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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF
THE SECURITIES EXCHANGE ACT OF 1934
ANCHOR GLASS CONTAINER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 59-3417812
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
ONE ANCHOR PLAZA, 4343 ANCHOR PLAZA PKWY. 33634-7513
TAMPA, FL (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (813) 884-0000
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
CLASS A COMMON STOCK, PAR VALUE $0.10 PER SHARE
SERIES A 10% CUMULATIVE CONVERTIBLE PREFERRED STOCK, PAR VALUE $0.01 PER SHARE
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FORWARD-LOOKING STATEMENTS
This Registration Statement contains forward-looking statements, including
statements regarding, among other items, (i) the expected realization of
Anchor's business strategy and the cost savings estimated to be achieved in
connection therewith and the costs associated therewith, (ii) the sufficiency of
cash flow and other sources of liquidity to fund Anchor's debt service
requirements, working capital needs and other significant expenditures and (iii)
anticipated trends in the glass packaging industry, including with respect to
industry capacity, product demand and pricing. Forward-looking statements are
typically identified by the words "believe," "expect," "anticipate," "intend,"
"estimate," "project" and similar expressions. These forward-looking statements
are subject to a number of risks and uncertainties, many of which are beyond
Anchor's control. Actual results could differ materially from those contemplated
by these forward-looking statements as a result of factors including those
described below. In light of these risks and uncertainties, there can be no
assurance that the results and events contemplated by the forward-looking
information contained in this Registration Statement will in fact transpire.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates. Anchor does not undertake any
obligation to update or revise any forward-looking statements.
ITEM 1. BUSINESS
Unless otherwise noted, references to: (i) "Anchor" or "the Company" shall
mean Anchor Glass Container Corporation; (ii) "Consumers" shall mean Consumers
Packaging Inc. and its Canadian subsidiary, Consumers International Inc.
("Consumers International"); (iii) the "Anchor Acquisition" shall mean the
acquisition by the Company of certain assets and the assumption of certain
liabilities of Old Anchor on February 5, 1997; and (iv) "Old Anchor" shall mean
the former Anchor Glass Container Corporation, which is currently a
debtor-in-possession under Chapter 11 of the United States Bankruptcy Code of
1978, as amended (the "Bankruptcy Code") and was renamed Anchor Resolution Corp.
following the Anchor Acquisition. Financial information set forth in this
Registration Statement has been prepared in accordance with generally accepted
accounting principles in the United States ("GAAP"). References to "C$" are to
Canadian Dollars.
COMPANY OVERVIEW
On a pro forma basis after giving effect to the Anchor Acquisition, Anchor
is the third largest manufacturer of glass containers in the United States, with
an approximate 19% share of U. S. glass container sales in 1996. Anchor produces
a diverse line of flint (clear), amber, green and other colored glass containers
of various types, designs and sizes. The Company manufactures and sells its
products to many of the leading producers of beer, liquor, food, juice, tea,
soda and mineral water. The Company focuses on the production of beer containers
as this product category accounted for 50% of the Company's pro forma 1996 unit
sales, nearly twice the volume of its next largest category. After giving effect
to the Anchor Acquisition, for the year ended December 31, 1996, the Company had
pro forma net sales of $722.7 million.
Consumers, Canada's only glass container manufacturer, indirectly owns
approximately 59% of Anchor on a fully diluted basis. By management's estimates,
Consumers produced in excess of 80% of all glass containers sold in Canada in
1996, with U.S. glass container manufacturers (including Old Anchor) having
produced most of the remainder. On a pro forma combined basis, after giving
effect to the Anchor Acquisition, the Company and Consumers would have had total
net sales of over $1.0 billion in 1996, net of intercompany sales.
The Company was formed in January 1997 by Consumers to consummate the
Anchor Acquisition. Prior to the Anchor Acquisition on February 5, 1997, the
Company did not conduct any operations. Consumers U.S., Inc. ("Consumers U.S.")
was also formed in January 1997 by Consumers as a holding company for Anchor.
Old Anchor was formed by members of the management of the Glass Container
Division of Anchor Hocking Corporation (the "Glass Container Division") and
persons associated with Wesray Corporation to carry out the leveraged
acquisition in 1983 of the business and certain of the assets of the Glass
Container Division. Old Anchor acquired Midland Glass Company, Inc. in 1984 and
Diamond-Bathurst Inc. in 1987.
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In November 1989, Vitro S.A. ("Vitro") acquired substantially all of the
stock of Old Anchor. Simultaneously, Vitro acquired all of the stock of
Latchford Glass Company, which was subsequently merged into Old Anchor.
During 1995, Old Anchor's performance began to deteriorate. Management
believes such deterioration was due to a number of factors, including the
maintenance of excess production capacity at the expense of profitability. By
keeping plants operating at less than efficient levels of operation, management
believes Old Anchor suffered from high per unit production costs. In 1995 and
1996, Old Anchor lost significant sales volumes with long-term contract based
customers. Old Anchor continued to operate underutilized production capacity by
accepting contracts for shorter production runs, which require more frequent
retooling. In addition to filling plants with this lower margin business,
management believes Old Anchor manufactured product for customers at facilities
that were beyond a cost effective distribution range, incurring excessive
shipping and freight costs. In addition, in 1996, facing surplus production
capacity in a mature market, U.S. and Canadian glass container manufacturers
engaged in intense price competition. In September 1996, Old Anchor filed for
protection under Chapter 11 of the Bankruptcy Code.
A new senior management team, including executives from Consumers and its
majority shareholder, G&G Investments, Inc. ("G&G"), who led the turnarounds at
both Consumers and Glenshaw Glass Company, Inc. ("Glenshaw"), will implement a
series of turnaround initiatives at Anchor. Further, in connection with a plan
to simplify the corporate ownership structure of Consumers, the Company and
their affiliates, Glenshaw may become a subsidiary of the Company.
THE ANCHOR ACQUISITION AND THE NOTE OFFERING
The Anchor Acquisition. On February 5, 1997, pursuant to an Asset Purchase
Agreement dated December 18, 1996, as amended (the "Asset Purchase Agreement"),
between Consumers, Owens-Brockway Glass Container, Inc. ("Owens") and Old Anchor
(the rights and obligations of Consumers under the Asset Purchase Agreement
having been assigned to the Company), the Company and Owens purchased
substantially all of the assets of, and assumed certain liabilities, of Old
Anchor. Old Anchor's Antioch and Hayward, California plants and its interest in
Rocky Mountain Bottle Company were acquired, and the related liabilities
assumed, by Owens (the "Owens Purchase"). In June 1997, Owens closed the Antioch
plant. The Company purchased substantially all of the other assets of Old
Anchor, including eleven operating plants, several idled plants and other
related assets. The Company also assumed certain other liabilities of Old
Anchor, including certain of Old Anchor's liabilities in respect of the Anchor
Glass Container Corporation Service Retirement Plan, the Anchor Glass Container
Retirement Plan for Salaried Employees and the Pension Plan for Hourly Employees
of Latchford Glass Company and Associated Companies (collectively, the "Plans").
The Company did not assume Old Anchor's liabilities in respect of its bank debt,
debt securities and industrial revenue bonds.
The acquisition price is subject to a final adjustment based on an audited
January 10, 1997 balance sheet. For purposes of the closing of the Anchor
Acquisition, the unaudited closing balance sheet was prepared by Old Anchor.
Management of the Company believes that there may be certain adjustments to the
closing balance sheet required which, if material, could impact the purchase
price paid by the Company, the allocation of such purchase price, and as a
result, the historical balance sheet of the Company at September 30, 1997 and
pro forma balance sheet at December 31, 1996, included elsewhere in this
Prospectus. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation -- Factors Affecting Future Operating Results -- Balance
Sheets; Purchase Price Adjustment."
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<PAGE> 4
The total sources and uses of funds in connection with the Anchor
Acquisition and the Owens Purchase were as follows (dollars in millions):
<TABLE>
<CAPTION>
SOURCES OF FUNDS USES OF FUNDS
- --------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
Revolving Credit Facility............ $ 0.1
Anchor Loan Facility................ 130.0
Owens Purchase...................... 128.4
Owens purchase of inventory(1)...... 4.4
Series B Preferred Stock(2)......... 84.0
Class B Common Stock(2)............. 1.0
Series A Preferred Stock(3)(5)...... 56.0
Class A Common Stock(3)............. 12.0
------
TOTAL SOURCES OF FUNDS......... $415.9
======
Cash escrowed for creditors(4)...... $209.2
Repayment of DIP credit facility.... 108.6
Other priority claims............... 11.1
Cash pension payment(5)............. 9.1
Series A Preferred Stock pension
payment(5)........................ 9.0
Series A Preferred Stock(4)......... 47.0
Class A Common Stock(4)............. 12.0
Fees and expenses................... 9.9
------
TOTAL USES OF FUNDS............ $415.9
======
</TABLE>
- ---------------
(1) Anchor purchased certain inventory from Old Anchor, which was immediately
resold to Owens.
(2) Issued to Consumers U.S. in exchange for cash contribution.
(3) Represents (a) 1,879,320 shares of Anchor's mandatorily redeemable 10%
cumulative convertible preferred stock, par value $.01 per share (the
"Series A Preferred Stock"), (valued at $47.0 million) and 490,898 shares of
Anchor's Class A Common Stock, par value $.10 per share (the "Class A Common
Stock") (valued at $12.0 million), issued to Smith Barney, Inc. ("Smith
Barney") in escrow for the benefit of certain creditors of Old Anchor in
partial satisfaction of Old Anchor's liabilities to such creditors,
including, without limitation, the holders of Old Anchor's debt securities
and industrial revenue bonds and (b) 360,000 shares of Series A Preferred
Stock (valued at $9.0 million) contributed to the Plans.
(4) This amount is being held in escrow until the plan of reorganization for Old
Anchor is consummated. This cash will first be allocated to Old Anchor's
senior secured creditors whose claims aggregate $158.0 million. Thereafter,
the balance of this cash will be allocated among (x) the holders of Old
Anchor's 10.25% Series A Senior Notes due 2002 and 9.875% Senior
Subordinated Debentures due 2008, the holders of which are unsecured
creditors with claims aggregating approximately $307.0 million, and (y)
certain other unsecured creditors of Old Anchor, in both cases to supplement
the 1,879,320 shares of Series A Preferred Stock (valued at $47.0 million)
and the 490,898 shares of Class A Common Stock (valued at $12.0 million)
issued to Smith Barney in escrow for such unsecured creditors.
(5) $9.1 million in cash plus 360,000 shares of Series A Preferred Stock (valued
at $9.0 million) were contributed to the Plans.
The Note Offering. In April 1997, the Company offered (the "Note
Offering") its 11 1/4% First Mortgage Notes due 2005 (the "Notes"). The gross
proceeds of the Note Offering were $150.0 million. The Company used
approximately $130.0 million of such proceeds to repay all outstanding
indebtedness under the Anchor Loan Facility, approximately $8.8 million to repay
advances outstanding under the Revolving Credit Facility and approximately $6.0
million to pay fees and expenses incidental to the Note Offering with the
remaining approximately $5.2 million of such proceeds used for working capital
purposes.
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PRODUCTS
The table below provides a summary by product group of Old Anchor's net
sales (in millions of dollars) and approximate percentage of net sales by
product group for the years 1994 through 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
PRODUCT 1994 1995 1996
------------------------------ ------------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Beer.......................... $ 448.1 41.1% $377.1 39.4% $304.7 37.4%
Liquor/Wine................... 197.9 18.2 202.6 21.2 200.4 24.6
Food.......................... 202.9 18.6 172.1 18.0 166.0 20.4
Tea........................... 126.0 11.6 104.7 10.9 61.0 7.5
Beverage/Water................ 70.5 6.5 60.1 6.3 42.1 5.2
Other......................... 43.9 4.0 40.0 4.2 40.2 4.9
-------- ----- ------ ----- ------ -----
Total............... $1,089.3 100.0% $956.6 100.0% $814.4 100.0%
======== ===== ====== ===== ====== =====
</TABLE>
There can be no assurance that the information provided in the preceding
table is indicative of the glass container product mix of the Company in the
remainder of 1997 or in subsequent years. Management's strategy is to focus on
shifting its product mix towards those products management believes likely to
both improve operating results and increase unit volume. In particular, Anchor
will focus on the production of beer bottles, the market for which has grown at
an average annual rate of 7% from 1991 to 1996. In addition, management is also
implementing a strategy of cultivating longer term relationships with high
volume customers.
CUSTOMERS
The Company produces glass containers mainly for a broad base of customers
in the food and beverage industries in the United States. The Company's top ten
customers include well-known brand names such as The Stroh Brewery Company
("Stroh's"), Anheuser-Busch Companies, Inc. ("Anheuser-Busch"), Latrobe (Rolling
Rock), The Coca-Cola Trading Company (non-carbonated), Bacardi International
Limited, PepsiCo, Inc., Austin Nichols & Co., Inc. (Yoo Hoo), The J.M. Smucker
Company, Saxco International Inc. and Specialty Products Company (Nabisco). The
majority of the Company's glass container designs are produced to customer
specifications and sold on a contract basis.
The Company's largest customer, Stroh's, accounted for 15.3% of its net
sales for the period from February 5, 1997 to September 30, 1997. Anheuser-Busch
and Stroh's accounted for 12.9% and 12.1%, respectively, of its pro forma net
sales in 1996. The loss of either of such customers could have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company's ten largest customers accounted for approximately 59.9%
of pro forma net sales in 1996, and 53.5% of net sales for the period from
February 5, 1997 to September 30, 1997.
Anchor has entered into a contract with Stroh's to become the exclusive
producer of all glass beer containers for Stroh's product in the United States.
In addition, following the Anchor Acquisition, the Company secured a contract
with Anheuser-Busch to produce, subject to Anheuser-Busch's requirements,
approximately 4.0 million gross during 1997, which represents approximately
12.0% of the Company's 1997 volume currently under contract. During 1996,
Anheuser-Busch substantially reduced its purchases from Old Anchor to 6.8
million gross in 1996 and, before the Anchor Acquisition, had indicated its
intention to cease doing business with Old Anchor after 1996. Management
believes that the 1997 requirements contract for Anheuser-Busch represents an
initial step in its strategy to strengthen customer relationships.
Certain of the Company's manufacturing plants currently produce bottles for
Adolph Coors Company ("Coors"), accounting for 11.1% of the Company's pro forma
net sales in 1996. In connection with the Anchor Acquisition, the Company
entered into an arrangement with Owens whereby the Company's facilities that
historically produced bottles for Coors continued to produce bottles ordered by
Coors from Owens during a transition period that ended in May 1997 with an
extension for a limited number of lower volume items.
4
<PAGE> 6
MARKETING AND DISTRIBUTION
The Company's products are primarily marketed by an internal sales and
marketing organization that consists of 13 direct sales people and 27 business
managers who are organized into teams with responsibility for each specific
product line. Old Anchor's sales force was principally compensated based on
increase of sales volume without regard to margin. Management has recently
implemented a sales compensation program based on improving margin at the plant
level as well as increases in sales volume. Marketing efforts by the Company's
employees will be supplemented by Mr. Ghaznavi and his team of managers who plan
to leverage their relationships in the glass industry to increase sales at the
Company. As a result of the Company's affiliation with Consumers and Glenshaw,
management expects that Consumers and Glenshaw sales personnel will also market
the capabilities of Anchor with respect to certain production in exchange for a
market-based commission, thereby resulting in increased sales opportunities at
Anchor.
Anchor anticipates that certain production will be reallocated among its
ongoing plants in order to maximize machine capability and geographic proximity
to customers. In addition, Anchor intends to capitalize on its affiliation with
Consumers, with certain U.S. customers formerly served by Consumers having their
production shifted to U.S.-based Anchor facilities closer to such customers and
certain Canadian customers formerly served by Anchor having their production
shifted to Canadian-based Consumers facilities closer to such customers, in each
case in exchange for a market-based commission payable to the entity shifting
its existing production or responsible for the new business. With reduced
shipping distances as a result of this reallocation of production, Anchor
believes it will be able to reduce shipping time to customers, decrease levels
of breakage incurred in shipping product over longer distances and improve
efficiency at its plants resulting in faster and higher quality production and
service for its customers.
SEASONALITY
Due principally to the seasonal nature of the brewing, iced tea and other
beverage industries, in which demand is stronger during the summer months, the
Company's shipment volume is expected to be higher in the second and third
quarters. Consequently, the Company normally builds inventory during the first
quarter in anticipation of seasonal demands during the second and third
quarters. Historically, the Company has scheduled shutdowns of its plants for
furnace rebuilds and machine repairs in the first and fourth quarters of the
year to coincide with scheduled holiday and vacation time under its labor union
contracts. These shutdowns adversely affect profitability during the first and
fourth quarters. The Company is reviewing alternatives to reduce downtime during
these holiday periods in order to minimize disruptions to the production process
and its negative affect on profitability.
MANUFACTURING PROCESS
To manufacture glass containers, sand, limestone, soda ash and minor
ingredients, along with crushed recycled glass (also known as "cullet"), are
mixed in specific proportions and automatically fed into furnaces which,
operating at temperatures of up to 2,860 degrees Fahrenheit, melt the raw
material batch and produce molten glass. The molten glass flows from the furnace
through feeder orifices, is cut into gobs and then drops into molds located in
automatic "individual section" glass forming machines ("IS Machines"). In these
machines, mechanical devices and air pressure form the glass into its final
shape. The containers are conveyed through an oven known as an annealing lehr to
anneal (or harden) the glass. Surface coatings are applied to strengthen the
glass and lubricate it for easier handling.
Glass forming machines are generally operated for approximately five to
seven years before they are removed from the plant for rebuilding. When a
machine is removed for rebuilding, a new or rebuilt machine is immediately
installed in its place so as to minimize plant downtime.
IS Machines vary in size, usually having eight, ten or twelve "sections."
Each section in turn may have from two to four bottle-producing "cavities"
consisting of two sets of molds each. The first mold set receives the gob of
glass from the furnace feeder and forms a "parison," which is roughly in the
shape of the container. The parison is then transferred by the machine to the
second (finish) mold set where it is blown into the final container shape using
compressed air. During each machine "cycle," an IS Machine produces one bottle
in
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<PAGE> 7
each of its cavities. Accordingly, an eight-section double-cavity machine
produces sixteen bottles per machine cycle, while a ten-section triple-cavity
machine produces thirty bottles per machine cycle. Typically, the largest
machines are the most productive as they require less labor and related costs
per unit produced.
Glass forming machines also differ in the "speed," or number of cycles per
unit of time, that they can achieve. Typically, the faster the machine, the more
efficient and productive it is as, among other things, the fixed labor costs per
unit produced are reduced. However, certain products are not necessarily
well-suited for the fastest IS Machines or those with the most bottle-producing
cavities. IS Machines with a high number of bottle producing cavities would not
be capable of producing particular product lines such as large or unusually
shaped liquor bottles.
Finally, IS Machines form containers by one of two processes: (i) the "blow
and blow" process, whereby both the parison and the final container are formed
using compressed air or (ii) the more advanced "press and blow" method, whereby,
a precisely aligned metal plunger is used to press the molten glass into shape
in the first mold set. The "press and blow" method has been used for many years
to form all wide mouth food containers. A significant manufacturing advance has
been the development of high speed IS Machines capable of producing high quality
beer and soft drink containers using the narrow-neck-press-and-blow process. The
narrow-neck-press-and-blow process enables bottles to be made with less glass
and still meet strength requirements, which results in production cost savings.
More importantly, it results in a lighter weight bottle that costs less to
produce in terms of raw materials and energy per unit. These lightweight bottles
are also typically produced at higher machine speeds that increase productivity
and further reduce per unit costs.
SUPPLIERS AND RAW MATERIALS
Sand, soda ash, limestone, cullet and corrugated packaging materials are
the principal materials used by the Company. All of these materials are
available from a number of suppliers and the Company is not dependent upon any
single supplier for any of these materials. Management believes that adequate
quantities of these materials are and will be available from various suppliers.
Material increases in the cost of any of these items could have a significant
impact on the Company's operating results.
All of the Company's glass melting furnaces are equipped to burn natural
gas, which is the primary fuel used at its manufacturing facilities. Backup
systems are in place at most facilities to permit the use of fuel oil or propane
should that become necessary. Electricity is used in certain instances for
supplementary melting. The Company expects to be continually involved in
programs to conserve and reduce its consumption of fuel. Although natural gas
remains generally less expensive than electricity, prices for natural gas have
fluctuated in recent years, with significant increases in 1993, declines in 1994
and 1995 and a significant increase again in 1996. While certain of these energy
sources may become increasingly in short supply, or subject to governmental
allocation or excise taxes, the Company cannot predict the effects, if any, of
such events on its future operations. In addition, the Company utilizes a
natural gas risk management program to hedge future requirements and to minimize
fluctuations in the price of natural gas.
COMPETITION
The glass container industry is a low growth and mature industry. This low
growth combined with excess capacity in the industry have made pricing an
important competitive factor. In addition to price, companies in the glass
container manufacturing industry compete on the basis of quality, reliability of
delivery and general customer service. The Company's principal competitors are
Owens and Ball-Foster Glass Container Co., L.L.C. ("Ball-Foster"). These
competitors are larger and have greater financial and other resources than the
Company. The glass container industry in the United States is highly
concentrated, with the three largest producers in 1996, which included Old
Anchor, estimated to have accounted for 95% of 1996 production. Owens is
generally believed to be the industry's lowest cost producer. Owens has a
relatively large research and development staff and has in place numerous
technology licensing agreements with other glass producers, including the
Company. See "-- Intellectual Property."
The Company's business consists exclusively of the manufacture and sale of
glass containers. Certain other glass container manufacturers engage in more
diversified business activities than the Company
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<PAGE> 8
(including the manufacture and sale of plastic and metal containers). In
addition, plastics and other forms of alternative packaging have made
substantial inroads into the container markets in recent years and will continue
to affect demand for glass container products. According to industry sources,
unit sales in the U.S. glass container manufacturing industry in 1996 were down
2.1% from 1995. Competitive pressures from alternative forms of packaging,
including plastics, as well as consolidation in the glass container industry,
have resulted in excess capacity and have led to severe pricing pressures on
glass container manufacturers.
During the period of its continued losses, insolvency and uncertainty
regarding future operations and ownership, Old Anchor's relationships with many
of its major customers were adversely affected and Old Anchor lost certain
customers or received volume reductions and in many cases reduced prices
substantially in order to maintain production volumes. In order to successfully
improve the Company's operating performance as compared to Old Anchor, the
Company will need to establish and maintain strong relationships with major
customers based upon competitive pricing. However no assurance can be given that
the Company will be able to achieve this objective.
QUALITY CONTROL
The Company maintains a program of quality control with respect to
suppliers, line performance and packaging integrity for glass containers. The
Company's production lines are equipped with a variety of automatic and
electronic devices that inspect containers for dimensional conformity, flaws in
the glass and various other performance attributes. Additionally, products are
sample inspected and tested by Company employees on the production line for
dimensions and performance and are also inspected and audited after packaging.
Containers which do not meet quality standards are crushed and recycled as
cullet.
The Company monitors and updates its inspection programs to keep pace with
modern technologies and customer demands. The Company maintains its own
laboratory at its corporate headquarters where samples of glass and raw
materials from its plants are routinely chemically and electronically analyzed
to monitor compliance with quality standards. Laboratories are also maintained
at each manufacturing facility to test various physical characteristics of
products.
INTELLECTUAL PROPERTY
Pursuant to a Technology Assistance and License Agreement (the "Technology
Agreement") between Owens and Consumers, the Company is entitled to use patents,
trade secrets and other technical information of Owens relating to glass
manufacturing technology. The agreement, entered into in February 1997, provides
for a term of up to ten years. Owens is generally considered one of the world's
most technologically advanced manufacturers of glass containers. The Technology
Agreement allows Anchor to plan capital investments in line with Owens' advanced
production techniques.
While the Company holds various patents, trademarks and copyrights of its
own, it believes its business is not dependent upon any one of such patents,
trademarks or copyrights.
EMPLOYEES
As of November 1, 1997, the Company employed approximately 3,350 persons on
a full-time basis. Approximately 550 of these employees are salaried office,
supervisory and sales personnel. The remaining employees are represented
principally by two unions, Glass, Molders, Pottery, Plastics and Allied Workers
(the "GMP"), which represents approximately 90% of the Company's hourly
employees, and the American Flint Glass Workers Union (the "AFGWU"), which
represents approximately 10% of the Company's hourly employees. The Company's
two labor contracts with the GMP and its two labor contracts with the AFGWU have
three year terms expiring on March 31, 1999 and August 31, 1999, respectively.
Old Anchor was granted a deferral of the scheduled 1996 wage increase under its
collective bargaining agreements. The Company granted the 1996 increase
effective as of the date of the Anchor Acquisition, and the 1997 increase
effective as of April 1, 1997. These two increases represent a 9% increase in
wage rates as of April 1, 1997 as compared to 1996 wage rates. The Company is
subject to OSHA and other laws regulating safety and noise exposure levels
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<PAGE> 9
in the production area of its plants. See "-- Environmental and Other Government
Regulation -- Heath and Safety Regulation."
Old Anchor had not experienced a work stoppage since an industry-wide
strike in 1968. The Company considers its employee relations to be good, and
does not anticipate any material work stoppages in the near term.
ENVIRONMENTAL AND OTHER GOVERNMENT REGULATION
Environmental Regulation and Compliance. The Company's operations are
subject to increasingly complex and detailed Federal, state and local laws and
regulations including, but not limited to, the Federal Water Pollution Control
Act of 1972, as amended, the U.S. Clean Air Act, as amended, and the Federal
Resource Conservation and Recovery Act, as amended, that are designed to protect
the environment. Among the activities subject to regulation are the disposal of
checker slag (furnace residue usually removed during furnace rebuilds), the
disposal of furnace bricks containing chromium, the disposal of waste, the
discharge of water used to clean machines and cooling water, dust produced by
the batch mixing process, underground storage tanks and, air emissions produced
by furnaces. In addition, the Company is required to obtain and maintain permits
in connection with its operations. Many environmental laws and regulations
provide for substantial fines and criminal sanctions for violations. The Company
believes it is in material compliance with applicable environmental laws and
regulations. It is difficult to predict the future development of such laws and
regulations or their impact on future earnings and operations, but the Company
anticipates that these standards will continue to require increased capital
expenditures. There can be no assurance that material costs or liabilities will
not be incurred.
Certain environmental laws, such as the U.S. Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA" or "Superfund") and analogous
State laws provide for strict, joint and several liability for investigation and
remediation of releases of hazardous substances into the environment. Such laws
may apply to properties presently or formerly owned or operated by an entity or
its predecessors, as well as to conditions at properties at which wastes
attributable to an entity or its predecessors were disposed. There can be no
assurance that the Company or entities for which it may be responsible will not
incur such liability in a manner that could have a material adverse effect on
the financial condition or results of operations of the Company.
The Company is engaged in investigation and remediation projects at plants
currently being operated and at closed facilities. In addition, Old Anchor was
named as a potentially responsible party (a "PRP") under CERCLA with respect to
a number of sites. Of these sites, the Company has assumed responsibility with
respect to four sites that are currently active. While the Company may be
jointly and severally liable for costs related to these sites, in most cases, it
is only one of a number of PRPs who are also jointly and severally liable. With
respect to the four currently active sites for which the Company has assumed
responsibility, the Company estimates that its share of the aggregate cleanup
costs of such sites should not exceed $2.0 million, and that the likely range
after taking into consideration the contributions anticipated from other
potentially responsible parties could be significantly less. However, no
assurance can be given that the cleanup costs of such sites will not exceed $2.0
million or that the Company will have these funds available. The Company has
established reserves of approximately $16.0 million for environmental costs
which it believes are adequate to address the anticipated costs of remediation
of these operated and closed facilities and its liability as a PRP under CERCLA.
The timing and magnitude of such costs cannot always be determined with
certainty due to, among other things, incomplete information with respect to
environmental conditions at certain sites, the absence of regulatory
determinations with respect to environmental requirements at certain sites, new
and amended environmental laws and regulations, and uncertainties regarding the
timing of remedial expenditures.
Management anticipates that capital expenditures required for environmental
compliance will be approximately $1.8 million for 1997 and approximately $1.5
million annually in 1998 and 1999. However, there can be no assurance that
future changes in such laws, regulations or interpretations thereof or the
nature of the Company's operations will not require the Company to make
significant additional capital expenditures to ensure compliance in the future.
8
<PAGE> 10
ERISA and Pension Deficiencies. The Company maintains three defined
benefit plans and two profit sharing plans that, prior to the Anchor
Acquisition, were maintained by Old Anchor. These plans are covered by the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and are
tax qualified under the Internal Revenue Code of 1986, as amended (the "Code"),
and subject to regulation by the Internal Revenue Service and the Department of
Labor. The three defined benefit plans are also subject to regulation by the
Pension Benefit Guaranty Corporation ("PBGC"). The Company's two profit sharing
plans contain cash or deferred arrangements under Section 401(k) of the Code.
The Company's tax-qualified plans must meet stringent requirements both in form
and in operation in order to maintain their tax-qualified status. These
requirements are constantly changing with the enactment of new pension
legislation, the issuance of new Treasury regulations and other guidance from
the Internal Revenue Service. The loss of a plan's qualified status could result
in the assessment of tax on the plan's trust income, disallowance of the
Company's tax deduction for contributions, and immediate income tax liability
upon individual participant's benefits.
The three defined benefit plans are subject to minimum funding requirements
under the Code and Title IV of ERISA. These funding requirements include the
obligation to make quarterly contributions to the plans. Under ERISA, if any
contribution is missed which, when added to any other missed payment, exceeds
the amount of $1.0 million, an automatic lien in favor of the PBGC will arise on
all property of the Company and all members of its controlled group. In
addition, under ERISA, the PBGC can institute proceedings to terminate any
defined benefit plan for a number of reasons, including (i) the failure of the
plan to meet ERISA's minimum funding requirements, (ii) the inability of the
plan to pay benefits when due or (iii) the possible long-run loss of the PBGC
with respect to the plan may reasonably be expected to increase unreasonably if
the plan is not terminated. Upon termination of a plan, a lien arises in favor
of the PBGC for the amount of the underfunding of the plan.
On January 9, 1997, the PBGC notified Old Anchor that it intended to
institute involuntary termination proceedings with respect to the three defined
benefit plans then maintained by Old Anchor that are now maintained by the
Company. However, the PBGC reached an agreement with Vitro (the "Termination
Agreement"), the parent of Old Anchor, in which Vitro agreed to provide a
limited guaranty to the PBGC with respect to the unfunded benefit liabilities of
the Company's defined benefit plans, if the plans, or any one of them, are
terminated before August 1, 2006. As a result of this agreement with Vitro, the
threatened involuntary termination proceeding was never commenced. Under the
terms of the Termination Agreement, the PBGC agreed that it would not implement
proceedings to terminate the Company's defined benefit plans solely as a result
of the Anchor Acquisition or the transactions contemplated by the Asset Purchase
Agreement.
The defined benefit plan covering salaried employees was frozen at the end
of 1994, and, at the end of 1996, was not underfunded under Statement of
Financial Accounting Standards No. 87 ("SFAS No. 87"). However, the two defined
benefit plans that are maintained for hourly employees are significantly
underfunded and will require substantial cash contributions over the next few
years. At the end of 1996, these two plans in the aggregate had unfunded
benefits under SFAS No. 87 totaling approximately $76.7 million. Pension
contributions made to the Plans during 1997, including the contributions made by
the Company upon the closing of the Anchor Acquisition ($9.1 million in cash and
$9.0 million in the Company's Series A Preferred Stock including $8.1 million in
cash and $8.0 million in Series A Preferred Stock contributed to the two hourly
plans), were approximately $38.4 million. In addition, the underfunding of the
two hourly plans required the payment of increased premiums to the PBGC under
its pension guaranty program of approximately $1.8 million in 1997.
Pursuant to the Termination Agreement, a valuation of the shares of Series
A Preferred Stock contributed by the Company to the three defined benefit plans
is to be performed, and if, based on such valuation, it is determined that the
value of such shares as of February 5, 1997 plus the aggregate cash contribution
of $9.1 million made to those plans was less than $18.1 million, the Company
will be obligated to contribute an amount in cash or "qualifying employer
securities" (as defined in section 407(d)(5) of ERISA) equal to the difference
between $18.1 million and the value of the shares and cash contributed.
9
<PAGE> 11
Management believes that the Company is now in material compliance with all
laws and regulations governing its employee benefit plans. In addition, based
upon the Company's business plan, management believes the Company will have
sufficient cash flow to meet its obligations to make pension contributions and
pay PBGC premiums. However, there can be no assurance that future changes in
such laws or regulations, or interpretations thereof, changes in the Company's
business or in market conditions affecting the value of plan assets will not
require the Company to expend amounts that exceed those that are now
anticipated.
Employee Health and Safety Regulation. The Company's operations are
subject to a variety of worker safety laws. The U.S. Occupational Safety and
Health Act of 1970 ("OSHA") and analogous laws mandate general requirements for
safe workplaces for all employees. The Company believes that its operations are
in material compliance with applicable employee health and safety laws.
Deposit and Recycling Legislation. In recent years, legislation has been
introduced at the Federal, state and local levels that would require a deposit
or tax, or impose other restrictions, on the sale or use of certain containers,
particularly beer and carbonated soft drink containers. To date, 10 states have
enacted some form of deposit legislation, although no such new legislation has
been enacted since 1986. The enactment of additional laws or comparable
administrative actions that would require a deposit on beer or soft drink
containers, or otherwise restrict their use, could have a material adverse
effect on the Company's business. In jurisdictions where deposit legislation has
been enacted, the consumption of beverages in glass bottles has generally
declined due largely to the preference of retailers for handling returned cans
and plastic bottles. Container deposit legislation continues to be considered
from time to time at various governmental levels.
In lieu of this type of deposit legislation, several states have enacted
various anti-littering recycling laws that do not involve the return of
containers to retailers. The use of recycled glass, and recycling in general,
are not expected to have a material adverse effect on the Company's operations.
ITEM 2. FINANCIAL INFORMATION
UNAUDITED PRO FORMA FINANCIAL DATA
The following Unaudited Pro Forma Balance Sheet of the Company as of
December 31, 1996 (the "Pro Forma Balance Sheet") gives effect to the formation
of the Company, the Anchor Acquisition, the Note Offering and the application of
the net proceeds therefrom (collectively, the "Transactions"), as if each such
event had occurred on December 31, 1996. The following Unaudited Pro Forma
Statements of Operations of the Company for the year ended December 31, 1996 and
the nine months ended September 30, 1996 and 1997 (the "Pro Forma Statements of
Operations" and, together with the Pro Forma Balance Sheet, the "Pro Forma
Financial Statements") give effect to the Transactions as if each such event had
occurred on January 1, 1996 and 1997, respectively. The Pro Forma Financial
Statements should be read in conjunction with "Management's Discussion and
Analysis of Pro Forma Financial Condition and Results of Operations," the
financial statements of the Company, together with the notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the historical consolidated financial statements of Old
Anchor, together with the notes thereto and the related "Management's Discussion
and Analysis of Financial Condition and Results of Operations for Old Anchor,"
included elsewhere in this Registration Statement. The Pro Forma Financial
Statements do not purport to be indicative of the results that would have
actually been obtained had such Transactions been completed as of the assumed
dates and for the periods presented, or that may be obtained in the future.
The Anchor Acquisition has been accounted for using the purchase method of
accounting, pursuant to which the purchase price is allocated among the acquired
assets and liabilities in accordance with estimates of fair value as of the date
of acquisition. The purchase price is subject to adjustment as provided in the
Asset Purchase Agreement. Accordingly, the Pro Forma Balance Sheet reflects
management's preliminary estimates of fair value as of the date of acquisition
and of purchase accounting adjustments, and are based upon available information
and certain assumptions that the Company considers reasonable under the
circumstances. On June 13, 1997, Old Anchor delivered to the Company the Closing
Balance Sheet, which indicates that Old Anchor believes that it is entitled to
additional payments from the Company and Owens totaling approximately $76.3
million relating primarily to purchase price adjustments. On July 28, 1997, the
Company and
10
<PAGE> 12
Owens delivered individual notices of disagreement to Old Anchor, opposing some
of the adjustments sought by Old Anchor as well as asserting other adjustments
in the Company's or Owen's favor. The Company's notice of disagreement requested
a reduction to the purchase price of approximately $96.8 million. There may be
litigation and/or arbitration over some or all aspects of adjustments requested
by all parties. Such adjustments, if material, could impact the purchase price
paid by the Company in connection with the Anchor Acquisition, the allocation of
the purchase price and, as a result, the Pro Forma Balance Sheet. There have
been numerous settlement discussions between the Company's management and key
members of the creditors committee for Old Anchor which would eliminate the
necessity for either arbitration or litigation. Based on these settlement
discussions, management believes that any such settlement would not have a
material adverse impact on the Pro Forma Balance Sheet. Consequently, the
amounts reflected in the Pro Forma Balance Sheet are subject to change.
