<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 APRIL 4, 1999
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 April 30, 1999, 13,270,207 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 APRIL 4, 1999
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, 1998 and April 4, 1999 4
U.S. Can Corporation and Subsidiaries Condensed Consolidated
Statements of Operations for the Quarterly Periods Ended
April 5, 1998 and April 4, 1999 3
U.S. Can Corporation and Subsidiaries Condensed Consolidated
Statements of Cash Flows for the Quarterly Periods Ended
April 5, 1998 and April 4, 1999 5
U.S. Can Corporation and Subsidiaries Condensed Consolidated
Statements of Comprehensive Income for Quarterly Periods Ended
April 5, 1998 and April 4, 1999 6
Notes to Condensed Consolidated Financial Statements 7
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 2. Changes in Securities and Use of Proceeds 20
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
2
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U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(000's omitted, except per share data)
<TABLE>
<CAPTION>
For the Quarterly Period Ended
----------------------------------
April 5, 1998 April 4, 1999
--------------- ----------------
<S> <C> <C>
NET SALES $ 192,363 $ 184,916
COST OF SALES 169,193 159,039
--------- ---------
Gross income 23,170 25,877
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 8,215 8,257
--------- ---------
Operating income 14,955 17,620
INTEREST EXPENSE ON BORROWINGS 8,736 7,636
AMORTIZATION OF DEFERRED FINANCING COSTS 439 320
OTHER EXPENSES 380 432
--------- ---------
Income before income taxes 5,400 9,232
PROVISION FOR INCOME TAXES 2,318 3,681
--------- ---------
NET INCOME $ 3,082 $ 5,551
========= =========
PER SHARE DATA:
Basic:
Net income $ 0.23 $ 0.42
========= =========
Weighted average shares outstanding (000's) 13,144 13,326
Diluted:
Net income $ 0.23 $ 0.41
========= =========
Weighted average and equivalent shares outstanding (000's) 13,257 13,412
</TABLE>
The accompanying Notes to the Condensed Consolidated Financial Statements are an
integral part of these statements.
3
<PAGE> 4
U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000'S omitted, except per share data)
<TABLE>
<CAPTION>
December 31, April 4,
ASSETS 1998 1999
----------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 18,072 $ 23,971
Accounts receivables, less allowances of
$17,063 and $17,455 as of December 31, 1998
and April 4, 1999, respectively 63,742 83,900
Inventories 94,887 84,051
Prepaid expenses and other current assets 16,011 11,456
Prepaid income taxes 22,934 22,935
--------- ---------
Total current assets 215,646 226,313
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 5,862 5,712
Building 63,026 61,354
Machinery, equipment and construction in process 416,940 408,973
--------- ---------
485,828 476,039
Less -- Accumulated depreciation and amortization (217,826) (218,696)
--------- ---------
Total property, plant and equipment 268,002 257,343
--------- ---------
INTANGIBLE ASSETS, less amortization of $11,853 and $10,916
as of December 31, 1998 and April 4, 1999, respectively 51,928 51,496
OTHER ASSETS 19,995 19,579
--------- ---------
Total assets $ 555,571 $ 554,731
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long term debt $ 6,731 $ 6,214
Accounts payable 52,317 61,180
Accrued payroll, benefits and insurance 31,282 29,355
Restructuring reserves 25,674 23,065
Other current liabilities 23,530 27,150
--------- ---------
Total current liabilities 139,534 146,964
--------- ---------
SENIOR DEBT 45,617 40,788
SUBORDINATED DEBT 264,325 260,514
--------- ---------
Total long-term debt 309,942 301,302
--------- ---------
OTHER LONG-TERM LIABILITIES
Deferred income taxes 5,595 7,313
Other long-term liabilities 50,323 47,149
--------- ---------
Total other long-term liabilities 55,918 54,462
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value;
10,000,000 shares authorized, none issued
or outstanding -- --
Common stock, $0.01 par value;
50,000,000 shares authorized, 13,278,223
and 13,320,907 shares issued as of December 31, 1998 133 133
and April 4, 1999, respectively
Paid -in-capital 109,839 110,259
Unearned restricted stock (829) (679)
Treasury common stock, at cost; 90,011 and 103,834
shares in December 31, 1998 and April 4, 1999, respectively (1,728) (2,027)
Currency translation adjustment (1,443) (5,437)
Accumulated deficit (55,795) (50,246)
--------- ---------
Total stockholders' equity 50,177 52,003
--------- ---------
