ITEM 1. BUSINESS
GENERAL
References in this Report to the "Company" mean U.S. Can Corporation and its subsidiaries, collectively, unless the context otherwise requires; and references to "U.S. Can" mean solely United States Can Company and, unless the context otherwise requires, does not include U.S. Can's foreign subsidiaries (collectively referred to as "USC Europe"). U.S. Can Corporation is a Delaware corporation, which owns all of U.S. Can's outstanding capital stock. The references in this Report to market positions or market share are based on information derived from annual reports, trade publications and management estimates which the Company believes to be reliable.
The Company is a leading manufacturer of steel and plastic containers for personal care, household, automotive, paint and industrial products in the United States and Europe. The Company's sales are generated by four major groups: (i) U.S. aerosol; (ii) European aerosol; (iii) U.S. paint, plastic and general line; and (iv) custom and specialty products. The Company believes it currently has the number one or two market share in the U.S. aerosol, European aerosol and U.S. paint, plastic and general line product groups. The Company conducts its principal business operations in the general packaging (non-food and non-beverage) segment of the metal container industry. The Company is a supplier to numerous large consumer products manufacturers in the United States and Europe, including The Sherwin-Williams Company, The Gillette Company ("Gillette"), ICI-Glidden, The Procter & Gamble Company, Reckitt & Coleman Inc., Henkel Kommanditgeselschaft and Elida Gibbs Faberge, a division of Unilever PLC.
Aerosol
The Company is the leader in sales of aerosol cans in the United States, accounting for approximately 58% of all aerosol cans sold domestically in 1997. USC Europe produced approximately 26% of all steel aerosol cans sold in Europe in 1997 and was the second largest manufacturer of steel aerosol cans in Europe. Aerosol containers represent the Company's largest product line, accounting for approximately 60.2% of the Company's total net sales in 1997, and are used to package personal care, household, automotive, paint and various other products. The Company offers a wide range of aerosol containers in order to meet its customers' requirements, including stylized necked-in cans and barrier-pack cans used for products such as shaving gel.
In March 1998, the Company acquired a 36.5% equity interest in Formametal S.A. ("Formametal"), an aerosol can manufacturing company located in the Province of Buenos Aires, Argentina for approximately $4.6 million. In connection with this investment, Formametal has agreed to purchase approximately $2.6 to $3.0 million of manufacturing equipment from the Company, and the Company has agreed to provide certain technical assistance to Formametal, in order to modernize and expand Formametal's manufacturing operations.
Paint, Plastic and General Line
Paint, plastic and general line, the Company's second largest product grouping, accounted for approximately 27.2% of the Company's total net sales in 1997. This product group includes round cans for paint and coatings, oblong cans for products such as turpentine and charcoal lighter, and plastic pails and other containers for industrial and consumer products. Management estimates that U.S. Can is second in market share in the United States, on a unit volume basis, in steel round and general line containers. Management believes U.S. Can produced more than 40% of all steel round and general line containers sold in the United States during 1997.
Custom and Specialty Products
The Company has a significant presence in the custom and specialty products market. Its product lines include a wide array of functional and decorative containers and tins, caps and closures, fitments and stampings, and collectible items such as metal trading cards and signs. Through the early 1997 acquisition of the Erie metal business from Owens-Illinois, the Company significantly increased its seamless container presence and supplemented its closure capabilities with the addition of the highly decorative unishell product line. Major customers in these two lines include Northern Labs and Meguiars, car wax companies which purchase seamless containers, and Avon and Carmex, consumer product firms which purchase unishell closures. Custom and specialty contributed sales of approximately $89 million or 12.0% of the Company's total net sales in 1997.
Restructuring Activities
During the second half of 1997, the Company undertook a number of restructuring activities including the closure of four manufacturing facilities, certain asset divestitures and organizational changes. A number of factors contributed to these restructuring activities including the loss of S.C. Johnson & Son, Inc. ("S.C. Johnson") as an aerosol customer and increased manufacturing efficiency at other plants. The purposes of these restructuring activities include cost and debt reductions, as well as an emphasis on the Company's core product groups. As a result of these restructuring activities, the Company recorded pre-tax charges of $35.0 million and $14.7 million in the third and fourth quarters of 1997, respectively, sold its discontinued steel pail business in November 1997 and plans to sell its discontinued commercial metal services business.
As part of these restructuring activities, the Company's aerosol assembly plant in Racine, Wisconsin, lithography centers in Alsip, Illinois and Sparrows Point, Maryland, and a custom and specialty plant in Vernalis, California have been or will be closed. In addition, the Company has sold the assets of the North Brunswick, New Jersey steel pail business and certain other non-core product lines, and expects to sell (i) the commercial metal services operations located in Chicago, Illinois; Trenton, New Jersey and Brookfield, Ohio (collectively, "Metal Services"), (ii) the Orlando, Florida machine engineering center ("OMEC") and (iii) certain other non-core product lines. During 1997, 1996 and 1995, the discontinued operations generated approximately 15.4%, 16.4% and 12.2%, respectively, of the Company's total net sales. The Company's reorganization activities also include reductions in the Company's salaried and hourly workforce.
For more details on these restructuring activities, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Restructuring" and Note (3) of the Notes to Consolidated Financial Statements included elsewhere in this Report.
SALES
The Company's sales from continuing operations are derived from four major groups: (i) U.S. aerosol, (ii) European aerosol, (iii) U.S. paint, plastic and general line, and (iv) custom and specialty products. The following table sets forth the percentage of sales contributed by each of these groups for each of the last three fiscal years:
CUSTOMERS
As of December 31, 1997, in the United States, the Company had approximately 7,500 customers for its products, as compared to approximately 9,000 and 6,600 customers as of December 31, 1996 and 1995,
respectively. No single customer accounted for more than 10% of the Company's total net sales during 1997, 1996 or 1995.
In accordance with industry practice, the Company enters into one-year or multi-year supply agreements with its major customers. These agreements specify the number of containers a customer will purchase (or the mechanism for determining such number), pricing, volume discounts (if any) and, in the case of many of the Company's multi-year supply agreements, a provision permitting the Company to pass through announced price increases in certain raw material costs.
In the United States, U.S. Can markets its products primarily through a sales force comprised of inside and outside sales representatives. The sales force is comprised of five groups -- Aerosol Sales, Paint, Plastic and General Line Sales, Metal Services Sales, Custom and Specialty Sales and OMEC Sales. The Company expects to sell Metal Services and OMEC as part of its restructuring activities. In total, as of February 1, 1998, the Company had 47 outside sales representatives and 52 inside sales representatives working in the domestic market. USC Europe has eight inside sales representatives and eight outside sales representatives working in the U.K., France, Spain, Germany and Italy.
RAW MATERIALS
The Company's principal raw materials are tin-plated steel ("tin plate") and coatings and inks used to print its customers' designs and logos onto the tin plate. U.S. Can purchases tin plate principally from domestic steel manufacturers, with a minor portion purchased from Asian and European mills. Both U.S. Can and USC Europe primarily rely on local mills to satisfy their plants' tin plate requirements, but may also buy tin plate from other suppliers. Tin plate accounted for approximately 86% of U.S. Can's total domestic raw material purchases in 1997. Periodically, U.S. Can's major suppliers announce increases in prices for tin plate and, in October 1997, such suppliers announced an increase of 3% in the price of tin plate, effective January 1998. Historically, U.S. Can has been able to negotiate lower price increases than those announced by its major suppliers. However, there can be no assurance that U.S. Can will be successful in negotiating lower price increases with respect to future price increases. Many of U.S. Can's multi-year supply agreements with its customers permit it to pass through tin plate price increases and, in some cases, other raw material costs. However, historically, U.S. Can has not always been able to immediately offset increases in tin plate prices with price increases on its products.
The Company believes that adequate quantities of tin plate will continue to be available from steel manufacturers. The individual suppliers of raw materials accounting for more than 10% of the total steel used by U.S. Can in 1997 were USX's U.S. Steel group, Weirton Steel Corporation and LTV Corporation. The percentage of total raw materials supplied to U.S. Can by each of these suppliers ranged from approximately 28% to 30% for the year ended December 31, 1997.
Periodically, USC Europe's major suppliers have announced price increases for tin plate. USC Europe has on occasion been able to negotiate lower price increases than those announced by its major suppliers. However, there can be no assurance that USC Europe will be successful in negotiating lower price increases with respect to future price increases. Although supply agreements with customers often permit USC Europe to pass on announced raw material cost increases in the form of higher prices, USC Europe has not always been able to fully offset increases in tin plate prices.
The Company has not historically entered into written supply contracts with steel makers and believes that other can manufacturers follow the same practice. The Company allocates its purchases among steel makers on the basis of price and performance, and uses a structured quality and service rating system which monitors each supplier's performance on a monthly basis. Typically, the Company reaches an oral agreement with each of its domestic tin plate suppliers on the volume of the Company's purchases and pricing once per calendar year, based on good faith estimates. Pricing is subject to renegotiation if the steel maker's raw material costs increase or decrease. Since the inception of the Company, the annual steel price agreements have not been renegotiated for any reason. Agreements with foreign steel makers are substantially similar.
The Company's second largest raw material expense is for coatings and inks, which are used to print designs and logos onto the tin plate prior to assembly. Coatings and inks accounted for approximately 9% of U.S. Can's domestic raw material costs in fiscal year 1997 and are purchased from indigenous suppliers. Based on the ready availability of these materials in the past and the number of manufacturers which continue to make these products, management does not anticipate any lack of availability of coatings and inks in the foreseeable future.
The Company's plastic products are produced from two main types of resin, which is a petroleum or natural gas product. High density polyethylene resin is used to make pails, drums and agricultural products. 100% post-industrial and consumer use, recycled polyethylene or polypropolene resin is used in the production of the Plastite line of paint cans. The price of resin fluctuates significantly and management believes that it is standard industry practice, as well as the Company's contractual right/obligation in many of its supply agreements, to pass on increases and decreases in resin prices to the customer.
LABOR
As of February 1, 1998, in the United States, the Company employed approximately 3,757 salaried and hourly employees. At that date, there were a total of 2,089 employees, or 56% of the Company's total workforce, who were members of various labor unions, including the United Steelworkers of America ("USWA"), the International Association of Machinists ("IAM"), Local 810 Steel, Metals, Alloys and Hardware Fabricators and Warehousemen, affiliated with the International Brotherhood of Teamsters (the "Teamsters"), the Sheet Metal Workers of America ("SMWA"), Graphic Communications International Union ("GCIU"), and the International Leather Goods, Plastic, Novelty and Service Workers Union ("ILGPNSWU"). Labor agreements with the IAM (covering approximately 36 employees) and with the GMP (covering approximately 75 employees), for the Wheeling, West Virginia plant, were ratified in March and August 1997, respectively. A new agreement with the USWA was entered into at the end of March 1997, covering approximately 62 employees at U.S. Can's Chicago Metal Services facility. In August 1997, the Company completed negotiations at its Burns Harbor, Indiana plant with the GCIU for the renewal of the labor agreement for approximately 48 employees. In December 1997, the labor agreement with the GCIU covering approximately 147 employees at the Weirton, West Virginia plant was extended to February 15, 2002. The Company has also concluded negotiations to discontinue its operations at its Midwest Litho Center in Alsip, Illinois, involving the Teamster's unit of approximately 72 employees; the Racine, Wisconsin plant involving the IAM's unit of approximately 75 employees; and the Sparrows Point, Maryland plant with the USWA covering approximately 81 employees.
