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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
ANCHOR GLASS CONTAINER CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 59-3417812
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Anchor Plaza, 4343 Anchor Plaza Parkway, Tampa, FL 33634-7513
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 813-884-0000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
Series A 10% Cumulative Convertible Preferred Stock, par value $0.01 per share
(Title of class)
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 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of voting and non-voting stock held by non-affiliates:
At this time, there is no public market for any of the stock.
See Part II, Item 5.
Number of shares outstanding of common stock at February 28, 2001:
2,160,487 shares
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. BUSINESS.
COMPANY OVERVIEW
Anchor Glass Container Corporation ("Anchor," "New Anchor" or the
"Company") is the third largest manufacturer of glass containers in the United
States. Anchor produces a diverse line of flint (clear), amber, green and other
colored glass containers of various types, designs and sizes. The Company
manufactures and sells its products to many of the leading producers of beer,
food, tea, liquor and beverages.
The Company, a majority-owned subsidiary of Consumers Packaging Inc.
("Consumers"), was formed in January 1997 to acquire certain assets and assume
certain liabilities of the former Anchor Glass Container Corporation ("Old
Anchor"), which was subsequently liquidated in a proceeding under Chapter 11 of
the United States Bankruptcy Code of 1978, as amended. The Company purchased
eleven operating glass container manufacturing facilities and other related
assets (the "Anchor Acquisition"). Prior to the Anchor Acquisition on February
5, 1997, the Company did not conduct any operations. Consumers, Canada's only
glass container manufacturer, currently owns approximately 59% of New Anchor
indirectly on a fully diluted basis. Consumers U.S., Inc. ("Consumers U.S.")
was also formed in January 1997 by Consumers as a holding company for Anchor.
Old Anchor was formed by members of the management of the Glass
Container Division of Anchor Hocking Corporation (the "Glass Container
Division") and persons associated with Wesray Corporation to carry out the
leveraged acquisition in 1983 of the business and certain of the assets of the
Glass Container Division. Old Anchor acquired Midland Glass Company, Inc. in
1984 and Diamond Bathurst, Inc. in 1987. In November 1989, Vitro S.A. acquired
substantially all of the stock of Old Anchor. Simultaneously, Vitro S.A.
acquired all of the stock of Latchford Glass Company, which was subsequently
merged into Old Anchor. In September 1996, Old Anchor filed for protection
under Chapter 11 of the Bankruptcy Code.
RECENT DEVELOPMENTS
On February 2, 2001, Consumers announced a suspension of interest
payments on its senior notes maturing in 2007 and its senior secured notes
maturing in 2005, until it has reached agreement on restructuring this part of
Consumers' capital structure. Consumers further reported its intention to pay
other creditors, including trade creditors and operating lenders, in the
ordinary course. On March 22, 2001, Consumers announced the appointment of
Brent Ballantyne as its Chief Restructuring Officer and Chief Executive
Officer. Mr. Ballantyne will report to a committee of the Consumers Board of
Directors comprised of independent directors. Mr. Ghaznavi stepped down as
Chief Executive Officer of Consumers but remains Chairman of Consumers and
Chairman and Chief Executive Officer of Anchor. On March 31, 2001, Consumers
announced the appointment of Graeme Eadie as Chief Financial Officer. Mr. Dale
A. Buckwalter stepped down as Chief Financial Officer of Consumers but will
continue as Chief Financial Officer of Anchor. Consumers has begun discussions
with its noteholders regarding a restructuring.
Management of Anchor is unable to determine what impact this
restructuring will have on Anchor, but it may be significant. If a
restructuring of Consumers results in Mr. Ghaznavi owning, directly or
indirectly, less than 40% of the voting stock of Consumers, this would trigger
a "change in control" as defined in the indentures governing Anchor's 11.25%
First Mortgage Notes due 2005, aggregate principal amount of $150.0 million
(the "First Mortgage Notes") and its 9.875% Senior Notes due 2008, aggregate
principal amount of $50.0 million (the "Senior Notes") (the "Indentures"). In
addition, G&G Investments, Inc. ("G&G") and one of its affiliates have pledged
common shares of Consumers that they own as collateral for certain indebtedness
guaranteed by G&G. If an event of default were to occur on this indebtedness,
the lenders would have the right to foreclose on those common shares, which
would also
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trigger a "change in control" as defined in the Indentures. Upon a "change in
control" as defined in the Indentures, Anchor would be required to make an
offer to repurchase all of the First Mortgage Notes and the Senior Notes at
101% of the outstanding principal amount. Anchor does not have the cash
available to make this repurchase offer. The failure to make the offer would
result in an event of default that would give the noteholders the right to
accelerate the debt resulting in a default under Anchor's credit facility
provided by Bank of America. Anchor intends to approach its noteholders
regarding a modification of the Indentures but does not know whether the notes
could be restructured in a consensual manner with the noteholders before the
occurrence of an event of default. These issues represent significant
uncertainties as to the future financial position of Anchor. See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources.
As a result of these uncertainties the Company's outside auditors have
rendered a qualified opinion on the Company's financial statements. The failure
by the Company to obtain an unqualified opinion on its financial statements is
an event of default under the Loan and Security Agreement (as defined). The
Company will seek a waiver from its lenders but there is no assurance that this
will be forthcoming. In the event no waiver is received and the lenders demand
repayment, an event of default is also created under the First Mortgage Note and
Senior Note Indentures, causing the possibility of an acceleration as described
above. Furthermore, such a demand by the lenders also creates an event of
default under various equipment leases.