In addition, for purposes of the Pro Forma Financial Statements, the
historical financial information of Old Anchor as of and for the periods
presented has been adjusted to eliminate the effect of certain assets and
liabilities of Old Anchor not acquired or assumed by the Company in the Anchor
Acquisition, in accordance with the terms of the Asset Purchase Agreement.
11
<PAGE> 13
UNAUDITED PRO FORMA BALANCE SHEET
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ANCHOR
RESOLUTION
CORP. PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 4,898 $ (4,812)(a) $ 14,078
(8)(b)
14,000(d)
Accounts receivable................................... 55,851 (139)(a) 43,445
(6,238)(b)
(6,029)(c)
Inventories --
Raw materials and manufacturing supplies............ 28,528 1,749(a) 24,685
(2,620)(b)
(2,972)(c)
Semi-finished and finished products................. 115,891 15,403(a) 93,558
(14,875)(c)
(22,861)(b)
Other current assets.................................. 18,593 (8,880)(a) 13,743
(573)(b)
4,603(c)
Financing costs....................................... -- 11,572(g) --
(11,572)(g)(n)
------- -------- --------
Total current assets........................ 223,761 (34,252) 189,509
Property, plant and equipment, net.................... 310,770 (7,200)(a) 320,985
(26,683)(b)
44,098(c)
Other assets.......................................... 52,072 (10,506)(a) 22,421
(2,804)(b)
(16,341)(c)
Financing costs....................................... -- 14,149(d)(g) 14,149
Intangible pension asset.............................. 17,140 (17,140)(a) --
Investment in joint venture........................... 39,725 (39,725)(b) --
Goodwill.............................................. -- 47,000(c) 47,000
------- -------- --------
Total assets................................ $ 643,468 $ (49,404) $ 594,064
======= ======== ========
</TABLE>
See notes to unaudited pro forma financial statements.
12
<PAGE> 14
UNAUDITED PRO FORMA BALANCE SHEET
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ANCHOR
RESOLUTION
CORP. PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY IN ASSETS)
Liabilities not subject to compromise:
Current liabilities:
Debtor-in-Possession Facility........................ $ 90,455 $ (90,455)(a) $ --
Revolving Credit Facility............................ -- 104(g) 104
Senior Secured Notes................................. 158,025 (158,025)(a) --
Accounts payable..................................... 25,727 (387)(a) 20,757
(1,961)(b)
(2,622)(c)(e)
Accrued expenses..................................... 32,740 (6,217)(a) 57,416
(2,033)(b)
32,926(c)(e)
Accrued interest..................................... 1,510 (1,510)(a) --
Accrued compensation and employee benefits........... 60,423 (5,630)(b) 36,737
(18,056)(f)
--------- --------- --------
Total current liabilities.................. 368,880 (253,866) 115,014
Long-term debt....................................... -- 150,000(d) 152,376
2,376(c)(e)
Pension liabilities.................................. 44,179 (11,161)(b) 59,476
26,458(c)(e)
Other long-term liabilities.......................... 119,722 (16,294)(a) 119,802
(1,000)(b)
17,374(c)(e)
Prepetition liabilities subject to compromise........ 379,994 (379,994)(a) --
--------- --------- --------
Total liabilities.......................... 912,775 (466,107) 446,668
--------- --------- --------
Series A Preferred Stock............................. -- 55,983(h)(i) 55,983
--------- --------- --------
Stockholders' equity (deficiency in assets):
Series B Preferred Stock........................... -- 84,000(g) 84,000
Common Stock....................................... -- 139(g) 139
Warrants........................................... -- 10,518(g) 10,518
Capital in excess of par value..................... 576,300 (576,300)(a) 8,328
6,828(g)
1,500(g)
Accumulated deficit................................ (823,213) 823,213(a) (11,572)
(11,572)(g)(n)
Amount related to minimum pension liability........ (22,394) 22,394(a) --
--------- --------- --------
(269,307) 360,720 91,413
--------- --------- --------
Total liabilities and stockholders' equity
(deficiency in assets)................... $ 643,468 $ (49,404) $ 594,064
========= ========= ========
</TABLE>
See notes to unaudited pro forma financial statements.
13
<PAGE> 15
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ANCHOR
RESOLUTION
CORP. PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
<S> <C> <C> <C>
Net sales............................................. $ 814,370 $ (91,689)(h) $ 722,681
Costs and expenses:
Cost of products sold............................... 831,612 (85,242)(h) 718,098
(13,920)(i)
(3,141)(j)
(13,519)(k)
2,308(l)
Selling and administrative expenses................. 39,570 -- 39,570
Restructuring and other charges..................... 49,973 -- 49,973
Impairment of long-lived assets..................... 490,232 (490,232)(i) --
Write-up of assets held for sale.................... (8,967) 5,200(p) (3,767)
--------- --------- ----------
Loss from operations.................................. (588,050) 506,857 (81,193)
Other income (expense), net........................... (10,020) 5,553(h) 1,995
6,462(m)
Interest expense...................................... (48,601) 29,153(n) (19,448)
--------- --------- ----------
Loss before reorganization items, income taxes and
extraordinary items................................. (646,671) 548,025 (98,646)
Reorganization items.................................. (5,008) -- (5,008)
Income taxes.......................................... (1,825) -- (1,825)
--------- --------- ----------
Loss before extraordinary items....................... $ (653,504) $ 548,025 $ (105,479)
========= ========= ==========
Preferred stock dividends............................. $ (12,318)(o) $ (12,318)
========= ==========
Loss before extraordinary items applicable to common
stock............................................... $ (653,504) $ 535,707 $ (117,797)
========= ========= ==========
Weighted average common shares outstanding............ 1,393,513
Loss per share applicable to common stock before
extraordinary items................................. $ (84.53)
OTHER DATA:
EBITDA(q)........................................... $ 34,824 $ (6,072) $ 28,752
========= ========= ==========
Depreciation and amortization....................... $ 101,656 $ (39,912) $ 61,744
========= ========= ==========
Deficiency of earnings to cover fixed charges....... $ 651,679 $(548,025) $ 103,654
========= ========= ==========
</TABLE>
See notes to unaudited pro forma financial statements.
14
<PAGE> 16
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ANCHOR
RESOLUTION ANCHOR
CORP. PERIOD PERIOD FROM
FROM JAN. 1, FEB. 5, 1997
1997 TO TO PRO FORMA
FEB. 4, 1997 SEPT. 30, 1997 ADJUSTMENTS PRO FORMA
------------ -------------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales............................... $ 62,560 $ 415,636 $(8,483)(h) $ 469,713
Costs and expenses:
Cost of products sold................. 70,608 386,130 (8,207)(h) 448,095
(613)(k)
177(l)
Selling and administrative expenses... 3,745 18,127 -- 21,872
-------- -------- ------- ----------
Income (loss) from operations........... (11,793) 11,379 160 (254)
Other income (expense), net............. (595) 234 630(m) 269
Interest expense........................ (2,437) (12,725) 732(n) (14,430)
-------- -------- ------- ----------
Loss before reorganization items and
extraordinary item.................... (14,825) (1,112) 1,522 (14,415)
Reorganization items.................... (827) -- -- (827)
-------- -------- ------- ----------
Loss before extraordinary item.......... $(15,652) $ (1,112) $ 1,522 $ (15,242)
======== ======== ======= ==========
Preferred stock dividends............... $ (8,032) $(1,181)(o) $ (9,213)
======== ======= ==========
Loss before extraordinary item
applicable to common stock............ $(15,652) $ (9,144) $ 341 $ (24,455)
======== ======== ======= ==========
Weighted average common shares
outstanding........................... 1,183,909 1,393,513
Loss per share applicable to common
stock before extraordinary item....... $ (7.72) $ (17.55)
OTHER DATA:
EBITDA(q)............................. $ (4,783) $ 48,611 $ (675) $ 43,153
======== ======== ======= ==========
Depreciation and amortization......... $ 7,605 $ 36,998 $(1,465) $ 43,138
======== ======== ======= ==========
Deficiency of earnings to cover fixed
charges............................ $ 15,652 $ 1,112 $(1,522) $ 15,242
======== ======== ======= ==========
</TABLE>
See notes to unaudited pro forma financial statements.
15
<PAGE> 17
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ANCHOR
RESOLUTION
CORP. PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales.............................................. $ 640,049 $ (71,317)(h) $ 568,732
Costs and expenses:
Cost of products sold................................ 636,917 (65,416)(h) 554,156
(10,440)(i)
(8,636)(k)
1,731 (l)
Selling and administrative expenses.................. 30,736 -- 30,736
Restructuring and other charges...................... 49,973 -- 49,973
--------- -------- ---------
Loss from operations................................... (77,577) 11,444 (66,133)
Other income (expense), net............................ (3,379) 1,319 (h) 2,413
4,473 (m)
Interest expense....................................... (42,160) 27,730 (n) (14,430)
--------- -------- ---------
Loss before reorganization items, income taxes and
extraordinary items.................................. (123,116) 44,966 (78,150)
Reorganization items................................... (1,576) -- (1,576)
Income taxes........................................... (1,825) -- (1,825)
--------- -------- ---------
Loss before extraordinary items........................ $ (126,517) $ 44,966 $ (81,551)
========= ======== =========
Preferred stock dividends.............................. $ (9,213)(o) $ (9,213)
======== =========
Loss before extraordinary items applicable to common
stock................................................ $ (126,517) $ 35,753 $ (90,764)
========= ======== =========
Weighted average common shares outstanding............. 1,393,513
Loss per share applicable to common stock before
extraordinary items.................................. $ (65.13)
OTHER DATA:
EBITDA(q)............................................ $ 44,256 $ (12,952) $ 31,304
========= ======== =========
Depreciation and amortization........................ $ 75,239 $ (30,188) $ 45,051
========= ======== =========
Deficiency of earnings to cover fixed charges........ $ 124,692 $ (44,966) $ 79,726
========= ======== =========
</TABLE>
See notes to unaudited pro forma financial statements.
16
<PAGE> 18
NOTES TO UNAUDITED PROFORMA FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996 AND NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996
The unaudited pro forma balance sheet as of December 31, 1996, gives effect
to the following unaudited pro forma adjustments:
(a) Represents elimination of the assets not purchased and liabilities not
assumed, including the elimination of LIFO (last-in, first-out) reserves,
in the acquisition of certain assets and the assumption of certain
liabilities by the Company in accordance with the Asset Purchase Agreement.
(b) Represents elimination of the assets purchased and liabilities assumed by
Owens in accordance with their acquisition of the Antioch and Hayward,
California plants and Old Anchor's investment in the Rocky Mountain Bottle
Company joint venture in accordance with the Agreement.
(c) The purchase price has been preliminarily allocated to the net assets of
Old Anchor based on estimated fair values at the date of acquisition with
the excess of the cost fair value allocated to goodwill. Goodwill will be
amortized on a straight line basis over 20 years. The preliminary
allocation of the purchase price of the assets and liabilities acquired by
the Company is as follows:
<TABLE>
<S> <C>
Purchase price:
Cash............................................................ $200,470
Class A Common Stock............................................ 2,454
Series A Preferred Stock........................................ 46,983
Fees and expenses............................................... 1,500
--------
$251,407
========
Preliminary allocation of purchase price:
Adjusted book value of Old Anchor............................... $272,435
Estimated adjustments to various assets......................... (35,614)
Estimated adjustment to reflect property, plant and equipment at
fair value................................................... 44,098
Estimated acquisition, plant closing and reorganization related
liabilities(e)............................................... (76,512)
Goodwill........................................................ 47,000
--------
$251,407
========
</TABLE>
(d) Reflects the Note Offering. The gross proceeds of $150.0 million therefrom,
net of fees of approximately $6.0 million, classified as long-term
financing costs, were used to repay the indebtedness under the Anchor Loan
Facility, to repay advances under the Revolving Credit Facility and to
provide Anchor with working capital of approximately $5.2 million.
Financing costs will be amortized over the term of the related debt.
(e) Reflects the cost to close two manufacturing plants and other liabilities
incurred in the Anchor Acquisition. Anchor closed its Houston, Texas plant
in February 1997 and its Dayville, Connecticut plant in April 1997.
(f) Reflects a payment of plan contributions to Anchor pension plans of $9.1
million in cash and face amount $9.0 million (360,000 shares) of Series A
Preferred Stock.
(g) Reflects issuance of equity in connection with the Anchor Acquisition. For
$85.0 million in cash, Anchor issued to Consumers U.S. $84.0 million of 8%
cumulative convertible Preferred Stock par value $.01 per share (the
"Series B Preferred Stock") and $1.0 million of the Company's Class B
Common Stock, par value $.10 per share (the "Class B Common Stock.") Also
reflected in stockholders' equity is $15.5 million representing transaction
fees paid by Consumers and other financing costs incurred by Anchor, of
which $7.0 million is classified as long-term financing costs and $7.0
million is classified as short-term
17
<PAGE> 19
NOTES TO UNAUDITED PROFORMA FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1996 AND NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996
financing costs. As part of the proceeds of the Anchor Acquisition, Anchor
issued to the creditors of Old Anchor, $47.0 million of Series A Preferred
Stock and $2.5 million of Class A Common Stock of Anchor. Debt incurred in
the Anchor Acquisition consists of $130.0 million under the Anchor Loan
Facility (which was repaid with proceeds of the Note Offering), and $0.1
million of advances outstanding under the Revolving Credit Facility (which
was also repaid with proceeds from the Note Offering). Fees on the Anchor
Loan Facility of $11.6 million are written off as an extraordinary loss and
fees on the Revolving Credit Facility of $3.1 million are classified as
long-term financing costs. In conjunction with the Note Offering, the
Company entered into a currency exchange rate agreement, the balance of
which is recorded as a reduction of deferred financing fees.
The unaudited pro forma statements of operations for the year ended
December 31, 1996 and the nine months ended September 30, 1997 and 1996, give
effect to the following unaudited pro forma adjustments:
(h) Reflects the elimination of the operations of Old Anchor plants purchased
by Owens and the elimination of Old Anchor's share of operations of the
Rocky Mountain Bottle Company joint venture for the periods presented.
(i) Reflects the elimination of Old Anchor's historical amortization of
goodwill for the periods presented and the elimination of Old Anchor's
historical impairment of long-lived assets as of December 31, 1996.
(j) Reflects the elimination of the LIFO (last-in, first-out) provision
recorded for the year ended December 31, 1996.
(k) Reflects the reduction of Old Anchor's historical depreciation for the
effects of the purchase price allocation to property, plant and equipment.
(l) Reflects the amortization of goodwill on a straight-line basis over 20
years.
(m) Reflects the elimination of the amortization of deferred financing fees
recorded by Old Anchor.
(n) Pro forma interest expense and amortization of financing costs has been
calculated on pro forma debt levels and applicable interest rates assuming
the Note Offering was consummated as of the beginning of the periods
indicated:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1996
------------ ------------- -------------
<S> <C> <C> <C>
Elimination of interest expense recorded by Old
Anchor......................................... $(48,601) $(2,437) $ (42,160)
Elimination of interest expense related to the
Anchor Loan Facility........................... -- (3,220) --
Interest on borrowings under the Notes of $150.0
million at an interest rate of 11.25% assumed
to be outstanding for the full period.......... 16,875 5,062 12,656
Interest on borrowings under the Revolving Credit
Facility of $0.1 million assuming an interest
rate of 8.25%.................................. 8 (216) 6
Other interest expense........................... 560 -- 264
Amortization of financing fees related to the
Notes over a term of eight years and the
Revolving Credit Facility over a term of five
years.......................................... 2,005 79 1,504
-------- ------- --------
$(29,153) $ (732) $ (27,730)
======== ======= ========
</TABLE>
18
<PAGE> 20
NOTES TO UNAUDITED PROFORMA FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1996 AND NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996
On a historical basis, the Company has written off the capitalized deferred
financing fees of the Anchor Loan Facility as of the date that the Note
Offering was consummated. This amount, $11.2 million, was recorded as an
extraordinary loss in the second quarter of 1997.
(o) Reflects the dividends on Series A Preferred Stock of $56.0 million and
Series B Preferred Stock of $84.0 million.
(p) Reflects the elimination of a portion of Old Anchor's historical write-up
of assets held for sale related to plant facilities not acquired in the
Anchor Acquisition for the year ended December 31, 1996.
(q) EBITDA (earnings before interest, taxes, depreciation and amortization) is
an amount equal to income (loss) before income taxes and extraordinary
items, plus the amounts of restructuring charges, reorganization items, the
impairment of long-lived assets, interest, depreciation and amortization
and less the write-up of assets held for sale included in the determination
of income (loss) before income taxes and extraordinary items. EBITDA is a
measure of the Company's debt service ability. It is not an alternative to
net income as a measure of the Company's results of operations (as
interest, taxes, depreciation and amortization are included in the
determination of net income) or to cash flows as a measure of liquidity (as
cash flows include the cash effects of all operating, financing and
investing activities).
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PRO FORMA RESULTS OF OPERATIONS
The discussion set forth below compares the Company's pro forma results of
operations for the nine months ended September 30, 1996 and 1997 after giving
effect to the formation of the Company, the Anchor Acquisition, the Note
Offering and the application of the net proceeds therefrom as if each such event
had occurred at the beginning of the periods presented. A discussion of Old
Anchor's historical results of operations for the year ended December 31, 1996
as compared to Old Anchor's historical results of operations for the year ended
December 31, 1995, and the year ended December 31, 1995 as compared to the year
ended December 31, 1994, is also included elsewhere in this Prospectus. The
information and data included in the following discussion has been derived from
the unaudited Pro Forma Financial Statements of the Company, and exclude the Old
Anchor plants and joint venture interest acquired by Owens in connection with
the Anchor Acquisition, and give effect to the replacement of Old Anchor's
capital structure with the capital structure of the Company. The Company is
implementing a new business strategy, including the Plant Closings and the
Headquarters Cost Reductions, although the effects on the Company's results of
operations resulting therefrom are not reflected in the pro forma results of
operations discussed below.
The data included in the following table for the nine months ended
September 30, 1996 and 1997 has been derived from the Pro Forma Statements of
Operations of the Company. See "Unaudited Pro Forma Financial Statements."
Management believes this data is not necessarily indicative of the results of
operations that would have been achieved by the Company had the Anchor
Acquisition actually occurred at the beginning of the respective periods.
Furthermore, management believes this data is not necessarily indicative of
Anchor's future results.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
1996 % OF SALES 1997 % OF SALES
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Net sales............................................ $568,732 100.0% $469,713 100.0%
Cost of products sold................................ 554,156 97.4 448,095 95.4
Selling and administrative expenses.................. 30,736 5.4 21,872 4.7
Restructuring and other charges...................... 49,973 8.8 -- --
Loss from operations................................. (66,133) (11.6) (254) (0.1)
Interest expense..................................... (14,430) (2.5) (14,430) (3.1)
Loss before reorganization items and extraordinary
item............................................... (78,150) (13.7) (14,415) (3.1)
Loss before extraordinary item....................... (81,551) (14.3) (15,242) (3.2)
</TABLE>
PRO FORMA FIRST NINE MONTHS OF 1997 COMPARED TO PRO FORMA FIRST NINE MONTHS OF
1996
The loss from operations for the pro forma nine months ended September 30,
1997 was $0.3 million compared to a loss from operations of $66.1 million for
the pro forma nine months ended September 30, 1996. The loss before
extraordinary item was $15.2 million for the pro forma first nine months of 1997
compared to $81.6 million for the comparable pro forma period of 1996. Included
in the pro forma 1996 results was a first quarter charge of $50.0 million for
Old Anchor's 1996 restructuring program. Net sales for the pro forma first nine
months of 1997 were $469.7 million, a decrease of 17.4% compared with the 1996
pro forma first nine months.
Following the Anchor Acquisition on February 5, 1997, management began an
implementation of a business strategy that it believes can significantly improve
upon Old Anchor's operating results. The objectives of this strategy are to (i)
reduce the cost structure of the Company, (ii) improve production planning and
product mix and (iii) strengthen customer relations.
Cost reductions are being effected through the closure of certain plants to
remove excess capacity and a targeted expense reduction program to create a
leaner organization through the elimination of excess layers of management
including the consolidation of certain corporate functions. Since the Anchor
Acquisition, the
20
<PAGE> 22
Company has closed its Houston, Texas plant effective February 1997 and its
Dayville, Connecticut plant effective April 1997 (the "Plant Closings"). The
Company has reduced 25% of corporate headquarters positions effective as of
March 1997.
With the elimination of excess capacity, management believes it will be
able to improve efficiency and operating results by reallocating production
among the Company's manufacturing facilities according to machine strength and
by instituting longer production runs with fewer mold and color changes.
The Company believes that reestablishing the positive customer
relationships Old Anchor benefitted from in the past is essential to improving
financial performance. Management has already begun to rebuild relationships
with some of Old Anchor's larger volume customers.
LIQUIDITY AND CAPITAL RESOURCES
For a discussion of Liquidity and Capital Resources, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
21
<PAGE> 23
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth certain historical financial information of
the Company and of Old Anchor. The selected financial data for the period from
February 5, 1997 to September 30, 1997 has been derived from the Company's
unaudited condensed financial statements included elsewhere in this Registration
Statement. The selected financial data for the nine months ended September 30,
1996 and for the period from January 1, 1997 to February 4, 1997 has been
derived from Old Anchor's unaudited condensed financial statements included
elsewhere in this Registration Statement. The following information should be
read in conjunction with the Company's unaudited condensed financial statements
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere in this Registration Statement.
<TABLE>
<CAPTION>
OLD ANCHOR HISTORICAL
--------------------------------------- ANCHOR
NINE MONTHS PERIOD FROM PERIOD FROM
ENDED JANUARY 1, 1997 TO FEBRUARY 5, 1997 TO
SEPTEMBER 30, 1996 FEBRUARY 4, 1997 SEPTEMBER 30, 1997(1)(8)
------------------ ------------------ ------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................ $ 640,049 $ 62,560 $415,636
Cost of products sold.................... 636,917 70,608 386,130
Selling and administrative expenses...... 30,736 3,745 18,127
Restructuring and other charges(2)....... 49,973 -- --
-------- -------- -------
Income (loss) from operations............ (77,577) (11,793) 11,379
Other income (expense), net.............. (3,379) (595) 234
Interest expense(3)...................... (42,160) (2,437) (12,725)
-------- -------- -------
Loss before reorganization items, income
taxes and extraordinary items(5)....... (123,116) (14,825) (1,112)
Reorganization items..................... (1,576) (827) --
Income taxes(4).......................... (1,825) -- --
Extraordinary items(5)................... (2,336) -- (11,200)
-------- -------- -------
Net loss................................. $ (128,853) $(15,652) $(12,312)
======== ======== =======
Preferred stock dividends................ $ (8,032)
=======
Loss before extraordinary items
applicable to common stock............. $ (9,144)
=======
Loss applicable to common stock.......... $(20,344)
=======
BALANCE SHEET DATA (at end of period):
Accounts receivable...................... $ 85,130 $ 60,978 $ 60,840
Inventories.............................. 166,527 148,731 118,191
Total assets............................. 1,195,601 651,801 588,712
Total debt............................... 575,732 570,335 158,168
Total stockholders' equity (deficiency in
assets)................................ 253,234 (284,959) 87,023
OTHER FINANCIAL DATA:
EBITDA(6)................................ $ 44,256 $ (4,783) $ 48,611
Depreciation and amortization............ 75,239 7,605 36,998
Capital expenditures..................... 36,144 7,184 21,152
Ratio of earnings to fixed charges(7).... -- -- --
</TABLE>
- ---------------
(1) The Anchor Acquisition was consummated on February 5, 1997. Accordingly, the
information provided for Old Anchor for the nine months ended September 30,
1996 and for the period from January 1, 1997 to February 4, 1997 is not
comparable to the information provided for the Company for the period from
February 5, 1997 to September 30, 1997.
22
<PAGE> 24
(2) Restructuring and other charges reflects Old Anchor's implementation of a
series of restructuring plans in an effort to respond to the continued
decline in industry sales volume combined with, in 1996, the loss of a
significant portion of the business of Old Anchor's largest customer. During
the year ended December 31, 1996, the Company recorded an adjustment to the
carrying value of certain idled facilities held for sale. These assets were
previously written down to an estimated net realizable value. Upon a current
evaluation of quotes and offers on these properties in 1996, Old Anchor
increased their net carrying value by approximately $9.0 million. The
balance of the restructuring liability is anticipated to be expended and
charged against the liability over the next three years.
(3) Because of the Chapter 11 proceeding of Old Anchor, there had been no
accrual of interest on the $100.0 million 10.25% Senior Notes or the $200.0
million 9.875% Senior Subordinated Debentures of Old Anchor since September
12, 1996. If accrued, interest expense would have increased $1.5 million
during the nine months ended September 30, 1996.
(4) Income tax provision reflects any additional valuation allowances required
to be recorded under Statement of Financial Accounting Standards No.
109 -- Accounting for Income Taxes ("SFAS 109"). The adoption of SFAS 109
effective January 1, 1993 resulted in an increase in the cumulative net
deferred tax asset by $1.8 million. Under SFAS 109, deferred income taxes
reflect the net tax effects of temporary differences between carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes, and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. If on the basis of available evidence, it is more likely than not
that all or a portion of the deferred tax asset will not be realized, the
asset must be reduced by a valuation allowance.
(5) Extraordinary items in the nine months ended September 30, 1996 and the
period from February 5, 1997 to September 30, 1997 resulted from the
write-off of financing costs related to debt extinguished during these
periods.
(6) EBITDA (earnings before interest, taxes, depreciation and amortization)
("EBITDA") is an amount equal to income (loss) before income taxes,
reorganization items and extraordinary items plus the amounts of
restructuring charges, interest, depreciation and amortization as calculated
below, using income (loss) from operations as a starting point:
<TABLE>
<CAPTION>
OLD ANCHOR
--------------------------------------- ANCHOR
NINE MONTHS PERIOD FROM PERIOD FROM
ENDED JANUARY 1, 1997 TO FEBRUARY 5, 1997 TO
SEPTEMBER 30, 1996 FEBRUARY 4, 1997 SEPTEMBER 30, 1997
------------------ ------------------ ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) from operations........... $(77,577) $(11,793) $11,379
Other income (expense), net............. (3,379) (595) 234
Restructuring and other charges......... 49,973 -- --
Depreciation and amortization........... 75,239 7,605 36,998
-------- -------- -------
EBITDA.................................. $ 44,256 $ (4,783) $48,611
======== ======== =======
</TABLE>
EBITDA is a measure of the Company's debt service ability. It is not an
alternative to net income as a measure of the Company's results of
operations (as interest, taxes, depreciation and amortization,
reorganization items and restructuring charges are included in the
determination of net income) or to cash flows as a measure of liquidity (as
cash flows include the cash effects of all operating, financing and
investing activities).
(7) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes and extraordinary items plus fixed
charges. Fixed charges consist of interest and amortization of debt expense
plus a portion of operating lease expense representative of the interest
factor. There was a deficiency of earnings to cover fixed charges in the
nine months ended September 30, 1996, the period from January 1, 1997 to
February 4, 1997 and the period from February 5, 1997 to September 30, 1997
of $124.7 million, $15.7 million and $1.1 million, respectively.
23
<PAGE> 25
(8) In connection with the procedure to review and, if necessary, adjust the
purchase price paid by the Company in connection with the Anchor
Acquisition, Deloitte & Touche LLP, independent accountants for Old Anchor,
were engaged by Old Anchor to audit its balance sheet at January 10, 1997
(the "Closing Balance Sheet"). Management of the Company believes that there
may be certain adjustments to the Closing Balance Sheet required which, if
material, could impact the purchase price paid by the Company in connection
with the Anchor Acquisition, the allocation of such purchase price and, as a
result, the historical balance sheet of the Company at September 30, 1997
and the pro forma balance sheet for the Company at December 31, 1996,
included elsewhere in this Prospectus.
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was formed in January 1997 to consummate the Anchor
Acquisition. On February 5, 1997, pursuant to the Asset Purchase Agreement, the
Company and Owens acquired substantially all of the assets of, and assumed
certain liabilities of, Old Anchor. In the Anchor Acquisition, the Company
purchased eleven operating glass container manufacturing facilities and other
related assets. Prior to the Anchor Acquisition, the Company had no operations
and therefore the following discussion represents activity from February 5, 1997
through September 30, 1997 (the "1997 Period").
RESULTS OF OPERATIONS
Income from operations for the 1997 Period was $11.4 million and the
Company recorded a net loss of $12.3 million. Included in the results of
operations for the 1997 Period is an extraordinary loss of $11.2 million for the
write-off of certain financing fees in connection with the issuance of the Notes
and repayment of the Anchor Loan Facility. Without this extraordinary loss, the
Company would have had a net loss for the 1997 Period of $1.1 million.
While operations for the Company are not comparable to those of Old Anchor,
sales for the continuing plants operated by the Company were $415.6 million for
the 34 weeks ended September 30, 1997 or approximately $12.2 million per week.
Sales for the comparable plants for the first nine months of 1996 (39 weeks)
under Old Anchor were approximately $507.0 million or approximately $13.0
million per week. Income from operations for the continuing plants for the 33
weeks ended September 30, 1997 was approximately $11.4 million while these same
plants produced an operating loss of approximately $16.0 million during the
first nine months of 1996.
Following the Anchor Acquisition, management began implementation of a
business strategy that it believes can significantly improve upon Old Anchor's
operating results. The objectives of this strategy are to (i) reduce the cost
structure of the Company, (ii) improve production planning and product mix and
(iii) strengthen customer relations.
Cost reductions are effected through the closure of certain plants to
remove excess capacity and a targeted expense reduction program to create a
leaner organization through the elimination of excess layers of management
including the consolidation of certain corporate functions. Since the Anchor
Acquisition, the Company has closed its Houston, Texas plant effective February
1997 and its Dayville, Connecticut plant effective April 1997 and removed from
production two furnaces, one at each of two other plants. The Company has
reduced approximately 25% of corporate headquarters positions.
With the elimination of excess capacity, management believes it will be
able to improve efficiency and operating results by reallocating production
among the Company's manufacturing facilities according to machine strength and
by instituting longer production runs with fewer mold and color changes.
The Company believes that reestablishing the positive customer
relationships Old Anchor benefitted from in the past is essential to improving
financial performance. Management has already begun to rebuild relationships
with some of Old Anchor's larger volume customers.
LIQUIDITY AND CAPITAL RESOURCES
In the 1997 Period, operating activities provided $3.3 million in cash,
reflecting a loss before extraordinary item adjusted for changes in working
capital items. Cash consumed in investing activities for the 1997 Period was
$231.3 million, principally reflecting the cash component of the Anchor
Acquisition. Additionally, in February 1997, the Company contributed $9.0
million in cash to the Company's defined benefit pension plans. Capital
expenditures in the 1997 Period were $21.0 million. Cash increased from
financing activities for the 1997 Period by $228.8 million reflecting the
issuance of capital stock and borrowings in connection with the Anchor
Acquisition.
25
<PAGE> 27
The purchase price of the Anchor Acquisition was approximately $250.0
million and was comprised of: approximately $200.5 million in cash, $47.0
million face amount (1,879,320 shares) of Series A Preferred Stock and $2.5
million of Class A Common Stock. However, the purchase price is subject to
adjustment. On June 13, 1997, Old Anchor delivered to the Company the Closing
Balance Sheet, which indicates that Old Anchor believes that it is entitled to
additional payments from the Company and Owens totaling approximately $76.3
million relating primarily to purchase price adjustments. On July 28, 1997, the
Company and Owens delivered individual notices of disagreement to Old Anchor,
opposing some of the adjustments sought by Old Anchor as well as asserting other
adjustments in the Company's or Owen's favor. The Company's notice of
disagreement requested a reduction to the purchase price of approximately $96.8
million. There may be litigation and/or arbitration over some or all aspects of
adjustments requested by all parties. Such adjustments, if material, could
impact the purchase price paid by the Company in connection with the Anchor
Acquisition, the allocation of the purchase price and, as a result, the
Company's balance sheet at September 30, 1997. There have been numerous
settlement discussions between the Company's management and key members of the
creditors committee for Old Anchor which would eliminate the necessity for
either arbitration or litigation. Based on these settlement discussions,
management believes that any such settlement would not have a material adverse
impact on the Company's condensed balance sheet at September 30, 1997.
The Company obtained the cash portion of the purchase price principally
from an $85.0 million cash investment by Consumers consisting of $84.0 million
face amount (3,360,000 shares) of Series B Preferred Stock and $1.0 million of
Class B Common Stock and borrowings under the $130.0 million Loan Facility (the
"Anchor Loan Facility").
In conjunction with the Anchor Acquisition, the Company also entered into a
credit agreement providing for a $110.0 million Senior Secured Revolving Credit
Facility (the "Revolving Credit Facility") dated as of February 5, 1997. At
November 3, 1997, advances outstanding under the Revolving Credit Facility were
$19.6 million and the total outstanding letters of credit on this facility were
$12.8 million.
On April 17, 1997, the Company completed the Note Offering. The Notes are
senior secured obligations of the Company, ranking senior in right of payment to
all existing and future subordinate indebtedness of the Company and pari passu
with all existing and future senior indebtedness of the Company. The Notes are
guaranteed by Consumers U.S. Proceeds from the issuance of the Notes, net of
fees, were approximately $144.0 million and were used to repay $130.0 million
outstanding under the Anchor Loan Facility and $8.8 million outstanding under
the Revolving Credit Facility, with the balance used for general corporate
purposes. In connection with the refinancing of the Anchor Loan Facility with
the Note Offering, the Company also issued 702,615 shares of Class B Common
Stock to Consumers U.S. and 702,614 warrants to the Initial Purchasers. The
warrants and common stock are each valued at $5.00 per share.
The Revolving Credit Facility and the indenture governing the Notes (the
"Indenture") contain certain covenants that restrict the Company from taking
various actions, including, subject to specified exceptions, the incurrence of
additional indebtedness, the granting of additional liens, the making of
investments, the payment of dividends and other restricted payments, mergers,
acquisitions and other fundamental corporate changes, capital expenditures,
operating lease payments and transactions with affiliates. The Revolving Credit
Facility also contains certain financial covenants that require the Company to
meet and maintain certain financial tests and minimum ratios, including a
minimum working capital ratio, a minimum consolidated net worth test and a
minimum interest coverage ratio.
The Company expects significant expenditures in the remainder of 1997 and
in 1998, including interest expense on the Notes, required pension plan
contributions of approximately $17.0 million in 1998, payment in respect of the
Company's supply agreement with Stroh's of $6.0 million in 1997 and $7.0 million
in 1998, capital expenditures of approximately $24.0 million in the remainder of
1997 and $45.0 million in 1998 and closing costs associated with the closed
manufacturing facilities of approximately $7.0 million in the remainder of 1997.
Additionally, peak needs are in spring and fall at which time working capital
borrowings are estimated to be $20.0 million higher than at other times of the
year. The Company's principal sources of liquidity through 1997 are expected to
be funds derived from operations, borrowings under the Revolving Credit Facility
and proceeds from asset sales.
26
<PAGE> 28
IMPACT OF INFLATION
The impact of inflation on the costs of the Company, and the ability to
pass on cost increases in the form of increased sales prices, is dependent upon
market conditions. While the general level of inflation in the domestic economy
has been at relatively low levels, the Company has begun to pass on inflationary
cost increases either as a result of contractual arrangements permitting the
pass on of cost increases or as the result of recent negotiations with various
customers.
SEASONALITY
Due principally to the seasonal nature of the brewing, iced tea and other
beverage industries, in which demand is stronger during the summer months, the
Company's shipment volume is expected to be higher in the second and third
quarters. Consequently, the Company normally builds inventory during the first
quarter in anticipation of seasonal demands during the second and third
quarters. Historically, the Company has scheduled shutdowns of its plants for
furnace rebuilds and machine repairs in the first and fourth quarters of the
year to coincide with scheduled holiday and vacation time under its labor union
contracts. These shutdowns adversely affect profitability during the first and
fourth quarters. The Company is reviewing alternatives to reduce downtime during
these holiday periods in order to minimize disruptions to the production process
and its negative affect on profitability.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 -- Earnings per Share ("SFAS 128").
SFAS 128 differs from current accounting guidance in that earnings per share is
classified as basic earnings per share and diluted earnings per share, compared
to primary earnings per share and fully diluted earnings per share under current
standards. Basic earnings per share differs from primary earnings per share in
that it includes only the weighted average common shares outstanding and does
not include any dilutive securities in the calculation. Diluted earnings per
share under the new standard differs in certain calculations compared to fully
diluted earnings per share under the existing standards. Adoption of SFAS 128 is
required for interim and annual periods ending after December 15, 1997. Had the
Company applied the provisions of SFAS 128 in the period from February 5, 1997
to September 30, 1997 to the earnings per share calculations, there would have
been no impact compared to that which is reported.
