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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 3, 2004
Commission File Number 0-21314
U.S. CAN CORPORATION
(Exact Name of Registrant as Specified in its Charter)
06-1094196
(I.R.S. Employer Identification No.)
DELAWARE
(State or Other Jurisdiction of
Incorporation or Organization)
700 EAST BUTTERFIELD ROAD
SUITE 250
LOMBARD, ILLINOIS 60148
(Address of Principal Executive Offices, Including Zip Code)
(630) 678-8000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes |_| No |X|
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
Yes |_| No |X|
As of November 15, 2004, 53,333.333 shares of Common Stock were outstanding.
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U.S. CAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED OCTOBER 3, 2004
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Operations for the Three and Nine Months Ended
October 3, 2004 and September 28, 2003 (As restated)............................................. 3
Consolidated Balance Sheets as of October 3, 2004 and December 31, 2003.......................... 4
Consolidated Statements of Cash Flows for the Nine Months Ended
October 3, 2004 and September 28, 2003 (As restated)............................................. 5
Notes to Consolidated Financial Statements....................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................................ 21
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 26
Item 4. Controls and Procedures.......................................................................... 26
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................................................ 28
Item 6. Exhibits......................................................................................... 28
INCLUSION OF FORWARD-LOOKING INFORMATION
Certain statements in this report constitute "forward-looking statements" within the meaning of the
federal securities laws. Such statements involve known and unknown risks and uncertainties which may cause
the Company's actual results, performance or achievements to be materially different than any future
results, performance or achievements expressed or implied in this report. By way of example and not
limitation and in no particular order, known risks and uncertainties include general economic and business
conditions; the Company's substantial debt and ability to generate sufficient cash flows to service its
debt; the Company's compliance with the financial covenants contained in its various debt agreements;
changes in market conditions or product demand; the level of cost reduction achieved through restructuring
and capital expenditure programs; changes in raw material costs and availability; downward selling price
movements; currency and interest rate fluctuations; increases in the Company's leverage; the Company's
ability to effectively integrate acquisitions; changes in the Company's business strategy or development
plans; the timing and cost of plant closures; the success of new technology; and increases in the cost of
compliance with laws and regulations, including environmental laws and regulations. In light of these and
other risks and uncertainties as described under "Risk Factors" in the Company's Annual Report on Form
10-K/A for the fiscal year ended December 31, 2003 and filed with the Securities and Exchange Commission on
November 18, 2004, the inclusion of a forward-looking statement in this report should not be regarded as a
representation by the Company that any future results, performance or achievements will be attained.
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's omitted)
For The For The
Three Months Ended Nine Months Ended
----------------------------------- ---------------------------------
As Restated As Restated
(See Note (2)) (See Note (2))
September 28, October 3, September 28,
October 3, 2004 2003 2004 2003
----------------- ----------------- --------------- ----------------
(unaudited)
Net Sales $ 207,263 $ 204,671 $ 632,539 $ 614,447
Cost of Sales 185,287 186,952 571,905 555,121
----------- ----------- ----------- -----------
Gross Profit 21,976 17,719 60,634 59,326
Selling, General and Administrative Expenses 10,150 8,691 30,393 26,597
Special Charges 4,012 (760) 5,416 590
----------- ------------ ----------- -----------
Operating Income 7,814 9,788 24,825 32,139
Interest Expense 12,665 14,738 38,246 40,901
Bank Financing Fees 890 2,507 3,486 - 4,535
Loss on Early Extinguishment of Debt - - 5,508 - -
----------- ----------- ----------- - -----------
Loss Before Income Taxes (5,741) (7,457) (22,415) (13,297)
Provision (Benefit) for Income Taxes (466) (357) (2,390) 2,291
------------ ------------ ------------ -----------
Net Loss (5,275) (7,100) (20,025) (15,588)
Preferred Stock Dividend Requirement (3,853) (3,485) (11,437) (10,131)
----------- ----------- ----------- -----------
Net Loss Attributable to Common Stockholders $ (9,128) $ (10,585) $ (31,462) $ (25,719)
=========== =========== =========== ===========
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000's omitted, except per share data)
October 3, December 31,
ASSETS 2004 2003
---------------- -----------------
CURRENT ASSETS: (unaudited)
Cash and cash equivalents $ 5,486 $ 22,964
Accounts receivable, net of allowances 85,835 81,393
Inventories 103,968 95,140
Other current assets 14,996 14,713
---------------- -----------------
Total current assets 210,285 214,210
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization 225,172 247,489
GOODWILL 27,384 27,384
DEFERRED INCOME TAXES 34,315 30,816
OTHER NON-CURRENT ASSETS 50,063 54,519
---------------- -----------------
Total assets $ 547,219 $ 574,418
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and capital lease obligations $ 7,233 $ 23,457
Accounts payable 92,963 98,411
Accrued expenses 52,103 50,695
Restructuring reserves 2,667 3,412
Income taxes payable 481 362
---------------- -----------------
Total current liabilities 155,447 176,337
LONG TERM DEBT 551,596 535,767
LONG TERM LIABILITIES PURSUANT TO EMPLOYEE
BENEFIT PLANS 71,315 71,779
OTHER LONG-TERM LIABILITIES 5,478 5,492
---------------- -----------------
Total liabilities 783,836 789,375
REDEEMABLE PREFERRED STOCK, 200,000 shares authorized,
106,667 shares issued & outstanding 158,391 146,954
STOCKHOLDERS' EQUITY:
Common stock, $10.00 par value, 100,000 shares authorized,
53,333 shares issued & outstanding 533 533
Additional paid in capital 52,800 52,800
Accumulated other comprehensive loss (29,760) (28,124)
Accumulated deficit (418,581) (387,120)
---------------- -----------------
Total stockholders' equity / (deficit) (395,008) (361,911)
---------------- -----------------
Total liabilities and stockholders' equity $ 547,219 $ 574,418
================ =================
The accompanying Notes to Consolidated Financial Statements are
an integral part of these balance sheets
U.S. CAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted)
For the Nine Months Ended
As Restated
(See Note (2))
October 3,
2004 September 28, 2003
------------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES: (unaudited)
Net loss $ (20,025) $ (15,588)
Adjustments to reconcile net loss to net cash used in
operating activities -
Depreciation and amortization 32,442 28,477
Special charges 5,416 590
Loss from early extinguishment of debt 5,508 -
Deferred income taxes (4,047) 576
Change in operating assets and liabilities, net of effect of acquired
businesses:
Accounts receivable (4,828) (12,789)
Inventories (9,300) 6,368
Accounts payable (4,819) (13,347)
Accrued expenses (3,509) 1,406
Other, net 2,059 2,516
----------- -----------
Net cash used in operating activities (1,103) (1,791)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures including restructuring capital (9,839) (10,087)
Proceeds from sale of property 1,075 5,429
----------- -----------
Net cash used in investing activities (8,764) (4,658)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Term B loan 250,000 -
Issuance of 10 7/8% senior secured notes - 125,000
Net payments under the revolving line of credit (42,100) (30,100)
Payments of Tranche A loan (38,706) (27,294)
Payments of Tranche B loan (130,175) (47,206)
Payments of Tranche C loan (20,000) -
Borrowing of other long-term debt 646 -
Payments of other long-term debt, including capital lease obligations (19,989) (7,795)
Payment of debt financing costs (6,845) (6,455)
------------ ------------
Net cash provided by (used in) financing activities (7,169) 6,150
------------ -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (442) (1,375)
------------- ------------
DECREASE IN CASH AND CASH EQUIVALENTS (17,478) (1,674)
CASH AND CASH EQUIVALENTS, beginning of year 22,964 11,690
------------ -----------
CASH AND CASH EQUIVALENTS, end of period $ 5,486 $ 10,016
============ ===========
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
OCTOBER 3, 2004
(Unaudited)
(1) PRINCIPLES OF REPORTING
The consolidated financial statements include the accounts of U.S. Can Corporation (the
"Corporation" or "U.S. Can"), its wholly owned subsidiary, United States Can Company ("United States Can"),
and United States Can's subsidiaries (the "Subsidiaries"). The consolidated group is referred to herein as
"the Company", "we", "us", or "our". All significant intercompany balances and transactions have been
eliminated. These financial statements, in the opinion of management, include all normal recurring
adjustments necessary for a fair presentation. Operating results for any interim period are not
necessarily indicative of results that may be expected for the full year. These financial statements
should be read in conjunction with the financial statements and footnotes included in the Corporation's
Annual Report on Form 10-K/A for the year ended December 31, 2003. Certain prior year amounts have been
reclassified to conform with the 2004 presentation.
STOCK-BASED COMPENSATION
The Company periodically issues stock options under the U.S. Can 2000 Equity Incentive Plan. The
Company continues to utilize the intrinsic method under APB Opinion No. 25 to account for its stock-based
compensation plan; therefore, no compensation costs are recognized in the Company's financial statements
for options granted.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 148 "Accounting for
Stock-Based Compensation - Transition and Disclosure", the following table presents (in thousands) what the
Company's net loss would have been had the Company determined compensation costs using the fair value-based
accounting method for the three and nine months ended October 3, 2004 and September 28, 2003.