Total liabilities and stockholders' equity $ 555,571 $ 554,731
========= =========
</TABLE>
The accompanying Notes to the Condensed Consolidated Financial Statements are
an integral part of these statements
4
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U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(000s omitted)
<TABLE>
<CAPTION>
Quarterly Period Ended
CASH FLOWS FROM OPERATING ACTIVITIES: April 5, 1998 April 4, 1999
------------- -------------
<S> <C> <C>
Net income $ 3,082 $ 5,551
Adjustments to reconcile net income to net cash provided by
operating activities --
Depreciation and amortization 10,149 8,817
Deferred income taxes 441 799
Change in operating assets and liabilities, net of effect of acquired
businesses --
Accounts receivable (13,940) (22,170)
Inventories 1,201 5,057
Accounts payable 2,839 4,870
Accrued payrolls and benefits, insurance and other 11,256 (1,839)
Postretirement benefits 465 416
Machinery repair parts usage (purchases), net 525 87
Other, net 4,782 10,858
-------- --------
Net cash provided by operating activities 20,800 12,446
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,828) (4,727)
Acquisition of businesses, net of cash acquired (1,150) --
Proceeds on sale of business -- 4,500
Change in restricted cash 29 --
Proceeds from sale of property -- 553
Investment in Formametal S.A. -- (1,194)
-------- --------
Net cash used in investing activities (4,949) (868)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and exercise of stock options 72 420
Net borrowings under the revolving line of credit and changes in
cash overdrafts (12,757) 3,655
Repurchase of 10 1/8% notes -- (3,811)
Payments of other long-term debt, including capital lease
obligations (2,871) (5,387)
Payments of debt refinancing costs (82) --
Purchase of treasury stock, net (117) (298)
-------- --------
Net cash provided by financing activities (15,755) (5,421)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,332) (258)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,236) 5,899
CASH AND CASH EQUIVALENTS, beginning of year 6,773 18,072
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 5,537 $ 23,971
======== ========
</TABLE>
The accompanying Notes to the Condensed Consolidated Financial Statements are an
integral part of these statements.
5
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U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(000's omitted, except per share data)
For the Quarterly Period Ended
------------------------------
April 5, 1998 April 4, 1999
------------- -------------
Net Income $3,082 $5,551
Foreign Currency
Translation Adjustments (665) (3,995)
------ ------
Comprehensive Income $2,417 $1,556
====== ======
The accompanying Notes to the 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
APRIL 4, 1999
(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, all of which are
foreign companies. 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, in the opinion of management, include normal
recurring adjustments necessary for a fair presentation. 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 Annual Report on Form 10-K for the year ended
December 31, 1998.
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
1997 SPECIAL CHARGES
In 1998, the Company closed its Racine, Wisconsin aerosol assembly
plant, the Sparrows Point litho center in Baltimore, Maryland, and the
California Specialty plant in Vernalis, California. Costs associated with these
actions were recorded and provided for as part of 1997 restructuring charges. In
addition, the 1997 restructuring provision included a write-down to estimated
proceeds for the sale of the Orlando, Florida machine engineering center
("OMEC"). The sale of OMEC was completed on January 29, 1999 for $4.5 million in
cash.
DISCONTINUED OPERATIONS
On November 9, 1998, the Company sold its commercial Metal Services
business for approximately $31 million of net cash proceeds subject to final
working capital adjustments. Revenues to third parties from these operations
were $94.3 million in the period ending November 8, 1998 (excluding
intra-company sales and ongoing third-party sales from the closed Midwest Litho
facility, which were transferred to other Metal Services facilities).
1998 SPECIAL CHARGES
In 1998, the Company established a pre-tax restructuring provision of
$35.9 million for additional plant closings, implementation of a national
lithography strategy, an incremental provision for the anticipated loss on the
sale of OMEC mentioned previously and a reassessment of 1997 special charges.
