<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A-1
Amendment No. 1 to
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 5, 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 July 31,1998, 13,159,760 shares of U.S. Can Corporation's common stock
were outstanding.
1
<PAGE> 2
U.S. CAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JULY 5, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<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 July 5, 1998 3
U.S. Can Corporation and Subsidiaries Condensed Consolidated
Statements of Operations and Comprehensive Income for the
Quarterly and Six-Month Periods Ended July 6, 1997 and
July 5, 1998 4
U.S. Can Corporation and Subsidiaries Condensed Consolidated
Statements of Cash Flows for the Quarterly Periods Ended
July 6, 1997 and July 5, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
2
<PAGE> 3
U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000'S OMITTED, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JULY 5,
1997 1998
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,773 $ 4,731
Accounts receivable, less allowances of $15,134
and $15,435 in 1997 and 1998, respectively 74,137 94,003
Inventories 109,458 110,138
Prepaid expenses and other current assets 17,503 11,807
Prepaid income taxes 22,748 22,398
--------- ---------
Total current assets 230,619 243,077
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 5,485 6,324
Buildings 73,277 73,859
Machinery, equipment and construction in process 427,404 421,708
--------- ---------
506,166 501,891
Less -- Accumulated depreciation and amortization (181,869) (196,411)
--------- ---------
Total property, plant and equipment 324,297 305,480
--------- ---------
MACHINERY REPAIR PARTS 6,396 5,923
INTANGIBLES 59,578 58,646
OTHER ASSETS 12,814 17,618
--------- ---------
Total assets $ 633,704 $ 630,744
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 9,635 $ 7,805
Cash overdrafts 7,800 7,854
Accounts payable 50,686 56,309
Accrued payrolls and benefits 24,358 25,415
Accrued insurance 6,607 8,998
Restructuring reserves 31,645 22,622
Other current liabilities 19,117 24,405
--------- ---------
Total current liabilities 149,848 153,408
--------- ---------
SENIOR DEBT 91,506 73,990
SUBORDINATED DEBT 275,000 275,000
--------- ---------
Total long-term debt 366,506 348,990
--------- ---------
OTHER LONG-TERM LIABILITIES:
Postretirement benefits 27,387 28,219
Deferred income taxes 17,973 19,882
Other long-term liabilities 9,677 10,160
--------- ---------
Total other long-term liabilities 55,037 58,261
--------- ---------
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 13,231,187 shares
issued in 1997 and 1998, respectively 131 132
Paid-in capital 108,003 108,905
Unearned restricted stock (2,558) (1,820)
Treasury common stock, at cost; 44,159 and 71,427
shares in 1997 and 1998, respectively (714) (1,123)
Currency translation adjustment (2,193) (2,542)
Retained deficit (40,356) (33,467)
--------- ---------
Total stockholders' equity 62,313 70,085
--------- ---------
Total liabilities and stockholders' equity $ 633,704 $ 630,744
========= =========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these balance sheets.
3
<PAGE> 4
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 SIX MONTH PERIOD ENDED
---------------------- ----------------------
JULY 6, JULY 5, JULY 6, JULY 5,
1997 1998 1997 1998
---------------------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $196,088 $183,473 400,263 $375,836
COST OF SALES 173,784 160,009 352,556 329,202
-------- -------- -------- --------
Gross income 22,304 23,464 47,707 46,634
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 8,285 8,274 17,112 16,489
-------- -------- -------- --------
Operating income 14,019 15,190 30,595 30,145
INTEREST EXPENSE ON BORROWINGS 9,187 8,404 18,442 17,140
AMORTIZATION OF DEFERRED FINANCING COSTS 455 384 894 764
OTHER EXPENSES 542 428 1,052 867
-------- -------- -------- --------
Income from continuing operations before income taxes 3,835 5,974 10,207 11,374
PROVISION FOR INCOME TAXES 1,469 2,169 3,987 4,487
-------- -------- -------- --------
Income from continuing operations 2,366 3,805 6,220 6,887
NET INCOME FROM DISCONTINUED OPERATIONS 405 - 889 -
-------- -------- -------- --------
NET INCOME 2,771 3,805 7,109 6,887
OTHER COMPONENTS OF COMPREHENSIVE INCOME
(LOSS) 550 316 (4,162) (349)
======== ======== ======== ========
Comprehensive income $ 3,321 $ 4,121 $ 2,947 $ 6,538
======== ======== ======== ========
PER SHARE DATA:
Basic:
Income from continuing operations $ 0.18 $ 0.29 $ 0.48 $ 0.52
Discontinued operations 0.03 - 0.07 -
======== ======== ======== ========
Net income $ 0.21 $ 0.29 $ 0.55 $ 0.52
======== ======== ======== ========
Weighted average shares outstanding (000's) 13,034 13,262 13,014 13,212
Diluted:
Income from continuing operations $ 0.18 $ 0.28 $ 0.47 $ 0.52
Discontinued operations 0.03 - 0.07 -
======== ======== ======== ========
Net income $ 0.21 $ 0.28 $ 0.54 $ 0.52
======== ======== ======== ========
Weighted average shares outstanding (000's) 13,163 13,401 13,159 13,324
</TABLE>
The accompanying Notes to the Condensed Consolidated Financial Statements are an
integral part of these statements.
