<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 4, 1998
COMMISSION FILE NUMBER 0-21314
U.S. CAN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
06-1094196
(I.R.S. EMPLOYER IDENTIFICATION NO.)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
900 COMMERCE DRIVE
OAK BROOK, ILLINOIS 60523
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(630) 571-2500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
As of October 31,1998, 13,156,718 shares of U.S. Can Corporation's common stock
were outstanding.
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U.S. CAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED OCTOBER 4, 1998
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
U.S. Can Corporation and Subsidiaries Condensed Consolidated
Balance Sheets as of December 31, 1997 and October 4, 1998 4
U.S. Can Corporation and Subsidiaries Condensed Consolidated
Statements of Operations and Comprehensive Income for the
Quarterly and Nine-Month Periods Ended October 5, 1997 and
October 4, 1998 5
U.S. Can Corporation and Subsidiaries Condensed Consolidated
Statements of Cash Flows for the Quarterly Periods Ended
October 5, 1997 and October 4, 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
PART II OTHER INFORMATION
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
</TABLE>
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FORWARD-LOOKING STATEMENTS
Certain statements in this report constitute "forward looking
statements" within the meaning of the Federal Securities laws. Such statements
involve known and unknown risks and uncertainties which may cause the Company's
actual results, performance or achievements to be materially different than any
future results, performance or achievements expressed or implied in this report.
By way of example and not limitation, known risks and uncertainties include the
timing of, and net proceeds realized from, divestitures, the timing and cost of
plant closures, the level of cost reduction achieved through restructuring, the
success of new technology, changes in market conditions or product demand, loss
of important customers, competition and currency fluctuations. In light of these
and other risks and uncertainties, the inclusion of a forward-looking statement
in this report should not be regarded as a representation by the Company that
any future results, performance or achievements will be attained.
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U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000's OMITTED, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
December 31, October 4,
1997 1998
----------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,773 $ 9,285
Accounts receivable, less allowances of $15,134 and $17,066 in 1997 and
1998, respectively 74,137 90,351
Inventories 109,458 109,792
Prepaid expenses and other current assets 17,503 23,552
Prepaid income taxes 22,748 22,398
--------- ---------
Total current assets 230,619 255,378
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 5,485 6,445
Buildings 73,277 74,428
Machinery, equipment and construction in process 427,404 422,877
--------- ---------
506,166 503,750
Less -- Accumulated depreciation and amortization (181,869) (203,234)
--------- ---------
Total property, plant and equipment 324,297 300,516
--------- ---------
MACHINERY REPAIR PARTS 6,396 5,863
INTANGIBLE ASSETS 59,578 61,170
OTHER ASSETS 12,814 17,765
--------- ---------
Total assets $ 633,704 $ 640,692
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 9,635 $ 7,438
Cash overdrafts 7,800 8,203
Accounts payable 50,686 49,704
Accrued payrolls and benefits 24,358 27,180
Accrued insurance 6,607 9,145
Restructuring reserves 31,645 54,525
Other current liabilities 19,117 31,671
--------- ---------
Total current liabilities 149,848 187,866
--------- ---------
SENIOR DEBT 91,506 60,286
SUBORDINATED DEBT 275,000 275,000
--------- ---------
Total long-term debt 366,506 335,286
--------- ---------
OTHER LONG-TERM LIABILITIES:
Postretirement benefits 27,387 28,592
Deferred income taxes 17,973 17,603
Other long-term liabilities 9,677 24,725
--------- ---------
Total other long-term liabilities 55,037 70,920
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000 shares authorized,
none issued or outstanding -- --
Common stock, $.01 par value; 50,000,000 shares authorized
13,097,855 and 13,234,675 shares issued in 1997 and 1998, respectively 131 132
Paid-in capital 108,003 108,964
Unearned restricted stock (2,558) (1,348)
Treasury common stock, at cost; 44,159 and 100,242 shares in 1997
and 1998, respectively (714) (1,584)
Currency translation adjustment (2,193) (192)
Retained deficit (40,356) (59,352)
--------- ---------
Total stockholders' equity 62,313 46,620
--------- ---------
Total liabilities and stockholders' equity $ 633,704 $ 640,692
========= =========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these balance sheets.
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U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(000's OMITTED, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Quarterly Period Ended Nine Months Period Ended
---------------------- ------------------------
October 5, 1997 October 4, 1998 October 5, 1997 October 4, 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $ 195,021 $ 177,920 $ 595,284 $ 553,756
COST OF SALES 172,121 154,365 524,677 483,567
--------- --------- --------- ---------
Gross income 22,900 23,555 70,607 70,189
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 8,134 7,785 25,245 24,274
SPECIAL CHARGES 52,159 35,869 52,159 35,869
--------- --------- --------- ---------
Operating income (loss) (37,393) (20,099) (6,797) 10,046
INTEREST EXPENSE ON BORROWINGS 9,274 8,251 27,716 25,391
AMORTIZATION OF DEFERRED FINANCING COSTS 475 346 1,369 1,110
OTHER EXPENSE 536 450 1,588 1,317
--------- --------- --------- ---------
Income (loss) before income taxes (47,678) (29,146) (37,470) (17,772)
PROVISION (BENEFIT) FOR INCOME TAXES (17,380) (11,788) (13,392) (7,301)
--------- --------- --------- ---------
Income (loss) from continuing operations (30,298) (17,358) (24,078) (10,471)
NET INCOME FROM DISCONTINUED OPERATIONS 491 0 1,380 0
NET LOSS ON SALE OF DISCONTINUED BUSINESS 0 (8,528) 0 (8,528)
--------- --------- --------- ---------
NET INCOME (LOSS) (29,807) (25,886) (22,698) (18,999)
OTHER COMPONENTS OF COMPREHENSIVE INCOME (LOSS) (2,695) 2,350 (6,857) 2,001
--------- --------- --------- ---------
Comprehensive income (loss) ($ 32,502) ($ 23,536) ($ 29,555) ($ 16,998)
========= ========= ========= =========
PER SHARE DATA:
Basic:
Income (loss) from continuing operations $ (2.31) $ (1.30) $ (1.85) $ (0.79)
Discontinued operations 0.03 (0.64) 0.11 (0.64)
--------- --------- --------- ---------
Net Income (loss) $ (2.28) $ (1.94) $ (1.74) $ (1.43)
========= ========= ========= =========
Weighted average shares outstanding(000's) 13,092 13,325 13,039 13,245
========= ========= ========= =========
Diluted:
Income (loss) from continuing operations $ (2.31) $ (1.30) $ (1.85) $ (0.79)
Discontinued operations 0.03 (0.64) 0.11 (0.64)
--------- --------- --------- ---------
Net Income (loss) $ (2.28) $ (1.94) $ (1.74) $ (1.43)
========= ========= ========= =========
Weighted average shares and equivalent
shares outstanding(000's) 13,092 13,325 13,039 13,245
========= ========= ========= =========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
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U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(000's OMITTED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------
OCTOBER 5, OCTOBER 4,
1997 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(22,698) $(18,999)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities--
Restructure Provision 52,159 35,869
Depreciation and amortization 33,524 29,354
Deferred income taxes (18,162) (236)
Change in operating assets and liabilities,
net of effect of acquired businesses--
Accounts receivable (10,739) (16,214)
Inventories 5,941 (334)
Accounts payable (949) (983)
Accrued payrolls and benefits, insurance and other 9,989 16,841
Postretirement benefits 617 1,204
Other, net (6,282) 3,559
-------- --------
Net cash provided by operating activities 43,400 50,061
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (40,078) (12,336)
Acquisition of businesses, net of cash acquired (12,581) --
Change in restricted cash 2,016 29
Proceeds from sale of assets -- 215
Machinery repair parts usage, net 122 532
-------- --------
Net cash used in investing activities (50,521) (11,560)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and exercise of stock options 131 782
Net borrowings (payments) under the revolving
line of credit and changes in cash overdrafts 7,786 (24,411)
Borrowings of other long-term debt, including
capital lease obligations 26,166 --
Payments of other long-term debt, including
capital lease obligations (19,347) (8,621)
Payments of debt refinancing costs (992) (134)
Purchase of treasury stock, net (715) (1,585)
-------- --------
Net cash provided by (used in) financing activities 13,029 (33,969)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (6,682) (2,020)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (774) 2,512
CASH AND CASH EQUIVALENTS, beginning of period 7,966 6,773
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 7,192 $ 9,285
======== ========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
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U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 4, 1998
(UNAUDITED)
(1) PRINCIPLES OF REPORTING
The condensed consolidated financial statements include the accounts of
U.S. Can Corporation (the "Corporation"), its wholly owned subsidiary, United
States Can Company ("U.S. Can") and U.S. Can's subsidiaries, most of which are
European companies formed or acquired during 1996 (the "European Subsidiaries").
All significant intercompany balances and transactions have been eliminated. The
consolidated group including the Corporation is hereinafter referred to in
consolidation as the Company. These financial statements have been prepared in
accordance with generally accepted accounting principles for interim reporting.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
These financial statements, which, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation, have not been audited by independent public accountants.
Operating results for any interim period are not necessarily indicative of
results that may be expected for the full year.
Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission; however, management believes that the
disclosures contained herein are adequate to make the information presented not
misleading. It is suggested that these financial statements be read in
conjunction with the previously filed financial statements and footnotes
included in the Corporation's Amendment No. 1 to Annual Report on Form 10-K/A-1
for the year ended December 31, 1997.
Generally, quarterly accounting periods are based upon two four-week
periods and one five-week period.
(2) SPECIAL CHARGES AND DISCONTINUED OPERATIONS
1997 RESTRUCTURING CHARGES
In the third quarter of 1997, the Company established a pre-tax
restructuring provision of $35 million primarily for plant closings and overhead
cost reductions associated with the loss of a major aerosol customer (the
customer representing approximately $35 million of annual sales) who awarded its
global aerosol business to a U. S. Can competitor. In addition, the Company
established a pre-tax disposition provision of $17.2 million for the anticipated
loss on the closure of its steel pail operation in North Brunswick, New Jersey.
Such closure would have resulted in certain severance and related payments, the
write off of certain long-lived assets and ongoing building costs. However, in
the fourth quarter of 1997, the Company successfully negotiated and completed
the sale of this facility at a net pre-tax loss of $13.3 million and
appropriately adjusted the provision in the fourth quarter of 1997.
In the fourth quarter of 1997, the Company, at the direction of its
Board of Directors, employed the assistance of external business consultants to
review operations and explore other avenues for enhancing shareholder value. As
a result of this review, the Company established another pre-tax restructuring
provision of $14.7 million primarily to include further personnel reductions and
the reduction of asset value associated with equipment used in the businesses
the Company has exited or is in the process of exiting.
