to the reorganization which resulted in equity reductions greater than the
reduction to total debt compared to year-end 1998.
Net cash provided by operating activities of continuing operations was $93
million for the nine months ended September 30, 1999 resulting from $94 million
of income from continuing operations and $91 million of depreciation and
amortization, offset by other non-cash income of $29 million and a $63 million
change in other assets and liabilities, of which $54 million represented
additional working capital requirements.
Net cash used in investing activities of continuing operations of $81
million for the first nine months of 1999 includes $39 million of capital
expenditures and $53 million for the acquisition of the 35% minority interest in
the subsidiary in Turkey, offset by $9 million of proceeds from the sale of the
50% interest in the Container Recycling Alliance partnership and $2 million of
proceeds on the sale of property, plant and equipment.
Net cash provided by financing activities of continuing operations amounted
to $36 million for the first nine months of 1999. The proceeds from new
long-term debt of $1,116 million were offset by long-term debt repayments of
$519 million, a net decrease in short term financing of $425 million, debt
issuance costs of $9 million and dividend payments of $122 million to Pechiney
and $5 million to minority shareholders in Turkey.
In September 1999, a quarterly cash dividend of $0.14 per share with
respect to the third quarter of 1999 and a special dividend payment of $0.14 per
share with respect to the second quarter of 1999 was declared for shareholders
of record at October 29, 1999.
YEAR 2000
Many computerized systems and microprocessors, which 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.
16
<PAGE> 17
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 initiated the identification of all systems at risk and the
planning of 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. In 1999, we installed a new SAP
purchasing package in the United States and new SAP financial software
across Europe, except for England and Spain. Our operations in the
United Kingdom and Spain upgraded their Oracle financial software to a
compliant version. 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 November 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 those components
and sought written assurances of year 2000 compliance. Where items
were identified as non-compliant, or where we received no response, we
implemented corrective action consisting of reprogramming, removing or
replacing the item. Non-compliant items represented less than 10% of
the total items identified in the course of the inventory. We tested
all critical components identified in the course of the inventory for
year 2000 compliance and determined that all systems are in
compliance.
- We have surveyed our critical 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 critical
suppliers will generally be in compliance. We classify a supplier
response as satisfactory only if the response provides a detailed
analysis that supports a claim that the supplier is year 2000
compliant or will be by December 31, 1999. On the basis of the
responses, we have classified 95% of our critical suppliers as
compliant or expected to be compliant by December 31, 1999. In 5% of
the cases, we had no response or an unacceptable response and have
classified the supplier as not compliant. 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 have developed 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 will continue to refine
these plans through the end of 1999 as our audits and surveys continue.
17
<PAGE> 18
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. We estimate that approximately all but $0.2 million of the
budgeted amount has been spent as of September 30, 1999. We have financed this
expenditure using cash generated from operations, and intend to finance any
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 approximately $14 million has been spent as of September
30, 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.
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. ANC will be required to adopt this standard in our
financial statements for the year ending December 31, 2001. Management is in the
process of evaluating the standard and has not yet determined the future impact
on our financial statements.
OTHER MATTERS
On September 23, 1999 the Compensation Committee of the Board of Directors
approved the issuance of stock option grants to the four officers named in the
Company's IPO prospectus at the IPO price of $17 per share versus the $22.50 per
share contemplated in the IPO prospectus.
18
<PAGE> 19
PART II: OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(A) Exhibits
10.1 Can Supply Agreement Between American National Can Group, Inc. and
Coca-Cola Enterprises Inc. (confidential treatment of certain portions
requested)
27 Financial Data Schedule (filed only electronically with the SEC)
(B) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended September 30, 1999.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
American National Can Group, Inc.
By /s/ John G. LaBahn
---------------------------------------------------------
John G. LaBahn
Vice President, Controller and Chief Accounting Officer *
Date: November 10, 1999
* The Chief Accounting Officer is also duly authorized to sign on behalf of
the registrant and has signed in the dual responsibilities.
20
<PAGE> 1
Exhibit 10.1
CONFIDENTIAL TREATMENT REQUESTED
Confidential material has been separately filed with the U.S. Securities and
Exchange Commission under an application for confidential treatment. Terms for
which confidential treatment has been requested have been omitted and marked
with an asterisk [*].