INDEPENDENT PUBLIC ACCOUNTANTS FOR OLD ANCHOR
During 1997, the Company retained Arthur Andersen LLP as its independent
public accountants, and requested Arthur Andersen LLP to report on Anchor
Resolution Corp. financial statements as at December 31, 1995 and 1996 and for
the three years in the period ended December 31, 1996. Other auditors had
previously reported on these statements. The reason for requesting Arthur
Andersen LLP to audit the above financial statements was not because of any
disagreements with the former auditors on any matter of accounting principles,
financial statement disclosure or auditing scope or procedure at that time.
FACTORS AFFECTING FUTURE OPERATING RESULTS
There are a number of factors, including those specified below, which may
adversely affect the Company's future operating results.
LIMITED OPERATING HISTORY; RECENT INSOLVENCY OF OLD ANCHOR
The Company was formed in January 1997 to acquire certain assets and assume
certain liabilities of Old Anchor. Prior to the Anchor Acquisition, the Company
had no operations. In addition, former management of Old Anchor has largely been
replaced since the consummation of the Anchor Acquisition in February 1997 and
new management has concentrated on formulating and refining the Company's
business strategy. Since the Anchor Acquisition, the Company has had a limited
financial performance track record.
27
<PAGE> 29
Additionally, Old Anchor sought protection under Chapter 11 of the
Bankruptcy Code in September 1996 and is subject to continuing reorganization
proceedings. In the bankruptcy, previous investors in, and lenders to, Old
Anchor incurred substantial losses. From 1993 to 1996, Old Anchor had
significant operating losses, incurring a 1996 net loss of approximately $655.8
million including a $490.2 million impairment of long-lived assets. As of
December 31, 1996, Old Anchor had an accumulated deficit of approximately $823.2
million. Because of the possible material effects of uncertainties resulting
from Old Anchor's filing for reorganization under Chapter 11 of the Federal
Bankruptcy Code and doubts about Old Anchor's ability to continue as a going
concern following its sale of substantially all of its assets on February 5,
1997. Arthur Andersen LLP, independent public accountants, has disclaimed an
opinion on Old Anchor's 1994, 1995 and 1996 financial statements.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
Anchor has incurred significant indebtedness. At September 30, 1997,
Anchor's aggregate consolidated indebtedness was $158.2 million, its
stockholders' equity was $87.0 million and it had outstanding advances of $5.9
million and outstanding letters of credit of $12.8 million under the Revolving
Credit Facility. In addition, subject to the restrictions in the Revolving
Credit Facility and the Indenture, the Company may incur additional indebtedness
from time to time to finance capital expenditures or for other purposes.
Substantially all of the Company's assets have been pledged to secure the Notes
and the Revolving Credit Facility. On a pro forma basis, the Company's earnings
for fiscal 1996 would have been insufficient to cover its fixed charges. See
"Unaudited Pro Forma Financial Statements."
The level of the Company's indebtedness could have important consequences
to holders of the Notes offered in connection with the exchange of new 11 1/4%
First Mortgage Notes due 2005 (the "Exchange Notes"), including: (i) a
substantial portion of the Company's cash flow from operations must be dedicated
to service debt and will not be available for other purposes; (ii) the Company's
ability to obtain additional debt financing in the future for working capital,
capital expenditures or other needs may be limited; and (iii) the Company's
level of indebtedness could limit its flexibility in reacting to changes in the
industry in which it competes and economic conditions in general. Certain of the
Company's competitors currently operate on a less leveraged basis and have
significantly greater operating and financing flexibility than the Company.
The Company's ability to pay interest on the Notes, to repay portions of
its long-term indebtedness (including the Notes) and to satisfy its other debt
obligations will depend upon its future operating performance and the
availability of refinancing indebtedness, which will be affected by prevailing
economic conditions and financial, business and other factors, certain of which
are beyond the Company's control. In addition, the indenture governing Consumers
International's 10 1/4% Senior Secured Notes (the "Consumers International
Notes") and Consumers' revolving credit facility substantially restrict
Consumers' ability to make further investments in the Company whether through
equity investments, loans or otherwise. Accordingly, Anchor will not be able to
rely on Consumers for liquidity or for payments on the Notes. The Company
anticipates that its operating cash flow, together with borrowings under the
Revolving Credit Facility, will be sufficient to meet its operating needs and to
meet its debt service requirements as they become due, assuming that the Company
achieves a significant portion of the cost reduction components of its business
strategy. See "Business -- Business Strategy." However, if this is not the case,
the Company will be forced to seek alternatives that may include reducing or
delaying capital expenditures, selling assets, restructuring or refinancing its
indebtedness or seeking additional equity capital. There can be no assurance
that any such strategy could be effected on satisfactory terms, if at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
In addition, the Company's Series A Preferred Stock issued to certain
creditors of Old Anchor and contributed to the Plans in connection with the
Anchor Acquisition is subject to mandatory redemption in 2009, which could
adversely affect Anchor's ability to refinance the Notes at their maturity.
28
<PAGE> 30
SIGNIFICANT EXPENDITURES; DEPENDENCE ON SUCCESSFUL IMPLEMENTATION OF BUSINESS
STRATEGY
Old Anchor experienced net losses for each of the past four years. In
addition, Old Anchor's EBITDA in 1995 of $101.3 million declined to $28.8 for
the Company in 1996 on a pro forma basis after giving effect to the Anchor
Acquisition and the Note Offering. The Company has significant expenditures not
deducted in calculating EBITDA relating to the operation of its business,
including the following: (i) anticipated borrowings under the Revolving Credit
Facility; (ii) required pension plan contributions for underfundings of $13.4
million in 1998, $13.9 million in 1999 and $40.5 million to be contributed over
the three years thereafter; (iii) payments in respect of the Company's supply
agreement with Stroh's of $6.0 million in 1997 and $7.0 million in 1998; (iv)
significant capital expenditures of approximately $24.0 million, $45.0 million
and $45.0 million in the remainder of 1997, 1998 and 1999, respectively; (v)
significant cash expenses of closing the Houston and Dayville plants, including
an estimated $5.0 million, $8.0 million and $3.0 million in the remainder of
1997, 1998 and 1999, respectively; and (vii) closing costs associated with
certain plants previously closed by Old Anchor, including approximately $2.0
million, $11.0 million and $5.0 million in the remainder of 1997, 1998 and 1999,
respectively. In connection with the Anchor Acquisition, the Company assumed and
amended Old Anchor's lease of the headquarters facility located in Tampa,
Florida and a related option to purchase. The term of the amended lease expires
on January 2, 1998, unless the Company has exercised its purchase right, in
which case the expiration date is February 1, 1998. The property is encumbered
by a mortgage in favor of Citicorp Leasing, Inc. ("Citicorp") which secures a
loan from Citicorp to the landlord, Fountain Associates I, Ltd. ("Fountain"),
the principal balance of which was $10.2 million as of February 5, 1997. This
mortgage indebtedness is required to be repaid or refinanced by February 1,
1998. Anchor is obligated to pay this indebtedness if Anchor does not exercise
its purchase option by January 2, 1998. If the property is subsequently sold, a
portion of the net proceeds is to be paid to Anchor to reimburse it for this
payment.
The Company is also accruing annual dividend payment obligations of
approximately $5.6 million in respect of the Company's Series A Preferred Stock
and approximately $6.7 million in respect of the Series B Preferred Stock,
although the Series B Preferred Stock receives dividends only in kind until
February 2000.
In order to meet its fixed payment obligations and retain sufficient
borrowing availability under the Revolving Credit Facility to satisfy its
working capital requirements, the Company must achieve significant cash flow
from operations which requires it to improve its operating results significantly
over those of Old Anchor. Based upon its current production plan, which is
subject to change, the Company estimates that its net sales for 1997 will
decline by approximately 15% as compared to pro forma net sales for 1996. In
order to improve on Old Anchor's operating results with this lower net sales
amount, the Company must achieve substantial cost savings and improvements in
average selling prices resulting from a shift in product mix toward products
with higher average selling prices. In the event that the operating improvements
from management's business strategy are materially less than estimated and/or
require a longer time frame than anticipated to achieve or the estimated costs
of the plant closings are materially higher than anticipated, the Company's
ability to service its debt and pay its other fixed charges could be adversely
impacted.
In the event that Anchor's cash flow from operations is less than
anticipated or its cash expenditures are greater than anticipated and available
borrowings under the Revolving Credit Facility are used, there can be no
assurance that Anchor can raise additional funds through equity or debt
financings or asset sales given the financial and other covenants to which
Anchor is subject under the Indenture and the Revolving Credit Facility, Old
Anchor's recent insolvency and uncertainty regarding Anchor's future operating
performance, the pledge by Anchor of substantially all of its assets to secure
the Notes and the Revolving Credit Facility and the limitations on investments
by Consumers in Anchor imposed under Consumers' credit facilities. See
"-- Substantial Leverage; Ability to Service Debt" and "-- Restrictive Debt
Covenants."
RESTRICTIVE DEBT COVENANTS
The Indenture restricts the ability of the Company and its Restricted
Subsidiaries to, among other things, incur additional indebtedness, incur liens,
pay dividends or make certain other restricted payments or investments,
consummate certain asset sales, enter into certain transactions with affiliates,
incur indebtedness
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<PAGE> 31
that is subordinate in right of payment to any senior indebtedness and senior in
right of payment to the Notes, merge or consolidate with any other person or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company. The Indenture also imposes
restrictions on the ability of a subsidiary to pay dividends or make certain
payments to the Company. In addition, the Revolving Credit Facility contains
other and more restrictive covenants and prohibits the Company from prepaying
the Notes, except in certain circumstances. The Revolving Credit Facility also
requires the Company to maintain specified financial ratios and satisfy certain
financial tests. The Company's ability to meet such financial ratios and tests
may be affected by events beyond its control. There can be no assurance that the
Company will meet such tests. A breach of any of these covenants could result in
an event of default under the Revolving Credit Facility. If such an event of
default occurs, the lenders could elect to declare all amounts borrowed under
the Revolving Credit Facility, together with accrued interest, to be immediately
due and payable and to terminate all commitments under the Revolving Credit
Facility. If the Company were unable to repay all amounts declared due and
payable, the lenders could proceed against the Bank Collateral granted to them
to satisfy the indebtedness and other obligations due and payable. If
indebtedness under the Revolving Credit Facility were to be accelerated, there
can be no assurance that the assets of the Company would be sufficient to repay
in full such indebtedness and the other indebtedness of the Company, including
the Notes.
BALANCE SHEETS; PURCHASE PRICE ADJUSTMENT
The purchase price paid by the Company in connection with the Anchor
Acquisition is subject to adjustment. On June 13, 1997, Old Anchor delivered to
the Company the Closing Balance Sheet, which indicates that Old Anchor believes
that it is entitled to additional payments from the Company and Owens totaling
approximately $76.3 million relating primarily to purchase price adjustments. On
July 28, 1997, the Company and Owens delivered individual notices of
disagreement to Old Anchor, opposing some of the adjustments sought by Old
Anchor as well as asserting other adjustments in the Company's or Owen's favor.
The Company's notice of disagreement requested a reduction to the purchase price
of approximately $96.8 million. There may be litigation and/or arbitration over
some or all aspects of adjustments requested by all parties. Such adjustments,
if material, could impact the purchase price paid by the Company in connection
with the Anchor Acquisition, the allocation of the purchase price and, as a
result, the Company's balance sheet at September 30, 1997 and its Pro Forma
Balance Sheet.
COMPETITION; THE GLASS CONTAINER MARKET
The Company is subject to intense competition from other glass container
producers as well as from makers of alternative forms of packaging, such as
aluminum cans and plastic containers. The Company's principal competitors among
glass container producers are Owens and Ball-Foster, both of which are larger
competitors with less leverage and more financial resources than the Company.
Over the past several years, there has been a decline in the glass container
industry, principally as a result of the loss of market share in the soft drink
and food industries to alternative forms of packaging. Competitive pressures
from alternative forms of packaging, as well as consolidation in the glass
container industry, have resulted in excess capacity and have led to severe
pricing pressures on glass container manufacturers. See
"Business -- Competition."
During the period of its continued losses, insolvency and uncertainty
regarding future operations and ownership, Old Anchor's relationships with many
of its major customers were adversely affected and Old Anchor lost certain
customers or received volume reductions and in many cases reduced prices
substantially in order to maintain production volumes. In order to successfully
improve the Company's operating performance as compared to Old Anchor, the
Company will need to establish and maintain strong relationships with major
customers based upon competitive pricing. There can be no assurance that the
Company will be able to achieve this objective.
DEPENDENCE ON KEY PERSONNEL AND G&G
Certain executive officers of the Company are key to the management and
direction of the Company. In addition, the Company has entered into a Management
Agreement (the "Management Agreement") with G&G, an affiliate of the Company,
for the provision of certain management services, including marketing,
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<PAGE> 32
managerial and technical assistance. See "Certain Transactions." The initial
term of the Management Agreement expires on February 5, 2000. Thereafter, the
Management Agreement automatically renews for periods of one year unless either
party gives notice of termination at least six months prior to the expiration of
the then current term. In addition, the Company does not, as a general rule,
enter into employment agreements with its executive officers and/or other key
employees. The loss of the services of such executive officers or of G&G, by
termination of the Management Agreement or otherwise, could have a material
adverse effect on the Company, and there can be no assurance that the Company
would be able to find replacements for such executive officers or G&G with
equivalent business experience and skills. See "Item 5. Directors and Executive
Officers" and "Item 7. Certain Relationships and Related Transactions."
CONTROLLING STOCKHOLDER; TRANSACTIONS WITH RELATED PARTIES
Mr. Ghaznavi effectively controls Anchor through G&G's control of Consumers
and its subsidiaries, Consumers International and Consumers U.S. Consumers U.S.
owns approximately 59% of Anchor on a fully diluted basis and is entitled, as
sole holder of the Class B Common Stock to appoint five of the nine members of
Anchor's Board of Directors (the "Board of Directors") until February 5, 2000.
See "Management -- Board of Directors of the Company." As a result, Anchor is
part of a group of glass manufacturing companies with Consumers and Glenshaw. A
portion of the cost savings anticipated to be achieved by Anchor in connection
with the implementation of its business strategy is dependent upon the
successful reallocation of customers between Anchor and Consumers in order to
achieve freight cost savings and plant operational efficiencies. In addition, it
is anticipated that Anchor will be party to a number of arrangements with
Consumers, Glenshaw and other affiliated companies regarding, among other
things, bulk purchasing, production for customers (for which commissions may be
payable), managerial services, including the Management Agreement with G&G,
leasing of fleets and equipment and shipping. See "Item 7. Certain Relationships
and Related Transactions." The Indenture and the Revolving Credit Facility limit
commissions and other fees payable by the Company to Consumers and its
affiliates and otherwise require that transactions and agreements among the
companies be on terms no less favorable to the Company than could be obtained
from third parties and, for transactions in excess of certain thresholds, be
approved by the Company's independent directors and/or submitted to an
independent financial advisor. The business, financial condition and results of
operations of the Company may be adversely affected by decisions made by
Consumers taking into account the needs of Consumers, Glenshaw and other
affiliated companies. Consumers is highly leveraged and a default by Consumers
on its indebtedness or an insolvency or bankruptcy of Consumers would not
constitute a default under the Indenture. A default on indebtedness, insolvency
or bankruptcy of Consumers could adversely affect Anchor's business and results
of operations, given that many members of management at Consumers are involved
in Anchor's affairs and that Anchor may be closely associated with Consumers,
its customers and suppliers, which could adversely affect trading prices for the
Notes or Anchor's ability to raise debt or equity capital.
LABOR RELATIONS
The Company is a party to collective bargaining agreements with labor
unions that will expire between March 1999 and August 1999. In the aggregate,
under those agreements the Company currently employs approximately 2,800
full-time employees. The Company's inability to negotiate acceptable contracts
with these unions could result in strikes by the affected workers and increased
operating costs as a result of higher wages or benefits paid to union members.
Although Old Anchor historically has not had any labor disruptions, if the
unionized workers were to engage in a strike or other work stoppage, the Company
could experience a significant disruption of its operations and higher ongoing
labor costs, which could have an adverse effect on the Company's business,
financial position and results of operations. See "Business -- Employees."
DEPENDENCE ON KEY CUSTOMERS
Old Anchor's two largest customers (Anheuser-Busch and Stroh's) accounted
for 11.3% and 10.8% of its net sales in 1996, respectively, and 8.1% and 15.3%
of its net sales for the period since the Anchor Acquisition on February 5, 1997
to September 30, 1997, respectively. The termination by either of such customers
of its
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<PAGE> 33
relationship with the Company could have a material adverse effect upon the
Company's business, financial position and results of operations.
The Company's existing customers' purchase orders and contracts typically
vary from one to three years. Prices under these arrangements are tied to market
standards and therefore vary with market conditions. The contracts generally are
requirements contracts which do not obligate the customer to purchase any given
amount of product from the Company. Accordingly, notwithstanding the existence
of certain supply contracts, the Company faces the risk that customers will not
purchase the amounts expected by the Company pursuant to such supply contracts.
SEASONALITY; RAW MATERIALS
Due principally to the seasonal nature of the brewing, iced tea and other
beverage industries, in which demand is stronger during the summer months, the
Company's shipment volume is expected to be higher in the second and third
quarters. Consequently, the Company normally builds inventory during the first
quarter in anticipation of seasonal demands during the second and third
quarters. Historically, the Company has scheduled shutdowns of its plants for
furnace rebuilds and machine repairs in the first and fourth quarters of the
year to coincide with scheduled holiday and vacation time under its labor union
contracts. These shutdowns adversely affect profitability during the first and
fourth quarters.
Sand, soda ash, limestone, cullet and corrugated packaging materials are
the principal raw materials used by the Company. Raw materials represented
approximately 26.2% of the cost of products sold for the Company in 1996. The
Company believes that a sufficient supply of these raw materials exists and that
the Company is not dependent upon any single supplier for any of them. Material
increases in the cost of any of the principal raw materials used by the Company
could have a material adverse impact on the Company's results of operations.
ENVIRONMENTAL AND OTHER GOVERNMENT REGULATION
Environmental Regulation and Compliance. The Company's operations are
subject to increasingly complex and detailed Federal, state and local laws and
regulations including, but not limited to, the Federal Water Pollution Control
Act of 1972, as amended, the U.S. Clean Air Act, as amended, and the Federal
Resource Conservation and Recovery Act, as amended, that are designed to protect
the environment. Among the activities subject to regulation are the disposal of
checker slag (furnace residue usually removed during furnace rebuilds), the
disposal of furnace bricks containing chromium, the disposal of waste, the
discharge of water used to clean machines and cooling water, dust produced by
the batch mixing process, underground storage tanks and air emissions produced
by furnaces. In addition, the Company is required to obtain and maintain permits
in connection with its operations. Many environmental laws and regulations
provide for substantial fines and criminal sanctions for violations. The Company
believes that it is in material compliance with applicable environmental laws
and regulations. It is difficult to predict the future development of such laws
and regulations or their impact on future earnings and operations, but the
Company anticipates that these standards will continue to require increased
capital expenditures. There can be no assurance that material costs or
liabilities will not be incurred.
Certain environmental laws, such as CERCLA and analogous state laws provide
for strict, joint and several liability for investigation and remediation of
releases of hazardous substances into the environment. Such laws may apply to
conditions at properties presently or formerly owned or operated by an entity or
its predecessors, as well as properties at which wastes attributable to an
entity or its predecessors were disposed. See "Business -- Environmental and
Other Government Regulation."
The Company is engaged in investigation and remediation projects at plants
currently being operated and at closed facilities. In addition, Old Anchor was
named as a PRP under CERCLA with respect to a number of sites. Of these sites,
the Company has assumed responsibility with respect to four sites that are
currently active. While the Company may be jointly and severally liable for
costs related to these sites, in most cases, it is only one of a number of PRPs
who are also jointly and severally liable. With respect to the four currently
active sites for which the Company has assumed responsibility, the Company
estimates that its share of the
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<PAGE> 34
aggregate cleanup costs of such sites should not exceed $2.0 million, and that
the likely range after taking into consideration the contributions anticipated
from other potentially responsible parties could be significantly less. However,
no assurance can be given that the cleanup costs of such sites will not exceed
$2.0 million or that the Company will have these funds available. The Company
has established reserves of approximately $16.0 million for environmental costs
which it believes are adequate to address the anticipated costs of remediation
of these operated and closed facilities and its liability as a PRP under CERCLA.
The timing and magnitude of such costs cannot always be determined with
certainty due to, among other things, incomplete information with respect to
environmental conditions at certain sites, the absence of regulatory
determinations with respect to environmental requirements at certain sites, new
and amended environmental laws and regulations, and uncertainties regarding the
timing of remedial expenditures.
Management anticipates that capital expenditures required for environmental
compliance will be approximately $1.8 million for 1997 and approximately $1.5
million annually in 1998 and 1999. However, there can be no assurance that
future changes in such laws, regulations or interpretations thereof or the
nature of the Company's operations will not require the Company to make
significant additional capital expenditures to ensure compliance in the future.
ERISA. The Company maintains three defined benefit plans and two profit
sharing plans that, prior to the Anchor Acquisition, were maintained by Old
Anchor. These plans are covered by ERISA, are tax-qualified under the Code, and
subject to regulation by the Internal Revenue Service and the Department of
Labor. The three defined benefit plans are also subject to regulation by the
PBGC. The Company's two profit sharing plans contain cash or deferred
arrangements under Section 401(k) of the Code. The Company' tax-qualified plans
must meet stringent requirements both in form and in operation in order to
maintain their tax-qualified status. These requirements are constantly changing
with the enactment of new pension legislation, the issuance of new Treasury
regulations and other guidance from the Internal Revenue Service. The loss of a
plan's qualified status could result in the assessment of tax on the plan's
trust income, disallowance of the Company's tax deduction for contributions, and
immediate income tax liability upon individual participants' benefits.
The defined benefit plan covering salaried employees was frozen at the end
of 1994, and, at the end of 1996, was not underfunded under SFAS No. 87.
However, the two defined benefit plans that are maintained for hourly employees
are significantly underfunded and will require substantial cash contributions
over the next few years. At the end of 1996, these two plans in the aggregate
had unfunded benefits under SFAS No. 87 totaling approximately $76.7 million.
Pension underfunding contributions made to the three defined benefit plans
during 1997, excluding contributions made by the Company upon the closing of the
Anchor Acquisition, were approximately $15.1 million. In addition, the
underfunding of the two hourly plans required the payment of increased premiums
to the PBGC under its pension guaranty program of approximately $1.8 million in
1997.
Employee Health and Safety Regulation. The Company's operations are
subject to a variety of worker safety laws. OSHA and analogous state laws
mandate general requirements for safe workplaces for all employees. The Company
believes that its operations are in material compliance with applicable employee
health and safety laws.
Deposit and Recycling Legislation. In recent years, legislation has been
introduced at the Federal, state and local levels that would require a deposit
or tax, or impose other restrictions, on the sale or use of certain containers,
particularly beer and carbonated soft drink containers. To date, ten states have
enacted some form of deposit legislation, although no such new legislation has
been enacted since 1986. The enactment of additional laws or comparable
administrative actions that would require a deposit on beer or soft drink
containers, or otherwise restrict their use, could have a material adverse
effect on the Company's business. In jurisdictions where deposit legislation has
been enacted, the consumption of beverages in glass bottles has generally
declined due largely to the preference of retailers for handling returned cans
and plastic bottles. Container deposit legislation continues to be considered
from time to time at various governmental levels.
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<PAGE> 35
ITEM 3. PROPERTIES
The Company's administrative and executive offices are located in Tampa,
Florida. The Company owns and operates nine glass manufacturing plants (giving
effect to the Plant Closings). The Company also leases a building located in
Streator, Illinois, that is used as a machine shop to rebuild glass-forming
related machinery and one mold shop located in Zanesville, Ohio, as well as
additional warehouses for finished products in various cities throughout the
United States. Substantially all of the Company's owned and leased properties
are pledged as collateral securing the Company's obligations under the Notes and
the Indenture.
As part of its long-term business strategy, the Company closed its Houston
plant effective as of February 1997 and its Dayville plant effective as of April
1997. Two furnaces and five machines have also been removed from service, one
furnace and one machine at the Company's Jacksonville plant and one furnace and
four machines at its Connellsville plant. In addition, management will continue
to monitor business conditions and utilization of plant capacity to determine
the appropriateness of further plant closings.
In conjunction with the Anchor Acquisition, American Appraisal Associates,
Inc. ("AAA") estimated the market value of real property and the liquidation in
place value of personal property consisting of the Company's ongoing plants,
machinery and mold facilities to be $243.0 million. The following table sets
forth certain information about the facilities owned and being operated by the
Company as of November 1, 1997.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF BUILDING AREA
LOCATION(1) FURNACES MACHINES (SQUARE FEET)
--------------------------------------------- --------- --------- -------------
<S> <C> <C> <C>
Operating Plants:
Jacksonville, Florida(2)................... 3 5 624,000
Warner Robbins, Georgia.................... 2 8 864,000
Lawrenceburg, Indiana...................... 1 4 504,000
Winchester, Indiana........................ 2 6 627,000
Shakopee, Minnesota........................ 2 6 360,000
Salem, New Jersey(3)....................... 3 6 733,000
Elmira, New York........................... 2 6 912,000
Henryetta, Oklahoma........................ 2 6 664,000
Connellsville, Pennsylvania(4)............. 2 4 624,000
</TABLE>
- ---------------
(1) Keyser, West Virginia, Gas City, Indiana, Cliffwood, New Jersey, Royersford,
Pennsylvania, Chattanooga, Tennessee, Houston, Texas and Dayville,
Connecticut are closed plants that are part of the collateral securing the
Notes and the Company's obligations under the Indenture, but were not
included in AAA's appraisal.
(2) The Company removed one furnace and one machine from production at this
facility in February 1997.
(3) A portion of the site on which this facility is located is leased pursuant
to several long-term leases.
(4) The Company removed one furnace and four machines from production at this
facility in February 1997.
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<PAGE> 36
The following table sets forth certain information about the facilities
leased by the Company as of November 1, 1997 (other than the Tampa
headquarters):
<TABLE>
<CAPTION>
LEASE
BUILDING AREA EXPIRATION
LOCATION (SQ. FT.) DATE
---------------------------------------------- ------------- ---------------
<S> <C> <C>
Warehouses:
Dayville, Connecticut....................... 985,000 August 2018
Jacksonville, Florida....................... 120,000 August 1998
Adairsville, Georgia........................ 165,000 June 1999
Winchester, Indiana......................... 120,000 June 2000
Savage, Minnesota........................... 102,000 November 1997
Salem, New Jersey(1)........................ land only January 2029
Mt. Pleasant, Pennsylvania.................. 100,000 month to month
Mississuaga, Ontario, Canada................ 48,000 month to month
Fort Collins, Colorado...................... 120,000 June 1998
Machine Shop:
Streator, Illinois.......................... 130,000 month to month
Mold Shop:
Zanesville, Ohio............................ 102,000 December 2008
</TABLE>
- ---------------
(1) The building is owned by the Company and has 733,000 square feet.
Headquarters Lease. In connection with the Anchor Acquisition, the Company
assumed and amended Old Anchor's lease of the headquarters facility located in
Tampa, Florida and a related option to purchase. The term of the amended lease
expires on January 2, 1998, unless the Company has exercised its purchase right,
in which case the expiration date is February 1, 1998. The property is
encumbered by a mortgage in favor of Citicorp which secures a loan from Citicorp
to the landlord, Fountain, the principal balance of which was $10.2 million as
of February 5, 1997. This mortgage indebtedness is required to be repaid or
refinanced by February 11, 1998. Anchor is obligated to pay this indebtedness if
Anchor does not exercise its purchase option by January 2, 1998. If the property
is subsequently sold, a portion of the net proceeds is to be paid to Anchor to
reimburse it for this payment. The building has been appraised by an independent
appraisal firm, as of February 17, 1997, to have a current market value,
assuming the building is vacant, of $9.2 million and to have a market value,
assuming continued occupancy with market lease terms, of $11.1 million.
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<PAGE> 37
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS OF COMPANY
The following table sets forth information with respect to the beneficial
ownership of the Company's Class A Common Stock and Class B Common Stock (the
"Voting Common Stock") as of November 1, 1997 by (i) each person who is known by
the Company to beneficially own 5% or more of such Voting Common Stock, (ii)
each Director of the Company, (iii) the Company's Chief Executive Officer and
(iv) all current Directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
CLASS AND AMOUNT OF
BENEFICIAL OWNERSHIP(1) PERCENTAGE PERCENTAGE
------------------------- (BY CLASS)(1) (BOTH CLASSES)(1)
PRIMARY AND ------------------------- -------------------------
NAME(1) ACTUAL FULLY DILUTED PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
John J. Ghaznavi(2)...................... -- -- -- -- -- --
M. William Lightner(3)................... -- -- -- -- -- --
David T. Gutowski(4)..................... -- -- -- -- -- --
Paul H. Farrar(5)........................ -- -- -- -- -- --
C. Kent May(6)........................... -- -- -- -- -- --
All Directors and executive officers as a
group (14 persons)..................... -- -- -- -- -- --
FIVE PERCENT STOCKHOLDERS:
Smith Barney, as escrow
agent for certain creditors 490,898 8,321,398
of Old Anchor(7)....................... Class A Class A 100.0 84.7 90.2 31.0
Anchor Glass Container
Corporation Service -- 1,260,787
Retirement Plan(8)(9).................. Class A 72.0 12.9 47.5 4.7
Anchor Glass Container
Corporation Retirement
Plan for Salaried -- 158,921
Employees(8)(10)....................... Class A 24.5 1.6 10.2 0.6
Pension Plan for Hourly
Employees of Latchford
Glass Company and -- 80,292
Associated Companies(8)(11)............ Class A 14.1 0.8 5.5 0.3
902,615 16,985,636
Consumers U.S., Inc.(12)................. Class B Class B 100.0 100.0 97.2 63.4
</TABLE>
- ---------------
(1) Unless otherwise indicated in these footnotes, each stockholder has sole
voting and investment power with respect to shares beneficially owned and
all addresses are in care of the Company. All primary share amounts and
percentages reflect beneficial ownership determined pursuant to Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
All fully diluted share amounts and percentages reflect beneficial
ownership of Voting Common Stock determined on a fully diluted basis. All
information with respect to beneficial ownership has been furnished by the
respective Director, executive officer or stockholder, as the case may be,
as of December 31, 1996.
(2) Through G&G, Ghaznavi Canada Inc. and other affiliates, Mr. Ghaznavi
beneficially owns 21,619,584 shares of the voting common stock of
Consumers, including 1,588,126 shares issuable upon the exercise of
currently exercisable options.
(3) Mr. Lightner beneficially owns 61,500 shares of the voting common stock of
Consumers, including 60,000 shares issuable upon the exercise of currently
exercisable options, but not including 500 shares owned by Mr. Lightner's
spouse with respect to which Mr. Lightner disclaims beneficial ownership.
(4) Mr. Gutowski beneficially owns 63,000 shares of the voting common stock of
Consumers, including 55,000 shares issuable upon the exercise of currently
exercisable options, but not including 8,000 shares owned by Mr. Gutowski's
children with respect to which Mr. Gutowski disclaims beneficial ownership.
(5) Mr. Farrar beneficially owns 30,000 shares of the voting common stock of
Consumers, including 25,000 shares issuable upon the exercise of currently
exercisable options.
(6) Mr. May beneficially owns 25,000 options to purchase shares of the voting
common stock of Consumers, all of which are issuable upon the exercise of
currently exercisable options.
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<PAGE> 38
(7) Includes 7,830,500 shares issuable upon conversion of 1,879,320 shares of
Series A Preferred Stock. The 490,898 shares of Class A Common Stock and
1,879,320 shares of Series A Preferred Stock are held by Smith Barney, as
escrow agent, pursuant to an escrow agreement between Old Anchor and Smith
Barney. Such shares are to be distributed to the creditors of Old Anchor or
to a court appointed disbursing agent upon the effective date of a plan of
reorganization of Old Anchor approved by the United States Bankruptcy Court
of the District of Delaware. Under the terms of such escrow agreement,
Smith Barney may not exercise any voting rights with respect to the Class A
Common Stock held in escrow except as expressly instructed in an order of
such Bankruptcy Court. The address of Smith Barney 388 Greenwich Street,
19th Floor, New York, New York 10013.
(8) This stockholder's shares of Series A Preferred Stock are held in trust by
The Chase Manhattan Bank, as trustee of such benefit plan and the current
address for this stockholder is c/o The Chase Manhattan Bank, 3 Chase
Metrotech Center, Brooklyn, New York 11245. However, an "investment
manager," as that term is defined in Section 3(38) of ERISA, will be
appointed to control the shares contributed to the plans. When appointed,
such investment manager will have exclusive control over this stockholder's
shares of Series A Preferred Stock and any shares of Class A Common Stock
into which such shares of Series A Preferred Stock may be converted.
Pursuant to an agreement among the Company, Consumers and the PBGC, a
valuation of the shares of Series A Preferred Stock contributed to the
Plans is to be performed, and if, based on such valuation, it is determined
that the value of such shares as of February 5, 1997 plus the aggregate
cash contribution of $9.1 million made to the Plans was less than
$18,056,100, the Company will be obligated to contribute to the Plans an
amount in cash or "qualifying employer securities" (as defined in section
407(d)(5) of ERISA) equal to the difference between $18,056,100 and the
value of the shares and cash contributed. Such valuation is expected to be
completed during the second half of 1997.
(9) All 1,260,787 shares of this stockholder's beneficially owned shares of
Class A Common Stock are issuable upon conversion of 302,589 shares of
Series A Preferred Stock.
(10) All 158,921 shares of this stockholder's beneficially owned shares are
issuable upon conversion of 38,141 shares of Series A Preferred Stock.
(11) All 80,292 shares of this stockholder's beneficially owned shares are
issuable upon conversion of 19,270 shares of Series A Preferred Stock.
(12) Includes 16,083,021 shares issuable upon conversion of 3,538,265 shares of
Series B Preferred Stock (including 178,265 shares of Series B Preferred
Stock, accrued as of September 30, 1997 as a payment in kind dividend).
Does not include, however, shares of Series B Preferred Stock which have
accrued since September 30, 1997 as a payment in kind dividend. On a fully
diluted basis, Consumers U.S. owns approximately 59% of the three classes
of common stock of the Company. Not including the Class C Common Stock
(which is nonvoting), Consumers U.S. owns approximately 63.4% of the voting
common stock of the Company on a fully diluted basis. All of the shares of
Class B Common Stock and Series B Preferred Stock currently owned or
subsequently acquired by Consumers U.S. will be pledged to secure the
Consumers U.S. guarantee of the Company's obligations under the Notes and
the Indenture. Pursuant to the Warrant Agreement, upon the closing of the
Note Offering, the Company issued to Consumers U.S. 702,615 shares of Class
B Common Stock (or 2.5% of the Common Stock outstanding on such date on a
fully diluted basis outstanding or issuable as of such date). The address
for Consumers U.S. is 3140 William Flinn Highway, Allison Park,
Pennsylvania 15101.
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ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding each of the
Company's directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------
<S> <C> <C>
John J. Ghaznavi................... 62 Chairman, Chief Executive Officer and
Director
Richard M. Deneau.................. 51 President and Chief Operating Officer
M. William Lightner, Jr............ 63 Senior Vice President -- Finance, Chief
Financial Officer, Treasurer and Director
David T. Gutowski.................. 48 Senior Vice President -- Administration,
Chief Administrative Officer and Director
C. Kent May........................ 57 Senior Vice President, General Counsel,
Secretary and Director
Paul H. Farrar..................... 62 Director
Roger L. Erb....................... 55 Senior Vice President -- Engineering
Gordon S. Love..................... 47 Senior Vice President -- Sales and
Marketing
Edward M. Jonas.................... 59 Controller
Eugene K. Pool..................... 61 Vice President, Associate General Counsel
and Assistant Secretary
John F. Robichaud.................. 52 Vice President -- Order Management and
Scheduling Logistics
George C. Lusby III................ 54 Industry Vice President -- Sales and
Marketing
John L. Day........................ 50 Industry Vice President -- Sales and
Marketing
Gregory C. Sinatro................. 46 Industry Vice President -- Sales and
Marketing
</TABLE>
John J. Ghaznavi became Chairman of the Board and Chief Executive Officer
of the Company in January 1997. He has been Chairman and Chief Executive Officer
of each of Consumers, Glenshaw and G&G since 1993, 1988 and 1987, respectively.
