<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 1, 2000
COMMISSION FILE NUMBER 0-21314
U.S. CAN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
06-1094196
(I.R.S. EMPLOYER IDENTIFICATION NO.)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
900 COMMERCE DRIVE
OAK BROOK, ILLINOIS 60523
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(630) 571-2500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act") during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of October 4, 2000, 53,333,000 shares of Common Stock were outstanding in
the recapitalized Corporation.
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U.S. CAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED OCTOBER 1, 2000
TABLE OF CONTENTS
<TABLE>
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PAGE
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
U.S. Can Corporation and Subsidiaries Consolidated
Statements of Operations for the Quarterly and Nine Month
Periods Ended October 1, 2000 and October 3, 1999 1
U.S. Can Corporation and Subsidiaries Consolidated
Balance Sheets as of October 1, 2000 and December 31, 1999 2
U.S. Can Corporation and Subsidiaries Consolidated
Statements of Cash Flows for the Nine Months Ended
October 1, 2000 and October 3, 1999 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
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U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(000'S OMITTED, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE QUARTERLY PERIOD ENDED FOR THE NINE MONTHS ENDED
----------------------------------- ------------------------------------
OCTOBER 1, 2000 OCTOBER 3, 1999 OCTOBER 1, 2000 OCTOBER 3, 1999
---------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
NET SALES $ 194,655 $ 178,123 $ 607,000 $ 549,812
COST OF SALES 164,933 152,742 517,562 470,116
--------- --------- --------- ---------
Gross income 29,722 25,381 89,438 79,696
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 10,079 8,133 32,457 25,001
SPECIAL CHARGES 3,413 -- 3,413 --
--------- --------- --------- ---------
Operating income 16,230 17,248 53,568 54,695
INTEREST EXPENSE ON BORROWINGS 8,184 6,841 24,556 21,758
AMORTIZATION OF DEFERRED FINANCING COSTS 381 278 1,161 898
OTHER EXPENSES 624 432 1,910 1,296
--------- --------- --------- ---------
Income before income taxes 7,041 9,697 25,941 30,743
PROVISION FOR INCOME TAXES 2,665 3,691 9,807 12,048
--------- --------- --------- ---------
Income from operations before
extraordinary item 4,376 6,006 16,134 18,695
EXTRAORDINARY ITEM, net of income taxes
Net loss from early extinguishment of debt -- (488) -- (1,296)
--------- --------- --------- ---------
NET INCOME $ 4,376 $ 5,518 $ 16,134 $ 17,399
========= ========= ========= =========
PER SHARE DATA:
Basic:
Income from operations before
extraordinary item $ 0.32 $ 0.45 $ 1.19 $ 1.40
Extraordinary item -- (0.04) -- (0.10)
--------- --------- --------- ---------
Net income $ 0.32 $ 0.41 $ 1.19 $ 1.30
========= ========= ========= =========
Weighted average shares outstanding (000's) 13,533 13,477 13,539 13,396
Diluted:
Income from operations before
extraordinary item $ 0.32 $ 0.44 $ 1.17 $ 1.38
Extraordinary item -- (0.04) -- (0.10)
--------- --------- --------- ---------
Net income $ 0.32 $ 0.40 $ 1.17 $ 1.28
========= ========= ========= =========
Weighted average and equivalent shares
outstanding (000's) 13,772 13,739 13,828 13,555
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these statements.