During 2000, Anchor, as did many other manufacturers, experienced
substantially increased prices for its purchases of natural gas. All of the
Company's glass melting furnaces are equipped to burn natural gas, which is the
primary fuel used at its manufacturing facilities. Higher natural gas prices
have resulted from an increase in demand for natural gas, due to the strong
economic activity in the United States and Canada, along with an expected
higher demand for gas-fired electrical generation. Weather has been a primary
driver of natural gas futures prices. Average temperatures for the United
States during November and December 2000 were among the coldest on record.
Milder temperatures in January 2001 resulted in a significant decline in
natural gas prices from the record high futures prices experienced in December
2000.
Prices for each million BTUs of natural gas ranged from $2.35 in early
2000 to nearly $10.00 in December 2000. The Company estimates that costs, not
recovered through customer price increases, approximated $9.0 million for the
year ended December 31, 2000. These high prices in December contributed to the
Company's decision to reduce manufacturing production in December 2000,
resulting in approximately $5.0 million of unabsorbed overhead costs,
negatively impacting results of operations for the fourth quarter.
Anchor expects increased costs for the purchase of natural gas through
2001, as compared with the first half of 2000. The Company utilizes a natural
gas risk management program to hedge future requirements and to minimize
fluctuation in the price of natural gas; however, at year end, Anchor held no
open futures.
In conjunction with the Anchor Acquisition, the Company entered into a
credit agreement providing for a $110.0 million revolving credit facility (the
"Original Credit Facility"). In October 2000, the Company replaced the Original
Credit Facility with a credit facility under a Loan and Security Agreement
dated as of October 16, 2000, with Bank of America, National Association, as
agent (the "Loan and Security Agreement"), to provide a $100.0 million senior
secured revolving credit facility (the "Replacement Credit Facility"). The
Replacement Credit Facility enables the Company to obtain revolving credit
loans for working capital purposes and the issuance of letters of credit for
its account in an aggregate amount not to exceed $100.0 million. Advances
outstanding at any one time cannot exceed an amount equal to the borrowing base
as defined in the Loan and Security Agreement.
In March 2000, Anheuser-Busch, Inc. ("Anheuser-Busch") purchased the
Company's previously closed Houston, Texas glass container manufacturing
facility and certain related operating rights. Anchor received proceeds of
$10.0 million from the sale. Concurrently, Consumers, for an aggregate
consideration of $15.0 million, entered into a contract with Anheuser-Busch to
manage the renovation and provide the technical expertise in the re-opening of
the Houston facility, while simultaneously agreeing to give up all rights under
a proposed joint venture agreement with Anheuser-Busch to own and operate the
Houston facility. These transactions are the subject of litigation. See Item 3.
Legal Proceedings. In December 2000, the
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Company entered into a contract with Anheuser-Busch to provide management
assistance in the operation of the facility upon its refurbishment. The
contract becomes effective at the completion of the renovation, scheduled for
the second quarter of 2001.
PRODUCTS
The table below provides a summary by product group of net sales (in
millions of dollars) and approximate percentage of net sales by product group
for the Company for the three years ended December 31, 2000.
Years ended December 31,
Products 2000 1999 1998
-------------- ---------------- ------------------------ -----------------
Beer $291.4 46.3% $294.1 46.8% $279.3 43.4%
Liquor/Wine 96.8 15.4 79.5 12.7 111.0 17.3
Food 87.7 13.9 93.3 14.8 95.5 14.8
Tea 91.1 14.5 93.1 14.8 67.9 10.6
Beverage/Water 17.2 2.7 20.9 3.3 31.2 4.9
Other 45.3 7.2 47.8 7.6 58.4 9.0
------ ----- ------ ----- ------ -----
Total $629.5 100.0% $628.7 100.0% $643.3 100.0%
====== ===== ====== ===== ====== =====
There can be no assurance that the information provided in the
preceding table is indicative of the glass container product mix of the Company
for 2001 or in subsequent years. Management's strategy is to focus on shifting
its product mix towards those products management believes likely to both
improve operating results and increase unit volume.
CUSTOMERS
The Company produces glass containers mainly for a broad base of
customers in the food and beverage industries in the United States. The
Company's ten largest continuing customers include well-known companies or
brands such as:
- Anheuser-Busch,
- Snapple Beverage Group,
- SOBE (Healthy Refreshment),
- Latrobe Brewing Company (Rolling Rock),
- Saxco International, Inc.,
- Alltrista Corporation,
- Jim Beam Brands,
- Kraft Foods (Nabisco),
- Heaven Hill Distilleries, Inc. and
- United Distillers & Vintners North America
The majority of the Company's glass container designs are produced to
customer specifications and sold on a contract basis.
The Company's largest customer, Anheuser-Busch, accounted for
approximately 32.7%, 29.0% and 17.1%, respectively, of its net sales for the
years ended December 31, 2000, 1999 and 1998. The Company's ten largest
continuing customers, named above, accounted for approximately 63% of net sales
for the year ended December 31, 2000. The loss of a significant customer, if
not replaced, could have a material adverse effect of the Company's business,
results of operations and financial condition.