There have been no significant changes to the estimated costs or timing of the
Company's restructuring estimates.
Cash costs for restructuring activities in the first quarter of 1999
were $2.7 million. The Company anticipates spending another $4.8 million of such
costs in 1999 and $7.8 million in cash costs in the year 2000 and beyond. The
remainder of the
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restructuring provision primarily consists of non-cash items associated with the
write-off of assets.
The Company continuously evaluates the composition of its various
manufacturing facilities in light of current and expected market conditions and
demand. While no formal plans currently exist to further consolidate plant
operations, such actions may be deemed appropriate in the future.
(3) ACQUISITIONS
In March 1998, the Company acquired a 36.5% interest in Formametal S.A.
("Formametal"), an aerosol can manufacturer in Argentina, for $4.6 million,
payable over a 15-month period. In connection with this investment, the Company
provided a guaranty, in an amount not to exceed $2.0 million, to secure the
repayment of certain indebtedness of Formametal. In January 1999, the Company
loaned Formametal $1.0 million for capital expenditures, with all principal and
interest payable in January 2004. In addition, the Company received a three-year
option to convert this loan into additional shares of Formametal, which, if
exercised, would take the Company's interest in Formametal up to 39.8%
(4) INVENTORIES
All domestic inventories, except machine parts, are stated at cost
determined by the last-in, first-out ("LIFO") cost method, not in excess of
market. Inventories of approximately $19.9 million at December 31, 1998, and
$19.5 million at April 4, 1999, 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. FIFO cost of LIFO inventories approximated
their LIFO value at December 31, 1998 and at April 4, 1999.
Inventories reported in the accompanying balance sheets were classified
as follows (000's omitted):
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 4,
1998 1999
------------ --------
<S> <C> <C>
Raw materials $ 21,171 $ 18,860
Work in process 42,146 38,768
Finished goods 26,848 26,423
Machine shop inventory 4,722 --
-------- --------
$ 94,887 $ 84,051
======== ========
</TABLE>
(5) DEBT OBLIGATIONS
The primary debt obligations of the Company at December 31, 1998 and
April 4, 1999 consisted of the following (000's omitted):
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 4,
1998 1999
----------- ---------
<S> <C> <C>
Senior Debt
Capital lease obligations $ 15,511 $ 12,422
Secured term loan 25,128 24,538
Industrial revenue bonds 7,500 7,500
Mortgages and other 4,209 2,542
--------- ---------
52,348 47,002
Less--Current maturities (6,731) (6,214)
--------- ---------
Total senior debt 45,617 40,788
Senior subordinated 10 1/8% notes 264,325 260,514
--------- ---------
Total long-term debt $ 309,942 $ 301,302
========= =========
</TABLE>
In 1997, U.S. Can entered into an Amended and Restated Credit Agreement
with a group of banks (the "Credit Agreement"), originally providing a $110
million revolving credit facility, which was reduced to $80 million in 1998 and
to $50 million on April 13, 1999 because of the Company's reduced needs.
Obligations under the Credit Agreement were secured by U.S. Can's domestic
accounts receivable and inventories, however, this collateral was released in
May, 1999 because of the improved credit profile of the Company. Funds available
under the Credit Agreement
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may be used for general corporate purposes (including working capital needs and
permitted acquisitions).
As of December 31, 1998 and April 4, 1999, U.S. Can had no borrowings
outstanding under the Credit Agreement, $12.3 million and $12.8 million,
respectively, in letters of credit had been issued pursuant thereto, and $67.7
million and $67.2 million, respectively, of unused credit remained available.
The weighted average interest rate of the loans outstanding were, 9.90% and
9.83%, respectively.
In October, 1996, the Corporation issued $275 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
a change of control of the Corporation, as defined, the Noteholders could
require that the Corporation repurchase all or some of the 10 1/8% Notes at a
101% premium. As part of the Company's focus on debt reduction, it repurchased
through the open market and subsequently retired, $10.7 million and an
additional $3.8 million of the outstanding 10 1/8% Notes through December 31,
1998 and April 4, 1999, respectively. Under existing loan agreements the Company
can elect to repurchase up to $40.0 million of the outstanding 10 1/8% Notes.