Mr. Ghaznavi currently serves as Chairman of the Board of Trustees of the Glass
Packaging Institute.
Richard M. Deneau assumed his duties as President and Chief Operating
Officer of the Company in July 1997. From January 1996 until June 1997, Mr.
Deneau was Senior Vice President and Chief Operating Officer of Ball-Foster.
From October 1992 to January 1996, he was Senior Vice President in charge of the
domestic beverage can operations of American National Can Company. Prior to
October 1992, Mr. Deneau was Senior Vice President of Sales at American National
Can Company's division and the predecessor of Ball-Foster, Foster Forbes
("Foster-Forbes").
M. William Lightner, Jr. joined the Company in January 1997 as a director
and as Vice President, Treasurer and Chief Financial Officer. He became Vice
President -- Finance in March 1997 and Senior Vice President -- Finance in June
1997. Since July 1994, Mr. Lightner has been Vice President of Finance and Chief
Financial Officer of Consumers. From 1989 to 1992, Mr. Lightner served as
Chairman of MICA Resources, a privately held aluminum processor and brokerage
company. Mr. Lightner was a partner with Arthur Andersen & Co. from 1969 to
1989.
David T. Gutowski joined the Company in January 1997 as a director and as a
Vice President and became Chief Administrative Officer and Vice
President -- Administration in March 1997 and Senior Vice
President -- Administration in June 1997. He has been a director of Consumers
since 1993. Mr. Gutowski served as Treasurer and Chief Financial Officer of G&G
since 1988.
C. Kent May became a director of the Company in January 1997 and became
Vice President, General Counsel and Secretary of the Company in March 1997. He
became Senior Vice President in June 1997. Mr. May has served as a director of
Consumers since 1993 and he was appointed General Counsel of Consumers in March
1997. Mr. May has been an associate, partner or member of the law firm of Eckert
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<PAGE> 40
Seamans Cherin & Mellott, LLC since 1964, and served as the managing partner of
such firm from 1991 to 1996.
Paul H. Farrar became a director of the Company in February 1997 and has
served as a director of Consumers since 1994 Mr. Farrar has been Chairman of
Adelaide Capital Corporation, an investment company, since 1994, and he served
as Senior Vice President of Canadian Imperial Bank of Commerce, a Canadian
chartered bank from 1986 to December 1993.
Roger L. Erb became Senior Vice President -- Engineering of the Company in
October 1997. From September 1995 until June 1997, Mr. Erb was Senior Vice
President of Technical Services at Ball-Foster. Prior thereto, he was employed
at Foster Forbes, serving as Senior Vice President of Technical Services from
June 1994 to September 1995, Senior Vice President of Operations from January
1993 to June 1994, and Vice President of Technical Services prior to 1993.
Gordon S. Love became Senior Vice President -- Sales and Marketing of the
Company in July 1997. From October 1996 until June 1997, Mr. Love was Vice
President of Sales for Beer and Liquor at Ball-Foster. From September 1995 until
October 1996, he was Senior Vice President of Beverage Sales at Ball-Foster.
Prior thereto, he was employed at Foster Forbes, serving as Senior Vice
President of Sales and Marketing from July 1993 to September 1995, Vice
President of Sales from October 1992 to July 1993, and Beer Product Manager
prior to October 1992.
Edward M. Jonas joined the Company in February 1997 and became Controller
of the Company in March 1997. Mr. Jonas joined the predecessor to Old Anchor in
1968 and was Comptroller of Old Anchor from 1983 through early 1995.
Eugene K. Pool joined Old Anchor in June 1988 as Senior Counsel. Mr. Pool
was appointed Assistant Secretary of Old Anchor in 1988, Associate General
Counsel of Old Anchor in 1991 and Vice President-Associate General Counsel of
Old Anchor in 1995. In February 1997, Mr. Pool became Assistant Secretary of the
Company and in March 1997, he became Vice President and Associate General
Counsel for the Company.
John F. Robichaud joined the Company in September 1997 as Vice
President -- Order Management and Scheduling Logistics. From 1992 until
September 1997 he was Director of Logistics for Consumers and from 1986 to 1992
was Director of Marketing for Consumers.
George C. Lusby III joined the Company in March 1997 as Industry Vice
President of Sales and Marketing. Mr. Lusby has served as Vice President of
Sales and Marketing and as a director of Glenshaw since 1987.
John L. Day became Industry Vice President of Sales and Marketing for the
Company in March 1997. From September 1993 to February 1997, Mr. Day served as
Vice President -- Beer Sales of Old Anchor and from August 1990 to September
1993, he served as Director of Sales of Old Anchor.
Gregory C. Sinatro became Industry Vice President of Sales and Marketing
for the Company in March 1997. From October 1994 to February 1997, Mr. Sinatro
served as Senior Vice President of Food/Consumer Products of Old Anchor and from
January 1989 to September 1994, he served as Vice President -- Consumer Products
Division of Old Anchor.
BOARD OF DIRECTORS OF THE COMPANY
Classification of Board. Pursuant to the Amended and Restated Certificate
of Incorporation (the "Restated Charter") of the Company, until February 5,
2000, the holders of the Class A Common Stock are entitled to elect four
directors (the "Class A Directors") and the holders of the Class B Common Stock
are entitled to elect five directors (the "Class B Directors"). The Class A
Directors have not yet been designated. Messrs. Ghaznavi, Lightner, Gutowski,
Farrar and May are Class B Directors. From and after February 5, 2000, the Board
of Directors has discretion to determine the number of directors (each a
"Director") constituting the Board of Directors, and such number of Directors
will be divided into three classes, as nearly equal in the number of Directors
as possible. The term of Directors of the first, second and third class will
39
<PAGE> 41
expire at the first, second and third annual meeting after their election,
respectively. At each annual meeting, the number of Directors constituting the
class whose term has expired at the time of such meeting will be elected to hold
office until the third succeeding annual meeting. Until February 5, 2000, Class
A Directors may be removed with or without cause only by the holders of Class A
Common Stock and Class B Directors may be removed with or without cause only by
the holders of Class B Common Stock. Thereafter, all classes of Common Stock (as
defined) of the Company will be consolidated into one class of Common Stock,
and, pursuant to the Bylaws of the Company (the "Bylaws"), Directors may be
removed only with cause by the affirmative vote of the holders of 75% of the
outstanding shares of capital stock of the Company then entitled to vote at an
election of Directors.
The foregoing provisions of the Restated Charter and the Bylaws are subject
to the rights, if any, of any series of preferred stock of the Company to elect
additional Directors under circumstances specified in the certificate of
designation relating to such preferred stock.
Officers of the Company serve at the discretion of the Board of Directors.
Compensation of Directors. Directors of the Company are entitled to
receive an annual director's fee of $7,000. In addition, fees of $750 are paid
for each directors' meeting and committee meeting attended unless more than one
meeting is held on the same day, in which case the fee for attending each
subsequent meeting is $500.
ITEM 6. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The Company was organized in January 1997 and did not conduct any
operations or have any employees prior to the Anchor Acquisition in February
1997. As a result, the Company does not have any executive officers with respect
to whom disclosure of executive compensation is required under the Securities
Act or the rules and regulations promulgated thereunder.
EMPLOYMENT AGREEMENTS
The Company does not, as a general rule, enter into employment agreements
with its executive officers and/or other key employees.
EMPLOYEE PLAN
As part of the Anchor Acquisition, the Company assumed Old Anchor's
obligations under the Anchor Glass Container Corporation Executive/Key Employee
Retention Plan which covers approximately 35 employees including Messrs. Pool,
Day and Sinatro. Under this plan, if a participating employee is terminated by
the Company without cause or terminates his or her employment with the Company
for good reason (such as a reduction in base salary, a material change in
position, duties or responsibilities, or a material change in job location), the
Company is obligated to pay a severance benefit to such employee. If all
participating employees were to be terminated by the Company without cause
and/or were to terminate their employment with the Company for good reason, the
aggregate amount of severance benefits payable by the Company under this plan
would be $1.1 million.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is part of a group of glass manufacturing companies (the
"Affiliated Glass Manufacturers") with Consumers and Glenshaw, each of which is
controlled by Mr. Ghaznavi through G&G. The Company intends to engage in a
variety of transactions with Consumers and Glenshaw as a part of its strategy to
achieve synergies among the companies. These expected transactions may include
bulk purchasing of raw and packaging materials, provision of technical and
engineering services, joint utilization of Anchor's mold and repair shops and
the possible consolidation of certain functions such as sales, engineering and
management information services.
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<PAGE> 42
The Company has entered into an Intercompany Agreement (the "Intercompany
Agreement") with G&G, Consumers, Consumers U.S., Consumers International,
Glenshaw, Hillsboro, I.M.T.E.C. Enterprises, Inc., a machinery manufacturer
majority-owned by G&G, and certain related companies which establishes standards
for certain intercompany transactions. Pursuant to the Intercompany Agreement,
the Company may, from time to time, fill orders for customers of Affiliated
Glass Manufacturers and Affiliated Glass Manufacturers may, from time to time,
fill orders for customers of the Company. In such case, where the customer is
not a common customer, the company that does the manufacturing will pay a market
commission, set at 5% of the invoiced amount, to the company that referred the
customer. In the event of a transfer of a customer to the Company by an
Affiliated Glass Manufacturers or to an Affiliated Glass Manufacturers by the
Company, the transfer is treated as though the transferee had filled the orders
for the transferred customer.
In connection with any bulk purchasing of raw materials, packaging
materials, machinery, insurance, maintenance services, environmental services
and other items and services used in this business, each of the Affiliated Glass
Manufacturers will share out-of-pocket costs of the purchasing activities
without payment of commissions. Similarly, in connection with the provision of
technical, engineering or mold design services, the company providing the
services will receive reasonable per diem fees and costs for the employees
provided. For services such as the provision of molds, the company providing the
service will receive cost plus a reasonable market mark-up.
Transactions carried out in accordance with the Intercompany Agreement do
not require approval of the board of directors or fairness opinions. Any
amendment to the Intercompany Agreement is subject to the Indenture requirement
that it be in writing, on terms no less favorable to the Company than could have
been obtained in a comparable arms' length transaction between the Company and
third parties and is subject to the approval of the Board of Directors
("Affiliate Transaction Provisions"). The Revolving Credit Agreement and the
Indenture require that transactions between the Company and an affiliate be in
writing on no less favorable terms to the Company than would be obtainable in a
comparable arms' length transaction between the Company and a person that is not
an affiliate. In addition, transactions exceeding certain threshold values
require the approval of the Company's board of directors, the approval of the
Company's independent directors or an independent fairness opinion.
Certain affiliates of the Company are engaged in businesses other than the
manufacture of glass containers, such as manufacturing or rehabilitating
manufacturing equipment, automobile and truck leasing, shipping and real estate
management. These transactions are subject to the Affiliate Transaction
Provisions of the Indenture.
The Company is party to the Management Agreement with G&G. Pursuant to the
Management Agreement, G&G is to provide specified managerial services for the
Company. For these services G&G is entitled to receive an annual management fee
of $3.0 million and to reimbursement of its out-of-pocket costs plus an
administrative charge not to exceed 10% of those costs. The Revolving Credit
Agreement and the Indenture limit management fee payments by the Company under
the Management Agreement to $1.5 million per year unless the Company meets
certain financial tests, in which case such fees will accrue.
In September 1997, Hillsboro Glass Company ("Hillsboro"), a glass container
manufacturing plant owned by G&G, discontinued manufacturing. All of Hillsboro's
rights and obligations to fill orders under a supply contract between Consumers
and one of its major customers will be purchased by Consumers and Anchor. In
addition, in connection with a plan to simplify the corporate ownership
structure of Consumers, Anchor and their affiliates, Glenshaw may become a
subsidiary of Anchor.
The Company from time to time has engaged the law firm of Eckert Seamans
Cherin & Mellott, LLC, to represent it on a variety of matters. C. Kent May, an
executive officer and director of the Company, is a member of such law firm.
ITEM 8. LEGAL PROCEEDINGS
The Company is, and from time to time may be, a party to routine legal
proceedings incidental to the operation of its business. The outcome of these
proceedings is not expected to have a material adverse effect
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<PAGE> 43
on the financial condition or operating results of the Company, based on the
Company's current understanding of the relevant facts and law.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common equity securities consist of Classes A, B and C Common
Stock and Series A and Series B Preferred Stock (collectively, the
"Securities"). There is no established public trading market for any of the
Securities. The Company intends to apply for listing of the Series A Preferred
Stock and the Class A Common Stock on The Nasdaq Stock Market's National Market
("Nasdaq"). However, there can be no assurance that the Company will meet the
requirements for such listing, of the liquidity of any markets that may develop
for the Series A Preferred Stock and the Class A Common Stock, of the ability of
the holders of such Series A Preferred Stock and the Class A Common Stock to
sell such securities, or of the price at which holders of the Series A Preferred
Stock and the Class A Common Stock would be able to sell such securities.
As of November 1, 1997, there were four registered holders of 2,239,320
shares of Series A Preferred Stock, which are convertible into 9,330,500 shares
of Class A Common Stock; one registered holder of 3,360,000 shares of Series B
Preferred Stock, which are convertible into 15,272,727 shares of Class B Common
Stock; four registered holders of Class A Common Stock; one registered holder of
Class B Common Stock; and no registered holders of Class C Common Stock. Smith
Barney, one of the holders of both the Series A Preferred Stock and Class A
Common Stock, holds such securities in escrow for certain creditors of Old
Anchor. See "Item 8. Principal Shareholders." As of November 1, 1997, 2,107,843
shares of Class C Common Stock, which is nonvoting until February 5, 2000, were
issuable upon the exercise of currently exercisable warrants, which are held by
two institutional investors.
Shares of Class A Common Stock and Series A Preferred Stock (the
"Registered Securities") acquired from any "affiliate" (as such term is defined
in Rule 144(a)(1) under the Securities Act) of the Company and shares of the
Registered Securities held by an affiliate of the Company may, under certain
circumstances, be sold to the public without registration under the Securities
Act in reliance on an exemption contained in Rule 144 promulgated thereunder.
In general, under Rule 144 (a "safe harbor" for the resale of restricted
securities or other securities by an "affiliate" of the Company to the public
without registration), a person (or group of persons whose shares are
aggregated) who has beneficially owned restricted shares of the Company
(together with its predecessors) for at least one year, including any person who
may be deemed to be an "affiliate" of the Company, is entitled to sell to the
public, within any three-month period, a number of shares that does not exceed
the greater of (i) one percent of the total number of shares of the Registered
Securities that are not "restricted securities", and (ii) the average weekly
trading volume during the four calendar weeks preceding the date on which notice
of the sale is filed with the Securities and Exchange Commission. Sales under
Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of adequate "current public information" about
the Company. The Company will not be deemed to have such information available
until the expiration of at least 90 days following the effective date of this
Registration Statement on Form 10. A person who is not deemed to have been an
"affiliate" of the Company at any time during the 90 days preceding a sale and
who has beneficially owned his or her restricted shares for at least two years
would, pursuant to Rule 144(k), be entitled to sell such restricted shares to
the public without regard to the volume limitations described above and the
other conditions of Rule 144.
As of the date hereof, no shares of the Registered Securities are eligible
for resale under Rule 144. As noted above, there is no active trading market for
the Registered Securities, and no prediction can be made of the effect, if any,
that sales of shares of the Registered Securities under Rule 144 or the
availability of shares for sale will have on the market price of the Registered
Securities prevailing from time to time after the date of this Registration
Statement on Form 10. The Company is unable to estimate the number of shares
that may be sold in the public market under Rule 144, because such amount will
depend on the trading volume in and market price for the Registered Securities
and other factors. Nevertheless, sales of substantial amounts of shares in the
public market, or the perception that such sales could occur, could adversely
affect the market price of the Registered Securities. Due to the limited trading
market for the Registered Securities, however,
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<PAGE> 44
the trading volume therefor may be low and the market price volatile make
reliance on Rule 144 unpredictable.
The Series A Preferred Stock and the Class A Common Stock are being
registered hereby in satisfaction of the Company's obligations to the holders
thereof under the Asset Purchase Agreement. Other than the holders of the Series
A Preferred Stock and the Class A Common Stock, no other person has any right to
have shares of Common Stock registered under the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Company has never paid dividends on its Common Stock and has no
intention to do so in the future. The holders of the Series A Preferred Stock
are entitled to receive, when and as declared by the Board of Directors of the
Company out of legally available funds, cumulative dividends, payable quarterly
in cash, at an annual rate of 10% of the liquidation value thereof. The holders
of the Series B Preferred Stock are entitled to receive cumulative dividends
payable quarterly in kind at an annual rate of 8% of the liquidation value
thereof. For a discussion regarding limitations on the Company's ability to pay
dividends, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factors Affecting Future Operating
Results -- "Substantial Leverage; Ability to Service Debt," Significant
Expenditures; Dependence on Successful Implementation of the Business Strategy"
and "Restrictive Debt Covenants."
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
On various dates since January 1997, the Company sold and issued 902,615
shares of Class B Common Stock, valued at $5.00 per share, and 3,538,265 shares
of Series B Preferred Stock (including the issuance of shares paid in kind as
dividends), valued at $25.00 per share. These shares were issued in an offering
not involving a public offering pursuant to Section 4(2) of the Securities Act
to Consumers U.S.
In addition, in connection with the Anchor Acquisition, the Company issued:
(i) 490,898 shares of Class A Common Stock, valued at $5.00 per share, and
1,879,320 shares of Series A Preferred Stock, valued at $25.00 per share, to
Smith Barney, as escrow agent for certain creditors of Old Anchor, (ii) an
aggregate of 360,000 shares of Series A Preferred Stock, valued at $25.00 per
share, to three defined benefit plans maintained by Old Anchor and (iii)
warrants exercisable for 2,107,843 shares of Class C Common Stock, valued at
$5.00 per share, to two institutional purchasers as compensation for providing
the interim financing for the Anchor Acquisition and placement of the Notes. All
of these shares and warrants were issued in an offering not involving a public
offering pursuant to Section 4(2) of the Securities Act and, in the case of the
shares of Series A Preferred Stock and Class A Common Stock, Section 1145 of the
Bankruptcy Code.
In April 1997, the Company issued $150.0 million aggregate principal amount
of the Notes to a group of "qualified institutional buyers" (as such term is
used in Rule 144A under the Securities Act). The Notes were issued in reliance
on the exemptions from the registration requirements of the Securities Act
provided by Rule 144A and Regulation S under the Securities Act.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
Anchor is authorized to issue 50,000,000 shares of Common Stock, having a
par value of $0.01 per share, and 20,000,000 shares of preferred stock, having a
par value of $0.10 per share and a liquidation value of $25.00 per share (the
"Preferred Stock"). The Company intends to apply for listing of the Series A
Preferred Stock and the Class A Common Stock on The Nasdaq Stock Market's
National Market ("Nasdaq").
COMMON STOCK
For the period from February 5, 1997 until February 5, 2000 (the "Initial
Period"), the number of Directors of Anchor is fixed at nine, with the holders
of the Class A Common Stock having the right to elect four directors and the
holders of the Class B Common Stock having the right to elect five directors.
The holders of the Class C Common Stock are not entitled to participate in the
election of directors. Except as described in the immediately preceding sentence
with respect to election of directors, there are no distinctions between the
rights of holders of shares of Class A Common Stock and Class B Common Stock.
The holders of
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<PAGE> 45
Class C Common Stock have no voting rights during the Initial Period. At the
expiration of the Initial Period, the Class A Common Stock, the Class B Common
Stock and the Class C Common Stock will automatically be consolidated into a
single class of Common Stock with identical rights. The Revolving Credit
Facility places restriction on the Company's ability to pay dividends.
SERIES A PREFERRED STOCK
Of the 20,000,000 authorized shares of Preferred Stock, (a) 2,239,320
shares have been designated as Series A Preferred Stock, (b) 5,000,000 shares
have been designated as Series B Preferred Stock and (c) 12,760,680 shares are
without designation at this time.
The Series A Preferred Stock ranks, as to dividends and redemption and upon
liquidation, prior to all other classes and series of capital stock of the
Company, including the Series B Preferred Stock and the Common Stock. The
holders of the Series A Preferred Stock are entitled to receive, when and as
declared by the Board of Directors of the Company out of legally available
funds, cumulative dividends, payable quarterly in cash, at an annual rate of ten
percent of the liquidation value. Holders of the Series A Preferred Stock are
not entitled to vote except (a) as required by law, (b) on certain matters
affecting the rights of the holders of Series A Preferred Stock and (c) in the
event that scheduled cash dividends are unpaid for twelve consecutive quarters,
at which time (i) the number of Directors will be expanded by three and (ii) the
holders of the Series A Preferred Stock will have the right to elect all three
additional Directors until all accrued and unpaid scheduled cash dividends have
been paid.
The Company is required to redeem all outstanding shares of the Series A
Preferred Stock on February 5, 2009 and, on or after February 5, 2000, may, at
its option, redeem outstanding shares of Series A Preferred Stock if the trading
price of the Common Stock equals or exceeds $6.00 per share, in each case at a
price of $25.00 per share of Series A Preferred Stock so redeemed.
Shares of Series A Preferred Stock are convertible into shares of Class A
Common Stock, at the option of the holder, at a ratio determined by dividing the
liquidation value of the Series A Preferred Stock ($25.00) by $6.00. Such ratio
is subject to adjustment from time to time to prevent dilution.
Pursuant to the Asset Purchase Agreement, prior to the consummation of a
plan of reorganization with respect to Old Anchor, the Company is obligated to
register all of the shares of Class A Common Stock and Series A Preferred Stock
under the Exchange Act and to qualify such shares for listing on a nationally
recognized United States securities exchange or on Nasdaq.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
CERTIFICATE OF INCORPORATION
Article VIII of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") provides for the
indemnification of directors and officers of the Company and any persons serving
at the request of the Company as a director, trustee, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan, to the fullest
extent permitted by the General Corporate Law of the State of Delaware (the
"DGCL"). The Certificate of Incorporation also allows the Company, by action of
the Board of Directors, to indemnify other officers, employees and agents of the
Company. These rights to indemnification (i) are contract rights; (ii) cannot be
changed by any amendment to the Certificate of Incorporation to adversely affect
any person being indemnified with respect to any alleged action or inaction
occurring prior to such amendment; (iii) subject to any rights imposed by law
and the By-Laws of the Company, include the right to have the Company advance
expenses incurred in defending any such action, suit or proceeding prior to the
final disposition; and (iv) are not exclusive of any other right which any
person may have or may acquire under the Certificate of Incorporation, or any
statute, by-law or agreement, or by any vote of the stockholders or
disinterested directors of the Company, or otherwise. In addition to the
indemnification provided by Article VIII, Article IX limits the personal
liability of directors for monetary damages arising out of a breach of fiduciary
duty to the fullest extent permitted by the DGCL.
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The Certificate of Incorporation generally prohibits the Company from
indemnifying any person in connection with an action, suit or proceeding (or
portion thereof) initiated by such person unless such action, suit or proceeding
(or portion thereof) was authorized by the Board of Directors. However, this
prohibition does not apply to a counterclaim, cross-claim or third party claim
brought by an indemnitee in any action, suit or proceeding. In addition, persons
claiming a right to indemnification or advancement may bring suit against the
Company if the claim is not paid in full by the Company within sixty days, in
the case of a claim for indemnification, or thirty days, in the case of a claim
for advancement, after receipt of the written claim.
BY-LAWS
The By-laws of the Company contain no provision for indemnification.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 15.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements and Schedules
1. Financial Statements. The Financial Statements of Anchor and Old Anchor
and the Reports of Independent Public Accountants are included beginning at page
F-1 and beginning at page H-1 of this Registration Statement. See the index
included on page F-1 and page H-1.
2. Financial Statement Schedules. The following Financial Statement
Schedules are filed as part of this Registration Statement and should be read in
conjunction with the Consolidated Financial Statements of Old Anchor and the
Financial Statements of Anchor.
SCHEDULE II
ANCHOR RESOLUTION CORP.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------------------------------------- -------- -------- -------- ---------- --------
ADDITIONS
---------------------
BALANCE CHARGED
AT TO COSTS CHARGED BALANCE
BEGINNING AND TO OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
- -------------------------------------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for doubtful accounts..... $1,826 $1,126 $ -- $1,449(A) $1,503
Year ended December 31, 1995
Allowance for doubtful accounts..... $3,447 $ 656 $ -- $2,277(A) $1,826
Year ended December 31, 1994
Allowance for doubtful accounts..... $3,615 $ 50 $ -- $ 218(A) $3,447
</TABLE>
- ---------------
(A) Accounts written off
45
<PAGE> 47
SCHEDULE II
ANCHOR GLASS CONTAINER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
PERIOD FROM FEBRUARY 5, 1997 TO SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ------------------------------------------ -------- -------- -------- ---------- ----------
ADDITIONS
--------------------
BALANCE
AT CHARGED
BEGINNING TO COSTS CHARGED BALANCE AT
OF AND TO OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------------ -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Period from February 5, 1997 to September
30, 1997
Allowance for doubtful accounts......... $1,630(B) $225 -- $ 65(A) $1,790
</TABLE>
- ---------------
(A) Accounts written off
(B) Amount recognized as part of Anchor Acquisition.
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Consolidated Financial Statements or notes thereto.
3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- ------ ------------------------------------------------------------------------------------
<C> <S>
2.1 Asset Purchase Agreement dated as of December 18, 1996 among Anchor Glass Container
Corporation, now known as Anchor Resolution Corp. ("Old Anchor"), Consumers
Packaging Inc. and Owens-Brockway Glass Container Inc.
2.2 Amendment to Asset Purchase Agreement (the "Asset Purchase Agreement") dated as of
February 5, 1997 by and among Old Anchor, Consumers Packaging Inc. and
Owens-Brockway Glass Container Inc.
2.3 Order of United States Bankruptcy Court for the District of Delaware approving (i)
the Asset Purchase Agreement and (ii) the assumption and assignment of certain
related executory contracts
2.4 Order of United States Bankruptcy Court for the District of Delaware approving the
Amendment to the Asset Purchase Agreement
2.5 Memorandum of Understanding dated February 5, 1997 among Old Anchor, Consumers
Packaging Inc., and the Company
3.1 Amended and Restated Certificate of Incorporation of the Company
3.2 Bylaws of the Company
3.5 Certificate of Designation for Series A 10% Cumulative Convertible Preferred Stock
3.6 Certificate of Designation for Series B 8% Cumulative Convertible Preferred Stock
4.1 Indenture dated as of April 17, 1997 among the Company, Consumers U.S. and The Bank
of New York, as trustee
4.2 Form of Initial Notes (included in Exhibit 4.1)
4.3 Form of Exchange Notes (included in Exhibit 4.1)
4.4 Security Agreement dated as of April 17, 1997 among the Company, Bankers Trust
Company, as agent under the Revolving Credit Agreement
</TABLE>
46
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- ------ ------------------------------------------------------------------------------------
<C> <S>
4.5 Assignment of Security Agreement dated as of April 17, 1997 among the Company,
Bankers Trust Company, as assignor, and The Bank of New York, as assignee and as
trustee under the Indenture
4.6 Pledge Agreement dated as of April 17, 1997 among Consumers U.S. and The Bank of New
York, as trustee under the Indenture
4.7 Intercreditor Agreement dated as of February 5, 1997 among The Bank of New York, as
Note Agent, and BT Commercial Corporation, as Credit and Shared Collateral Agent
4.8 Amendment No. 1 to the Intercreditor Agreement, dated as of April 17, 1997 among The
Bank of New York, as Note Agent, and BT CommercialCorporation, as Credit and Shared
Collateral Agent
4.9 Registration Rights Agreement dated as of April 17, 1997 among the Company,
Consumers U.S., BT Securities Corporation and TD Securities (USA) Inc.
10.1 Credit Agreement (the "Credit Agreement") dated as of February 5, 1997 among the
Company, Bankers Trust Company, as Issuing Bank, BT Commercial Corporation, as Agent
and Co-Syndication Agent, PNC Bank, National Association, as Co-Syndication Agent
and Issuing Bank, and the various financial institutions party thereto
10.2 First Amendment to the Credit Agreement dated as of March 11, 1997 among the
Company, Bankers Trust Company, BT Commercial Corporation, and PNC Bank, National
Association
10.3 Second Amendment to the Credit Agreement dated as of April 9, 1997 among the
Company, Bankers Trust Company, BT Commercial Corporation, and PNC Bank, National
Association
10.4 Third Amendment and Waiver to the Credit Agreement dated as of May 23, 1997 among
the Company, Bankers Trust Company, BT Commercial Corporation, PNC Bank, National
Association, and the various financial institutions party to the Credit Agreement
10.5 * Fourth Amendment to the Credit Agreement dated as of September 15, 1997 among the
Company, Bankers Trust Company, BT Commercial Corporation, PNC Bank, National
Association and the various financial institutions party to the Credit Agreement
10.6 Assignment of Security Interest in U.S. Trademarks and Patents dated February 5,
1997 by the Company to BT Commercial Corporation, as Collateral Agent under the
Credit Agreement
10.7 Assignment of Security Interest in U.S. Copyrights dated February 5, 1997 by the
Company to BT Commercial Corporation, as Collateral Agent under the Credit Agreement
10.8 Guaranty dated February 5, 1997, by Consumers U.S. in favor of BT Commercial
Corporation and the other financial institutions party to the Credit Agreement Plan
10.9 Termination Agreement dated February 3, 1997 by and between Consumers Packaging
Inc., the Company and the Pension Benefit Guaranty Corporation
10.10 Release Agreement among Old Anchor, the Company, the Official Committee of Unsecured
Creditors of Anchor Glass Container Corporation (Old Anchor) and Vitro, Sociedad
Anonima
10.11 Agreement (the "Vitro Agreement") dated as of December 18, 1996 between Vitro,
Sociedad Anonima, Consumers Packaging Inc., on behalf of itself, and Consumers
Packaging Inc., on behalf of the Company
10.12 First Amendment to the Vitro Agreement dated as of February 4, 1997 among Vitro,
Sociedad Anonima, Consumers Packaging Inc. and the Company
10.13 Waiver Agreement dated as of February 5, 1997 by and between Old Anchor and
Consumers Packaging Inc.
10.14 Assignment and Assumption Agreement dated as of February 5, 1997 by and between
Consumers Packaging Inc. and the Company
10.15 Assignment and Assumption Agreement dated as of February 5, 1997 by and between
Consumers Packaging Inc. and the Company relating to certain cmployee benefit plans
10.16 Assignment and Assumption Agreement dated as of February 5, 1997 between Consumers
Packaging Inc. and the Company relating to certain commitment letters
10.17 Bill of Sale, Assignment and Assumption Agreement dated as of February 5, 1997 by
and between Old Anchor and the Company
10.18 Assignment of Patent Property and Design Property from Old Anchor to the Company
10.19 Trademark Assignment from Old Anchor to the Company
10.20 Foreign Trademark Assignment from Old Anchor to the Company
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- ------ ------------------------------------------------------------------------------------
<C> <S>
10.21 Copyright Assignment from Old Anchor to the Company
10.22 Agreement dated as of February 5, 1997 between The Travelers Indemnity Company and
its Affiliates, including The Aetna Casualty and Surety Company and their
predecessors, and the Company
10.23 Allocation Agreement dated as of February 5, 1997 between Consumers Packaging Inc.
and Owens-Brockway Glass Container Inc.
10.24 Supply Agreement dated as of February 5, 1997 by and between the Company and Owens-
Brockway Glass Container Inc.
10.25 Transition Agreement dated as of February 5, 1997 between Consumers Packaging Inc.,
the Company and Owens-Brockway Glass Container Inc.
10.26* Technical Assistance and License Agreement executed December 18, 1996 by
Owens-Brockway Glass Container Inc. and Consumers Packaging Inc.
10.27 Assurance Agreement (the "Assurance Agreement") dated as of February 5, 1997 among
Owens-Brockway Glass Container Inc., Consumers Packaging Inc., the Company, BT
Commercial Corporation, Bankers Trust Company and The Bank of New York
10.28 Letter agreement relating to Assurance Agreement dated April 17, 1997 addressed to
Owens-Brockway Glass Container Inc. and signed by Bankers Trust Company and The Bank
of New York
10.29 Intercompany Agreement dated as of April 17, 1997 among G&G Investments, Inc.,
Glenshaw Glass Company, Inc., Hillsboro Glass Company, I.M.T.E.C. Enterprises, Inc.,
Consumers Packaging Inc., Consumers International Inc., Consumers U.S., the Company,
BT Securities Corporation and The Bank of New York, as trustee under the Indenture
10.30 Management Agreement dated as of February 5, 1997 by and between the Company and G&G
Investments, Inc.
10.31 Anchor Glass Container Corporation/Key Executive Employee Retention Plan
10.32 Lease Agreement -- Anchor Place at Fountain Square (the "Lease Agreement") dated
March 31, 1988, by and between Old Anchor and Fountain Associates I Ltd. relating to
the Company's headquarters in Tampa, Florida
10.33 First Amendment to Lease Agreement effective as of June 16, 1992, by and between
Fountain Associates I Ltd. and Old Anchor
10.34 Second Amendment to Lease Agreement effective as of September 30, 1993, by and
between Fountain Associates I Ltd. and Old Anchor
10.35 Third Amendment to Lease Agreement effective as of February 22, 1995, by and between
Fountain Associates I Ltd. and Old Anchor
10.36 Agreement dated as of March 31, 1996 by and between Fountain Associates I Ltd.,
Citicorp Leasing, Inc. and Old Anchor
10.37 Amended and Restated Agreement effective as of September 12, 1996, by and between
Fountain Associates I Ltd., Citicorp Leasing Inc. and Old Anchor
10.38 Sixth Amendment to Lease and Second Amendment to Option Agreement dated as of
February 5, 1997, by and between Fountain Associates I Ltd., Citicorp Leasing Inc.
and Old Anchor
10.39 Building Option Agreement dated March 31, 1988, by and between Fountain Associates
I, Ltd. and Old Anchor
10.40 First Amendment to Building Option Agreement effective as of June 16, 1992, by and
between Fountain Associates I, Ltd. and Old Anchor
10.41* Supply Agreement effective as of June 17, 1996 between The Stroh Brewery Company and
the Company
10.42* Supply Agreement between Bacardi International Limited and the Company
10.43 Warrant Agreement dated as of February 5, 1997 between the Company and Bankers Trust
Company
10.44 Form of Warrant issued pursuant to the Warrant Agreement
10.45* American Appraisal Associates, Inc. appraisal of certain property of the Company
</TABLE>
48
<PAGE> 50
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- ------ ------------------------------------------------------------------------------------
<C> <S>
12.1 Statement re: computation of ratio of earnings to fixed charges for the period from
February 5, 1997 to September 30, 1997
12.2 Statement re: computation of ratio of earning to fixed charges for the years ended
December 31, 1992, 1993, 1994, 1995 and 1996
21.1 List of Subsidiaries of the Company
27.1 Financial Data Schedule of Old Anchor
27.2 Financial Data Schedule of the Company
</TABLE>
- ---------------
* To be filed by amendment.
All other Exhibits are incorporated by reference to the Company's
Registration Statement on Form S-4 (Reg. No. 333-31363) originally filed with
the Securities and Exchange Commission on July 16, 1997.