The Company has rebuilt relationships with some of Old Anchor's larger
volume customers including Anheuser-Busch. In 1999, Anchor entered into an
agreement with Anheuser-Busch to provide all the bottles for Anheuser-Busch's
Jacksonville, Florida and Cartersville, Georgia breweries beginning in 2001
(the "Southeast Contract").
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In March 2000, Anheuser-Busch purchased the Company's previously
closed Houston, Texas glass container manufacturing facility and certain
related operating rights and Consumers entered into a $15.0 million contract
with Anheuser-Busch to manage the renovation and provide the technical
expertise in the re-opening of the Houston facility. These transactions are the
subject of litigation. See Item 3. Legal Proceedings. In December 2000, the
Company entered into a contract with Anheuser-Busch to provide management
assistance in the operation of the facility upon its refurbishment. In February
1998, Anchor entered into a long-term contract with Anheuser-Busch to serve its
west coast needs and subcontracted this additional production to its Mexican
affiliate, Fevisa, for a commission. With the exception of the Fevisa
production and the Southeast Contract, Anheuser-Busch renegotiates with the
Company each year for the next year's purchase orders. Accordingly, past
purchase orders placed by Anheuser-Busch are not necessarily indicative of
future purchase orders.
MARKETING AND DISTRIBUTION
The Company's products are primarily marketed by an internal sales and
marketing organization that consists of 14 direct sales people and 22 customer
service managers located in four sales service centers.
John J. Ghaznavi is Chairman and Chief Executive Officer of Anchor and
GGC, L.L.C. ("GGC," which acquired the glass manufacturing net operating assets
of Glenshaw Glass Company, Inc. "Glenshaw") and Chairman of Consumers. Until
recently, Mr. Ghaznavi was also the Chief Executive Officer of Consumers. As a
result of the Company's affiliation with Consumers, Consumers sales personnel
also market the capabilities of Anchor with respect to certain production.
In addition, certain production has been and will continue to be
reallocated among the manufacturing facilities of the Company, Consumers and
GGC, in order to maximize machine capability and geographic proximity to
customers. In each case, prior to 2001, the entity shifting its existing
production or responsible for the new business received a commission of up to
5% from the entity to which the existing production or new business was
shifted. This commission program ceased in 2001 and was replaced with a cost
sharing arrangement. See Item 13. Certain Relationships and Related
Transactions.
The Company's manufacturing facilities are generally located in
geographic proximity to its customers due to the significant cost of
transportation and the importance of prompt delivery to customers. Most of the
Company's production is shipped by common carrier to customers generally within
a 300-mile radius of the plant in which it is produced.
SEASONALITY
Due principally to the seasonal nature of the brewing, iced tea and
other beverage industries, in which demand is stronger during the summer
months, the Company's shipment volume is typically higher in the second and
third quarters. Consequently, the Company will build inventory during the first
quarter in anticipation of seasonal demands during the second and third
quarters. In addition, the Company has historically scheduled shutdowns of its
plants for furnace rebuilds and machine repairs in the first and fourth
quarters of the year to coincide with scheduled holiday and vacation time under
its labor union contracts. These shutdowns normally adversely affect
profitability during the first and fourth quarters, however the Company has in
the past and will continue in the future to implement alternatives to reduce
downtime during these periods in order to minimize disruption to the production
process and its negative effect on profitability.
SUPPLIERS AND RAW MATERIALS
Sand, soda ash, limestone, cullet and corrugated packaging materials
are the principal raw materials used by the Company. All of these materials are
available from a number of suppliers and the Company is not dependent upon any
single supplier for any of these materials. Management believes that adequate
quantities of these materials are and will be available from various suppliers.
Material increases in the cost of any of these items could have a significant
impact on the Company's operating results.
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All of the Company's glass melting furnaces are equipped to burn
natural gas, which is the primary fuel used at its manufacturing facilities.
During 2000, Anchor, as did many other manufacturers, experienced substantially
increased prices for its purchases of natural gas. Prices for each million BTUs
of natural gas ranged from $2.35 in early 2000 to nearly $10.00 in December
2000. The Company estimates that costs, not recovered through customer price
increases, approximated $9.0 million for the year ended December 31, 2000.
Backup systems are in place at some facilities to permit the use of fuel oil or
propane, where cost effective and permitted by applicable laws. Electricity is
used in certain instances for enhanced melting.
Anchor expects increased costs for the purchase of natural gas
throughout 2001, as compared with the first half of 2000. The Company utilizes
a natural gas risk management program to hedge future requirements and to
minimize fluctuation in the price of natural gas; however, at year end, Anchor
held no open futures. The Company expects to be continually involved in
programs to conserve and reduce its consumption of fuel.
COMPETITION
The glass container industry is a mature, low-growth industry. This
low growth and excess capacity in the industry have made pricing an important
competitive factor. In addition to price, Anchor and the other glass container
manufacturers compete on the basis of quality, reliability of delivery and
general customer service. The Company's principal competitors are
Owens-Brockway Glass Container Inc. ("Owens") and Saint-Gobain Containers, Inc.
(formerly known as Ball-Foster Glass Container Co., L.L.C. ("Ball-Foster")).
These competitors are larger and have greater financial and other resources
than the Company. The glass container industry in the United States is highly
concentrated, with the three largest producers in 2000, which included Anchor,
estimated by management to have accounted for 95% of 2000 domestic volume.
Owens has a relatively large research and development staff and has in place
numerous technology licensing agreements with other glass producers, including
the Company. See "--Intellectual Property." See Item 3. Legal Proceedings.
