<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 JULY 2, 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 July 31, 2000, 13,510,625 shares of U.S. Can Corporation's common
stock were outstanding.
<PAGE> 2
U.S. CAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JULY 2, 2000
TABLE OF CONTENTS
PAGE
PART I FINANCIAL INFORMATION 1
Item 1. Financial Statements (Unaudited) 1
U.S. Can Corporation and Subsidiaries Consolidated
Statements of Operations for the Quarterly and Six-Month
Periods Ended July 2, 2000 and July 4, 1999 1
U.S. Can Corporation and Subsidiaries Consolidated
Balance Sheets as of July 2, 2000 and December 31, 1999 2
U.S. Can Corporation and Subsidiaries Consolidated
Statements of Cash Flows for the Six-Months Ended
July 2, 2000 and July 4, 1999 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II OTHER INFORMATION 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
<PAGE> 3
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 SIX MONTHS ENDED
------------------------------------------------------------------
JULY 2, 2000 JULY 4, 1999 JULY 2, 2000 JULY 4, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 204,671 $ 186,773 $ 412,345 $ 371,689
COST OF SALES 174,418 158,335 352,629 317,374
--------- --------- --------- ---------
Gross income 30,253 28,438 59,716 54,315
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 11,101 8,611 22,378 16,868
--------- --------- --------- ---------
Operating income 19,152 19,827 37,338 37,447
INTEREST EXPENSE ON BORROWINGS 8,371 7,281 16,372 14,917
AMORTIZATION OF DEFERRED FINANCING COSTS 387 300 780 620
OTHER EXPENSES 622 432 1,286 864
--------- --------- --------- ---------
Income before income taxes 9,772 11,814 18,900 21,046
PROVISION FOR INCOME TAXES 3,651 4,676 7,142 8,357
--------- --------- --------- ---------
Income (loss) from continuing operations
before extraordinary item 6,121 7,138 11,758 12,689
EXTRAORDINARY ITEM, net of income taxes
Net loss from early extinguishment of debt -- (808) -- (808)
--------- --------- --------- ---------
NET INCOME $ 6,121 $ 6,330 $ 11,758 $ 11,881
========= ========= ========= =========
PER SHARE DATA:
Basic:
Income (loss) from continuing operations
before extraordinary item $ 0.45 $ 0.53 $ 0.87 $ 0.95
Extraordinary item -- (0.06) -- (0.06)
--------- --------- --------- ---------
Net income $ 0.45 $ 0.47 $ 0.87 $ 0.89
========= ========= ========= =========
Weighted average shares outstanding (000's) 13,507 13,373 13,537 13,326
Diluted:
Income (loss) from continuing operations
before extraordinary item $ 0.45 $ 0.53 $ 0.86 $ 0.94
Extraordinary item -- (0.06) -- (0.06)
--------- --------- --------- ---------
Net income $ 0.45 $ 0.47 $ 0.86 $ 0.88
========= ========= ========= =========
Weighted average and equivalent shares
outstanding (000's) 13,712 13,529 13,726 13,462
</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>
JULY 2, DECEMBER 31,
ASSETS 2000 1999
--------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9,042 $ 15,697
Accounts receivables, less allowances of $10,828 and
$13,367 as of July 2, 2000 and December 31, 1999, respectively 103,316 91,864
Inventories 116,480 115,979
Prepaid expenses and other current assets 21,831 19,677
Prepaid income taxes 16,112 16,114
--------- ---------
Total current assets 266,781 259,331
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 5,944 14,541
Buildings 63,956 83,106
Machinery, equipment and construction in process 440,296 463,400
--------- ---------
510,196 561,047
Less -- Accumulated depreciation and amortization (226,347) (228,543)
--------- ---------
Total property, plant and equipment 283,849 332,504
--------- ---------
INTANGIBLE ASSETS, less amortization of $12,418 and $12,211 as of
July 2, 2000 and December 31, 1999, respectively 67,268 50,478
OTHER ASSETS 19,904 21,257
--------- ---------
Total assets $ 637,802 $ 663,570
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 13,267 $ 38,824
Accounts payable 119,699 104,189
Accrued payroll, benefits and insurance 27,545 29,500