4
<PAGE> 5
U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(000'S OMITTED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
JULY 6, JULY 5,
1997 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,109 $ 6,887
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization 22,309 19,742
Deferred income taxes 1,043 1,719
Change in operating assets and liabilities, net
of effect of acquired businesses --
Accounts receivable (16,063) (18,503)
Inventories 5,413 (802)
Accounts payable (5,021) 5,623
Accrued payrolls and benefits, insurance and other 3,695 6,654
Postretirement benefits 546 832
Other, net (1,502) 6,394
-------- --------
Net cash provided by operating activities 17,529 28,546
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (30,896) (8,379)
Acquisition of businesses, net of cash acquired (12,476) --
Change in restricted cash 1,283 29
Machinery repair parts usage (purchases), net (89) 473
-------- --------
Net cash used in investing activities (42,178) (7,877)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and exercise of
stock options 108 724
Net borrowings (payments) under the revolving
line of credit and changes in cash overdrafts 19,964 (12,276)
Borrowings of other long-term debt, including
capital lease obligations 18,006 --
Payments of other long-term debt, including
capital lease obligations (10,762) (9,312)
Payments of debt refinancing costs (1,247) (98)
Purchase of treasury stock, net (634) (1,125)
-------- --------
Net cash provided by (used in) financing
activities 25,435 (22,087)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2,593) (624)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (1,807) (2,042)
CASH AND CASH EQUIVALENTS, beginning of period 7,966 6,773
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 6,159 $ 4,731
======== ========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
5
<PAGE> 6
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 5, 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 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. 2 to Annual Report on Form 10-K/A-2
for the year ended December 31, 1997.
Generally, quarterly accounting periods are based upon two four-week
periods and one five-week period. Management believes that this technique
provides a more consistent view of accounting data resulting in greater
comparability than the calendar month basis would provide.
(2) SPECIAL CHARGES AND DISCONTINUED OPERATIONS
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 metal pail operation in North Brunswick,
New Jersey. Such closure would have resulted in certain severance and related
payments, the write-off of several 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 $10.8 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.
The key elements of the third and fourth 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. The Company expects the sale of OMEC will
be completed in 1998.
The third and fourth quarter restructuring provisions included a $41.7
million for the non-cash write-off of assets related to the facilities to be
closed or sold, $13.2 million for severance and related termination benefits for
approximately 115 salaried and 370 hourly employees, 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
6
<PAGE> 7
charge, primarily relates to fixed assets ($32.8 million) which cannot be
transferred or used in the Company's other operations and unamoritized goodwill
related to the closed operations. As of July 5, 1998, approximately $14.9
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. Previous
reporting of the metal pail business as a discontinued operation for the year
ended December 31, 1997 and the quarter ended July 5, 1998 have been amended in
this report so that the results of this business are included in continuing
operations.
The Company is actively seeking to sell its commercial Metal Services
business which it began reflecting as a discontinued operation late in 1997.
Metal Services includes two plants in Chicago, Illinois, one plant each in
Trenton, New Jersey and Brookfield, Ohio and the closed Midwest Litho plant.