Three Months Ended Nine Months Ended
------------------------------------ ----------------------------------------
October 3, September 28, October 3, eptember 28, 2003
2004 2003 2004 S
------------------------------------ -------------------- -------------------
-------------------
Net Loss............................ $ $ $ $
(5,275) (7,100) (20,025) (15,588)
Stock-Based Compensation Cost,
net of tax - fair value method.... (25) (20) (81) (60)
------------------------------------ -------------------- -------------------
Pro-Forma Net Loss ................. $ $ $ $
(5,300) (7,120) (20,106) (15,648)
==================================== ==================== ===================
ACCOUNTING CHANGE
As discussed in Note (5), during the quarter ended July 4, 2004, the Company's domestic operations
changed the method of accounting for the cost of inventories from the LIFO method to the FIFO method. The
Company's foreign subsidiaries continue to account for inventory using the FIFO method.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2004, the Financial Accounting Standards Board ("FASB") issued Staff Position SFAS No.
106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003." The Medicare Prescription Drug, Improvement and Modernization Act of 2003
("The Act") was signed into law on December 8, 2003. The Act introduced a prescription drug benefit under
Medicare and a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that
is at least actuarially equivalent to Medicare. SFAS No. 106-2 provides guidance on the accounting,
disclosure, effective date and transition related to The Act. SFAS No. 106-2 was adopted by the Company on
July 5, 2004 and did not have a material impact on the Company's financial statements.
(2) RESTATEMENT
These financial statements reflect adjustments to the Company's financial information previously
reported on Form 10-Q for the quarterly period ended September 28, 2003.
In August 2004, the Company became aware of certain issues relating to its Laon, France
manufacturing facility following the departure of the facility's financial controller. Following this
discovery, management informed its Board of Directors and its Audit Committee. The Audit Committee, with
the assistance of outside legal advisors and accounting consultants, conducted a review of the operations
and financial condition of the Company's facility in Laon, France. That review and work performed by the
Company identified certain accounting and financial reporting improprieties and related material errors in
the Company's financial statements, all related to the Laon, France facility. The effects of the
restatement are set forth below:
For the three
For the nine
months ended months ended
--------------- ---------------
---------------------------------
September 28, 2003
------------------
Net Loss, as reported.................................................. $(4,296) $(9,335)
Understatements of product costs and expenses ......................... (1,898) (4,102)
Reductions in asset values to net realizable values.................... (196) (487)
Underaccruals of liabilities........................................... (904) (2,035)
Other.................................................................. 194 371
----------------- ---------------
----------------- ---------------
Net Loss, as restated.................................................. $(7,100) $(15,588)
======== =========
Understatements of product costs and expenses-Cost of Sales was understated by underreporting
expenses incurred and manufacturing variances, and by miscalculations of the cost of products sold. The
errors were reflected primarily by underreporting of accounts payable and current maturities of long-term
debt, and over reporting of cash and accounts receivable in the consolidated balance sheets.
Reductions in asset values to net realizable values - Assets (primarily accounts receivable and
inventories) that should have been written off or should have been reported at reduced amounts were not
adjusted in the requisite accounting periods in accordance with accounting principles generally accepted in
the United States.
Underaccruals of liabilities - Amounts accrued for taxes other than income taxes, vacation and
other employee related liabilities were understated in all periods.
The following table presents the impact of the restatement adjustments discussed above on the
Consolidated Statement of Operations for the three and nine month periods ended September 28, 2003:
For the three months ended For the nine months ended
September 28, 2003 September 28, 2003
(Unaudited) (Unaudited)
---------------------------------------------------------------------
AS AS
AS RESTATED PREVIOUSLYREPORTED AS RESTATED PREVIOUSLYREPORTED
Net Sales $ 204,671 $ 204,508 $ 614,447 $ 613,710
Cost of Sales 186,952 183,783 555,121 546,931
---------------- ----------------- ---------------- -----------------
Gross profit
17,719 20,725 59,326 66,779
Selling, General and Administrative Expenses 8,691 8,829 26,597 27,166
Special Charges (760) (791) 590 830
---------------- ----------------- ---------------- -----------------
Operating income
9,788 12,687 32,139 38,783
Interest Expense 14,738 14,643 40,901 40,876
Bank Financing Fees 2,507 2,507 4,535 4,535
---------------- ----------------- ---------------- -----------------
Loss before income taxes
(7,457) (4,463) (13,297) (6,628)
Provision (benefit) for Income Taxes (357) (167) 2,291 2,707
---------------- ----------------- ---------------- -----------------
Net Loss
(7,100) (4,296) (15,588) (9,335)
Preferred Stock Dividend Requirement (3,485) (3,485) (10,131) (10,131)
---------------- ----------------- ---------------- -----------------
Net Loss Available for Common Stockholders $ (10,585) $ (7,781) $ (25,719) $ (19,466)
================ ================= ================ =================
(3) SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid interest of approximately $47.1 million and $30.7 million for the nine months
ended October 3, 2004 and September 28, 2003, respectively. The Company paid $1.1 million in income taxes
for the nine months ended October 3, 2004 and $1.3 million for the nine months ended September 28, 2003.
(4) SPECIAL CHARGES
2004
- ----
During the first nine months of 2004, the Company recorded special charges of $5.4 million. $1.4
million related to the elimination of 41 positions in Europe. The charge related to an early termination
program in one European facility and a product line profitability review program in the Company's German
food can business, which will result in the Company idling certain of its production lines. During the
third quarter of 2004, the company recorded a $4.0 million charge related to the closure of the New Castle,
PA Lithography and the Elgin IL (Olive Can) Custom & Specialty plants. The third quarter charge primarily
relates to employee separation costs connected to the facility closings ($1.1 million), and accelerated
depreciation related to assets, which will be idled in the fourth quarter ($2.9 million).
The Company recorded the 2004 charges in accordance with SFAS No. 146, "Accounting for Costs
Associated With Exit or Disposal Activities." SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred rather than at the
commitment date. Total cash payments in the first nine months of 2004 were $3.2 million (primarily
severance and facility shut down costs) and the Company anticipates spending another $7.1 million over the
next several years related to previously recorded special charges. Additional special charges related the
New Castle PA and Olive Can facility exit costs will be recorded during the fourth quarter. The Company
anticipates these costs to be approximately $4.1 million, including facility closing costs of $1.2 million,
lease commitments of $1.4 million, and accelerated depreciation of $1.5 million.
The table below presents the reserve categories and related activity as of October 3, 2004:
January 1, 2004 Net Additions Deductions (b) October 3,
Balance 2004 Balance
------------------ --------------- ----------------- ------------------
------------------ --------------- ----------------- ------------------
Employee Separation $4.3 $2.5 $(2.5) $4.3
Facility Closing Costs 3.6 2.9 (3.7) 2.8
------------------ --------------- ----------------- ------------------
------------------ --------------- ----------------- ------------------
Total $7.9 $(6.2) $7.1 (a)
$5.4
================== =============== ================= ==================
(a) Includes $4.5 million classified as other long-term liabilities as of October 3, 2004.
(b) Includes cash payments of $3.2 million. The remaining non-cash deductions represent accelerated
depreciation related to the New Castle, PA and Olive Can facility closings, which was recorded
as a reduction in property, plant and equipment.
2003
- ----
During the first nine months of 2003, the Company recorded net special charges of $0.6 million.
$0.8 million of the charges were recorded in the first quarter of 2003 related to position elimination
costs in the U.S. and Europe. The position eliminations consisted of 16 employees, including two
management level employees and an early termination program in one European facility. $0.6 million of the
charges were recorded in the second quarter of 2003 related to additional severance costs for a previously
terminated employee at May Verpackungen. During the third quarter of 2003, the Company recorded a net
restructuring benefit of $0.8 million. The net benefit includes a $0.2 million charge related to
management position elimination costs at May Verpackungen offset by a reserve reduction of $1.0 million in
connection with a reassessment of previously established reserves related to the closing in 2002 of the
Burns Harbor facility.
The table below presents the reserve categories and related activity as of September 28, 2003:
January 1, 2003 Net Cash Payments September 28,
Balance Additions(b) 2003 Balance
----------------- -------------- -------------- ------------------
----------------- -------------- -------------- ------------------
Employee Separation $9.4 $0.8 $(4.6) $5.6
Facility Closing Costs 6.5 (0.2) (2.8) 3.5
----------------- -------------- -------------- ------------------
----------------- -------------- -------------- -------------------
Total $15.9 $(7.4)
$0.6 $9.1 (a)
================= ============== ============== ===================
(a) Includes $3.7 million classified as other long-term liabilities as of September 28, 2003.
(b) Includes a reserve reduction of $1.0 million in connection with a reassessment of previously
established reserves related to the closing in 2002 of the Company's Burns Harbor facility.
(5) INVENTORIES
Inventories are stated at the lower of cost using the first-in, first-out (FIFO) method or market.