1
<PAGE> 4
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000'S omitted, except per share data)
<TABLE>
<CAPTION>
OCTOBER 1, DECEMBER 31,
ASSETS 2000 1999
---------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,414 $ 15,697
Accounts receivables, less allowances of $10,871 and $13,367
as of October 1, 2000 and December 31, 1999, respectively 107,377 91,864
Inventories 112,580 115,979
Prepaid expenses and other current assets 21,261 19,677
Prepaid income taxes 16,116 16,114
--------- ---------
Total current assets 264,748 259,331
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 6,598 14,541
Buildings 65,109 83,106
Machinery, equipment and construction in process 432,756 463,400
--------- ---------
504,463 561,047
Less -- Accumulated depreciation and amortization (232,759) (228,543)
--------- ---------
Total property, plant and equipment 271,704 332,504
--------- ---------
INTANGIBLE ASSETS, less amortization of $13,042 and $12,211 as of
October 1, 2000 and December 31, 1999, respectively 65,144 50,478
OTHER ASSETS 24,429 21,257
--------- ---------
Total assets $ 626,025 $ 663,570
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 10,955 $ 38,824
Accounts payable 108,478 104,189
Accrued payroll, benefits and insurance 24,309 29,500
Restructuring reserves 13,652 25,016
Other current liabilities 36,273 24,068
--------- ---------
Total current liabilities 193,667 221,597
--------- ---------
SENIOR DEBT 71,239 83,864
SUBORDINATED DEBT 236,629 236,629
--------- ---------
Total long-term debt 307,868 320,493
--------- ---------
OTHER LONG-TERM LIABILITIES
Deferred income taxes 13,259 10,670
Other long-term liabilities 42,700 42,254
--------- ---------
Total other long-term liabilities 55,959 52,924
--------- ---------
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,
13,659,278 and 13,446,933 shares issued as of October 1, 2000
and December 31, 1999, respectively 137 135
Paid -in-capital 114,541 112,840
Unearned restricted stock (305) (629)
Treasury common stock, at cost; 85,873 and 83,024 shares at
October 1, 2000 and December 31, 1999, respectively (1,868) (1,380)
Currency translation adjustment (25,469) (7,771)
Accumulated deficit (18,505) (34,639)
--------- ---------
Total stockholders' equity 68,531 68,556
--------- ---------
Total liabilities and stockholders' equity $ 626,025 $ 663,570
========= =========
</TABLE>
The accompanying Notes to the Consolidated Financial Statements are
an integral part of these balance sheets
2
<PAGE> 5
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000'S OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTH PERIOD ENDED
OCTOBER 1, 2000 OCTOBER 3, 1999
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,134 $ 17,399
Adjustments to reconcile net income to net cash provided by
operating activities --
Depreciation and amortization 26,788 25,419
Special Charge 3,413 --
Extraordinary loss on extinguishment of debt -- 1,296
Deferred income taxes 3,004 2,240
Change in operating assets and liabilities, net of effect of
acquired and disposed of businesses:
Accounts receivable (27,386) (16,835)
Inventories (7,450) 5,847
Accounts payable 12,873 12,383
Accrued payroll, benefits and insurance 1,768 9,712
Other, net (3,196) 1,877
-------- --------
Net cash provided by operating activities 25,948 59,338
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (16,519) (19,713)
Proceeds from sale of business 12,088 4,500
Proceeds from sale of property 7,855 556
Investment in Formametal S.A (4,914) (1,644)
-------- --------
Net cash used in investing activities (1,490) (16,301)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and exercise of stock options 1,700 1,959
Repurchase of 10 1/8% notes -- (27,696)
Payments of long-term debt, including capital lease obligations (33,993) (2,478)
Purchase of treasury stock (488) (210)
-------- --------
Net cash used in financing activities (32,781) (28,425)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 40 1
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,283) 14,613
CASH AND CASH EQUIVALENTS, beginning of year 15,697 18,072
-------- --------
CASH AND CASH EQUIVALENTS, end of year $ 7,414 $ 32,685
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
3
<PAGE> 6
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 1, 2000
(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 (collectively, the
"Company"). All significant intercompany balances and transactions have been
eliminated. 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. Generally, quarterly accounting periods are
based upon two four-week periods and one five-week period. These financial
statements are to 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, 1999.
(2) SPECIAL CHARGES
On July 7, 2000, the Company announced a reduction in force program, under
which 70 salaried and 24 hourly positions have been eliminated. A one-time
charge of $3.4 million for severance and other termination related costs was
recorded in the third quarter of 2000. The Company expects to realize annual
savings of $5.0 million from this program.