Restructuring reserves 11,801 25,016
Other current liabilities 29,236 24,068
--------- ---------
Total current liabilities 201,548 221,597
--------- ---------
SENIOR DEBT 72,252 83,864
SUBORDINATED DEBT 236,629 236,629
--------- ---------
Total long-term debt 308,881 320,493
--------- ---------
OTHER LONG-TERM LIABILITIES
Deferred income taxes 12,981 10,670
Other long-term liabilities 43,498 42,254
--------- ---------
Total other long-term liabilities 56,479 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, 13,587,744 and 13,529,957 shares outstanding
of July 2, 2000 and December 31, 1999, respectively 135 135
Paid -in-capital 113,614 112,840
Unearned restricted stock (413) (629)
Treasury common stock, at cost; 83,719 and 83,024 shares at
July 2, 2000 and December 31, 1999, respectively (1,760) (1,380)
Currency translation adjustment (17,800) (7,771)
Accumulated deficit (22,882) (34,639)
--------- ---------
Total stockholders' equity 70,894 68,556
--------- ---------
Total liabilities and stockholders' equity $ 637,802 $ 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
(000S OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTH PERIOD ENDED
CASH FLOWS FROM OPERATING ACTIVITIES: JULY 2, 2000 JULY 4, 1999
------------ ------------
<S> <C> <C>
Net income (loss) $ 11,758 $ 11,881
Adjustments to reconcile net income to net cash provided by
operating activities --
Depreciation and amortization 18,318 17,386
Extraordinary loss on extinguishment of debt -- 808
Deferred income taxes 2,498 1,575
Change in operating assets and liabilities, net of effect of
acquired and disposed of businesses:
Accounts receivable (20,557) (24,862)
Inventories (8,287) 4,552
Accounts payable 22,670 18,580
Accrued payroll, benefits and insurance (1,449) 2,566
Other, net (13) (735)
-------- --------
Net cash provided by operating activities 24,938 31,751
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (16,674) (13,311)
Proceeds on sale of business 12,088 4,500
Proceeds from sale of property 8,557 1,057
Investment in and cash provided to Formametal S.A -- (1,394)
-------- --------
Net cash provided by (used in) investing activities 3,971 (9,148)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and exercise of stock options 773 640
Net borrowings (payments) under the revolving line of credit (12,675) 5,285
Repurchase of 10 1/8% notes -- (23,786)
Payments of other long-term debt, including capital lease
obligations (22,974) (7,296)
Purchase of treasury stock (380) 345
-------- --------
Net cash provided by (used in) financing activities (35,256) (24,812)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (308) (548)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,655) (2,757)
CASH AND CASH EQUIVALENTS, beginning of year 15,697 18,072
-------- --------
CASH AND CASH EQUIVALENTS, end of year $ 9,042 $ 15,315
======== ========
</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
JULY 2, 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. 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.
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
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 six months of 2000
were $2.0 million. The Company anticipates spending another $6.0 million of such
costs in 2000 and $5.5 million in cash costs in 2001 and beyond. The remainder
of the 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. See Note (10)) for further discussion.
(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 5) 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 second quarter and first six months of 1999 as if the May
acquisition had occurred on January 1, 1999 (000's omitted, except per share
data):
SECOND QUARTER 1999 FIRST SIX-MONTHS 1999
------------------- ---------------------
Net Sales $221,294 $439,972
Net Income 6,275 12,067
Diluted Per Share Data:
Net Income 0.46 0.89
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 $60.9 million at July 2, 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 July 2, 2000 and at December 31, 1999.