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The key elements of the third quarter restructuring include closure of
the Racine, Wisconsin aerosol assembly plant, the Midwest Litho center in Alsip,
Illinois, the Sparrows Point litho center in Baltimore, Maryland, and the
California Specialty plant in Vernalis, California; a write down to estimated
proceeds for the sale of the Orlando, Florida machine engineering center
("OMEC") and the Baltimore, Maryland specialty and paint can distribution
business; and organizational changes designed to reduce general overhead. The
Racine plant ceased production on April 24, 1998. The Sparrows Point plant
ceased production in mid-February 1998. The transfer of the custom and specialty
business from the California Specialty plant to other existing operations was
completed in July 1998. In addition, U.S. Can has reached an
agreement-in-principle to sell OMEC. The Company expects this sale will net
approximately $4.5 million in cash proceeds and the sale will be completed in
1998. Based on the expected proceeds from the agreement, the Company recorded an
additional $1.6 million charge in the third quarter of 1998.
The third and fourth quarter restructuring provisions included $28.7
million for the non-cash write off of assets related to the facilities to be
closed or sold, $12.8 million for severance and related termination benefits for
approximately 95 salaried and 260 hourly employees (the majority of which have
been terminated as of October 4, 1998), and $5.9 million for other related
closure costs such as building restoration, equipment disassembly and future
lease payments. In addition to these charges, the Company provided $2.2 million
related to the carrying costs (principally contractual lease payments) related
to the closed Saddle Brook, New Jersey facility. The write off of the assets
included in the charge primarily relates to fixed assets ($22.9 million) which
cannot be transferred or used in the Company's other operations and unamortized
goodwill related to the closed operations. As of October 4, 1998, approximately
$11.0 million of cash costs remain of which the majority is expected to be spent
later in 1998.
In November 1997, as part of the business and operational realignments,
the Company sold its steel pail business which was conducted entirely from its
North Brunswick, New Jersey facility, for $1.4 million in cash and notes, plus
the assumption of certain liabilities and future payments. 1997 revenues of the
steel pail business up to the point of sale were $19.2 million. The Company's
historical financial statements have been restated to reflect the operating
results of the steel pail business as results from continuing operations.
Previous reporting of the steel pail business as a discontinued operation has
been amended in this report.
1997 DISCONTINUED OPERATIONS
On November 9, 1998, the Company sold its commercial Metal Services
business (for approximately $31 million of net cash proceeds including working
capital) which it began reflecting as a discontinued operation late in 1997.
Based on the proceeds received, the Company recorded an incremental $8.5 million
after-tax charge in the third quarter of 1998 for the loss on the sale of this
business. Previously, in the fourth quarter of 1997, the Company had provided
for a $4.6 million ($2.7 million after income taxes) loss on the sale of this
business. Metal Services included one plant in each of Chicago, Illinois;
Trenton, New Jersey; and Brookfield, Ohio, and the closed Midwest Litho plant.
1997 revenues to third parties from these operations were $109 million.
Comparable revenue generated from these facilities for the nine-month period of
1998 was $84 million. The Company's historical financial statements have been
restated to reflect this business as a discontinued operation. As of October 4,
1998, the net assets of Metal Services, excluding the discontinued operations
reserve, included net current assets of approximately $21.9 million and net
other assets of approximately $24.0 million.
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1998 RESTRUCTURING CHARGE
In the third quarter of 1998, the Company established a pre-tax
restructuring provision of $36 million for additional plant closings,
implementation of a national lithography strategy and the incremental provision
for the anticipated loss on the sale of OMEC mentioned previously.
The key elements of the 1998 restructuring provision recorded in the
third quarter include the closure of the Green Bay, Wisconsin aerosol assembly
plant, the Alsip, Illinois general line plant, and the Columbiana, Ohio
specialty plant; an additional write down to estimated proceeds for the sale of
OMEC; a write down to the estimated proceeds for the sale of the metal closure
business located in Glen Dale, West Virginia; and partial closures and
realignment of facilities servicing the lithography needs of the Company's core
business.
The restructuring provision includes $6.0 million for severance and
related termination benefits for approximately 45 salaried and 250 production
employees, $18.2 million for the non-cash write off of assets related to the
facilities being closed or consolidated, $9.1 million for the estimated net loss
(book value in excess of proceeds) on the sale of the closure business and OMEC,
and $2.7 million for other related closure costs such as building restoration
and future lease payments.
Working capital improvements are expected to partially offset new
capital costs associated with the 1998 restructuring program and the acquisition
of new lithography technology. The primary elements of the restructuring plan
are expected to be completed in 1999 and 2000. The restructuring program and
investment in new technology are expected to generate annual after-tax savings
of approximately $10 million at maturity.
(3) ACQUISITIONS
In March 1998, a European Subsidiary acquired a 36.5% equity interest
in Formametal S.A., an aerosol can manufacturer located in Argentina, for $4.6
million, payable over a 15-month period. In connection with this investment,
Formametal has agreed to purchase approximately $2.6 million to $3.0 million of
manufacturing equipment from the Company, and the Company has agreed to provide
certain technical and engineering assistance to Formametal. The Company has also
provided a guaranty in an amount not to exceed $2.0 million, to secure the
repayment of certain indebtedness of Formametal. This investment is being
accounted for on the equity method. Third quarter and year-to-date 1998 results
include a net after-tax loss of $0.1 million as a result of the Company's
investment in Formametal.
(4) INVENTORIES
All domestic inventories, except machine shop inventory, are stated at
cost determined by the last-in, first-out ("LIFO") cost method, not in excess of
market. Inventories of approximately $16.4 million at December 31, 1997, and
$20.5 million at October 4, 1998, at the European Subsidiaries, and machine shop
inventory, are stated at cost determined by the first-in, first-out ("FIFO")
cost method, not in excess of market. Inventory costs include material, labor
and factory overhead. FIFO cost of LIFO inventories approximated their LIFO
value at December 31, 1997 and at October 4, 1998.
Inventories reported in the accompanying balance sheets were classified
as follows (000's omitted):
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<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 4,
1997 1998
------------ ------------
<S> <C> <C>
Raw materials $ 33,746 $ 30,442
Work in process 42,763 47,022
Finished goods 28,037 27,572
Machine shop inventory 4,912 4,756
------------ ------------
$ 109,458 $ 109,792
============ ============
</TABLE>
(5) DEBT OBLIGATIONS
The primary debt obligations of the Company at December 31, 1997 and
October 4, 1998 consisted of the following (000's omitted):
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 4,
1997 1998
------------- -------------
<S> <C> <C>
Senior Debt --
Revolving line of credit $ 32,600 $ 8,000
Secured equipment notes 4,825 890
Capital lease obligations 30,050 23,401
Secured term loan 24,840 23,999
Industrial revenue bonds 7,500 7,500
Mortgages and other 1,326 3,934
------------- -------------
101,141 67,724
Less -- Current maturities (9,635) (7,438)
------------- -------------
Total senior debt 91,506 60,286
Senior subordinated 10 1/8% notes 275,000 275,000
------------- -------------
Total long-term debt $ 366,506 $ 335,286
============= =============
</TABLE>
In April 1997, U.S. Can entered into an Amended and Restated Credit
Agreement with a group of banks (the "Credit Agreement"), for a $100 million
revolving credit facility which was subsequently reduced to $80 million (the
"Revolving Credit Facility"). Obligations under the Credit Agreement are secured
by U.S. Can's domestic accounts receivable and inventories. Funds available
under the Credit Agreement may be used for general corporate purposes (including
ongoing working capital needs and funds for permitted acquisitions). The Credit
Agreement has a five-year maturity and permits the Company to borrow funds in
U.S. Dollars, British Pounds or French Francs.
The loans under the Credit Agreement bear interest at a floating rate
equal to, at the election of U.S. Can, one of the following: (I) the Base Rate
(as defined in the Credit Agreement) per annum, or (ii) based on the current
pricing ratio, a reserve-adjusted Eurodollar rate plus the then applicable
margin, for specified interest periods (selected by U.S. Can) of one, two, three
or six months. The weighted average interest rate of the loans outstanding under
the Credit Agreement was 6.7% and 6.5% at December 31, 1997 and October 4, 1998,
respectively.
As of December 31, 1997, U.S. Can had borrowings of $32.6 million
outstanding under the Credit Agreement, $12.5 million in letters of credit had
been issued pursuant thereto, and $64.9 million of unused credit remained
available. In April 1998, the Revolving Credit Facility was reduced to $80
million. As of October 4, 1998, U.S. Can had borrowings of $8.0 million
outstanding under the Credit Agreement, $12.3 million in letters of credit had
been issued pursuant thereto, and $59.7 million of unused credit remained
available.
Capital lease obligations mature in varying amounts through 2005 and
bear interest at various rates between 4.57% and 15.8%. Other debt, consisting
of various governmental loans and real estate mortgages at interest rates
between 3.65% and
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9.0%, matures at various times through 2025, the proceeds of which were used to
finance the expansion of several manufacturing facilities.
In December 1996, one of the European Subsidiaries entered into (and
U.S. Can guaranteed) a $28 million secured term loan to finance the acquisition
of land, building and equipment comprising the Merthyr Tydfil, Wales aerosol can
production facility. This credit facility is secured by the real and personal
property of the Merthyr Tydfil operation. The loan is denominated in U.S.
Dollars. During 1997, in connection with the transaction, the Company entered
into foreign exchange contracts which allow the Company to exchange a fixed
amount of U.K. Pounds for U.S. Dollars at certain dates which coincide with the
repayment of principal and interest on the loan. The forward contracts are
intended to hedge against fluctuations in currency rates.
In October 1996, the Corporation issued $275.0 million principal amount
of 10 1/8% Senior Subordinated Notes due 2006 in a private placement. These
notes were exchanged in March 1997 for similar notes which are publicly
registered. These exchange notes (the "10 1/8% Notes") are unsecured and are
subordinated to all other senior debt of the Corporation and its subsidiaries.
The 10 1/8% Notes are fully and unconditionally guaranteed on an unsecured
senior subordinated basis by U.S. Can. On or after October 15, 2001, the
Corporation may, at its option, redeem all or some of the 10 1/8% Notes at
declining redemption premiums which begin at approximately 105.1% in 2001. Upon
certain changes of control of the Corporation, the Note holders could require
that the Corporation repurchase all or some of the 10 1/8% Notes at a 101%
premium. Net proceeds from the issuance of the 10 1/8% Notes were $268.1
million. Approximately $158.4 million of the net proceeds was used to pay down
amounts outstanding under the Company's previous credit agreement and $109.7
million was used to redeem all of U.S. Can's 13 1/2% Senior Subordinated Notes
due 2002 and remaining interest thereon on January 15, 1997.