1997 revenues from these operations were $116 million (excluding intra-Company
sales which are expected to be continued by the buyer and including third-party
sales from the closed Midwest Litho plant, which have been transferred to other
Metal Services plants). Comparable revenue generated from these facilities in
the first half of 1998 was $55 million. Pending offers which had existed in late
1997 and early 1998 were rejected by the Company or were otherwise terminated
before a sale was completed. As of August 15, 1998, additional offers are being
negotiated, some of which are subject to draft purchase agreements. While a
contract for the sale of Metal Services has yet to be signed, management of the
Company expects that the current negotiations will result in the sale of this
business prior to December 31, 1998. The Company provided for a $2.7 million
after-tax loss on the sale of the Metal Services business, primarily
representing the excess of recorded carrying value over the estimated aggregate
net proceeds for the net assets to be sold in the dispositions. As of July 5,
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 $24.5 million. The Company's historical financial
statements have been restated to reflect the Metal Services business as a
discontinued operation.
As part of its previously announced strategic planning process, the
Company is evaluating the composition of its various manufacturing facilities in
light of current and expected market conditions and demand.
(3) ACQUISITIONS
In January 1997, the Company acquired certain assets from
Owens-Illinois Closure Inc. ("O-I") for cash consideration of $10 million,
subject to adjustment based upon the actual value of the inventory acquired and
potential contingent payments of up to $1.5 million based upon realization of
certain new business which O-I was seeking at the time of the acquisition. The
assets acquired by the Company include machinery, equipment, inventory and raw
materials of O-I's Erie, Pennsylvania metal business. The purchase price
resulted in goodwill of $7.1 million.
In March 1998, one of the European Subsidiaries 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.
(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
$19.2 million at July 5, 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 July 5, 1998.
7
<PAGE> 8
Inventories reported in the accompanying balance sheets were classified
as follows (000's omitted):
<TABLE>
<CAPTION>
DECEMBER 31, JULY 5,
1997 1998
---- ----
<S> <C> <C>
Raw materials $ 33,746 $ 33,335
Work in process 42,763 46,380
Finished goods 28,037 25,744
Machine shop inventory 4,912 4,679
-------- --------
$109,458 $110,138
======== ========
</TABLE>
(5) DEBT OBLIGATIONS
The primary debt obligations of the Company at December 31, 1997
and July 5, 1998 consisted of the following (000's omitted):
<TABLE>
<CAPTION>
DECEMBER 31, JULY 5,
1997 1998
---- ----
<S> <C> <C>
Senior Debt --
Revolving line of credit $ 32,600 $ 20,400
Secured equipment notes 4,825 1,710
Capital lease obligations 30,050 27,131
Secured term loan 24,840 23,849
Industrial revenue bonds 7,500 7,500
Mortgages and other 1,326 1,205
-------- --------
101,141 81,795
Less -- Current maturities (9,635) (7,805)
-------- --------
Total senior debt 91,506 73,990
Senior subordinated 10 1/8% notes 275,000 275,000
-------- --------
Total long-term debt $366,506 $348,990
======== ========
</TABLE>
In April 1997, U.S. Can entered into an Amended and Restated Credit
Agreement with a group of banks (the "Credit Agreement"), which currently
provides an $80 million revolving credit facility (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
Facility 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 July 5, 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 July 5, 1998, U.S. Can had borrowings of $20.4 million
outstanding under the Credit Agreement, $12.3 million in letters of credit had
been issued pursuant thereto, and $47.3 million of unused credit remained
available.
Capital lease obligations mature in varying amounts through 2007 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 3.25% and 8.75%, 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
8
<PAGE> 9
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. The Company
was in compliance with all terms and restrictive covenants of the Credit
Agreement and its other debt agreements as of July 5, 1998.
(6) SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid interest on borrowings of approximately $17.1 million
and $18.0 million for the six-month periods ended July 6, 1997 and July 5, 1998,
respectively.
The Company paid approximately $2.6 million and $1.0 million of income
taxes for the six-month periods ended July 6, 1997 and July 5, 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 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 attempting to appeal 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
9
<PAGE> 10
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.
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 July 5, 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 European Subsidiaries (the "Non-Guarantor Subsidiaries"),
as of December 31, 1997 and July 5, 1998, and for the six-month periods ended
July 6, 1997 and July 5, 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.