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. In conjunction with the release of
the collateral, certain covenants were tightened moderately. The covenants also
restrict the Company's ability to distribute dividends, to incur additional
indebtedness, to dispose of assets and to make investments, acquisitions,
mergers and transactions with affiliates. The Company did comply with all
financial ratios and covenants as of April 4, 1999.
(6) SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid interest on borrowings of approximately $2.4 million
and $0.2 million for the quarterly periods ended April 5, 1998 and April 4,
1999, respectively.
The Company paid approximately $1.0 million of income taxes for the
quarterly period ended April 5, 1998 and no income taxes were paid during the
quarter ended April 4, 1999.
During the quarterly periods ended April 5, 1998 and April 4, 1999, the
Company issued stock valued at approximately $0.7 million and $0.9 million,
respectively, into certain of its employee benefit plans.
(7) NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued in June 1998 and will be adopted by the Company in 1999.
This new pronouncement establishes accounting and reporting standards for
derivative instruments and hedging activities. It requires that the Company
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. Management of
the Company does not believe this pronouncement will have a material impact upon
current reporting or results.
(8) SEGMENTATION
The Company has established three segments by which management monitors
and evaluates business performance, customer base and market share. These
segments (Aerosol; Paint, Plastic & General Line and Custom & Specialty) have
separate management teams and distinct product lines.
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The aerosol segment has two units: United States and International. The
segment produces steel aerosol containers for personal care, household,
automotive, paint and industrial products. The Paint, Plastic & General Line
segment produces round cans for paint and coatings, oblong cans for items such
as lighter fluid and turpentine, and plastic containers for industrial and
consumer products. Custom & Specialty produces a wide array of functional and
decorative tins, containers and other products.
The following is a summary of revenues from external customers and
income (loss) from operation for the periods ended April 5, 1998 and April 4,
1999, respectively (000's omitted):
<TABLE>
<CAPTION>
APRIL 5, APRIL 4,
1998 1999
--------- ---------
<S> <C> <C>
REVENUES FROM EXTERNAL CUSTOMERS:
Aerosol $ 127,380 $ 126,706
Paint, Plastic, & General Line 44,682 41,903
Custom & Specialty 20,301 16,307
--------- ---------
Total revenues $ 192,363 $ 184,916
========= =========
INCOME (LOSS) FROM OPERATIONS:
Aerosol $ 18,648 $ 19,870
Paint, Plastic, & General Line 3,513 4,272
Custom & Specialty 2,731 1,735
Corporate and eliminations (9,937) (8,257)
--------- ---------
Total income from operations $ 14,955 $ 17,620
========= =========
</TABLE>
(10) 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 April 4, 1999, 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 other subsidiaries (the "Non-Guarantor Subsidiaries"), as
of December 31, 1998 and April 4, 1999, and for the quarterly periods ended
April 5, 1998 and April 4, 1999. 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.