Prior to April 5, 2004, all of the Company's domestic inventories were accounted for at the lower of cost
determined on a last-in, first-out (LIFO) basis or market, while inventories of the Company's foreign
subsidiaries were stated at the lower of cost determined on a FIFO basis or market. During the quarter
ended July 4, 2004, the Company's domestic operations changed the method of accounting for the cost of
inventories from the LIFO method to the FIFO method. This change in accounting principle was made to
provide a better matching of revenue and expenses, and to enhance transparency of the Company's financial
statements by conforming the Company's method of inventory valuation to a single method. This accounting
change did not have a material effect on the financial statements for current or prior periods, and
accordingly, no retroactive restatement of prior financial statements was made.
Inventories reported in the accompanying balance sheets are classified as follows (000's omitted):
October 3, December 31,
2004 2003
----------------- ----------------
Raw materials........................................................ $ 28,464 $ 21,872
Work in process...................................................... 39,919 38,635
Finished goods....................................................... 35,585 34,633
----------------- ---------------
$ 103,968 $ 95,140
================= ===============
(6) COMPREHENSIVE NET LOSS
The components of accumulated other comprehensive loss are as follows (000's omitted):
October 3, December 31,
2004 2003
------------- ---------------
Foreign Currency Translation Adjustment ................................... $(8,996) $(7,479)
Minimum Pension Liability Adjustment....................................... (20,764) (20,645)
------- -------
Total Accumulated Other Comprehensive Loss................................. $(29,760) $(28,124)
======== ========
The components of comprehensive loss for the three and nine months ended October 3, 2004 and
September 28, 2003 are as follows (000's omitted):
Three Months Ended Nine Months Ended
------------------------------- ---------------------------------
October 3, September 28, October 3, September 28,
2004 2003 2004 2003
-------------- ---------------- -------------- ----------
Net Loss $ (5,275) $ (7,100) $(20,025) $(15,588)
Foreign Currency Translation Adjustment (261) (3) (1,636) 7,244
Unrealized Gain on Cash Flow Hedges (a) - 1,199 - 3,429
-------- -------- -------- --------
Comprehensive Loss $ (5,536) $ (5,904) $(21,661) $ (4,915)
========= ========= ========= =========
(a) Net of reclassification of losses included in interest expense of $1.7 million for the three months
ended September 28, 2003 and $4.9 million for the nine months ended September 28, 2003.
(7) DEBT OBLIGATIONS
The Company entered into a Credit Agreement among U.S. Can Corporation, United States Can Company
and Various Lending Institutions with Deutsche Bank Trust Company Americas as Administrative Agent, dated
as of June 21, 2004 ("Credit Facility"). The Credit Facility provides for aggregate borrowings of $315.0
million consisting of a $250.0 million Term B loan and a $65.0 million Revolving Credit Facility. The
$65.0 million revolving credit facility will be used by the Company for ongoing working capital and general
corporate purposes, including the issuance of Letters of Credit as described below. The Letters of Credit
subfacility is limited to $25.0 million.
As required under the terms of the Credit Facility, the Company used the $250.0 million initial
Term B proceeds to repay in full all amounts outstanding under the Company's former Senior Secured Credit
Facility and a secured term loan of $16.5 million, secured by a mortgage on the Company's Merthyr Tydfil,
U.K facility. At October 3, 2004, the Company did not have any borrowings outstanding under its $65.0
million revolving loan portion of the Credit Facility. Letters of Credit of $13.2 million were outstanding
securing the Company's obligations under various insurance programs and other contractual agreements, which
reduce the Company's availability under its revolving credit facility.
The Company has paid approximately $6.8 million of fees and expenses related to the new Credit
Facility through October 3, 2004, including waiver and amendment fees in connection with the Laon France
facility investigation of $1.0 million. These fees will be amortized over the life of the applicable
borrowings. In addition, the Company wrote off $5.5 million of remaining deferred financing fees related
to the Company's former Senior Secured Credit Facility.
Amounts outstanding under the Credit Facility bear interest at a rate per annum equal to either:
(1) the base rate (as defined in the Credit Facility) or (2) the eurocurrency rate (as defined by the
Credit Facility), in each case, plus an applicable margin. In connection with the Company's investigation
at its Laon, France facility, the Company obtained waivers of its requirement to timely file financial
statements due to the Restatement (see Note (2)). In connection with such waivers and amendments, the
Company paid fees of $1.0 million and agreed to an increase of 0.25% in the rate applicable to borrowings
under the Credit Facility.
Borrowings under the Term B loan are due and payable in quarterly installments of $625,000
beginning on June 30, 2004, until the final balance is due on January 15, 2010. The Term B loan is subject
to automatic extension to June 21, 2011 if the Company meets certain criteria relating to the refinancing
of its 10 7/8% Senior Secured Notes and 12 3/8% Senior Subordinated Notes prior to January 10, 2010. The
revolving credit facility is available until June 21, 2009. In addition, the Company is required to prepay
a portion of the Term B loan upon the occurrence of certain specified events.
The Credit Facility is secured by a first priority security interest in all existing and
after-acquired assets of the Company and its direct and indirect domestic subsidiaries' existing and
after-acquired assets, including, without limitation, real property and all of the capital stock owned of
the Company's direct and indirect domestic subsidiaries (including certain capital stock of their direct
foreign subsidiaries only to the extent permitted by applicable law).
The Credit Facility, the 10 7/8% Senior Secured Notes and the 12 3/8% Senior Subordinated Notes
contain a number of financial and restrictive covenants. Under the Credit Facility, the Company is
required to meet certain financial tests, including achievement of a minimum interest coverage ratio, a
maximum total leverage ratio, a maximum first lien leverage ratio, and maximum annual capital
expenditures. The restrictive covenants limit the Company's ability to incur liens and debt, sell assets,
pay dividends or make distributions, repurchase debt and to make certain loans, investments or
acquisitions. The Company was in compliance with all of the required financial ratios and other covenants
at October 3, 2004.
(8) BENEFIT PLANS
The Company maintains separate noncontributory defined benefit and defined contribution pension
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 or
the applicable foreign requirements.
The net periodic pension cost was as follows for the three months and nine months ended October 3,
2004 and September 28, 2003, respectively (000's omitted):
U.S.
- ----
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
October 3, 2004 September 28, 2003 October 3, 2004 September 28, 2003
------------------ --------------------- ------------------ -----------------------
ervice cost......................... $ $ $ $
S 287 227 861 681
nterest cost........................
I 724 679 2,172 2,037
eturn on assets.....................
R (683) (569) (2,049) (1,707)
ecognized loss......................
R 28 68 84 204
ecognized prior service cost........
R 94 94 282 282
------------------ --------------------- ---------------- ----------------------
$ $ $ $
Net periodic pension cost............ 450 499 1,350 1,497
================== ===================== ================ ======================
Non-U.S.
- --------
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
October 3, 2004 September 28, 2003 October 3, 2004 September 28, 2003
------------------ ----------------------- ------------------ ----------------------
ervice cost......................... $ $ $ $
S 89 80 265 238
nterest cost........................
I 1,123 963 3,376 2,885
eturn on assets.....................
R (858) (671) (2,580) (2,014)
ecognized loss......................
R 205 202 619 605
------------------ ----------------------- ------------------ ----------------------
$ $ $ $
Net periodic pension cost............ 559 574 1,680 1,714
================== ======================= ================== ======================
The Company provides health and life insurance benefits for certain domestic retired employees in
connection with collective bargaining agreements.
Net periodic postretirement benefit costs for the Company's U.S. postretirement benefit plans for
the three months and nine months ended October 3, 2004 and September 28, 2003, respectively, included the
following components (000's omitted):
U.S.
- ----
For the Three Months Ended For the Three Months Ended
-------------------------- --------------------------
October 3, 2004 September 28, 2003 October 3, 2004 September 28, 2003
------------------ ---------------------- ------------------- ----------------------
ervice cost $ $ $ $
S 85 66 245 198
nterest cost
I 377 372 1,115 1,116
ecognized loss
R 64 34 168 102
ecognized prior service cost
R (226) (226) (678) (678)
------------------ ---------------------- ------------------- ----------------------
$ $ $ $
Net periodic pension cost 300 246 850 738
================== ====================== =================== ======================
The Company made $0.5 million in contributions to its U.S. based pension plan and $0.3 million of
contributions to its non-U.S. based pension plans in the third quarter of 2004. The Company previously
disclosed in its financial statements for the year ended December 31, 2003 that it expected to contribute
approximately $1.5 million to its U.S. based pension plan in 2004. For the nine months ended October 3,
2004, $1.0 million of contributions have been made to the Company's U.S. based pension plan. The Company
presently anticipates contributing an additional $0.1 million to fund its pension plan in 2004 for a total
of approximately $1.1 million. For the nine months ended October 3, 2004, $0.9 million of contributions
have been made to the Company's non-U.S. based pension plans. The Company does not anticipate its 2004
contributions to its non-U.S. based pension plans to be significantly different from the amount previously
disclosed in the Company's consolidated financial statements for the year ended December 31, 2003.
The Company made payments under its postretirement benefit plan of $1.1 million in the first nine
months of 2004 and $0.4 million in the third quarter of 2004. The Company does not anticipate its 2004
payments under its postretirement benefit plan to be significantly different from the amount previously
disclosed in the Company's consolidated financial statements for the year ended December 31, 2003.