USC Europe employed approximately 721 people at the end of 1997. The workforce is skilled and committed, as demonstrated over the last six years by increasing productivity and very limited work stoppage due to labor disputes. In line with common European practices, all plants are unionized. Labor relations are excellent at all plants. Each of the USC Europe plants is managed by an experienced management team, comprised of, in most cases, a general manager, plant manager, sales manager and finance manager.
The Company has followed a labor strategy designed to enhance its flexibility and productivity through constructive relations with its employees and collective bargaining units. Elements of this strategy have included implementation of flexible staff schedules, plant-level profit sharing plans and plants staffed entirely by salaried workers. Management believes the 401(k) plan first negotiated at U.S. Can's Elgin, Illinois plant is unique in the packaging industry and provides incentives for local performance, while reducing the Company's exposure to defined benefit plan costs traditionally bargained for by unions. Currently, unionized workers at nine domestic plants are included in this plan. In 1997, the ILGPNSWU unit at Newnan, Georgia, the GCIU unit at Burns Harbor, Indiana, the USWA unit at Chicago Metal Services and employees of the Alliance, Ohio plant were included in this plan.
Management believes the Company and its employees have benefited from dealing directly with local unions in order to tailor their contracts to local employee issues. In the future, management intends to negotiate separately with the unions at acquired plants to reach individual site contracts with the respective local unions. This policy has the effect of staggering renewal negotiations with the various bargaining units.
Management believes the Company's relations with its employees and their collective bargaining units are generally good, as evidenced by the fact that the Company has had only two work stoppages in its history -- a five-day work stoppage at the Horsham, Pennsylvania, facility in November, 1992, and a one-day work stoppage at the now-closed San Leandro, California, facility in June, 1988.
COMPETITION
The principal methods of competition in the general packaging industry are price, quality and service. The Company believes that it competes favorably in each of these areas. The Company can also compete more effectively by reducing manufacturing costs and enhancing operating efficiencies through investments in capital equipment and technology. Price competition in the industry is vigorous and limits the Company's ability to increase prices. Generally, customers of all general line containers are demanding more consistent product availability with shorter lead times. Because aerosol cans are used for personal care, household and other packaged products, and because they are pressurized, aerosol cans are more sensitive to quality, can decoration and other consumer-oriented features than paint and general line containers.
Competition has increased in the general packaging industry as a result of mature markets, customer consolidations and consolidation within the container industry. In steel aerosol containers, U.S. Can competes primarily with Crown, Cork & Seal ("Crown") and BWAY Corporation. Crown is larger and has greater financial resources than the Company. USC Europe competes in the steel aerosol market with Crown, Impress, Staehle, and a group of other smaller regional producers. Domestically, U.S. Can also competes with Advanced Monobloc and two other smaller firms which manufacture aluminum aerosol containers. In Europe, USC Europe competes with aluminum aerosol container manufacturers, Alusuisse-Lonza Holding AG/Boxal and Pechiney International, S.A./Cebal.
In paint and general line, the Company competes primarily with BWAY Corporation and one smaller, private firm. The Company's products also face competition from aluminum, glass and plastic containers. In 1995, the Company entered the plastic container line through the acquisition of Plastite Corporation ("Plastite"). In 1996, the Company expanded its plastics operations by acquiring three related plastic molding firms (the "CPI Group"). Major plastic container competitors include Berry Plastics, Letica, Plastican, Nampac and Norton.
Because shipping costs associated with the delivery of cans from outside major geographical markets would add a significant additional component of cost, the industry has historically had relatively little competition from manufacturers outside these markets. Management believes that this condition is unlikely to change in the foreseeable future. Management also believes that, due to the substantial transportation costs involved in shipping empty cans over long distances, its large number of facilities and their strategic locations near customers are a major competitive advantage.
Management believes that the following factors benefit the Company from a competitive standpoint: (i) reputation for quality and service; (ii) strategically located manufacturing facilities and a strong sales force; (iii) substantial capital investment in new technology such as necked-in and barrier package designs, high-speed presses and assembly equipment, and computer-controlled lithography; (iv) quality control systems, including statistical process control and electronic "vision" error detection; (v) breadth of product line; (vi) in-house decorating and lithography capacity; and (vii) a successful labor strategy.
Custom and specialty products compete with a large number of container manufacturers and closure suppliers; it does not compete across its entire product spectrum with any single company. Competition is based principally on price, quality and service, geographical proximity to customers and production capability, with varying degrees of intensity according to the specific product category. The Company believes it has the ability to compete favorably in each aspect of the custom and specialty business as market conditions may require.
ITEM 2.
ITEM 2. PROPERTIES
The Company has 35 manufacturing facilities located in 12 states in the U.S. and in five countries abroad, many of which are strategically positioned near principal customers and suppliers. In Europe, USC Europe has production locations in the five largest regional markets, including the United Kingdom, France, Spain, Italy and Germany. The following table sets forth certain information with respect to these plants as of February 28, 1997.
- ------------------------- * These facilities are in the process of being closed due to the Company's restructuring activities and are expected to be sold or sublet.
(1) Subject to a mortgage in favor of The First National Bank of Danville.
(2) The property at Merthyr Tydfil is subject to a 999-year lease with a pre-paid option to buy which becomes exercisable in January 2007. Up to that time, the landowner may require the Company to purchase the property for a payment of 1L British Sterling.
(3) Subject to a mortgage in favor of Societe Generale.
Currently, the Company's facility at Merthyr Tydfil is subject to a pledge of the leasehold interests and personal property located thereon to secure amounts outstanding under a credit agreement entered into with General Electric Capital Corporation.
In addition to its manufacturing facilities, the Company owns approximately 22 acres of undeveloped land in Raeford, North Carolina; leases 37,734 square feet of office space in Oak Brook, Illinois to house its corporate headquarters; leases approximately 102,400 square feet of office and warehouse space in Baltimore, Maryland to house a custom and specialty sales office and distribution center; and owns a 145,000 square-foot building in Baltimore, Maryland, where Alltrista Metal Services ("AMS") conducted metal service operations. The Company has agreed to sublet approximately 58,200 square feet of office and warehouse space in Saddle Brook, New Jersey, and expects to sell or lease a former manufacturing facility also located in Saddle Brook.
Management believes the Company's facilities are adequate for its present needs and that its properties are generally in good condition, well-maintained and suitable for their intended use. All of the manufacturing plants described in the table above are operating in regular service with one or more shifts per day. The Company continuously evaluates the composition of its various manufacturing facilities in light of current and expected market conditions and demand. While no plans currently exist to further consolidate plant operations, such actions may be deemed appropriate in the future.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in a number of legal proceedings arising in the ordinary course of business consistent with past experiences. Management does not believe that these proceedings will have a material adverse effect on the business or financial condition of the Company either individually or in the aggregate. In addition, the Company is involved in the following matters.
The groundwater in San Leandro, California, formerly a site of one of the Company's can assembly facilities, is contaminated at shallow and intermediate depths, and the area of concern partially extends to the groundwater below the facility formerly owned by the Company. In connection with sales in 1994 and 1995 of land on which this facility was located, the Company agreed to indemnify the purchaser against environmental claims related to the Company's ownership of the property. In April 1996, the California Department of Toxic Substances Control ("CDTSC") issued an order to certain past and present owners of this facility, including U.S. Can, directing such owners to conduct remediation activities at this site. No specific form of remediation was indicated. Consultants retained by the Company to evaluate the site concluded that the Company's operations had not impacted the groundwater at this site and that the contamination detected at this site resulted from migration from off-site, upgradient sources. However, in January 1998, the CDTSC informed the Company that it disagrees with these conclusions and wants the Company to conduct extensive additional testing. With the CDTSC's consent, the Company is preparing an appeal to the CDTSC Director. To date, there has been no resolution of this matter between the Company and the CDTSC, although discussions are
ongoing. There can be no assurance that the Company will not incur material costs and expenses in connection with the CDTSC order and remediation at the site.
The National Labor Relations Board ("NLRB") has issued a decision finding the Company in violation of certain sections of the National Labor Relations Act as a result of the Company's closure of certain facilities in 1991 and failure to offer inter-plant job opportunities to affected employees. The Company has appealed to an Administrative Law Judge of the NLRB and is awaiting a decision. Management does not believe that the resolution of this matter will have a material adverse effect on the Company's financial condition or results of operations.
For a discussion of Superfund sites in the U.S., see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Environmental Matters."
The litigation between U.S. Can and Continental Holdings Inc. concerning U.S. Can's 1987 acquisition of the general packaging business of Continental Can Company, USA, Inc. has been settled by the exchange of mutual releases and dismissal of all litigation with prejudice, without payment of any monies by either party.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of 1997.
PART II
ITEM 5.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE AND DIVIDEND POLICY
U.S. Can Corporation's common stock, par value $0.01 per share (the "Common Stock"), has been listed on the New York Stock Exchange since April 7, 1995, trading under the symbol "USC." Prior to that time, the Common Stock was included in the Nasdaq National Market under the trading symbol "USCN." The table below sets forth the high and low bid information for the Common Stock for each quarter of 1996 and 1997.
As of February 28, 1998, there were 637 record holders of the Common Stock. No cash dividends have been declared on the Common Stock by U.S. Can Corporation during 1996 or 1997, and U.S. Can Corporation has no intention to pay cash dividends in the foreseeable future. There are restrictions under U.S. Can's credit agreements on the ability of U.S. Can to transfer funds to U.S. Can Corporation in the form of cash dividends, loans or advances, and U.S. Can Corporation's ability to pay dividends, that currently limit U.S. Can Corporation's ability to pay cash dividends and are likely to limit the future payment of dividends on the Common Stock.
SALES OF UNREGISTERED SECURITIES
In February 1997, 270,000 shares of restricted Common Stock were awarded to officers of the Company, as compensation. In June 1997, 62,000 shares of restricted Common Stock were awarded to officers of the Company and U.S. Can, as compensation. In October 1997, 3,101 shares of restricted Common Stock were
awarded to outside directors of the Company, in lieu of part of these directors' annual retainer. In December 1997, 15,000 shares of restricted Common Stock were awarded to an executive officer of U.S. Can, as compensation. Each of these awards was exempt pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Act").
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial data has been derived from the Company's consolidated financial statements and should be read in conjunction with the audited Consolidated Financial Statements and the Notes thereto, for the years ended December 31, 1995, 1996 and 1997, contained in Item 8 of this Report, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," contained in Item 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Since 1995, the Company has made a number of acquisitions. In 1995, the Company acquired the stock of Plastite, Hunter Container Corporation ("Hunter") and Metal Litho International and the assets of related partnerships ("MLI"), as well as certain assets of Prospect Industries Corporation ("Prospect"). The Company sold the assets and operations formerly owned by Prospect in November 1997. In April 1996, the Company acquired the assets of AMS. The stock of the CPI Group and the stock and assets of USC Europe were acquired in August 1996 and September 1996, respectively. The former MLI and AMS operations have been reclassified as discontinued operations in the financial statements included elsewhere in this Report and are included in Metal Services, which the Company is actively attempting to sell.
RESULTS OF OPERATIONS
In the third quarter, the Company established a restructuring provision of $35 million for plant closings and overhead cost reductions. In the fourth quarter, the Company, at the direction of its Board of Directors, employed the assistance of external business consultants to review operations and explore other avenues for enhancing shareholder value. As a result of this review, the Company established another restructuring provision of $14.7 million primarily to include further personnel reductions and the reduction of asset value associated with equipment used in the businesses the Company has exited or is in the process of exiting.