The Credit Agreement and certain of the Company's other debt agreements
contain various financial and other restrictive covenants, as well as
cross-default provisions. The financial covenants include, but are not limited
to, limitations on annual capital expenditures and certain ratios of borrowings
to earnings before interest, taxes, depreciation and amortization ("EBITDA"),
senior debt to EBITDA and interest coverage. The covenants also restrict the
Corporation's and U.S. Can's ability to distribute dividends, to incur
additional indebtedness, to dispose of assets and to make investments, and to
enter into acquisitions, mergers and transactions with affiliates. Due to the
restructuring charge in the third quarter of 1998, it was necessary for the
Company to request a waiver under its Credit Agreement relative to its financial
covenants dealing with total leverage, domestic leverage and interest coverage.
The Company's banks waived these financial covenant defaults and amended the
Credit Agreement to take the Company's third quarter 1998 restructuring
provision into account when calculating EBITDA to avoid future financial
covenant defaults caused by the 1998 restructuring provision. As of October 4,
1998, the Company was in compliance with its other long-term debt agreements.
(6) SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid interest on borrowings of approximately $19.6 million
and $18.0 million for the nine-month periods ended October 5, 1997 and October
4, 1998, respectively.
The Company paid approximately $3.1 million and $1.0 million of income
taxes for the nine-month periods ended October 5, 1997 and October 4, 1998,
respectively.
(7) LEGAL PROCEEDINGS
The Company is involved in a number of legal proceedings arising in the
ordinary course of business consistent with past experiences. Management does
not believe that any of these proceedings will have a material adverse effect on
the business or financial condition of the Company either individually or in the
aggregate. In addition, the Company is involved in the following matters.
The groundwater in San Leandro, California, formerly a site of one of
the Company's can assembly facilities, is contaminated at shallow and
intermediate
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depths, and the area of concern partially extends to the groundwater below the
facility formerly owned by the Company. The Company has agreed to indemnify the
purchaser of this site against environmental claims related to the Company's
ownership of the property. In April 1996, the California Department of Toxic
Substances Control ("CDTSC") issued an order to certain past and present owners
of this facility, including U.S. Can, directing such owners to conduct
remediation activities at this site. No specific form of remediation was
indicated. The CDTSC, U.S. Can and its consultants met in May 1998 to discuss
the property at the former U.S. Can site. U.S. Can's consultant presented a
model explaining the origin of contaminants found beneath the site. The CDTSC
does not believe this model adequately explains the contamination found at the
site. If the CDTSC's concerns can be adequately addressed, the CDTSC has stated
it is likely no further action would be required. If not, the CDTSC will require
additional testing of the groundwater and development of a feasibility study.
There can be no assurance that the Company will not incur material costs and
expenses in connection with the CDTSC order and remediation at the site.
An Administrative Law Judge of the National Labor Relations Board
("NLRB") has issued a decision ordering the Company to pay $1.5 million in back
pay, plus interest, for a violation of certain sections of the National Labor
Relations Act as a result of the Company's closure of certain facilities in 1991
and failure to offer inter-plant job opportunities to affected employees. The
Company is appealing to the full NLRB on the grounds, among others, that the
Company is entitled to a credit against this award for certain pension payments.
As a potentially responsible party ("PRP") at various Superfund sites
in the U.S., the Company is or may be legally responsible, jointly and severally
with the other members of the PRP group, for the cost of remediation of these
sites. Based on currently available data (including EPA data, internal records
and other sources believed to be reliable), the Company believes its
contribution, and/or the contributions of its predecessors, to these sites was
de minimis. Based on the information currently available, management does not
believe that its aggregate remediation costs or potential liabilities in
connection with these sites will have a material adverse effect on the Company's
financial condition or results of operations. However, there can be no assurance
that the other PRP's will pay their proportionate share of the remediation costs
at these sites and, as a result, future costs or liabilities incurred by the
Company could be material.
(8) NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings
Per Share" was issued in February 1997 and adopted by the Company as of December
31, 1997. This new pronouncement established revised reporting standards for
earnings per share and has been applied to all periods presented herein. Diluted
earnings per share for the Company includes the impact of assumed exercise of
dilutive stock options.
SFAS No. 130, "Reporting Comprehensive Income" was issued in July 1997
and adopted by the Company in the first quarter of 1998. This new pronouncement
established standards for the reporting and display of comprehensive income and
its components which, for the Company, include cumulative translation
adjustments and minimum pension liability adjustments.
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" was also issued in July 1997 and introduces a new model for segment
reporting, called the "management approach." This approach is based on the way
that the chief operating decision maker organizes segments within the company
for making operating decisions and assessing performance. Management of the
Company is evaluating this new pronouncement to determine its impact upon
current reporting. Adoption of this new standard is scheduled for late 1998.
12
<PAGE> 13
Statement of Position No. 98-5, "Reporting on the Costs of Start-up
Activities" was released in April, 1998, and requires companies to write off all
unamortized costs related to start up activities and to expense such future
costs as incurred. The Company is required to adopt this new accounting rule by
early 1999. Management does not expect that adoption of this rule will have a
material effect on the Company's results of operations or financial position.
SFAS 133, "Accounting for Derivative Instruments and for Hedging
Activities" was issued in June 1998. This new pronouncement requires that
certain derivative instruments be recognized in balance sheets at fair value and
for changes in their fair value to be recognized in operations. Additional
guidance is also provided to determine when hedge accounting treatment is
appropriate whereby hedging gains and losses are offset by losses and gains
related directly to the hedged item. While this standard must be adopted by
fiscal 2000, its impact on the Company's consolidated financial statements is
not expected to be material as the Company has not historically used significant
derivative or hedge instruments.
(9) SUBSIDIARY GUARANTOR INFORMATION
The 10 1/8% Notes are guaranteed on a full, unconditional, unsecured,
senior subordinated, joint and several basis by each of the Corporation's
Subsidiary Guarantors. As of and through October 4, 1998, U.S. Can, wholly owned
by the Corporation, was the only Subsidiary Guarantor. Separate financial
statements of U.S. Can are not presented because management of the Company has
determined that they are not material to investors.
The following condensed consolidating financial data illustrates the
composition of the Corporation (the "Parent"), U.S. Can (the "Subsidiary
Guarantor"), and the Non-Guarantor Subsidiaries, as of December 31, 1997 and
October 4, 1998, and for the nine-month periods ended October 5, 1997 and
October 4, 1998. Investments in subsidiaries are accounted for by the Parent and
the Subsidiary Guarantor under the equity method for purposes of the
supplemental consolidating presentation. Earnings of subsidiaries are,
therefore, reflected in their parent's investment accounts and earnings.
13
<PAGE> 14
U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1997
(000'S OMITTED)
<TABLE>
<CAPTION>
PARENT GUARANTOR NON- U.S. CAN
(U.S. CAN (UNITED STATES GUARANTOR CORPORATION
CORPORATION) CAN COMPANY) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------- ------------ ------------ ------------
(000's omitted)
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 415 $ 6,358 $ -- $ 6,773
Accounts receivable -- 53,559 20,578 -- 74,137
Inventories -- 93,028 16,430 -- 109,458
Prepaid expenses and other assets -- 13,904 3,599 -- 17,503
Prepaid income taxes -- 22,748 -- -- 22,748
-------- -------- -------- --------- --------
Total current assets -- 183,654 46,965 -- 230,619
-------- -------- -------- --------- --------
NET PROPERTY, PLANT AND EQUIPMENT -- 256,464 67,833 -- 324,297
INTANGIBLE ASSETS -- 59,578 -- -- 59,578
OTHER ASSETS 7,347 10,240 1,623 -- 19,210
INVESTMENT IN SUBSIDIARIES 335,962 48,646 -- (384,608) --
-------- -------- -------- --------- --------
Total assets $343,309 $558,582 $116,421 $(384,608) $633,704
======== ======== ======== ========= ========
CURRENT LIABILITIES:
Current maturities of long-
term debt $ -- $ 6,817 $ 2,818 $ -- $ 9,635
Accounts payable -- 42,155 16,331 -- 58,486
Other current liabilities -- 73,480 8,247 -- 81,727
-------- -------- -------- --------- --------
Total current liabilities -- 122,452 27,396 -- 149,848
-------- -------- -------- --------- --------
SENIOR DEBT -- 61,850 29,656 -- 91,506
SUBORDINATED DEBT 275,000 -- -- -- 275,000
OTHER LONG-TERM LIABILITIES -- 52,031 3,006 -- 55,037
INTERCOMPANY ADVANCES 5,996 (13,713) 7,717 -- --
STOCKHOLDERS' EQUITY 62,313 335,962 48,646 (384,608) 62,313
-------- -------- -------- --------- --------
Total liabilities and
equity $343,309 $558,582 $116,421 $(384,608) $633,704
======== ======== ======== ========= ========
</TABLE>
14
<PAGE> 15
U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF OCTOBER 4, 1998
(000's OMITTED)
<TABLE>
<CAPTION>
Subsidiary
Parent Guarantor U.S. Can
(U.S. Can (United States Non-Guarantor Corporation
Corporation) Can Company) Subsidiaries Eliminations Consolidated
------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 3,065 $ 6,220 $ -- $ 9,285
Accounts receivable -- 60,426 29,925 -- 90,351
Inventories -- 89,308 20,484 -- 109,792
Prepaid expenses and other assets -- 20,934 2,618 -- 23,552
Prepaid income taxes -- 22,398 -- -- 22,398
--------- --------- --------- --------- ---------
Total current assets -- 196,131 59,247 -- 255,378
--------- --------- --------- --------- ---------
NET PROPERTY, PLANT AND EQUIPMENT -- 229,166 71,350 -- 300,516
INTANGIBLE ASSETS -- 61,170 -- -- 61,170
OTHER ASSETS 6,620 14,093 2,915 -- 23,628