10
<PAGE> 11
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
UNITED STATES EUROPEAN
U.S. CAN CAN COMPANY SUBSIDIARIES U.S. CAN
CORPORATION (SUBSIDIARY (NON-GUARANTOR CORPORATION
(PARENT) GUARANTOR) 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>
11
<PAGE> 12
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JULY 5, 1998
(000'S OMITTED)
<TABLE>
<CAPTION>
UNITED STATES EUROPEAN
U.S. CAN CAN COMPANY SUBSIDIARIES U.S. CAN
CORPORATION (SUBSIDIARY (NON-GUARANTOR CORPORATION
(PARENT) GUARANTOR) SUBSIDIARIES) ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 129 $ 4,602 $ -- $ 4,731
Accounts receivable -- 66,340 27,663 -- 94,003
Inventories -- 90,967 19,171 -- 110,138
Prepaid expenses and other assets -- 9,748 2,059 -- 11,807
Prepaid income taxes -- 22,398 -- -- 22,398
-------- -------- -------- --------- --------
Total current assets -- 189,582 53,495 -- 243,077
-------- -------- -------- --------- --------
NET PROPERTY, PLANT AND EQUIPMENT -- 237,120 68,360 -- 305,480
INTANGIBLE ASSETS -- 58,646 -- -- 58,646
OTHER ASSETS 6,931 10,456 6,154 -- 23,541
INVESTMENT IN SUBSIDIARIES 339,041 51,775 -- (390,816) --
-------- -------- -------- --------- --------
Total assets $345,972 $547,579 $128,009 $(390,816) $630,744
======== ======== ======== ========= ========
CURRENT LIABILITIES:
Current maturities of long-
term debt $ -- $ 5,116 $ 2,689 $ -- $ 7,805
Accounts payable -- 44,510 19,653 -- 64,163
Other current liabilities -- 70,454 10,986 -- 81,440
-------- -------- -------- --------- --------
Total current liabilities -- 120,080 33,328 -- 153,408
-------- -------- -------- --------- --------
SENIOR DEBT 46,037 27,953 -- 73,990
SUBORDINATED DEBT 275,000 -- -- -- 275,000
OTHER LONG-TERM LIABILITIES -- 53,020 5,241 -- 58,261
INTERCOMPANY ADVANCES 887 (10,599) 9,712 -- --
STOCKHOLDERS' EQUITY 70,085 339,041 51,775 (390,816) 70,085
-------- -------- -------- --------- --------
Total liabilities and
stockholders' equity $345,972 $547,579 $128,009 $(390,816) $630,744
======== ======== ======== ========= ========
</TABLE>
12
<PAGE> 13
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 6, 1997
<TABLE>
<CAPTION>
UNITED STATES USC EUROPE
U.S.CAN CAN COMPANY (NON- U.S. CAN
CORPORATION (SUBSIDIARY GUARANTOR CORPORATION
(PARENT) GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
NET SALES $ - $ 346,488 $ 53,775 $ - $ 400,263
COST OF SALES - 303,593 48,963 - 352,556
----------- ------------- ------------- ------------ -------------
Gross income - 42,895 4,812 - 47,707
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - 15,021 2,091 - 17,112
SPECIAL CHARGES - - - - -
----------- ------------- ------------- ------------ -------------
Operating income - 27,874 2,721 - 30,595
INTEREST EXPENSE ON BORROWINGS - 17,689 753 - 18,442
AMORTIZATION OF DEFERRED FINANCING COSTS - 894 - - 894
OTHER EXPENSES - 1,052 - - 1,052
EQUITY EARNINGS SUBSIDIARY 7,109 1,676 - (8,785) -
PROVISION FOR INCOME TAXES - 3,695 292 - 3,987
NET INCOME FROM DISCONTINUED OPERATIONS - 889 - 889
=========== ============= ============= ============ =============
NET INCOME (LOSS) $ 7,109 $ 7,109 $ 1,676 $ (8,785) $ 7,109
=========== ============= ============= ============ =============
</TABLE>
13
<PAGE> 14
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 5, 1998
<TABLE>
<CAPTION>
UNITED STATES EUROPEAN
U.S. CAN CAN COMPANY SUBSIDIARIES U.S. CAN
CORPORATION (SUBSIDIARY (NON-GUARANTOR CORPORATION
(PARENT) GUARANTOR) SUBSIDIARIES) ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ ------------
(000'S OMITTED)
<S> <C> <C> <C> <C> <C>
NET SALES $ -- $315,305 $60,531 $ -- $375,836
COST OF SALES -- 275,121 54,081 -- 329,202
------ -------- ------- ------- --------
Gross Income -- 40,184 6,450 -- 46,634
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES -- 14,197 2,292 -- 16,489