The Company's business consists exclusively of the manufacture and
sale of glass containers. Certain other glass container manufacturers engage in
more diversified business activities than the Company (including the
manufacture and sale of plastic and metal containers). In addition, plastics
and other forms of alternative packaging have made substantial inroads into the
container markets in recent years and will continue to affect demand for glass
container products. Competitive pressures from alternative forms of packaging,
including plastics, as well as consolidation in the glass container industry,
have resulted in excess capacity and have led to severe pricing pressures on
glass container manufacturers. Although the Company believes that the market
shift from glass to alternative containers is substantially complete and that
glass containers will maintain a leading position in the high-end food and
beverage segments due primarily to the premium image of glass containers, no
assurances can be given that the Company will not lose further market share to
alternative container manufacturers. Further, management believes that
consistent productivity improvements among glass and glass alternatives can be
expected to decrease capacity utilization rates for the industry that may
result in additional plant closures.
QUALITY CONTROL
The Company maintains a program of quality control with respect to
suppliers, line performance and packaging integrity for glass containers. The
Company's production lines are equipped with a variety of automatic and
electronic devices that inspect containers for dimensional conformity, flaws in
the glass and various other performance attributes. Additionally, products are
sample inspected and tested by Company employees on the production line for
dimensions and performance and are also inspected and audited after packaging.
Containers that do not meet quality standards are crushed and recycled as
cullet.
The Company monitors and updates its inspection programs to keep pace
with modern technologies and customer demands. Samples of glass and raw
materials from its plants are routinely
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chemically and electronically analyzed to monitor compliance with quality
standards. Laboratories are also maintained at each manufacturing facility to
test various physical characteristics of products.
INTELLECTUAL PROPERTY
The Company operates under a Technical Assistance and License
Agreement (the "Technical Assistance Agreement") with Owens entitling Anchor to
use certain existing patents, trade secrets and other technical information of
Owens relating to glass manufacturing technology. This agreement was the
subject of litigation between the Company and Owens which settled on November
6, 2000. As a result of the settlement, Anchor and its affiliates will have the
right to use technology in place through 2005 and thereafter will have a
perpetual paid-up license. See Item 3. Legal Proceedings.
The Company also has in place a glass technology agreement with
Heye-Glas International for a term of ten years, expiring December 31, 2008. It
is the technology under this agreement that has been and will be utilized in
all of the Company's modernization and expansion plans.
While the Company holds various patents, trademarks and copyrights of
its own, it believes its business is not dependent upon any one of such
patents, trademarks or copyrights.
EMPLOYEES
As of February 28, 2001, the Company employed approximately 2,900
persons on a full-time basis. Approximately 560 of these employees are salaried
office, supervisory and sales personnel. The remaining employees are
represented principally by two unions, Glass Molders, Pottery, Plastics and
Allied Workers (the "GMP"), which represents approximately 90% of the Company's
hourly employees, and the American Flint Glass Workers Union (the "AFGWU"),
which represents approximately 10% of the Company's hourly employees. The
Company's two labor contracts with the GMP and its two labor contracts with the
AFGWU have three year terms expiring on March 31, 2002 and August 31, 2002,
respectively.
ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS
Environmental Regulation and Compliance. The Company's operations are
subject to increasingly complex and detailed Federal, state and local laws and
regulations including, but not limited to, the Federal Water Pollution Control
Act of 1972, as amended, the U.S. Clean Air Act, as amended, and the Federal
Resource Conservation and Recovery Act, as amended, that are designed to
protect the environment. Among the activities subject to regulation are the
disposal of checker slag (furnace residue usually removed during furnace
rebuilds), the disposal of furnace bricks containing chromium, the disposal of
waste, the discharge of water used to clean machines and cooling water, dust
produced by the batch mixing process, underground storage tanks and air
emissions produced by furnaces. In addition, the Company is required to obtain
and maintain permits in connection with its operations. Many environmental laws
and regulations provide for substantial fines and criminal sanctions for
violations. The Company believes it is in material compliance with applicable
environmental laws and regulations. It is difficult to predict the future
development of such laws and regulations or their impact on future earnings and
operations, but the Company anticipates that these standards will continue to
require increased capital expenditures. There can be no assurance that material
costs or liabilities will not be incurred.
Certain environmental laws, such as CERCLA or Superfund and analogous
state laws, provide for strict, joint and several liability for investigation
and remediation of releases of hazardous substances into the environment. Such
laws may apply to properties presently or formerly owned or operated by an
entity or its predecessors, as well as to conditions at properties at which
wastes attributable to an entity or its predecessors were disposed. There can
be no assurance that the Company or entities for which it may be responsible
will not incur such liability in a manner that could have a material adverse
effect on the financial condition or results of operations of the Company. See
Item 3. Legal Proceedings.
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Capital expenditures required for environmental compliance were
approximately $0.5 million for 2000 and are anticipated to be approximately
$0.5 million annually in 2001 and 2002. However, there can be no assurance that
future changes in such laws, regulations or interpretations thereof or the
nature of the Company's operations will not require the Company to make
significant additional capital expenditures to ensure compliance in the future.
Employee Health and Safety Regulations. The Company's operations are
subject to a variety of worker safety laws. OSHA and analogous laws mandate
general requirements for safe workplaces for all employees. The Company
believes that it is operating in material compliance with applicable employee
health and safety laws.