Inventories reported in the accompanying balance sheets were classified as
follows (000's omitted):
JULY 2, DECEMBER 31,
2000 1999
---- ----
Raw materials................................... $ 25,482 $ 30,821
Work in process................................. 53,891 49,884
Finished goods.................................. 37,107 35,274
-------- --------
$116,480 $115,979
======== ========
(5) DEBT OBLIGATIONS
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 Company was in compliance with all financial
ratios and covenants as of July 2, 2000.
(6) SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid interest on borrowings of approximately $12.9 million and
$14.3 million for the six-month periods ended July 2, 2000 and July 4, 1999,
respectively.
The Company paid approximately $0.4 million of income taxes for the
six-month period ended July 2, 2000. No income taxes were paid during the
six-month period ended July 4, 1999.
5
<PAGE> 8
During the six-month period ended July 4, 1999, the Company issued stock
valued at approximately $0.9 million to certain of its employee benefit plans.
No stock was contributed in 2000.
(7) 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.
(8) 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 six month periods ended July 2, 2000
and July 4, 1999, respectively (000's omitted):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 2, JULY 4, JULY 2, JULY 4,
2000 1999 2000 1999
-------- ------- -------- ------
<S> <C> <C> <C> <C>
REVENUES FROM EXTERNAL CUSTOMERS:
Aerosol $121,553 $126,249 $248,055 $252,955
Paint, Plastic, & General Line 42,194 44,171 80,746 86,074
Custom & Specialty 40,924 16,353 83,544 32,660
-------- -------- -------- --------
Total revenues $204,671 $186,773 $412,345 $371,689
======== ======== ======== ========
INCOME (LOSS) FROM OPERATIONS:
Aerosol $ 21,651 $ 21,690 $ 42,425 $ 41,560
Paint, Plastic, & General Line 3,456 3,706 6,405 7,978
Custom & Specialty 5,146 1,651 10,886 3,386
Corporate and eliminations (11,101) (7,220) (22,378) (15,477)
-------- -------- -------- --------
Total income from operations $ 19,152 $ 19,827 $ 37,338 $ 37,447
======== ======== ======== ========
</TABLE>
6
<PAGE> 9
(9) COMPREHENSIVE NET INCOME
The components of comprehensive income for the three months and six months
ended July 2, 2000 and July 4, 1999 are as follows (000's omitted):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 2, JULY 4, JULY 2, JULY 4,
2000 1999 2000 1999
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net Income $ 6,121 $ 6,330 $11,758 $11,881
Foreign Currency Translation Adjustment (6,123) (2,538) (10,029) (6,533)
------- ------ ------- -------
Comprehensive Income $ (2) $ 3,792 $ 1,729 $ 5,348
======= ======= ======= =======
</TABLE>
(10) RECENT DEVELOPMENTS
On June 1, 2000 the Company entered into a definitive agreement with a
group led by Paul W. Jones, Chairman and Chief Executive Officer of the Company
and Berkshire Partners, a private equity firm, to effect a recapitalization of
U.S. Can. Under the terms of the transaction, public shareholders would receive
$20.00 in cash per outstanding share of common stock. The recapitalization plan
announced in June has been reaffirmed by Berkshire Partners and lending
institutions based on the Corporation's second quarter results. The transaction
is still subject to a number of conditions including shareholder approval,
governmental approvals and realization of conditions precedent related to
financing commitments. There can be no assurance that any transaction will be
consummated.
On July 7, 2000 the Company announced a reduction in force ("RIF")
program. Under the RIF program, 70 salaried and 24 hourly positions have been
eliminated. The Company expects to record a one-time pre-tax charge of
approximately $3.3 million for severance and other termination related costs in
the third quarter of 2000. The Company expects to realize projected annual
pre-tax savings of $5.0 million from this program.