INVESTMENT IN SUBSIDIARIES 315,610 56,844 -- (372,454) --
--------- --------- --------- --------- ---------
Total assets $ 322,230 $ 557,404 $ 133,512 $(372,454) $ 640,692
========= ========= ========= ========= =========
CURRENT LIABILITIES:
Current maturities of long-term debt $ -- $ 4,588 $ 2,850 $ -- $ 7,438
Accounts payable -- 38,854 19,053 -- 57,907
Other current liabilities -- 110,217 12,304 -- 122,521
--------- --------- --------- --------- ---------
Total current liabilities -- 153,659 34,207 -- 187,866
--------- --------- --------- --------- ---------
SENIOR DEBT -- 32,014 28,272 -- 60,286
SUBORDINATED DEBT 275,000 -- -- -- 275,000
OTHER LONG-TERM LIABILITIES -- 67,050 3,870 -- 70,920
INTERCOMPANY ADVANCES 610 (10,929) 10,319 -- --
STOCKHOLDERS' EQUITY 46,620 315,610 56,844 (372,454) 46,620
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 322,230 $ 557,404 $ 133,512 $(372,454) $ 640,692
========= ========= ========= ========= =========
</TABLE>
15
<PAGE> 16
U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 5, 1997
<TABLE>
<CAPTION>
Subsidiary
Guarantor
Parent (United States U.S. Can
(U.S. Can Can Non-Guarantor Corporation
Corporation) Company) Subsidiaries Eliminations Consolidated
------------ -------- ------------ ------------ ------------
(000's omitted)
<S> <C> <C> <C> <C> <C>
NET SALES $ -- $ 516,233 $ 79,051 $ -- $ 595,284
COST OF SALES -- 452,525 72,152 -- 524,677
--------- --------- --------- --------- ---------
Gross Income -- 63,708 6,899 -- 70,607
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES -- 22,193 3,052 -- 25,245
SPECIAL CHARGES -- 52,159 -- -- 52,159
--------- --------- --------- --------- ---------
Operating Income (loss) -- (10,644) 3,847 -- (6,797)
INTEREST EXPENSE ON BORROWINGS -- 26,316 1,400 -- 27,716
AMORTIZATION OF DEFERRED
FINANCING COSTS -- 1,369 -- -- 1,369
OTHER EXPENSES -- 1,588 -- -- 1,588
EQUITY EARNINGS (LOSS) FROM
SUBSIDIARY (22,698) 1,643 -- 21,055 --
PROVISION (BENEFIT) FOR INCOME TAXES -- (14,196) 804 -- (13,392)
NET INCOME FROM DISCONTINUED
OPERATIONS -- 1,380 -- -- 1,380
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (22,698) $ (22,698) $ 1,643 $ 21,055 $ (22,698)
========= ========= ========= ========= =========
</TABLE>
16
<PAGE> 17
U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 4, 1998
<TABLE>
<CAPTION>
Subsidiary
Guarantor
Parent (United States U.S. Can
(U.S. Can Can Non-Guarantor Corporation
Corporation) Company) Subsidiaries Eliminations Consolidated
------------ -------------- ------------- ------------ ------------
(000's omitted)
<S> <C> <C> <C> <C> <C>
NET SALES $ -- $ 464,227 $ 89,529 $ -- $ 553,756
COST OF SALES -- 403,308 80,259 -- 483,567
--------- --------- --------- --------- ---------
Gross Income -- 60,919 9,270 -- 70,189
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES -- 21,062 3,212 -- 24,274
SPECIAL CHARGES -- 35,869 -- -- 35,869
--------- --------- --------- --------- ---------
Operating Income -- 3,988 6,058 -- 10,046
INTEREST EXPENSE ON BORROWINGS -- 23,428 1,963 -- 25,391
AMORTIZATION OF DEFERRED
FINANCING COSTS -- 1,110 -- -- 1,110
OTHER EXPENSES -- 1,317 -- -- 1,317
EQUITY EARNINGS (LOSS) FROM
SUBSIDIARY (18,999) 2,990 -- 16,009 --
PROVISION (BENEFIT) FOR INCOME TAXES -- (8,406) 1,105 -- (7,301)
NET LOSS ON DISCONTINUATION
OF BUSINESSES -- (8,528) -- -- (8,528)
========= ========= ========= ========= =========
NET INCOME (LOSS) $ (18,999) $ (18,999) $ 2,990 $ 16,009 $ (18,999)
========= ========= ========= ========= =========
</TABLE>
17
<PAGE> 18
U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED OCTOBER 5, 1997
(000's OMITTED)
<TABLE>
<CAPTION>
UNITED STATES
U.S. CAN CAN COMPANY USC EUROPE U.S. CAN
CORPORATION (SUBSIDIARY (NON-GUARANTOR CORPORATION
(PARENT) GUARANTOR) SUBSIDIARIES) ELIMINATIONS CONSOLIDATED
----------- ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ -- $ 30,304 $ 13,096 $ -- $ 43,400
------ -------- -------- ----- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- (34,568) (5,510) -- (40,078)
Acquisition of businesses, net of
cash -- (12,581) -- -- (12,581)
Changes in restricted cash -- 2,016 -- -- 2,016
Investment in subsidiaries (450) -- -- 450 --
Machinery repair parts usage, net -- 122 -- -- 122
------ -------- -------- ----- --------
Net cash used in investing
activities (450) (45,011) (5,510) 450 (50,521)
------ -------- -------- ----- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in intercompany advances 1,631 22,262 (23,893) -- --
Issuance of common stock and exercise
of stock options 131 -- -- -- 131
Net borrowings under the revolving line
of credit and changes in cash
overdrafts -- 7,786 -- -- 7,786
Borrowings of other long-term debt,
including capital lease
obligations -- 31 26,135 -- 26,166
Payments of other long-term debt,
including capital lease
obligations -- (11,661) (7,686) -- (19,347)
Payments of debt refinancing costs (597) (395) -- -- (992)
Capital contribution from parent -- 450 -- (450) --
Purchase of treasury stock, net (715) -- -- -- (715)
------ -------- -------- ----- --------
Net cash provided by financing
activities 450 18,473 (5,444) (450) 13,029
------ -------- -------- ----- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH -- -- (6,682) -- (6,682)
------ -------- -------- ----- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS -- 3,766 (4,540) -- (774)
CASH AND CASH EQUIVALENTS, beginning of
period -- 628 7,338 -- 7,966
------ -------- -------- ----- --------
CASH AND CASH EQUIVALENTS, end of
period -- $ 4,394 $ 2,798 $ -- $ 7,192
====== ======== ======== ===== ========
</TABLE>
18
<PAGE> 19
U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED OCTOBER 4, 1998
(000's OMITTED)
<TABLE>
<CAPTION>
Subsidiary
Guarantor
Parent (United States U.S. Can
(U.S. Can Can Non-Guarantor Corporation
Corporation) Company) Subsidiaries Eliminations Consolidated
------------ -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: $ -- $ 49,501 $ 560 $-- $ 50,061
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- (9,038) (3,298) -- (12,336)
Acquisition of businesses, net of cash -- -- -- -- --
Changes in restricted cash -- 29 -- -- 29
Proceeds from sale of assets -- 215 -- -- 215
Machinery repair parts usage, net -- 433 99 -- 532
-------- -------- -------- ----- --------
Net cash used in investing activities -- (8,361) (3,199) -- (11,560)
-------- -------- -------- ----- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in intercompany advances 803 (6,694) 5,891 -- --
Issuance of common stock and exercise
of stock options 782 -- -- -- 782
Net borrowings (payments) under the revolving
lines of credit and changes in cash overdrafts -- (24,197) (214) -- (24,411)
Borrowings (payments) of other long-term debt,
including capital lease obligations -- (7,465) (1,156) -- (8,621)
Payments of other long-term debt,
including capital lease -- --
Payments of debt refinancing costs -- (134) -- -- (134)
Purchase of treasury stock, net (1,585) -- -- -- (1,585)
-------- -------- -------- ----- --------
Net cash provided by (used in)
financing activities -- (38,490) 4,521 -- (33,969)
-------- -------- -------- ----- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- -- (2,020) -- (2,020)
-------- -------- -------- ----- --------
DECREASE IN CASH AND CASH EQUIVALENTS -- 2,650 (138) -- 2,512
CASH AND CASH EQUIVALENTS, beginning of period -- 415 6,358 -- 6,773
-------- -------- -------- ----- --------
CASH AND CASH EQUIVALENTS, end of period $ -- $ 3,065 $ 6,220 $-- $ 9,285
======== ======== ======== ===== ========
</TABLE>
19
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following narrative discusses the results of operations, liquidity
and capital resources for the Company on a consolidated basis. This section
should be read in conjunction with the Corporation's Amendment No. 1 to Annual
Report on Form 10-K/A-1 for the fiscal year ended December 31, 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained therein.
RESULTS OF OPERATIONS
As explained in Note (2) to the financial statements, certain
historical results have been restated from those previously reported.
QUARTER ENDED OCTOBER 4, 1998, AS COMPARED TO QUARTER ENDED OCTOBER 5, 1997
Net Sales
Net sales for the quarter ended October 4, 1998, totaled $177.9
million, an 8.8% decrease versus the corresponding period in 1997. Approximately
3.0% of the decline represents 1997 net sales from the Company's steel pail
business. This business was sold in November 1997. The loss of a major aerosol
customer, which occurred in the third quarter of 1997, accounted for a change in
excess of 4.8% in period-to-period consolidated sales. European sales for the
third quarter of 1998 increased 14.7% versus the same period in 1997,
representing a 1.9% increase in consolidated sales. The balance of the
decrease was attributable to a general downturn in demand.
Gross Income
Gross income of $23.6 million for the third quarter of 1998 was up $0.6
million, or 2.8%, versus the third quarter of 1997. Gross margin increased to
13.2% of net sales for the period from 11.7% in the comparable period of 1997.
Third quarter margins reflect improved European results, operating benefits
resulting from the 1997 restructuring program and improved domestic aerosol
results. European gross margin was 10.3% of sales in the third quarter of 1998
versus 8.3% of sales in the third quarter of 1997. European gross margins
continue to be impacted favorably as the Wales operation has become qualified
with a major customer and is achieving more consistent sales and production
since its start-up. Management expects further improvement in European margins
in 1999.
Operating Income (Loss)
The Company reported operating losses in the third quarter for both
years due to restructuring charges. Operating loss in the third quarter of 1998
of $20.1 million, compares favorably to a $37.4 million loss (see Note (2) for
details concerning restructuring provisions established in 1997 and 1998)
reported in the third quarter of 1997. Excluding restructure charges, third
quarter 1998 operating income of $15.8 million or 8.9% of net sales, showed
improvement over the same period in 1997. Third quarter 1997 operating income
excluding restructure charges was $14.8 million or 7.6% of net sales. Selling,
general and administrative expense declined $0.3 million in the quarter from the
same quarter a year ago, representing 4.3% of sales in the third quarter of 1998
compared to 4.1% in the third quarter of 1997.
Interest and Other Expenses
Interest expense in the third quarter of 1998 was down $1.0 million
versus the third quarter of 1997. Strong operating cash flow, and continued
focus on working capital and capital expenditures, has resulted in long-term
debt (including current maturities) decreasing $45.2 million since the third
quarter of last year, and $33.4
20
<PAGE> 21
million since fiscal year end 1997. Proceeds from the November 1998 sale of the
Metal Services business will result in further debt reduction and related
decreases in interest expense.
Net Income (Loss)
Third quarter net loss of $25.9 million or $1.94 per share compares
favorably to 1997 third quarter net loss of $29.8 million or $2.28 per share.