The key components of the restructurings include closure of the Racine, Wisconsin aerosol assembly plant, the Midwest Litho center in Alsip, Illinois, the Sparrows Point litho center in Baltimore, Maryland, and the California Specialty plant in Vernalis, California; a writedown to estimated proceeds of the sale of the Orlando, Florida machine shop plant and the Baltimore, Maryland specialty and paint distribution business; and organizational changes designed to reduce general overhead. In July, S.C. Johnson, a major aerosol can customer and principal customer of the Racine plant, awarded all of its global aerosol business to a single supplier which is a U.S. Can competitor. Approximately $35 million of annual sales will be affected due to the loss of this customer. Closure of the two litho plants and Racine assembly plant is due to the loss of the S.C. Johnson business and increased efficiencies at other plants. The custom and specialty business of the California plant will be transferred to other locations.
As part of the business and operational realignments, the Company has sold its steel pail business. After the 1995 consolidation of the Saddle Brook operation, the Company's steel pail business was conducted entirely from its North Brunswick, New Jersey facility. Substantially all of the assets of this business were sold in November 1997 for $1.4 million plus the assumption of certain liabilities and future payments. 1997 revenues of the steel pail business through October 5, were approximately $19 million. In addition, the Company is actively seeking to sell Metal Services. Metal Services includes two plants in Chicago, Illinois, one plant in each of Trenton, New Jersey and Brookfield, Ohio and the closed Midwest Litho plant. 1997, 1996 and 1995 revenues from these operations were $116 million, $101 million, and $64 million (excluding intra-Company sales which are expected to be continued by the buyer and including third-party sales from the closed Midwest Litho plant, which (other than sales to S.C. Johnson) have been transferred to other Metal Services plants). The Company anticipates that the sale of Metal Services will be completed in 1998.
In aggregate, the Company provided for a $16.0 million ($12.4 million after income taxes) loss on the sale of these two businesses, primarily representing the excess of recorded carrying value over the anticipated aggregate net sales proceeds for the net assets to be sold in the dispositions. As of December 31, 1997, the net assets of Metal Services, excluding the discontinued operations reserve, included net current assets of approximately $16.0 million and net other assets of approximately $29.4 million.
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.
For further details on the restructuring provisions and the discontinued operations, see Note (3) of the Notes to Consolidated Financial Statements.
The following comparisons exclude the impact of the steel pail and metal services businesses.
YEAR ENDED DECEMBER 31, 1997, AS COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Sales
Net sales for the year ended December 31, 1997 were $738.9 million, an increase of 16% over the corresponding period in 1996. Sales gains were the result of the Company's acquisition of USC Europe in September 1996, and modest growth in domestic steel paint and oblong unit volumes. The USC Europe acquisition accounted for nearly 71% of the total year-to-year increase.
Gross Income
Gross income of $91.2 million was down $1.9 million or 2% from 1996. Gross margin declined to 12.3% in 1997 versus 14.6% in 1996. Competitive pricing pressure and increased steel costs compressed margins. Plant start-up costs, primarily in Europe, also adversely impacted gross income in 1997.
Operating Income
Operating income in 1997 before the restructuring provision was $58.8 million versus $65.3 million last year. Lower gross margins adversely impacted 1997 operating income. Selling, general, and administrative expenses remained flat at 4.3% of net sales through 1996 and 1997.
Including the impact of the $49.7 million restructuring provision, the Company reported operating income of $9.1 million for 1997. Due to the timing of the plant closings and other cost reduction actions included in the restructuring provision, no material benefit was realized in the 1997 results.
Interest and Other Expenses
Interest expense on borrowings increased $8.5 million in 1997 as compared to 1996, due to increased borrowing, primarily to finance the Company's acquisition of USC Europe, and the refinancing of shorter-term, lower-rate bank debt with a portion of the proceeds of the 10 1/8% Notes issued in October 1996. Other expenses were flat year-to-year as a percent of net sales.
Net Income (Loss)
Net loss from continuing operations in 1997 was $19.5 million or $1.49 per share, versus net income of $19.7 million or $1.51 per share in 1996. The restructuring provision recorded in 1997 had a negative after-tax effect of $29.7 million or $2.27 per share.
Including the $10.4 million, or $0.80 per share, loss related to the divested steel pail business, and the $2.1 million or $0.16 per share loss on the discontinued metal service business, net loss for 1997 was $32.0 million or $2.45 per share, versus 1996 net income of $11.8 million or $0.90 per share (including discontinued operations loss of $2.7 million and extraordinary loss on debt extinguishment of $5.2 million after-tax).
YEAR ENDED DECEMBER 31, 1996, AS COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Sales
Net sales for the year ended December 31, 1996 totaled $636.5 million, an increase of 15.7% over the corresponding period in 1995. Companies acquired by U.S. Can during the first three quarters of 1996, including USC Europe, added approximately $45.4 million to sales in 1996. The Company has also realized additional sales as a result of the Plastite and Hunter acquisitions in 1995 and the CPI Group and USC Europe acquisitions in 1996. Sales gains for the year also reflect volume growth in substantially all of the Company's products.
Gross Income
Gross income of $93.1 million for 1996 was $20.2 million, or 27.7%, higher than gross income for 1995. The 1996 acquisitions were the primary reason for this increase. Volume gains in 1996 with stable costs contributed to improved performance. Gross margin increased to 14.6% of net sales in 1996 from 13.3% of net sales in 1995 despite a significant advance purchase of steel in late 1994 which resulted in the Company not realizing the full impact of the 1995 steel price increase in the first quarter of 1995. In 1995, margins, as well as sales, were negatively impacted by weak second half demand. In 1996, the fourth quarter and full year were impacted by the somewhat lower margins of acquired businesses and seasonality of the new European operations. However, these were more than offset by improved sales and margins in core operations.
Operating Income
The Company's operating income of $65.3 million for 1996 was $26.6 million, or 68.8%, higher than operating income for 1995. Income was favorably impacted by increased sales, improved margins and the effect of an overhead reduction program begun in late 1995. Operating income as a percent of net sales was 10.2% for 1996 as compared to 7.0% for 1995. The Company experienced an increase in selling, general and
administrative expenses during 1996, primarily due to acquisitions. However, these expenses as a percent of net sales decreased from 4.8% of net sales in 1995 to 4.3% of net sales in 1996.
Interest and Other Expenses
Interest expense on borrowings increased by approximately $3.9 million in 1996 as compared to 1995. The increase is a result of increased borrowing, primarily to finance the Company's acquisitions and the refinancing of shorter term bank debt with a portion of the proceeds of the 10 1/8% $275 million note issue in October 1996. Amortization of deferred financing costs and other expense remained flat in 1996 as compared to 1995. The Company believes more permanent long-term capital is the most appropriate means to finance acquisitions, and, accordingly, issued the Notes to repay short-term acquisition debt, in addition to the 13 1/2% Notes. As a result, repayment of lower cost, shorter term debt with the Note proceeds has generated somewhat higher interest expense even though a portion of the proceeds was used to redeem higher cost 13 1/2% Notes.
Net Income
For 1996, income before discontinued operations and extraordinary item was $19.7 million, more than three times the $6.1 million reported in 1995. During 1996, the Company redeemed its 13 1/2% Notes with the proceeds from the issuance of the 10 1/8% Notes. The early extinguishment of the 13 1/2% Notes resulted in an extraordinary charge of $5.2 million (net of income taxes of $3.5 million) primarily representing a prepayment premium and the write off of related unamortized deferred financing costs. Earnings per share before discontinued operations and extraordinary item were $1.51 for the year. Final net income was $11.8 million ($0.90 per share) in 1996 compared to net income of $3.9 million ($0.31 per share) in 1995.
LIQUIDITY AND CAPITAL RESOURCES
During the last three fiscal years, the Company has met its liquidity needs primarily through internally generated cash flows, borrowings under its credit lines and proceeds of securities offerings. Principal liquidity needs have included operations, repayment of indebtedness and related interest, capital expenditures and acquisitions. Cash flow from operations has increased from $24.8 million in 1995 to $30.1 million in 1996 and $64.4 million in 1997, primarily due to improved working capital management in 1997. 1997 results also include $5.7 million of payments related to the Company's recent restructuring activities, including costs related to its discontinued operations. The Company anticipates spending another $12.5 million of such costs in 1998. The remainder of the restructuring provision primarily consists of non-cash items associated with the write off of assets.
On October 17, 1996, U.S. Can Corporation issued $275 million of 10 1/8% Notes in a private placement. Of the $268.1 million net proceeds to the Company from the issuance, (i) approximately $109.7 million was deposited in an escrow account and used to redeem U.S. Can's 13 1/2% Notes on January 15, 1997, and pay the remaining interest thereon; (ii) approximately $67.3 million of the net proceeds was used to retire acquisition-related borrowings; and (iii) approximately $91.1 million of the net proceeds was used to repay a portion of the borrowings outstanding under the Company's working capital line. In March 1997, the Company completed a registered exchange of the private Notes for freely transferable Exchange Notes (the "Exchange Offer"). All of the Notes were tendered in the Exchange Offer and, as a result, only the Exchange Notes remain outstanding.
In April 1997, U.S. Can entered into an Amended and Restated Credit Agreement with a group of banks (the "Credit Agreement"), providing a $110 million revolving credit facility (the "Revolving Credit Facility"). In February 1998, the Revolving Credit Facility was reduced to $80 million. Obligations under the Credit Agreement are secured by U.S. Can's domestic accounts receivable and inventory. Funds available under the Revolving Credit Facility may be used for general corporate purposes (including ongoing working capital needs and funds for permitted acquisitions). The Credit Agreement has a five-year maturity and amended and restated the April 1994 credit agreement (the "1994 Credit Agreement"). The Credit Agreement permits the Company to borrow funds available under the Revolving Credit Facility in U.S.
Dollars, British Pounds or French Francs. The weighted average interest rate on this indebtedness at December 31, 1997 was 6.7%.
As of December 31, 1997, the Company's total debt was approximately $378.4 million and scheduled principal payments (excluding principal due on the Revolving Credit Facility) were approximately $9.5 million, $9.0 million, $6.0 million, $7.7 million and $40.4 million for the years 1998, 1999, 2000, 2001 and 2002, respectively. As of March 18, 1998, U.S. Can had borrowings of $23.9 million outstanding under the Credit Agreement, $12.5 million in letters of credit had been issued pursuant thereto and $43.6 million of unused credit remained available thereunder.
Primarily as a result of the 1997 special charges and discontinued operations, the Company failed to comply with certain financial ratios, including total leverage, maximum domestic leverage and interest coverage, during the year and at year end. The Company obtained permanent waivers from the appropriate lenders and the Company and such lenders have amended the Credit Agreement to better reflect the Company's current configuration and expected operating results. The Company expects to remain in compliance with the amended financial ratios in the Credit Agreement through 1998. As of December 31, 1997, U.S. Can was in compliance with the Credit Agreement and its other long-term debt agreements.
The Company's capital expenditures totaled $54.0 million in 1997, $48.6 million in 1996 and $31.4 million in 1995. Of the total capital expenditures in 1997 and 1996, approximately $30 million relates to the start-up of the Merthyr Tydfil, UK plant. In each year, these capital expenditures also included investments in new can production lines, paint can line enhancements, advanced lithography technology and computer integrated manufacturing, to increase manufacturing capacity, reduce changeover times and improve productivity. The Company has also invested capital in plant expansions and the installation of state-of-the-art end-making presses and automated packaging equipment.