49
<PAGE> 51
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
AUDITED FINANCIAL STATEMENTS OF ANCHOR
Report of Independent Public Accountants...................................... F-2
Balance Sheet at June 30, 1997................................................ F-3
Statement of Operations
Period from February 5, 1997 to June 30, 1997............................... F-4
Statement of Stockholders' Equity
Period from February 5, 1997 to June 30, 1997............................... F-5
Statement of Cash Flows
Period from February 5, 1997 to June 30, 1997............................... F-6
Notes to Financial Statements................................................. F-7
UNAUDITED CONDENSED FINANCIAL STATEMENTS OF ANCHOR
Condensed Balance Sheet
September 30, 1997.......................................................... F-18
Condensed Statement of Operations
Period from February 5, 1997 to September 30, 1997.......................... F-19
Condensed Statement of Stockholders' Equity
Period from February 5, 1997 to September 30, 1997.......................... F-20
Condensed Statement of Cash Flows
Period from February 5, 1997 to September 30, 1997.......................... F-21
Notes to Condensed Financial Statements....................................... F-22
</TABLE>
F-1
<PAGE> 52
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Anchor Glass Container Corporation:
We have audited the accompanying balance sheet of Anchor Glass Container
Corporation (a Delaware corporation) as of June 30, 1997, and the related
statements of operations, stockholders' equity and cash flows for the period
from February 5, 1997 through June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Anchor Glass Container
Corporation as of June 30, 1997, and the results of its operations and its cash
flows for the period from February 5, 1997 through June 30, 1997, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
October 31, 1997
F-2
<PAGE> 53
ANCHOR GLASS CONTAINER CORPORATION
BALANCE SHEET
JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 6,106
Accounts receivable, less allowance for doubtful accounts of $1,706............... 62,262
Inventories --
Raw materials and manufacturing supplies........................................ 24,616
Semi-finished and finished products............................................. 92,582
Other current assets.............................................................. 8,724
--------
Total current assets.................................................... 194,290
Property, plant and equipment:
Land............................................................................ 7,769
Buildings....................................................................... 74,075
Machinery, equipment and molds.................................................. 252,447
Less accumulated depreciation, net.............................................. (20,494)
--------
313,797
Other assets...................................................................... 24,163
Strategic alliance with customer.................................................. 22,650
Goodwill, net of accumulated amortization of $1,000............................... 45,557
--------
$600,457
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility......................................................... $ 963
Current maturities of long-term debt.............................................. 352
Accounts payable.................................................................. 33,504
Accrued expenses.................................................................. 55,219
Accrued interest.................................................................. 3,448
Accrued compensation and employee benefits........................................ 36,403
--------
Total current liabilities............................................... 129,889
Long-term debt.................................................................... 151,897
Long-term pension liabilities..................................................... 49,365
Long-term postretirement liabilities.............................................. 58,386
Other long-term liabilities....................................................... 67,382
--------
327,030
Commitments and contingencies (Note 13)
Redeemable preferred stock, Series A, $.01 par value; 2,239,320 shares authorized,
issued and outstanding; $25 liquidation and redemption value.................... 55,983
--------
Stockholders' equity:
Preferred stock, Series B, $.01 par value; authorized 5,000,000 shares; issued and
outstanding 3,360,000 shares, $25 liquidation and redemption value.............. 34
Issuable preferred stock, at $25 per share...................................... 2,688
Common stock, $.10 par value; authorized 50,000,000 shares;
Class A, issued and outstanding 490,898 shares.................................. 49
Class B, issued and outstanding 902,615 shares.................................. 90
Class C, none issued and outstanding............................................ --
Warrants, Class C Common stock, issued and outstanding 2,107,843 shares........... 10,518
Capital in excess of par value.................................................... 92,294
Accumulated deficit............................................................... (18,118)
--------
87,555
--------
$600,457
========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 54
ANCHOR GLASS CONTAINER CORPORATION
STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 5, 1997 TO JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<S> <C>
Net sales......................................................................... $ 261,141
Costs and expenses:
Costs of products sold.......................................................... 244,285
Selling and administrative expenses............................................. 11,176
---------
Income from operations............................................................ 5,680
Other income, net................................................................. 211
Interest expense.................................................................. (7,882)
---------
Loss before extraordinary item.................................................... (1,991)
Extraordinary item --
Write-off of deferred financing costs, net of nil tax........................... (11,200)
---------
Net loss.......................................................................... $ (13,191)
Preferred stock dividends......................................................... (4,927)
---------
Loss applicable to common stock................................................... $ (18,118)
=========
Loss per share applicable to common stock before extraordinary item............... $ (6.64)
=========
Net loss per share applicable to common stock..................................... $ (17.38)
=========
Weighted average number of common shares outstanding.............................. 1,042,206
=========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 55
ANCHOR GLASS CONTAINER CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM FEBRUARY 5, 1997 TO JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS CLASS
SERIES B A B ISSUABLE CAPITAL ACCUMU- TOTAL
PREFERRED COMMON COMMON PREFERRED IN-EXCESS LATED STOCKHOLDERS'
STOCK STOCK STOCK STOCK WARRANTS OF PAR DEFICIT EQUITY
--------- ------ ------ --------- -------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 5, 1997..... $-- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of 3,360,000 shares
of Series B Preferred
Stock to Consumers
U.S. .................... 34 -- -- -- -- 83,966 -- 84,000
Issuance of 200,000 shares
of Class B Common Stock
to Consumers U.S. ....... -- -- 20 -- -- 2,480 -- 2,500
Issuance of 490,898 shares
of Class A Common Stock
to creditors of Old
Anchor................... -- 49 -- -- -- 2,405 -- 2,454
Issuance of 1,405,229
warrants to purchase
Class C Common Stock in
conjunction with the
financing of the Anchor
Loan Facility............ -- -- -- -- 7,012 -- -- 7,012
Issuance of 702,615 shares
of Class B Common Stock
to Consumers U.S. in
conjunction with the
financing of the Notes... -- -- 70 -- -- 3,443 -- 3,513
Issuance of 702,614 warrants
to purchase Class C
Common Stock in
conjunction with the
financing of the Notes... -- -- -- -- 3,506 -- -- 3,506
Pay-in-kind dividends
payable to Consumers U.S.
on Series B Preferred
Stock.................... -- -- -- 2,688 -- -- (2,688) --
Dividends accrued on Series
A Preferred Stock........ -- -- -- -- -- -- (2,239) (2,239)
Net loss.................... -- -- -- -- -- -- (13,191) (13,191)
--- --- --- ------ ------- ------- -------- --------
Balance, June 30, 1997........ $34 $ 49 $ 90 $ 2,688 $ 10,518 $92,294 $(18,118) $ 87,555
=== === === ====== ======= ======= ======== ========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 56
ANCHOR GLASS CONTAINER CORPORATION
STATEMENT OF CASH FLOWS
PERIOD FROM FEBRUARY 5, 1997 TO JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Loss before extraordinary item........................................................... $ (1,991)
Adjustments to reconcile loss before extraordinary item to net cash provided by operating
activities:
Depreciation and amortization.......................................................... 21,578
Other amortization..................................................................... 1,598
Other.................................................................................. 140
Decrease in cash resulting from changes in assets and liabilities........................ (17,344)
---------
3,981
Cash flows from investing activities:
Purchase of assets and assumption of liabilities of Old Anchor........................... (200,470)
Expenditures for property, plant and equipment........................................... (12,251)
Acquisition related contribution to defined benefit pension plans........................ (9,056)
Other.................................................................................... (871)
---------
(222,648)
Cash flows from financing activities:
Proceeds from issuance of long-term debt................................................. 280,000
Principal payments of long-term debt..................................................... (130,137)
Proceeds from issuance of preferred stock................................................ 84,000
Proceeds from issuance of common stock................................................... 1,000
Net draws on Revolving Credit Facility................................................... 963
Other, primarily financing fees.......................................................... (11,053)
---------
224,773
Cash and cash equivalents:
Increase in cash and cash equivalents.................................................... 6,106
Balance, beginning of period............................................................. --
---------
Balance, end of period................................................................... $ 6,106
=========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................................................. $ 3,546
=========
Income tax payments (refunds), net....................................................... $ --
=========
Increase (decrease) in cash resulting from changes in assets and liabilities:
Accounts receivable...................................................................... $ (13,477)
Inventories.............................................................................. 5,507
Other current assets..................................................................... 678
Accounts payable, accrued expenses and other current liabilities......................... (9,423)
Other, net............................................................................... (629)
---------
$ (17,344)
=========
</TABLE>
Supplemental noncash investing and financing activities:
In connection with the Anchor Acquisition, the Company issued $46,983 face
amount of Series A Preferred Stock and $2,454 of Class A Common Stock and
incurred $1,500 of fees. In connection with the Anchor Loan Facility, the
Company issued 1,405,229 warrants to the lenders valued at $7,012.
<TABLE>
<S> <C>
Anchor Acquisition:
Fair value of assets acquired............................................................ $ 525,000
Acquisition costs accrued................................................................ (50,000)
Goodwill................................................................................. 47,000
Purchase price........................................................................... (250,000)
--------
Liabilities assumed...................................................................... $ 272,000
========
</TABLE>
In February 1997, the Company contributed $9,000 face amount of Series A
Preferred Stock to the Company's defined benefit pensions plans.
In connection with the issuance of the Notes, the Company issued 702,615
shares of Class B Common Stock to Consumers U.S. and 702,614 warrants valued at
$3,506 to the initial purchasers of the Notes. Also, with the issuance of the
Notes, the Company recorded an extraordinary loss for the write-off of deferred
financing fees of the Anchor Loan Facility.
The Company considers short-term investments with original maturities of
ninety days or less at the date of purchase to be classified as cash
equivalents.
See Notes to Financial Statements.
F-6
<PAGE> 57
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- PURCHASE OF ASSETS
Anchor Glass Acquisition Corporation (the "Company"), a Delaware
corporation and a majority-owned subsidiary of Consumers Packaging Inc.
("Consumers"), was formed in January 1997 to acquire certain assets and assume
certain liabilities of Anchor Glass Container Corporation ("Old Anchor"), now
Anchor Resolution Corp.
On February 5, 1997, pursuant to an Asset Purchase Agreement dated December
18, 1996, as amended (the "Asset Purchase Agreement"), among Consumers,
Owens-Brockway Glass Container Inc. ("Owens") and Old Anchor, the Company (the
rights and obligations of Consumers having been assigned to the Company) and
Owens acquired substantially all of the assets of, and assumed certain
liabilities, of Old Anchor.
The Company purchased eleven operating glass container manufacturing
facilities and other related assets (the "Anchor Acquisition"). Owens purchased
assets and assumed liabilities of Old Anchor's Antioch and Hayward, California
facilities and purchased certain other existing inventories. Owens also
purchased Old Anchor's investment in Rocky Mountain Bottle Company, a joint
venture with Coors Brewing Company ("Coors"), and assumed Old Anchor's agreement
to manufacture Coors' glass packaging products in the United States.
The total purchase price approximated $378,000, excluding fees of
approximately $1,500. The portion of the purchase price paid in cash by Owens
amounted to approximately $128,000. The remaining purchase price of
approximately $250,000 from the Company was comprised of approximately $200,500
in cash, $47,000 face amount (1,879,320 shares) of mandatorily redeemable 10%
cumulative convertible preferred stock ("Series A Preferred Stock") and $2,500
of common stock (490,898 shares with an estimated value of $5.00 per share) (the
"Class A Common Stock") of the Company.
The purchase price paid by the Company in connection with the Anchor
Acquisition is subject to adjustment. On June 13, 1997, Old Anchor delivered to
the Company the closing balance sheet dated January 10, 1997, which indicates
that Old Anchor believes that it is entitled to additional payments from the
Company and Owens totaling approximately $76,300 relating primarily to purchase
price adjustments. On July 28, 1997, the Company and Owens delivered individual
notices of disagreement to Old Anchor, opposing some of the adjustments sought
by Old Anchor as well as asserting other adjustments in the Company's or Owen's
favor. The Company's notice of disagreement requested a reduction to the
purchase price of approximately $96,800. There may be litigation and/or
arbitration over some or all aspects of adjustments requested by all parties.
Such adjustments, if material, could impact the purchase price paid by the
Company in connection with the Anchor Acquisition, the allocation of the
purchase price and, as a result, the Company's balance sheet at June 30, 1997.
There have been numerous settlement discussions between the Company's management
and key members of the creditors committee for Old Anchor which would eliminate
the necessity for either arbitration or litigation. Based on these settlement
discussions, management believes that any such settlement would not have a
material adverse impact on the June 30, 1997 Balance Sheet.
The Company obtained the cash portion of the purchase price principally
from an $85,000 cash investment by Consumers consisting of $84,000 face amount
(3,360,000 shares) of redeemable 8% cumulative convertible preferred stock (the
"Series B Preferred Stock") and $1,000 of common stock (200,000 shares) (the
"Class B Common Stock") and a $130,000 bank loan.
Upon consummation of the purchase and effective February 6, 1997, the
Company changed its name to Anchor Glass Container Corporation.
The Anchor Acquisition is accounted for by using the purchase method, with
the purchase price being allocated to the assets acquired and preacquisition
liabilities assumed based on their estimated fair value at the
F-7
<PAGE> 58
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
date of acquisition. These allocations are based on preliminary appraisals,
evaluations, estimations and other studies. Certain acquisition costs and fees,
including the costs of closing and consolidating certain facilities have also
been recorded by the Company at the date of acquisition. The Company has not yet
finalized these allocations and certain contingent liabilities have not yet been
resolved, as well as the final purchase price. The excess of the purchase price
over the fair value of net assets purchased of approximately $47,000 is
classified as Goodwill on the accompanying balance sheet.
The estimated values of assets acquired and liabilities assumed as of
February 5, 1997 after giving effect to the Anchor Acquisition and consideration
paid is as follows:
<TABLE>
<S> <C>
Accounts receivable.............................................. $ 48,000
Inventories...................................................... 123,000
Property, plant and equipment.................................... 322,000
Goodwill......................................................... 47,000
Other assets..................................................... 32,000
Current liabilities.............................................. (139,000)
Long-term debt................................................... (2,000)
Other long-term liabilities...................................... (181,000)
---------
$ 250,000
=========
</TABLE>
On January 9, 1997, the Pension Benefit Guaranty Corporation ("PBGC")
notified Old Anchor that it intended to institute involuntary termination
proceedings with respect to the three defined benefit pension plans then
maintained by Old Anchor, and currently maintained by the Company. However, the
PBGC reached an agreement with Vitro, S.A., the parent of Old Anchor, in which
Vitro, S.A. agreed to provide a limited guaranty to the PBGC with respect to the
unfunded benefit liabilities of the Company's defined benefit plans, if the
plans, or any one of them, are terminated before August 1, 2006. Consequently,
the PBGC agreed not to terminate the plans as a result of the Asset Purchase
Agreement and the assumption of the plans by the Company. In conjunction with
the purchase, the Company assumed all liabilities of the plans and funded $9,056
of plan contributions, previously unfunded following Old Anchor's filing of
Chapter 11. Additionally, the Company issued to the plans $9,000 face amount
(360,000 shares) of Series A Preferred Stock.
NOTE 2 -- BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Business Segment
The Company is engaged in the manufacture and sale of a diverse line of
clear, amber, green and other color glass containers of various types, designs
and sizes to customers principally in the beer, food, iced tea, distilled
spirits and soft drink industries. The Company markets its products throughout
the United States. The Company's international and export sales are
insignificant. Sales to The Stroh Brewery Company represented approximately
12.5% of total net sales for the period ended June 30, 1997.
Inventories
Inventories are stated at the lower of cost or market. The cost of
substantially all inventories of raw materials and semi-finished and finished
products is determined on the first-in, first-out method. Manufacturing supplies
and certain other inventories are valued at weighted average costs.
Property, Plant and Equipment
Property, plant and equipment expenditures, including renewals, betterments
and furnace rebuilds which extend useful lives, and expenditures for glass
forming machine molds are capitalized and depreciated using
F-8
<PAGE> 59
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
the straight-line method over the estimated useful lives of the assets for
financial statement purposes while accelerated depreciation methods are
principally used for tax purposes. Generally, annual depreciation rates range
from 2.5% for buildings, 6.3% to 20% for machinery and equipment and 40% for
molds. Furnace and machine rebuilds, which are recurring in nature and which
extend the lives of the related assets, are capitalized and depreciated over the
period of extension, generally at rates of 20% to 25%, based on the type and
extent of these rebuilds. Depreciation of leased property recorded as capital
assets is computed on a straight-line basis over the estimated useful lives of
the assets. Maintenance and repairs are charged directly to expense as incurred.
Goodwill
Goodwill represents the excess of the purchase price over the estimated
fair value of net assets acquired and is amortized on a straight-line basis over
a twenty year period. Amortization expense for the period ended June 30, 1997
was approximately $1,000. The Company has not yet finalized the allocations of
net assets and certain contingent liabilities have not yet been resolved, as
well as the final purchase price.
Income Taxes
The Company applied Statement of Financial Accounting Standards No.
109 -- Accounting for Income Taxes ("SFAS 109") which establishes financial
accounting and reporting standards for the effects of income taxes which result
from a company's activities during the current and preceding years.
Retirement Plans
The Company has retirement plans, principally non-contributory, covering
substantially all salaried and hourly employees. The Company's funding policy is
to pay at least the minimum amount required by the Employee Retirement Income
Security Act of 1974 and the Retirement Protection Act of 1994, which requires
the Company to make significant additional contributions into its underfunded
defined benefit plans.
Postretirement Benefits
Statement of Financial Accounting Standards No. 106 -- Employers'
Accounting for Postretirement Benefits Other Than Pensions ("SFAS 106") requires
accrual of postretirement benefits (such as healthcare benefits) during the
period that an employee provides service. This accounting method has no effect
on the Company's cash outlays for these postretirement benefits.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 -- Disclosures about
Fair Value of Financial Instruments requires disclosure of the estimated fair
values of certain financial instruments. The estimated fair value amounts have
been determined using available market information or other appropriate
valuation methodologies that require considerable judgment in interpreting
market data and developing estimates. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts. As the long term debt has not been registered or traded in an
established trading market, and the debt was issued during the current period,
the Company has estimated the fair value of the debt to be the carrying value.
The carrying amount of other financial instruments approximate their estimated
fair values.
The fair value information presented herein is based on information
available to management as of June 30, 1997. Although management is not aware of
any factors that would significantly affect the estimated
F-9
<PAGE> 60
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and, therefore, the current
estimates of fair value may differ significantly from the amounts presented
herein.
Earnings Per Share
Earnings per share is calculated based on the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. Common stock equivalents are not included in any period that has a loss
applicable to common stock as they would be anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 -- Earnings Per Share ("SFAS 128").
SFAS 128 differs from current accounting guidance in that earnings per share is
classified as basic earnings per and dilutive earnings per share, compared to
primary earnings per share and fully diluted earnings per share under the
current standards. Basic earnings per share differs from primary earnings per
share in that it includes only the weighted average common shares outstanding
and does not include any dilutive securities in the calculation. Diluted
earnings per share under the new standard differs in certain calculations
compared to fully diluted earnings per share under the existing standards.
Adoption of SFAS 128 is required for interim and annual periods ending after
December 15, 1997. Had the Company applied the provisions of SFAS 128 in the
period from February 5, 1997 to June 30, 1997 to the earnings per share
calculations, there would have been no impact compared to that which is
reported.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimated.
NOTE 3 -- REVOLVING CREDIT FACILITY
In conjunction with the Anchor Acquisition, the Company entered into a
credit agreement dated as of February 5, 1997, with Bankers Trust Company
("BTCo") as issuing bank and BT Commercial Corporation, as agent, to provide a
$110,000 senior secured revolving credit facility (the "Revolving Credit
Facility"). The Revolving Credit Facility enables the Company to obtain
revolving credit loans for working capital purposes and the issuance of letters
of credit for its account in an aggregate amount not to exceed $110,000.
Advances outstanding at any one time cannot exceed an amount equal to the
borrowing base as defined in the Revolving Credit Facility.
Revolving credit loans bear interest at a rate based upon, at the Company's
option, (i) the higher of the prime rate of BTCo, 0.5% in excess of the
overnight federal funds rate and 0.5% in excess of the adjusted certificate of
deposit rate, as defined, each plus a defined margin, or (ii) the average of the
offering rates of banks in the New York interbank Eurodollar market, plus a
defined margin. Interest is payable monthly. A commitment fee of 0.5% on the
unused portion of the facility and letter of credit fees, as defined, is payable
quarterly. The Revolving Credit Facility expires February 5, 2002.
At June 30, 1997, advances outstanding under the Revolving Credit Facility
were $963 and the borrowing availability was $72,106. The total outstanding
letters of credit on this facility were $12,788. At June 30, 1997, the weighted
average interest rate on borrowings outstanding was 9.0%.
The Company's obligations under the Revolving Credit Facility are secured
by a first priority lien on substantially all of the Company's inventories and
accounts receivable and related collateral and a second
F-10
<PAGE> 61
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
priority pledge of all of the Series B Preferred Stock and the Class B Common
Stock. In addition, the Company's obligations under the Revolving Credit
Facility are guaranteed by Consumers U.S., Inc., ("Consumers U.S.") the
Company's parent and a wholly-owned indirect subsidiary of Consumers and the
holder of the outstanding Series B Preferred Stock and Class B Common Stock.
The Revolving Credit Facility contains certain covenants that restrict the
Company from taking various actions, including, subject to specified exceptions,
the incurrence of additional indebtedness, the granting of additional liens, the
making of investments, the payment of dividends and other restricted payments,
mergers, acquisitions and other fundamental corporate changes, capital
expenditures, operating lease payments and transactions with affiliates. The
Revolving Credit Facility also contains certain financial covenants that require
the Company to meet and maintain certain financial tests and minimum ratios,
including a minimum working capital ratio, a minimum consolidated net worth test
and a minimum interest coverage ratio, all of which have been met at June 30,
1997.
NOTE 4 -- LONG-TERM DEBT
Long-term debt at June 30, 1997 consists of the following:
<TABLE>
<S> <C>
$150,000 First Mortgage Notes, interest at 11.25% due 2005........ $150,000
Other............................................................. 2,249
--------
152,249
Less current maturities........................................... 352
--------
$151,897
========
</TABLE>
In connection with the Anchor Acquisition, the Company entered into a
Senior Credit Agreement, dated as of February 5, 1997, with BTCo., as agent, to
provide a $130,000 bank loan (the "Anchor Loan Facility"). The Anchor Loan
Facility was repaid in full from the net proceeds of the issuance of the
$150,000 11.25% First Mortgage Notes, due 2005, (the "Notes"). The Anchor Loan
Facility bore interest at a rate of 12.50%.
As additional consideration in providing the Anchor Loan Facility, the
Company issued to BT Securities Corporation and TD Securities, 1,405,229
warrants convertible to Class C Common Stock. The warrants are valued at
approximately $7,000. As a result of the refinancing of the Anchor Loan
Facility, deferred financing fees of $11,200 were written off as an
extraordinary loss in the second quarter of 1997.
Effective April 17, 1997, the Company completed an offering of the Notes,
issued under an indenture dated as of April 17, 1997 (the "Indenture"), among
the Company, Consumers U.S. and The Bank of New York, as Trustee. The Notes are
senior secured obligations of the Company, ranking senior in right of payment to
all existing and future subordinate indebtedness of the Company and pari passu
with all existing and future senior indebtedness of the Company. The Notes are
guaranteed by Consumers U.S. Proceeds from the issuance of the Notes, net of
fees, were approximately $144,000 and were used to repay $130,000 outstanding
under the Anchor Loan Facility and $8,800 of advances outstanding under the
Revolving Credit Facility, with the balance used for general corporate purposes.
Interest on the Notes accrues at 11.25% per annum and is payable
semiannually on each April 1 and October 1 to registered holders of the Notes at
the close of business on the March 15 and September 15 immediately preceding the
applicable interest payment date. The Notes are not redeemable prior to April 1,
2001; however, the Notes are redeemable at the Company's option in whole at any
time or in part from time to time at redemption prices defined in the Indenture.
The Indenture provides that upon the occurrence of a change in control, the
Company will be required to offer to repurchase all of the Notes at a purchase
price in cash equal to 101% of the principal amount plus interest accrued to the
date of purchase.
F-11
<PAGE> 62
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
All of the obligations of the Company under the Notes and the Indenture are
secured by a first priority perfected security interest in substantially all of
the existing and future real property, personal property and other assets of the
Company and a first priority perfected security interest in collateral ranking
pari passu with the security interest in favor of the Revolving Credit Facility.
The Indenture, subject to certain exceptions, restricts the Company from
taking various actions, including, but not limited to, subject to specified
exceptions, the incurrence of additional indebtedness, the granting of
additional liens, the payment of dividends and other restricted payments,
mergers, acquisitions and transactions with affiliates.
All of the Company's debt agreements contain cross-default provisions.
Principal payments required on long-term debt are $138 in the remainder of
1997, $286 in 1998, $291 in 1999, $297 in 2000 and $303 in 2001. Payments to be
made in 2002 and thereafter are $150,934.
In connection with the issuance of the Notes on April 17, 1997, the Company
issued 702,615 shares of Class B Common Stock to Consumers U.S. and 702,614
warrants, valued at $5.00 per share, to the initial purchasers.
NOTE 5 -- REDEEMABLE PREFERRED STOCK
The Company has designated 2,239,320 shares as Series A Preferred Stock and
5,000,000 shares as Series B Preferred Stock. The Series A Preferred Stock
ranks, as to dividends and redemption and upon liquidation, prior to all other
classes and series of capital stock of the Company. The holders of Series A
Preferred Stock are entitled to receive, when and as declared by the Board of
Directors of the Company, cumulative dividends, payable quarterly in cash, at an
annual rate of 10%. Holders of Series A Preferred Stock are not entitled to
vote, except as defined in its Certificate of Designation. No dividends have
been declared or paid as of June 30, 1997.
The Company is required to redeem all outstanding shares of the Series A
Preferred Stock on February 5, 2009, and, on or after February 5, 2000, may, at
its option, redeem outstanding shares of Series A Preferred Stock at a price of
$25.00 per share, if the trading price of the common stock equals or exceeds
$6.00 per share. Shares of Series A Preferred Stock are convertible into shares
of Class A Common Stock, at the option of the holder, at a ratio determined by
dividing the liquidation value of the Series A Preferred Stock by $6.00 and such
ratio is subject to adjustment from time to time.
Pursuant to the Asset Purchase Agreement, the Company is obligated to
register all of the shares of the Class A Common Stock and Series A Preferred
Stock under the Securities Exchange Act and to qualify the shares for listing on
a nationally recognized United States securities exchange or on The Nasdaq Stock
Market's National Market.
The Series B Preferred Stock ranks, as to dividends and redemption and upon
liquidation, junior to the Series A Preferred Stock but senior to all other
classes and series of capital stock of the Company. The holders of Series B
Preferred Stock are entitled to receive cumulative dividends, payable quarterly
at an annual rate of 8%. During the period from February 5, 1997 through and
including December 31, 1999, the dividend is payable in additional shares of
Series B Preferred Stock. Thereafter, the dividends will be payable in cash when
and as declared by the Board of Directors. Holders of Series B Preferred Stock
are not entitled to vote, except as defined in its Certificate of Designation.
Shares of Series B Preferred Stock are not subject to mandatory redemption.
On or after February 5, 2000, the Company may, at its option, redeem outstanding
shares of Series B Preferred Stock at a price of $25.00 per share, if the
trading price of the common stock equals or exceeds $5.50 per share. Shares of
Series B Preferred Stock are convertible into shares of Class B Common Stock, at
the option of the holder, at
F-12
<PAGE> 63
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
a ratio determined by dividing the liquidation value of the Series A Preferred
Stock by $5.50 and such ratio is subject to adjustment from time to time.
NOTE 6 -- COMMON STOCK
For the period from February 5, 1997 to February 5, 2000, the common stock
is divided into three classes, Class A and Class B, which are voting, and Class
C, which is non-voting. During this period, the number of Directors of the
Company is fixed at nine, with the holders of the Class A shares having the
right to elect four Directors and the holders of the Class B shares having the
right to elect five Directors. Holders of the Class C Shares do not participate
in the election of Directors. On February 5, 2000, the three classes of common
stock will automatically be consolidated into one single class of common stock
with identical rights. The Company currently has outstanding warrants
exercisable for 2,107,843 shares of Class C Common Stock at an exercise price of
$.10 per share, which has already been deemed paid.
NOTE 7 -- RELATED PARTY INFORMATION
G&G Investments, Inc.
The Company is party to a management agreement with G&G Investments, Inc.
("G&G"), (the majority owner of Consumers), in which G&G is to provide specified
managerial services for the Company. For these services, G&G is entitled to
receive an annual management fee of $3,000 and reimbursement of its
out-of-pocket costs. The terms of the Revolving Credit Facility and the
Indenture limit the management fee annual payment to $1,500 unless certain
financial maintenance tests are met. The Company has recorded an expense of
$1,233 for this agreement for the period ended June 30, 1997 and no payments
have been made.
Other affiliates
Related party transactions with Consumers and its affiliates for the period
from February 5, 1997 to June 30, 1997 are summarized as follows:
<TABLE>
<S> <C>
Purchases of inventory.............................................. $1,035
Payable for inventory............................................... 23
Sales of inventory and other........................................ 5,098
Receivable from sales of inventory and other........................ 3,814
</TABLE>
All transactions with Consumers and its affiliates are conducted on terms
which, in the opinion of management, are no less favorable than with third
parties.
NOTE 8 -- PENSION PLANS
As part of the Anchor Acquisition, the Company assumed the pension plans
previously maintained by Old Anchor. The Company has defined benefit retirement
plans for salaried and hourly-paid employees. Benefits are calculated on a
salary-based formula for salaried plans and on a service-based formula hourly
plans. Pension costs for the period from February 5, 1997 to June 30, 1997 are
summarized below:
<TABLE>
<S> <C>
Service cost-benefits earned during the year...................... $ 1,790
Interest cost on projected benefit obligation..................... 12,830
Return on plan assets............................................. (13,220)
--------
Total pension cost........................................... $ 1,400
========
</TABLE>
F-13
<PAGE> 64
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The Company has substantial unfunded obligations related to its employee
pension plans. The Retirement Protection Act of 1994 requires the Company to
make significant additional funding contributions into its underfunded defined
benefit retirement plans and will increase the premiums paid to the PBGC.
As an objection to the sale, the PBGC entered a determination to terminate
Old Anchor's qualified defined benefit pension plans. However, in conjunction
with the sale, the Company assumed all liabilities of the plans and funded
$9,056 of plan contributions, previously unfunded following Old Anchor's filing
of Chapter 11. Additionally, the Company issued $9,000 face amount of Series A
Preferred Stock and Vitro, the parent of Old Anchor, has guaranteed to fund
certain qualified defined benefit plan obligations, should the Company default
on its obligations. Consequently, the PBGC agreed not to terminate the plans as
a result of the Agreement and the assumption of the plans by the Company.
The Company also sponsors two defined contribution plans covering
substantially all salaried and hourly employees. In 1994, the salaried
retirement and savings programs were changed, resulting in the freezing of
benefits under the defined benefit pension plans for salaried employees and
amending the defined contribution savings plan for salaried employees. Under the
amended savings plan, the Company matches employees' basic contributions to the
plan in an amount equal to 150% of the first 4% of an employee's compensation.
Expenses under the savings programs for the period from February 5, 1997 to June
30, 1997 were approximately $1,100.
The funded status of the Company's pension plans at June 30, 1997 is as
follows:
<TABLE>
<CAPTION>
ACCUMULATED ASSETS EXCEED
BENEFITS ACCUMULATED
EXCEED ASSETS BENEFITS
------------- -------------
<S> <C> <C>
Actuarial present value of accumulated plan benefits:
Vested benefit obligation............................... $ 306,903 $ 111,701
======== ========
Accumulated benefit obligation.......................... $ 315,630 $ 111,701
======== ========
Projected benefit obligation............................ 315,630 111,701
Plan assets at fair value................................. 242,970 120,808
-------- --------
Projected benefit obligation in excess of (less than) plan
assets.................................................. $ 72,660 $ (9,107)
======== ========
Accrued (prepaid) pension cost............................ $ 72,660 $ (9,107)
======== ========
</TABLE>
Significant assumptions used in determining net pension cost and related
pension obligations for the benefit plans for 1997 are as follows:
<TABLE>
<S> <C>
Discount rate......................................................... 7.50%
Expected long-term rate of return on plan assets...................... 9.0
</TABLE>
NOTE 9 -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides benefits to substantially all salaried, and certain
hourly employees under several plans. SFAS 106 requires accrual of
postretirement benefits (such as healthcare benefits) during the years an
employee provides services. Currently, the Company funds these healthcare
benefits on a pay-as-you-go basis. The Company also contributes to a
multi-employer trust, and under the requirements of SFAS 106, recognizes as
postretirement benefit cost the required annual contribution. The Company's cash
flows are not affected by implementation of SFAS 106.
F-14
<PAGE> 65
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The accumulated postretirement benefit obligation at June 30, 1997 is as
follows:
<TABLE>
<S> <C>
Retirees........................................................... $38,815
Eligible plan participants......................................... 8,507
Other active plan participants..................................... 13,764
-------
$61,086
=======
Accrued postretirement benefit costs............................... $61,086
=======
</TABLE>
Net postretirement benefit costs for the period from February 5, 1997 to
June 30 1997 consist of the following components:
<TABLE>
<S> <C>
Service cost - benefits earned during the year...................... $ 419
Interest cost on accumulated postretirement benefit obligation...... 1,653
------
$2,072
======
</TABLE>
The assumed healthcare cost trend used in measuring the accumulated
postretirement benefit obligation as of June 30, 1997 was 9.0% declining
gradually to 5.5% by the year 2003, after which it remains constant. A one
percentage point increase in the assumed healthcare cost trend rate for each
year would increase the accumulated postretirement benefit obligation as of June
30, 1997 by approximately 12% and the net postretirement healthcare cost for the
period ended June 30, 1997 by approximately 13%. The assumed discount rate used
in determining the accumulated postretirement benefit obligation was 7.50% for
1997.
The Company also contributes to a multi-employer trust which provides
certain other postretirement benefits to retired hourly employees. Expenses
under this program for the period from February 5, 1997 to June 30, 1997 were
$1,540.
NOTE 10 -- PLANT CLOSING COSTS
As part of the Anchor Acquisition, the Company closed its Houston, Texas
and Dayville, Connecticut plants in order to reduce excess capacity. Exit
charges applicable to these two plants of approximately $33,000 have been
recorded as of the date of acquisition. Amounts charged against the liability as
of June 30, 1997 are approximately $10,300.
NOTE 11 -- INCOME TAXES
The Company applies SFAS 109 under which the liability method is used in
accounting for income taxes. Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. Under SFAS 109, if on the basis of
available evidence, it is more likely than not that all or a portion of the
deferred tax asset will not be realized, the asset must be reduced by a
valuation allowance. Since realization is not assured as of June 30, 1997,
management has deemed it appropriate to establish a realization reserve against
the tax asset created during the period.
F-15
<PAGE> 66
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The following significant components of the deferred tax assets and
liabilities are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Accruals and reserves............................................ $ 2,670
Property, plant and equipment.................................... 2,400
Pension and post retirement liabilities.......................... 800
Tax loss carry forwards.......................................... 130
-------
6,000
Valuation allowance................................................ 2,400
-------
3,600
-------
Deferred tax liabilities:
Goodwill......................................................... 3,500
Other assets..................................................... 100
-------
3,600
-------
Net deferred tax assets............................................ $ --
=======
</TABLE>
The effective tax rate reconciliation at June 30, 1997 is as follows:
<TABLE>
<S> <C>
Statutory rate..................................................... 39%
Permanent differences.............................................. 21
---
18
Valuation allowance................................................ 18
---
Effective rate..................................................... --%
===
</TABLE>
NOTE 12 -- LEASES
The Company leases distribution and office facilities, machinery,
transportation, data processing and office equipment under non-cancelable leases
which expire at various dates through 2004. These leases generally provide for
fixed rental payments and include renewal and purchase options at amounts which
are generally based on fair market value at expiration of the lease. The Company
has no material capital leases.
Future minimum lease payments under non-cancelable operating leases are as
follows:
<TABLE>
<S> <C>
Remaining in 1997.................................................. $ 9,700
1998............................................................... 16,500
1999............................................................... 12,700
2000............................................................... 9,500
2001............................................................... 8,600
After 2001......................................................... 20,300
-------
$77,300
=======
</TABLE>
Rental expenses for all operating leases for the period from February 5,
1997 to June 30, 1997 were $8,845.
In connection with the Anchor Acquisition, the Company assumed and amended
Old Anchor's lease of the headquarters facility located in Tampa, Florida and a
related option to purchase. The term of the amended lease expires January 2,
1998, unless the Company has exercised its purchase right, and the term then
expires February 1, 1998. The property is encumbered by a mortgage, which is
required to be repaid or refinanced by February 1, 1998. The Company is
obligated to pay this indebtedness if the Company does not exercise its
F-16
<PAGE> 67
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
purchase option. If the property is subsequently sold, a portion of the net
proceeds is to be reimbursed to the Company.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
The Company is a respondent in various environment-related cases. The
Company is not otherwise party to, and none of its assets are subject to any
other pending legal proceedings, other than ordinary routine litigation
incidental to its business and against which the Company is adequately insured
and indemnified or which is not material. The Company believes that the ultimate
outcome of these cases will not materially affect future operations.
NOTE 14 -- SUBSEQUENT EVENTS
Following the issuance of the Notes, the Company filed, with the Securities
and Exchange Commission, a Registration Statement on July 16, 1997, (File No.
333-31363) on Form S-4 under the Securities Act of 1933, with respect to an
issue of 11.25% First Mortgage Notes, due 2005, identical in all material
respects to the Notes, except that the new Notes would not bear legends
restricting the transfer thereof. Upon the effectiveness of the Registration
Statement, the Company will commence an offer to the holders of the Notes to
exchange their Notes for a like principal amount of new Notes. The Company
entered into a Registration Rights Agreement on April 17, 1997. Pursuant to this
agreement, additional interest will accrue on the Notes if the Registration
Statement is not declared effective or the exchange offer is not completed by
dates as defined in the agreement.