Restructuring charges after-tax represent a $2.25 and $2.38 earnings per share
loss for the third quarter of 1998 and 1997, respectively.
NINE-MONTH PERIOD ENDED OCTOBER 4, 1998 VS. NINE-MONTH PERIOD ENDED OCTOBER 5,
1997
Net Sales
Net sales for the nine-month period ended October 4, 1998, totaled
$553.8 million, a decrease of 7.0% versus the corresponding period in 1997. The
loss of a major aerosol customer, which occurred in the third quarter of 1997,
accounted for 4.2% of the change in period-to-period consolidated sales. The
sale of the Company's steel pail business in 1997 accounted for another 2.8% of
the year-to-year decrease. European sales for the nine-month period of 1998
increased 13.3% versus the same period in 1997, representing a 1.8% increase in
consolidated sales. The balance of the decrease was attributable to a general
downturn in demand.
Gross Income
Gross income of $70.2 million for the nine-month period of 1998 is down
$0.4 million, or 0.6%, versus the same period of 1997. Gross margin of 12.7% of
net sales for 1998 was better than the 11.9% gross margin for the nine-month
period of 1997. Stronger 1998 margins, resulting from improved European results
and the operating benefits of the 1997 restructuring program favorably impacted
comparative results. In the third quarter of 1998, the Wales plant successfully
completed commercial qualification, which is expected to favorably impact
results of this operation.
Operating Income
Operating income for the nine-month period of 1998 is $10.0 million,
versus a 1997 operating loss of $6.8 million. Excluding restructuring charges,
1998 cumulative operating income is $45.9 million or 8.3% of net sales. On a
comparable basis, 1997 operating income through nine-months was $45.4 million or
7.6% of net sales. Selling, general and administrative expense declined $1.0
million from the same period a year ago.
Interest and Other Expenses
Year-to-date interest expense through October 4, 1998 is $25.4 million,
down $2.3 million or 8.4% from 1997. Continued focus on working capital, reduced
capital expenditures, and strong operating cash flow has resulted in long-term
debt (including current maturities) decreasing $45.2 million since the third
quarter of last year, and $33.4 million since fiscal year end 1997. Proceeds
from the November 1998 sale of the Metal Services business will result in
further debt and related interest expense reductions.
Net Income (Loss)
Cumulative net loss of $19.0 million, or $1.43 per share, in 1998 is an
improvement versus the net loss of $22.7 million or $1.74 per share in 1997.
Restructuring charges represented a $2.25 and $2.38 per share loss for the
nine-month periods of 1998 and 1997, respectively.
21
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
During the nine-months ended October 4, 1998, the Company met its
liquidity needs through internally generated cash flow and borrowings under its
credit lines. Principal liquidity needs included normal operations,
restructuring-related expenditures, debt amortization, capital spending and the
Company's minority investment in Formametal. Cash flow from operations was $50.1
million for the nine-month 1998 period, compared to $43.4 million in 1997.
Increased cash from operations is due to improved working capital management
that started in 1997 and has continued through 1998. Additionally, 1998 capital
expenditures and acquisition costs are significantly less than 1997.
The Company expects total capital expenditures in 1998 to be
approximately $25 to $30 million and has spent $12.3 million year to date
through three quarters. In 1997, capital expenditures for the same period were
$40.1 million. The Company's capital investments have historically yielded
reduced operating costs and improved the Company's profit margins, and
management believes that the strategic deployment of capital will enable the
Company to improve its overall profitability by leveraging the economies of
scale inherent in the manufacture of containers.
As explained in Note (3) to the financial statements, the Company has
invested approximately $14.6 million in 1998 and 1997 in other companies and has
guaranteed $2.0 million of debt of Formametal. The Company believes its primary
focus through 1999 is to improve its operating results but would consider
acquisitions as a source of growth if they would enhance shareholder value.
As of October 4, 1998, U.S. Can had borrowings of $8.0 million
outstanding under the Credit Agreement, $12.3 million in letters of credit had
been issued pursuant thereto, and $59.7 million of unused credit remained
available thereunder.
On November 9, 1998, U.S. Can sold to BMAT, Inc. substantially all of
the assets of its commercial metal services business, including operating
facilities located in Chicago, Illinois; Trenton, New Jersey; and Brookfield,
Ohio, and a closed plant located in Alsip, Illinois, for a sale price of $31
million in cash including working capital. Approximately $23.1 million of the
proceeds were used to repay outstanding indebtedness under U.S. Can's revolving
bank credit facility. The Company intends to use the remaining proceeds from the
sale for future anticipated capital expenditures, primarily associated with the
consolidation and restructuring actions announced in the third quarter of 1998.
Due to the restructuring charge in the third quarter of 1998, it was necessary
for the Company to request a waiver under its Credit Agreement relative to its
financial covenants dealing with total leverage, domestic leverage and interest
coverage. The Company's banks waived these financial covenant defaults and
amended the Credit Agreement to take the Company's third quarter 1998
restructuring provision into account when calculating EBITDA to avoid future
financial covenant defaults caused by the 1998 restructuring provision. As of
October 4, 1998, the Company was in compliance with its other long-term debt
agreements.
In October 1998, the Company spent $11.1 million (including premiums,
accrued interest and commissions) to repurchase $10.7 million of its 10 1/8%
Senior Subordinated Notes due 2006.
Management believes that cash flow from operations, amounts available
under its credit facilities and working capital improvements should provide
sufficient funds for the Company's short-term and long-term capital expenditure
and debt amortization requirements, and other cash needs in the ordinary course
of business. The Company believes it will be able to refinance the Revolving
Credit Facility on or prior to maturity. If future strategic acquisition
opportunities arise, the Company would expect to finance them though some
combination of cash, stock and/or debt financing.
22
<PAGE> 23
YEAR 2000 UPDATE
The year 2000 issue is the result of computer programs using a two-digit format,
as opposed to four digits, to indicate the year. Such computer systems will be
unable to interpret dates beyond the year 1999, which could cause a system
failure or other computer errors, leading to disruptions in operations. The
Company has been in the process of reviewing its computer and operational
systems to identify and determine the extent to which systems will be vulnerable
to potential errors and failures as a result of the Year 2000 issue, since 1996.
The Year 2000 issue presents several risks to the Company, such as (i) the
Company's internal systems may not function properly, (ii) supplier's or
customer's computer and operational systems may not function properly, causing
delays in delivery of materials and supplies, and delays in orders and payments
to the Company for delivered product, (iii) the Company's bank's computer
systems could malfunction, disrupting orderly deposits, fund transfers, and
payments. Any such disruptions in the Company's supply, manufacturing,
processing, distribution and financial chains could have a material adverse
effect on the Company's short-term financial condition and results of
operations.
The Company is a manufacturer of consumer, commercial and specialty packaging
products. The products produced and sold by the Company are unaffected by Year
2000 issues since they contain no microprocessors or similar electronic
components.
The Company has been in the process of evaluating its internal computing
infrastructure, business applications and manufacturing systems for Year 2000
compliance. The Company's main operating systems hardware and operational
software, including all hardware and software associated with its internal
network is already Year 2000 compliant. All facilities (with the exception of
those announced to be sold in 1999) are currently using a system for their order
entry, accounts receivable, customer invoicing, and various other critical
business functions, for which a compliant system is available from the system
vendor. The compliant version will be rolled out in the first quarter of 1999. A
compliant version of the general ledger is installed and conversion and related
testing are expected in the first quarter of 1999. All personal computers are in
the process of converting to a Year 2000 compliant operating system. Shop floor
data collection and inventory management systems are being upgraded for Year
2000 compliance. In addition to these activities, the Company is reviewing all
manufacturing facilities to further identify any systems or equipment that might
have compliance issues, and is working with vendors to take corrective action if
necessary.
Key vendors have been contacted by the Company to ensure uninterrupted supply of
materials and services critical to core operations. None of the suppliers
contacted have indicated any compliance issues to date. Their efforts in regards
to Year 2000 compliance will be followed closely by the Company throughout 1999.
The Company is working with its current payroll service provider to convert its
existing payroll and human resource systems to a Year 2000 compliant integrated
solution. This conversion and related testing will be completed in the third
quarter of 1999.
The Company is in the process of securing external assistance in reviewing
further considerations as it pertains to the Year 2000 issue. Utilizing both
internal and external resources to identify and assess needed Year 2000
remediation, the Company anticipates all known remediation efforts and related
testing to be completed by the end of the third quarter of 1999.
As part of its normal course of business, the Company has evaluated and invested
in its internal computer systems as a means to streamline processes and better
manage its operations. Many system conversions were already in process yielding
Year 2000 compliance as a side benefit. As such, it is difficult to separate the
cost of Year 2000 compliance from ongoing information system costs already
recorded in the financial results of the Company as part of its normal
operations. However, the Company estimates that Year 2000 compliance costs have
been less than $1 million in total to date. All such costs and any future costs,
have been or will be funded through cash generated from operations.
The Company will identify and evaluate potential worse case business disruption
scenarios surrounding the Year 2000 issue. Such plans may include securing
alternative sources of supply, increasing safety stock of materials, adjusting
facility shut-down and start-up schedules and other appropriate measures. These
plans and related cost estimates will be refined as additional information
becomes available.
23
<PAGE> 24
Management believes that the Year 2000 issue will not pose significant
operational problems for the Company. However, if all Year 2000 issues are not
identified, or assessment, remediation and testing are not effected in a timely
manner, there can be no assurance that the Year 2000 issue will not materially
and adversely impact the Company's results of operations. Nor can there be
assurances that there will be no adverse impact on its relationships with
customers, vendors, or others. Any failure to comply to Year 2000 issues by
banks, vendors, customers, and governmental agencies may have an impact on the
results of the Company to the extent they relate to the Company's ongoing
operations and business requirements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Required.
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
On November 9, 1998, U.S. Can sold to BMAT, Inc. substantially all of
the assets of its commercial metal services business, including operating
facilities located in Chicago, Illinois; Trenton, New Jersey; and Brookfield,
Ohio, and a closed plant located in Alsip, Illinois, for a sale price of $31
million in cash including working capital. The sale price was determined
pursuant to arms' length negotiations between the parties. For a discussion of
the Company's use of the sale proceeds, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
In connection with the closing, the Company paid Salomon Smith Barney
("SSB") the remaining fee of $0.7 million due to SSB for services rendered in
connection with the sale of the metal service business.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
24
<PAGE> 25
<TABLE>
<CAPTION>
INCORPORATION
EXHIBIT BY REFERENCE
NUMBER DESCRIPTION OF DOCUMENT (IF APPLICABLE)
------ ----------------------- ---------------
<S> <C> <C>
10.1 Amendment No. 3 to Amended and Restated Credit Agreement dated as of
September 11, 1998
10.2 Amended and Restated Change in Control Agreement between Frank J. Galvin
and the Company, dated as of August 31, 1998
10.3 Agreement dated July 2, 1998 between U.S. Can Corporation and William J.
Smith, concerning Mr. Smith's resignation as a director
10.4 Amendment No. 2 to Employment Agreement dated September 21, 1998,
between the Company and Anthony F. Bonadonna
10.5 Amendment No. 4 and Waiver No. 3 to Amended and Restated Credit
Agreement dated as of October 15, 1998
27.1 Financial Data Schedule (EDGAR version only)
(b) U.S. Can Corporation filed no reports on Form 8-K during the
quarterly period ended October 4, 1998.