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U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Quarterly Period Ended April 4, 1999
(Unaudited)
(000's omitted)
<TABLE>
<CAPTION>
United States
Can
U.S. Can Company USC Europe U.S. Can
Corporation (Subsidiary (Non-Guarantor Corporation
(Parent) Guarantor) Subsidiaries) Eliminations Consolidated
----------- ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET SALES $ -- $152,258 $ 32,658 $ -- $184,916
COST OF SALES -- 130,045 28,994 -- 159,039
-------- -------- -------- -------- --------
Gross income -- 22,213 3,664 -- 25,877
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- 6,488 1,769 -- 8,257
-------- -------- -------- -------- --------
Operating income -- 15,725 1,895 -- 17,620
INTEREST EXPENSE ON BORROWINGS -- 6,956 680 -- 7,636
AMORTIZATION OF DEFERRED FINANCING COSTS -- 320 -- -- 320
OTHER EXPENSES -- 432 -- -- 432
EQUITY EARNINGS (LOSS) FROM SUBSIDIARY 5,551 862 -- (6,413) --
PROVISION FOR INCOME TAXES -- 3,328 353 -- 3,681
-------- -------- -------- -------- --------
NET INCOME $ 5,551 $ 5,551 $ 862 $ (6,413) $ 5,551
======== ======== ======== ======== ========
</TABLE>
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U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Quarterly Period Ended April 5, 1998
(Unaudited)
(000's omitted)
<TABLE>
<CAPTION>
United States
Can
U.S. Can Company USC Europe U.S. Can
Corporation (Subsidiary (Non-Guarantor Corporation
(Parent) Guarantor) Subsidiaries) Eliminations Consolidated
----------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET SALES $ -- $162,401 $ 29,962 $ -- $192,363
COST OF SALES -- 142,137 27,056 -- 169,193
-------- -------- -------- -------- --------
Gross income -- 20,264 2,906 -- 23,170
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- 7,104 1,111 -- 8,215
-------- -------- -------- -------- --------
Operating income -- 13,160 1,795 -- 14,955
INTEREST EXPENSE ON BORROWINGS -- 8,041 695 -- 8,736
AMORTIZATION OF DEFERRED FINANCING COSTS -- 380 -- -- 380
OTHER EXPENSES -- 439 -- -- 439
EQUITY EARNINGS (LOSS) FROM SUBSIDIARY 3,082 618 -- (3,700) --
PROVISION FOR INCOME TAXES -- 1,836 482 -- 2,318
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ 3,082 $ 3,082 $ 618 $ (3,700) $ 3,082
======== ======== ======== ======== ========
</TABLE>
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U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
As of April 4, 1999
(Unaudited)
(000s 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>
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 19,134 $ 4,837 $ -- $ 23,971
Accounts receivable -- 55,858 28,042 -- 83,900
Inventories -- 64,523 19,528 -- 84,051
Prepaid expenses and other assets -- 30,811 3,580 -- 34,391
--------- --------- --------- --------- ---------
Total current assets -- 170,326 55,987 -- 226,313
NET PROPERTY, PLANT AND EQUIPMENT -- 191,569 65,774 -- 257,343
INTANGIBLE ASSETS -- 51,496 -- -- 51,496
OTHER ASSETS 266,775 6,522 6,796 (260,514) 19,579
INVESTMENT IN SUBSIDIARIES 45,742 (705) -- (45,037) --
--------- --------- --------- --------- ---------
Total assets $ 312,517 $ 419,208 $ 128,557 $(305,551) $ 554,731
========= ========= ========= ========= =========
CURRENT LIABILITIES
Current maturities of long-term debt $ -- $ 3,493 $ 2,721 $ -- $ 6,214
Accounts payable -- 44,837 16,343 -- 61,180
Other current liabilities -- 69,104 10,466 -- 79,570
--------- --------- --------- --------- ---------
Total current liabilities -- 117,434 29,530 -- 146,964
SENIOR DEBT -- 16,467 24,321 -- 40,788
SUBORDINATED DEBT 260,514 260,514 -- (260,514) 260,514
OTHER LONG-TERM LIABILITIES -- 49,699 4,763 -- 54,462
INTERCOMPANY ADVANCES -- (70,648) 70,648 -- --
STOCKHOLDERS' EQUITY 52,003 45,742 (705) (45,037) 52,003
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 312,517 $ 419,208 $ 128,557 $(305,551) $ 554,731
========= ========= ========= ========= =========
</TABLE>
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U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 1998
(Unaudited)
(000s 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>
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 9,408 $ 8,664 $ -- $ 18,072
Accounts receivable -- 41,461 22,281 -- 63,742
Inventories -- 74,965 19,922 -- 94,887
Prepaid expenses and other assets -- 35,856 3,089 -- 38,945
--------- --------- --------- --------- ---------
Total current assets -- 161,690 53,956 -- 215,646
NET PROPERTY, PLANT AND EQUIPMENT -- 197,677 70,325 -- 268,002
INTANGIBLE ASSETS -- 51,928 -- -- 51,928