CAN SUPPLY AGREEMENT
This Agreement is made as of the 1st day of January, 1999 between
AMERICAN NATIONAL CAN COMPANY, a Delaware corporation, with its principal
offices at 8770 W. Bryn Mawr Avenue, Chicago, Illinois 60631 ("ANC"), and
COCA-COLA ENTERPRISES, INC. and its U.S. subsidiaries, with their principal
offices at P.O. Box 723040, Atlanta, GA 31139-0040 (collectively referred to as
"Buyer"), and covers the manufacture and supply by ANC to Buyer and the purchase
by Buyer from ANC of two-piece aluminum beverage can bodies and ends (herein
collectively referred to as "cans" or "containers") of the specifications and
quantities referred to hereinbelow.
WHEREAS, the parties entered into a Can Supply Agreement (the "1995
Agreement") dated November 20, 1995 with an initial term of 5 years expiring on
December 31, 2000; and
WHEREAS, the parties are desirous of entering into a new long-term
supply agreement covering certain of Buyer's requirements of Containers, which
will supersede the 1995 Agreement; and
WHEREAS, in order to accomplish the goal of predictability of pricing,
the parties are willing to commit themselves, for at least the first two years
of the term of this Agreement, to purchase and sell, as the case may be, the
quantity of containers stated herein utilizing aluminum covered by an "Ingot
Band" (i.e., having pre-agreed floor and ceiling costs), subject to the terms
set forth herein, and the parties recognize that each of them has the ability to
protect itself against the fluctuation in the cost of aluminum above or below
the Ingot Band by purchasing the appropriate downside protection, which is
available in the marketplace.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Description of Products. This Agreement relates to containers of
the specifications set forth on Exhibit A attached hereto, required by Buyer at
its can filling location(s) set forth on Exhibit B (and at any additional or
substitute facilities hereafter acquired or otherwise designated by Buyer where
Buyer may fill cans).
2. Term. The initial term of this Agreement shall be ten (10) years
commencing as of January 1, 1999 and terminating December 31, 2008.
3. Volume.
(a) Except as otherwise provided herein, during the calendar years
1999, 2000 and 2001, Buyer agrees to buy and ANC agrees to sell the Base Annual
Volumes of can bodies and ends shown in the chart below (adjusted as set forth
below to reflect volumes divested or acquired through certain divestitures or
acquisitions). In each calendar year after 2001, Buyer agrees to buy and ANC
agrees to sell an amount equal to the "Base Annual Volume" for the previous
calendar year (adjusted as set forth below to reflect volumes acquired or
divested by Buyer as a result of certain acquisitions or divestitures) [*]
1
<PAGE> 2
Can bodies and ends will be purchased and supplied by the parties in
substantially equal volumes.
[*]
*The term "Cumulative Base Annual Volume" shall mean the sum of the Base
Annual Volumes for the preceding contract years. The amounts in the Base Annual
Volume and Cumulative Base Annual Volume columns above for the years 2002
through 2008 inclusive are correct only if there are no adjustments to the Base
Annual Volume amounts by virtue of an acquisition or divestiture as described
below. In the event of Buyer's divestiture of any U.S. bottling facility then
being supplied by ANC, the portion of the divested facility's volume proposed to
be supplied by ANC for the portion of the year after the sale shall decrease the
Base Annual Volume requirement. In the event of Buyer's acquisition of a U.S.
bottling location then being supplied by ANC, the portion of the acquiree's can
requirements previously supplied by ANC, shall increase and count toward the
Base Annual Volume requirement. Any portion of the acquiree's volume in excess
of what was previously supplied by ANC shall not increase the Base Annual Volume
number, but shall count toward meeting the Base Annual Volume requirement. If an
acquiree is under contract to another can supplier at the time of the
acquisition, such contracted volume shall not increase the "Base Annual
Volume" number, but shall count toward meeting the "Base Annual Volume"
requirement when such competitive contract terminates to the extent of the
volume awarded to ANC
(b) If, at the end of any year after 2001, Buyer has failed to purchase the
Cumulative Base Annual Volume, calculated in Section 3(a) above, Buyer's price
shall be increased in the next following year to reflect such shortfall. The
price increase set forth in this paragraph shall be ANC's exclusive remedy for
Buyer's failure to buy the Base Annual Volume or the Cumulative Base Annual
Volume. [*] Every year that there is a volume shortfall, the price increase
shall be recomputed using the same formula. The following is an example of the
implementation of price increase due to a volume shortfall.