The Company expects to spend approximately $100 to $150 million on capital expenditures during the five years commencing in 1998, in an amount of approximately $20 million in 1998 and in roughly equal amounts of approximately $20.0 to $32.5 million in each year thereafter. The Company makes capital expenditures principally for improvements in the productivity and quality of lithography operations, continued technological enhancement of existing equipment, automation of existing processes, computer-integrated manufacturing techniques, quality and service improvements, facility expansion, and, if necessary to meet demand, additional can-making capacity. 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 equipment financings should provide sufficient funds for the Company's short-term and long-term capital expenditure and debt amortization requirements, and other cash needs in the ordinary course of business. The Company believes it will be able to refinance the Revolving Credit Facility on or prior to maturity. If future strategic acquisition opportunities arise, the Company would expect to finance them though some combination of cash, stock and/or debt financing.
ACQUISITIONS
During 1995, the Company acquired four businesses for an aggregate of approximately $30.2 million in cash, plus contingent payments of up to $2.5 million, and the assumption of approximately $6.7 million in debt. The cash portion of the purchase prices was financed primarily from borrowings under U.S. Can's revolving line of credit.
In April and June 1996, the Company acquired from Alltrista Corporation ("Alltrista") for approximately $14.4 million and the assumption of a $0.5 million liability substantially all of the assets (other than steel inventory) of Alltrista Metal Services ("AMS"), a division of Alltrista. In June 1996, the Company purchased AMS's remaining inventory for $8 million. The acquisitions were financed with borrowings under
U.S. Can's revolving line of credit. In July of 1996, the Company discontinued operations at two of the former AMS plants.
In August 1996, the Company completed the acquisition of all of the outstanding stock of three related companies, CPI Plastics, Inc., CP Ohio, Inc. and CP Illinois, Inc. (collectively, the "CPI Group"), engaged in manufacturing molded plastic drums and pails, and poultry products. The Company paid approximately $15.1 million in cash to the stockholders of the CPI Group at closing. In addition, U.S. Can has made contingent payments, based upon the CPI Group's financial performance during 1996 and 1997, aggregating $1.0 million. This acquisition was financed with borrowings under a special acquisition line of credit provided to U.S. Can by its senior lenders.
In September 1996, the Company completed the acquisition of a portion of Crown Cork & Seal Company, Inc.'s ("Crown's") European aerosol can businesses ("USC Europe") for $48.3 million, in addition to the assumption debt of $5.8 million. This acquisition included manufacturing operations in the United Kingdom, France, Spain and Germany and the aerosol can manufacturing equipment and assets from a Crown facility in Italy. The companies acquired and established in connection with the USC Europe acquisition comprise the majority of the European Subsidiaries. The Company incurred $3.5 million of costs in completing this acquisition which have been included in total acquisition costs.
In January 1997, the Company acquired certain assets from Owens-Illinois Closure Inc. ("O-I") for cash consideration of $10 million, subject to adjustment based upon the actual value of the inventory acquired and potential contingent payments of up to $1.5 million based upon realization of certain new business which O-I was seeking at the time of the acquisition. The assets acquired by the Company include machinery, equipment, inventory and raw materials of O-I's Erie, Pennsylvania metal business. O-I will operate these lines for up to one year, pending relocation into one or more of the Company's plants.
The Company will continue to evaluate and selectively pursue acquisitions which it believes are strategically important to meeting its customers needs, attracting new customers, adding new products, complementing its existing business and expanding its geographic reach.
ENVIRONMENTAL MATTERS
For a discussion of the San Leandro, California environmental order, see "Legal Proceedings." There can be no assurance that the Company will not incur material costs and expenses in connection with this order.
The processes involved in the lithography and certain aspects of the manufacture of steel containers have historically involved the use and handling of materials now classified as hazardous substances under various laws. These activities described above may expose owners and operators of facilities involved in those activities to potential liability for the cost to clean up or remedy any environmental contamination resulting from such substances relating to those businesses. As of December 31, 1997, the Company's reserves for future ascertainable costs of environmental remediation in the United States were approximately $450,000. Management does not believe that such costs, if any, in excess of the reserve will have a material adverse affect on the Company's results of operations or financial condition. In making this assessment, the Company considered all information available to it including its and other companies' reported prior experience in dealing with such matters, data released by the EPA and reports by independent environmental consultants regarding certain matters. It is possible that the Company's insurance coverage may extend to certain environmental liabilities, but the Company has not been able to estimate such coverage due to the complexity and uncertainty inherent in such an estimate. In addition, the Company has obtained indemnities against certain liabilities in connection with its recent acquisitions. However, the statements related to environmental liabilities made by the Company in this Report are made without regard to any potential insurance recovery or recovery of amounts from indemnitors.
A variety of propellants are used in the Company's principal product, aerosol cans. These propellants include hydrocarbons, compressed gases (for example, carbon dioxide and nitrous oxide), and volatile organic compounds such as propane, butane and isobutane (individually, "VOC" and collectively "VOCs"). Some United States and European regulations have caused consumer product manufacturers (the Company's
customers) to reformulate either their products, the propellants used therein or both if they contain VOCs. To date, most of the Company's customers have been successful in reformulating both their products and propellants. However, there can be no assurance that all customers will be able to effect such reformulations or future reformulations, if any, in either products or propellants with satisfactory results. If customers are unable to do so, this could have an adverse effect on the market for aerosol cans.
USC Europe includes five aerosol can-making operations located in the United Kingdom, France, Spain, Germany and Italy. The Company has retained an independent environmental consultant to perform an initial environmental inventory, and the seller provided disclosure on environmental matters relating to each plant and site. The Company has also performed its own audit of plant operations and facilities. In connection with this acquisition and with the Company audit, no subsurface sampling was performed to identify possible contamination. Several of the facilities have been operating at their locations for more than ten years and, according to a survey conducted by an independent environmental consultant, it is likely there have been releases of hazardous substances at these locations in the past. The operation in Southall, UK and Schwedt, Germany are in historically industrialized areas, and there is potential for area-wide contamination involving adjacent sites. There can be no assurance that there are not significant environmental liabilities unknown to the Company.
The Company has made, and expects to continue to make, significant capital expenditures to upgrade its facilities in accordance with current and pending environmental regulations.
The Company received a request for information from the U.S. EPA in January 1997, concerning the lithography operations at its Chicago facility (formerly owned by Alltrista). In March 1997, representatives of the U.S. EPA inspected the Chicago facility and requested additional information, including compliance tests and reports. The Company has cooperated fully with the U.S. EPA inquiry. The Company does not know what the outcome of this inquiry will be. In the acquisition agreement between the Company and Alltrista, Alltrista agreed to indemnify the Company for compliance costs that relate back to Alltrista's operation of this facility.
As a potentially responsible party ("PRP") at various Superfund sites in the U.S., the Company is or may be legally responsible, jointly and severally with the other members of the PRP group, for the cost of remediation of these sites. Based on currently available data (including EPA data, internal records and other sources believed to be reliable), the Company believes its contribution, and/or the contribution of its predecessors, to these sites was de minimis. Based on the information available as of the date of this Report, management does not believe that its aggregate remediation costs or potential liabilities in connection with these sites will have a material adverse effect on the Company's financial condition or results of operations. However, there can be no assurance that the other PRP's will pay their proportionate share of the remediation costs at these sites and, as a result, future costs or liabilities incurred by the Company could be material.
SEASONALITY
The Company's business as a whole is not affected to any significant degree by seasonal variations, although quarterly sales and earnings tend to be slightly stronger starting in early spring (second quarter) and extending through late summer (third quarter). Aerosol sales do not tend to fluctuate during the year, with only relatively minor spring and summer increases related to household products and insect repellents. Paint sales tend to be stronger in spring and early summer due to the favorable weather conditions. Portions of the custom and specialty products line tend to vary seasonally, because of holiday sales late in the year.
INTEREST RATES/FOREIGN CURRENCY
Management does not believe that interest rate fluctuations have a material effect on the Company's results of operations and financial condition. As of December 31, 1997, 11.62% of the Company's borrowings were floating rate obligations. In the past, management has adopted strategies to increase the Company's floating-rate exposure to benefit from declining rates. Currently, the Company holds no interest rate swaps. However, in an effort to limit foreign exchange risk related to the financing of the Merthyr Tydfil facility, the Company has entered into a series of British Pound/Dollar forward contracts that will not exceed $37 million
in notional amount or a term of more than seven years. The Indenture under which the 10 1/8% Notes were issued limits the Company's ability to enter into currency hedging transactions that would be considered speculative, but the Company is specifically permitted to hedge payment obligations on indebtedness permitted by the Indenture.
To the extent that the Company obtains financing in United States dollars and receives revenues and incurs expenses in the development, construction and operation of USC Europe in its local currencies, the Company will encounter currency exchange rate risks. While the Company may consider entering into transactions to hedge the risk of exchange rate fluctuations, there can be no assurance that the Company will engage in such transactions, or, if the Company decides to engage in such transactions, that shifts in the currency exchange rates will not have an adverse effect on the Company's financial condition or its ability to repay principal or interest on its debt obligations.
INFLATION
Historically, the Company has not always been able to immediately offset increases in tin plate prices with price increases on the Company's products. However, in most years, a combination of factors has permitted the Company to improve its profitability notwithstanding these conditions. The Company's capital spending programs and manufacturing process upgrades have increased operating efficiencies and thereby reduced the Company's unit cost of production. In addition, historically, the Company has been able to negotiate lower price increases than those announced by its major suppliers. See "Business - -- Raw Materials." The operating efficiencies and reduced unit cost of production which have been achieved through the Company's capital spending programs have mitigated the impact of inflation on the Company's cost structure. In 1995 and 1997, higher material costs were one of the factors contributing to the Company's reported earnings.
CUSTOMER RELATIONSHIPS/AEROSOL CONTAINERS
Aerosol containers accounted for 60.2% of the Company's total net sales for the year ended December 31, 1997. A significant reduction in the number of aerosol containers used by the Company's customers could have a material adverse effect on the Company and, in particular, its European operations which are comprised solely of aerosol manufacturing facilities.
In October 1996, U.S. Can received written confirmation of Gillette's intention to purchase certain annual unit volumes of aerosol cans from U.S. Can, including U.S. Can's European operations, through 1998, with the option to extend for an additional period, subject to price adjustment for actual volumes purchased. The Company's manufacturing facility in Merthyr Tydfil, in which the Company has invested approximately $30 million, was opened in large part due to Gillette's decision. The loss of Gillette as a customer or a material reduction in the benefits to the Company expected under this arrangement would have an adverse impact on the profitability of that facility and the Company's ability to recoup the start-up costs of establishing the facility. It is not U.S. Can's policy to have any plant devoted exclusively to one customer and management plans to service other customers from this facility.
The Company's relationships with its customers are critical to its business. A significant portion of the Company's annual net sales is attributable to repeat customers. The loss of a significant number of such customers could have a material adverse effect on the Company.
YEAR 2000
U.S. Can is currently in the process of converting from an IBM mainframe legacy system to an integrated AS/400 software package from American Software, that is Year 2000 compliant. Order entry and accounts receivable functions have been converted to the AS/400-based system, and general ledger and accounts payable functions are scheduled for conversion no later than the third quarter of 1998. In addition, several plant manufacturing operating and data base management systems are being upgraded to Year 2000 compliance at a minimal cost. The Company has also surveyed its primary vendors which have indicated they will be Year 2000 compliant. The Company has also reviewed certain telephone, time and attendance, voice
mail, and programmable logic control systems. The Company believes it will be Year 2000 compliant in advance of the new millennium, and does not believe the compliance costs will be material.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Inapplicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To U.S. Can Corporation:
We have audited the accompanying consolidated balance sheets of U.S. CAN CORPORATION (a Delaware corporation) AND SUBSIDIARIES as of December 31, 1996 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of U.S. Can Corporation and Subsidiaries as of December 31, 1996 and 1997, and their results of operations and cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois February 18, 1998
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (000'S OMITTED, EXCEPT SHARE DATA)
The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets.