</TABLE>
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. CAN CORPORATION
Date: November 18, 1998 By: /s/ John L. Workman
-------------------------------
John L. Workman
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the undersigned, in his capacity as the principal
financial officer of the registrant.
Date: November 18, 1998 By: /s/ John L. Workman
-------------------------------
John L. Workman
Executive Vice President and
Chief Financial Officer
26
<PAGE> 1
EXHIBIT 10.1
EXECUTION COPY
AMENDMENT NO. 3
TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT AGREEMENT
("Agreement") is being executed and delivered as of September 11, 1998, by and
among United States Can Company, a Delaware corporation (the "Borrower"), the
financial institutions from time to time party to the Amended and Restated
Credit Agreement referred to below (collectively, the "Lenders", and each
individually, a "Lender"), and Bank of America National Trust and Savings
Association, as the "Agent" for the Lenders (the "Agent"). Undefined capitalized
terms which are used herein shall have the meanings ascribed to such terms in
the Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders and the Agent are parties
to that certain Amended and Restated Credit Agreement dated as of April 25, 1997
(as heretofore amended and modified by that certain Amendment No. 1 and Waiver
No. 1 thereto, dated as of November 12, 1997, and that certain Amendment No. 2
and Waiver No. 2 dated as of February 19, 1998 among such parties, the "Credit
Agreement"), pursuant to which the Lenders have agreed to provide, subject to
the terms and conditions contained therein, certain loans and other financial
accommodations to the Borrower; and
WHEREAS, the Borrower has requested, and subject to the terms
and conditions of this Agreement the Lenders and the Agent have agreed, to amend
certain restrictions set forth in the Credit Agreement with respect to the
Borrower's ability to repurchase certain outstanding equity and debt interests
of the Borrower;
NOW, THEREFORE, in consideration of the foregoing premises,
the terms and conditions stated herein and other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the Borrower, the
Lenders and the Agent, such parties hereby agree as follows:
1. Amendment No. 3 to Credit Agreement. Subject to Paragraph 2
of this Agreement, and effective as of the date of this Agreement, the Credit
Agreement is hereby amended as follows (section and schedule references herein
refer to those of the Credit Agreement):
(a) Section 6.2(c) is amended to delete the figure
"$1,000,000" which appears in clause (iii)(A) of such section and to replace
such figure with the figure "$4,000,000".
<PAGE> 2
(b) Section 6.2(c) is further amended to delete in its
entirety clause (iii)(D) of such section and to replace such clause with the
following clause:
"(D) to repurchase Parent Subordinated Notes; provided that,
with respect to any such repurchase, (1) the aggregate
consideration paid and payable with respect to the proposed
repurchase and all prior repurchases does not exceed
$40,000,000, (2) no Default or Event of Default exists or
would result from the Borrower's making of such Restricted
Payments, or from Parent's repurchasing such Parent
Subordinated Notes and (3) neither such Restricted Payments by
the Borrower, nor such repurchases by Parent, violates any
term or provision of the Parent Indenture;"
2. Effectiveness of this Agreement; Conditions Precedent. The
provisions of Paragraph 1 shall be deemed to have become effective as of the
date of this Agreement, but such effectiveness shall be expressly conditioned
upon the Agent's receipt on or before September 30, 1998 of an
originally-executed counterpart of this Agreement executed by a duly authorized
officer of the Borrower and each of the Lenders.
3. Representations, Warranties and Covenants. (a) The Borrower
hereby represents and warrants that this Agreement constitutes the legal, valid
and binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms.
(b) The Borrower hereby represents and warrants that its
execution and delivery of this Agreement, and its performance hereafter of the
Credit Agreement as modified by this Agreement, have been duly authorized by all
necessary corporate action, do not violate any provision of its articles of
incorporation, bylaws or other charter documents, will not violate any law,
regulation, court order or writ applicable to it, will not require the approval
or consent of any governmental agency, and do not require the approval or
consent of any third party under the terms of any contract or agreement to which
the Borrower, Parent or any Subsidiary of the Borrower or Parent is bound
(including, without limitation, the Parent Indenture).
(c) The Borrower hereby represents and warrants that, after
giving effect to all of the provisions of this Agreement, (i) no Default or
Event of Default has occurred and is continuing or will have occurred and be
continuing and (ii) all of the representations and warranties of the Borrower
contained in the Credit Agreement (other than representations and warranties
which, in accordance with their express terms, are made only as of a specified
date) are, and will be, true and correct as of the
-2-
<PAGE> 3
date of the Borrower's execution hereof in all material respects as though made
on and as of such date.
4. Reference to and Effect on Credit Agreement. The Credit
Agreement shall remain in full force and effect and is hereby ratified and
confirmed. Neither the execution, delivery or effectiveness of this Agreement
shall operate as a waiver of any right, power orremedy of the Agent or any
Lender of any Default or Event of Default under the Credit Agreement, all of
which the Agent and the Lenders hereby expressly reserve. Nothing contained
herein shall require the Agent or the Lender to hereafter waive any Default or
Event of Default, whether arising from the Borrower's subsequent noncompliance
with the same provisions subject to the express waivers provided in this
Agreement or otherwise. The Borrower, the Lenders and the Agent agree and
acknowledge that this Agreement constitutes a "Loan Document" under and as
defined in the Credit Agreement.
5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws and decisions of the State of Illinois.
6. Agent's Expenses. The Borrower hereby agrees to promptly
reimburse the Agent for all of the reasonable out-of-pocket expenses, including,
without limitation, attorneys' and paralegals' fees, it has heretofore or
hereafter incurred or incurs in connection with the preparation, negotiation and
execution of this Agreement.
7. Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original and all of which together shall
constitute one and the same agreement among the parties.
* * * *
-3-
<PAGE> 4
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the day and year first above written.
UNITED STATES CAN COMPANY
By: /s/ Peter J. Andres
------------------------------------
Name: Peter J. Andres
Title: Vice President - Treasurer
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By: /s/ Jay McKeown
------------------------------------
Name: Jay McKeown
Title: Assistant Vice President
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION, as the Primary
Issuing Lender, a Lender
and individually
By: /s/ Tracy J. Alfery
------------------------------------
Name: Tracy J. Alfery
Title: Vice President
HARRIS TRUST AND SAVINGS BANK,
as an Issuing Lender and a Lender
By: /s/ Scott F. Geik
------------------------------------
Name: Scott F. Geik
Title: Vice President
-4-
<PAGE> 5
THE NORTHERN TRUST COMPANY,
as a Lender
By: /s/ Daniel A. Toll
------------------------------------
Name: Daniel A. Toll
Title: Second Vice President
SOCIETE GENERALE, CHICAGO,
BRANCH, as a Lender
By: /s/ Joseph A. Philbin
------------------------------------
Name: Joseph A. Philbin
Title: Vice President
-5-
<PAGE> 1
EXHIBIT 10.2
AMENDED AND RESTATED
CHANGE IN CONTROL AGREEMENT BETWEEN
FRANK J. GALVIN AND
UNITED STATES CAN COMPANY
THIS AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT, dated
as of August 31, 1998 (the "Agreement"), is by and between U.S. Can Corporation,
a Delaware corporation having its principal offices at 900 Commerce Drive, Oak
Brook, Illinois 60523 ("USC"), United States Can Company, a Delaware corporation
having its principal offices at 900 Commerce Drive, Oak Brook, Illinois 60523
(the "Subsidiary," with USC and the Subsidiary collectively referred to herein
as "US Can" or the "Company"), and Frank J. Galvin, an employee of US Can (the
"Employee").
WHEREAS, the Employee is presently serving as Executive Vice
President and General Manager of Aerosol Operations and of US Can; and
WHEREAS, the Company and Employee entered into that certain
Change in Control Agreement dated September 20, 1995 (the "Change in Control
Agreement"); and
WHEREAS, the parties hereto have agreed to modify the terms of
the Change in Control Agreement as provided herein; and
WHEREAS, US Can desires to retain the Employee's services and
the Employee is willing to continue his employment as an employee of US Can on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and conditions contained herein and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. CERTAIN DEFINED TERMS. (a)"Change of Control" - As used
herein, shall mean any one or more of the following: the acquisition by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
Fifteen Percent (15%) or more of the shares of the then outstanding common stock
of the Company (the "Outstanding Common Stock"), a merger or consolidation of
the Company in which the Company does not survive as an independent public
company, a sale of all or substantially all of the assets of the Company, or a
liquidation or dissolution of the Company; provided, however, that the following
acquisitions shall not constitute a Change of Control for the purposes of this
subsection (a): (i) any acquisition directly from the Company, or (ii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company.
<PAGE> 2
(b)"Constructive Termination", as used herein, shall mean any
one or more of the following occurrences within two (2) years following the
Effective Date of a Change of Control: (i) the assignment to the Employee of any
duties inconsistent in any material respect with the Employee's position,
authority, duties or responsibilities immediately prior to the Effective Date of
the Change of Control referred to above, or any other action by the Company
which results in a diminution in any material respect of the Employee's
position, authority, duties or responsibilities as the same existed immediately
prior to the Effective Date of the Change of Control referred to above.
(c)"Effective Date", as used herein, shall mean the first date
during which a Change of Control (as defined in Section 1(a))occurs.
2. TERMINATION. If the Employee is terminated, or is subject
to a Constructive Termination, within two (2) years following the Effective Date
of a Change of Control, the Employee will be entitled to receive, in addition to
any benefits set forth in any employment or other agreements with the Company
then in effect, the benefits set forth below.
(a) RESTRICTED STOCK. If termination or
Constructive Termination of the Employee occurs within two (2) years following
the Effective Date of a Change of Control, the vesting of all restricted stock
grants shall be accelerated to the date on which the Employee is terminated or
is subject to a Constructive Termination.