------ -------- ------- ------- --------
Operating Income -- 25,987 4,158 -- 30,145
INTEREST EXPENSE ON BORROWINGS -- 15,833 1,307 -- 17,140
AMORTIZATION OF DEFERRED
FINANCING COSTS -- 764 -- -- 764
OTHER EXPENSES -- 867 -- -- 867
EQUITY EARNINGS FROM SUBSIDIARY 6,887 2,007 -- (8,894) --
PROVISION FOR INCOME TAXES -- 3,643 844 -- 4,487
------ -------- ------- ------- --------
NET INCOME $6,887 $ 6,887 $ 2,007 ($8,894) $ 6,887
====== ======== ======= ======= ========
</TABLE>
14
<PAGE> 15
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 6, 1997
(000'S OMITTED)
<TABLE>
<CAPTION>
UNITED STATES EUROPEAN
U.S. CAN CAN COMPANY SUBSIDIARIES U.S. CAN
CORPORATION (SUBSIDIARY (NON-GUARANTOR CORPORATION
(PARENT) GUARANTOR) SUBSIDIARIES) ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES $ -- $ 15,302 $ 2,227 $ -- $ 17,529
------- -------- -------- ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures -- (24,203) (6,693) -- (30,896)
Acquisition of businesses, net
of cash -- (12,476) -- -- (12,476)
Changes in restricted cash -- 1,283 -- -- 1,283
Investment in subsidiaries 1,823 -- -- (1,823) --
Machinery repair parts usage,
net -- (89) -- -- (89)
------- -------- -------- ------- --------
Net cash used in investing
activities 1,823 (35,485) (6,693) (1,823) (42,178)
------- -------- -------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Change in intercompany advances (1,297) 17,557 (16,260) -- --
Issuance of common stock and
exercise of stock options 108 -- -- -- 108
Net borrowings under the
revolving line of credit and
changes in cash overdrafts -- 19,964 -- -- 19,964
Borrowings of other long-term
debt, including capital
lease obligations -- 31 17,975 -- 18,006
Payments of other long-term
debt, including capital
lease obligations -- (9,858) (904) -- (10,762)
Payments of debt refinancing
costs -- (1,247) -- -- (1,247)
Capital contribution from
parent -- (1,823) -- 1,823 --
Purchase of treasury stock, net (634) -- -- -- (634)
------- -------- ------- ------- --------
Net cash provided from
financing activities (1,823) 24,624 811 1,823 25,435
------- -------- ------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH -- -- (2,593) -- (2,593)
------- -------- ------- ------- --------
INCREASE IN CASH AND CASH
EQUIVALENTS -- 4,441 (6,248) -- (1,807)
CASH AND CASH EQUIVALENTS,
beginning of period -- 628 7,338 -- 7,966
------- -------- ------- ------- --------
CASH AND CASH EQUIVALENTS,
end of period $ -- $ 5,069 $ 1,090 $ -- $ 6,159
======= ======== ======= ======= ========
</TABLE>
15
<PAGE> 16
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 5, 1998
(000'S OMITTED)
<TABLE>
<CAPTION>
UNITED STATES EUROPEAN
U.S. CAN CAN COMPANY SUBSIDIARIES U.S. CAN
CORPORATION (SUBSIDIARY (NON-GUARANTOR CORPORATION
(PARENT) GUARANTOR) SUBSIDIARIES) ELIMINATIONS CONSOLIDATED
-------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES: $ -- $ 26,429 $ 2,117 $ -- $ 28,546
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures -- (5,811) (2,568) -- (8,379)
Acquisition of businesses,
net of cash -- -- -- -- --
Changes in restricted cash -- 29 -- -- 29
Machinery repair parts usage,
net -- 263 210 -- 473
------- -------- ------- ------- --------
Net cash used in investing
activities -- (5,519) (2,358) -- (7,877)
------- -------- ------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Change in intercompany advances 401 (3,638) 3,237 -- --
Issuance of common stock and
exercise of stock options 724 -- -- -- 724
Net borrowings under the
revolving lines of credit
and changes in cash overdrafts -- (12,146) (130) -- (12,276)
Borrowings of other long-term
debt, including capital lease
obligations -- -- -- -- --
Payments of other long-term
debt, including capital lease
obligations -- (5,314) (3,998) -- (9,312)