(11) SUBSIDIARY GUARANTOR INFORMATION
The 10 1/8% Notes are fully guaranteed on an unconditional, unsecured,
senior subordinated, joint and several basis by each of the Corporation's
Subsidiary Guarantors. As of and through July 2, 2000, United States Can Company
and USC May Verpackungen Holding Inc. ("May Holding"), both wholly owned
(directly or indirectly) by the Corporation, were the only Subsidiary
Guarantors. The Corporation has no assets or operations other than its
investment in United States Can Company, and May Holding has no assets or
operations other than its investment in May. May Holding acquired May on
December 30, 1999. This acquisition was accounted for using the purchase method
of accounting and, therefore, the Company's 1999 results of operations did not
include May's results. Separate financial statements of United States Can
Company or May Holding 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"), consolidated United States Can
Company/May Holding (the "Subsidiary Guarantors"), and the other foreign
subsidiaries (the "Non-Guarantor Subsidiaries"), as of July 2, 2000 and December
31, 1999, and for the six-month periods ended July 2, 2000 and July 4, 1999.
Investments in subsidiaries are accounted for by the Parent and the Subsidiary
Guarantors 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.
7
<PAGE> 10
U.S.CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 6 MONTHS ENDED JULY 2, 2000
(000'S OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
U.S. CAN U.S. CAN
CORPORATION SUBSIDIARY NON-GUARANTOR CORPORATION
(PARENT) GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
NET SALES $ - $ 348,889 $ 63,456 $ - $ 412,345
COST OF SALES - 298,916 53,713 - 352,629
-------- --------- -------- --------- ---------
Gross income - 49,973 9,743 - 59,716
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - 18,812 3,566 - 22,378
-------- --------- -------- --------- ---------
Operating income - 31,161 6,177 - 37,338
INTEREST EXPENSE ON BORROWINGS - 15,539 833 - 16,372
AMORTIZATION OF DEFERRED FINANCING COSTS - 780 - - 780
OTHER EXPENSES - 1,286 - - 1,286
EQUITY EARNINGS (LOSS) FROM SUBSIDIARY 11,758 3,324 - (15,082) -
PROVISION FOR INCOME TAXES - 5,122 2,020 - 7,142
-------- --------- -------- --------- ---------
NET INCOME $ 11,758 $ 11,758 $ 3,324 $ (15,082) $ 11,758
======== ========= ======== ========= =========
</TABLE>
8
<PAGE> 11
U.S. CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 4, 1999
(UNAUDITED)
(000'S OMITTED)
<TABLE>
<CAPTION>
UNITED STATES
U.S. CAN CAN COMPANY USC EUROPE (NON U.S. CAN
CORPORATION (SUBSIDIARY GUARANTOR CORPORATION
(PARENT) GUARANTOR) SUBSIDIARIES) ELIMINATIONS CONSOLIDATED
----------- ------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET SALES $ - $307,016 $64,673 $ - $ 371,689
COST OF SALES - 261,236 56,138 - 317,374
-------- -------- ------- --------- ---------
Gross income - 45,780 8,535 - 54,315
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - 13,371 3,497 - 16,868
-------- -------- ------- --------- ---------
Operating income - 32,409 5,038 - 37,447
INTEREST EXPENSE ON BORROWINGS - 13,623 1,294 - 14,917
AMORTIZATION OF DEFERRED FINANCING COSTS - 620 - - 620
OTHER EXPENSES - 864 - - 864
EQUITY EARNINGS (LOSS) FROM SUBSIDIARY 11,881 2,482 - (14,363) -
PROVISION FOR INCOME TAXES - 7,095 1,262 - 8,357
EXTRAORDINARY ITEM - LOSS ON THE EARLY
EXTINGUISHMENT OF DEBT, -net of income tax - (808) - - (808)
-------- -------- ------- --------- ---------
NET INCOME $ 11,881 $ 11,881 $ 2,482 $ (14,363) $ 11,881
======== ======== ======= ========= ==========
</TABLE>
9
<PAGE> 12
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JULY 2, 2000
(000S OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