<PAGE> 3
[*]
In the above example, if at least [*] cans and ends are purchased by 12/31/03,
the price increase would be removed for 2004. If at 12/31/03, a shortfall still
exists, a new price increase would be calculated for 2004 using the formula set
forth above.
If, at the end of the term of this Contract, a Cumulative Base Annual Volume
shortfall exists, this Contract shall continue until such shortfall has been
purchased by Buyer with the price being increased by the shortfall adjustment
in effect at the end of the term.
It is understood and agreed that if the application of the above described
volume shortfall adjustment causes ANC's price to Buyer to be uncompetitive on
a net price basis with prices available from another U.S. can supplier, ANC
agrees to meet with Buyer to discuss alternatives.
If, in any year, ANC is unable to supply volume offered to it by Buyer as part
of the Base Annual Volume, any shortfall in the Cumulative Base Volume for that
year will not be subject to the above penalty to the extent of the volume that
ANC is unable to supply.
(c) Buyer shall not be in default of its obligations under Section
3(a) above if Buyer is prevented from purchasing the required volume by
conditions in the U.S. beverage market which are beyond Buyer's control (such
as reduced consumer demand, or other similar market related conditions) so long
as Buyer is continuing to purchase from ANC a minimum of the greater of (i) [*]
of its total requirement of cans, or (ii) [*] cans annually in 1999 through
2004, and [*] cans annually for the balance of the contract term. In the event
of the occurrence of a condition covered by this paragraph, paragraph 3(c) shall
remain applicable.
(d) If, for any reason (other than an event covered by section 9), ANC
is unable to supply cans and/or ends, as the case may be, of satisfactory
quality, Buyer will be relieved of its obligation to buy from ANC the
unsatisfactory item (but only from the can manufacturing plant or plants where
such quality problem exists) under the terms of this Contract until ANC corrects
the problem on an ongoing basis to the reasonable satisfaction of Buyer. In such
event, (a) ANC will, if possible, provide Buyer with cans and/or ends from an
alternate ANC plant and ANC shall absorb any excess freight involved in shipping
from the alternate ANC plant, (b) if ANC is unable to procure cans and/or ends
from an ANC plant, Buyer may procure such cans for the duration of time that
such quality problem exists, and (c) cans and/or ends purchased by Buyer from
any alternate source pursuant to this paragraph shall be credited against
Buyer's purchase obligation hereunder.
<PAGE> 4
4. Pricing.
(a) Subject to Section 4(d) below, prices under this Agreement shall
be established and adjusted in accordance with the terms, conditions and
limitations set forth on Exhibit C attached hereto. In addition to the price
adjustment mechanisms set forth on Exhibit C, any changes in the specifications
of containers supplied hereunder may result in an upward or downward price
adjustment.
(b) [*] should another qualified can supplier extend to Buyer a bona
fide offer for the sale of at least [*] containers for a term of at least [*] at
a delivered cost to Buyer [*] lower than ANC's price hereunder for similar
specifications, and with comparable terms and conditions of sale, then, in such
event, Buyer will notify ANC in writing of the availability and duration of the
offer, the items to which it relates, the date when shipments could begin, the
lower delivered cost [*] and provisions for adjustment thereof, such information
to be certified by an authorized officer of Buyer or by an independent auditor
selected by Buyer, if so requested by ANC. ANC shall then have thirty (30) days
from receipt of such notice to notify Buyer whether it will meet such
competitive offer. In the event that ANC chooses not to meet such offer, then
Buyer shall be relieved of the obligation to purchase the amount of cans covered
by the offer for the period of time covered by the offer. In determining whether
a particular competitive offer is lower than ANC's then current price [*], there
shall be taken into account (i) all of the benefits that Buyer derives from
purchasing cans from ANC hereunder including, without limitation, payment terms,
discounts, rebates, and allowances (including advance incentive allowances) and
technical service and support, and (ii) the effect of any costs to be borne by
Buyer in purchasing from the competitor in addition to those costs and expenses
borne by Buyer in purchasing from ANC hereunder including (without limitation)
any additional financing costs and capital investments (including the cost of
money) required of the Buyer to secure the benefits of the competitive offer, as
well as any additional expense of freight, warehousing, material change in
production procedures, and payment and credit terms.