(9) BUSINESS SEGMENTS
Management monitors and evaluates performance, customer base and market share for four business
segments. The segments have separate management teams and distinct product lines. The Aerosol segment
primarily produces steel aerosol containers in the U.S. for personal care, household, automotive, paint and
industrial products. The International segment produces aerosol cans in the Europe and Latin America
(through Formametal S.A., a joint venture in Argentina) as well as steel food packaging in Europe. The
Paint, Plastic & General Line segment produces round cans in the U.S. for paint and coatings, oblong cans
for items such as lighter fluid and turpentine as well as plastic containers for paint and industrial and
consumer products. The Custom & Specialty segment produces a wide array of functional and decorative tins,
containers and other products in the U.S. The Company notes that financial information used to produce its
financial statements is not recorded or reconciled on a product line basis, therefore it is not practicable
for the Company to disclose revenues by product line.
The following is a summary of revenues from external customers and income (loss) from operations
for the three and nine month periods ended October 3, 2004 and September 28, 2003, respectively (000's
omitted):
Three Months Ended Nine Months Ended
------------------------------- ---------------------------------
October
October 3, 3,
------------------
September 28, September 28,
------------ ----------
2004 2003 2004 2003
---------- ---------------- ---------- ---------------
REVENUES FROM EXTERNAL CUSTOMERS:
Aerosol................................................ $94,361 $88,535 $280,688 $272,081
International.......................................... 70,386 72,790 219,307 207,229
Paint, Plastic & General Line.......................... 31,155 28,437 101,780 90,795
Custom & Specialty..................................... 11,361 14,909 30,764 44,342
------- ------- ------- ------
Total revenues......................................... $207,263 $204,671 $632,539 $614,447
========= ========= ========= ========
INCOME (LOSS) FROM OPERATIONS:
Aerosol................................................ $15,856 $14,754 $45,210 $46,141
International.......................................... (2,533) (3,222) (6,632) (7,705)
Paint, Plastic & General Line.......................... 2,616 2,293 10,160 10,155
Custom & Specialty..................................... 1,796 1,428 967 2,282
------ ------ ---- -----
Total Segment Income From Operations................... 17,735 15,253 49,705 50,873
Unallocated Selling, General & Administrative Expenses(a) (5,909) (6,225) (19,464) (18,144)
Special Charges (b) ................................... (4,012) 760 (5,416) (590)
Interest Expense....................................... (12,665) (14,738) (38,246) (40,901)
Bank Financing Fees.................................... (890) (2,507) (3,486) (4,535)
Loss From Early Extinguishment of Debt - - (5,508) -
--------- --------- -------- ---------
Loss Before Income Taxes............................... $(5,741) $(7,457) $(22,415) $(13,297)
========= ========= ========== =========
(a) Represents domestic Selling, General & Administrative expenses. The Company does not allocate these costs to its domestic
segments.
(b) Management does not evaluate segment performance including such charges. See Note (3) for further information on the
Company's
special charges.
(10) COMMITMENTS AND CONTINGENCIES
Environmental
United States Can has been named as a potentially responsible party for costs incurred in the
clean-up of a groundwater plume partially extending underneath United Sates Can's former site in San
Leandro, California and at the M&J Solvents site in Georgia. With regard to San Leandro, United States Can
is a party to an indemnity agreement related to this matter with the owner of the property. Extensive soil
and groundwater investigative work has been performed at this site in a coordinated sampling event in 1999.
The results of the sampling were inconclusive as to the source of the contamination. In November 2002, as
part of a larger sampling scheme, the State requested that the Company sample existing monitoring wells at
the San Leandro property. The Company completed the sampling and received the results in the first quarter
of 2003. These results generally show that the concentration of contamination is declining, which the
Company views as a positive development. While the State of California has not yet commented on either the
1999 or the 2003 sampling results, the Company believes that the principal source of contamination is
unrelated to its past operations. With regard to M & J Solvents, over 1,000 contributors to the site have
been identified. The initial compliance status report has not been finalized and thus, the nature, extent
and source of contamination is unknown.
Legal
The Company is involved in litigation from time to time in the ordinary course of its business. In
the Company's opinion, the litigation is not material to its financial condition or results of operations.
(11) SUBSIDIARY GUARANTOR INFORMATION
The following presents the condensed consolidating financial data for U.S. Can Corporation
(the "Parent Guarantor"), United States Can Company (the "Issuer"), USC May Verpackungen Holding Inc. (the
"Subsidiary Guarantor"), and the Issuer's European subsidiaries, including May Verpackungen GmbH & Co., KG
(the "Non-Guarantor Subsidiaries"), as of October 3, 2004 and December 31, 2003 and for the nine months
ended October 3, 2004 and September 28, 2003. The information for the nine months ended September 28, 2003
has been restated (See Note (2)). Investments in subsidiaries are accounted for by the Parent Guarantor,
the Issuer 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. This consolidating information reflects the guarantors and non-guarantors of the 10
7/8% Senior Secured Notes and 12 3/8% Senior Subordinated Notes.
The 10 7/8% Senior Secured Notes and 12 3/8% Senior Subordinated Notes are guaranteed on a full,
unconditional, unsecured, senior subordinated, joint and several basis by the Parent Guarantor, the
Subsidiary Guarantor and any other domestic restricted subsidiary of the Issuer. USC May Verpackungen
Holding Inc., which is wholly owned by the Issuer, currently is the only Subsidiary Guarantor. The Parent
Guarantor has no assets or operations separate from its investment in the Issuer.
Separate financial statements of the Issuer or the Subsidiary Guarantors have not been presented as
management has determined that such information is not material to the holders of the 10 7/8% Senior
Secured Notes and 12 3/8% Senior Subordinated Notes.
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the NINE Months Ended OCTOBER 3, 2004
(unaudited)
(000's omitted)
USC May USC Europe/ May
United Verpackungen Verpackungen GmbH
U.S. Can States Can Holding & Co., KG U.S. Can
Corporation Company (Guarantor (Non-Guarantor Corporation
(Parent) (Issuer) Subsidiaries) Subsidiaries) Eliminations Consolidated
------------ ------------- ----------------- -------------------- ------------- -------------
NET SALES...................... $ - $ 413,232 $ - $ 219,307 $ - $ 632,539
COST OF SALES.................. - 356,895 - 215,010 - 571,905
------- ---------- --------- ---------- ------- ---------
Gross profit.............. - 56,337 - 4,297 - 60,634
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES....... - 19,464 - 10,929 - 30,393
SPECIAL CHARGES................ - 4,103 - 1,313 - 5,416
------- ---------- --------- ---------- ------- ---------
Operating income (loss)... - 32,770 - (7,945) - 24,825
INTEREST EXPENSE............... - 33,146 4,059 1,041 - 38,246
BANK FINANCING FEES............ - 3,275 - 211 - 3,486
LOSS FROM EARLY
EXTINGUISHMENT OF DEBT...... - 5,508 - - - 5,508
EQUITY IN LOSS
OF SUBSIDIARIES ............. (20,025) (14,099) (1,094) - 35,218 -
------- --------- ----------- --------- -------- --------
Loss before income taxes (20,025) (23,258) (5,153) (9,197) 35,218 (22,415)
PROVISION (BENEFIT) FOR
INCOME TAXES................. - (3,233) - 843 - (2,390)
------- ---------- --------- --------- ------- ----------
NET LOSS....................... (20,025) (20,025) (5,153) (10,040) 35,218 (20,025)
PREFERRED STOCK DIVIDEND
REQUIREMENT.................. (11,437) - - - - (11,437)
------- --------- --------- --------- ------- ---------
NET LOSS ATTRIBUTABLE TO COMMON )
STOCKHOLDERS.................. $(31,462 $ (20,025) $ (5,153) $ (10,040) $35,218 $ (31,462)
======== ========= ========= ========= ======== =========
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
RESTATED For the NINE Months Ended SEPTEMBER 28, 2003
(unaudited)
(000's omitted)
Restated
Restated USC May USC Europe/ May
Restated United Verpackungen Verpackungen GmbH Restated
U.S. Can States Can Holding & Co., KG U.S. Can
Corporation Company (Guarantor (Non-Guarantor Restated Corporation
(Parent) (Issuer) Subsidiaries) Subsidiaries) Eliminations Consolidated
------------ ------------- ----------------- -------------------- ------------- -------------
NET SALES...................... $ - $ 407,218 $ - $ 207,229 $ - $ 614,447
COST OF SALES.................. - 348,640 - 206,481 - 555,121
------- ---------- --------- ---------- ------- ---------
Gross profit.............. - 58,578 - 748 - 59,326
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES....... - 18,144 - 8,453 - 26,597
SPECIAL CHARGES................ - (500) - 1,090 - 590
------- ----------- --------- ---------- ------- ---------
Operating income (loss)... - 40,934 - (8,795) - 32,139
INTEREST EXPENSE............... - 33,640 4,788 2,473 - 40,901
BANK FINANCING FEES............ - 4,535 - - - 4,535
EQUITY IN LOSS
OF SUBSIDIARIES ............. (15,588) (17,180) (4,519) - 37,287 -
------- --------- ----------- ------------------ -------- --------
Loss before income taxes (15,588) (14,421) (9,307) (11,268) 37,287 (13,297)
PROVISION FOR
INCOME TAXES................. - 1,167 - 1,124 - 2,291
------- --------- --------- --------- ------- ---------
NET LOSS....................... (15,588) (15,588) (9,307) (12,392) 37,287 (15,588)
PREFERRED STOCK DIVIDEND
REQUIREMENT.................. (10,131) - - - - (10,131)
------- --------- --------- ------------------ ------- ---------
NET LOSS ATTRIBUTABLE TO COMMON )
STOCKHOLDERS.................. $(25,719 $ (15,588) $ (9,307) $ (12,392) $37,287 $ (25,719)
======== ========= ========= ========= ======== =========
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
As oF OCTOBER 3, 2004
(unaudited)
(000s omitted)
USC May USC Europe/ May
Verpackungen Verpackungen
U.S. Can United States Holding GmbH & Co., KG U.S. Can
Corporation Can Company (Guarantor (Non-Guarantor Corporation
(Parent) (Issuer) Subsidiaries) Subsidiaries) Eliminations Consolidated
-------------- --------------- ------------------ ----------------- -------------- ------------------
-------------- --------------- ------------------ ----------------- -------------- ------------------
CURRENT ASSETS:
Cash and cash equivalents $ - $ 216 $ - $ 5,270 $ - $ 5,486
Accounts receivable...... - 51,735 - 34,100 - 85,835
Inventories.............. - 59,139 - 44,829 - 103,968
Other current assets..... - 4,959 - 10,037 - 14,996
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total current assets - 116,049 - 94,236 - 210,285
NET PROPERTY, PLANT AND
EQUIPMENT................... - 130,415 - 94,757 - 225,172
GOODWILL...................... - 27,384 - - - 27,384
DEFERRED INCOME TAXES......... - 34,186 - 129 - 34,315
OTHER NON-CURRENT
ASSETS..................... - 36,421 - 13,642 - 50,063
INTERCOMPANY
ADVANCES.................... - 283,320 - - (283,320) -
INVESTMENT IN
SUBSIDIARIES................ - - 60,210 - (60,210) -
-------------- --------------- ------------------ ----------------- -------------- ------------------
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total assets........ $ - $ 627,775 $ 60,210 $ 202,764 $ (343,530) $ 547,219
============== =============== ================== ================= ============== ==================
CURRENT LIABILITIES
Current maturities of
long-term debt......... $ - $ 3,574 $ - $ 3,659 $ - $ 7,233
Accounts payable......... - 39,966 - 52,997 - 92,963
Restructuring reserves... - 1,891 - 776 - 2,667
Income taxes payable..... - - - 481 - 481
Other current liabilities - 32,833 - 19,270 - 52,103
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total current - 78,264 - 77,183 - 155,447
liabilities...................