U.S. CAN U.S. CAN
CORPORATION SUBSIDIARY NON-GUARANTOR CORPORATION
(PARENT) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- -------------------- ---------------- -------------------------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ - $ 4,833 $ 4,209 $ - $ 9,042
Accounts receivable - 72,123 31,193 - 103,316
Inventories - 97,247 19,233 - 116,480
Prepaid expenses and other assets 30,581 7,362 - 37,943
--------- --------- --------- ---------- ---------
Total current assets - 204,784 61,997 - 266,781
NET PROPERTY, PLANT AND EQUIPMENT - 220,836 63,013 - 283,849
INTANGIBLE ASSETS - 67,268 - - 67,268
OTHER ASSETS 325,323 13,879 6,025 (325,323) 19,904
INVESTMENT IN SUBSIDIARIES 64,588 52,340 - (116,928) -
--------- --------- --------- ---------- ---------
Total assets $ 389,911 $ 559,107 $ 131,035 $ (442,251) $ 637,802
========= ========= ========= ========== =========
CURRENT LIABILITIES
Current maturities of long-term debt $ - $ 11,054 $ 2,213 $ - $ 13,267
Accounts payable - 94,939 24,760 - 119,699
Other current liabilities - 57,274 11,308 - 68,582
--------- --------- --------- ---------- ---------
Total current liabilities - 163,267 38,281 - 201,548
SENIOR DEBT - 50,889 21,363 - 72,252
SUBORDINATED DEBT 236,629 236,629 - (236,629) 236,629
OTHER LONG-TERM LIABILITIES - 51,497 4,982 - 56,479
INTERCOMPANY ADVANCES 82,388 (85,160) 2,722 - -
STOCKHOLDERS' EQUITY 70,894 141,985 63,637 (205,622) 70,894
--------- --------- --------- ---------- ---------
Total liabilities and stockholders'
equity $ 389,911 $ 559,107 $ 131,035 $ (442,251) $ 637,802
========= ========= ========= ========== =========
</TABLE>
10
<PAGE> 13
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1999
(000S OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
U.S. CAN U.S. CAN
CORPORATION SUBSIDIARY NON-GUARANTOR CORPORATION
(PARENT) GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ---------------- ------------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ - $ 2,101 $ 13,596 $ - $ 15,697
Accounts receivable - 66,509 25,355 - 91,864
Inventories - 98,040 17,939 - 115,979
Prepaid expenses and other assets 31,133 4,658 - 35,791
--------- --------- --------- ---------- ---------
Total current assets - 197,783 61,548 - 259,331
NET PROPERTY, PLANT AND EQUIPMENT - 266,636 65,868 - 332,504
INTANGIBLE ASSETS - 50,478 - - 50,478
OTHER ASSETS 304,983 22,773 6,458 (312,957) 21,257
INVESTMENT IN SUBSIDIARIES 64,588 52,340 - (116,928) -
--------- --------- --------- ---------- ---------
Total assets $ 369,571 $ 590,010 $ 133,874 $ (429,885) $ 663,570
========= ========= ========= ========== =========
CURRENT LIABILITIES
Current maturities of long-term debt $ - $ 36,585 $ 2,239 $ - $ 38,824
Accounts payable - 83,374 20,815 - 104,189
Other current liabilities - 68,733 9,851 - 78,584
--------- --------- --------- ---------- ---------
Total current liabilities - 188,692 32,905 - 221,597
SENIOR DEBT - 61,088 22,776 - 83,864
SUBORDINATED DEBT 236,629 236,629 - (236,629) 236,629
OTHER LONG-TERM LIABILITIES - 48,802 4,122 - 52,924
INTERCOMPANY ADVANCES 64,386 (78,143) 13,757 - -
STOCKHOLDERS' EQUITY 68,556 132,942 60,314 (193,256) 68,556
--------- --------- --------- ---------- ---------
Total liabilities and stockholders'
equity $ 369,571 $ 590,010 $ 133,874 $ (429,885) $ 663,570
========= ========= ========= ========== =========
</TABLE>
11
<PAGE> 14
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 2, 2000
(UNAUDITED)
(000S OMITTED)
<TABLE>
<CAPTION>
U.S. CAN U.S. CAN
CORPORATION SUBSIDIARY NON-GUARANTOR CORPORATION
(PARENT) GUARANTORS SUBSIDIARIES CONSOLIDATED
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ -- $ 22,496 $ 2,442 $ 24,938