Deposit and Recycling Legislation. Over the years, legislation has
been introduced at the Federal, state and local levels requiring a deposit or
tax, or imposing other restrictions, on the sale or use of certain containers,
particularly beer and carbonated soft drink containers. Several states have
enacted some form of deposit legislation. The enactment of additional laws or
comparable administrative actions that would require a deposit on beer or soft
drink containers, or otherwise restrict their use, could have a material
adverse effect on the Company's business. In jurisdictions where deposit
legislation has been enacted, the consumption of beverages in glass bottles has
generally declined due largely to the preference of retailers for handling
returned cans and plastic bottles. Container deposit legislation continues to
be considered from time to time at various governmental levels.
In lieu of this type of deposit legislation, several states have
enacted various anti-littering recycling laws that do not involve the return of
containers to retailers. The use of recycled glass, and recycling in general,
are not expected to have a material adverse effect on the Company's operations.
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ITEM 2. PROPERTIES.
The Company's administrative and executive offices are located in
Tampa, Florida. The Company owns and operates nine glass container
manufacturing plants. The Company also leases a building located in Streator,
Illinois, that is used as a machine shop to rebuild glass-forming related
machinery and a mold shop located in Zanesville, Ohio, as well as additional
warehouses for finished products in various cities throughout the United
States. Substantially all of the Company's owned and leased properties are
pledged as collateral securing the Company's obligations under the First
Mortgage Note and the related indenture.
In 1997, as part of its long-term business strategy, the Company
closed its Houston and Dayville plants and removed from service at other
locations, two furnaces and five machines. In December 1998, one furnace and
one machine were removed from service at the Jacksonville plant. In addition,
management will continue to monitor business conditions and utilization of
plant capacity to determine the appropriateness of further plant closings.
In March 2000, Anheuser-Busch purchased the Houston facility and
certain related operating rights. This transaction is the subject of
litigation. See Item 3. Legal Proceedings. In December 2000, the Company
entered into a contract with Anheuser-Busch to provide management assistance in
the operation of the facility upon its refurbishment. The contract becomes
effective at the completion of the renovation, scheduled for the second quarter
of 2001.
The following table sets forth certain information about the
facilities owned and being operated by the Company as of February 28, 2001. In
addition to these locations, facilities at Keyser, West Virginia, Gas City,
Indiana, Cliffwood, New Jersey, Royersford, Pennsylvania, Chattanooga,
Tennessee and Dayville, Connecticut are closed plants that are part of the
collateral securing the First Mortgage Notes and the Company's obligations
under the related indenture.
NUMBER OF NUMBER OF BUILDING AREA
LOCATION FURNACES MACHINES (SQUARE FEET)
-------- --------- --------- -------------
Operating Plants:
Jacksonville, Florida(1) 2 4 624,000
Warner Robins, Georgia 2 8 864,000
Lawrenceburg, Indiana 1 4 504,000
Winchester, Indiana 2 6 627,000
Shakopee, Minnesota 2 6 360,000
Salem, New Jersey(2) 3 6 733,000
Elmira, New York 2 6 912,000
Henryetta, Oklahoma 2 6 664,000
Connellsville, Pennsylvania(3) 2 4 624,000
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1) The Company removed one furnace and one machine from production at
this facility in each of December 1998 and in February 1997.
2) A portion of the site on which this facility is located is leased
pursuant to several long-term leases.
3) The Company removed one furnace and four machines from production at
this facility in February 1997.
Headquarters Lease. The Company entered into a lease in January 1998
pursuant to which it leases a portion of the headquarters facility for an
initial term of ten years.
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ITEM 3. LEGAL PROCEEDINGS.
On October 13, 2000, certain stockholders of the Company, specifically
CoMac Partners, L.P., CoMac Endowment Fund, L.P., CoMac Opportunities Fund,
L.P., CoMac International, N.V., Carl Marks Strategic Investments, LP, Carl
Marks Strategic Investments II, LP, Varde Partners, L.P., Varde Fund (Cayman)
Ltd., Pequod Investments, L.P., Pequod International Ltd., Cerberus Partner
L.P. and Cerberus International Ltd. (collectively, the "Plaintiffs"),
commenced a shareholder derivative action against certain of the Company's
directors, officers and certain related entities in The Court of Chancery of
the State of Delaware in and for New Castle County. The action seeks recovery
to the Company, which is named as a party to the action in the capacity of a
nominal defendant, for damages Plaintiffs allege the Company suffered through
breach of fiduciary duties (including extension of the G&G promissory note
without proper authority and approval of an allocation of write off of certain
software costs from Consumers to Anchor), unjust enrichment and usurpation of
corporate opportunity of the Company (including the receipt of $15.0 million by
Consumers in connection with an agreement to manage the renovation of the
Houston facility). The Company is named as a party to the case for procedural
purposes but no recovery is sought from the Company. The Company has been
advised by the other defendants that they will vigorously defend the action and
that they believe they have meritorious defenses.
On February 16, 2000, Owens commenced an action against the Company
and certain of its affiliates, including Consumers and GGC, in the United
States District Court for the Southern District of New York. Owens alleged
violations of the Technical Assistance and License Agreement ("TALA") and its
resulting termination. Owens sought various forms of relief including (1) a
permanent injunction restraining the Company and its affiliates from infringing
Owens' patents and using or disclosing Owens' trade secrets and (2) damages for
breaches of the TALA.