TOTAL LONG TERM DEBT.......... 854 550,742 - - - 551,596
LONG TERM LIABILITIES PURSUANT
TO EMPLOYEE BENEFIT PLANS... - 40,290 930 30,095 - 71,315
OTHER LONG-TERM
LIABILITIES................. - 2,595 - 2,883 - 5,478
PREFERRED STOCK............... 158,391 - - - - 158,391
INTERCOMPANY LOANS............ 112,056 - 125,654 45,610 (283,320) -
INVESTMENT IN
SUBSIDIARIES................ 123,707 79,591 - - (203,298) -
STOCKHOLDERS' EQUITY /
(DEFICIT)................... (395,008) (123,707) (66,374) 46,993 143,088 (395,008)
-------------- --------------- ------------------ ----------------- -------------- ------------------
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total liabilities $ - $ 627,775 $ 60,210 $ 202,764 $ (343,530) $ 547,219
and
stockholders' equity
============== =============== ================== ================= ============== ==================
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2003
(unaudited)
(000s omitted)
USC May
USC Europe/May
Verpackungen Verpackungen
U.S. Can United States Holding GmbH U.S. Can
Corporation Can Company (Subsidiary (Non-Guarantor Corporation
(Parent) (Issuer) Guarantor) Subsidiaries) Eliminations Consolidated
-------------- --------------- ------------------ ----------------- -------------- ------------------
CURRENT ASSETS:
Cash and cash equivalents $ - $ 16,854 $ - $ 6,110 $ - $ 22,964
Accounts receivable...... - 44,157 - 37,236 - 81,393
Inventories.............. - 52,739 - 42,401 - 95,140
Other current assets..... - 7,126 - 7,587 - 14,713
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total current assets - 120,876 - 93,334 - 214,210
NET PROPERTY, PLANT AND
EQUIPMENT................... - 143,777 - 103,712 - 247,489
GOODWILL...................... - 27,384 - - - 27,384
DEFERRED INCOME TAXES......... - 30,685 - 131 - 30,816
OTHER NON-CURRENT ASSETS...... - 39,570 - 14,949 - 54,519
INTERCOMPANY
ADVANCES.................... - 260,962 - - (260,962) -
INVESTMENT IN
SUBSIDIARIES................ - - 61,961 - (61,961) -
-------------- --------------- ------------------ ----------------- -------------- ------------------
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total assets........ $ - $ 623,254 $ 61,961 $ 212,126 $ (322,923) $ 574,418
============== =============== ================== ================= ============== ==================
CURRENT LIABILITIES
Current maturities of
long-term debt......... $ - $ 2,379 $ - $ 21,078 $ - $ 23,457
Accounts payable......... - 42,237 - 56,174 - 98,411
Restructuring reserves... - 2,831 - 581 - 3,412
Income taxes payable..... - - - 362 - 362
Other current liabilities - 35,683 - 15,012 - 50,695
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total current - 83,130 - 93,207 - 176,337
liabilities...................
TOTAL LONG TERM DEBT.......... 854 534,913 - - - 535,767
LONG-TERM LIABILITIES PURSUANT
TO EMPLOYEE BENEFIT PLANS... - 41,069 930 29,780 - 71,779
OTHER LONG-TERM
LIABILITIES................. - 2,594 - 2,898 - 5,492
PREFERRED STOCK............... 146,954 - - - - 146,954
INTERCOMPANY LOANS............ 112,056 - 121,595 27,311 (260,962) -
INVESTMENT IN
SUBSIDIARIES................ 102,047 63,595 - - (165,642) -
STOCKHOLDERS' EQUITY.......... (361,911) (102,047) (60,564) 58,930 103,681 (361,911)
-------------- --------------- ------------------ ----------------- -------------- ------------------
-------------- --------------- ------------------ ----------------- -------------- ------------------
Total liabilities $ - $ 623,254 $ 61,961 $ 212,126 $ (322,923) $ 574,418
and
stockholders'
equity........................
============== =============== ================== ================= ============== ==================
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 3, 2004
(unaudited)
(000s omitted)
USC May
United Verpackungen USC Europe / May
U.S. Can States Can Holding Verpackungen U.S. Can
Corporation Company (Subsidiary (Non-Guarantor Corporation
(Parent) (Issuer) Guarantor) Subsidiaries) Consolidated
-------------- ------------- ------------------ -------------------- -------------
CASH FLOWS (USED IN) PROVIDED BY OPERATING $ - $ 2,376
-------- --------
ACTIVITIES................................................. $ (5,153) $ 1,674 $ (1,103)
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................-..... (7,858) - (1,981) (9,839)
Proceeds from sale of property.......................-..... 1,019 - 56 1,075
- -------- --------- -------- ---------
Net cash used in investing activities............-..... (6,839) - (1,925) (8,764)
- -------- --------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in intercompany advances.....................-..... (22,354) 5,153 17,201 -
Net borrowings of Term B loan........................-..... 248,750 - - 248,750
Net payments under revolving line of - (42,100)
credit....................................................... - - (42,100)
Payments of Tranche A loan...........................-..... (38,706) - - (38,706)
Payments of Tranche B loan...........................-..... (130,175) - - (130,175)
Payments of Tranche C loan...........................-..... (20,000) - - (20,000)
Payments of other long-term debt.....................-..... (1,391) - (17,348) (18,739)
Borrowings of other long-term debt...................-..... 646 - - 646
Payments of debt financing costs.....................-..... (6,845) - - (6,845)
- --------- --------- -------- ----------
Net cash (used in) provided by - (12,175)
-------- ----------
financing
activities.............................................. 5,153 (147) (7,169)
---------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................-..... - - (442) (442)
- -------- --------- --------- ----------
DECREASE IN CASH AND - (16,638)
CASH EQUIVALENTS........................................... - (840) (17,478)
CASH AND CASH EQUIVALENTS, beginning of - 16,854
-------- ---------
period..................................................... - 6,110 22,964
--------- -------- ---------
CASH AND CASH EQUIVALENTS, end of period.........$.....-..... $ 216 $ - $ 5,270 $ 5,486
= = ========= ========= ======== =========
U.S. CAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
RESTATED FOR THE NINE MONTHS ENDED SEPTEMBER 28, 2003
(unaudited)
(000s omitted)
USC May Restated
United Verpackungen USC Europe / May Restated
U.S. Can States Can Holding Verpackungen U.S. Can
Corporation Company (Subsidiary (Non-Guarantor Corporation
(Parent) (Issuer) Guarantor) Subsidiaries) Consolidated
-------------- ------------- ------------------ -------------------- -------------
CASH FLOWS (USED IN) PROVIDED BY OPERATING $ - $ 6,682
-------- --------
ACTIVITIES................................................. $ (9,307) $ 834 $ (1,791)
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................-..... (8,028) - (2,059) (10,087)
Proceeds from sale of property.......................-..... 256 - 5,173 5,429
- -------- --------- -------- ---------
Net cash (used in) provided by - (7,772)
-------- --------
investing activities......................................... - 3,114 (4,658)
--------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in intercompany advances.....................-..... (8,803) 9,307 (504) -
Issuance of 10 7/8% senior secured notes.............-..... 125,000 - - 125,000
Net payments under revolving line of - (30,100)
credit....................................................... - - (30,100)
Borrowings of other debt.............................-..... - - 3,230 3,230
Payment of Tranche A loan............................-..... (27,294) - - (27,294)
Payment of Tranche B loan............................-..... (47,206) - - (47,206)
Payments of other long-term debt.....................-..... (805) - (10,220) (11,025)
Payments of debt financing costs.....................-..... (6,455) - - (6,455)
- --------- --------- -------- ----------
Net cash (used in) provided by - 4,337
-------- ---------
financing
activities.............................................. 9,307 (7,494) 6,150
---------- ---------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................-..... - - (1,375) (1,375)
- -------- --------- --------- ----------
INCREASE (DECREASE) IN CASH AND - 3,247
CASH EQUIVALENTS........................................... - (4,921) (1,674)
CASH AND CASH EQUIVALENTS, beginning of year...........-..... 5,707 - 5,983 11,690
- --------- --------- -------- ---------
CASH AND CASH EQUIVALENTS, end of period.........$.....-..... $ 8,954 $ - $ 1,062 $ 10,016
= = ========= ========= ======== =========
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following narrative discusses the results of operations, liquidity and capital resources for
the Company on a consolidated basis. This section should be read in conjunction with the financial
statements and footnotes contained within this report and the Corporation's Annual Report on Form 10-K/A
for the fiscal year ended December 31, 2003 (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained therein).