In connection with a plan to simplify the corporate ownership structure of
Consumers, the Company and their affiliates, Glenshaw Glass Company, Inc., a
wholly-owned subsidiary of G&G, may become a subsidiary of the Company.
In September 1997, Hillsboro Glass Company ("Hillsboro"), a
glass-manufacturing plant owned by G&G, discontinued manufacturing. All of
Hillsboro's rights and obligations to fill orders under a supply contract
between Consumers and one of its major customers will be purchased by Consumers
and the Company.
F-17
<PAGE> 68
ANCHOR GLASS CONTAINER CORPORATION
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 804
Accounts receivable............................................................... 60,840
Inventories --
Raw materials and manufacturing supplies........................................ 24,421
Semi-finished and finished products............................................. 93,770
Other current assets.............................................................. 8,778
--------
Total current assets.................................................... 188,613
Property, plant and equipment, net................................................ 309,942
Other assets...................................................................... 45,100
Goodwill.......................................................................... 45,057
--------
$588,712
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility......................................................... $ 5,861
Current maturities of long-term debt.............................................. 353
Accounts payable.................................................................. 31,037
Accrued expenses.................................................................. 44,232
Accrued interest.................................................................. 7,197
Accrued compensation and employee benefits........................................ 36,471
--------
Total current liabilities............................................... 125,151
Long-term debt.................................................................... 151,954
Pension liabilities............................................................... 44,001
Other long-term liabilities....................................................... 124,600
--------
320,555
Commitments and contingencies (Note 7)
Redeemable preferred stock........................................................ 55,983
--------
Stockholders' equity:
Preferred stock................................................................. 34
Common stock.................................................................... 139
Issuable preferred stock........................................................ 4,382
Warrants........................................................................ 10,518
Capital in excess of par value.................................................. 92,294
Accumulated deficit............................................................. (20,344)
--------
87,023
--------
$588,712
========
</TABLE>
See Notes to Condensed Financial Statements.
F-18
<PAGE> 69
ANCHOR GLASS CONTAINER CORPORATION
CONDENSED STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 5, 1997 TO SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
(UNAUDITED)
<TABLE>
<S> <C>
Net sales........................................................................ $ 415,636
Costs and expenses:
Costs of products sold......................................................... 386,130
Selling and administrative expenses............................................ 18,127
---------
Income from operations........................................................... 11,379
Other income, net................................................................ 234
Interest expense................................................................. (12,725)
---------
Loss before extraordinary item................................................... (1,112)
Extraordinary item --
Write-off of deferred financing costs, net of nil tax.......................... (11,200)
---------
Net loss......................................................................... $ (12,312)
Preferred stock dividends........................................................ (8,032)
---------
Loss applicable to common stock.................................................. $ (20,344)
=========
Loss per share applicable to common stock before extraordinary item.............. $ (7.72)
=========
Net loss per share applicable to common stock.................................... $ (17.18)
=========
Weighted average number of common shares outstanding............................. 1,183,909
=========
</TABLE>
See Notes to Condensed Financial Statements.
F-19
<PAGE> 70
ANCHOR GLASS CONTAINER CORPORATION
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM FEBRUARY 5, 1997 TO SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS CLASS
SERIES B A B ISSUABLE CAPITAL ACCUMU- TOTAL
PREFERRED COMMON COMMON PREFERRED IN-EXCESS LATED STOCKHOLDERS'
STOCK STOCK STOCK STOCK WARRANTS OF PAR DEFICIT EQUITY
--------- ------ ------ --------- -------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 5, 1997..... $-- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of 3,360,000 shares
of Series B Preferred
Stock to Consumers
U.S...................... 34 -- -- -- -- 83,966 -- 84,000
Issuance of 200,000 shares
of Class B Common Stock
to Consumers U.S......... -- -- 20 -- -- 2,480 -- 2,500
Issuance of 490,898 shares
of Class A Common Stock
to creditors of Old
Anchor................... -- 49 -- -- -- 2,405 -- 2,454
Issuance of 1,405,229
warrants to purchase
Class C Common Stock in
conjunction with the
financing of the Anchor
Loan Facility............ -- -- -- -- 7,012 -- -- 7,012
Issuance of 702,615 shares
of Class B Common Stock
to Consumers U.S. in
conjunction with the
financing of the Notes... -- -- 70 -- -- 3,443 -- 3,513
Issuance of 702,614 warrants
to purchase Class C
Common Stock in
conjunction with the
financing of the Notes... -- -- -- -- 3,506 -- -- 3,506
Pay-in-kind dividends
payable to Consumers U.S.
on Series B Preferred
Stock.................... -- -- -- 4,382 -- -- (4,382) --
Dividends accrued on Series
A Preferred Stock........ -- -- -- -- -- -- (3,650) (3,650)
Net loss.................... -- -- -- -- -- -- (12,312) (12,312)
------- --- --- ------ ------ ------ ------- -------
Balance, September 30, 1997... $34 $ 49 $ 90 $ 4,382 $ 10,518 $92,294 $(20,344) $87,023
======= === === ====== ====== ====== ======= =======
</TABLE>
See Notes to Condensed Financial Statements.
F-20
<PAGE> 71
ANCHOR GLASS CONTAINER CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
PERIOD FROM FEBRUARY 5, 1997 TO SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Loss before extraordinary item.................................................. $ (1,112)
Adjustments to reconcile loss before extraordinary item to net cash provided by
operating activities:
Depreciation and amortization................................................ 34,806
Other amortization........................................................... 3,616
Other........................................................................ 224
Decrease in cash resulting from changes in assets and liabilities............... (34,170)
--------
3,364
Cash flows from investing activities:
Purchase of assets and liabilities of Old Anchor................................ (200,470)
Expenditures for property, plant and equipment.................................. (21,034)
Acquisition related contribution to defined benefit pension plans............... (9,056)
Other........................................................................... (773)
--------
(231,333)
Cash flows from financing activities:
Proceeds from issuance of long-term debt........................................ 280,000
Principal payments on long-term debt............................................ (130,148)
Proceeds from issuance of preferred stock....................................... 84,000
Proceeds from issuance of common stock.......................................... 1,000
Net draws on Revolving Credit Facility.......................................... 5,861
Other, primarily financing fees................................................. (11,940)
--------
228,773
Cash and cash equivalents:
Increase (decrease) in cash and cash equivalents................................ 804
Balance, beginning of period.................................................... --
--------
Balance, end of period.......................................................... $ 804
========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest........................................................................ $ 4,103
========
Income tax payments (refunds), net.............................................. $ --
========
</TABLE>
Supplemental noncash investing and financing activities:
In connection with the Anchor Acquisition, the Company issued $46,983
face amount of Series A Preferred Stock and $2,454 of Class A Common Stock.
In connection with the Anchor Loan Facility, the Company issued 1,405,229
of warrants to the lenders valued at $7,012.
In February 1997, the Company contributed $9,000 face amount of Series
A Preferred Stock to the Company's defined benefit pensions plans.
In connection with the Notes, the Company issued 702,615 shares of
Class B Common Stock to Consumers U.S. and 702,614 warrants valued at
$3,506 to the initial purchasers of the Notes. Also, with the issuance of
the Notes, the Company recorded an extraordinary loss for the write-off of
deferred financing fees of the Anchor Loan Facility.
See Notes to Condensed Financial Statements.
F-21
<PAGE> 72
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 1 -- PURCHASE OF ASSETS
Anchor Glass Acquisition Corporation (the "Company"), a Delaware
corporation and a majority-owned subsidiary of Consumers Packaging Inc.
("Consumers"), was formed in January 1997 to acquire certain assets and assume
certain liabilities of Anchor Glass Container Corporation ("Old Anchor"), now
Anchor Resolution Corp.
On February 5, 1997, pursuant to an Asset Purchase Agreement dated December
18, 1996, as amended (the "Asset Purchase Agreement"), between Consumers,
Owens-Brockway Glass Container Inc. ("Owens") and Old Anchor, the Company (the
rights and obligations of Consumers having been assigned to the Company) and
Owens acquired substantially all of the assets of, and assumed certain
liabilities, of Old Anchor.
The Company purchased eleven operating glass container manufacturing
facilities and other related assets (the "Anchor Acquisition"). Owens purchased
assets and assumed liabilities of Old Anchor's Antioch and Hayward, California
facilities and purchased certain other existing inventories. Owens also
purchased Old Anchor's investment in Rocky Mountain Bottle Company, a joint
venture with Coors Brewing Company ("Coors"), and assumed Old Anchor's agreement
to manufacture Coors' glass packaging products in the United States.
The total purchase price approximated $378,000, excluding fees of
approximately $1,500. The portion of the purchase price paid in cash by Owens
amounted to approximately $128,000. The remaining purchase price of
approximately $250,000 from the Company was comprised of approximately $200,500
in cash, $47,000 face amount (1,879,320 shares) of mandatorily redeemable 10%
cumulative convertible preferred stock ("Series A Preferred Stock") and $2,500
of common stock (490,898 shares with an estimated value of $5.00 per share) (the
"Class A Common Stock") of the Company.
The purchase price paid by the Company in connection with the Anchor
Acquisition is subject to adjustment. On June 13, 1997, Old Anchor delivered to
the Company the closing balance sheet dated January 10, 1997, which indicates
that Old Anchor believes that it is entitled to additional payments from the
Company and Owens totaling approximately $76,300 relating primarily to purchase
price adjustments. On July 28, 1997, the Company and Owens delivered individual
notices of disagreement to Old Anchor, opposing some of the adjustments sought
by Old Anchor as well as asserting other adjustments in the Company's or Owen's
favor. The Company's notice of disagreement requested a reduction to the
purchase price of approximately $96,800. There may be litigation and/or
arbitration over some or all aspects of adjustments requested by all parties.
Such adjustments, if material, could impact the purchase price paid by the
Company in connection with the Anchor Acquisition, the allocation of the
purchase price and, as a result, the Company's balance sheet at September 30,
1997. There have been numerous settlement discussions between the Company's
management and key members of the creditors committee for Old Anchor which would
eliminate the necessity for either arbitration or litigation. Based on these
settlement discussions, management believes that any such settlement would not
have a material adverse impact on the September 30, 1997 Condensed Balance
Sheet.
The Company obtained the cash portion of the purchase price principally
from an $85,000 cash investment by Consumers consisting of $84,000 face amount
(3,360,000 shares) of redeemable 8% cumulative convertible preferred stock (the
"Series B Preferred Stock") and $1,000 of common stock (200,000 shares) (the
"Class B Common Stock"), and a $130,000 bank loan.
Upon consummation of the purchase and effective February 6, 1997, the
Company changed its name to Anchor Glass Container Corporation.
F-22
<PAGE> 73
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
The Anchor Acquisition is accounted for by using the purchase method, with
the purchase price being allocated to the assets acquired and preacquisition
liabilities assumed based on their estimated fair value at the date of
acquisition. These allocations are based on preliminary appraisals, evaluations,
estimations and other studies. Certain acquisition costs and fees, including the
costs of closing and consolidating certain facilities have also been recorded by
the Company at the date of acquisition. The Company has not yet finalized these
allocations and certain contingent liabilities have not yet been resolved, as
well as the final purchase price. The excess of the purchase price over the fair
value of net assets purchased of approximately $47,000 is classified as Goodwill
on the accompanying condensed balance sheet.
The estimated values of assets acquired and liabilities assumed as of
February 5, 1997 after giving effect to the Anchor Acquisition and consideration
paid is as follows:
<TABLE>
<S> <C>
Accounts receivable.............................................. $ 48,000
Inventories...................................................... 123,000
Property, plant and equipment.................................... 322,000
Goodwill......................................................... 47,000
Other assets..................................................... 32,000
Current liabilities.............................................. (139,000)
Long-term debt................................................... (2,000)
Other long-term liabilities...................................... (181,000)
---------
$ 250,000
=========
</TABLE>
On January 9, 1997, the Pension Benefit Guaranty Corporation ("PBGC")
notified Old Anchor that it intended to institute involuntary termination
proceedings with respect to the three defined benefit pension plans then
maintained by Old Anchor, and currently maintained by the Company. However, the
PBGC reached an agreement with Vitro, S.A., the parent of Old Anchor, in which
Vitro, S.A. agreed to provide a limited guaranty to the PBGC with respect to the
unfunded benefit liabilities of the Company's defined benefit plans, if the
plans, or any one of them, are terminated before August 1, 2006. Consequently,
the PBGC agreed not to terminate the plans as a result of the Asset Purchase
Agreement and the assumption of the plans by the Company. In conjunction with
the purchase, the Company assumed all liabilities of the plans and funded $9,056
of plan contributions, previously unfunded following Old Anchor's filing of
Chapter 11. Additionally, the Company issued to the plans $9,000 face amount
(360,000 shares) of Series A Preferred Stock.
NOTE 2 -- BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Management's Responsibility
In the opinion of management, the accompanying condensed financial
statements contain all adjustments, consisting of only normal recurring
adjustments, and excluding any amounts resulting from purchase price adjustments
discussed above, necessary to present fairly the financial position as of
September 30, 1997 and the results of operations and cash flows for the period
from February 5, 1997 to September 30, 1997.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The results of operations for the interim period
may not be necessarily indicative of the results of the full fiscal year.
F-23
<PAGE> 74
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Business Segment
The Company is engaged in the manufacture and sale of a diverse line of
clear, amber, green and other color glass containers of various types, designs
and sizes to customers principally in the beer, food, iced tea, distilled
spirits and soft drink industries. The Company markets its products throughout
the United States.
Inventories
Inventories are stated at the lower of cost or market. The cost of
substantially all inventories of raw materials and semi-finished and finished
products is determined on the first-in, first-out method. Manufacturing supplies
and certain other inventories are valued at weighted average costs.
Property, Plant and Equipment
Property, plant and equipment expenditures, including renewals, betterments
and furnace rebuilds which extend useful lives, and expenditures for glass
forming machine molds are capitalized and depreciated using the straight-line
method over the estimated useful lives of the assets for financial statement
purposes while accelerated depreciation methods are principally used for tax
purposes. Generally, annual depreciation rates range from 2.5% for buildings,
6.3% to 20% for machinery and equipment and 40% for molds. Furnace and machine
rebuilds, which are recurring in nature and which extend the lives of the
related assets, are capitalized and depreciated over the period of extension,
generally at rates of 20% to 25%, based on the type and extent of these
rebuilds. Depreciation of leased property recorded as capital assets is computed
on a straight-line basis over the estimated useful lives of the assets.
Maintenance and repairs are charged directly to expense as incurred.
Goodwill
Goodwill represents the excess of the purchase price over the estimated
fair value of net assets acquired and is amortized on a straight line basis over
a twenty year period. Amortization expense for the period ended September 30,
1997 was approximately $1,500. The Company has not yet finalized the allocations
of net assets and certain contingent liabilities have not yet been resolved, as
well as the final purchase price.
Income Taxes
The Company applied Statement of Financial Accounting Standards No.
109 -- Accounting for Income Taxes ("SFAS 109") which establishes financial
accounting and reporting standards for the effects of income taxes which result
from a company's activities during the current and preceding years.
Retirement Plans
The Company has retirement plans, principally non-contributory, covering
substantially all salaried and hourly employees. The Company's funding policy is
to pay at least the minimum amount required by the Employee Retirement Income
Security Act of 1974 and the Retirement Protection Act of 1994, which requires
the Company to make significant additional contributions into its underfunded
defined benefit plans.
Postretirement Benefits
Statement of Financial Accounting Standards No. 106 -- Employers'
Accounting for Postretirement Benefits Other Than Pensions ("SFAS 106") requires
accrual of postretirement benefits (such as healthcare benefits) during the
period that an employee provides service. This accounting method has no effect
on the Company's cash outlays for these retirement benefits.
F-24
<PAGE> 75
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Earnings per share
Earnings per share is calculated based on the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. Common stock equivalents are not included in any period that has a loss
applicable to common stock as they would be anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 -- Earnings Per Share ("SFAS 128").
SFAS 128 differs from current accounting guidance in that earnings per share is
classified as basic earnings per and dilutive earnings per share, compared to
primary earnings per share and fully diluted earnings per share under the
current standards. Basic earnings per share differs from primary earnings per
share in that it includes only the weighted average common shares outstanding
and does not include any dilutive securities in the calculation. Diluted
earnings per share under the new standard differs in certain calculations
compared to fully diluted earnings per share under the existing standards.
Adoption of SFAS 128 is required for interim and annual periods ending after
December 15, 1997. Had the Company applied the provisions of SFAS 128 in the
period from February 5, 1997 to September 30, 1997 to the earnings per share
calculations, there would have been no impact compared to that which is
reported.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimated.
NOTE 3 -- REVOLVING CREDIT FACILITY
In conjunction with the Anchor Acquisition, the Company entered into a
credit agreement dated as of February 5, 1997, with Bankers Trust Company
("BTCo") as issuing bank and BT Commercial Corporation, as agent, to provide a
$110,000 senior secured revolving credit facility (the "Revolving Credit
Facility"). The Revolving Credit Facility enables the Company to obtain
revolving credit loans for working capital purposes and the issuance of letters
of credit for its account in an aggregate amount not to exceed $110,000.
Advances outstanding at any one time can not exceed an amount equal to the
borrowing base as defined in the Revolving Credit Facility.
Revolving credit loans bear interest at a rate based upon, at the Company's
option, (i) the higher of the prime rate of BTCo, 0.5% in excess of the
overnight federal funds rate and 0.5% in excess of the adjusted certificate of
deposit rate, as defined, each plus a defined margin, or (ii) the average of the
offering rates of banks in the New York interbank Eurodollar market, plus a
defined margin. Interest is payable monthly. A commitment fee of 0.5% on the
unused portion of the facility and letter of credit fees, as defined, is payable
quarterly. The Revolving Credit Facility expires February 5, 2002.
At September 30, 1997, advances outstanding under the Revolving Credit
Facility were $5,861 and the total outstanding letters of credit on this
facility were $12,788.
The Company's obligations under the Revolving Credit Facility are secured
by a first priority lien on substantially all of the Company's inventories and
accounts receivable and related collateral and a second priority pledge of all
of the Series B preferred stock and the Class B common stock. In addition, the
Company's obligations under the Revolving Credit Facility are guaranteed by
Consumers U.S. Inc., the
F-25
<PAGE> 76
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Company's parent and a wholly-owned indirect subsidiary of Consumers and the
holder of the outstanding Series B Preferred Stock and Class B Common Stock.
The Revolving Credit Facility contains certain covenants that restrict the
Company from taking various actions, including, subject to specified exceptions,
the incurrence of additional indebtedness, the granting of additional liens, the
making of investments, the payment of dividends and other restricted payments,
mergers, acquisitions and other fundamental corporate changes, capital
expenditures, operating lease payments and transactions with affiliates. The
Revolving Credit Facility also contains certain financial covenants that require
the Company to meet and maintain certain financial tests and minimum ratios,
including a minimum working capital ratio, a minimum consolidated net worth test
and a minimum interest coverage ratio, all of which have been met at September
30, 1997.
NOTE 4 -- LONG-TERM DEBT
In connection with the Anchor Acquisition, the Company entered into a
Senior Credit Agreement, dated as of February 5, 1997, with Bankers Trust
Company, as agent, to provide a $130,000 bank loan (the "Anchor Loan Facility").
The Anchor Loan Facility was repaid in full from the net proceeds of the
issuance of the $150,000 11.25% First Mortgage Notes, due 2005, (the "Notes").
The Anchor Loan Facility bore interest at a rate of 12.50%.
As additional consideration in providing the Anchor Loan Facility, the
Company issued to BT Securities Corporation and TD Securities, 1,405,229
warrants convertible to Class C common stock. The warrants are valued at
approximately $7,000. As a result of the refinancing of the Anchor Loan
Facility, deferred financing fees of $11,200 were written off as an
extraordinary loss in the second quarter of 1997.
Effective April 17, 1997, the Company completed an offering of the Notes,
issued under an indenture dated as of April 17, 1997 (the "Indenture"), among
the Company, Consumers U.S. and The Bank of New York, as Trustee. The Notes are
senior secured obligations of the Company, ranking senior in right of payment to
all existing and future subordinate indebtedness of the Company and pari passu
with all existing and future senior indebtedness of the Company. The Notes are
guaranteed by Consumers U.S. Proceeds from the issuance of the Notes, net of
fees, were approximately $144,000 and were used to repay $130,000 outstanding
under the Anchor Loan Facility and $8,800 of advances outstanding under the
Revolving Credit Facility, with the balance used for general corporate purposes.
Interest on the Notes accrues at 11.25% per annum and is payable
semiannually on each April 1 and October 1 to registered holders of the Notes at
the close of business on the March 15 and September 15 immediately preceding the
applicable interest payment date. The Notes are not redeemable prior to April 1,
2001; however, the Notes are redeemable at the Company's option in whole at any
time or in part from time to time at redemption prices defined in the Indenture.
The Indenture provides that upon the occurrence of a change in control, the
Company will be required to offer to repurchase all of the Notes at a purchase
price in cash equal to 101% of the principal amount plus interest accrued to the
date of purchase.
All of the obligations of the Company under the Notes and the Indenture are
secured by a first priority perfected security interest in substantially all of
the existing and future real property, personal property and other assets of the
Company and a first priority perfected security interest in collateral ranking
pari passu with the security interest in favor of the Revolving Credit Facility.
The Indenture, subject to certain exceptions, restricts the Company from
taking various actions, including, but not limited to, subject to specified
exceptions, the incurrence of additional indebtedness, the granting of
additional liens, the payment of dividends and other restricted payments,
mergers, acquisitions and transactions with affiliates.
F-26
<PAGE> 77
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
In connection with the refinancing of the Notes on April 17, 1997, the
Company issued 702,615 shares of Class B Common Stock to Consumers U.S. and
702,614 warrants, valued at $5.00 per share, to the initial purchasers.
NOTE 5 -- REDEEMABLE PREFERRED STOCK
The Company has designated 2,239,320 shares as Series A Preferred Stock and
5,000,000 shares as Series B Preferred Stock. The Series A Preferred Stock
ranks, as to dividends and redemption and upon liquidation, prior to all other
classes and series of capital stock of the Company. The holders of Series A
Preferred Stock are entitled to receive, when and as declared by the Board of
Directors of the Company, cumulative dividends, payable quarterly in cash, at an
annual rate of 10%. Holders of Series A Preferred Stock are not entitled to
vote, except as defined. No dividends have been declared or paid as of September
30, 1997.
The Company is required to redeem all outstanding shares of the Series A
Preferred Stock on February 5, 2009, and, on or after February 5, 2000, may, at
its option, redeem outstanding shares of Series A Preferred Stock at a price of
$25.00 per share, if the trading price of the common stock equals or exceeds
$6.00 per share. Shares of Series A Preferred Stock are convertible into shares
of Class A Common Stock, at the option of the holder, at a ratio determined by
dividing the liquidation value of the Series A Preferred Stock by $6.00 and such
ratio is subject to adjustment from time to time.
Pursuant to the Asset Purchase Agreement, the Company is obligated to
register all of the shares of the Class A Common Stock and Series A Preferred
Stock under the Securities Exchange Act and to qualify the shares for listing on
a nationally recognized United States securities exchange or on The Nasdaq Stock
Market's National Market.
The Series B Preferred Stock ranks, as to dividends and redemption and upon
liquidation, junior to the Series A Preferred Stock but senior to all other
classes and series of capital stock of the Company. The holders of Series B
Preferred Stock are entitled to receive cumulative dividends, payable quarterly
at an annual rate of 8%. During the period from February 5, 1997 through and
including December 31, 1999, the dividend is payable in additional shares of
Series B Preferred Stock. Thereafter, the dividends will be payable in cash when
and as declared by the Board of Directors. Holders of Series B Preferred Stock
are not entitled to vote, except as defined.
Shares of Series B Preferred Stock are not subject to mandatory redemption.
On or after February 5, 2000, the Company may, at its option, redeem outstanding
shares of Series B Preferred Stock at a price of $25.00 per share, if the
trading price of the common stock equals or exceeds $5.50 per share. Shares of
Series B Preferred Stock are convertible into shares of Class B Common Stock, at
the option of the holder, at a ratio determined by dividing the liquidation
value of the Series A Preferred Stock by $5.50 and such ratio is subject to
adjustment from time to time.
NOTE 6 -- COMMON STOCK
For the period from February 5, 1997 to February 5, 2000, the common stock
is divided into three classes, Class A and Class B, which are voting, and Class
C, which is non-voting. During this period, the number of Directors of the
Company is fixed at nine, with the holders of the Class A shares having the
right to elect four Directors and the holders of the Class B shares having the
right to elect five Directors. Holders of the Class C shares do not participate
in the election of Directors. On February 5, 2000, the three classes of common
stock will automatically be consolidated into one single class of common stock
with identical rights. The Company currently has outstanding warrants
exercisable for 2,107,843 shares of Class C Common Stock at an exercise price of
$.10 per share, which has already been deemed paid.
F-27
<PAGE> 78
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
The Company is a respondent in various environment-related cases. The
Company is not otherwise party to, and none of its assets are subject to any
other pending legal proceedings, other than ordinary routine litigation
incidental to its business and against which the Company is adequately insured
and indemnified or which is not material. The Company believes that the ultimate
outcome of these cases will not materially affect future operations.
NOTE 8 -- SUBSEQUENT EVENTS
Following the issuance of the Notes, the Company filed, with the Securities
and Exchange Commission, a Registration Statement on July 16, 1997, (File No.
333-31363) on Form S-4 under the Securities Act of 1933, with respect to an
issue of 11.25% First Mortgage Notes, due 2005, identical in all material
respects to the Notes, except that the new Notes would not bear legends
restricting the transfer thereof. Upon the effectiveness of the Registration
Statement, the Company will commence an offer to the holders of the Notes to
exchange their Notes for a like principal amount of new Notes. The Company
entered into a Registration Rights Agreement on April 17, 1997. Pursuant to this
agreement, additional interest will accrue on the Notes if the Registration
Statement is not declared effective or the exchange offer is not completed by
dates as defined in the agreement.
In connection with a plan to simplify the corporate ownership structure of
Consumers, the Company and their affiliates, Glenshaw Glass Company, Inc., a
wholly-owned subsidiary of G&G, may become a subsidiary of the Company.
In September 1997, Hillsboro Glass Company ("Hillsboro"), a
glass-manufacturing plant owned by G&G, discontinued manufacturing. All of
Hillsboro's rights and obligations to fill orders under a supply contract
between Consumers and one of its major customers will be purchased by Consumers
and the Company.
F-28
<PAGE> 79
INDEX TO FINANCIAL INFORMATION FOR OLD ANCHOR
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants........................................... H-2
Consolidated Balance Sheets
December 31, 1995 and 1996...................................................... H-3
Consolidated Statements of Operations
Years Ended December 31, 1994, 1995 and 1996.................................... H-4
Consolidated Statements of Stockholder's Equity (Deficiency in Assets)
Years Ended December 31, 1994, 1995 and 1996.................................... H-5
Consolidated Statements of Cash Flows
Years Ended December 31, 1994, 1995 and 1996.................................... H-6
Notes to Consolidated Financial Statements......................................... H-7
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet September 30, 1996............................ H-21
Condensed Consolidated Statement of Operations Nine Months Ended September 30,
1996............................................................................ H-22
Condensed Consolidated Statement of Cash Flows Nine Months Ended September 30,
1996............................................................................ H-23
Notes to Condensed Consolidated Financial Statements............................... H-24
SELECTED CONSOLIDATED FINANCIAL DATA................................................. H-27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS......................................................................... H-30
</TABLE>
H-1
<PAGE> 80
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Anchor Glass Container Corporation:
We have audited the accompanying consolidated balance sheets of Anchor
Resolution Corp. (Debtor-in-Possession) (the Company) as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholder's
equity (deficiency in assets) and cash flows for the three years ended December
31, 1996, 1995 and 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to report on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our report.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has experienced
significant losses in the last three fiscal years, and has a net deficiency in
assets of $236,307,000 at December 31, 1996. As described in Notes 2 and 3 to
the accompanying financial statements, in September 1996, the Company filed a
voluntary petition for relief under Chapter 11 of the United States Bankruptcy
Code. Furthermore, as discussed in Note 2, on February 5, 1997, the Company sold
substantially all of its assets and certain liabilities. The Company's
bankruptcy petition and remaining deficiency in assets after this sale raise
substantial doubt about the Company's ability to continue as a going concern.
Specifically, the accompanying consolidated financial statements do not purport
to show (a) as to assets, their realizable value on a liquidation basis or their
availability to satisfy liabilities; (b) as to prepetition liabilities, the
amounts that may be allowed for claims or contingencies, or the status and
priority thereof; (c) as to stockholder accounts, the effect of any changes that
may be made in the capitalization of the Company; or (d) as to operations, the
effect of any changes that may be made in its business. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
Because of the possible material effect of the matters discussed in the
preceding paragraph, we are unable to express, and we do not express, an opinion
on the financial statements referred to above.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
October 31, 1997
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<PAGE> 81
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
--------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................ $ 4,898 $ 18,315
Accounts receivable, less allowance for doubtful accounts of $1,503 and $1,826........... 55,851 40,965
Inventories
Raw materials and manufacturing supplies............................................... 28,528 39,036
Semi-finished and finished products.................................................... 115,891 141,538
Other current assets..................................................................... 18,593 14,982
--------- ----------
Total current assets............................................................ 223,761 254,836
Property, plant and equipment:
Land and land improvements............................................................. 10,405 22,822
Buildings.............................................................................. 120,377 147,981
Machinery, equipment and molds......................................................... 524,643 551,709
Less accumulated depreciation, net..................................................... (344,655) (323,665)
--------- ----------
310,770 398,847
Other assets............................................................................. 52,072 38,742
Intangible pension asset................................................................. 17,140 21,773
Deferred income taxes.................................................................... -- 2,367
Investment in joint venture.............................................................. 39,725 20,631
Excess of cost over fair value of net assets acquired (Goodwill), net of accumulated
amortization of $83,630 in 1995........................................................ -- 471,152
--------- ----------
$ 643,468 $1,208,348
========= ==========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)
Liabilities not subject to compromise:
Current liabilities:
Debtor-in-Possession Facility............................................................ $ 90,455 $ --
Revolving credit facility................................................................ -- 3,000
Senior Secured Notes..................................................................... 158,025 --
Current maturities of long term debt..................................................... -- 1,770
Accounts payable......................................................................... 25,727 74,120
Accrued expenses......................................................................... 32,740 32,105
Accrued interest......................................................................... 1,510 11,246
Accrued compensation and employee benefits............................................... 60,423 55,869
Deferred income taxes.................................................................... -- 543
--------- ----------
Total current liabilities....................................................... 368,880 178,653
Long-term debt........................................................................... -- 552,680
Pension liabilities...................................................................... 44,179 68,260
Other long-term liabilities.............................................................. 119,722 119,152
--------- ----------
163,901 740,092
Liabilities subject to compromise........................................................ 379,994 --
--------- ----------
Total liabilities............................................................... 912,775 918,745
Commitments and contingencies (Note 15)
Stockholder's equity (deficiency in assets):
Common stock $.10 par value; authorized 1,000 shares, issued and outstanding, 1 share.... -- --
Capital in excess of par value........................................................... 576,300 483,816
Accumulated deficit...................................................................... (823,213) (167,373)
Amount related to minimum pension liability.............................................. (22,394) (26,840)
--------- ----------
(269,307) 289,603
--------- ----------
$ 643,468 $1,208,348
========= ==========
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE> 82
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
--------- -------- ----------
<S> <C> <C> <C>
Net sales................................................ $ 814,370 $956,639 $1,089,317
Costs and expenses:
Cost of products sold.................................. 831,612 906,393 996,780
Selling and administrative expenses.................... 39,570 48,998 52,371
Restructuring and other charges........................ 49,973 10,267 79,481
Impairment of long-lived assets........................ 490,232 -- --
Write-up of assets held for sale....................... (8,967) -- --
--------- -------- --------
Loss from operations..................................... (588,050) (9,019) (39,315)
Other income (expense), net.............................. (10,020) 171 (2,385)
Interest expense (1996 contractual interest of
$57,768)............................................... (48,601) (56,871) (56,070)
--------- -------- --------
Loss before reorganization items, income taxes and
extraordinary item..................................... (646,671) (65,719) (97,770)
Reorganization items..................................... (5,008) -- --
--------- -------- --------
Loss before income taxes and extraordinary item.......... (651,679) (65,719) (97,770)
Income tax provision..................................... 1,825 250 250
--------- -------- --------
Loss before extraordinary item........................... (653,504) (65,969) (98,020)
Extraordinary item --
Write-off of deferred financing fees, net of nil tax... (2,336) -- --
--------- -------- --------
Net loss................................................. $(655,840) $(65,969) $ (98,020)
========= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE> 83
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL
IN TOTAL
EXCESS STOCKHOLDER'S
COMMON OF RETAINED MINIMUM EQUITY
STOCK PAR EARNINGS PENSION (DEFICIENCY
(A) VALUE (DEFICIT) LIABILITY IN ASSETS)
------ -------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994.......... $ -- $433,816 $ (3,384) $(17,680) $ 412,752
Amount related to minimum pension
liability....................... -- -- -- 9,822 9,822
Net loss.......................... -- -- (98,020) -- (98,020)
----- -------- --------- -------- ---------
Balance, December 31, 1994........ -- 433,816 (101,404) (7,858) 324,554
Capital contribution from Vitro,
S.A............................. -- 50,000 -- -- 50,000
Amount related to minimum pension
liability....................... -- -- -- (18,982) (18,982)
Net loss.......................... -- -- (65,969) -- (65,969)
----- -------- --------- -------- ---------
Balance, December 31, 1995........ -- 483,816 (167,373) (26,840) 289,603
Capital contribution from Vitro,
S.A............................. -- 92,484 -- -- 92,484
Amount related to minimum pension
liability....................... -- -- -- 4,446 4,446
Net loss.......................... -- -- (655,840) -- (655,840)
----- -------- --------- -------- ---------
Balance, December 31, 1996........ $ -- $576,300 $(823,213) $(22,394) $(269,307)
===== ======== ========= ======== =========
</TABLE>
- ---------------
(A) One share, $.10 par value outstanding
See Notes to Consolidated Financial Statements.
H-5
<PAGE> 84
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss before extraordinary item................................... $(653,504) $ (65,969) $(98,020)
Adjustments to reconcile loss before extraordinary item to net
cash provided by (used in) operating activities:
Impairment of long-lived assets................................ 490,232 -- --
Write-up of assets held for sale............................... (8,967) -- --
Restructuring and other charges................................ 49,973 10,267 79,481
Depreciation................................................... 72,537 76,994 79,037
Amortization................................................... 29,119 22,921 21,439
Other.......................................................... 3,131 462 354
Decrease in cash resulting from changes in assets and
liabilities...................................................... (19,697) (44,245) (54,377)
Increase in cash resulting from changes in prepetition
liabilities...................................................... 8,765 -- --
--------- --------- --------
(28,411) 430 27,914
Cash flows from investing activities:
Expenditures for property, plant and equipment................... (46,254) (70,368) (93,833)
Proceeds from sales of property, plant and equipment............. 14,022 49,490 953
Investment in joint venture...................................... (18,552) (20,631) --
Other............................................................ (13,108) (6,991) (3,775)
--------- --------- --------
(63,892) (48,500) (96,655)
Cash flows from financing activities:
Proceeds from issuance of long-term debt......................... 80,000 -- --
Principal payments on long-term debt............................. (92,191) (365) (702)
Capital contribution from Vitro S.A.............................. 92,484 50,000 --
Sale of accounts receivable...................................... -- 30,000 --
Net draws on Debtor-In-Possession facility....................... 90,455 -- --
Draws on Prepetition Credit Agreement............................ -- 87,000 75,000
Repayments on Prepetition Credit Agreement....................... (83,000) (114,000) (45,000)
Other, primarily financing fees.................................. (8,862) (437) (831)
--------- --------- --------
78,886 52,198 28,467
Cash and cash equivalents:
Increase (decrease) in cash and cash equivalents................. (13,417) 4,128 (40,274)
Balance, beginning of year....................................... 18,315 14,187 54,461
--------- --------- --------
Balance, end of year............................................. $ 4,898 $ 18,315 $ 14,187
========= ========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by (used in) operating activities reflects net
cash payments for interest and taxes as follows:
Interest........................................................... $ 51,412 $ 52,003 $ 60,573
========= ========= ========
Income taxes (refunds), net........................................ $ (209) $ (328) $ (149)
========= ========= ========
In addition, the Company had the following non-cash activities:
Extraordinary item--write off of deferred financing fees......... $ 2,336 $ -- $ --
========= ========= ========
Increase (decrease) in cash resulting from changes in assets and
liabilities:
Accounts receivable.............................................. $ (15,351) $ (6,881) $ (8,600)
Inventories...................................................... 36,154 (5,606) (3,564)
Other current assets............................................. (1,623) (4,050) (1,773)
Accounts payable, accrued expenses and other current
liabilities.................................................... (26,246) (22,462) (34,564)
Other, net....................................................... (12,631) (5,246) (5,876)
--------- --------- --------
$ (19,697) $ (44,245) $(54,377)
========= ========= ========
</TABLE>
The Company considers short-term investments with original maturities of
ninety days or less at the date of purchase to be classified as cash
equivalents.