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (000'S OMITTED, EXCEPT PER SHARE DATA)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
U. S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATION STATEMENTS OF STOCKHOLDER'S EQUITY (000'S OMITTED)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (000'S OMITTED)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1996 AND 1997
(1) BASIS OF PRESENTATION AND OPERATIONS
The 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 European companies formed or acquired during 1996 (the "European Subsidiaries"). All significant intercompany balances and transactions have been eliminated. The consolidated group is referred to herein as the Company.
The Company is a manufacturer of steel and plastic containers for personal care products and household, automotive, paint and industrial supplies. The Company manufactures a broad line of aerosol containers for consumer and household products in the United States and Europe. In its paint, plastic and general line business, the Company produces metal and plastic, round and oblong containers, for household and industrial paints and additives and other industrial products in the United States. The Company also manufactures a wide variety of custom and specialty tins, decorative containers and products. The Company owns or leases 35 plants, located in 12 States, and 6 plants located in the United Kingdom, France, Germany, Spain and Italy, many of which are positioned near principal customers and suppliers. Certain of the operations and plants are being discontinued or closed as further described in Note 3.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and Cash Equivalents -- The Company considers all liquid interest-bearing instruments purchased with an original maturity of three months or less to be cash equivalents.
(b) Cash Overdrafts -- Cash overdrafts represent the aggregate amount of checks which have been issued and have not yet cleared the Company's zero-balance disbursement accounts, net of any cash in specific Company depository accounts which will be automatically drawn against as such checks clear the disbursement accounts. Cash on-hand and cash in Company accounts at banks not subject to the automatic netting are reported as cash and cash equivalents.
(c) Accounts Receivable Allowances -- Activity in the accounts receivable allowances accounts was as follows (000's omitted):
(d) 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 $16.4 million at the European Subsidiaries and machine shop inventory are stated at cost determined by the first-in, first-out ("FIFO") cost method, not in excess of market. Inventory costs include material, labor and factory overhead. FIFO cost of LIFO inventories approximated their LIFO value at December 31, 1996 and 1997.
Tin-plated steel accounted for approximately 86% of the Company's total raw material purchases during 1997. Negotiations with the Company's domestic tin-plated steel suppliers occur once per year. At that time, the prices for tin-plated steel are set for the upcoming year. Due to competition among steel suppliers and the
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
volume of tin-plated steel purchased by the Company in the United States, the Company has historically negotiated raw materials pricing which is more favorable than that publicly announced by its suppliers. However no assurance can be given that the Company will continue to be able to do so in the future. With respect to the European Subsidiaries, the Company has only limited prior purchasing history with its tin-plated steel suppliers. No assurance can be given that the European Subsidiaries will be able to continue to purchase its tin-plated steel requirements from such existing sources at prices below those publicly announced by its suppliers.
Inventories reported in the accompanying balance sheets were classified as follows (000's omitted):
(e) Property, Plant and Equipment -- Property, plant and equipment is recorded at cost. Major renewals and betterments which extend the useful life of an asset are capitalized; routine maintenance and repairs are expensed as incurred. Total maintenance and repairs expense charged against earnings was approximately $22.5 million, $25.2 million and $30.9 million in 1995, 1996 and 1997, respectively. Upon sale or retirement of these assets, the asset cost and related accumulated depreciation are removed from the accounts and any related gain or loss is reflected in income.
Depreciation for financial reporting purposes is principally provided using the straight-line method over the estimated useful lives of the assets as follows: buildings -- 25 to 40 years; machinery and equipment -- 5 to 20 years. Property, plant and equipment under capital leases are amortized over the shorter of the estimated useful life of the asset or the term of the lease. Accelerated methods are used for income tax purposes, where permitted.
(f) Machinery Repair Parts -- Machinery repair parts are capitalized when purchased and are expensed, at cost, as they are used in the course of operations. These parts are recorded at the lower of cost or net realizable value in the accompanying balance sheets.
(g) Intangibles -- Intangible assets consist principally of the excess purchase price over the fair value of the net assets of businesses acquired ("goodwill"), which is principally amortized over a 40 year life. The related amortization expense was $2.0 million, $1.5 million and $1.8 million for the years ended December 31, 1995, 1996 and 1997, respectively. Total accumulated amortization was $9.0 million and $10.5 million at December 31, 1996 and 1997, respectively. Additionally, during 1997, net goodwill was reduced by $13.5 million as a result of the special charges and discontinued businesses described in Note 3. After an acquisition, the Company continually reviews whether subsequent events and circumstances have occurred that indicate the remaining estimated useful life of goodwill may warrant revision or that the remaining balance of goodwill may not be recoverable. If events and circumstances indicate that goodwill related to a particular business should be reviewed for possible impairment the Company uses projections to assess whether future operating income (net of tax) of the business is expected to exceed the goodwill amortization over the remaining life of the goodwill, to determine whether a write-down of goodwill to recoverable value (generally as determined by the same projections) is appropriate.
(h) Environmental Liabilities -- The Company's operations and products are subject to Federal, state, local and foreign regulatory requirements relating to environmental protection. It is the Company's policy to
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
comply fully with all such applicable requirements. The Company may be subject to potential liabilities for the costs of environmental remediation at currently or previously owned or operated sites or sites to which it, or predecessor owners, transported materials.
It is the Company's policy to accrue for the estimated cost of environmental matters, on a non-discounted basis, when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Such provisions and accruals exclude claims for recoveries from insurance carriers or other third parties. Such claims are recognized as receivables only if realization is probable.
Statement of Position ("SOP") 96-1, "Environmental Remediation Liabilities" was issued in October 1996 and adopted by the Company in 1997. This SOP provides authoritative guidance on specific accounting issues that are present in the recognition, measurement and disclosure of environmental remediation liabilities. The impact of adopting this SOP did not have a material effect on the Company's financial position or results of operations.
(i) Revenue -- Revenue is recognized when goods are shipped to the customer. Estimated sales returns and allowances are recognized as an offset against revenue in the period in which the related revenue is recognized.
(j) Foreign Currency Translation -- The functional currency for substantially all of the European Subsidiaries is the applicable local currency. The translation from the applicable foreign currencies to U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average exchange rate prevailing during the period. The gains or losses resulting from such translation are included in stockholders' equity. Gains or losses resulting from foreign currency transactions are included in other income and were not material in 1996 or 1997.
(k) New Accounting Pronouncements -- Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings Per Share" was issued in February 1997 and adopted by the Company as of December 31, 1997. This new pronouncement established revised reporting standards for earnings per share and has been retroactively applied to all periods presented herein. Previously reported earnings per share for such periods were not materially different than currently reported diluted earnings per share. Additionally, application of the new standard for 1997 did not materially impact the calculation of diluted earnings per share versus what would have been reported under the prior standard. Diluted earnings per share for the Company includes the impact of assumed exercise of dilutive stock options.
SFAS No. 130, "Reporting Comprehensive Income" was issued in July 1997 and will be adopted by the Company in 1998. This new pronouncement establishes standards for the reporting and display of comprehensive income and its components which, for the Company, include cumulative translation and minimum pension adjustments.
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information" was also issued in July 1997 and introduces a new model for segment reporting, called the "management approach." The management approach is based on the way that the chief operating decision maker organizes segments within the company for making operating decisions and assessing performance. Management of the Company is evaluating this new pronouncement to determine its impact upon current reporting. Adoption of this new standard is scheduled for late 1998.
(l) Use of estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) SPECIAL CHARGES AND DISCONTINUED OPERATIONS
In 1995, the Company recorded a pretax charge of $8 million related to actions taken to reduce overhead expenses and to eliminate redundant manufacturing capacity. The primary components of the charge include costs associated with severance packages for a number of identified salaried employees throughout the Company and with the Company's Saddle Brook, New Jersey manufacturing facility which was closed as part of the consolidation of the Company's steel pail business into the Company's North Brunswick, New Jersey manufacturing facility.
In the third quarter, the Company established a restructuring provision of $35 million for plant closings and overhead cost reductions. In the fourth quarter, the Company, at the direction of its Board of Directors, employed the assistance of external business consultants to review operations and explore other avenues for enhancing shareholder value. As a result of this review, the Company established another restructuring provision of $14.7 million primarily to include further personnel reductions and the reduction of asset value associated with equipment used in the businesses the Company has exited or is in the process of exiting.
The key components of the restructurings include closure of the Racine, Wisconsin aerosol assembly plant, the Midwest Litho center in Alsip, Illinois, the Sparrows Point litho center in Baltimore, Maryland, and the California Specialty plant in Vernalis, California; a writedown to estimated proceeds of the sale of the Orlando, Florida machine shop plant and the Baltimore, Maryland specialty and paint distribution business; and organizational changes designed to reduce general overhead. In July, S.C. Johnson, a major aerosol can customer and principal customer of the Racine plant, awarded all of its global aerosol business to a single supplier which is a U.S. Can competitor. Approximately $35 million of annual sales will be affected due to the loss of this customer. Closure of the two litho plants and Racine assembly plant is due to the loss of the S.C. Johnson business and increased efficiencies at other plants. The custom and specialty business of the California plant will be transferred to other locations.
The components of the restructuring provisions are $28.7 million for the non-cash write off of assets related to the facilities to be closed or sold, $12.8 million for severance and related termination benefits for approximately 95 salaried and approximately 260 hourly employees, and $5.9 million for other related closure costs such as building restoration, equipment disassembly and future lease payments. In addition to these charges, the Company provided an additional $2.2 million related to the continuing carrying costs (principally contractual lease payments) related to the closed Saddle Brook, New Jersey facility which it has not been able to sublet as originally planned. The write off of the assets included in the charge primarily relate to fixed assets ($22.9 million) which cannot be transferred or used in the Company's other operations and unamortized goodwill related to the closed operations. As of December 31, 1997, approximately $4.6 million of the cash severance and other closure costs had been spent with the majority of the remaining costs expected to be spent in 1998. The plant closures and sales are expected to be complete by mid-1998.
As part of the business and operational realignments, the Company has sold its steel pail business. After the 1995 consolidation of the Saddle Brook operation, the Company's steel pail business was conducted entirely from its North Brunswick, New Jersey facility. Substantially all of the assets of this business were sold in November 1997 for $1.4 million plus the assumption of certain liabilities and future payments. 1997 revenues of the steel pail business through October 5, were approximately $19 million. In addition, the Company is actively seeking to sell its commercial metal services business ("Metal Services"). Metal Services includes two plants in Chicago, Illinois, one plant in each of Trenton, New Jersey and Brookfield, Ohio and the closed Midwest Litho plant. 1997, 1996 and 1995 revenues from these operations were $116 million, $101 million, and $64 million (excluding intra-Company sales which are expected to be continued by the buyer and including third-party sales from the closed Midwest Litho plant, which (other than sales to S.C. Johnson) have been transferred to other Metal Services plants). The Company anticipates that the sale of Metal Services will be completed in 1998.
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In aggregate, the Company provided for a $16.0 million ($12.4 million after income taxes) loss on the sale of these two businesses, primarily representing the excess of recorded carrying value over the anticipated aggregate net sales proceeds for the net assets to be sold in the dispositions. As of December 31, 1997, the net assets of Metal Services, excluding the discontinued operations reserve, included net current assets of approximately $16.0 million and net other assets of approximately $29.4 million.
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.
(4) ACQUISITIONS
During 1995, the Company acquired four businesses for an aggregate of approximately $30.2 million in cash, plus contingent payments of up to $2.5 million, and the assumption of approximately $6.7 million in debt. The cash portion of the purchase prices was financed primarily from borrowings under U.S. Can's revolving line of credit.