(c) Buyer and ANC recognize and agree that fluctuations in the price
of aluminum may drive the spot price of aluminum above the ceiling price or
below the floor price of the Ingot Band, while such Band is in effect, as such
ceiling and floor prices may be adjusted from time to time in accordance with
Exhibit C. However, so long as such Ingot Band is in effect for purchases
hereunder, Buyer and ANC agree to purchase and sell the quantities agreed to
hereunder with aluminum ingot costs no higher than such ceiling prices nor lower
than such floor prices notwithstanding any such fluctuations. The parties
recognize that protection against any such market fluctuation is available to be
purchased in the marketplace.
(d) (i) Until December 31, 2000 (or December 31, 2001 if ANC's
aluminum band purchase commitment is extended), ANC agrees to purchase metal to
fulfill Buyer's can requirements hereunder from a primary aluminum supplier or
suppliers designated by Buyer and approved by ANC. After 2000 or 2001, as the
case may be, Buyer shall have the option, subject to subparagraph 4(d)(ii),
acting alone or in cooperation with ANC, to arrange for the supply of metal
sheet to ANC to be converted into bodies and or ends for Buyer. ANC agrees to
perform such conversion. Any such can bodies and ends shall count toward the
Base Annual Volume
4
<PAGE> 5
obligation of Buyer hereunder. Subject to subparagraph 4(d)(ii), Buyer shall
provide ANC with reasonable advance notice (which shall be not less than 120
days) of its intent to procure metal sheet, and such metal sheet shall be from
a qualified first tier metal sheet producer (such as Alcan or Alcoa) reasonably
acceptable to ANC or second tier supplier reasonably acceptable to ANC. Once
ANC has accepted a metal supplier, ANC may only reject such supplier for a
reasonable cause such as a qualification, quality, delivery or service problem
or unacceptable payment terms. If Buyer opts to procure metal sheet, ANC shall
obtain approval from Buyer before making any commitment for the supply of metal
sheet to meet Buyer's orders hereunder.
(ii) All parties recognize that the details of any metal program,
whether it be a hard toll or soft toll including, but not limited to, metal
sheet involving, scrap handling and pricing, the method of applying the meeting
competition [*] provisions to the conversion component and overall can price,
warranties, quality and delivery problem handling, metal gauge issues,
associated capital expenditure requirements (if any), and qualification, must be
discussed and agreed upon by Buyer and ANC before being implemented. Under such
a metal program, ANC agrees, subject to section 9 hereof, to inspect and, if
acceptable, use can sheet within 90 days of its receipt by ANC. A metal
purchasing program is a fundamental requirement of Buyer and ANC.
[*]
<PAGE> 6
5. Payment Terms. Payment terms shall be: net 10 days. Interest shall
be assessed on all past-due amounts at the annual rate of two (2%) percent above
the prime rate of interest at the First National Bank of Chicago, Chicago,
Illinois.
6. Delivery. Buyer shall advise ANC, prior to November 30, of its
annual requirements of containers under this Agreement for the upcoming calendar
year (the "Forecasted Volume") and shall update such forecast on a monthly basis
throughout the year. The Forecasted Volume shall contain a breakdown of
forecasted volumes for each of Buyer's filling locations, which forecasts shall
remain in effect until adjusted by Buyer upon reasonable advance notice to ANC;
provided, however, that such adjustments shall not affect Buyer's purchase
commitment set forth in Paragraph 3(a) above.
7. Effect of Termination. Upon termination of this Agreement for any
reason, Buyer shall accept all completed, fabricated or lithographed containers
and related items previously ordered, acquired or committed for by ANC in
reasonable quantities in anticipation of Buyer's normal can requirements.
8. Warranties, Claims and Limitation of Liability.
(a) ANC hereby warrants to Buyer that the containers to be
manufactured and sold to Buyer hereunder shall be free from defects in
workmanship and materials, shall be merchantable and fit for its intended use as
beverage containers, and shall conform to the specifications set forth in
Exhibit A attached hereto. EXCEPT AS EXPRESSLY STATED ABOVE, THERE ARE NO OTHER
WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED INCLUDING, BUT NOT LIMITED TO, THE
IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE.