On March 10, 2000, the Company sold its Wheeling metal closures and the
Warren lithography businesses for $12.1 million in cash. The Company established
a disposition provision for the anticipated loss on the sale of the metal
closures business in connection with the special charge taken in 1998.
Cash costs for restructuring activities in the first nine months of 2000
were $2.9 million. The Company anticipates spending another $3.2 million of such
costs in 2000 and $9.3 million in cash costs in 2001 and beyond.
The Company continuously evaluates the composition of its various
manufacturing facilities in light of current and expected market conditions and
demand.
(3) ACQUISITIONS
On December 30, 1999, the Company acquired all of the partnership interests
of May Verpackungen GmbH & Co., KG ("May"), a German limited liability company.
The acquisition was financed using the borrowings made by U.S. Can under the
Credit Agreement (see Note 6) for an aggregate amount of $64.6 million.
The following is a summary of the preliminary allocation of the aggregate
purchase price for May (000's omitted):
Current Assets $ 53,744
Property, Plant and Equipment 53,037
Goodwill 21,880
Other Assets 3,708
Current Portion of Long Term Debt (17,023)
Current Liabilities (38,722)
Long-Term Debt (6,552)
Other Liabilities (5,484)
---------
Total Purchase Price $ 64,588
=========
The acquisition was accounted for as a purchase for financial reporting
purposes; therefore 1999 results do not include operations related to the
acquired business. Certain assets and liabilities of May were revalued to
estimated fair values as of the acquisition date. The final amounts recorded may
differ based on results of further evaluations of the fair value of the acquired
assets and liabilities.
4
<PAGE> 7
The following represents the Company's unaudited pro forma results of operations
for the third quarter and first nine months of 1999 as if the May acquisition
had occurred on January 1, 1999 (000's omitted, except per share data):
THIRD QUARTER 1999 FIRST NINE-MONTHS 1999
------------------ ----------------------
Net Sales $ 216,782 $656,754
Net Income 6,201 18,268
Diluted Per Share Data:
Net Income $0.45 $1.34
May's pre-acquisition results have been adjusted to reflect amortization of
goodwill, the depreciation expense impact of the increased fair market value of
property, plant and equipment, interest expense on acquisition borrowings,
changes in contractual agreements and the effect of income taxes on the pro
forma adjustments. The pro forma information given above does not purport to be
indicative of the results that would have been obtained if the operations were
combined during the periods presented and is not intended to be a projection of
future results or trends.
(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 $47.2 million at October 1, 2000 and $49.6
million at December 31, 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 October 1, 2000 and at December 31, 1999.
Inventories reported in the accompanying balance sheets were classified as
follows (000's omitted):
OCTOBER 1, DECEMBER 31,
2000 1999
--------- ------------
Raw materials $ 25,920 $ 30,821
Work in process 50,324 49,884
Finished goods 36,336 35,274
--------- --------
$ 112,580 $115,979
========= ========
(5) RECENT DEVELOPMENTS
On October 4, 2000, U.S. Can Corporation and Berkshire Partners LLC
completed a recapitalization of the Company through a merger. As a result of the
recapitalization, all of U.S. Can's common stock, other than certain shares held
by designated continuing shareholders (the rollover shareholders), was converted
into the right to receive $20.00 in cash per share and options to purchase
approximately 1.6 million shares of U.S. Can's common stock were retired in
exchange for a cash payment of $20.00 per underlying share, less the applicable
option price. Certain shares held by the rollover shareholders were converted
into the right to receive $20.00 in cash per share and certain shares held by
the rollover shareholders were converted into the right to receive shares of
capital stock of the surviving corporation in the merger.