On November 6, 2000, the Company and its affiliates, including
Consumers, reached a settlement concerning all aspects of the Owens dispute. As
part of the settlement, Owens will grant the Company and its affiliates a
limited license through 2005. The limited license will cover technology in
place during the term of the TALA, at the same royalty rate as in the TALA.
Upon expiration of the limited license, the Company and its affiliates,
including Consumers, will receive a paid-up license for that technology.
Documentation for the settlement (including mutual releases) and the limited
license agreement is being negotiated. Under the settlement, the Company,
Consumers and GGC will pay an aggregate of $5.0 million to Owens. The Company
estimated its allocation of this settlement to be $2.9 million, based on sales
and machine installations. Consumers, GGC and another affiliate will receive a
refund of $1.2 million, in the aggregate, of royalties paid previously under
protest. Consummation of the settlement will terminate all litigation over the
matter, including the federal court suit and an overseas lawsuit, as well as
arbitration proceedings.
In addition, the Company is, and from time to time may be, a party to
routine legal proceedings incidental to the operation of its business. The
outcome of these proceedings is not expected to have a material adverse effect
on the financial condition or operating results of the Company, based on the
Company's current understanding of the relevant facts and law.
The Company is engaged in investigation and remediation projects at
plants currently being operated and at closed facilities. In addition, Old
Anchor was named as a potentially responsible party (a "PRP") under CERCLA with
respect to a number of other sites. The Company has assumed responsibility with
respect to four such sites. While the Company may be jointly and severally
liable for costs related to these sites, it is only one of a number of PRP's
who are also jointly and severally liable. With respect to those four sites for
which the Company has assumed responsibility, the Company estimates that its
share of the aggregate cleanup costs of such sites should not exceed $3.0
million, and that the likely range after taking into consideration the
contributions anticipated from other PRP's could be significantly less.
However, no assurance can be given that the cleanup costs of such sites will
not exceed $3.0 million or that the Company will have these funds available.
The Company has established reserves for environmental costs which it believes
are adequate to address the anticipated costs of remediation of these operating
and closed facilities and its liability as a PRP under CERCLA. The timing and
magnitude of such costs cannot always be determined with certainty due to,
among other things, incomplete information with respect to
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environmental conditions at certain sites, new and amended environmental laws
and regulations, and uncertainties regarding the timing of remedial
expenditures.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were brought to a vote of security holders in 2000.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's equity securities consist of one class of common stock
and Series A and Series B Preferred Stock (collectively, the "Securities").
Prior to February 5, 2000, the common stock consisted of three classes: Classes
A, B and C. Thereafter, the distinction among the classes automatically
terminated and all holders of Common Stock have identical voting and other
rights.
There is no established public trading market for any of the
Securities and trading is very limited. The Series A Preferred Stock and the
Common Stock (collectively, the "Quoted Securities") are traded on the NASD's
OTC Electronic Bulletin Board, an automated quotation system under the symbols
AGCCP and AGCC, respectively. There can be no assurance of the liquidity of any
markets that may develop for the Quoted Securities, of the ability of the
holders of the Quoted Securities to sell such Securities, or of the price at
which holders of the Quoted Securities would be able to sell such securities.
The high and low prices quoted on the OTC Electronic Bulletin Board for the two
years ended December 31, 2000 follow:
1999 2000
----------------------- --------------------
High Low High Low
----------- ---------- --------- ---------
Series A Preferred Stock
1st Quarter $22.00 $18.00 $10.00 $7.00
2nd Quarter 18.00 12.50 7.00 3.00
3rd Quarter 14.50 13.00 3.00 2.00
4th Quarter 14.50 10.00 2.00 1.01
Common Stock
1st Quarter $0.25 $0.25 $0.20 $0.20
2nd Quarter 0.25 0.25 0.20 0.20
3rd Quarter 0.20 0.20 0.20 0.20
4th Quarter 0.75 0.20 0.20 0.06
Over-the-counter market quotations reflect interdealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent
actual transactions. The Series B Preferred Stock is not listed or quoted on
any securities exchange or automated system and the Company has no plans for
listing that security.
As of February 28, 2001, there were 2,035 registered holders of
2,239,320 shares of Series A Preferred Stock, which are convertible into
9,330,500 shares of common stock; one registered holder (Consumers U.S.) of
4,229,234 shares (including issuable shares) of Series B Preferred Stock, which
are convertible into 19,223,791 shares of common stock and 1,599 registered
holders of the Common Stock. See Item 12. Principal Stockholders. As of
February 28, 2001, 3,090,869 shares of Common Stock are issuable upon the
exercise of currently exercisable warrants, which require no payment to
convert. These warrants are held by two institutional investors and certain
creditors of Old Anchor.
The Company has never paid dividends on its Common Stock and currently
has no plans to do so in the future. The holders of the Series A Preferred
Stock are entitled to receive, when and as declared by the Board of Directors
of the Company out of legally available funds, cumulative dividends, payable
quarterly in cash, at an annual rate of 10% of the liquidation value thereof.
The holders of the Series B Preferred Stock were entitled to receive cumulative
dividends payable quarterly in kind at an annual rate of 8% of the liquidation
value thereof through December 31, 1999. After that date, dividends are payable
quarterly in cash at an annual rate of 8% of the liquidation value thereof. For
a discussion regarding limitations on the Company's ability to pay dividends,
see Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
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ITEM 6. SELECTED FINANCIAL DATA.