In April and June 1996, the Company acquired from Alltrista Corporation ("Alltrista") for approximately $14.4 million and the assumption of a $0.5 million liability substantially all of the assets (other than steel inventory) of Alltrista Metal Services ("AMS"), a division of Alltrista. In June 1996, the Company purchased AMS's remaining inventory for $8 million. The acquisitions were financed with borrowings under U.S. Can's revolving line of credit. In July of 1996, the Company discontinued operations at two of the former AMS plants.
In August 1996, the Company completed the acquisition of all of the outstanding stock of three related companies, CPI Plastics, Inc., CP Ohio, Inc. and CP Illinois, Inc. (collectively, the "CPI Group"), engaged in manufacturing molded plastic drums and pails and poultry products. The Company paid approximately $15.1 million in cash to the stockholders of the CPI Group at closing. In addition, U.S. Can has made contingent payments, based upon the CPI Group's financial performance during 1996 and 1997, aggregating $1.0 million. This acquisition was financed with borrowings under a special acquisition line of credit provided to U.S. Can by its senior lenders.
In September 1996, the Company completed the acquisition of a portion of Crown Cork & Seal Company, Inc.'s ("Crown's") European aerosol can businesses ("USC Europe") for $48.3 million, in addition to the assumption debt of $5.8 million. This acquisition included manufacturing operations in the United Kingdom, France, Spain and Germany and the aerosol can manufacturing equipment and assets from a Crown facility in Italy. The companies acquired and established in connection with the USC Europe acquisition comprise the majority of the European Subsidiaries. The Company incurred $3.5 million of costs in completing this acquisition which have been included in total acquisition costs.
In January 1997, the Company acquired certain assets from Owens-Illinois Closure Inc. ("O-I") for cash consideration of $10 million subject to adjustment based upon the actual value of the inventory acquired and potential contingent payments of up to $1.5 million based upon realization of certain new business which O-I was seeking at the time of the acquisition. The assets acquired by the Company include machinery, equipment, inventory and raw materials of O-I's Erie, Pennsylvania metal business. The purchase price allocation resulted in goodwill of $7.1 million.
Each of the foregoing business acquisitions was accounted for as a purchase for financial reporting purposes. Accordingly, assets and liabilities of the acquired companies were revalued to estimated fair values as of the acquisition date. Changes in these estimates, if any, are not expected to be material.
The operating results of each acquired business are included in the consolidated statement of operations from the date of acquisition. Amortization of excess purchase price over the estimated fair value of the net
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value of assets acquired is made over a period of 40 years. All acquired companies, other than those comprising USC Europe, have been merged into U.S. Can.
The following data represents the Company's unaudited pro forma 1995 and 1996 results of operations as if the significant acquisitions of the CPI Group and USC Europe had occurred on January 1 of the applicable year (000's omitted, except per share data):
The pro forma operating results include each businesses' pre-acquisition results of operations for the indicated years with adjustments to reflect amortization of goodwill, additional depreciation on the increases to the fair market value of fixed assets, interest expense on the acquisition borrowings and the effect of income taxes thereon. The pro forma information given above does not purport to be indicative of the results that actually 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.
(5) DEBT OBLIGATIONS
The primary debt obligations of the Company at December 31, 1996 and 1997, consisted of the following (000's omitted):
In April 1997, U.S. Can entered into an Amended and Restated Credit Agreement with a group of banks (the "Credit Agreement"), providing a $110.0 million revolving credit facility. Obligations under the Credit Agreement are secured by U.S. Can's domestic accounts receivable and inventories. Funds available under the Credit Agreement may be used for general corporate purposes (including working capital needs and permitted acquisitions.) The Credit Agreement permits the Company to borrow in U.S. Dollars, British Pounds or French Francs. The Credit Agreement has a five-year maturity and amends and restates the April 1994 credit agreement (the "1994 Credit Agreement").
The loans under the Credit Agreement bear interest at a floating rate equal to, at the election of U.S. Can, one of the following: (i) the Base Rate (as defined in the Credit Agreement) per annum, or U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ii) based on the current pricing ratio, a reserve-adjusted Eurodollar rate plus the then applicable margin, for specified interest periods (selected by U.S. Can) of one, two, three, or six months. The weighted average interest rate of the loans outstanding under the Credit Agreement was 6.7% at both December 31, 1996 and 1997. U.S. Can is required to pay letter of credit fees based on the outstanding face amount outstanding on each letter of credit and a commitment fee based on the average daily unused portion of each lender's commitment under the Credit Agreement.
Certain temporary supplemental borrowing facilities were provided to the Company under the 1994 Credit Agreement during 1996 to fund business acquisitions and seasonal working capital needs. These supplemental facilities were repaid and terminated upon the 1996 issuance of the 10 1/8% Notes described below.
As of December 31, 1997, U.S. Can had borrowings of $32.6 million outstanding under the Credit Agreement, $12.5 million in letters of credit issued pursuant thereto, and $64.9 million of unused credit remained available.
Secured equipment notes, issued at various times since 1990, mature in varying amounts from 1997 to 2003 and bear interest at various rates between 8.1% and 10.4%. Proceeds from these notes were used to purchase certain manufacturing equipment, and the notes are secured by that equipment.
Capital lease obligations, mature in varying amounts from 1998 to 2007 and bear interest at various rates between 4.57% and 19.64%. Other debt, consisting of various governmental loans and real estate mortgages at interest rates between 7.0% and 9.77%, mature at various times through 2025, and were used to finance the expansion of several manufacturing facilities. Included in other assets as of December 31, 1996 are proceeds of $2.0 million from certain industrial revenue bonds which were restricted for the relocation and expansion of the Company's Wheeling, West Virginia plant. These proceeds were used for their intended purposes in 1997.
On December 20, 1996, U.K. Can, Ltd., one of the European Subsidiaries, entered into (and U.S. Can guaranteed) a $28 million secured term loan with General Electric Capital Corporation, to finance the acquisition of land, building and equipment comprising the Merthyr Tydfil, Wales aerosol can production facility. This credit facility is secured by the real and personal property of U.S. Can's Merthyr Tydfil operation. The loan is denominated in U.S. Dollars. During 1997, in connection with the transaction, the Corporation entered into foreign currency contracts which allow the Company to exchange a fixed amount of U.K. Pounds for U.S. Dollars at certain dates which coincide with the repayment of principal and interest on the loan. The forward contracts are intended to hedge against fluctuations in currency rates.
On October 17, 1996, the Corporation issued $275.0 million principal amount of 10 1/8% Senior Subordinated Notes due 2006 in a private placement. These notes were exchanged in March 1997 for similar notes which are publicly registered. These exchange notes (the "10 1/8% Notes") are unsecured and are subordinated to all other senior debt of the Corporation and its subsidiaries. The 10 1/8% Notes are fully and unconditionally guaranteed on an unsecured senior subordinated basis by U.S. Can. On or after October 15, 2001, the Corporation may, at its option, redeem all or some of the 10 1/8% Notes at declining redemption premiums which begin at approximately 105.1% in 2001. Upon 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.
Net proceeds from the issuance of the 10 1/8% Notes were $268.1 million. Approximately $158.4 million of these net proceeds were used to pay down amounts under the 1994 Credit Agreement and $109.7 million was used to redeem all of the 13 1/2% Senior Subordinated Notes due 2002 (the "13 1/2% Notes") and remaining interest thereon on January 15, 1997. The Company recorded the early extinguishment of the 13 1/2% Notes as of October 17, 1996 which resulted in an extraordinary charge in the fourth quarter of 1996 of $5.2 million (net of income taxes of $3.5 million) primarily representing the write-off of related unamortized deferred financing costs. U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Based upon borrowing rates currently available to the Company for borrowings with similar terms and maturities, the fair value of the Company's total debt was approximately $345 million and $350 million as of December 31, 1996 and 1997, respectively. No quoted market value is available (except on the 10 1/8% Notes). These amounts, because they do not include certain costs such as prepayment penalties, do not represent the amount the Company would have to pay to reacquire and retire all of its outstanding debt in a current transaction.
Financing costs related to the issuance of new debt are deferred and amortized over the terms of the related debt agreements. Net deferred financing costs are recorded as other assets in the accompanying balance sheets.
The Company paid interest on borrowings, excluding amounts paid into the escrow, of $24.7 million, $25.7 million and $35.2 million in 1995, 1996 and 1997, respectively. As of December 31, 1996 and 1997, accrued interest on borrowings totaled $6.0 million and $6.7 million, respectively.
The Credit Agreement and certain of the Company's other debt agreements contain various financial and other restrictive covenants, as well as cross-default provisions. The financial covenants include, but are not limited to, limitations on annual capital expenditures and certain ratios of borrowings to earnings before interest, taxes, depreciation and amortization ("EBITDA"), senior debt to EBITDA and interest coverage. The covenants also restrict the Company's and U.S. Can's ability to distribute dividends, to incur additional indebtedness, to dispose of assets and to make investments, acquisitions, mergers and transactions with affiliates. Primarily as a result of the 1997 special charges and discontinued operations, the Company failed to comply with certain financial ratios and other covenants during the year and at year end. The Company obtained waivers from the appropriate lenders and have amended the Credit Agreement to better reflect the Company's current configuration and expected operating results. In conjuction with the amended agreement, the Company elected to permanently reduce maximum and current availability by $30 million.
The Credit Agreement also provides that U.S. Can would be in default if there is a change after December 31, 1996, which could reasonably be expected to have a material adverse effect on the business, financial condition, operations, properties or prospects of U.S. Can and its subsidiaries. Management is not aware of, nor does it anticipate, Any such change and, accordingly, the borrowings under these agreements have been classified as long-term debt in the accompanying balance sheets.
Under existing agreements, maturities of long-term debt as of December 31, 1997 (including capital lease obligations), are as follows (000's omitted):
(6) INCOME TAXES
The Company does not provide for U. S. income taxes which would be payable if undistributed earnings of the European Subsidiaries were remitted to the U.S. because the Company either considers these earnings to be invested for an indefinite period or anticipates that if such earnings were distributed, the U.S. income taxes payable would be substantially offset by foreign tax credits. Such unremitted earnings were $0.5 million and $1.8 million as of December 31, 1996 and 1997 respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes before discontinued operations and extraordinary item consisted of the following on a domestic pretax loss of $33.6 million and foreign pretax earnings of $2.3 million (000's omitted):
Income taxes, net of refunds, of $5.8 million, $2.9 million and $0.5 million were paid in 1995, 1996 and 1997, respectively.
The principal items comprising the difference between taxes on income before income taxes and extraordinary item computed at the Federal statutory rate and the actual provision for such income taxes for the years presented were as follows (000's omitted):
Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of the enacted tax laws. The tax effect of significant temporary differences representing deferred income tax benefits and obligations consisted of the following (000's omitted):
Other than as described below, the Company did not record any valuation allowances against deferred income tax benefits at December 31, 1996 or 1997, as all such benefits are expected to be realized as tax deductions in future tax returns.
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In addition to the above deferred benefits and obligations, a German subsidiary of the Company has net operating loss carryforward credits of approximately $1.6 million. Some of the European subsidiaries have other net deferred income tax assets primarily due to operating losses (not significant) and non-deductible reserves. The Company has established a 100% valuation allowance of $1.8 million against the European Subsidiaries' net deferred income tax assets as of December 31, 1997 as realization of the related tax benefit is not assured. If such assets are, in fact, realized in a future period, the resulting benefit will reduce the future period's income tax expense.