The recapitalization was financed by:
- a $106.7 million preferred stock investment by Berkshire Partners, its
co-investors and certain of the rollover stockholders;
- a $53.3 million common stock investment by Berkshire Partners, its
co-investors, certain of the rollover stockholders and management;
- $260.0 million in term loans under a new senior bank credit facility;
- $20.5 million in borrowings under a new revolving credit facility; and
- $175.0 million from the sale of 12 3/8% Senior Subordinated Notes due
2010.
Funds generated from the recapitalization were used to retire all of the
borrowings outstanding under the Company's former the credit agreement, to repay
the principal, accrued interest and tender premium applicable to U.S. Can's 10
1/8% Notes due 2006, to pay fees and expenses associated with the transaction
and to make payments to U.S. Can's existing stockholders and optionholders as
previously described. The recapitalization will have a significant impact on the
balance sheet and results of operations of the Company. The Company expects to
record a charge of approximately $16.4 million related to the recapitalization
in the fourth quarter of 2000.
5
<PAGE> 8
(6) DEBT OBLIGATIONS
In connection with the recapitalization discussed above, the Company entered
into a Credit Agreement among United States Can Company, as Borrower, U.S. Can
Corporation and Domestic Subsidiaries of U.S. Can Corporation as Domestic
Guarantors, and certain lenders including Bank of America, N.A., Citicorp North
America, Inc., and Bank One NA as of October 4, 2000 (the "Senior Secured Credit
Facility"). The Senior Secured Credit Facility provides for aggregate borrowings
of $400.0 million consisting of: (i)$80.0 million tranche A loan; (ii) $180.0
million tranche B loan; and (iii) $140.0 million in availability under a
revolving credit facility. All of the term debt and approximately $20.5 million
under the revolving credit facility were used to finance the recapitalization.
Amounts outstanding under the Senior Secured Credit Facility bear interest
at a rate per annum equal to either: (1) the base rate (as defined in the Senior
Secured Credit Facility) or (2) the LIBOR rate (as defined in the Senior Secured
Credit Facility), in each case, plus an applicable margin. The applicable
margins are subject to future reductions based on the achievement of certain
leverage ratio targets and on senior secured credit rating. The applicable
margins are not subject to reduction until after March 2001.
Borrowings under the tranche A term loan are due and payable in quarterly
installments, which are initially $1.0 million and increase over time to $8.0
million, until the final balance is due on October 4, 2006. Borrowings under the
tranche B term loan are due and payable in quarterly installments (the quarterly
payments due before December 31, 2006 being in nominal amounts), with the final
balance due on October 4, 2008. The revolving credit facility is available until
October 4, 2006. In addition, the Company is required to prepay a portion of the
facilities under the Senior Secured Credit Facility upon the occurrence of
certain specified events.
The Senior Secured Credit Facility is secured by a first priority security
interest in all existing and after-acquired assets of the Company and its direct
and indirect domestic subsidiaries' existing and after-acquired assets,
including, without limitation, real property and all of the capital stock owned
of our direct and indirect domestic subsidiaries (including certain capital
stock of their direct foreign subsidiaries only to the extent permitted by
applicable law). In addition, if loans are made to foreign subsidiaries, they
will be secured by the existing and after-acquired assets of certain of our
foreign subsidiaries.
The Company also issued $175.0 million aggregate principal amount of 12 3/8%
Senior Subordinated Notes due October 1, 2010 (" Notes"). The Notes are
unsecured obligations of U.S. Can and are subordinated in right of payment to
all of U.S. Can's senior indebtedness. The Notes are guaranteed by the
Corporation and all of U.S. Can's domestic restricted subsidiaries.
Both the Senior Secured Credit Facility and the Notes contain a number of
financial and restrictive covenants. In general, the financial covenants require
the achievement of specified earnings and debt levels. The restrictive covenants
limit the Company's ability to incur debt, pay dividends or make distributions,
sell assets or consolidate or merge with other companies.