Restatement
As discussed in Note (2) to the Consolidated Financial Statements, the Company's financial
statements for the years ended December 31, 2002 and 2003 and for the quarterly period ended April 4, 2004
have been restated. The accompanying Management's Discussion and Analysis gives effect to the restatement.
Critical Accounting Policies; Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses during the reporting period.
The Company's critical accounting policies are described in Note (2) to the audited Consolidated Financial
Statements contained within the Company's Annual Report on Form 10-K/A for the fiscal year ended December
31, 2003, as supplemented by Notes (1) and (5) to these financial statements.
Results of Operations
Three month period ended October 3, 2004, as compared to the three month period ended September 28, 2003
The following table presents the Company's Revenue and Gross Profit by segment for the third
quarter of 2004 as compared to the third quarter of 2003.
For the three months ended October 3, 2004 and September 28, 2003
-----------------------------------------------------------------------------
Revenue Gross Profit Percentage to
Sales
-----------------------------------------------------------------------------
2004 2003 2004 2003 2004 2003
-----------------------------------------------------------------------------
Aerosol $ 94,361 $ 88,535 $ 15,859 $ 14,754 16.8% 16.7%
International 70,386 72,790 1,705 (756) 2.4% (1.0)%
Paint, Plastic & General Line 31,155 28,437 2,616 2,293 8.4% 8.1%
Custom & Specialty 11,361 14,909 1,796 1,428 15.8% 9.6%
----------------------------------------------------------
Total $ 207,263 $ 204,671 $ 21,976 $ 17,719 10.6% 8.6%
==========================================================
Consolidated net sales for the three months ended October 3, 2004 were $207.3 million as compared
to $204.7 million in the corresponding period in 2003. Along business segment lines, Aerosol net sales for
third quarter of 2004 increased to $94.4 million from $88.5 million for the same period in 2003, a 6.6%
increase, driven by increased unit volume ($4.7 million) and increased raw material costs that have been
passed on to customers ($4.2 million), partially offset by a change in customer and product mix ($3.1
million). International net sales decreased to $70.4 million for the third quarter of 2004 from $72.8
million for the third quarter of 2003, a decrease of $2.4 million or 3.3%. The decrease was primarily due
to decreased unit volume in the third quarter, partially offset by the positive impact of the translation
of sales made in foreign currencies based upon using the same average U.S dollar exchange rates in effect
during the third quarter of 2003 ($6.2 million). Paint, Plastic & General Line net sales increased $2.8
million, from $28.4 million for the third quarter of 2003 to $31.2 million for the third quarter of 2004.
This increase was due primarily to increasing raw material costs in our plastics and paint and general line
businesses that have been passed on to customers. In the Custom & Specialty segment, sales decreased
23.5% from $14.9 million for the third quarter of 2003 to $11.4 million for the third quarter of 2004,
driven primarily by a decline in volume.
Consolidated gross profit increased $4.3 million for the three months ended October 3,
2004 from the same quarter in 2003. Along business segment lines, Aerosol gross profit dollars increased
by $1.1 million while the percentage to sales remained relatively unchanged. The International segment
gross profit increased $2.5 million versus the same period in 2003 and the percentage to sales increased
from (1.0)% to 2.4%. The increase was driven by improved operating efficiencies in the U.K. aerosol and
the German food can operations. The Paint, Plastic & General Line segment gross profit increased $0.3
million versus the same period in 2003. The percentage to net sales increased from 8.1% in 2003 to 8.4% in
2004. The improvement was primarily driven by a shift in customer demand to more profitable product
lines. The Custom & Specialty segment gross profit increased to $1.8 million, compared to $1.4 million in
2003. The improvement was driven by lower corporate allocated expenses.
Selling, general and administrative costs increased from $8.7 million for the third quarter of 2003
to $10.2 million in the third quarter of 2004. The increase was primarily related to severance payments to
a former European executive, the professional fees associated with the investigation of the France
operation (see Note (2)), and the negative impact of the translation of expenses incurred in foreign
currencies to U.S. Dollars.
During the third quarter of 2004, the company recorded a $4.0 million charge related to the closure
of the New Castle, PA Lithography and Elgin, IL (Olive Can) Custom & Specialty plants. The third quarter
charge primarily relates to employee separation costs ($1.1 million) and accelerated depreciation related
to assets, which will be idled in the fourth quarter ($2.9 million). Total cash restructuring payments in
the third quarter of 2004 were $0.7 million (primarily severance and facility shut down costs) and the
Company anticipates spending another $7.1 million over the next several years related to previously
recorded special charges. Additional special charges related the New Castle, PA and Olive Can facility exit
costs will be recorded during the fourth quarter. The Company anticipates these costs to be approximately
$4.1 million, including facility closing costs of $1.2 million, lease commitments of $1.4 million, and
accelerated depreciation of $1.5 million.
July 4, Net Deductions (b) October 3,
2004 Balance Additions 2004 Balance
----------------- ------------------ ---------------- ------------------
----------------- ------------------ ---------------- ------------------
Employee Separation $3.8 $1.1 $(0.6) $4.3
Facility Closing Costs 3.0 2.9 (3.1) 2.8
----------------- ------------------ ---------------- ------------------
----------------- ------------------ ---------------- ------------------
Total $6.8 $4.0 $(3.7) $7.1 (a)
================= ================== ================ ==================
(a) Includes $4.5 million classified as other long-term liabilities as of October 3, 2004.
(b) Includes cash payments of $0.7 million. The remaining non-cash deductions represent accelerated
depreciation related to the New Castle, PA and Olive Can facility closings, which was
recorded as a reduction in property, plant and equipment.
Interest expense in the third quarter of 2004 decreased 14.1%, or $2.1 million, versus the same
period of 2003. The decrease is due primarily to the expiration of the Company's interest rate protection
agreements in the fourth quarter of 2003 ($1.7 million) and lower average borrowings ($0.4 million).
Bank financing fees for the third quarter of 2004 were $0.9 million as compared to $2.5 million for
the third quarter of 2003. The third quarter 2003 bank financing fees included $1.2 million of fees
incurred and expensed by the Company to amend its Senior Secured Credit Facility.
During the third quarter of 2004, the Company recorded an income tax benefit of $0.5 million versus
a benefit of $0.4 million recorded for the same period of 2003. The Company had previously (in 2002 and
2003) recorded valuation allowances as it could not conclude that it is "more likely than not" that all of
the deferred tax assets of certain of its foreign operations will be realized in the foreseeable future.
Accordingly, the Company did not record an income tax benefit related to the third quarter 2004 and 2003
losses of the applicable operations.
Payment in kind dividends of $3.9 million and $3.5 million on the redeemable preferred stock were
recorded in the third quarter of 2004 and 2003, respectively.
Nine month period ended October 3, 2004, as compared to the nine month period ended September 28, 2003
The following table presents the Company's Revenue and Gross Profit by segment for the first nine
months of 2004 as compared to the first nine months of 2003.