(7) EMPLOYEE BENEFIT PLANS
The Company maintains separate noncontributory pension and defined contribution plans covering most domestic hourly employees and all domestic salaried personnel, respectively. It is the Company's policy to fund accrued pension and defined contribution plan costs in compliance with ERISA requirements. The total cost of these plans charged against earnings was approximately $5.9 million, $6.1 million and $6.5 million for 1995, 1996 and 1997, respectively.
The following table sets forth the funded status of the Company's domestic defined benefit pension plans, at December 31, 1996 and 1997 (000's omitted):
In accordance with the provisions of SFAS No. 87 -- "Employers' Accounting for Pensions," the Company recorded an additional minimum liability at the end of 1996 and 1997 representing the excess of the accumulated benefit obligation over the plan assets at fair value and the unfunded accrued pension cost. The additional minimum liability was offset to the extent possible by an intangible asset. Because the asset recognized may not exceed the amount of unrecognized prior-service cost and unrecognized transition liability, the balance of the offset of the additional minimum liability was reported as a reduction of retained earnings, net of related income tax benefits.
The projected benefit obligation as of December 31, 1995, 1996 and 1997 was determined using an assumed discount rate of 7.5%, 7.5% and 7.0%, respectively. The expected long-term rate of return on plan assets used in determining net periodic pension cost was 8.0%, 8.0% and 8.5% in 1995, 1996, and 1997, respectively. The plan has a flat benefit formula; accordingly, the effect of projected future compensation levels is zero. The plan's assets consist primarily of shares of the Corporation's common stock, equity and bond funds, corporate bonds and investment contracts with insurance companies.
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Net periodic pension costs for the Company's domestic defined benefit pension plan for the years ended December 31, 1995, 1996 and 1997 included the following components (000's omitted):
In addition, hourly employees at eight plants are covered by union-sponsored, collectively bargained, multi-employer pension plans. The Company contributed to these plans and charged to expense approximately $1.2 million, $1.5 million and $1.4 million in 1995, 1996 and 1997, respectively. The contributions are generally determined in accordance with the provisions of the negotiated labor contracts and are generally based on a per employee per week amount.
The impact from discontinued operations on the above disclosures is not material.
While the Company does provide limited severance and certain supplemental unemployment benefits for certain domestic employees in connection with certain collective bargaining agreements, benefits paid under these arrangements have been and are expected to continue to be minimal. Postemployment benefits associated with restructuring programs are appropriately provided.
In March 1995, 1996 and 1997, the Corporation contributed shares of Common Stock, valued at $1.1 million, $0.4 million and $0.9 million, respectively, to U.S. Can's Salaried Employees Savings and Retirement Accumulation Plan.
In Europe, the Company maintains two defined benefit plans for certain of its employees in the United Kingdom and in France. The United Kingdom plan benefits are based primarily on years of service and employee compensation. As of December 31, 1996 and 1997, the preliminary actuarially-determined accumulated benefit obligation was $28.8 million and $29.1 million, respectively, with such amount being fully funded. The French plan benefits are based primarily on length of employee service. As of December 31, 1996 and 1997, the actuarially-determined accumulated benefit obligation was approximately $1.4 million and $1.8 million, respectively, all of which was non-vested. This plan is not funded. The aggregate net pension expense in 1996, from the date of the USC Europe acquisition and 1997, for these two plans was approximately $0.2 million and $0.8 million, respectively.
(8) POSTRETIREMENT BENEFIT PLANS
The Company provides health and life insurance benefits for certain domestic retired employees in connection with certain collective bargaining agreements.
Net periodic postretirement benefit costs for the Company's domestic postretirement benefit plans for the years ended December 31, 1995, 1996 and 1997, included the following components (000's omitted):
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's postretirement benefit plans currently are not funded. The status of the plans at December 31, 1996 and 1997, is as follows (000's omitted):
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 11% in 1995, 10% in 1996, and 9% in 1997, gradually declining to 7% by the year 1999 and remaining at that level thereafter. A one-percentage-point increase in the assumed health care cost trend rate for each year would increase the accumulated postretirement benefit obligation as of December 31, 1997, by approximately $3.1 million and the total of the service and interest cost components of net postretirement benefit cost for the year then ended by approximately $0.3 million. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 7.5%, 7.5% and 7.0%, in 1995, 1996 and 1997, respectively.
The impact from discontinued operations on the above disclosures is not material.
An executive, director and stockholder of the Corporation is eligible to receive postretirement benefits under a non-qualified supplemental benefit plan. Annual expense for this plan is approximately $0.4 million. As of December 31, 1996 and 1997, the Company had recorded a liability of $3.0 million and $3.3 million, respectively, for benefits for which the executive was fully eligible to receive at that date. The principal source of funding for this obligation is an insurance policy on the executive's life on which the Company is currently paying the premium. The cash surrender value, net of appropriate reserves, is reflected as a component of other assets.
(9) COMMITMENTS AND CONTINGENCIES
The groundwater in San Leandro, California, formerly a site of one of the Company's can assembly facilities, is contaminated at shallow and intermediate depths, and the area of concern partially extends to the groundwater below the facility formerly owned by the Company. In connection with sales in 1994 and 1995 of land on which the facility was located, the Company agreed to indemnify the purchaser against environmental claims related to the Company's ownership of the property. In April 1996, the California Department of Toxic Substances Control ("CDTSC") issued an order to certain past and present owners of this facility, including U.S. Can, directing such owners to conduct remediation activities at this site. No specific form of remediation was indicated. Consultants retained by the Company to evaluate the site concluded that the Company's operations had not impacted the groundwater at this site and that the contamination detected at this site resulted from migration from off-site, upgradient sources. However, in January 1998, the CDSTC informed the Company that it disagrees with these conclusions and wants the Company to conduct extensive additional testing. With the CDTSC's consent, the Company is preparing an appeal to the CDTSC's Director. To date, there has been no resolution of this matter between the Company and the CDTSC, although discussion are ongoing. There can be no assurance that the Company will not incur material costs and expenses in connection with the CDTSC order and remediation at the site.
The processes involved in the lithography and certain aspects of the manufacture of steel containers have historically involved the use and handling of materials now classified as hazardous substances under various laws. These activities described above may expose owners and operators of facilities involved in those activities
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to potential liability for the cost to clean up or remedy any environmental contamination resulting from such substances relating to those businesses. As of December 31, 1997, the Company's reserves for future ascertainable costs of environmental remediation in the United States were approximately $0.5 million. Management does not believe that such costs, if any, in excess of the reserve will have a material adverse effect on the Company's results of operations or financial condition. In making this assessment, the Company considered all information available to it including its and others companies' reported prior experience in dealing with such matters, data released by the EPA and reports by independent environmental consultants regarding certain matters. It is possible that the Company's insurance coverage may extend to certain environmental liabilities, but the Company has not been able to estimate such coverage due to the complexity and uncertainty inherent in such an estimate. In addition, the Company has obtained indemnities against certain liabilities in connection with its recent acquisitions.
A variety of propellants are used in the Company's principal product, aerosol cans. These propellants includes hydrocarbons, compressed gases (for example, carbon dioxide and nitrous oxide), and volatile organic compounds such as propane, butane and isobutane (individually, "VOC" and collectively "VOCs"). Some United States and European regulations have caused consumer product manufacturers (the Company's customers) to reformulate either their products, the propellants used therein or both if they contain VOCs. To date, most of the Company's customers have been successful in reformulating both their products and propellants. However, there can be no assurance that all customers will be able to effect such reformulations or future reformulations, if any, in either products or propellants with satisfactory results. If customers are unable to do so, this could have an adverse effect on the market for aerosol cans.
USC Europe includes five aerosol can-making operations located in the United Kingdom, France, Spain, Germany, and Italy. The Company has retained an independent environmental consultant to perform an initial environmental inventory, and the seller provided disclosure on environmental matters relating to each plant and site. The Company has also performed its own audit of plant operations and facilities. In connection with this acquisition and with the Company audit, no subsurface sampling was performed to identify possible contamination. Several of the facilities have been operating at their locations for more than ten years and, according to a survey conducted by an independent environmental consultant, it is likely there have been releases of hazardous substances at these locations in the past. The operations in Southall, UK and Schwedt, Germany are in historically industrialized areas, and there is potential for area-wide contamination involving adjacent sites. There can be no assurance that there are not significant environmental liabilities unknown to the company.
The Company has made, and expects to continue to make, significant capital expenditures to upgrade its facilities in accordance with current and pending environmental regulations.
The Company received a request for information from the U.S. EPA in January 1997, concerning the lithography operations at its Chicago facility (formerly owned by Alltrista). In March 1997, representatives of the U.S. EPA inspected the Chicago facility and requested additional information, including compliance tests and reports. The Company has cooperated fully with the U.S. EPA inquiry. The Company does not know what the outcome of this inquiry will be. In the acquisition agreement between the Company and Alltrista, Alltrista agreed to indemnify the Company for compliance costs that relate back to Alltrista's operation of this facility.
As a potentially responsible party ("PRP") at various Superfund sites in the U.S., the Company is or may be legally responsible, jointly and severally with the other members of the PRP group, for the cost of remediation of these sites. Based on currently available data (including EPA data, internal records and other sources believed to be reliable), the Company believes its contribution, and/or the contribution of its predecessors, to these sites was de minimis. Based on the information available as of the date of this Report,
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management does not believe that its aggregate remediation costs or potential liabilities in connection with these sites will have a material adverse effect on the financial condition or results of operations. However, there can be no assurance that the other PRP's will pay their proportionate share of the remediation costs at these sites and, as a result, future costs or liabilities incurred by the Company could be material.
The Company, including the European Subsidiaries, is involved in various other environmental and legal actions and administrative proceedings. Management is of the opinion that their outcome will not have a material effect on the Company's financial position or results of operations.
In 1995, Continental Holdings Inc. ("CHI") filed a Complaint against U.S. Can and others asserting claims based upon alleged indemnity obligations of U.S. Can to a CHI affiliate, arising from the 1987 acquisition by U.S. Can of the general packaging business of another affiliate. In May 1997, CHI and U.S. Can agreed to settle the litigation by dismissing their respective claims and counterclaims with prejudice and exchanging full releases. No payment of monies was included in this settlement.
The Company has entered into agreements to lease certain property under terms which qualify as capital leases. Capital leases consist primarily of data processing equipment and various production machinery and equipment. Most capital leases contain renewal options and some contain purchase options. The December 31, 1996 and 1997 capital lease asset balances were $51.6 million and $37.8 million, net of accumulated amortization of $19.0 million and $18.8 million, respectively. Capital lease obligations extend through 2005. Capital lease additions included as capital expenditures in the accompanying statements of cash flows were $5.8 million, $2.1 million and $0.1 million in 1995, 1996 and 1997, respectively.
The Company also maintains operating leases on various plant and office facilities and office equipment. Rent expense under operating leases for the years ended December 31, 1995, 1996 and 1997, was $8.1 million, $9.2 million, and $6.8 million, respectively.
At December 31, 1997 minimum payments due under these leases are as follows (000's omitted):
The Company was contingently liable for outstanding letters of credit totaling $12.5 million as of December 31, 1997. Such letters of credits were issued primarily to guarantee workers' compensation claims, which have been accrued but not funded, and certain debt.