OTHER ASSETS 270,587 6,847 6,886 (264,325) 19,995
INVESTMENT IN SUBSIDIARIES 40,383 53,144 -- (93,527) --
--------- --------- --------- --------- ---------
Total assets $ 310,970 $ 471,286 $ 131,167 $(357,852) $ 555,571
========= ========= ========= ========= =========
CURRENT LIABILITIES
Current maturities of long-term debt $ -- $ 3,922 $ 2,809 $ -- $ 6,731
Accounts payable -- 37,089 15,228 -- 52,317
Other current liabilities -- 67,735 12,751 -- 80,486
--------- --------- --------- --------- ---------
Total current liabilities -- 108,746 30,788 -- 139,534
SENIOR DEBT -- 19,134 26,483 -- 45,617
SUBORDINATED DEBT 264,325 264,325 -- (264,325) 264,325
OTHER LONG-TERM LIABILITIES -- 51,656 4,262 -- 55,918
INTERCOMPANY ADVANCES (3,532) (12,958) 16,490 -- --
STOCKHOLDERS' EQUITY 50,177 40,383 53,144 (93,527) 50,177
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 310,970 $ 471,286 $ 131,167 $(357,852) $ 555,571
========= ========= ========= ========= =========
</TABLE>
14
<PAGE> 15
U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTERLY PERIOD ENDED APRIL 4, 1999
(Unaudited)
(000s 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 $ - $ 15,321 $ (2,875) $ - $ 12,446
----------- ------------ -------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - (4,074) (653) - (4,727)
Proceeds on sale of business - 4,500 - - 4,500
Proceeds on sale of property - 553 - - 553
Investment in Formametal - - (1,194) - (1,194)
----------- ------------ -------------- ------------ ------------
Net cash used in investing activities - 979 (1,847) - (868)
----------- ------------ -------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in intercompany advances (122) (3,321) 3,443 - -
Issuance of common stock and exercise of stock options 420 - - - 420
Net borrowings under the revolving line of
credit and changes in cash overdrafts - 3,655 - - 3,655
Repurchase of 10 1/8% notes - (3,811) - - (3,811)
Net payments of other long-term debt, including capital
lease obligations - (3,097) (2,290) - (5,387)
Purchase of treasury stock, net (298) - - - (298)
----------- ------------ -------------- ------------ ------------
Net cash provided by financing activities - (6,574) 1,153 - (5,421)
----------- ------------ -------------- ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH - - (258) - (258)
----------- ------------ -------------- ------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS - 9,726 (3,827) - 5,899
CASH AND CASH EQUIVALENTS, beginning of year - 9,408 8,664 - 18,072
----------- ------------ -------------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ - $ 19,134 $ 4,837 $ - $ 23,971
=========== ============ ============== ============ ============
</TABLE>
15
<PAGE> 16
U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTERLY PERIOD ENDED APRIL 5, 1998
(Unaudited)
(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 $ -- $ 18,884 $ 1,916 $ -- $ 20,800
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- (2,762) (1,066) -- (3,828)
Acquisition of businesses, net of cash acquired -- -- (1,150) -- (1,150)
Changes in restricted cash -- 29 -- -- 29
-------- -------- -------- -------- --------
Net cash used in investing activities -- (2,733) (2,216) -- (4,949)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in intercompany advances 45 (2,115) 2,070 -- --
Issuance of common stock and exercise of stock options 72 -- -- -- 72
Net borrowings under the revolving line of
credit and changes in cash overdrafts -- (12,543) (214) -- (12,757)
Borrowings of other long-term debt, including capital lease
obligations -- -- -- -- --
Payments of other long-term debt, including capital lease
obligations -- (1,715) (1,156) -- (2,871)
Payments of debt refinancing costs -- (82) -- -- (82)
Purchase of treasury stock, net (117) -- -- -- (117)
-------- -------- -------- -------- --------
Net cash provided by financing activities -- (16,455) 700 -- (15,755)
-------- -------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- -- (1,332) -- (1,332)
-------- -------- -------- -------- --------
INCREASE IN CASH AND CASH EQUIVALENTS -- (304) (932) -- (1,236)
CASH AND CASH EQUIVALENTS, beginning of year -- 415 6,358 -- 6,773
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, end of year $ -- $ 111 $ 5,426 $ -- $ 5,537
======== ======== ======== ======== ========
</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 Annual Report on Form 10-K
for the fiscal year ended December 31, 1998. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained therein.