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures -- (13,726) (2,948) (16,674)
Proceeds on sale of business 12,088 12,088
Proceeds on the sale of property 8,557 -- 8,557
-------- -------- -------- --------
Net cash used in investing activities -- 6,919 (2,948) 3,971
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in intercompany advances (393) 8,993 (8,600) --
Issuance of common stock and exercise
of stock options 773 -- -- 773
Net borrowings under the revolving line of credit -- (12,675) -- (12,675)
Payments of other long-term debt, including capital
lease obligations -- (22,949) (25) (22,974)
Purchase of treasury stock (380) -- -- (380)
-------- -------- -------- --------
Net cash (used in) provided by financing activities -- (26,631) (8,625) (35,256)
-------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- (55) (253) (308)
-------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS -- 2,729 (9,384) (6,655)
CASH AND CASH EQUIVALENTS, beginning of year -- 2,101 13,596 15,697
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS, end of period $ -- $ 4,830 $ 4,212 $ 9,042
======== ======== ======== ========
</TABLE>
12
<PAGE> 15
US CAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 4, 1999
(UNAUDITED)
(000S OMITTED)
<TABLE>
<CAPTION>
UNITED STATES
U.S. CAN CAN COMPANY USC EUROPE (NON U.S. CAN
CORPORATION (SUBSIDIARY GUARANTOR CORPORATION
(PARENT) GUARANTOR) SUBSIDIARIES) ELIMINATIONS CONSOLIDATED
----------- ------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ - $ 29,824 $ 1,927 $ - $ 31,751
--------- --------- ------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - (11,804) (1,507) - (13,311)
Proceeds on the sale of business - 4,500 - - 4,500
Proceeds on the sale of property 1,057 - - 1,057
Investment in Formametal S.A. - - (1,394) - (1,394)
--------- --------- ------- --------- --------
Net cash used in investing activities - (6,247) (2,901) - (9,148)
--------- --------- ------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in intercompany advances (985) (3,494) 4,479 - -
Issuance of common stock and exercise of stock options 640 - - - 640
Net borrowings under the revolving line of credit - 4,994 291 - 5,285
Repurchase of 10 1/8% notes (23,786) - (23,786)
Payments of other long-term debt, including capital lease
obligations - (3,827) (3,469) - (7,296)
Sales of treasury stock 345 - - - 345
--------- --------- ------- --------- --------
Net cash (used in) provided by financing activities - (26,113) 1,301 - (24,812)
--------- --------- ------- --------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH - - (548) - (548)
--------- --------- ------- --------- --------
DECREASE IN CASH AND CASH EQUIVALENTS - (2,536) (221) - (2,757)
CASH AND CASH EQUIVALENTS, beginning of year - 9,408 8,664 - 18,072
--------- --------- ------- ---------- --------
CASH AND CASH EQUIVALENTS, end of period $ - $ 6,872 $ 8,443 $ - $ 15,315
========= ========= ======= ========= ========
</TABLE>
13
<PAGE> 16
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.
QUARTER ENDED JULY 2, 2000, AS COMPARED TO QUARTER ENDED JULY 4, 1999
Net sales for the quarter ended July 2, 2000, totaled $204.7 million, a
9.6% 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 second quarter of 2000 were
$121.6 million, a 3.7% decrease primarily due to a decline in customer demand in
the U.S. The Paint, Plastic and General Line segment reported sales of $42.2
million, a 4.5% decrease in net sales. The decline in this segment relates to
the loss of a Plastite customer in the third quarter of 1999 and a decrease in
units sold. In the Custom & Specialty segment, sales of $40.9 million increased
$24.6 million versus the second quarter of 1999 due to the May acquisition.