As part of the debt-refinancing portion of the recapitalization, the
Corporation completed a tender offer and consent solicitation for all of its
outstanding 10 1/8% notes due 2006, plus accrued interest and a bond tender
premium. $235.7 million of the $236.6 million principal amount of bonds
outstanding were purchased by the Corporation in the tender offer. An
extraordinary charge related to the tender premium and the write-off of
remaining deferred financing charges will be taken in the fourth quarter of
2000.
As of October 1, 2000, after giving pro forma effect to the
recapitalization, there would have been approximately $502.1 million of
outstanding indebtedness. For further discussion of the recapitalization see
Note (5).
(7) SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid interest of approximately $13.9 million and $14.3 million
for the nine-month periods ended October 1, 2000 and October 3, 1999,
respectively.
The Company paid approximately $0.4 million and $0.8 million of income taxes
for the nine-month periods ended October 1, 2000 and October 3, 1999,
respectively.
During the nine-month period ended October 3, 1999, the Company issued stock
valued at approximately $0.9 million to certain of its employee benefit plans.
No stock was contributed in 2000.
6
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(8) NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued in June 1998 (amended by SFAS No. 137 to delay
implementation) and will be adopted by the Company in 2001. 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. The Company is evaluating
SFAS No. 133, but does not believe this pronouncement will have a material
impact on the Company's financial position or results of operations.
(9) BUSINESS SEGMENTS
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.
The aerosol segment produces steel aerosol containers for personal care,
household, automotive, paint and industrial products and has two units: United
States and International. The Paint, Plastic & General Line segment produces
round metal 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 and other containers, and beginning in the first quarter of 2000, the pet
food and specialty food containers of May. The May acquisition was accounted for
as a purchase for financial reporting purposes; therefore, previously reported
1999 results did not include May's operations. For the year ended December 31,
1999, identifiable assets of May were reported as part of the Aerosol segment.
The following is a summary of revenues from external customers and income
(loss) from operations for the three and nine-month periods ended October 1,
2000 and October 3, 1999, respectively (000's omitted):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 1, OCTOBER 3, OCTOBER 1, OCTOBER 3,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES FROM EXTERNAL CUSTOMERS:
Aerosol $114,731 $119,787 $362,786 $372,742
Paint, Plastic, & General Line 39,722 41,135 120,468 127,209
Custom & Specialty 40,202 17,201 123,746 49,861
-------- -------- -------- --------
Total revenues $194,655 $178,123 $607,000 $549,812
======== ======== ======== ========
INCOME (LOSS) FROM OPERATIONS:
Aerosol $ 19,986 $ 20,976 $ 62,411 $ 66,735
Paint, Plastic, & General Line 4,070 4,190 10,475 14,380
Custom & Specialty 5,666 3,016 16,552 7,070
Corporate and eliminations (13,492) (10,934) (35,870) (33,490)
-------- -------- -------- --------
Total income from operations $ 16,230 $ 17,248 $ 53,568 $ 54,695
======== ======== ======== ========
</TABLE>
(10) COMPREHENSIVE NET INCOME
The components of comprehensive income for the three months and nine months
ended October 1, 2000 and October 3, 1999 are as follows (000's omitted):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 1, OCTOBER 3, OCTOBER 1, OCTOBER 3,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income $ 4,376 $ 5,518 $ 16,134 $ 17,399
Foreign Currency Translation Adjustment (7,669) 3,111 (17,698) (3,422)
-------- -------- -------- --------
Comprehensive Income $ (3,293) $ 8,629 $ (1,564) $ 13,977
======== ======== ======== ========
</TABLE>
7
<PAGE> 10
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, 1999. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" contained therein. As
referenced in Note (3) to the Consolidated Financial Statements, the Company
acquired May Verpackungen on December 30, 1999. Accordingly, the results of
operations for 2000 include May and the prior year does not.
RECENT DEVELOPMENTS
On October 4, 2000, management of U.S. Can Corporation and Berkshire
Partners LLC completed the recapitalization of the Company. The recapitalization
will have a significant impact on the balance sheet and results of operations of
the Company going forward. The Company expects to record a charge of
approximately $16.4 million related to the recapitalization in the fourth
quarter of 2000. See Notes (5) and (6) to the Consolidated Financial Statements
for a description of the related transactions and new financing arrangements.