(b) ANC shall not be liable to Buyer or to any other person where the
claimed damages result from: (i) Buyer's faulty assembly or closure of the can
body and loose end; (ii) rust or outside corrosion on containers occurring after
Buyer's receipt, except when caused by ANC's faulty workmanship or imperfect
materials; (iii) the failure of Buyer (or any other party excluding ANC from
time to time having custody or control of allegedly defective goods) to exercise
reasonable care in conveying, warehousing, using, packing, handling,
distributing or storing filled or unfilled containers; or (iv) the failure of
empty or filled containers exported to or used in foreign countries unless a
special warranty has been specifically approved by ANC to cover such exported
containers; (v) defects in metal or failure of Buyer's supplier to deliver metal
to ANC where Buyer is the supplying such metal to ANC.
(c) ANC shall give immediate consideration to settlement of Buyer's
claims, but in no event shall ANC be liable on any claim unless notice thereof
is received by ANC promptly following Buyer's discovery of an alleged defect in
a container.
(d) In the event of ANC's breach of warranty, ANC shall be liable for,
and ANC's liability to Buyer hereunder shall be limited to, Buyer's cost of the
defective containers, cost of the contents of the containers lost as a direct
result of the defect, and the reasonable cost of
<PAGE> 7
recovery and disposition of defective containers (but as to the latter, only to
the extent reasonably required). ANC shall in no event be liable to Buyer for
indirect or consequential damages such as lost profits or lost business.
However, ANC shall be responsible for claims by third parties (including
governmental entities) to the extent arising out of a container defect provided
that ANC is given adequate notice of such claim and the opportunity to defend
such claim by counsel of its own choosing.
9. Force Majeure. Except for the payment of money due hereunder, ANC
and Buyer shall be excused for failure to perform under this Agreement where
such failure results from circumstances beyond the affected party's reasonable
control including, without limitation, such circumstances as fire, storm, flood,
earthquake, strikes, work stoppages or slowdowns, delay or failure of
transportation or suppliers, acts of God or acts, regulations, priorities or
actions of the United States, a state or any local government or agents or
instrumentalities thereof.
10. Notices. All notices, requests or other communications shall be in
writing, and shall be deemed given when delivered personally or deposited in the
United States mail, postage prepaid, or to a courier service and properly
addressed to Buyer at: P.O. Box 723040, Atlanta, GA 31139-0040, Attention: Vice
President and Chief Procurement Officer; and General Counsel, and to ANC at:
8770 W. Bryn Mawr Ave., Chicago, IL 60631, Attention: Senior Vice President,
Sales, or to such other address as either party may, from time to time,
designate to the other in writing.
11. Assignability. This Agreement shall be binding upon and inure to
the benefit of the successors and assigns of the parties hereto including,
without limitation, a subsidiary, affiliate, purchaser, transferee or successor
by merger of substantially all of the business or assets of either Buyer or ANC;
provided, however, that this Agreement may not be assigned or transferred
(except for a transfer to an affiliate of either party hereto including a
transfer to an affiliate that is part of an Initial Public Offering of all or
part of ANC's beverage cans business) by a party without the consent of the
other party, which consent shall not be unreasonably withheld. An "affiliate" of
a party shall be defined as a party that directly or indirectly, through one or
more intermediaries, controls or is controlled by, or is under common control
with, either Buyer or ANC. Buyer hereby agrees to require the purchaser or
transferee of all or any portion of its can filling operations, whether or not
that purchaser or transferee is an affiliate, to either (i) assume that portion
of this requirements contract that relates to the operations being sold or
transferred or (ii) enter into a new purchase agreement with ANC with pricing
and terms and conditions (including pro rata volume commitments) substantially
similar to those set forth herein.
12. Confidentiality. Each of the parties agrees not to disclose any
term or provision of this Contract (and ANC agrees not to disclose the fact of
ANC's contracting to supply Buyer) to any other party except, under appropriate
confidentiality agreements, to an approved assignee under section 11 above and
to its tax, legal and financial advisors, and except as may be required by law
and then only after using its commercially reasonable best efforts to consult
with the other party as to the necessity and extent of the disclosure required
sufficiently in advance of making same to provide the other party the chance to
seek a protective order; provided, however, that the final determination of any
such legally required disclosure shall rest solely with the party required to
make the disclosure. This confidentiality agreement shall not apply to
information already in the public domain or already lawfully acquired by the
disclosee from sources other than the disclosing party.