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth certain historical financial
information of the Company. The selected financial data for the three years
ended December 31, 2000 have been derived from the Company's audited financial
statements included elsewhere in the Form 10-K and the period from February 5,
1997 to December 31, 1997 have been derived from the Company's audited
financial statements. The following information should be read in conjunction
with the Company's financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
YEARS ENDED DECEMBER 31, PERIOD FROM
------------------------------------------------- FEBRUARY 5, 1997 TO
2000 1999 1998 DECEMBER 31, 1997(1)
--------- --------- --------- --------------------
(dollars in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Net sales $ 629,548 $ 628,728 $ 643,318 $ 569,441
Cost of products sold 600,161 582,975 594,256 523,709
Litigation settlement (2) 2,900 -- -- --
Allocable portion of software write-off (3) -- 9,600 -- --
Restructuring charges -- -- 4,400 --
Selling and administrative expenses 33,222 28,465 30,246 25,120
--------- --------- --------- ---------
Income (loss) from operations (6,735) 7,688 14,416 20,612
Other income (expense), net 5,504 2,080 2,384 (2,602)
Interest expense (29,750) (27,279) (26,570) (18,281)
--------- --------- --------- ---------
Loss before extraordinary items (30,981) (17,511) (9,770) (271)
Extraordinary items (4) (1,285) -- -- (11,200)
--------- --------- --------- ---------
Net loss $ (32,266) $ (17,511) $ (9,770) $ (11,471)
========= ========= ========= =========
Preferred stock dividends $ (14,057) $ (13,650) $ (13,037) $ (11,302)
========= ========= ========= =========
Loss before extraordinary item applicable to
common stock $ (45,038) $ (31,161) $ (22,807) $ (11,573)
========= ========= ========= =========
Loss applicable to common stock $ (46,323) $ (31,161) $ (22,807) $ (22,773)
========= ========= ========= =========
Basic net loss per share applicable to
common stock before extraordinary item $ (8.58) $ (5.93) $ (5.12) $ (3.62)
========= ========= ========= =========
Basic net loss per share applicable to
common stock $ (8.82) $ (5.93) $ (5.12) $ (7.11)
========= ========= ========= =========
BALANCE SHEET DATA (at end of period):
Accounts receivable $ 55,818 $ 53,556 $ 86,846 $ 56,940
Inventories 125,521 106,977 104,329 120,123
Total assets 620,807 613,037 640,962 614,730
Total debt 269,279 253,132 253,922 163,793
Total stockholders' equity (deficit) (4,626) 46,187 67,938 73,074
OTHER FINANCIAL DATA:
Depreciation and amortization $ 57,259 $ 54,054 $ 53,881 $ 51,132
Capital expenditures 39,805 53,963 42,288 41,634
- ---------
1) The Anchor Acquisition was consummated on February 5, 1997.
2) Represents Anchor's share of a litigation settlement. See Item 3.
Legal Proceedings.
3) Represents Anchor's allocable portion of the write-off of costs
relating to a software system (SAP) that has been replaced by a
corporate-wide system (JDEdwards).
4) Extraordinary items in the period from February 5, 1997 to December
31, 1997 and in the year ended December 31, 2000, resulted from the
write-off of financing costs related to debt extinguished.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
2000 COMPARED TO 1999
There are several factors affecting the results of operations for the
year ended December 31, 2000, which occurred in the fourth quarter. The cost of
natural gas rose significantly in 2000, negatively impacting fourth quarter
operations by approximately $5.5 million. Due to the high natural gas costs
being incurred in December 2000, the Company extended the length of its
year-end shutdown period to curtail the use of natural gas, resulting in
additional unabsorbed expenses of approximately $5.4 million. In addition, the
Company recorded a provision of $3.2 million for the net realizable value of
inventories related to the cost of natural gas. A decrease in sales volume
impacted earnings by approximately $2.0 million. Additional employee salary and
benefit costs added approximately $3.0 million to the loss. The Company
recorded a write down for a non-temporary decline in market value of 1,842,000
shares of Consumers common stock, of approximately $1.2 million to reflect the
investment at fair value, held pending government approval for contribution
into the Company's defined benefit plan. As a result of the refinancing of the
Company's revolving credit facility, deferred financing fees of $1.3 million
were written off in the fourth quarter of 2000.
Net Sales. Net sales for the year ended 2000 were $629.5 million
compared to $628.7 million for the year ended 1999. An increase of 0.2%, on
marginally higher unit shipments reflect a slight change in mix towards lower
priced product lines.
Cost of Products Sold. The Company's cost of products sold for the
year ended December 31, 2000 was $600.1 million (or 95.3% of net sales), while
the cost of products sold for the comparable period of 1999 was $583.0 million
(or 92.7% of net sales). The Company experienced significant increases in the
cost of natural gas as well as increases in the cost of corrugated packaging
material as compared to the same periods of the preceding year. Prices for each
million BTUs of natural gas ranged from $2.35 in early 2000 to nearly $10.00 in
December 2000. These high prices in December contributed to the Company's
decision to reduce manufacturing production in December 2000, resulting in
approximately $5.4 million of unabsorbed overhead costs, negatively impacting
results of operations for the fourth quarter. The escalating prices for natural
gas, the principal fuel for manufacturing glass, increased costs by
approximately $15.0 million compared to the prior year. In the second half of
2000, the Company initiated a price recovery program for the escalating natural
gas costs incurred. Approximately $6.0 million was recovered through this
program in 2000, which is included in net sales. Through the first nine months
of 2000, the cost of products sold percentage remained relatively level with
the percentages for 1999. This reflected the benefits of the cost savings
strategies that the Company began to implement in prior years, offset by
increases in other manufacturing costs.