QUARTER ENDED OCTOBER 1, 2000, AS COMPARED TO QUARTER ENDED OCTOBER 3, 1999
Net sales for the quarter ended October 1, 2000, totaled $194.7 million, a
9.3% increase versus the corresponding period in 1999. The increase was
principally due to the acquisition of May Verpackungen in December 1999. Along
business segment lines, Aerosol net sales in the third quarter of 2000 were
$114.7 million, a 4.2% decrease, primarily due to a $5.7 million negative impact
due to U.S. dollar translation on sales made in foreign currencies by USC
Europe. The Paint, Plastic and General Line segment reported sales of $39.7
million, a 3.4% decrease in net sales. The decline in this segment relates to
the loss of a Plastite customer in the third quarter of 1999. In the Custom &
Specialty segment, sales of $40.2 million increased $23.0 million versus the
third quarter of 1999 due to the May acquisition. Third quarter 2000 sales for
May were $28.8 million. On March 10, 2000, U.S. Can sold substantially all of
the assets of its Wheeling, West Virginia metal closure business and the related
Warren, Ohio lithography facility. Sales from the sold operations were $4.4
million in the third quarter of 1999.
Gross income of $29.7 million for the third quarter of 2000 increased $4.3
million, or 17.1%, versus the third quarter of 1999. Gross margin increased to
15.3% in 2000 from 14.2% in the third quarter of 1999. The primary factors
influencing the increase was a continued focus on productivity improvements and
cost savings opportunities. In the Aerosol segment, gross income of $20.0
million for the third quarter of 2000 declined 4.0% versus the third quarter of
1999 due a $0.4 million negative impact due to U.S. dollar translation on sales
made in foreign currencies by USC Europe. Paint, Plastic and General Line third
quarter gross income also remained relatively flat at $4.1 million for the third
quarter. This resulted in an improved gross margin rate in the Paint, Plastic
and General Line segment, despite a lower volume base. Custom & Specialty gross
income was $5.7 million, an increase of $2.7 million versus the third quarter of
1999 due primarily to the May acquisition. Excluding May and the divested
Wheeling metal closures and Warren lithography businesses, Custom and Specialty
gross income increased 7.8% for the third quarter 2000. Certain expenses are not
allocated to specific business segments.
Selling, general, and administrative expenses were $10.1 million, a $2.0
million increase over the third quarter of 1999. Current year selling, general
and administrative expenses include $1.5 million of expenses related to May
Verpackungen. The remainder of the increase relates to higher marketing-related
expenses being invested to improve customer service.
In the third quarter of 2000, the Company announced a reduction in force
program and recorded a one-time charge of $3.4 million for severance and other
termination related costs. For further discussion on this program see Note (2)
to the Consolidated Financial Statements.
Interest expense in the third quarter of 2000 increased $1.3 million, versus
the third quarter of 1999. The increase was due to debt incurred in connection
with the May acquisition offset by the interest reduction resulting from the
repurchase and early retirement of the 10 1/8% bonds in the second and third
quarters of 1999.
In 1999, the Company recorded a $0.5 million extraordinary charge (net of
related income taxes of $0.3 million) relating to the early redemption premium
on $3.9 million of its 10 1/8% subordinated notes.
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NINE MONTH PERIOD ENDED OCTOBER 1, 2000, AS COMPARED TO NINE-MONTH PERIOD ENDED
OCTOBER 3, 1999
Net sales for the nine month period ended October 1, 2000, totaled $607.0
million, a 10.4% increase versus the corresponding period in 1999. The increase
was principally due to the acquisition of May Verpackungen in December 1999.