7
<PAGE> 8
13. Equal Employment Opportunity. Unless this Agreement is exempt,
there is incorporated herein by reference the provisions of Section 202, the
equal opportunity clause of Executive Order 11246, as amended, Section 60-741.5,
the affirmative action clause of the regulations under the Rehabilitation Act of
1973, and Section 60-250.5, the affirmative action clause of the regulations
under 38 USC 4212, the Vietnam Era Veterans Readjustment Assistance Act of 1974.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
AMERICAN NATIONAL CAN COMPANY COCA-COLA ENTERPRISES INC.
AND ITS U.S. SUBSIDIARIES
By: /s/ James A. Turner By: /s/ [ILLEGIBLE]
------------------------------- -------------------------------------
Title: Senior Vice President, Sales Title: Executive Vice President and Chief
Beverage Cans Americas Administrative Officer
Date: 9/10/99 Date: 9/13/99
---------------------------- ----------------------------------
8
<PAGE> 9
EXHIBIT A
---------
12 Ounce Aluminum Can Body
-4 prints on metal
202 Diameter Aluminum Stay-On-Tabs Ends
Cans must meet or exceed specifications, performance and quality criteria as
mandated by The Coca-Cola Company as they may change from time to time.
<PAGE> 10
EXHIBIT B
Buyer's Filling Locations
CCE U.S. Can Filling Locations As of August, 1999
# City State
- - ---- -----
1 ABILENE TX
2 AUSTIN TX
3 BALTIMORE MD
4 BELLEVUE WA
5 BISMARCK ND
6 CINCINNATI OH
7 CLEVELAND TN
8 COLLEGE PARK GA
9 DALLAS TX
10 DENVER CO
11 DETROIT MI
12 DOWNEY CA
13 EAGAN MN
14 EAST HARTFORD CT
15 EL PASO TX
16 ELMSFORD NY
17 FLINT MI
18 FT WORTH TX
19 GRAND RAPIDS MI
20 GREAT FALLS MT
21 HARAHAN LA
22 HOLLYWOOD FL
23 HONOLULU HI
24 HOUSTON TX
25 JACKSONVILLE FL
26 LENEXA KS
27 LITTLE ROCK AR
28 MARYLAND HEIGHTS MO
29 MASPETH NY
30 MATTOON IL
31 MCALLEN TX
32 MONTGOMERY AL
33 NEEDHAM MA
34 ORLANDO FL
35 PHOENIX AZ
36 SAN ANTONIO TX
37 SAN DIEGO CA
38 SAN LEANDRO CA
39 SANDSTON VA
40 TWINSBURG OH
41 W MEMPHIS AR
42 WICHITA KS
43 WILSONVILLE OR
10
<PAGE> 11
EXHIBIT C
---------
Pricing:
- --------
I. The sum of the following three factors (or components) determine can
and end pricing under the Can Supply Agreement:
1. London Metal Exchange/Mid-West Premium (LME/MWP) ingot price
2. Cost of conversion of ingot to aluminum sheet for body, end
and tab stock
3. Cost of conversion of can sheet to aluminum beverage cans and ends
II. Initial Price
-------------
Initial price under this Agreement shall be:
Body End Total Delivered Price
---- --- ---------------------
12 oz Body 202 End [*] [*] [*]
Add [*] for basecoat.
III. Price Adjustments
-----------------
(a) Ingot - Ingot component/price will be limited by an initial
LME/MWP ceiling of [*] and a floor of [*]. This is the initial ingot
band. These ceiling and floor prices will be adjusted on each April 1st
(beginning on April 1, 1999) in the amount of [*] of any year over year
movement of the Intermediate Materials PPI for the period ending
December 31st of the preceding year. The initial ingot component price
(upon which the above can price is based) is [*]; this price, subject
to the ceiling and floor, will be adjusted in accordance with the
adjustment formula set forth below through December 31, 2000 (or 2001
if ANC's aluminum purchase commitment is extended) and, thereafter, in
accordance with the same or another formula to be hereafter agreed to
by ANC and Buyer:
will be based on
Prices during this period.... average midwest ingot price*... during this
period.
October 1, 1998 - March 31, 1999 March 1, 1998 - August 31, 1998
April 1, 1999 - September 30, 1999 September 1, 1998 - February 28, 1999
October 1, 1999 - March 31, 2000 March 1, 1999 - August 31, 1999
April 1, 2000 - September 30, 2000 September 1, 1999 - February 29, 2000
October 1, 2000 - March 31, 2001 March 1, 2000 - August 31, 2000
April 1, 2001 - September 30, 2001 September 1, 2000 - February 28, 2001
October 1, 2001 - December 31, 2001 March 1, 2001 - August 31, 2001
*The average referred to is the average of the daily Platt's Metals Week
transaction prices (i.e., the straight arithmetic average of the official
London Metal Exchange cash settlement prices plus the Midwest Premium on such
prices) during each 6 month period shown in the above right hand column.