See Notes to Consolidated Financial Statements.
H-6
<PAGE> 85
ANCHOR RESOLUTION CORP.
(DEBTOR-IN-POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements are prepared on the
historical cost basis of accounting and reflect adjustments for the impairment
of goodwill and other long-lived assets. As discussed in Note 3, Anchor
Resolution Corp. (formerly known as Anchor Glass Container Corporation) (the
"Company") is operating as a debtor-in-possession under Chapter 11 of the United
States Bankruptcy Code ("Chapter 11"). The accompanying consolidated financial
statements do not purport to reflect or provide for the consequences of the
bankruptcy proceedings. In particular, such consolidated financial statements do
not purport to show (a) as to assets, the remaining assets, their realizable
value on a liquidated basis or their availability to satisfy liabilities; (b) as
to prepetition liabilities, the amounts that may be allowed for claims or
contingencies, or the status and priority thereof; (c) as to stockholder's
accounts, the effect of any changes that may be made in the capitalization of
the Company; or (d) as to operations, the effect of any changes that may be made
in the Company's remaining business.
Organization of the Company
At December 31, 1996, the Company is a wholly-owned subsidiary of Container
Holdings Corp. ("Container") which is a direct wholly-owned subsidiary of Vitro,
Sociedad Anonima ("Vitro"), a limited liability corporation incorporated under
the laws of the United Mexican States. On September 13, 1996, the Company filed
a voluntary petition for reorganization under Chapter 11 (See Note 3). On
February 5, 1997, Consumers Packaging Inc. ("CPI") and Owens-Brockway Glass
Container Inc. ("OI") acquired substantially all of the assets and business of
the Company in accordance with the terms of the Agreement (See Note 2).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
Business Segment
The Company is engaged in the manufacture and sale of a diverse line of
clear, amber, green and other color glass containers of various types, designs
and sizes to customers principally in the beer, food, iced tea, distilled
spirits, wine and soft drink industries. The Company markets its products
throughout the United States. The Company's international operations and export
sales are insignificant. Sales to Anheuser-Busch represented 11%, 24% and 25% of
total net sales for 1996, 1995 and 1994, respectively. As a result of the
current highly competitive environment, the Company had been informed by
Anheuser-Busch that the Company's 1996 and future volume allocations would be
reduced. Additionally, sales to The Strohs Brewery Company represented 10.8% of
total net sales for 1996.
Inventories
Inventories are stated at the lower of cost or market. The cost of
substantially all inventories of raw materials and semi-finished and finished
products is determined on the last-in, first-out ("LIFO") method. At December
31, 1996 and 1995, the estimated current cost of these inventories exceeds their
stated value determined on the LIFO basis by approximately $16,740 and $13,599,
respectively. Manufacturing supplies
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<PAGE> 86
and certain other inventories are valued at weighted average actual or standard
costs that approximate actual costs.
Property, Plant and Equipment
Property, plant and equipment expenditures, including renewals, betterments
and furnace rebuilds, which extend useful lives, and expenditures for glass
forming machine molds are capitalized and depreciated using the straight-line
method over the estimated useful lives of the assets for financial statement
purposes while accelerated depreciation methods are principally used for tax
purposes. Generally, annual depreciation rates range from 2.5% for buildings,
6.3% to 20% for machinery and equipment and 40% for molds. Furnace and machine
rebuilds, which are recurring in nature and which extend the lives of the
related assets, are recorded as a charge to accumulated depreciation. Annual
depreciation rates for such expenditures range from 20% to 25%, based on the
type and extent of these rebuilds. Depreciation of leased property recorded as
capital assets is computed on a straight-line basis over the estimated useful
lives of the assets. Maintenance and repairs are charged directly to expense as
incurred.
Excess of Cost Over Fair Value of Net Assets Acquired (Goodwill)
As a result of the declining profitability, diminishing cash flows and the
Company's bankruptcy as discussed in Note 3, the recoverable value of the
carrying amount of long-lived assets and intangibles was reviewed for
impairment.
Based upon this review, the amount of remaining excess of purchase price
over fair value of net assets acquired at December 31, 1996, of $457,232 and
other long-lived assets of $33,000 were written off.
The excess of cost over fair value of net assets acquired had been
amortized on a straight line basis over a 40 year period. Amortization expense,
included as a component of cost of products sold, for the years ended December
31, 1996, 1995 and 1994 was $13,920, $13,925 and $13,920, respectively.
Income Taxes
Statement of Financial Accounting Standards No. 109 -- Accounting for
Income Taxes ("SFAS 109") establishes financial accounting and reporting
standards for the effects of income taxes that result from a company's
activities during the current and preceding years. In general, SFAS 109 requires
that each company within a consolidated group recognize tax expense based on its
own income. The Company and its subsidiaries file a consolidated tax return with
Container and its subsidiaries. To the extent that current operating loss
benefits of the consolidated group or post acquisition loss carryforwards are
allocated to the Company as a reduction of current income taxes payable, such
benefits are reflected as a contribution of capital. The Company's tax benefits
arising prior to acquisition (preacquisition losses) are reflected as a
reduction in goodwill when the losses are utilized. Post acquisition losses of
the Company are used to offset current or future income tax provisions.
Retirement Plans
The Company has retirement plans, principally non-contributory, covering
substantially all salaried and hourly employees. The Company's funding policy is
to pay at least the minimum amount required by the Employee Retirement Income
Security Act of 1974. As a result of the Bankruptcy Proceedings (See Note 3),
certain plan contributions were not made as of December 31, 1996 (See Note 12).
At December 31, 1996 and 1995, the Company has recorded an additional minimum
pension liability for underfunded plans representing the excess of the
underfunded liability over previously recorded accrued pension costs.
Postretirement Benefits
Statement of Financial Accounting Standards No. 106 -- Employers'
Accounting for Postretirement Benefits Other Than Pensions ("SFAS 106") requires
accrual of postretirement benefits (such as healthcare benefits) during the
period that an employee provides service. The transition obligation from the
adoption of
H-8
<PAGE> 87
SFAS 106 approximated $3,400 and is being amortized on a straight-line basis
over a period of twenty years. This accounting method has no effect on the
Company's cash outlays for these retirement benefits.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 -- Disclosures about
Fair Value of Financial Instruments requires disclosure of the estimated fair
values of certain financial instruments. The estimated fair value amounts have
been determined using available market information or other appropriate
valuation methodologies that require considerable judgment in interpreting
market data and developing estimates. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts. Based on the uncertainty of the ultimate outcome of the
Bankruptcy Proceedings, discussed in Note 3, the Company is unable to estimate
the fair value of long-term debt at December 31, 1996. The carrying amount of
other financial instruments approximate their estimated fair values.
The fair value information presented herein is based on information
available to management as of December 31, 1996. Such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date and, therefore, the current estimates of fair value may differ
significantly from the amounts presented herein. As a result of the Bankruptcy
Proceedings discussed in Note 3, the ultimate value of these financial
instruments is dependent upon the payment under the Company's future plan of
reorganization.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimated.
NOTE 2 -- SALE OF ASSETS
On February 5, 1997, OI and Anchor Glass Acquisition Corporation ("New
Anchor"), a majority-owned subsidiary of CPI, acquired substantially all of the
assets and business of the Company, pursuant to the Asset Purchase Agreement
dated December 18, 1996, as amended (the "Agreement").
New Anchor purchased eleven operating glass container manufacturing
facilities, five idled glass container manufacturing facilities and other
related assets. OI purchased assets and assumed liabilities of the Company's
Antioch, California and Hayward, California facilities and purchased certain
other existing inventories. OI also purchased the Company's investment in Rocky
Mountain Bottle Company, a joint venture with Coors Brewing Company ("Coors"),
and assumed the Company's agreement to manufacture Coors' glass packaging
products in the United States.
The total purchase price approximated $378,000, excluding fees of
approximately $1,500. The purchase price received from OI amounted to
approximately $128,000 and was received in cash. The remaining purchase price of
approximately $250,000 from New Anchor was comprised of: approximately $200,500
in cash, $47,000 face amount (1,879,320 shares) of mandatorily redeemable 10%
cumulative convertible preferred stock and $2,500 of common stock (490,898
shares with an estimated value of $5.00 per share) of New Anchor.
The purchase price paid by New Anchor in connection with the Anchor
Acquisition is subject to adjustment. On June 13, 1997, the Company delivered to
New Anchor the closing balance sheet dated January 10, 1997, which indicates
that the Company believes that it is entitled to additional payments from New
Anchor and Owens totaling approximately $76,300 relating primarily to purchase
price adjustments. On July 28, 1997, New Anchor and Owens delivered individual
notices of disagreement to the Company,
H-9
<PAGE> 88
opposing some of the adjustments sought by the Company as well as asserting
other adjustments in New Anchor or Owen's favor. New Anchor's notice of
disagreement requested a reduction to the purchase price of approximately
$96,800. There may be litigation and/or arbitration over some or all aspects of
adjustments requested by all parties. Such adjustments, if material, could
impact the purchase price paid by New Anchor in connection with the Anchor
Acquisition.
Proceeds from the sale were used to repay the outstanding balance of the
DIP Facility and accrued interest thereon, of approximately $109,000 (principal
balance of $90,455 at December 31, 1996). The remainder of the proceeds will be
used against prepetition liabilities, as ultimately determined under the
Company's Plan of Reorganization (see Note 3).
Upon consummation of the purchase and effective February 6, 1997, New
Anchor changed its name to Anchor Glass Container Corporation and the Company
changed its name to Anchor Resolution Corp.
As an objection to the sale, the Pension Benefit Guaranty Corporation
("PBGC") entered a determination to terminate the Company's qualified defined
benefit pension plans. However, in conjunction with the sale, New Anchor assumed
all liabilities of the plans and funded approximately $9,100 of plan
contributions, previously unfunded following the Company's filing of Chapter 11
(see Note 3). Additionally, New Anchor issued to the plans $9,000 face amount
(360,000 shares) of mandatorily redeemable 10% cumulative preferred stock and
Vitro agreed to provide a limited guaranty to the PBGC with respect to the
unfunded benefit liabilities of the Company's defined benefit plans.
Consequently, the PBGC agreed not to terminate the plans as a result of the
Agreement and the assumption of the plans by New Anchor.
On October 4, 1996, the Company entered into an asset purchase agreement
with Ball-Foster Glass Container Co. L.L.C., ("Ball-Foster"). Pursuant to that
agreement, Ball-Foster was to acquire substantially all of the assets of the
Company for $365.0 million in cash at closing, subject to adjustment, as set
forth in that agreement. In addition, Ball-Foster was to assume specified
liabilities of the Company. Payment of the purchase price was guaranteed by
Saint-Gobain Corporation, parent company of Ball-Foster.
Also on October 4, 1996, the Company filed a motion with the Bankruptcy
Court seeking an order (i) authorizing the sale to Ball-Foster, subject to
higher and better bids, of substantially all of the Company's assets free and
clear of certain liens, claims and encumbrances and (ii) authorizing assumption
and assignment of certain unexpired leases and executory contracts. The Court
had entered several amended scheduling orders which established a timetable for
the sale process. The amended deadline for submissions of higher and better bids
was December 12, 1996. At that time, the Company received a higher and better
offer from CPI and OI. Ball-Foster received a termination fee of $3,000 from the
proceeds of the transaction.
The following unaudited pro forma condensed balance sheet gives effect to
the sale of assets and business and payoff of the DIP Facility (as defined)
described above as if such transactions occurred on December 31, 1996:
<TABLE>
<S> <C>
Cash..................................................................... $ 237,000
Other current assets..................................................... 7,500
Investment in Common Stock of Anchor Glass Container Corporation......... 2,500
Investment in Preferred Stock of Anchor Glass Container Corporation...... 47,000
Property, plant and equipment............................................ 7,000
Other assets............................................................. 10,000
---------
Total assets................................................... $ 311,000
---------
Liabilities not subject to compromise:
Current liabilities.................................................... $ 165,000
Other long-term liabilities............................................ 16,000
Liabilities subject to compromise........................................ 376,000
---------
Total liabilities.............................................. 557,000
---------
Deficiency in assets........................................... $(246,000)
=========
</TABLE>
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<PAGE> 89
The Company's remaining deficiency in assets after this sale raises
substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include adjustments that might result
from the outcome of this uncertainty.
NOTE 3 -- BANKRUPTCY PROCEEDINGS
As a result of the continued decline in the Company's results of operations
from the effects of the highly competitive glass container market and the
Company's high debt level, on September 13, 1996 (the "Petition Date"), the
Company filed a voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). On September 30, 1996, Anchor
Recycling Corporation, a wholly-owned subsidiary of the Company, also filed a
voluntary petition to reorganize under Chapter 11 in the same court. The Chapter
11 proceedings are being jointly administered, with the Company managing the
business in the ordinary course as a debtor-in-possession under the supervision
of the Bankruptcy Court. Vitro and the Company concluded that the Chapter 11
filing was necessary in order to preserve the value of its assets and to ensure
that the business has sufficient cash resources to continue operations while it
completed the sale of the business discussed in Note 2.
Under Chapter 11 proceedings, litigation and actions by creditors to
collect certain claims existing at the Petition Date are stayed, without
specific Bankruptcy Court authorization to pay such claims. The Company had
received authorization, pursuant to first day orders, to pay certain claims
related to wages, salaries, vacation, sick pay and other claims. As a
debtor-in-possession, the Company has the right, subject to Bankruptcy Court
approval, and certain other limitations, to assume or reject certain executory
contracts, including unexpired leases. Any claim for damages resulting from the
rejection of an executory contract or an unexpired lease is treated as a general
unsecured claim in the Chapter 11 proceedings.
On September 26, 1996 the United States Trustee appointed a single
unsecured creditors' committee (the "Creditors Committee"). The Creditors
Committee has the right to review and object to certain business transactions
and has participated in the negotiation of the Company's plan of reorganization.
The Creditors Committee has retained the firm of Wachtell, Lipton, Rosen & Katz
as its counsel and Smith Barney Inc. as its financial advisors.
The Company obtained debtor-in-possession ("DIP") financing from Foothill
Capital Corporation, as agent, and Congress Financial Corporation, as co-agent,
(the "Lender Group") which provided for a $130,000 DIP Credit Facility (the "DIP
Facility"), and was approved by the Bankruptcy Court on November 15, 1996. The
DIP Facility, which would have expired September 12, 1997, provided up to
$130,000 under a borrowing base formula, less prepetition advances under the
Company's then existing New Senior Credit Facility (the "Prepetition Credit
Facility") with the Lender Group, on terms substantially the same as the
Prepetition Credit Facility. On February 5, 1997, the DIP Facility was repaid in
full with proceeds from the sale as discussed in Note 2.
The DIP Facility and prepetition secured claims are collateralized by
substantially all of the assets of the Company including accounts receivable,
inventories and property, plant and equipment. The Company has continued to
accrue interest on its prepetition secured debt obligations. Because of the
Chapter 11 filing, there has been no accrual of interest on prepetition
unsecured debt subsequent to the Petition Date.
Of the cash proceeds received from the sale of substantially all the assets
and business of the Company (see Note 2), approximately $109,000 was used to
repay in full the DIP Facility and approximately $11,000 was applied to the
prepayment of real estate taxes, certain costs related to the Company's
partnership with Coors (see Note 8) and the termination fee payable to
Ball-Foster (see Note 2). The balance of the net proceeds of the sale remaining
after application to the costs of the winddown and to other administrative and
priority claims will be distributed to the creditors of the Company, including
the holders of approximately $158,000 principal amount of the Company's Senior
Secured Notes and holders of other secured and unsecured claims, pursuant to a
Plan of Reorganization which is being developed by the Company in conjunction
with the Creditors Committee.
H-11
<PAGE> 90
NOTE 4 -- PREPETITION LIABILITIES
Prepetition liabilities subject to compromise at December 31, 1996 include
the following:
<TABLE>
<S> <C>
$100,000 10.25% Senior Notes...................................... $100,000
$200,000 9.875% Senior Subordinated Debentures.................... 200,000
Other debt........................................................ 4,368
Trade payables.................................................... 68,701
Accrued interest.................................................. 6,925
--------
$379,994
========
</TABLE>
Because of the Chapter 11 proceedings, there has been no accrual of
interest on the $100,000 10.25% Senior Notes or the $200,000 9.875% Senior
Subordinated Debentures since September 12, 1996. If accrued, interest expense
would have increased $9,167 during the year ended December 31, 1996.
Additionally, the amounts reflected as prepetition liabilities do not include
amounts related to potential claims, which are substantially in excess of the
recorded liabilities at December 31, 1996.
NOTE 5 -- LONG-TERM DEBT
At December 31, 1996, all debt which, by its terms was previously
classified as long-term at the Petition Date, is classified as prepetition
liabilities in the accompanying balance sheet.
As a result of the Bankruptcy Proceedings (See Note 3), the Company is in
default of various covenants relating to its outstanding prepetition debt.
However, under Chapter 11 proceedings, litigation or actions by creditors
related to these defaults are stayed. In addition, the DIP Facility required
that the Company's collateral value and availability, as defined, could not be
less than a specified amount and the outstanding credit facility balance could
not be more than a specified amount as measured on a rolling four-week period
throughout the term of the DIP Facility. Prior to the repayment of the DIP
Facility, the Company was in full compliance with these covenants.
Long-term debt at December 31, 1995, giving affect to the Noteholder
Restructuring Agreement discussed below, consisted of the following:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Floating Rate Series A Senior Secured Notes, variable interest rate,
payable monthly......................................................... $ 38,000
Series B Senior Secured Notes, interest at 9.91%, payable monthly......... 202,000
Floating Rate Series C Senior Secured Notes, variable interest rate,
payable monthly......................................................... 10,000
$100,000 Senior Notes, Series A, interest at 10.25%, payable
semi-annually........................................................... 100,000
$200,000 Senior Subordinated Debentures, interest at 9.875%, payable
semi-annually........................................................... 200,000
Other..................................................................... 4,450
--------
554,450
Less current maturities................................................... 1,770
--------
$552,680
========
</TABLE>
Effective January 12, 1996, the Company and the holders of the Senior
Secured Notes entered into a Noteholder Restructuring Agreement which provides
for, among other things, consent by the holders to the replacement of the then
current Credit Agreement with a new $130,000 credit facility (subsequently
replaced by the DIP Facility) and waiver by the holders of identified defaults
or events of default existing on the effective date or which may occur during
the waiver period which was to expire not later than January 31, 1998. The
restructuring period was defined as the period between the effective date and
the termination date,
H-12
<PAGE> 91
which would have occurred no later than June 30, 1998 (the "Restructuring
Period"). The following events occurred in connection with the effectiveness of
the Noteholder Restructuring Agreement:
- execution of the $130,000 Prepetition Credit Facility
- mandatory prepayment on January 12, 1996 of the aggregate principal
amount of the Senior Secured Notes as follows:
-- Series A $12,160; Series B $64,640 and Series C $3,200;
- payment of a restructuring fee of approximately $4,100, or 1.75% of the
principal amount of the consenting noteholders' Senior Secured Notes
outstanding prior to giving effect to the prepayments above, and
- $40,000 capital contribution from Vitro and a commitment from Vitro to
contribute an additional $25,000 on or before January 31, 1997. Capital
contributions in 1996 amounted to $92,484.
Compliance with the financial maintenance tests as defined in the
amendments to the Note Purchase Agreement, including fixed charge coverage, net
worth, current ratio and debt to equity were waived through the period ending
January 31, 1998. However, the Company was required to maintain capital
expenditures and net worth in amounts not less than those defined in the
Noteholder Restructuring Agreement.
During the Restructuring Period, the Series A Notes and Series C Notes bore
a floating rate of interest at the one-month LIBOR rate, as defined, plus 2.0%.
The interest rate was adjusted monthly. Interest on the Series B Notes is fixed
at 9.91% per annum. Interest during the Restructuring Period is payable on the
15th of each month.
Effective January 12, 1996, and concurrent with the Noteholder
Restructuring Agreement, the Company entered into a Loan Agreement with Foothill
Capital Corporation, as agent, and Congress Financial Corporation, as co-agent,
to provide for the $130,000 Prepetition Credit Facility. $80,000 of proceeds
from the Prepetition Credit Facility were used to prepay at closing a
significant portion of certain payments of the Senior Secured Notes originally
scheduled to be made in July 1996 and July 1997 and the remaining $50,000 was
used to finance working capital and other general corporate purposes. Advances
outstanding at any one time are not to exceed an amount equal to the Borrowing
Base as defined in the Prepetition Credit Facility. Interest, at prime plus
1.125%, as defined, is payable monthly. A commitment fee of .5% of the unused
portion of the Prepetition Credit Facility is payable monthly. The Prepetition
Credit Facility (which was subsequently replaced with the DIP Facility) was
repaid February 5, 1997 with proceeds from the sale discussed in Note 2.
Through February 5, 1997 the Company had borrowings outstanding under the
DIP Facility. At December 31, 1996, advances outstanding under the DIP Facility
were $90,455. At December 31, 1996, the weighted average interest rate on
borrowings outstanding was 9.375%.
In March 1994, Vitro provided a one year, $20,000 letter of credit facility
on behalf of the Company, thereby effectively increasing the Company's letter of
credit availability by $20,000. Outstanding letters of credit under this
facility at December 31, 1996 were $15,000. In February 1997, the Company
received an additional capital contribution of $8,400 in satisfaction of
obligations outstanding under the letter of credit facility, which was
terminated at that time.
The Senior Secured Notes are collateralized by the property, plant and
equipment of the Company with a secondary interest in inventories and accounts
receivable. The DIP Facility is collateralized by inventories and accounts
receivable with a secondary interest in the property, plant and equipment of the
Company. Both the Note Purchase Agreement and the DIP Facility provide for
various covenants that restrict the Company's ability to incur additional
indebtedness, sell or transfer assets, make investments, enter into transactions
with or make distributions to affiliates and pay dividends or make other
distributions in respect of its capital stock, as well as require it to meet
various financial maintenance tests. Effective with the Noteholder Restructuring
Agreement, the holders of the Senior Secured Notes waived compliance with the
financial maintenance covenants through January 31, 1998. However, the Company
must maintain capital expenditures and net worth in amounts not less than those
defined in the Noteholder Restructuring Agreement.
H-13
<PAGE> 92
Effective June 18, 1992, the Company issued $100,000 aggregate principal
amount of 10.25% Senior Notes due June 30, 2002 (the "Exchange Notes"). The
Company then completed an exchange offer with the exchange of all Exchange Notes
for a like principal amount of 10.25% Senior Notes due 2002, Series A (the
"Senior Notes"), issued under an Indenture dated as of October 15, 1992 between
the Company and Continental Bank, National Association, as Trustee. The Senior
Notes are unsecured obligations of the Company ranking senior in right of
payment to the Debentures (described below) and pari passu with all other
existing and future senior indebtedness of the Company. Interest is payable
semi-annually in arrears on each June 30 and December 31. Interest has not been
paid or accrued following the Petition Date.
Effective December 2, 1993, the Company completed a public offering of
$200,000 aggregate principal amount of 9.875% Senior Subordinated Debentures due
December 15, 2008 (the "Debentures") under an Indenture dated December 1, 1993
between the Company and Chemical Bank, as Trustee. The Debentures are unsecured
obligations, subordinate in right of payment to all existing and future senior
debt, as defined, of the Company. Interest on the Debentures is payable
semi-annually on June 15 and December 15. Interest has not been paid or accrued
following the Petition Date.
All of the Company's debt agreements contain cross-default provisions.
NOTE 6 -- RESTRUCTURING AND OTHER CHARGES
In January 1996, formal plans were approved to further restructure certain
of the Company's operations to respond to the continued decline in the industry
sales volume combined with the loss of a significant portion of the business of
the Company's largest customer. Restructuring charges of approximately $50,000,
$10,300 and $79,500 were recorded in the 1996, 1995 and 1994 Consolidated
Statements of Operations for the closure of various plants and other
restructuring obligations.
The following represents information regarding amounts charged against the
restructuring liability for the Company's restructuring plans.
<TABLE>
<CAPTION>
AMOUNT
CHARGED
AGAINST
LIABILITY
AS OF
RESTRUCTURING DECEMBER 31,
CHARGES 1996
------------- ------------
<S> <C> <C>
1996 RESTRUCTURING PLAN
Plant shutdown costs, including severance costs and pension
curtailment losses............................................... $25,100 $ 20,100
Writedown of certain manufacturing assets to net realizable
value............................................................ 24,900
1994/1995 RESTRUCTURING PLAN
Plant shutdown costs, including severance costs and pension
curtailment losses............................................... $39,200 $ 33,700
Writedown of certain manufacturing assets to net realizable
value............................................................ 36,600
Writedown of previously shutdown manufacturing facilities to net
realizable value................................................. 14,000
</TABLE>
During the year ended December 31, 1996, the Company recorded an adjustment
to the carrying value of certain idled facilities held for sale. These assets
were previously written down to an estimated net realizable value. Upon a
current evaluation of quotes and offers on these properties in 1996, the Company
increased their net carrying value by approximately $9,000.
NOTE 7 -- CAPITAL CONTRIBUTION
As a condition of closing to the Noteholder Restructuring Agreement, as
discussed in Note 5, in January 1996, the Company received a $40,000 cash
capital contribution from Vitro and received a commitment from Vitro to
contribute an additional $25,000 on or before January 31, 1997. During 1996,
Vitro provided capital contributions of $92,484.
H-14
<PAGE> 93
NOTE 8 -- INVESTMENT IN JOINT VENTURE
In March 1995, the Company and Coors entered into a long-term partnership
(the "Partnership") to produce glass bottles at the Coors glass manufacturing
facility in Wheat Ridge, Colorado. The Partnership employed the Company's
technology, along with capital contributions from both companies, to increase
the efficiency, capacity and volume of the Coors facility. Coors has
contributed, as its capital contribution, the facility's machinery, equipment
and certain personal property. The Company's required capital contribution was
approximately $54,000 in cash for capital spending needs over the first three
years of the partnership, of which approximately $36,015 has been contributed
through capital expenditures through December 31, 1996. The Partnership has an
initial term of ten years, which can be extended for additional terms of two
years each, and the partners will share the cost benefit of achieved operational
efficiencies. In addition, Coors has entered into a separate long-term preferred
supplier agreement with the Company. The preferred supplier agreement has an
initial term of ten years, which can be extended for additional terms of two
years each. This agreement allowed the Company to supply 100% of Coors' glass
container requirements (exceeding the Partnership's production) beginning
January 1, 1996.
As discussed in Note 2, effective February 5, 1997, OI purchased the
Company's investment in the joint venture (including the assumption of related
obligations) and the preferred supplier agreement.
NOTE 9 -- SALE AND LEASEBACK
In July and August 1995, the Company entered into sale and leaseback
transactions of certain manufacturing equipment located at four of the Company's
manufacturing facilities. Under the sale agreements, the Company sold the
equipment at an aggregate net selling price of approximately $48,300. In
addition, the Company entered into agreements to lease back the equipment for a
nine year term at an average annual rental of approximately $7,600. The deferred
gain of approximately $14,200, representing the excess of the selling price over
the net book value of the equipment, is being amortized at approximately $1,600
annually over the nine year operating lease term.
NOTE 10 -- RELATED PARTY INFORMATION
Container
There have been no material transactions between the Company and Container
or its subsidiaries for the two years ended December 31, 1996. During 1996, the
Company sold a previously closed manufacturing facility to Container for
proceeds of approximately $750 of cash and a note receivable of $2,800.
Vitro
Related party transactions with Vitro and its consolidated subsidiaries are
summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Purchases of equipment................................. $ 7,183 $ 6,662 $7,170
Payable for equipment.................................. 2,078 22 38
Purchases of inventory................................. 6,978 2,115 1,298
Payable for inventory.................................. 1,582 9 25
Sales of inventory..................................... 23,376 14,534 4,699
Receivable from sales of inventory..................... 3,100 2,211 3,201
Other income........................................... -- -- 573
Other receivables...................................... -- 221 668
Equipment deposits..................................... 2,187 2,187 2,900
</TABLE>
H-15
<PAGE> 94
Sale of Accounts Receivable
In December 1995, approximately $30,700 of eligible trade receivables was
sold to Factoraje Serfin, S.A. de C.V., a wholly-owned subsidiary of Grupo
Financiero Serfin, S.A. de C.V., an associated company in which Vitro owns a
minority interest. This transaction resulted in net proceeds to the Company of
$30,000. These receivables were sold without recourse and the proceeds were used
to fund working capital needs.
NOTE 11 -- INCOME TAXES
The consolidated group of companies, of which the Company is a member,
applies SFAS 109 under which the liability method is used in accounting for
income taxes. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Under SFAS 109, if on the basis of
available evidence, it is more likely than not that all or a portion of the
deferred tax asset will not be realized, the asset must be reduced by a
valuation allowance.
The Company had previously recognized approximately $1,825 as a deferred
tax asset, net of the valuation allowance. As a result of continuing losses,
management has determined it is no longer more likely than not that the value of
the remaining deferred tax asset would be realized. As a result, the Company
recorded an additional valuation allowance of $1,825, which is reflected as a
provision for income taxes in the Consolidated Statement of Operations for the
year ended December 31, 1996. The company recorded a current state income tax
provision of $250 in 1995 and 1994.
The significant components of the deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1996 1995
--------- --------
<S> <C> <C>
Deferred tax assets:
Acquired tax benefits....................................... $ 27,700 $ 28,300
Post acquisition loss carryforwards......................... 106,000 50,700
Pension and postretirement liabilities...................... 55,300 62,100
Accruals and reserves....................................... 50,300 55,900
--------- --------
239,300 197,000
Valuation allowance......................................... (152,400) (84,900)
--------- --------
86,900 112,100
--------- --------
Deferred tax liabilities:
Property, plant and equipment............................... 55,000 68,900
Inventories................................................. 22,300 24,300
Receivables and other assets................................ 9,600 17,100
--------- --------
86,900 110,300
--------- --------
Net deferred tax asset........................................ $ -- $ 1,800
========= ========
</TABLE>
At December 31, 1996, the Company had unused net operating losses and
investment tax credit carryforwards of approximately $325,000 and $5,200,
respectively, expiring at various dates through 2011. Of these amounts, $260,000
and $0, respectively, are not restricted as to use and expire at various dates
through 2011. The balance of the carryforwards amounting to $65,000 and $5,200,
respectively, expire at various dates through 2004, and are restricted to
offsetting future taxable income of the respective companies which generated the
carryforwards.
H-16
<PAGE> 95
NOTE 12 -- PENSION PLANS
The Company has defined benefit retirement plans for salaried and
hourly-paid employees. Benefits are calculated on a salary-based formula for
salaried plans and on a service-based formula for hourly plans. Effective
December 31, 1994, the Company changed its defined benefit plans for salaried
employees resulting in the freezing of benefits, as discussed below. Pension
costs for 1996, 1995 and 1994 are summarized below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost-benefits earned during the year............... $ 5,266 $ 6,731 $ 9,507
Interest cost on projected benefit obligation.............. 28,646 29,429 28,302
Return on plan assets...................................... (28,270) (22,550) (23,108)
Net amortization and deferral.............................. 2,442 2,757 3,995
Curtailment (gain) loss.................................... 964 -- (3,588)
-------- -------- --------
Total pension cost............................... $ 9,048 $ 16,367 $ 15,108
======== ======== ========
</TABLE>
The Company has substantial unfunded obligations related to its employee
pension plans. The Retirement Protection Act of 1994 requires the Company to
make significant additional funding contributions into its underfunded defined
benefit retirement plans and will increase the premiums paid to the PBGC.
Subsequent to the Petition Date, the Company did not make scheduled
contribution payments to its employee pension plans. Scheduled plan contribution
payments not made as of December 31, 1996, amounted to $16,330. Of the scheduled
January 15, 1997 contribution, $3,599 was not paid.
As an objection to the sale, the PBGC entered a determination to terminate
the Company's qualified defined benefit pension plans. However, in conjunction
with the sale, New Anchor assumed all liabilities of the plans and funded
approximately $9,100 of plan contributions, previously unfunded following the
Company's filing of Chapter 11 (see Note 3). Additionally, New Anchor issued
$9,000 face amount of mandatorily redeemable 10% cumulative convertible
preferred stock and Vitro has guaranteed to fund qualified defined benefit plan
obligations up to $70,000, should New Anchor default on its obligations.
Consequently, the PBGC agreed not to terminate the plans as a result of the
Agreement and the assumption of the plans by New Anchor.
Effective December 31, 1994, the Company changed its salaried retirement
and savings programs, resulting in the freezing of benefits under its three
defined benefit pension plans for salaried employees and amending its defined
contribution savings plan for salaried employees. The freezing of benefits under
the defined benefit pension plans for salaried employees resulted in a
curtailment gain of $3,588. Effective December 31, 1996, the Company merged the
Latchford Glass Company Salaried Employees' Pension Plan into the Anchor Glass
Container Corporation Retirement Plan for Salaried Employees. Also effective
December 31, 1994, the Company merged the Diamond Bathurst Salaried Employees
Retirement Plan into the Anchor Glass Container Corporation Retirement Plan for
Salaried Employees. Under the amended savings plan, the Company will match,
beginning in 1995, employees' basic contributions to the plan in an amount equal
to 150% of the first 4% of an employee's compensation.
H-17
<PAGE> 96
The funded status of the Company's pension plans at December 31, 1996 and
1995 follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------- -------------------------------
ACCUMULATED ASSETS EXCEED ACCUMULATED ASSETS EXCEED
BENEFITS ACCUMULATED BENEFITS ACCUMULATED
EXCEED ASSETS BENEFITS EXCEED ASSETS BENEFITS
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Actuarial present value of accumulated
plan benefits:
Vested benefit obligation............ $ 290,589 $ 107,015 $ 280,370 $ 105,605
======== ======== ======== ========
Accumulated benefit obligation....... $ 301,349 $ 107,015 $ 298,533 $ 105,605
======== ======== ======== ========
Projected benefit obligation........... $ 301,349 $ 107,015 $ 299,304 $ 105,605
Plan assets at fair value.............. 218,013 116,139 201,061 111,297
-------- -------- -------- --------
Projected benefit obligation in excess
of (less than) plan assets........... 83,336 (9,124) 98,243 (5,692)
Amounts not recognized --
Subsequent losses...................... (22,394) (3,817) (27,612) (3,907)
Prior service cost..................... (17,140) -- (21,773) --
Additional minimum liability........... 39,534 -- 48,613 --
-------- -------- -------- --------
Accrued (prepaid) pension cost......... $ 83,336 $ (12,941) $ 97,471 $ (9,599)
======== ======== ======== ========
</TABLE>
Significant assumptions (weighted average rates) used in determining net
pension cost and related pension obligations for the benefit plans for 1996,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate.................................................. 7.50% 7.50% 8.50%
Expected long-term rate of return on plan assets............... 9.0 9.0 9.0
Rate of increase on compensation level......................... 5.0 5.0 5.0
</TABLE>
The Company recognized an additional minimum liability that is equal to the
difference between the accumulated benefit obligation over plan assets in excess
of accrued (prepaid) pension cost. A corresponding amount is recognized as
either an intangible asset or a reduction of equity. Pursuant to this
requirement, the Company recorded, as of December 31, 1996 and 1995, an
additional liability of $39,534 and $48,613, respectively, an intangible pension
asset of $17,140 and $21,773, respectively, and an equity reduction of $22,394
and $26,840, respectively. Plan assets are held by independent trustees and
consist principally of investments in equities, fixed income and government
securities.
The Company also sponsors two defined contribution plans covering
substantially all salaried and hourly employees. Expenses under these programs
for the years ended December 31, 1996, 1995 and 1994 were approximately $2,817,
$3,045 and $1,743, respectively.
NOTE 13 -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides benefits to substantially all salaried, and certain
hourly employees, under several plans. SFAS 106 requires accrual of
postretirement benefits (such as healthcare benefits) during the years an
employee provides services. Currently, the Company funds these healthcare
benefits on a pay-as-you-go basis. The Company also contributes to a
multi-employer trust, and under the requirements of SFAS 106, recognizes as
postretirement benefit cost the required annual contribution.