RESULTS OF OPERATIONS
On November 9, 1998, U.S. Can sold substantially all of the assets of
its commercial Metal Services business and, accordingly, the Metal Services
business was shown as a discontinued operation. 1998 revenues of the Metal
Services business up to the point of the sale were $94.3 million. The Company
also sold its machine engineering center in Orlando, Florida ("OMEC") for $4.5
million on January 29, 1999. Revenues from this location were $8.2 million in
1998. In addition, as of May 1999, the Company continues to actively work
towards the sale of its Metal Closure business which operates out of the
Glendale, West Virginia facility. 1998 revenues from this operation were $18.1
million and comparable revenues from this facility in the first quarter of 1999
were $4.1 million.
QUARTER ENDED APRIL 4, 1999, AS COMPARED TO QUARTER ENDED APRIL 5, 1998
Net Sales
Net sales for the quarter ended April 4, 1999, totaled $184.9 million,
a 3.9% decrease versus the corresponding period in 1998. This decrease was
principally due to liquidation of excess holiday products in the Custom &
Specialty segment in 1998 and the sale of OMEC.
Along business segment lines, Aerosol net sales in the first quarter of
1999 were $126.7 resulting in a slight decline of 0.5%. The decrease is due to
the sale of OMEC (accounting for a 1.9% decrease in period-to-period sales),
which was part of the Aerosol segment, offset by improved European net sales due
to the qualification of the Wales facility with its primary customer. The Paint,
Plastic and General Line segment had a 6.2% decrease in net sales due to reduced
customer requirements during the current period (1998 volume in this segment was
unseasonably strong). In the Custom & Specialty segment, sales of $16.3 million
were down 19.7% versus the first quarter of 1998 largely due to significant
liquidation of excess holiday products in early 1998. The Custom & Specialty
group continues to focus on product development and enhancements to expand its
customer base.
Gross Income
Gross income of $25.9 million for the first quarter of 1999 was up $2.7
million, or 11.7%, versus the first quarter of 1998. Gross margin increased to
14.0% of net sales for the period from 12.0% in the comparable period last year.
The primary factors influencing the increase were the operating benefits being
realized from the 1997 and the 1998 restructuring programs, sharp focus on
productivity improvements, and the Wales operation ramping up its activity.
Aerosol gross income increased 6.6%, which is due to the Welsh
operation advancing beyond the qualification process with its principal customer
during the second half of 1998. Paint, Plastic and General Line had a strong
first quarter increase of 21.6% due largely to productivity enhancements. Custom
& Specialty gross income decreased from $2.7 million for the first quarter of
1998 to $1.7 million for the first quarter of 1999 as a result of lower sales
levels. Certain expenses are not allocated to specific business segments. These
charges include corporate engineering costs and other miscellaneous charges.
Operating Income
Operating income in the first quarter of 1999 was $17.6 million versus
$15.0 million in the first quarter of 1998. Higher gross margins in 1999
favorably impacted
17
<PAGE> 18
operating income. Selling, general, and administrative expenses were flat
compared to the same period a year ago.
Interest and Other Expenses
Interest expense in the first quarter of 1999 was down 12.6%, or $1.1
million, versus the first quarter of 1998. Tighter controls on working capital
and capital expenditures coupled with strong operating cash flows have resulted
in long-term debt reductions of $55.8 million since the first quarter of last
year and $9.2 million since year-end 1998.
Net Income
First quarter net income of $5.6 million ($0.41 diluted earnings per
share) was up $2.5 million versus the same period last year. 1998 first quarter
net income was $3.1 million or $0.23 diluted earnings per share. Positive gross
margin impact and a decrease in interest expense are the two primary components
for the growth in net income.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1999, the Company met its liquidity needs
through internally generated cash flow. Principal liquidity needs included
operations, debt amortization, capital expenditures and the Company's minority
investment in Formametal (see Note(3) to the Condensed Consolidated Financial
Statements). Cash flow from operations was $12.5 million in the first quarter of
1999, compared to $20.3 million in the first quarter of 1998. Cash outflows in
the first quarter of 1999 include $2.7 million of payments related to
restructuring costs. The Company anticipates spending another $4.8 million of
such costs during the remainder of 1999.