Payments of debt refinancing
costs -- (98) -- -- (98)
Purchase of treasury stock, net (1,125) -- -- -- (1,125)
------- -------- ------- -------- --------
Net cash provided by (used
in) financing activities -- (21,196) (891) -- (22,087)
------- -------- ------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH -- -- (624) -- (624)
------- -------- ------- -------- --------
DECREASE IN CASH AND CASH
EQUIVALENTS -- (286) (1,756) -- (2,042)
CASH AND CASH EQUIVALENTS,
beginning of period -- 415 6,358 -- 6,773
------- -------- ------- -------- --------
CASH AND CASH EQUIVALENTS, end
of period $ -- $ 129 $ 4,602 $ -- $ 4,731
======= ======== ======= ======== ========
</TABLE>
16
<PAGE> 17
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. 2 to Annual
Report on Form 10-K/A-2 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
In November 1997, as part of certain 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.
In addition, as of August 1998, the Company continued to actively work towards
the sale of its commercial Metal Services business which it began reflecting as
a discontinued operation late in 1997. Metal Services includes two plants in
Chicago, Illinois, one plant each in Trenton, New Jersey and Brookfield, Ohio
and the closed Midwest Litho plant. 1997 revenues from these operations were
$116 million (excluding intra-Company sales which are expected to be continued
by the buyer and including third-party sales from the closed Midwest Litho
plant, which have been transferred to other Metal Services plants). Comparable
revenues generated from these facilities in the second quarter and first half of
1998 were $27 million and $55 million, respectively. The Company's historical
financial statements have been restated to reflect the Metal Services business
as a discontinued operation. The following comparisons incorporate these
restatements.
QUARTER ENDED JULY 5, 1998, AS COMPARED TO QUARTER ENDED JULY 6, 1997
Net Sales
Net sales for the quarterly period ended July 5, 1998, totaled $183.5
million, a 6.4% decrease versus the corresponding period in 1997. The loss of a
major aerosol customer, which occurred in the third quarter of 1997, accounted
for a change in excess of 4.0% in period to period consolidated sales. European
sales for the second quarter of 1998 increased 15.7% versus the same period in
1997, representing a 2.2% increase in consolidated sales. The European sales
increase is primarily due to stronger activity in the Schwedt, Germany and
Voghera, Italy operations versus the second quarter of last year. The sale of
the metal pail business accounted for a 3.2% decrease in consolidated sales.
Gross Income
Gross income of $23.5 million for the second quarter of 1998 is up $1.2
million, or 5.2%, versus the second quarter of 1997. Gross margin increased to
12.8% of net sales for the period from 11.4% in the comparable period of 1997.
Second quarter margins reflect improved domestic aerosol demand and operating
benefits resulting from the 1997 restructuring program. The Company's Wales
operation continued its qualification process with its major customer in the
second quarter, which had an adverse effect on gross margin. Early in the third
quarter of 1998, the Wales plant successfully completed commercial
qualification, which is expected to favorably impact results of this operation
going forward.
Operating Income
Operating income in the second quarter of 1998 of $15.2 million or 8.3%
of net sales, compares favorably to $14.0 million or 7.1% of net sales reported
in the second quarter of 1997, as a result of improved gross margins. Selling,
general and administrative expense were flat quarter to quarter with the second
quarter of 1998 reflecting temporary redundancy of expense relating to timing of
management changes.