(b) BONUS PAYMENT. If termination or Constructive
Termination of the Employee occurs within two (2) years following the Effective
Date of a Change of Control, the Employee shall be awarded a prorated bonus
based on Employee's target bonus (as then established by the Board of Directors
of the Company or the Employee's manager, as set forth by the Company in any
effective bonus plan, as set forth in any employment agreement or as set forth
in any combination of the above) for the fiscal year in which the employment
services are terminated or Constructively Terminated. The bonus amount received
shall be prorated for the actual number of days which have elapsed in the fiscal
year of termination or Constructive Termination over the total number of days in
that fiscal year.
3. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois applicable to
agreements made and to be performed in Illinois, without giving effect to
conflicts of law principles.
- 2 -
<PAGE> 3
4. HEADINGS. The section headings of this Agreement are for
reference only and are to be given no effect in the construction or
interpretation of this Agreement.
5. SEVERABILITY. If any part or provision of this Agreement
shall be declared invalid or unenforceable by a court of competent jurisdiction,
said provision or part shall be ineffective to the extent of such invalidity or
unenforceability only, without in any way affecting the remaining parts or
provisions of this Agreement.
6. WAIVER. Any party may waive compliance by another party
with any of the provisions of this Agreement. No waiver of any provision shall
be construed as a waiver of any other provision. Any waiver must be in writing.
7. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding
on and inure to the benefit of the parties and their respective successors and
permitted assigns. Nothing in this Agreement shall create or be deemed to create
any third party beneficiary rights in any person or entity (including any
employee or person engaged by the Company in any capacity) not a party to this
Agreement. The Company will require any successor (whether direct or indirect,
by merger, purchase, consolidation or otherwise) of the Company to make an
express assumption of the obligations hereunder and cause any successor (whether
direct or indirect, by merger, purchase, consolidation or otherwise) of the
Company to agree to perform all parts and provisions under this Agreement in the
same manner and to the same extent that the Company would be required to perform
it if no such succession had taken place.
8. COUNTERPARTS. This Agreement may be signed in any number of
counterparts and all such counterparts shall be read together and construed as
but one and the same document.
9. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be deemed given when delivered
personally, one day after sent by recognized overnight courier, or five (5) days
after deposit in the United States mail, postage prepaid, registered or
certified mail, return receipt requested, to the parties at the following
addresses (or to such other address as a party may have specified by notice duly
given to the other party in accordance with this provision):
If to the Employee:
At the Employee's then current business or residence address
as shown on the records of US Can, with a copy to such other
person as the Employee may have specified by
- 3 -
<PAGE> 4
notice duly given to US Can in accordance with this
provision.
If to US Can:
United States Can Company
900 Commerce Drive
Oak Brook, Illinois 60523
Attention: President
With a copy to:
United States Can Company
900 Commerce Drive
Oak Brook, Illinois 60523
Attention: Corporate Secretary
IN WITNESS WHEREOF the parties have executed this Agreement,
in duplicate, on the date first written above.
Employee:
/s/ Frank J. Galvin
----------------------------------------
Frank J. Galvin
United States Can Company
By: /s/ Paul W. Jones
----------------------------------------
Paul W. Jones
Chairman, President and
Chief Executive Officer
U. S. Can Corporation
By: /s/ Paul W. Jones
----------------------------------------
Paul W. Jones
Chairman, President and
Chief Executive Officer
- 4 -
<PAGE> 1
EXHIBIT 10.3
AGREEMENT
Agreement dated July 2, 1998 between U.S. Can Corporation, a Delaware
corporation (the "Company") and William J. Smith ("Smith").
1. Smith hereby resigns as a director of the Company and its
subsidiary, effective July 6, 1998.
2. Smith relinquishes all of his rights under the Stockholders
Agreement dated March 15, 1993, between the Company and certain stockholders
including Smith.
3. Smith relinquishes all rights under his Restricted Stock Agreement
dated February 20, 1997 with the Company, except the right to receive 33,333
shares of the Company's common stock pursuant to that agreement if the NYSE
average closing price for the Company's common stock equals or exceeds $20.00
per share for any consecutive 90 day period from February 20, 1998 through
February 19, 1999.
4. The Company and Smith confirm that they will continue to be governed
by (a) Smith's Employment Agreement with the Company dated March 26, 1993 to the
extent that it applies to the period after Smith's Term of Employment
terminates, as defined therein; and (b) Smith's Supplemental Benefit Agreement
with the Company dated February 27, 1992, and that the Company has no other
post-employment or retirement obligations to Smith, except as stated in this
Agreement. By way of clarification, the
<PAGE> 2
Company confirms that Smith shall receive the balance in his SRAP account
($520,000) on July 7, 1998.
5. If before July 1, 1998, Smith's personal physician gives the Company
a customary notice of Smith's proposed knee replacement surgery, which is to
take place in July, 1998, the Company shall contribute to Smith's medical
expenses arising from the surgery and related rehabilitation in accordance with
the provisions of the Company's Health Plan for salaried employees.
6. The Company will lease its condominium apartment to Smith for (3)
months beginning July 1, 1998 at a fair market rental rate. At the end of the
rental period, Smith shall either purchase the apartment at its fair market
value, or vacate it. In the event that Smith and the Company fail to agree on
the fair market rental rate or fair market value of the property, those amounts
shall be determined by an authorized agent of Sudler and Company.
7. The Company shall not object to Smith providing consulting services
to Daiwa Can Company after July 6, 1998, notwithstanding Section 11 of Smith's
Employment Agreement, provided that Smith continues to comply with the
provisions of paragraph 12 of his Employment Agreement regarding
confidentiality.
8. Smith and the Company shall keep the terms of this agreement
confidential except to the extent that disclosure of any matter is required
under law.
2
<PAGE> 3
9. Neither the Company nor Smith shall make any statements to any
employees, officer or director of the Company or any persons outside the Company
that would demean or damage the reputation of the Company, Smith or any of its
directors, officers or employees.
10. The Company and Smith mutually covenant and agree not to sue each
other with respect to the specific claims described below("Specified Claims");
provided that this agreement shall not be interpreted to foreclose a stockholder
of the Company from attempting to prosecute a derivative action in the name of
the Company; provided further that in the event such a derivative suit is
brought, the Company shall take the position before the trial court that it is
not in the best interest of the Company that such suit be allowed to proceed.
11. As used in paragraph 10, "Specified Claims" shall include only the
following: (a) claims relating to the propriety of Company payments for Steven
Smith's medical expenses; (b) claims relating to the propriety of William Smith,
Jr.'s Separation Agreement dated February 13, 1997; and (c) claims relating to
the propriety of monthly Company payments to Syracuse University. Nothing in
this agreement shall be construed as an admission by Smith or the Company that
any Specified Claim has, or does not have, merit.
U. S. Can Corporation
By:/s/ Paul W. Jones
------------------------
President
/s/ William J. Smith
------------------------
William J. Smith
3
<PAGE> 1
EXHIBIT 10.4
AMENDMENT NO. 2
TO EMPLOYMENT AGREEMENT
This Amendment No. 2 (the "Amendment") to the Employment Agreement (the
"Agreement") by and between United States Can Company, a Delaware corporation
(the "Company") and Anthony F. Bonadonna, an employee of the Company (the
"Employee"), is made and entered into as of September 21, 1998 (the "Effective
Date").
W I T N E S S E T H:
WHEREAS, the Employee has previously entered into the Agreement, and
subsequently entered into a first amendment of the Agreement, under the terms
and conditions set forth therein; and
WHEREAS, the parties wish to further amend the Agreement to provide for
the retirement of the Employee, and consulting services by the Employee after
such retirement.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises,
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, IT
IS HEREBY AGREED, by and between the Employee and the Company that the Agreement
is hereby amended, effective as of the Effective Date, by adding the following
Sections 21 and 22 thereto:
"21. Retirement Date. The Employee's last day of employment with the
Company shall be October 2, 1998, and the immediately following date shall be
the Employee's "Retirement Date." For purposes of this Agreement, the Employee's
retirement in accordance with this Section 21 shall be deemed to be a
termination of employment by the Employee in accordance with Section 6(iii) of
this Agreement.
22. Consulting Obligation. The Company agrees to engage the Employee as
a consultant to the Company for the period beginning on his Retirement Date and
ending on the January 4, 1999 (the "Consulting Period"), and the Employee agrees
to such engagement, subject to the following:
a. The Employee agrees to provide consulting services at the time and on
the subjects requested by the Company. The nature of the consulting
services performed will be determined by the Chief Executive Officer of
the Company, but will not be inconsistent with the nature of the duties
performed by the Employee during his active service as an officer of
the Company.
b. The scheduling of the consulting services will be subject to the following:
i. The Employee will not be required to provide more than 10
hours of consulting services during any one calendar month.
<PAGE> 2
ii. The Employee shall not be required to provide consulting
services under this Amendment during any period in which he
has a physical or mental disability which renders him
incapable, after reasonable accommodation, of performing his
duties under this Section 22.
c. During the Consulting Period, while the Employee is providing
consulting services (or are holding himself available to provide
consulting services) in accordance with this Section 22, the Company
agrees to reimburse the Employee for all of his reasonable
out-of-pocket expenses associated with the provision of consulting
services required in accordance with this Section 22, including travel
expenses. Reimbursement under this Section (c) shall be conditioned
upon the Employee providing evidence of the expenses to the Company in
accordance with the applicable rules that may be established by the
Company from time to time.
d. During the Consulting Period, while the Employee is providing services
to the Company, he shall be treated as an independent contractor,
rather than an employee, of the Company. Except with respect to
benefits the Employee may have earned while he was employed by the
Company prior to the Consulting Period, and except as otherwise
expressly provided in this Section 22, he should not be entitled to any
employee benefits from the Company or from the Affiliates (or from the
plans maintained by them), by reason of his providing consulting
services under this Section 22.
e. As of the end of the Consulting Period, and subject to the provisions
of Section (f) below, as compensation for the requirements of this
Section 22, the Employee shall fully vest in the unvested portion of
the restricted stock. For purposes of this Section 22, the "restricted
stock" shall be the shares of restricted stock granted to the Employee
by the Company as of each of the following three dates: June 23, 1995,
June 28, 1996 and June 23, 1997.
f. The Consulting Period may be terminated prior to January 4, 1999, by
the Company or the Employee without any breach of this Section 22 only
under the circumstances described in the following paragraphs (i)
through (iii):
i. The Consulting Period will terminate upon the Employee's
death.
ii. The Company may terminate the Consulting Period at any time by
giving the Employee prior written notice of termination, which
shall be effective at the time specified by the Company, but
not less than 30 days after it is given to him.
iii. The Employee may terminate the Consulting Period at any time
by giving the Company prior written notice of termination,
which shall be effective at the
2
<PAGE> 3
time specified by him, but not less than 30 days after it is
given to the Company.