(10) STOCK OPTION PLANS
Incentive Stock Option Plan
The Corporation maintains an Incentive Stock Option Plan (the "ISO Plan") for certain key employees of the Company. Directors who are not regular employees of the Company are not eligible to participate in the
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ISO Plan. In addition, no employee of the Company is eligible to participate in the ISO Plan if such employee owns stock constituting 10% or more of the total voting power of the Corporation. The Corporation has reserved 240,000 shares for issuance under the ISO Plan. The exercise price for options granted under the ISO Plan may not be less than 100% of the fair market value of the underlying stock on the date the option is granted. Options under the plan may have a maximum term of 10 years and are exercisable at the time specified by the Board of Directors. Payment upon exercise of an option is to be in full, in either cash or shares of Common Stock with a value equal to the option price, or a combination of the two.
Nonqualified Stock Option Agreement
The Corporation was a party to a Nonqualified Stock Option Agreement under which options to purchase a total of 300,000 shares were granted to an executive officer and a former executive officer of the Company. During 1995, the remaining 115,000 outstanding options were exercised.
1993 and 1994 Option Plans
The Company maintains two non-qualified option plans pursuant to which employees of the Company may be granted options to purchase up to a total of 550,000 shares of Common Stock at a per share exercise price equal to the per share market price of the Common Stock as of the date the option is granted. Pursuant to these plans, the Company has issued options to purchase 543,375 shares of Common Stock at prices ranging from $12.00 to $21.50 per share. These options have a maximum term of 10 years and vest over a four-year period, 25% becoming fully vested on the first anniversary date of their issuance, with the rest of the options vesting monthly in equal amounts over the remaining three years.
Stock Purchase Plan
The Company maintains an annual non-qualified employee stock purchase plan (the "Stock Purchase Plan") available to all salaried employees and certain designated groups of hourly employees. The purpose of the plan is to promote increased employee stock ownership in the Company and to provide a benefit to employees. Participating employees are able to purchase shares of Common Stock through payroll deductions. Each annual Stock Purchase Plan is in effect for a one-year period. Eligible employees are able to elect to purchase shares of Common Stock at a price equal to the current market price, less a 15% discount, in an amount up to 7.5% of each participating employee's salary. Fifteen days prior to the exercise date, each participant has the option to complete the purchase of shares under the Stock Purchase Plan or to withdraw the amounts withheld from the employee's salary pursuant to the plan. During 1995, 1996 and 1997, the Corporation issued Common Stock valued at $1.6 million, $0.5 million and $0.7 million related to the Stock Purchase Plan. The Stock Purchase Plan established for the 1997 -- 1998 plan year has an exercise price of $14.556 per share.
Incentive Plan
In 1995, the Company adopted an equity incentive plan (the "Incentive Plan") pursuant to which employees of the Company may be granted stock options ("Options"), stock appreciation rights ("SARs") and shares of restricted stock ("Restricted Shares"). The number of shares of Common Stock that may be issued or transferred under this plan upon the exercise of Options or as Restricted Shares may not exceed 650,000 shares. The exercise price of the Options may not be less than 100% of the fair market value of the underlying stock on the date of the grant. Options have a maximum term of ten years and are exercisable at the time specified by the Board of Directors.
Options granted under the Incentive Plan may be either incentive stock options ("ISOs") or non-qualified stock options ("NSOs"). Pursuant to the Incentive Plan, the Company has issued ISOs to purchase
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
192,500 shares of Common Stock at prices ranging from $16.50 to $20.875 per share and NSOs to purchase 5,000 shares of Common Stock at a price of $18.75 per share.
SARs may be granted in connection with any Option granted under the Incentive Plan, either at the time of the Option grant or any time thereafter during the term of the Option. SARs entitle the holder of the related Option to surrender to the Company the unexercised, related option, or any portion thereof, in exchange for an amount equal to the excess of the market value of a share of Common Stock on the date the SAR is exercised over the Option's exercise price times the number of shares covered by the surrendered Option, or portion thereof. The Company has yet to grant any SARs.
Shares issued as Restricted Shares under the Incentive Plan provide all the rights of ownership with respect to such shares, including the right to vote the shares and receive all dividends or other distributions made or paid with respect to such shares. The shares are restricted in that ownership is dependent on continued employment with the Company and transferability is limited. These restrictions lapse upon the completion of a period of time as specified by the Board of Directors at the time of issuance. Restricted Shares issued under the plan are recorded at their fair value on the date of issuance with a corresponding charge to stockholders' equity representing the compensation to be recognized during the restriction period. The unearned compensation is amortized as expense on a straight-line basis over the restriction period. In 1995, 1996 and 1997, 131,000 restricted shares were awarded at an aggregate value of $2.2 million, 67,000 restricted shares were awarded at an aggregate value of $1.1 million and 95,630 restricted shares were awarded at an aggregate value of $1.4 million, respectively. Amortization of unearned compensation amounted to $0.1 million, $0.5 million and $2.4 million during 1995, 1996 and 1997, respectively.
1997 Equity Incentive Plan
During the year, the Company adopted a non-qualified equity incentive plan (the "1997 Equity Incentive Plan") pursuant to which employees, directors, officers, consultants and independent contractors of the Company may be granted options or awarded restricted stock in an aggregate amount not in excess of 400,000 shares. The exercise price of any option may not be less than the market value per share at the date of the grant. Pursuant to the 1997 Equity Incentive Plan, the Company has issued options to a management consulting firm to purchase 100,000 shares of Common Stock at prices ranging from $16.125 to $20.00 per share. These options have a maximum term of 7 years and were fully vested upon issuance. Stock appreciation rights may also be issued under this plan.
The Company has entered into a restricted stock agreement with its current chief executive officer which provides for the issuance of up to 250,000 shares of the Company's common stock under the 1997 Equity Incentive Plan if certain per share market prices are reached and sustained for certain periods. The specified periods over which the certain market prices must be sustained extend through February 2000. Based on the per share market price through February 19, 1998, 33,333 shares otherwise issuable under this agreement have been forfeited and, based on the per share market price as of February 19, 1998, none of the conditions for future issuances have yet been attained. Certain other provisions of this agreement would require immediate issuance of unissued shares upon the occurrence of specified events, none of which are contemplated as of December 31, 1997.
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the Company's stock option plans at December 31, 1995, 1996 and 1997 and changes during the years then ended is presented in the tables below:
Had compensation costs been determined on the fair value-based accounting method for options granted in 1995, 1996 and 1997, pro forma net income/(loss) and diluted earnings per share would have been $3.5 million and $0.27, respectively, for 1995, $11.0 million and $0.84, respectively, for 1996 and ($32.4 million) and ($2.49), respectively for 1997. As compensation costs for options granted prior to January 1, 1995, were not remeasured for purposes of this pro forma disclosure, such disclosure may not be representative of such future pro forma disclosures.
The weighted-average estimated fair value of options granted during 1995, 1996 and 1997 was $8.42, $2.42 and $6.80, respectively. The fair value of each option grant is determined on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for options granted in 1995, 1996 and 1997, respectively; risk-free interest rate of 6.3%, 5.8% and 6.2%; expected lives of 7.9 years, 6.3 years and 7.0 years; expected volatility of 24.9%, 35.4% and 28.3%; and no dividends for any year.
(11) SHAREHOLDER RIGHTS PLAN
On October 19, 1995, the Corporation's Board of Directors adopted a Shareholder Rights Plan. The Board declared a distribution of one right (a "Right") for each share of Common Stock, which was outstanding on October 19, 1995 (the "Record Date"). Each share of Common Stock issued after the Record Date will be issued with an attached Right. The Rights will not immediately be exercisable or detachable from the Common Stock. The Rights will become exercisable and detachable only following the acquisition by a
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
person or a group of 15 percent or more of the outstanding Common Stock of U.S. Can Corporation or following the announcement of a tender or exchange offer for 15 percent or more of the outstanding Common Stock.
The Rights will, if they become exercisable, permit the holders of the Rights to purchase a certain amount of preferred stock of the Corporation at a 50 percent discount, or to exchange the Rights for Common Stock, if the Board permits. Where an acquiring company effects a merger or other control transaction with the Corporation, the Rights may also entitle the holder to acquire stock of the acquiring company at a 50 percent discount. If a person or group acquires 15 percent or more of the Common Stock (or announces a tender or exchange offer for 15 percent or more of the Common Stock), the acquiring person's or group's Rights become void. In certain circumstances, the Rights may be redeemed by the Company at an initial redemption price of $.01 per Right. If not redeemed, the Rights will expire ten years after the Record Date.
In addition, the Company has adopted certain change of control protection that, under certain circumstances, would increase compensation and benefits of certain executive officers.
(12) GEOGRAPHICAL AREA INFORMATION
The following table summarizes certain financial data as of and for the years ended December 31, 1996 and 1997, by geographical area. The Company had no foreign operations prior to its acquisition of USC Europe.
(13) 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 December 31, 1997, U.S. Can, wholly owned by the Corporation, was the only Subsidiary Guarantor. The Corporation had no assets or operations separate from its investment in U.S. Can, and there were no Non-Guarantor Subsidiaries until the acquisition by U.S. Can of USC Europe on September 11, 1996. Separate financial statements of U.S. Can are not presented because management of the Company has determined that they are not material to investors.
The following condensed consolidating financial data illustrates the composition of the Corporation (the "Parent"), U.S. Can (the "Subsidiary Guarantor"), and the European Subsidiaries (the "Non-Guarantor Subsidiaries"), as of and for the years ended December 31, 1996 and 1997. 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.
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 1997
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 1996
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996
U.S. CAN CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited interim results of operations for each of the quarters in 1996 and 1997.
- ------------------------- (a) See Note 3 of the "Notes to Consolidated Financial Statements."
(b) See Note 5 of the "Notes to Consolidated Financial Statements."
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the Corporation's 1998 Proxy Statement to be filed with the Commission.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Corporation's 1998 Proxy Statement to be filed with the Commission, excluding, however, the Compensation and Management Development Committee Report and the performance graph contained therein.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Corporation's 1998 Proxy Statement to be filed with the Commission.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Corporation's 1998 Proxy Statement to be filed with the Commission.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements commence on p. 21.
(2) Financial Statement Schedules
All schedules are omitted as they are inapplicable or not required, or the required information is included in the financial statements or in the notes thereto.
(3) Exhibits (Note: Management contracts and compensatory plans or arrangements are underlined in the following list.)
- -------------------------
$$ Previously filed with Form 8-K of the Corporation and U.S. Can filed on September 26, 1996. $$$ Previously filed with Registration Statement on Form S-4 of the Corporation and U.S. Can filed on December 11, 1996 (Registration No. 333-17677).
The Company agrees that, upon request, it will furnish a copy of any instrument with respect to long-term debt less than or equal to 10 percent of its total consolidated assets.
(b) No reports on Form 8-K were filed by the Corporation during the fourth quarter of 1997.
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 on March 24, 1998.
U.S. CAN CORPORATION
By: /s/ WILLIAM J. SMITH ------------------------------------ William J. Smith President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities indicated on March 24, 1998.
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------ -----------------------
4.4 Amendement no. 2 to Credit Agreement 10.49 Salomon Smith Barney Engagement Agreement, dated January 30, 1998 10.50 1997 Equity Incentive Plan 10.51 Change-In control Agreement with David Ford 10.52 David Ford Restricted Stock Agreement 10.53 William Smith Restricted Stock Agreement 10.54 Paul Jones Offer Letter 10.57 Form of Non-Employee Director Restricted Stock Agreement and October 1997 Schedule 10.58 John R. McGowan Employment Agreement 10.59 Lawrence T. Messina Employee Agreement 10.60 Amendment 1 to J.R. McGowan Employment Agreement 10.61 Amendment dated 11/17/97 to F.J. Galvin Employment Agreement 10.62 Amendment 1 to A.F. Bonadonna Employment Agreement 23.1 Consent of Independent Public Accountants 27.1 Financial Data Schedule