Second quarter 2000 sales for May were $28.7 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 $4.6 million in the second quarter of 1999.
Gross income of $30.3 million for the second quarter of 2000 increased
$1.8 million, or 6.0%, versus the second quarter of 1999. Gross margin was 14.8%
in 2000 versus the 15.2% in the second quarter of 1999. 2000 results include May
Verpackungen, which has significant operations in the pet food business. Food
can margins are generally lower on a percentage basis than the margins for U.S.
Can's historical mix of business. In the Aerosol segment, gross income of $21.7
million for the second quarter of 2000 was equal to the second quarter of 1999.
This resulted in an improved gross margin rate in Aerosol despite the
operational problems in the Company's Weirton, West Virginia operation. Paint,
Plastic and General Line second quarter gross income decreased $0.3 million
versus the second quarter 1999, due largely to the loss of a Plastite customer
in the third quarter of 1999 and decreased units sold. Custom & Specialty gross
income was $5.1 million, an increase of $3.5 million versus the second 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 63.4% for the second quarter 2000. Certain expenses are
not allocated to specific business segments.
Selling, general, and administrative expenses were $11.1 million, a $2.5
million increase over the second quarter of 1999. Current year selling, general
and administrative expenses include $2.2 million expenses related to May
Verpackungen. The remainder of the increase relates to higher marketing-related
expenses being invested to improve customer service.
Interest expense in the second quarter of 2000 increased 15.0%, or $1.1
million, versus the second 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 $0.8 million extraordinary charge (net of
related income taxes of $0.5 million) relating to the early redemption premium
on $23.8 million of its 10 1/8% subordinated notes.
SIX-MONTH PERIOD ENDED JULY 2, 2000, AS COMPARED TO SIX-MONTH PERIOD ENDED
JULY 4, 1999
Net sales for the six-month period ended July 2, 2000, totaled $412.3
million, a 10.9% 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 half of 2000 were
$248.1 million, a 1.9% decline versus the same period last year. The decrease is
due to a decline in U.S. volumes in the second quarter of 2000 and the negative
impact of the strong U.S. dollar on the translation of sales made in foreign
currencies by USC Europe. The Paint, Plastic and General Line segment had a 6.2%
decrease in net sales to $6.4 million due to the loss of a Plastite customer in
the third quarter of 1999. Custom & Specialty sales of $83.5 million increased
$50.9 million over the first half of 1999 due to the May
14
<PAGE> 17
acquisition. Net sales for the first six-months for May were $56.6 million.
Excluding May, the Custom & Specialty segment had net sales of $26.9 million, a
$5.8 million decrease over the first half of 1999 due to the sale of Wheeling
metal closure and Warren lithography businesses (see Note (2) to the
Consolidated Financial Statements).
Gross income of $59.7 million for the six-month period in 2000 increased
$5.4 million, or 9.9%, versus the corresponding period of 1999. Gross margin of
14.5% for the first half of 2000 declined slightly from the 14.6% reported in
the first half of 1999. 2000 results include May Verpackungen, which has
significant operations in the pet food business. Food can margins are generally
lower on a percentage basis than the margins for U.S. Can's historical mix of
businesses. Aerosol gross income increased $0.9 million due to increased
productivity in Europe. Paint, Plastic and General Line gross income decreased
$1.6 million versus the first half of 1999 due to the loss of a Plastite
customer in the third quarter of 1999. Custom & Specialty gross income increased
$7.5 million versus the first six 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 42.3%. Certain expenses are not allocated to specific business
segments.
Selling, general, and administrative expenses were $22.4 million in the
first half of 2000, a $5.5 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 $4.4 million of the increase. The remainder of
the increase is due to higher marketing expenses being invested to improve
customer service.