Interest and Other Expenses
Interest expense in the second quarter of 1998 was down $0.8 million
versus the second 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 $41.6 million since the second
quarter of last year, and $19.3 million since fiscal year end 1997.
Net Income
Second quarter net income of $3.8 million or $0.28 diluted earnings per
share compares favorably to 1997 second quarter net income of $2.8 million or
$0.21 diluted earnings per share. Improved gross margins positively affected net
earnings for the 1998 period.
17
<PAGE> 18
SIX-MONTH PERIOD ENDED JULY 5, 1998 VS. SIX-MONTH PERIOD ENDED JULY 6, 1997
Net Sales
Net sales for the six-month period ended July 5, 1998, totaled $375.8
million, a decrease of 6.1% versus the corresponding period in 1997. The loss of
a major aerosol customer, which occurred in the third quarter of 1997, accounted
for 4.0% of the change in period to period consolidated sales. European sales
for the first half of 1998 increased 12.6% versus the same period in 1997,
representing a 2.0% increase in consolidated sales. The sale of the metal pail
business accounted for a 1.6% decrease in consolidated sales.
Gross Income
Gross income of $46.6 million for the first half of 1998 is down $1.1
million, or 2.2%, versus the same period of 1997. Gross margin of 12.4% of net
sales for the 1998 period is slightly higher than the six-month period of 1997,
at 11.9%. Improved second quarter 1998 margins, resulting from improved domestic
aerosol demand and the operating benefits of the 1997 restructuring program
beginning to materialize, have favorably impacted six-month comparative results.
Early in the third quarter of 1998, the Wales plant successfully completed
commercial qualification, which is expected to favorably impact results of this
operation going forward.
Operating Income
Operating income for the six-month period of 1998 of $30.1 million or
8.0% of net sales, is slightly below operating income of $30.6 million or 7.6%
of net sales reported in the corresponding period of 1997. Stronger gross
margins in the second quarter and operating benefits resulting from the 1997
restructuring program have served to improve 1998 year to date operating income
comparisons to prior year, versus similar comparisons at the end of the first
quarter.
Interest and Other Expenses
Interest expense for the six-month period ended July 5, 1998 of $17.1
million is down $1.3 million or 7.1% versus the corresponding period of 1997.
Continued focus on working capital and capital expenditures, and strong
operating cash flow has resulted in long-term debt (including current
maturities) decreasing $41.6 million since the second quarter of last year, and
$19.3 million since fiscal year end 1997.
Net Income
First half net income of $6.9 million or $0.52 diluted earnings per
share, is down $0.2 million versus the corresponding period of 1997. 1997 first
half diluted earnings per share was $0.54.
LIQUIDITY AND CAPITAL RESOURCES
During the first half of 1998, the Company met its liquidity needs
through internally generated cash flow and borrowings under its credit lines.
During this six-month period, principal liquidity needs included operations
(including restructuring-related expenditures), debt amortization, capital
expenditures and the Company's minority investment in Formametal. Cash flow from
operations was $28.5 million in the first half of 1998, compared to $17.5
million in the first half of 1997. Increased cash from operations resulted from
improved working capital management starting in 1997 and continuing through the
first half of 1998. Additionally, first half 1998 capital expenditures and
business acquisitions were significantly less than in the first half 1997.
The Company expects total capital expenditures in 1998 to be
approximately $20 to $23 million and has spent $8.4 million in the first half of
1998, compared to $30.9 million in the first half of 1997. 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.
In March 1998, one of the European Subsidiaries acquired a 36.5% equity
interest in Formametal, 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.
18
<PAGE> 19
In January 1997, the Company acquired certain assets from
Owens-Illinois Closure Inc. ("O-I") for cash consideration of $10 million,
subject to adjustment based upon the actual value of the inventory acquired and
potential contingent payments of up to $1.5 million based upon realization of
certain new business which O-I was seeking at the time of the acquisition. The
assets acquired by the Company include machinery, equipment, inventory and raw
materials of O-I's Erie, Pennsylvania metal business. The purchase price
resulted in goodwill of $7.1 million.
As of July 5, 1998, U.S. Can had borrowings of $20.4 million
outstanding under the Credit Agreement, $12.3 million in letters of credit had
been issued pursuant thereto, and $47.3 million of unused credit remained
available thereunder. As of July 5, 1998, U.S. Can was in compliance with the
Credit Agreement and its other long-term debt agreements.