<PAGE> 12
(b) Conversion of Ingot to Can Sheet - Effective April 1st of each
year (beginning on April 1, 1999) during the term of the Can
Supply Agreement, the ingot to can sheet conversion component will
be adjusted by [*] of any year over year movement of the
intermediate Materials PPI for the period ending December 31st of
the preceding year through December 31, 2000 (or 2001 if ANC's
aluminum purchase commitment is extended) and, thereafter, in
accordance with the same or another formula to be hereafter agreed
to by ANC and Buyer. The initial conversion component is [*] for
.0108 body stock, [*] for .0085 lid stock and [*] for .0100 tab
stock.
(c) Conversion of Can Sheet to Cans - Effective as of January 1, 2000
and January 1, 2001, the price shall be adjusted by the amount
obtained by multiplying ANC's base cost for conversion of can
sheet to cans and ends (currently [*] by [*] of the year over year
changes in the Intermediate Materials PPI (PPI). (ANC's conversion
cost component shall be adjusted by [*] of such PPI changes.)
Effective as of January 1, 2002 and on each January 1 thereafter,
the price will be adjusted in the following manner:
i. (a) In each year that year over year changes in the
Intermediate Materials PPI (PPI) do not exceed [*] such
percentage change will be reduced pro rata by [*] for
each [*] as calculated in accordance with Schedule D, but
in no event shall such reduction exceed the year over
year PPI change.
(b) In each year that the year over year change in the PPI is
greater than [*] but less than [*] such percentage will
be reduced pro rata by [*] for each [*] but in no event
shall such reduction exceed the year over year PPI
change.
ii. [*] of any remaining year over year percent change in the
PPI will be multiplied by ANC's base cost for conversion
of can sheet to cans and ends and the result will be
added to or subtracted from the price.
iii. If year over year changes in the PPI exceed [*], the
parties shall meet to discuss possible alternative
formulas for computing the price adjustment.
An example of a price adjustment on or after January 1, 2002 is
set forth on Schedule D attached.
IV. Other Incentives and Adjustments
(a) The price in effect on January 1, 2001 will be reduced by [*] and will
be further reduced by [*] on January 1st of 2002, 2003, 2004, and 2005
and [*] on each January 1st thereafter for the remaining term of the
Can Supply Agreement provided that Buyer has fully complied with its
obligations under such Agreement. The foregoing [*] reductions
represent ANC's anticipated cost savings and include [*] which
represents the anticipated reduction (other than gauge reduction) in
the amount of metal used to make cans. So
12
<PAGE> 13
long as ANC remains the purchaser of metal hereunder, any saving in excess of
[*] per year resulting from a reduction in the amount of metal used to make cans
will be shared equally by ANC and Buyer after ANC has recovered the cost of any
expenditures made by it in connection with the implementation of such metal
reductions.
(b) [*]
13
<PAGE> 14
Schedule D
[*]
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 163,416
<SECURITIES> 0
<RECEIVABLES> 209,389
<ALLOWANCES> 7,518
<INVENTORY> 204,899
<CURRENT-ASSETS> 717,161
<PP&E> 1,405,026
<DEPRECIATION> 611,085
<TOTAL-ASSETS> 3,375,506
<CURRENT-LIABILITIES> 646,260
<BONDS> 1,133,402
0
0
<COMMON> 550
<OTHER-SE> 1,078,893
<TOTAL-LIABILITY-AND-EQUITY> 3,375,506
<SALES> 613,427
<TOTAL-REVENUES> 613,427
<CGS> 470,176
<TOTAL-COSTS> 530,717
<OTHER-EXPENSES> (579)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,528
<INCOME-PRETAX> 65,761
<INCOME-TAX> 28,054
<INCOME-CONTINUING> 40,028
<DISCONTINUED> (218)
<EXTRAORDINARY> (1,823)
<CHANGES> 0
<NET-INCOME> 37,987
<EPS-BASIC> 0.69
<EPS-DILUTED> 0.69
</TABLE>