For the nine months ended October 3, 2004 and September 28, 2003
------------------------------------------------------------------------------
Revenue Gross Profit Percentage to Sales
------------------------------------------------------------------------------
2004 2003 Restated 2004 2003 Restated 2004 2003
Restated
------------------------------------------------------------------------------
Aerosol $280,688 $ 272,081 $ 45,210 $ 46,141 16.1% 17.0%
International 219,307 207,229 4,297 748 2.0% 4.0%
Paint, Plastic & General Line 101,780 90,795 10,160 10,155 10.0% 11.2%
Custom & Specialty 30,764 44,342 967 2,282 3.1% 5.1%
----------------------------------------------------------
Total $ 632,539 $ 614,447 $ 60,634 $ 59,326 9.6% 9.7%
==========================================================
Net sales for the nine-month period ended October 3, 2004, totaled $632.5 million, a 2.9% increase
versus the corresponding period in 2003. Along business segment lines, Aerosol net sales in the first nine
months of 2004 were $280.7 million, a 3.2 % increase versus the same period last year. The increase is
primarily due to an increase in U.S. volumes ($10.2 million) and increased raw material costs that have
been passed on to customers ($4.3 million), partially offset by a change in customer and product mix ($5.9
million). International sales increased $12.1 million from $207.2 million for the first nine months of
2003 to $219.3 million for the first nine months of 2004 primarily due to the positive impact of the
translation of sales made in foreign currencies based upon using the same average U.S dollar exchange rates
in effect during the first nine months of 2003 ($21.1 million), partially offset by decreased unit
volumes. Paint, Plastic & General Line segment sales increased $11.0 million to $101.8 million for the
nine months ended October 3, 2004. This increase was due primarily to increased volume ($3.5 million) and
increasing raw material costs in our plastics and paint and general line businesses ($7.5 million), which
have been passed on to customers. Custom & Specialty sales of $30.8 million decreased from the $44.3
million for the nine months ended September 28, 2003, driven primarily by a decline in volume.
Consolidated gross profit increased $1.3 million for the nine-month period ended October 3, 2004
from the same period in 2003. Along business segment lines, Aerosol gross profit decreased by $0.9 million
and the percentage to sales decreased from 17.0% to 16.1%. The decrease in Aerosol gross profit dollars was
due to increased raw material costs associated with steel surcharges, net of amounts passed through to
customers ($3.9 million), partially offset by the impact of volume increases ($1.7 million) and improved
overhead absorption of ($1.3 million). In accordance with the terms of the majority of the Company's
customer agreements, steel surcharge cost increases were passed through to customers beginning in the
second quarter of 2004. Due to the timing of the implementation of the selling price increases versus the
cost increases in the first half of 2004, the Company did not recover all of the cost increases. See
"Liquidity and Capital Resources" for a discussion of steel surcharges. The International segment gross
profit increased $3.5 million versus the same period in 2003, but the percentage to sales decreased from
4.0% to 2.0%. The improvement in dollars was driven by cost reduction and operational improvements in the
U.K. aerosol and German food can businesses, partially offset by decreased volume and accelerated
depreciation related to production lines idled in conjunction with the German food can product line
profitability review. The Paint, Plastic & General Line segment gross profit remained flat at $10.2
million in 2004, versus the same period in 2003. The percentage to net sales decreased from 11.2% in 2003
to 10.0% in 2004. The decrease in percentage is driven by a shift to less profitable product lines. The
Custom & Specialty segment gross profit decrease to $1.0 million compared to $2.3 million in 2003, was
driven by reduced volume.
Selling, general, and administrative expenses were $30.4 million in the first nine months of 2004,
versus $26.6 million for the same period in 2003. The increase in selling, general and administrative costs
was primarily due to severance payments to be made over time to the Company's former Chief Executive
Officer and a former European executive, the professional fees associated with the investigation of the
France operation (see Note (2)), and the negative impact of the translation of expenses incurred in foreign
currencies to U.S. Dollars.
During the first nine months of 2004, the Company recorded special charges of $5.4 million. $1.4
million related to the elimination of 41 positions in Europe. The charge related to an early termination
program in Laon, France and a product line profitability review program in the Company's German food can
business, which will result in the Company idling certain of its production lines. During the third quarter
of 2004, the company recorded a $4.0 million charge related to the closure of the New Castle, PA
Lithography and the Elgin IL (Olive Can) Custom & Specialty plants. The third quarter charge primarily
relates to employee separation costs connected to the facility closings ($1.1 million), and accelerated
depreciation related to assets, which will be idled in the fourth quarter ($2.9 million). Additional
special charges related the New Castle, PA and Olive Can facility exit costs will be recorded during the
fourth quarter. The Company anticipates these costs to be approximately $4.1 million, including facility
closing costs of $1.2 million, lease commitments of $1.4 million, and accelerated depreciation of $1.5
million.
The table below presents the reserve categories and related activity as of October 3, 2004:
January 1, 2004 Net Additions Deductions (b) October 3,
Balance 2004 Balance
------------------ --------------- ---------------- ---------------------
---------------- --------------- ---------------- ---------------------
Employee Separation $4.3 $2.5 $(2.5) $4.3
Facility Closing Costs 3.6 2.9 (3.7) 2.8
---------------- --------------- ---------------- ---------------------
---------------- --------------- ---------------- ---------------------
Total $7.9 $(6.2) $7.1 (a)
$5.4
================ =============== ================ =====================
(a) Includes $4.5 million classified as other long-term liabilities as of October 3, 2004.
(b) Includes cash payments of $3.2 million. The remaining non-cash deductions represent
accelerated depreciation related to the New Castle, PA and Olive Can facility closings, which
was recorded as a reduction in property, plant and equipment.
Interest expense decreased $2.7 million from $40.9 million for the first nine months of 2003 to
$38.2 million for the same period in 2004 due primarily to the expiration of the Company's interest rate
protection agreements in the fourth quarter of 2003 ($4.9 million), partially offset by higher interest
rates due primarily to the issuance of the 10 7/8% Senior Secured Notes in July 2003 ($2.2 million).
Bank financing fees for the first nine months of 2004 were $3.5 million as compared to $4.5 million
for same period in 2003. The 2003 fees included $1.2 million of fees incurred and expensed by the Company
to amend its Senior Secured Credit Facility.
During the second quarter, the Company also recorded a loss from early extinguishment of debt of
$5.5 million associated with the termination of the Company's Senior Secured Credit Facility. In addition,
the Company has paid approximately $6.8 million of fees and expenses related to the new Credit Facility
through October 4, 2004. These fees will be amortized over the life of the applicable borrowings.
An income tax benefit of $2.4 million was recorded for the first nine months of 2004 versus an
income tax expense of $2.3 million for the first nine months of 2003. The Company had previously (in 2002
and 2003) recorded valuation allowances as it could not conclude that it is "more likely than not" that all
of the deferred tax assets of certain of its foreign operations will be realized in the foreseeable
future. Accordingly, the Company did not record an income tax benefit related to the nine months of 2004
and 2003 losses of the applicable of the applicable operations.
Payment in kind dividends of $11.4 million and $10.1 million on the redeemable preferred stock
were recorded in the first nine months of 2004 and 2003, respectively.
Liquidity and Capital Resources
During the first nine months of 2004, liquidity needs were met through cash on hand and internally
generated cash flow. Principal liquidity needs included debt refinancing costs, working capital and capital
expenditures. Cash flow used by operations was $1.1 million for the nine months ended October 3, 2004,
compared to cash used of $1.8 million for the nine months ended September 28, 2003.
Starting in the fourth quarter of 2003, many domestic and foreign steel suppliers began
experiencing a shortage of coke, an important component of the steel-making process. The shortage is due
to many factors, which include the growing Chinese steel market and a fire at a coal mine in the U.S.,
which produces coke. The shortage is expected to continue in at least the near future. While we cannot
predict the long-term effects the shortage will have on our tin-plate costs, the shortage has caused some
steel manufacturers to charge a surcharge on steel, which has increased our tin-plate prices. In addition,
one of our suppliers increased base prices during the third quarter.
Some customer contracts allow us to pass tin-plated steel price increases through to our customers
and the Company increased its selling prices during the second quarter of 2004. The Company has generally
been successful in passing along the majority of the steel surcharge costs to our customers. However,
future steel surcharges could occur and the Company cannot predict with certainty its ability to pass along
future increases to customers. Additionally, customer contracts may limit pass-throughs and also may
require us to match other competitive bids.
Net cash used in investing activities was $8.8 million for the first nine months of 2004 as
compared to $4.7 million for the first nine months of 2003. Investing activities in the first nine months
of 2004 included capital spending of $9.8 million, offset by the proceeds received from the March 2004 sale
of the closed Dallas Texas for $1.0 million. Investing activities in the first nine months of 2003
included capital spending of $10.1 million, offset by proceeds from the sale of the Company's Daegeling,
Germany facility, which was sold at the end of 2002.
Net cash used by financing activities in the first nine months of 2004 was $7.2 million, versus
net cash provided of $6.2 million for the same period in 2003. Net cash used in financing activities
includes the payment of $6.9 million of fees related to the new Credit Facility, as more fully described
below. In 2003 net cash was provided by borrowings under the revolving line of credit, after repayment of
borrowings under the Senior Secured Credit Facility with proceeds from the offering of the 10 7/8% Senior
Secured Notes.