Interest expense for the first half of 2000 increased 9.8%, or $1.5
million, versus the first half 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 $0.8 million extraordinary charge (net of
related income taxes of $0.5 million) relating to the early redemption premium
on $23.8 million of its 10 1/8% subordinated notes.
LIQUIDITY AND CAPITAL RESOURCES
During the first six 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. Principal liquidity
needs included working capital (primarily increased account receivables), debt
payments and capital expenditures. Cash flow provided by operations was $24.9
million in the first six months of 2000, compared to cash provided of $31.8
million in the first half of 1999. Cash outflows in the first half of 2000
include $2.0 million of payments related to restructuring costs. The Company
anticipates spending an additional $6.0 million of such costs during the
remainder of 2000.
As of July 2, 2000, U.S. Can had borrowed $44.0 million under its Credit
Agreement, $8.9 million in letters of credit had been issued pursuant thereto,
and $67.1 million of unused credit remained available thereunder. As of July 2,
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
$34 million, of which $16.7 million was spent in the first six months. 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 and amounts available
under its credit facilities 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
using cash, stock and/or debt financing as appropriate under the conditions in
effect at the time of the acquisition. (See also Recent Developments)
15
<PAGE> 18
RECENT DEVELOPMENTS
On June 1, 2000 the Company entered into a definitive agreement with a
group led by Paul W. Jones, Chairman and Chief Executive Officer of the Company
and Berkshire Partners, a private equity firm, to effect a recapitalization of
U.S. Can. Under the terms of the transaction, public shareholders would receive
$20.00 in cash per outstanding share of common stock. The recapitalization plan
announced in June has been reaffirmed by Berkshire Partners and lending
institutions based on the Corporation's second quarter results. The transaction
is still subject to a number of conditions including shareholder approval,
governmental approvals and realization of conditions precedent relating to
financing commitments. There can be no assurance that any transaction will
be consummated.
On July 7, 2000 the Company announced a reduction in force ("RIF")
program. Under the RIF program, 70 salaried and 24 hourly positions have been
eliminated. The Company expects to record a one-time pre-tax charge of
approximately $3.3 million for severance and other termination related costs in
the third quarter of 2000. The Company expects to realize projected annual
pre-tax savings of $5.0 million from this program.
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 and the RIF; 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
Management does not believe the Company's exposure to market risk has
significantly changed since year-end 1999 and believes that such risks are
immaterial.
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 27, 2000.
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:
NOMINEE FOR WITHHELD
------------------------- -------------- --------------
Paul W. Jones 11,664,424 19,956
Benjamin F. Bailar 11,661,796 22,584
In addition, appointment of Arthur Andersen LLP as independent auditors of
the Corporation for the year 2000 was ratified in accordance with the following
vote:
FOR AGAINST WITHHELD
----------------- ---------------- ----------------
11,673,435 9,940 1,005
16
<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
INCORPORATION
EXHIBIT BY REFERENCE
NUMBER DESCRIPTION OF DOCUMENT (IF APPLICABLE)
------- ----------------------- ---------------
10.1 Erfstadt, Germany Leases (English translations)
10.2 Form of Agreement to Advance Expenses as executed by
Each of Calvin W. Aurand, Jr., Charles W. Gaillard,
Paul W. Jones, Louis B. Susman, Ricardo Poma and Francisco Soler,
directors of the Corporation
27.1 Financial Data Schedule (Edgar version only)
---------------------
(b) Reports on Form 8-K
Form 8-K dated June 15, 2000 reporting the agreement and plan of merger
to effect a recapitalization of the Company
Form 8-K dated June 30, 2000 reporting an amendment to the Merger
Agreement which definitively established the rollover stockholders
and amended the Company's disclosure schedule.
17
<PAGE> 20
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: August 15, 2000 By: /s/ John L. Workman
-----------------------------
John L. Workman
Executive Vice President and
Chief Financial Officer
18