Along business segment lines, Aerosol net sales in the first three quarters of
2000 were $362.8 million, a 2.7% decline versus the same period last year. The
decrease is due to a decline in U.S. volumes and an $13.2 million negative
impact due to U.S. dollar translation on sales made in foreign currencies by USC
Europe. Paint, Plastic and General Line sales decreased 5.3% to $120.5 million
due to the loss of a Plastite customer in 1999. Custom & Specialty sales of
$123.7 million increased $73.9 million over the first nine months of 1999 due to
the May acquisition. Net sales for the first nine-months for May were $85.4
million. Excluding May, the Custom & Specialty segment had net sales of $38.3
million, an $11.5 million decrease over the first three-quarters of 1999 due to
the sale of the Wheeling metal closure and Warren lithography businesses (see
Note (2) to the Consolidated Financial Statements).
Gross income of $89.4 million for the nine month period in 2000 increased
$9.7 million, or 12.2%, versus the corresponding period of 1999. Gross margin of
14.7% for the nine months of 2000 increased slightly from the 14.5% reported in
the first nine months of 1999, due to the continuing focus on productivity
improvements and cost savings opportunities. Aerosol gross income declined 6.4%
due to a decline in U.S. Sales volume and a $1.0 million negative impact due to
U.S. dollar translation on sales made in foreign currencies by USC Europe.
Paint, Plastic and General Line gross income decreased $3.9 million versus the
first nine months of 1999 due to the loss of a Plastite customer in 1999 and a
decline in general line volume. Custom & Specialty gross income increased $9.9
million versus the first nine months of 1999 due primarily to the May
acquisition. Excluding May and the divested Wheeling closure and Warren
lithography businesses, gross income in the Custom and Specialty segment
increased 18.8%. Certain expenses are not allocated to specific business
segments.
Selling, general, and administrative expenses were $32.5 million in the
first nine months of 2000, a $7.5 million increase in comparison to the same
period in 1999. The increase is primarily due to the acquisition of May
Verpackungen in December 1999 which accounted for $6.0 million of the increase.
The remainder of the increase is due to higher marketing expenses being invested
to improve customer service.
In the third quarter of 2000, the Company announced a reduction in force
program and recorded a one-time charge of $3.4 million for severance and other
termination related costs. For further discussion on this program see Note (2)
to the Consolidated Financial Statements.
Interest expense for the first nine months of 2000 increased 12.9%, or $2.8
million, versus the first nine months of 1999. The increase was due to interest
incurred in connection with the May acquisition offset by the interest reduction
due to the repurchase and early retirement of the 10 1/8% bonds in the second
and third quarters of 1999.
In 1999, the Company recorded a $1.3 million extraordinary charge (net of
related income taxes of $0.8 million) relating to the early redemption premium
on $27.7 million of its 10 1/8% subordinated notes.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 2000, the Company met its liquidity needs
through internally generated cash flow, the sale of the Wheeling metal closures
and Warren lithography businesses, borrowings made under its credit lines and a
sale/leaseback transaction of certain manufacturing assets. Cash flow provided
by operations was $25.9 million in the first nine months of 2000, compared to
cash provided of $58.8 million in the first three quarters of 1999. Principal
liquidity needs included working capital (primarily accounts receivable and
inventory), debt payments and capital expenditures. The increased use of cash in
working capital is attributable to an increase of accounts receivables and
inventory within our domestic operations. The increase in accounts receivables
is due to increased sales late in the third quarter of 2000 versus the timing of
1999 third quarter sales. Inventory management is a continuing focus of the
Company and programs have been instituted to monitor inventory levels throughout
the Company. The Company also had $2.9 million of payments related to
restructuring costs and anticipates spending an additional $3.2 million of such
costs during the remainder of 2000.
As of October 1, 2000, U.S. Can had borrowed $41.8 million under its Credit
Agreement, $8.9 million in letters of credit had been issued pursuant thereto,
and $69.3 million of unused credit remained available thereunder. As of October
1, 2000, U.S. Can was in compliance with the covenants under the Credit
Agreement and its other long-term debt agreements.