Management believes that cash flow from operations, amounts available
under its credit facilities and proceeds from sales of assets 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Required.
19
<PAGE> 20
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The registrant's Annual Meeting of Stockholders was held on April 24,
1998. The following persons were nominated and elected to serve as Directors of
the registrant for a term of three years or until their successors have been
duly elected and qualified:
<TABLE>
<CAPTION>
NOMINEE FOR WITHHELD
------- --- --------
<S> <C> <C>
Calvin W. Aurand, Jr. 12,464,978 3,628
Carl Ferenbach 12,442,591 26,015
Francisco A. Soler 12,414,723 53,883
</TABLE>
In addition, the registrant's appointment of Arthur Andersen LLP to
serve as its independent auditor for fiscal year 1998 was ratified in accordance
with the following vote:
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD
--- ------- --------
<S> <C> <C>
12,464,831 2,662 1,113
</TABLE>
ITEM 5. OTHER INFORMATION.
Paul W. Jones has been elected by the Board of Directors as President
and Chief Executive Officer of the Company, effective April 1, 1998. Mr. Jones
was elected as a director on April 24, 1998 and became Chairman of the Board on
July 1, 1998. Mr. Jones, 49 years old, had been President and Chief Executive
Officer of Greenfield Industries, Inc., a major tool manufacturer located in
Augusta, Georgia, which he joined in 1989. Prior to that, in a 19-year career
with General Electric Company, he held general manager positions in three G.E.
divisions.
Timothy W. Stonich, former Executive Vice President -- Finance, Chief
Financial Officer and Secretary of U.S. Can, resigned from U.S. Can effective
April 6, 1998, to pursue other personal and business interests.
On July 6, 1998, William J. Smith, founder of U.S. Can, resigned from
the Company's Board of Directors. Mr. Smith retired April 1, 1998 from his
position as President and Chief Executive Officer.
On July 10, 1998, the Company announced a corporate reorganization,
with each business operation responsible for marketing, market strategy,
manufacturing, sales and overall business leadership. The Company also created a
Business Support organization which will focus on overall quality assurance,
manufacturing systems and programs, plant rationalizations and restructuring,
and manufacturing technology and strategy for each of the business units. The
Company believes that the reorganization will allow it to respond more
efficiently to customer expectations and to position it for future growth.
On August 10, 1998, John L. Workman joined the Company as Executive
Vice President and Chief Financial Officer. Prior to joining the Company, Mr.
Workman was employed by Montgomery Ward Holding Corporation since 1984 in a
variety of positions, including Vice President, Finance, Chief Financial
Officer, and most recently as Executive Vice President and Chief Restructuring
Officer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
INCORPORATION
EXHIBIT BY REFERENCE
NUMBER DESCRIPTION OF DOCUMENT (IF APPLICABLE)
------ ----------------------- ---------------
<S> <C>
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 July 5, 1998.
</TABLE>
20
<PAGE> 21
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: January 14, 1999 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: January 14, 1999 By: /s/ JOHN L. WORKMAN
----------------------------------
John L. Workman
Executive Vice President and Chief
Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUL-05-1998
<EXCHANGE-RATE> 1
<CASH> 4,731
<SECURITIES> 0
<RECEIVABLES> 94,003
<ALLOWANCES> 15,435
<INVENTORY> 110,138
<CURRENT-ASSETS> 243,077
<PP&E> 501,891
<DEPRECIATION> 196,411
<TOTAL-ASSETS> 630,744
<CURRENT-LIABILITIES> 153,408
<BONDS> 0
0
0
<COMMON> 132
<OTHER-SE> 69,953
<TOTAL-LIABILITY-AND-EQUITY> 630,744
<SALES> 375,836
<TOTAL-REVENUES> 375,836
<CGS> 329,202
<TOTAL-COSTS> 329,202
<OTHER-EXPENSES> 1,631
<LOSS-PROVISION> 280
<INTEREST-EXPENSE> 17,140
<INCOME-PRETAX> 11,374
<INCOME-TAX> 4,487
<INCOME-CONTINUING> 6,887
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,887
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
</TABLE>