The Company entered into a Credit Agreement among U.S. Can Corporation, United States Can Company
and Various Lending Institutions with Deutsche Bank Trust Company Americas as Administrative Agent, dated
as of June 21, 2004 ("Credit Facility"). The Credit Facility provides for aggregate borrowings of $315.0
million consisting of a $250.0 million Term B loan and a $65.0 million Revolving Credit Facility. The
$65.0 million revolving credit facility will be used by the Company for ongoing working capital and general
corporate purposes, including the issuance of Letters of Credit as described below. The Letters of Credit
subfacility is limited to $25.0 million.
As required under the terms of the Credit Facility, the Company used the $250.0 million initial
Term B proceeds to repay in full all amounts outstanding under the Company's former Senior Secured Credit
Facility and a secured term loan of $16.5 million, secured by a mortgage on the Company's Merthyr Tydfil,
U.K facility. The Term B loan facility is payable in quarterly installments of $625,000 from June 30, 2004
until the final balance is due on January 15, 2010. The revolving credit facility is available until June
21, 2009. In addition, the Company is required to prepay a portion of the Term B loan upon the occurrence
of certain specified events.
The Company has paid approximately $6.8 million of fees and expenses related to the new Credit
Facility through October 3, 2004, including waiver and amendment fees in connection with the Laon France
facility investigation of $1.0 million. These fees will be amortized over the life of the applicable
borrowings. In addition, the Company wrote off $5.5 million of remaining deferred financing fees related
to the Company's former Senior Secured Credit Facility.
At October 4, 2004, the Company did not have any borrowings outstanding under its $65.0 million
revolving loan portion of the Credit Facility. Letters of Credit of $13.2 million were outstanding
securing the Company's obligations under various insurance programs and other contractual agreements, which
reduce the Company's availability under its revolving credit facility. In addition, the Company had $5.5
million of cash and cash equivalents at quarter end.
At existing levels of operations, cash generated from operations together with amounts available
under the revolving credit facility, are expected to be adequate to meet anticipated debt service
requirements, restructuring costs, capital expenditures and working capital needs. Future operating
performance, unexpected capital expenditures, investments, acquisitions and the ability to service or
refinance the notes, to service, extend or refinance the Credit Facility and to redeem or refinance our
preferred stock will be subject to future economic conditions and to financial, business and other factors,
many of which are beyond management's control.
The Credit Facility, the Senior Secured Notes and the Senior Subordinated Notes contain a number of
financial and restrictive covenants. Under the Credit Facility, the Company is required to meet certain
financial tests, including achievement of a minimum interest coverage ratio, a maximum total leverage
ratio, a maximum first lien leverage ratio, and maximum annual capital expenditures. The restrictive
covenants limit the Company's ability to incur liens and debt, sell assets, pay dividends or make
distributions, repurchase debt and to make certain loans, investments or acquisitions. The Company was in
compliance with all of the required financial ratios and other covenants at October 3, 2004.
The Company's Credit Facility permits, from time to time and subject to certain conditions, the
redemption of the subordinated debt. The Company intends to pursue opportunistic repurchases of its
outstanding 12 3/8% Senior Subordinated Notes as time and circumstances permit, subject to market
conditions, the trading price of the 12 3/8% Senior Subordinated Notes and the terms of the Company's
Credit Facility and Senior Secured Notes.
The Company continually evaluates all areas of its operations for ways to improve profitability and
overall Company performance. In connection with these evaluations, management considers numerous
alternatives to enhance the Company's existing business including, but not limited to acquisitions,
divestitures, capacity realignments and alternative capital structures.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Interest rate risk exposure results from our floating rate borrowings. The table below provides
information about the Company's debt obligations that are sensitive to changes in interest rates as of
October 3, 2004. The table presents principal cash flows and related weighted average interest rates by
expected maturity dates.
Debt Obligations 2005 2006 2007 2008 Thereafter Fair Value
10/03/04
-12/31/04
- -------------------------- ----------- ------------ ----------- ------------ ------------ ----------- -------------
- --------------------------
(dollars in millions)
Fixed rate $0.2 $ 0.3 $1.0 $ -- $ $296.7 $284.0
--
Average interest rate 4.44% 9.20% -- 11.74%
4.44% --
Variable rate $4.5 $3.4 $3.5 $3.5 $ 3.6 $242.1 $260.6
Average interest rate 4.87% 4.83% 5.38%
4.69% 4.85% 4.81%
Item 4. Controls and Procedures
As of October 3, 2004, the Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operations of
the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended). Based upon that evaluation and subsequent information as described
below, the Chief Executive Officer and Chief Financial Officer concluded, as of October 3, 2004, that
except as described below, the Company's disclosure controls and procedures were effective for recording,
processing, summarizing and reporting the information the Company discloses in the reports that the Company
files with the Commission.
During the quarter ended October 3, 2004, as a result of inquiries regarding accounting and
financial reporting issues at its Laon, France facility, the Company determined that it would restate its
financial statements for the years ended December 2002 and 2003, and the quarter ended April 4, 2004 (the
"Restatement"). In addition, in connection with the Restatement, the Company's auditors, Deloitte & Touche
LLP, delivered a letter to the Company regarding "material weaknesses" in the Company's internal controls
concerning oversight of its European operations, in particular its Laon, France facility. For a discussion
of the restatement adjustments, see "Item 1. Financial Statements - Note (2) Restatements."
In connection with the Restatement process and the inquiry by the Audit Committee, the Company has
carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls
and procedures, including an evaluation of such controls and procedures at a number of its other
facilities, and has concluded that the controls and procedures at such other facilities, and at the
Company's corporate headquarters, are superior to those that existed at its Laon, France facility. During
the quarter ended October 3, 2004, there were changes in the Company's internal control over financial
reporting that materially affected the Company's internal control over financial reporting. In connection
with the Restatement process, the Company has initiated the implementation of various measures to
strengthen its internal controls and has added more structure to the financial oversight of its European
operations, including its facility in France. The Company believes that, in connection with this effort,
it has substantially strengthened the organization and personnel of the senior financial and control
functions in Europe and adopted more rigorous policies and procedures with respect to its financial
reporting.
The Company will continue to evaluate the effectiveness of its controls and procedures on an
ongoing basis, including consideration of recommendations identified through the investigation, and will
implement further actions as necessary in its continuing efforts to strengthen the control process.
The Company's management is committed to continuing to improve the state of its controls and
procedures, corporate governance and financial reporting. Other than as described above, since the
evaluation date by the Company's management of its internal controls, there have not been any significant
changes in the internal controls or in other factors that could significantly affect the internal controls.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Environmental Matters
Our operations are subject to environmental laws in the United States and abroad, relating to
pollution, the protection of the environment, the management and disposal of hazardous substances and
wastes and the cleanup of contaminated sites. Our capital and operating budgets include costs and expenses
associated with complying with these laws, including the acquisition, maintenance and repair of pollution
control equipment, and routine measures to prevent, contain and clean up spills of materials that occur in
the ordinary course of our business. In addition, some of our production facilities require environmental
permits that are subject to revocation, modification and renewal. We believe that we are in substantial
compliance with environmental laws and our environmental permit requirements, and that the costs and
expenses associated with this compliance are not material to our business. However, additional operating
costs and capital expenditures could be incurred if, among other developments, additional or more stringent
requirements relevant to our operations are promulgated.
Occasionally, contaminants from current or historical operations have been detected at some of our
present and former sites. Although we are not currently aware of any material claims or obligations with
respect to these sites, the detection of additional contamination or the imposition of cleanup obligations
at existing or unknown sites could result in significant liability.
We have been designated as a potentially responsible party under Superfund laws at various sites in
the United States, including a former can plant located in San Leandro, California and at the M&J Solvents
site in Georgia. As a potentially responsible party, we are or may be legally responsible, jointly and
severally with other members of the potentially responsible party group, for the cost of environmental
remediation at these sites. Based on currently available data, we believe our contribution to the sites
designated under U.S. Superfund law was, in most cases, minimal. With respect to San Leandro, we believe
the principal source of contamination is unrelated to our past operations. With respect to M&J Solvents
site, while over 1,000 contributors to the site have been identified, the initial compliance status report
has not been finalized and thus, the nature, extent and source of contamination is unknown.
Based upon currently available information, the Company does not expect the effects of
environmental matters to be material to its financial position.
Litigation
We are involved in litigation from time to time in the ordinary course of our business. In our
opinion, the litigation is not material to our financial condition or results of operations.
Item 5. Other Information
On October 6, 2004, USC Europe (UK) Limited, a subsidiary of the Company, entered into an agreement
with Francois Vissers, formerly Senior Vice President, International and President of European Operations,
ending his employment with the Company.
Item 6. Exhibits
(a) Exhibits
10.35 Settlement Letter from USC Europe (UK) Limited to Francois Vissers dated October
6, 2004.
31.1 Certification of Chief Executive Officer Pursuant to Section 13a-15 of the Securities and Exchange
Act of 1934
31.2 Certification of Chief Financial Officer Pursuant to Section 13a-15 of the Securities and Exchange
Act of 1934
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
U.S. CAN CORPORATION
Date: November 17, 2004 By: /S/ Sandra K. Vollman
----------------------
Sandra K. Vollman
Senior Vice President
and
Chief Financial Officer
(Duly authorized officer
and principal financial
officer)