The Company expects total capital expenditures in 2000 to be approximately
$20.0 million, of which $16.5 million was spent in the first nine months. The
Company's capital investments have historically yielded reduced operating costs
and improved the
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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.
Following the recapitalization, the Company's primary sources of liquidity
will be cash flow from operations and borrowings under the new revolving credit
facility. The Company expects that ongoing requirements for debt service,
working capital and capital expenditures will be funded from these sources.
Concurrent with the recapitalization, the Company issued $175.0 million 12
3/8% Senior Subordinated Notes and entered into the Senior Secured Credit
Facility. See Note (6) to the Consolidated Financial Statements for a
description of these borrowings. The borrowings under the revolving credit
facility will be available to fund our working capital requirements, capital
expenditures and other general corporate purposes. Additionally, the Senior
Secured Credit Facility requires a prepayment in the event that we have excess
cash flow (as defined by the agreement) and following certain other events,
including asset sales and issuances of debt and equity. We also expect to assume
between $6.0 million and $7.0 million in debt in connection with the anticipated
acquisition of Formametal, S.A. Our significant debt service obligations
following the recapitalization could, under certain circumstances, have material
consequences to our security holders.
Based upon the current level of operations and anticipated growth, we
believe that cash generated from operations together with amounts available
under the revolving credit facility will be adequate to meet our anticipated
debt service requirements, capital expenditures and working capital needs for
the next several years. We cannot assure you, however, that we will generate
sufficient cash flow from operations or that future borrowings will be available
under the Senior Secured Credit Facility or otherwise to enable us to service
our indebtedness, including the Senior Secured Credit Facility and the 12 3/8%
Senior Subordinated Notes or make anticipated capital expenditures. The Company
does believe that it is reasonably likely that it will need to refinance all or
a portion of the senior secured term loan and/or the Senior Subordinated Notes
prior to maturity with the proceeds of future financing activities. Our future
operating performance and our ability to service or refinance our debt will be
subject to future economic conditions and to financial, business and other
factors, many which are beyond our control.
FORWARD LOOKING STATEMENTS
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
uncertainties include 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 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
Market risk generally represents the risk of loss that may result from the
potential change in the value of a financial instrument as a result of
fluctuations in interest rates and market prices. To reduce this risk, we may at
times use financial instruments. All hedging transactions are authorized and
executed under clearly defined polices and procedures, which prohibit the use of
financial instruments for trading purposes. Management does not believe the
Company's exposure to market risk has significantly changed since year-end 1999.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A purported class action lawsuit challenging the recapitalization
transaction was brought in the Delaware Court of Chancery by a stockholder
against U.S. Can, Pac Packaging Acquisition Corporation, all of the directors of
U.S. Can and a principal in Berkshire Partners LLC who formerly served as a
director of U.S. Can. The complaint alleges, among other things, that the terms
of the recapitalization are unfair to the stockholders of U.S. Can, that U.S.
Can's directors breached their fiduciary duties to U.S. Can's stockholders in
approving the recapitalization, that the proxy statement dated September 6, 2000
was misleading and incomplete and that under Delaware law the merger must be
approved by a two-thirds vote of disinterested stockholders rather than a simple
majority of the outstanding shares. The complaint seeks, among other things,
that the recapitalization transaction be enjoined or rescinded and that the
defendants pay unspecified monetary damages as well as unspecified costs and
attorneys' fees. U.S. Can believes that this lawsuit is without merit and
intends to contest this matter vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In connection with the recapitalization discussed in Note (5) to the
Consolidated Financial Statements, the approval for the transaction was ratified
in accordance with the following vote:
FOR AGAINST WITHHELD
--- ------- --------
10,116,274 16,998 1,883
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule.
----------
(b) Reports on Form 8-K
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. CAN CORPORATION
Date: November 15, 2000 By: /s/ John L. Workman
-----------------------------
John L. Workman
Executive Vice President
and Chief Financial Officer
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