As of April 5, 1999, U.S. Can had no borrowings outstanding under the
Credit Agreement, $12.8 million in letters of credit had been issued pursuant
thereto, and $67.2 million of unused credit remained available thereunder. On
April 13, 1999, the revolver was reduced from $80 million to $50 million due to
the Company's reduced borrowing needs. As of April 5, 1999, U.S. Can was in
compliance with the Credit Agreement and its other long-term debt agreements
(see Note (5) to the Condensed Consolidated Financial Statements for a
description of the Credit Agreement).
The Company expects total capital expenditures in 1999 to be
approximately $30 to $33 million and has spent $4.7 million in the first
quarter. 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.
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. The Company believes future strategic
acquisition opportunities are important to its growth and should they arise, the
Company would expect to finance them though some combination of cash, stock
and/or debt financing.
YEAR 2000
Management has reviewed, evaluated and assessed the implication of the
Year 2000 issue and believes that it will not pose significant operational
problems for the Company. The Company continues to make progress on its action
plan to address all Year 2000 issues. If Year 2000 issues are not identified, or
assessment, remediation and testing are not effected in a timely manner, it is
possible that the Year 2000 issue will materially and adversely impact the
Company's results of operations. It is also possible that there will be an
adverse impact on its relationships with customers, vendors, or others. Any
failure to become Year 2000 compliant by banks, vendors, customers, and
governmental agencies may also have an impact on the results of the Company to
the extent they relate to the Company's ongoing operations and business
requirements.
18
<PAGE> 19
FORWARD LOOKING STATEMENT
Certain statements in this filing constitute "forward-looking
statements" within the meaning of the Federal securities laws. Such statements
involve known or unknown risks and uncertainties which may cause the Company's
actual results, performance or achievements to be materially different than
future results, performance or achievements expressed or implied in this filing.
By way of example and not limitation and in no particular order, known risks and
uncertainty 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; changes in raw
material costs; the effect Year 2000 may have on computer systems; and currency
fluctuation. In light of these and other risks and uncertainties, the inclusion
of a forward-looking statement in this filing should not be regarded as a
representation by the Company that any future results, performance or
achievement will be attained.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management does not believe the Company's exposure to market risk has
significantly changed since year-end 1998 and believes that such risks are not
material.
19
<PAGE> 20
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In March 1999, the Company contributed shares of Common Stock, valued
at approximately $850,000, to U.S. Can's Salaried Employee Savings and
Retirement Accumulation Plan ("SRAP"). These shares are held by a trustee for
the benefit of the SRAP participants, who have an indirect beneficial interest
in the Common Stock held by the trustee. The transaction between the Company and
the trustee is exempt pursuant to Section 4(2) of the Securities Act of 1933.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
INCORPORATION
EXHIBIT BY REFERENCE
NUMBER DESCRIPTION OF DOCUMENT (IF APPLICABLE)
- ------ ----------------------- ---------------
27.1 Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
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: May 19, 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: May 19, 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
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> APR-04-1999
<CASH> 23,971
<SECURITIES> 0
<RECEIVABLES> 83,900
<ALLOWANCES> 17,455
<INVENTORY> 84,051
<CURRENT-ASSETS> 226,313
<PP&E> 476,039
<DEPRECIATION> 218,696
<TOTAL-ASSETS> 554,731
<CURRENT-LIABILITIES> 146,964
<BONDS> 0
133
0
<COMMON> 0
<OTHER-SE> 51,870
<TOTAL-LIABILITY-AND-EQUITY> 554,731
<SALES> 184,916
<TOTAL-REVENUES> 184,916
<CGS> 159,039
<TOTAL-COSTS> 159,039
<OTHER-EXPENSES> 752
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 7,636
<INCOME-PRETAX> 9,232
<INCOME-TAX> 3,681
<INCOME-CONTINUING> 5,551
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,551
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.41
</TABLE>