Following the termination of the Consulting Period, the Employee shall
have no obligation to provide consulting services under this Section
22. If the termination of the Consulting Period is under circumstances
described in paragraphs (i) or (ii) above, the Employee will
immediately vest in all restricted stock. If the termination is under
circumstances described in paragraph (iii) above, any portion of the
restricted stock that was not vested immediately prior to the
Employee's Retirement Date shall be forfeited."
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the Effective Date.
UNITED STATES CAN COMPANY
/s/ Paul W. Jones
- ------------------------------------
By: Paul D. Jones
Its: President and CEO
Employee
/s/ Anthony F. Bonadonna
- ------------------------------------
Anthony F. Bonadonna
3
<PAGE> 1
EXHIBIT 10.5
EXECUTION COPY
AMENDMENT NO. 4
AND
WAIVER NO. 3
TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDMENT NO. 4 AND WAIVER NO. 3 TO AMENDED AND RESTATED
CREDIT AGREEMENT ("Agreement") is being executed and delivered as of October 15,
1998, by and among United States Can Company, a Delaware corporation (the
"Borrower"), the financial institutions from time to time party to the Amended
and Restated Credit Agreement referred to below (collectively, the "Lenders",
and each individually, a "Lender"), and Bank of America National Trust and
Savings Association, as the "Agent" for the Lenders (the "Agent"). Undefined
capitalized terms which are used herein shall have the meanings ascribed to such
terms in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders and the Agent are parties
to that certain Amended and Restated Credit Agreement dated as of April 25, 1997
(as heretofore amended and modified by that certain Amendment No. 1 and Waiver
No. 1 thereto dated as of November 12, 1997, that certain Amendment No. 2 and
Waiver No. 2 dated as of February 19, 1998, and that certain Amendment No. 3
dated as of September 11, 1998, in each case among such parties, the "Credit
Agreement"), pursuant to which the Lenders have agreed to provide, subject to
the terms and conditions contained therein, certain loans and other financial
accommodations to the Borrower;
WHEREAS, the Borrower has failed to comply with each of the
financial covenants set forth in subparagraphs (b), (c) and (e) of Section 6.3,
in each case with respect to its four fiscal year period ending on October 4,
1998 (hereinafter, the "Covenant Defaults"); and
WHEREAS, the Borrower has requested, and subject to the terms
and conditions of this Agreement the Lenders and the Agent have agreed, (i) to
waive each of the Covenant Defaults, (ii) to temporarily increase the Commitment
Amount from its current level of $80,000,000 to $90,000,000 during the period
commencing on the date hereof and ending on the earlier of the Metal Services
Sale Date and December 31, 1998 and (iii) to modify the definition of EBITDA to
add back up to $49,100,000 of charges (of which not more than $13,000,000 of
which may be cash charges) incurred by the Borrower during its fiscal quarter
ending on October 4, 1998 with respect to its writing down or revaluing assets
outside the ordinary course of its business;
<PAGE> 2
NOW, THEREFORE, in consideration of the foregoing premises,
the terms and conditions stated herein and other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the Borrower, the
Lenders and the Agent, such parties hereby agree as follows:
1. Amendment No. 4 to Credit Agreement. Subject to Paragraph 3
of this Agreement, and effective as of the date of this Agreement, the Credit
Agreement is hereby amended as follows (section and schedule references herein
refer to those of the Credit Agreement):
(a) Section 2.1 is amended to add the following subsection
immediately following Section 2.1.2:
SECTION 2.1.3. Temporary Supplemental Availability.
Subject to Section 2.2 and 7.2, the Commitment Amount shall be
increased by $10,000,000 as of October 15, 1998 and decreased by the
same amount on the earlier to occur of the Metal Services Sale Date and
December 31, 1998.
(b) Schedule I of the Credit Agreement is amended to delete
the word "and" which appears at the end of clause (iv) of the definition of
"EBITDA" set forth therein, to replace such word with a semicolon, and to add
the following clause to the end of such definition:
and (vi) for purposes of computing the Borrower's and its consolidated
Subsidiaries' EBITDA for any four (4) fiscal quarter period which
includes the Borrower's fiscal quarter ended on October 4, 1998 (i.e.,
periods ending on or about October 4, 1998, December 31, 1998, March
31, 1999 and June 30, 1999), in addition to any adjustment made
pursuant to clause (iv) of this definition, but without duplication,
the amount of EBITDA otherwise calculated pursuant to this definition
for such four (4) fiscal quarter period shall be increased by the
aggregate amount of restructuring charges incurred by the Borrower and
its Subsidiaries during the Borrower's fiscal quarter ended on October
4, 1998 to the extent such restructuring charges do not exceed
$49,100,000 in the aggregate and the portion of such charges comprised
of cash charges does not exceed $13,000,000 in the aggregate.
2. Waiver No. 3 to the Credit Agreement. Subject to Paragraph
3 of this Agreement, and effective as of the date of this Agreement, each of the
Lenders and the Agent hereby waiver each of the Covenant Defaults.
3. Effectiveness of this Agreement; Conditions Precedent. The
provisions of Paragraphs 1 and 2 shall be deemed to have become effective as of
the date of this Agreement, but
-2-
<PAGE> 3
such effectiveness shall be expressly conditioned upon the Agent's receipt of
each of the following:
(a) an originally-executed counterpart of this Agreement
executed by a duly authorized officer of the Borrower and by duly authorized
officers of each of the Lenders; and
(b) payment of each "Amendment Fee" due and payable pursuant
to, and as defined in, Paragraph 4(d) hereof.
4. Representations, Warranties and Covenants. (a) The Borrower
hereby represents and warrants that this Agreement constitutes the legal, valid
and binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms.
(b) The Borrower hereby represents and warrants that its
execution and delivery of this Agreement, and its performance hereafter of the
Credit Agreement as modified by this Agreement, have been duly authorized by all
necessary corporate action, do not violate any provision of its certificate of
incorporation, bylaws or other charter documents, will not violate any law,
regulation, court order or writ applicable to it, will not require the approval
or consent of any governmental agency, and do not require the approval or
consent of any third party under the terms of any contract or agreement to which
the Borrower, Parent or any Subsidiary of the Borrower or Parent is bound
(including, without limitation, the Parent Indenture).
(c) The Borrower hereby represents and warrants that, after
giving effect to all of the provisions of this Agreement, (i) no Default or
Event of Default has occurred and is continuing or will have occurred and be
continuing and (ii) all of the representations and warranties of the Borrower
contained in the Credit Agreement (other than representations and warranties
which, in accordance with their express terms, are made only as of a specified
date) are, and will be, true and correct as of the date of the Borrower's
execution hereof in all material respects as though made on and as of such date.
(d) The Borrower hereby agrees to pay to the Agent, for the
benefit of each Lender which executes and delivers a counterpart to this
Agreement prior to October 31, 1998, an amendment fee in an amount equal to
one-tenth of one percent (0.10%) of such Lender's Percentage of the Commitment
Amount as in existence as of the date this Agreement shall become effective and
after giving effect to the increase of the Commitment Amount provided for in
this Agreement (the "Amendment Fee"), provided no such Amendment Fee shall be
due or payable unless the conditions set forth in Paragraph 3(a) shall have been
satisfied. Such payments shall be made in cash or in immediately available funds
to the Agent, for the benefit of each such Lender, promptly
-3-
<PAGE> 4
following the later to occur of such Lender's execution and delivery of a
counterpart to this Agreement and the satisfaction of the conditions set forth
in Paragraph 3(a).
5. Reference to and Effect on Credit Agreement. The Credit
Agreement shall remain in full force and effect and is hereby ratified and
confirmed. Except as is expressly set forth in Paragraph 2 of this Agreement,
neither the execution, delivery nor effectiveness of this Agreement shall
operate as a waiver of any right, power or remedy of the Agent or any Lender of
any Default or Event of Default under the Credit Agreement, all of which the
Agent and the Lenders hereby expressly reserve. Nothing contained herein shall
require the Agent or the Lender to hereafter waive any Default or Event of
Default, or to further amend any provisions of any Loan Document, whether or not
similar to the waivers or amendments effected by this Agreement. The Borrower,
the Lenders and the Agent agree and acknowledge that this Agreement constitutes
a "Loan Document" under and as defined in the Credit Agreement.
6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws and decisions of the State of Illinois.
7. Agent's Expenses. The Borrower hereby agrees to promptly
reimburse the Agent for all of the reasonable out-of-pocket expenses, including,
without limitation, attorneys' and paralegals' fees, it has heretofore or
hereafter incurred or incurs in connection with the preparation, negotiation and
execution of this Agreement.
8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original and all of which together shall
constitute one and the same agreement among the parties.
* * * *
-4-
<PAGE> 5
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the day and year first above written.
UNITED STATES CAN COMPANY
By: /s/ Peter J. Andres
---------------------------------
Name: Peter J. Andres
Title: Vice President - Treasurer
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By: /s/ Jay McKeown
---------------------------------
Name: Jay McKeown
Title: Assistant Vice President
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS
ASSOCIATION, as the Primary
Issuing Lender, a Lender
and individually
By: /s/ Tracy J. Alfery
---------------------------------
Name: Tracy J. Alfery
Title: Managing Director
HARRIS TRUST AND SAVINGS BANK,
as an Issuing Lender and a Lender
By: /s/ Scott F. Geik
---------------------------------
Name: Scott F. Geik
Title: Vice President
-5-
<PAGE> 6
THE NORTHERN TRUST COMPANY,
as a Lender
By: /s/ Daniel A. Toll
---------------------------------
Name: Daniel A. Toll
Title: Second Vice President
SOCIETE GENERALE, CHICAGO,
BRANCH, as a Lender
By: /s/ Michael O. Lincoln
---------------------------------
Name: Michael O. Lincoln
Title: Vice President
-6-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> OCT-04-1998
<CASH> 9,285
<SECURITIES> 0
<RECEIVABLES> 107,417
<ALLOWANCES> 17,066
<INVENTORY> 109,792
<CURRENT-ASSETS> 255,378
<PP&E> 503,750
<DEPRECIATION> 203,234
<TOTAL-ASSETS> 640,692
<CURRENT-LIABILITIES> 187,866
<BONDS> 0
0
0
<COMMON> 132
<OTHER-SE> 46,488
<TOTAL-LIABILITY-AND-EQUITY> 640,692
<SALES> 553,756
<TOTAL-REVENUES> 553,756
<CGS> 483,567
<TOTAL-COSTS> 483,567
<OTHER-EXPENSES> 2,427
<LOSS-PROVISION> 331
<INTEREST-EXPENSE> 25,391
<INCOME-PRETAX> (17,772)
<INCOME-TAX> (7,301)
<INCOME-CONTINUING> (10,471)
<DISCONTINUED> (8,528)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,999)
<EPS-PRIMARY> (1.43)
<EPS-DILUTED> (1.43)
</TABLE>