SFAS 106 allows recognition of the cumulative effect of this liability in
the year of adoption or the amortization of the net initial transition
obligation over a period of up to twenty years. The Company elected to recognize
the net initial transition obligation of approximately $3,400 on a straight-line
basis over a period of twenty years. The Company's cash flows are not affected
by implementation of SFAS 106.
H-18
<PAGE> 97
The accumulated postretirement benefit obligation at December 31, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Retirees................................................. $38,403 $38,161
Eligible plan participants............................... 8,743 10,636
Other active plan participants........................... 14,273 18,672
------- -------
61,419 67,469
Unrecognized gain or (loss).............................. 4,698 (4,082)
Unrecognized transition obligation....................... (2,695) (2,863)
------- -------
Accrued postretirement benefit costs..................... $63,422 $60,524
======= =======
</TABLE>
Net postretirement benefit costs for the years ended December 31, 1996,
1995 and 1994 consist of the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost -- benefits earned during the year.......... $1,052 $1,191 $1,805
Interest cost on accumulated postretirement benefit
obligation............................................. 4,200 4,641 4,980
Net amortization and deferral............................ 168 168 859
------ ------ ------
$5,420 $6,000 $7,644
====== ====== ======
</TABLE>
The assumed healthcare cost trend used in measuring the accumulated
postretirement benefit obligation as of December 31, 1996 was 9.0% declining
gradually to 5.5% by the year 2003, after which it remains constant. A one
percentage point increase in the assumed healthcare cost trend rate for each
year would increase the accumulated post-retirement benefit obligation as of
December 31, 1996 by approximately 12% and the net postretirement healthcare
cost for the year ended December 31, 1996 by approximately 13%. The assumed
discount rate used in determining the accumulated postretirement benefit
obligation was 7.25% for 1996 and 1995.
The Company also contributes to a multi-employer trust which provides
certain other postretirement benefits to retired hourly employees. Expenses
under this program for the years ended December 31, 1996, 1995 and 1994, were
$4,990, $5,033 and $4,882, respectively.
NOTE 14 -- LEASES
The Company leases distribution and office facilities, machinery,
transportation, data processing and office equipment under non-cancelable leases
which expire at various dates through 2004. These leases generally provide for
fixed rental payments and include renewal and purchase options at amounts which
are generally based on fair market value at expiration of the lease. The Company
has no material capital leases.
Future minimum lease payments under non-cancelable operating leases are as
follows:
<TABLE>
<S> <C>
1997............................................................... $22,100
1998............................................................... 17,600
1999............................................................... 13,300
2000............................................................... 9,700
2001............................................................... 8,600
After 2001......................................................... 20,300
-------
$91,600
=======
</TABLE>
Rental expense for all operating leases for the years ended December 31,
1996, 1995 and 1994 was $19,770, $21,670 and $17,302, respectively.
H-19
<PAGE> 98
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
The Company is a respondent in various environment-related cases. The
Company is not otherwise party to, and none of its assets are subject to any
other pending legal proceedings, other than ordinary routine litigation
incidental to its business and against which the Company is adequately insured
and indemnified or which is not material. The Company believes that the ultimate
outcome of these cases will not materially affect future operations.
H-20
<PAGE> 99
ANCHOR RESOLUTION CORP.
(DEBTOR IN POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and equivalents......................................................... $ 4,343
Accounts receivable, net..................................................... 85,130
Inventories:
Raw materials and manufacturing supplies.................................. 35,523
Semi-finished and finished products....................................... 131,004
Other current assets......................................................... 18,179
----------
Total current assets................................................. 274,179
Property, plant and equipment, net........................................... 343,084
Other assets................................................................. 55,604
Intangible pension asset..................................................... 21,773
Deferred taxes............................................................... --
Investment in joint venture.................................................. 40,249
Excess of cost over fair value of net assets acquired........................ 460,712
----------
$1,195,601
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
DIP Facility/Credit Facility advances........................................ $ 113,312
Current maturities of long-term debt......................................... --
Accounts payable............................................................. 12,721
Accrued expenses............................................................. 19,608
Accrued interest............................................................. 979
Accrued compensation and employee benefits................................... 27,204
----------
Total current liabilities............................................ 173,824
Long-term debt................................................................. --
Pension liabilities............................................................ --
Other long-term liabilities.................................................... 35,459
Prepetition liabilities not subject to compromise.............................. 158,683
Prepetition liabilities subject to compromise.................................. 574,401
----------
Total liabilities.................................................... 942,367
Commitments and contingencies.................................................. --
Stockholder's equity:
Common stock -- $.10 par value............................................... --
Capital in excess of par value............................................... 576,300
Accumulated deficit.......................................................... (296,226)
Amount related to minimum pension liability.................................. (26,840)
----------
253,234
----------
Total stockholder's equity........................................... $1,195,601
==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
H-21
<PAGE> 100
ANCHOR RESOLUTION CORP.
(DEBTOR IN POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Net sales...................................................................... $ 640,049
Costs and expenses:
Cost of products sold........................................................ 636,917
Selling and administrative expenses.......................................... 30,736
Restructuring charges........................................................ 49,973
--------
Loss from operations........................................................... (77,577)
Reorganization expenses........................................................ (1,576)
Other expense, net............................................................. (3,379)
Interest expense............................................................... (42,160)
--------
Loss before income taxes and extraordinary item................................ (124,692)
Income taxes................................................................... 1,825
--------
Loss before extraordinary item................................................. (126,517)
Extraordinary item -- write-off of deferred financing fees..................... (2,336)
--------
Net loss....................................................................... $ (128,853)
========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
H-22
<PAGE> 101
ANCHOR RESOLUTION CORP.
(DEBTOR IN POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Loss before extraordinary item................................................. $ (126,517)
Adjustments to reconcile loss before extraordinary item to net cash used in
operating activities:
Deferred taxes............................................................ 1,825
Restructuring charges..................................................... 49,973
Depreciation and amortization............................................. 75,239
Other..................................................................... 882
Decrease in cash resulting from changes in assets and liabilities......... (60,148)
-------
(58,746)
Cash flows from investing activities:
Expenditures for property, plant and equipment............................... (36,144)
Investment in joint venture.................................................. (22,210)
Proceeds from sales of property, plant and equipment......................... 11,776
Other........................................................................ (10,438)
-------
(57,016)
Cash flows from financing activities:
Capital contributions from Vitro, S.A........................................ 92,484
Net draws (repayments) on DIP/Credit Facility................................ 30,313
Principal payments on long-term debt......................................... (92,126)
Proceeds from issuance of long-term debt..................................... 80,000
Other........................................................................ (8,881)
-------
101,790
Cash and equivalents:
Increase (decrease) in net cash position..................................... (13,972)
Balance, beginning of year................................................... 18,315
-------
Balance, end of period....................................................... $ 4,343
-------
Supplemental disclosure of cash flow information:
Interest payments, net....................................................... $ 44,860
-------
Income tax payments (refunds), net........................................... $ (170)
=======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
H-23
<PAGE> 102
ANCHOR RESOLUTION CORP.
(DEBTOR IN POSSESSION)
(FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN THOUSANDS)
NOTE 1 -- MANAGEMENT'S RESPONSIBILITY
The accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. Under the reorganization and anticipated sale of assets discussed in
Notes 2 and 3 below, the Company will sell or otherwise realize assets, and
liquidate or settle liabilities, for amounts substantially less than those
reflected in the condensed consolidated financial statements. Due to the
pervasive nature of the uncertainties regarding the ultimate outcome of the
reorganization, which may include the sale of substantially all of the Company's
assets as discussed in Notes 2 and 3, the Company cannot reasonably estimate the
related impairment to the reported assets and the amount of liabilities as of
November 21, 1996. Therefore, the amounts reported in the condensed consolidated
financial statements do not give effect to the adjustments to the carrying value
of assets or amounts and classifications of liabilities that will be necessary
pursuant to a plan of reorganization and sale of substantially all of the
Company's assets.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The results of operations for the interim
periods are not necessarily indicative of the results of the full fiscal year.
NOTE 2 -- BANKRUPTCY PROCEEDINGS
The Company incurred a loss of $128,853 for the nine months ending
September 30, 1996 and has an accumulated deficit of $296,226 at September 30,
1996. As a result of the continued decline in the Company's results of
operations from the effect of the highly competitive glass container market and
the Company's high debt level, on September 13, 1996 (the "Petition Date"), the
Company filed a voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11") in the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court"). On September 30,
1996, Anchor Recycling Corporation, a wholly-owned subsidiary of the Company,
also filed a voluntary petition to reorganize under Chapter 11 in the same
court. The Chapter 11 proceedings are being jointly administered, with the
Company managing the business in the ordinary course as a debtor-in-possession
under the supervision of the Bankruptcy Court. The Company concluded that the
Chapter 11 filing was necessary in order to preserve the value of its assets and
to ensure that the business has sufficient cash resources to continue operations
while it completed the sale of the business discussed in Note 3.
Under Chapter 11 proceedings, litigation and actions by creditors to
collect certain claims existing at the Petition Date are stayed, without
specific Bankruptcy Court authorization to pay such claims. The Company has
received authorization, pursuant to first day orders, to pay certain claims
related to wages, salaries, vacation, sick pay and other claims. As a
debtor-in-possession, the Company has the right, subject to Bankruptcy Court
approval, and certain other limitations, to assume or reject certain executory
contracts, including unexpired leases. Any claim for damages resulting from the
rejection of an executory contract or an unexpired lease is treated as a general
unsecured claim in the Chapter 11 proceedings.
On September 26, 1996 the United States Trustee appointed a single
unsecured creditors' committee (the "Creditors Committee"). The Creditors
Committee has the right to review and object to certain business transactions
and is expected to participate in the negotiation of the Company's plan of
reorganization. The Creditors' Committee has retained the firm of Wachtell,
Lipton, Rosen & Katz as its counsel and Smith Barney Inc. as financial advisors.
The Company has obtained debtor-in-possession ("DIP") financing from
Foothill Capital Corporation, as agent and Congress Financial Corporation, as
co-agent, (the "Lender Group") which provides for a
H-24
<PAGE> 103
$130,000 DIP Credit Facility (the "DIP Facility"), which was approved by the
Bankruptcy Court on November 15, 1996. The DIP Facility, which expires September
30, 1997, provides up to $130,000 under a borrowing base formula, less
prepetition advances under the Company's then existing New Senior Credit
Facility (the "Prepetition Credit Facility") with the Lender Group, on terms
substantially the same as the Prepetition Credit Facility.
The DIP Facility and prepetition secured claims are collateralized by
substantially all of the assets of the Company including accounts receivable,
inventories and property, plant and equipment. The Company has continued to
accrue interest on its prepetition secured debt obligations. Because of the
Chapter 11 filing, there has been no accrual of interest on Prepetition
unsecured debt subsequent to the Petition Date.
Without the timely completion of the sale of the Company's assets discussed
in Note 3, the factors described above raise substantial doubt about the ability
of the Company to continue as a going concern and there can be no assurance that
the Company can continue to generate sufficient cash flow to maintain
operations. These financial statements do not include any adjustments that might
be necessary should the Company be unable to continue as a going concern.
NOTE 3 -- ASSET PURCHASE AGREEMENT
On October 4, 1996, the Company entered into an asset purchase agreement
(the "Agreement") with Ball-Foster Glass Container Co. L.L.C., ("Ball-Foster") a
limited liability company organized under the laws of the State of Delaware.
Pursuant to the Agreement, Ball-Foster will acquire substantially all of the
assets of the Company for $365 million in cash at closing, subject to
adjustment, which may be substantial, as set forth in the Agreement. In
addition, Ball-Foster will assume specified liabilities of the Company. Payment
of the purchase price is guaranteed by Saint-Gobain Corporation, parent company
of Ball-Foster. Closing under the Agreement is subject to several conditions,
including compliance with the Hart-Scott-Rodino Antitrust Improvements Act,
approval by the United States Bankruptcy Court for the State of Delaware as a
sale free and clear of liens, and a closing prior to December 31, 1996. On
November 13, 1996 filings under Hart-Scott-Rodino were made with the Federal
Trade Commission and the Department of Justice with requests for early
termination of the 30 day waiting period.
Also on October 4, 1996, the Company filed a motion with the Bankruptcy
Court seeking an order (i) authorizing the sale to Ball-Foster, subject to
higher and better bids, of substantially all of the Company's assets free and
clear of certain liens, claims and encumbrances and (ii) authorizing assumption
and assignment of certain unexpired leases and executory contracts (the "Sale
Motion"). The Court has entered several amended scheduling orders which
establish the following timetable for the sale process. The deadline for
submissions of higher and better bids is December 2, 1996 at 3:00 pm Eastern
Standard Time. If other bids are submitted, an auction will be held on December
4, 1996 at the office of Stroock & Stroock & Lavan, counsel to the Company. The
sale hearing itself is scheduled for December 9, 1996 at 3:00 pm. Other
adjourned dates have been set for certain objections to the sale and responses
to objections. A number of objections have been filed in connection with the
Sale Motion, some of which assert that the sale cannot proceed without the
consent of the objecting parties, notably Owens-Brockway Glass Container, Inc.,
a party to a technology license agreement with the Company and Coors Brewing
Company, a customer and joint venture partner with the Company in the Rocky
Mountain Bottle Company joint venture. Another party claiming to be a potential
bidder for the assets of the Company, Consumers Packaging Inc. ("Consumers"),
has filed an objection alleging that the Ball-Foster deal cannot be consummated.
To date, Consumers has not submitted a bid to the Company.
Based on the pervasive nature of the uncertainties that exist around the
ultimate resolution of the bankruptcy proceedings discussed in Note 2, which may
include the sale of the Company's assets, management cannot determine the extent
to which the Company's assets have been impaired. Accordingly, no provision for
loss has been reflected in the accompanying condensed consolidated financial
statements for asset impairment.
The Company is actively engaged, together with its Creditors Committee,
Ball-Foster and other interested parties, in reviewing the objections filed and
negotiating with the significant objectors in an effort to
H-25
<PAGE> 104
consensually resolve all objections. The Company believes all interested parties
are working to resolve objections and meet the deadline of a year-end closing as
set forth in the Agreement. However, there can be no assurance that such
objections will be resolved or that certain conditions to closing will be
satisfied or waived.
NOTE 4 -- INCOME TAXES
As a result of continuing losses, management has determined it was no
longer more likely than not that the value of the remaining deferred tax asset
would be realized. As a result, the Company recorded an additional valuation
allowance of $1,825, which is reflected as a provision for income taxes in the
consolidated statement of operations for the quarter ended September 30, 1996.
NOTE 5 -- RESTRUCTURING AND OTHER CHARGES
A summary of activity related to the Company's 1996 and 1995 restructuring
plans follows:
<TABLE>
<CAPTION>
AMOUNT CHARGED
AGAINST LIABILITY
RESTRUCTURING AS OF
LIABILITY SEPTEMBER 30, 1996
------------- ------------------
<S> <C> <C>
1996 RESTRUCTURING PLAN
Plant shutdown costs, including severance costs and
pension curtailment losses............................ $25,100 $ 13,100
Writedown of certain manufacturing assets to net
realizable value...................................... 24,900 --
1995 RESTRUCTURING PLAN
Plant shutdown costs, including severance costs and
pension curtailment losses............................ 39,200 33,500
Writedown of certain manufacturing assets to net
realizable value...................................... 36,600 12,000
Writedown of previously shutdown manufacturing
facilities to net realizable value.................... 14,000 500
</TABLE>
NOTE 6 -- PREPETITION LIABILITIES
Prepetition liabilities subject to compromise at September 30, 1996 include
the following:
<TABLE>
<S> <C>
$100,000 10.25% Senior Notes...................................... $100,000
$200,000 9.875% Senior Subordinated Debentures.................... 200,000
Insurance related liabilities..................................... 93,189
Pension related liabilities....................................... 82,487
Trade payables.................................................... 60,946
Other miscellaneous claims........................................ 21,242
Vacation and severance............................................ 9,628
Accrued interest.................................................. 6,909
--------
$574,401
--------
</TABLE>
Prepetition liabilities not subject to compromise at September 30, 1996
include the following:
<TABLE>
<S> <C>
Senior Secured Notes.............................................. $158,025
Accrued interest.................................................. 658
--------
$158,683
--------
</TABLE>
Because of the Chapter 11 proceedings, there has been no accrual of
interest on the $100,000 10.25% Senior Unsecured Notes or the $200,000 9.875%
Senior Subordinated Notes since September 12, 1996. If accrued, interest expense
would have increased $1,500 during the nine months ended September 30, 1996.
H-26
<PAGE> 105
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain historical financial information of
Old Anchor. The selected financial data for the five years ended December 31,
1996 has been derived from Old Anchor's consolidated financial statements. The
selected financial data for the nine months ended September 30, 1996 have been
derived from Old Anchor's unaudited condensed consolidated financial statements.
The following information should be read in conjunction with Old Anchor's
consolidated financial statements, unaudited condensed consolidated financial
statements and the related Old Anchor Management's Discussion and Analysis of
Financial Condition and Results of Operations for Old Anchor, included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996(1) 1996
---------- ---------- ---------- ---------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $1,161,925 1,126,037 $1,089,317 $ 956,639 $ 814,370 $ 640,049
Cost of products sold.............. 1,037,329 1,028,332 996,780 906,393 831,612 636,917
Selling and administrative
expenses......................... 45,785 51,137 52,371 48,998 39,570 30,736
Restructuring and other
charges(1)....................... -- -- 79,481 10,267 49,973 49,973
Impairment of long-lived
assets(2)........................ -- -- -- -- 490,232 --
Write-up of assets held for
sale(1).......................... -- -- -- -- (8,967) --
---------- ---------- ---------- ---------- --------- --------
Income (loss) from operations...... 78,811 46,568 (39,315) (9,019) (588,050) (77,577)
Other income (expense), net........ (523) 500 (2,385) 171 (10,020) (3,379)
Interest expense(3)................ (64,659) (62,535) (56,070) (56,871) (48,601) (42,160)
---------- ---------- ---------- ---------- --------- --------
Income (loss) before reorganization
items, income taxes,
extraordinary items and
cumulative effect of accounting
change........................... 13,629 (15,467) (97,770) (65,719) (646,671) (123,116)
Reorganization items............... -- -- -- -- (5,008) (1,576)
Income taxes(4).................... (1,300) (2,400) (250) (250) (1,825) (1,825)
Extraordinary items(5)............. (9,026) (18,152) -- -- (2,336) (2,336)
Cumulative effect of accounting
change(4)........................ -- 1,776 -- -- -- --
---------- ---------- ---------- ---------- --------- --------
Net income (loss).................. $ 3,303 $ (34,243) $ (98,020) $ (65,969) $(655,840) $ (128,853)
========== ========== ========== ========== ========= ========
OTHER FINANCIAL DATA:
EBITDA(6).......................... $ 181,495 $ 150,617 $ 138,257 $ 101,334 $ 34,824 $ 44,256
Depreciation and amortization...... 103,207 103,549 100,476 99,915 101,656 75,239
Capital expenditures............... 77,580 89,901 93,833 70,368 46,254 36,144
Ratio of earnings to fixed
charges(7)....................... 1.19x -- -- -- -- --
BALANCE SHEET DATA (AT END OF
PERIOD):
Accounts receivable................ $ 58,079 $ 58,128 $ 66,618 $ 40,965 $ 55,851 $ 85,130
Inventories........................ 196,827 173,204 176,769 180,574 144,419 166,527
Total assets....................... 1,321,733 1,347,201 1,264,488 1,208,348 643,468 1,195,601
Total debt(8)...................... 526,405 555,222 584,671 557,450 552,848 575,732
Total stockholder's equity
(deficiency in assets)........... 462,063 412,752 324,554 289,603 (269,307) 253,234
</TABLE>
- ---------------
(1) Restructuring and other charges reflects Old Anchor's implementation of a
series of restructuring plans in an effort to respond to the continued
decline in the industry sales volume combined with, in 1996, the loss of a
significant portion of the business of Old Anchor's largest customer. The
following represents
H-27
<PAGE> 106
information regarding the amounts charged against the restructuring
liability for Old Anchor's restructuring plans:
<TABLE>
<CAPTION>
AMOUNT CHARGED
AGAINST
LIABILITY
AS OF
RESTRUCTURING DECEMBER 31,
CHARGES 1996
------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1996 RESTRUCTURING PLAN
Plant shutdown costs, including severance costs and
pension curtailment losses.............................. $25,100 $ 20,100
Writedown of certain manufacturing assets to net
realizable value........................................ 24,900
1994/1995 RESTRUCTURING PLAN
Plant shutdown costs, including severance costs and
pension curtailment losses.............................. $39,200 $ 33,700
Writedown of certain manufacturing assets to net
realizable value........................................ 36,600
Writedown of previously shutdown manufacturing facilities
to net realizable value................................. 14,000
</TABLE>
During the year ended December 31, 1996, the Company recorded an adjustment
to the carrying value of certain idled facilities held for sale. These
assets were previously written down to an estimated net realizable value.
Upon a current evaluation of quotes and offers on these properties in 1996,
Old Anchor increased their net carrying value by approximately $9.0 million.
The balance of the restructuring liability is anticipated to be expended and
charged against the liability over the next three years.
(2) Impairment of long-lived assets reflects the adjustment for the write-off of
goodwill and other long-lived assets. As a result of the declining
profitability, diminishing cash flow and the bankruptcy proceedings, the
recoverable value of the carrying amount of long-lived assets and
intangibles was reviewed for impairment. Based upon this review, the amount
of remaining excess of the purchase price over the fair value of net assets
acquired at December 31, 1996, of $457.2 million and other long-lived assets
of $33.0 million were written off. The excess cost over fair value of net
assets acquired had been amortized on a straight line basis over a 40 year
period. Amortization expense, included as a component of cost of products
sold, was approximately $13.9 million for each of the years ended December
31, 1996, 1995 and 1994. See Old Anchor's Notes to the Consolidated
Financial Statements, included elsewhere in this Prospectus.
(3) Because of the Chapter 11 proceedings, there has been no accrual of interest
on the $100.0 million 10.25% Senior Notes or the $200.0 million 9.875%
Senior Subordinated Debentures since September 12, 1996. If accrued,
interest expense would have increased $9.2 million during the year ended
December 31, 1996.
(4) Income tax provision reflects any additional valuation allowances required
to be recorded under SFAS 109. The adoption of SFAS 109 effective January 1,
1993 resulted in an increase in the cumulative net deferred tax asset by
$1.8 million. Under SFAS 109, deferred income taxes reflect the net tax
effects of temporary differences between carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes, and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. If on the
basis of available evidence, it is more likely than not that all or a
portion of the deferred tax asset will not be realized, the asset must be
reduced by a valuation allowance.
(5) Extraordinary items in the three years ended December 31, 1992, 1993 and
1996, result from the write-off of financing costs related to debt
extinguished during the relevant periods, net of taxes.
(6) EBITDA (earnings before interest, taxes, depreciation and amortization)
("EBITDA") is an amount equal to income (loss) before income taxes,
extraordinary items and cumulative effect of accounting change plus the
amounts of restructuring charges, reorganization items, the impairment of
long-lived assets, interest, depreciation and amortization and less the
amount of the write-up of assets held for sale included in the determination
of income (loss) before income taxes, extraordinary items and cumulative
effect of accounting change. EBITDA is a measure of the Company's debt
service ability. It is not an alternative to net income as a measure of the
Company's results of operations (as interest, taxes,
H-28
<PAGE> 107
depreciation and amortization are included in the determination of net
income) or to cash flows as a measure of liquidity (as cash flows include
the cash effects of all operating, financing and investing activities).
(7) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes and extraordinary items plus fixed
charges. Fixed charges consist of interest and amortization of debt expense
plus a portion of operating lease expense representative of the interest
factor. There was a deficiency of earnings to fixed charges in 1993, 1994,
1995 and 1996 of $15.5 million, $97.8 million, $65.7 million and $651.7
million, respectively. For the nine months ended September 30, 1996, there
was a deficiency of earnings to fixed charges of $124.7 million.
(8) Total debt as of December 31, 1996 includes $462.3 million of pre-petition
liabilities and $90.5 million outstanding under Old Anchor's
debtor-in-possession credit facility.
H-29
<PAGE> 108
ANCHOR RESOLUTION CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
RESULTS OF OPERATIONS
Introduction
The following table sets forth certain information derived from the
Consolidated Financial Statements of Anchor Resolution Corp., formerly named
Anchor Glass Container Corporation and currently a debtor-in-possession under
Chapter 11 of the Bankruptcy Code ("Old Anchor"), for the three years ended
December 31, 1996. The following discussion should be read in conjunction with
the Consolidated Financial Statements of Old Anchor and notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1994 1995 1996
------------------ ---------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- ------ ------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................................... $1,089.3 100.0% $956.6 100.0% $ 814.4 100.0%
Cost of products sold........................ 996.8 91.5 906.4 94.8 831.6 102.1
Selling and administrative expenses.......... 52.4 4.8 49.0 5.1 39.6 4.9
Restructuring and other charges.............. 79.5 7.3 10.3 1.1 50.0 6.1
Impairment of long-lived assets.............. -- -- -- -- 490.2 60.2
Write-up of assets held for sale............. -- -- -- -- (9.0) (1.1)
Loss from operations......................... (39.4) (3.6) (9.1) (1.0) (588.0) (72.2)
Interest expense............................. 56.1 5.2 56.8 5.9 48.6 6.0
Loss before reorganization items, income
taxes and extraordinary item............... (97.8) (9.0) (65.7) (6.9) (651.7) (76.0)
Loss before extraordinary item............... (98.0) (9.0) (66.0) (6.9) (653.5) (80.0)
Net loss..................................... (98.0) (9.0) (66.0) (6.9) (655.8) (80.5)
</TABLE>
The net loss for the year ended December 31, 1996 was $655.8 million
compared to a net loss of $66.0 million for 1995. Included in the loss for 1996
is the impairment of long-lived assets of $490.2 million. Included in the 1996
and 1995 results were first quarter charges of $50.0 million and $10.3 million,
respectively, for Old Anchor's 1996 and 1995 restructuring programs. Excluding
the effect of these items, net loss would have been $115.6 million compared to
$55.7 million for 1995.
The decline in Old Anchor's operations is a direct result of Old Anchor's
high debt levels and industry-wide volume declines that have led to severe
competitive pricing pressures, negatively impacting operating results. Net sales
for 1996 decreased 14.9% compared to 1995, on a volume decline of approximately
14%, primarily in the beer, iced tea and soft drink markets. As an example, Old
Anchor's 1996 volume allocation from its largest customer in 1995,
Anheuser-Busch, has been significantly reduced. The softness in overall industry
volume shipments has led to severe competitive pricing pressures, negatively
impacting operating margins. In accordance with its restructuring plans, Old
Anchor closed its Cliffwood, New Jersey plant in January 1996, and closed its
Waukegan, Illinois, Los Angeles, California and Keyser, West Virginia plants in
1995.
NET SALES
Net sales for 1996 were $814.4 million, a decrease of 14.9% compared to
$956.6 million for 1995. The decrease in net sales principally reflects the
softening in 1996 of the year-to-year demand for glass containers which has
resulted in increased competition for market share and lower pricing trends. In
addition, as described above, Anheuser-Busch has significantly reduced its
purchases from Old Anchor.
H-30
<PAGE> 109
Net sales for 1995 were $956.6 million, a decrease of 12.2% compared to
$1,089.3 million for 1994. The decrease in net sales principally reflects the
softening in 1995 of the year-to-year demand for glass containers in the iced
tea and beer segments and year-to-year reduction of unit shipments in the soft
drink segment, as discussed above. The softness in demand has resulted in
increased competition for market share and lower pricing trends.
COST OF PRODUCTS SOLD
Cost of products sold as a percentage of net sales was 102.1% for 1996
compared to 94.8% for 1995. This increase principally reflects the impact of
reduced shipping volumes and lower pricing trends, as described above. Partially
offsetting this increase is the impact of Old Anchor's strategic initiatives and
cost savings derived from Old Anchor's restructuring plans and re-engineering
program.
Cost of products sold as a percentage of net sales was 94.8% for 1995
compared to 91.5% for 1994. This increase principally reflects the impact of
reduced shipping volumes and lower pricing trends. Additionally, Old Anchor's
gross profit margin was negatively impacted by cost increased in certain raw
materials, specifically packaging materials.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses declined $9.4 million, or 19.2%, in
1996 compared to 1995. This decrease principally reflects lower personnel and
fringe benefit costs as a result of headcount reductions associated with Old
Anchor's re-engineering and cost reduction programs.
Selling and administrative expenses declined $3.4 million, or 6.4%, in 1995
compared to 1994, because of lower personnel and fringe benefit costs as a
result of headcount reductions in that year.
RESTRUCTURING AND OTHER CHARGES
During 1994, formal plans were approved to significantly reduce Old
Anchor's cost structure and to improve productivity. This restructuring program
related primarily to consolidation of underutilized manufacturing operations and
provided for the closure of three of Old Anchor's 17 manufacturing plants. In
the 1994 fourth quarter, Old Anchor recorded a restructuring charge of $79.5
million and in the 1995 first quarter, an additional $10.3 million charge was
recorded to reflect the benefit arrangements for employees affected by this
plan. In January 1996, formal plans were approved to further restructure certain
of Old Anchor's operations to respond to the continued decline in the industry
sales volume combined with the loss of a significant portion of the business of
Old Anchor's largest 1995 customer. A restructuring charge of approximately
$50.0 million has been recorded in the 1996 Consolidated Statement of Operations
for the closure of the Cliffwood, New Jersey plant and other restructuring
obligations.
IMPAIRMENT OF LONG-LIVED ASSETS
As a result of declining profitability, diminishing cash flows and the
bankruptcy proceedings, the entire $457.2 million of goodwill and $33.0 million
of other long-lived assets were written off.
WRITE-UP OF ASSETS HELD FOR SALE
In December 1996, Old Anchor wrote up the value of certain assets held for
sale by $9.0 million.
INTEREST EXPENSE
Interest expense was $48.6 million for 1996 compared to $56.8 million for
1995. Because of the Bankruptcy Proceedings, there has been no accrual of
interest on the $100.0 million 10.25% Senior Notes or the $200.0 million 9.857%
Senior Subordinated Debentures since September 12, 1996. If accrued, interest
expense would have increased by $9.1 million in 1996.
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Interest expense was $56.8 million for the year ended December 31, 1995
compared to $56.1 million for the corresponding period of 1994. The increase
reflected higher prevailing interest rates, and higher average working capital
borrowings outstanding during 1995, as compared to 1994.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the continued decline in Old Anchor's results of operations
from the effect of the highly competitive glass container market, and Old
Anchor's high debt level, on September 13, 1996 (the "Petition Date"), Old
Anchor filed a voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11") in the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court"). On September 30,
1996, Anchor Recycling Corporation, a wholly-owned subsidiary of Old Anchor,
also filed a voluntary petition to reorganize under Chapter 11 in the same
court. The Chapter 11 proceedings are being jointly administered, with Old
Anchor managing the business in the ordinary course as a debtor-in-possession
under the supervision of the Bankruptcy Court. Old Anchor concluded that the
Chapter 11 filing was necessary in order to preserve the value of its assets and
to ensure that the business had sufficient cash resources to continue operations
while it completed the sale of the business discussed in Note 2 to the Notes to
the Consolidated Financial Statements, appearing elsewhere herein.
Old Anchor obtained debtor-in-possession ("DIP") financing from Foothill
Capital Corporation, as agent and Congress Financial Corporation, as co-agent
(the "Lender Group") to provide for a $130.0 million DIP Credit Facility (the
"DIP Facility"), which was approved by the Bankruptcy Court on November 15,
1996. The DIP Facility, which would expire September 30, 1997, provided up to
$130.0 million under a borrowing base formula, less prepetition advances under
Old Anchor's then existing Prepetition Credit Facility with the Lender Group, on
terms substantially the same as the Prepetition Credit Facility.
Advances outstanding at any one time were not to exceed an amount equal to
the Borrowing Base, consisting of accounts receivable and finished product
inventory, as defined in the Prepetition Credit Facility, and amended by the DIP
Facility. At December 31, 1996, Old Anchor's available borrowing base, as
defined under the DIP Facility was approximately $113.7 million against which
$90.5 was outstanding. Interest, at prime plus 1.125%, as defined, was payable
monthly. A commitment fee of 0.5% of the unused portion of the DIP Facility was
payable monthly.
On February 5, 1997, Anchor Glass Acquisition Corporation ("New Anchor"), a
wholly-owned subsidiary of Consumers Packaging Inc. ("CPI"), and Owens-Brockway
Glass Container Inc. ("OI") acquired substantially all of the assets and
business of Old Anchor in accordance with the terms of the Asset Purchase
Agreement, dated December 18, 1996 (the "Agreement") as discussed in Note 2 to
the Notes to Consolidated Financial Statements. The total purchase price
approximated $387.9 million, excluding fees of approximately $9.9 million. The
purchase price received from OI amounted to approximately $128.4 million and was
received in cash. The remaining purchase price of approximately $250.0 million
from New Anchor was comprised of approximately $200.5 million in cash, $47.0
million face amount (1,879,320 shares) of mandatorily redeemable 10% cumulative
convertible preferred stock and $2.5 million of common stock (490,898 shares
with an estimated value of $5.00 per share) of New Anchor. The purchase price is
subject to adjustment as defined in the Agreement.
Proceeds from the sale were used to repay the outstanding balance of the
DIP Facility and accrued interest thereon, at February 5, 1997, of approximately
$109.0 million. The remainder of the proceeds will be used to satisfy
prepetition liabilities, as to be determined under Old Anchor's Plan of
Reorganization. Old Anchor's principal sources of liquidity through February 5,
1997 were funds derived from operations and borrowings under the DIP Facility.
In 1996, operating activities consumed $28.4 million in cash compared to
$0.4 million and $27.9 million of cash provided in 1995 and 1994, respectively.
These increases in cash consumed reflect the increase in losses and the changes
in working capital items during the periods compared.
Capital expenditures in 1996 were $46.3 million compared to $70.4 million
and $93.8 million in 1995 and 1994, respectively. In addition, in 1996, Old
Anchor invested approximately $18.6 million in the joint venture
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with Coors Brewing Company ("Coors"). Old Anchor invested $20.0 million in the
joint venture in 1995. Also in 1995, Old Anchor entered into sale and leaseback
transactions, with respect to certain of its glass manufacturing equipment, with
an aggregate net selling price of approximately $48.3 million.
Cash flows from financing activities for the years ended December 31, 1996,
1995 and 1994 were $78.9 million, $52.2 million and $28.5 million, respectively.
The 1996 cash flows from financing activities principally reflects a $92.5
million capital contribution received from Vitro, Sociedad Anonima and
borrowings under the Prepetition Credit Facility, modified by the DIP Facility.
In February 1997, Old Anchor received an additional capital contribution of $8.4
million in satisfaction of obligations outstanding under the $20.0 million
letter of credit facility, which was terminated at that time.
As a result of the Bankruptcy Proceedings, Old Anchor is in default of
various covenants relating to Old Anchor's outstanding prepetition debt.
However, under Chapter 11 proceedings, litigation or actions by creditors
related to these defaults are stayed. In addition, the DIP Facility required
that Old Anchor's collateral value and availability, as defined, could not be
less than a specified amount as measured on a rolling four-week period
throughout the term of the DIP Facility. Prior to the repayment of the DIP
Facility, Old Anchor was in full compliance with these covenants.
IMPACT OF INFLATION
The impact of inflation on the costs of Old Anchor, and the ability to pass
on cost increases in the form of increased sales prices, is dependent upon
market conditions. While the general level of inflation in the domestic economy
has been at relatively low levels since Old Anchor's formation in 1983, Old
Anchor has generally been unable, since the end of 1991, to fully pass on
inflationary cost increases as a result of competitive pricing pressures. This
has negatively impacted Old Anchor's operating results.
SEASONALITY
Due principally to the seasonal nature of the brewing, iced tea and soft
drink industries, in which demand is stronger during the summer months, Old
Anchor's shipment volume is typically highest in the second and third quarters.
Consequently, Old Anchor historically builds inventory during the first quarter
in anticipation of seasonal demands during the second and third quarters.
However, industry patterns existing over the last 18 months have somewhat
altered the normal seasonal trends. In addition, Old Anchor generally schedules
shutdowns of its plants for furnace rebuilds and machine repairs in the first
and fourth quarters of the year to coincide with scheduled holiday and vacation
time under its labor union contracts. These shutdowns and seasonal sales
patterns adversely affect profitability during the first and fourth quarters.
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
ANCHOR GLASS CONTAINER CORPORATION
By: /s/ M. WILLIAM LIGHTNER, JR.
------------------------------------
M. William Lightner, Jr.
Senior Vice President -- Finance,
Chief Financial
Officer and Treasurer
November 12, 1997