Litigation Settlement. On November 6, 2000, the Company and its
affiliates, including Consumers, reached a settlement concerning all aspects of
the Owens dispute. As part of the settlement, Owens will grant the Company and
its affiliates a limited license through 2005. The limited license will cover
technology in place during the term of the TALA, at the same royalty rate as in
the TALA. Upon expiration of the limited license, the Company and its
affiliates, including Consumers, will receive a paid-up license for that
technology. Under the settlement, the Company, Consumers and GGC will pay an
aggregate of $5.0 million to Owens. The Company estimated its allocation of
this settlement expense to be $2.9 million, based on sales and machine
installations. Consumers, GGC and another affiliate will receive a refund of
$1.2 million, in the aggregate, of royalties paid previously under protest.
Consummation of the settlement will terminate all litigation over the matter,
including the federal court suit and an overseas lawsuit, as well as
arbitration proceedings.
Selling and Administrative Expenses. Selling and administrative
expenses for the year ended December 31, 2000 were $33.2 million (or 5.3% of
net sales) while expenses for the year ended 1999 were approximately $28.4
million (or 4.5% of net sales). This increase in selling and administrative
expenses, in
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total dollars and as a percentage of net sales, reflects increased legal and
professional fees as a result of the legal proceedings discussed in Part I -
Item 3 and higher overall employee related costs.
Other Income, net. Other income, net increased to $5.5 million in the
current year from $2.1 million in 1999. Other income for 2000 includes the gain
on sale of approximately $6.1 million, of the Company's previously closed
Houston, Texas glass container manufacturing facility and certain related
operating rights to Anheuser-Busch, offset by the write down on 1,842,000
shares of Consumers common stock that were held pending government approval for
contribution into the Company's defined benefit pension plan. Currently, the
Company does not anticipate contributing these shares in the near term and
recorded a write down, as of December 31, 2000, of approximately $1.2 million
to reflect the investment at fair value. Other income for the year ended 1999
primarily included the gain on sale of assets.
Interest Expense. Interest expense for 2000 was approximately $29.8
million compared to $27.3 million in 1999, an increase of 9.1%. Interest
expense has increased due to higher interest rates and interest associated with
a new capital lease entered into in December 1999, offset by slightly lower
average outstanding borrowings under the Replacement Credit Facility during
2000, as compared to 1999. Interest expense includes net interest income of
$1.1 million associated with related party receivables and payables.
Extraordinary Loss. In October 2000, Anchor recorded an extraordinary
loss of approximately $1.3 million for the write off of unamortized deferred
financing fees related to the refinancing of its revolving credit facility. See
Liquidity and Capital Resources.
Net Loss. The Company had a net loss in the year ended 2000 of
approximately $32.3 million compared to a net loss in 1999 of approximately
$17.6 million.
1999 COMPARED TO 1998
Net Sales. Net sales for the year ended 1999 were $628.7 million
compared to $643.3 million for the year ended 1998. This year to year decline
in net sales of $14.6 million, or 2.3%, on slightly higher unit shipments
reflects a shift from higher priced product lines such as liquor to higher
volume, lower priced products, including beer and teas and the impact of the
sale of the consumers products line to a customer. While the Company continues
to supply all the glass containers relating to this consumers products line, it
no longer includes lids and cartons in either net sales or cost of products
sold. This resulted in a decline in net sales of approximately $10.0 million in
1999, with a corresponding decrease in costs.
Cost of Products Sold. The Company's cost of products sold for the
year ended December 31, 1999 was $583.0 million (or 92.7% of net sales), while
the cost of products sold for the comparable period of 1998 was $594.3 million
(or 92.4% of net sales). The increase in the percentage of cost of products
sold as a percentage of net sales principally reflects increases in labor and
benefit costs, as compared to the same period of 1998, as a result of scheduled
increases under a labor contract with hourly employees that became effective in
April 1999, as well as increases in the cost of cartons and natural gas. This
increase is partially offset by the benefits of productivity improvements that
have resulted from the cost saving strategies that the Company began to
implement during 1998.
Allocable Portion of Software Write-off. This write-off represents
Anchor's allocable portion of the write-off of costs relating to a software
system (SAP) that has been replaced by a corporate-wide system (JDEdwards).
Consumers implemented the SAP based software system with the intention that all
affiliated companies would adopt that system and share ratably in the initial
design, reengineering and implementation originated by Consumers. The SAP based
system has proven to be a complicated system requiring extensive and expensive
maintenance. Management of the affiliated companies continues to desire to have
one operating system and has transitioned to a JDEdwards based system. As
authorized by the Intercompany Agreement, Consumers has allocated $9.6 million
to Anchor representing Anchor's pro rata share of the original implementation
costs based upon number of plants, number of workstations and sales. The
foregoing allocation is the subject of litigation. See Item 3. Legal
Proceedings.
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Selling and Administrative Expenses. Selling and administrative
expenses for the year ended December 31, 1999 were $28.4 million (or 4.5% of
net sales) while expenses for the year ended 1998 were approximately $30.2
million (or 4.7% of net sales). This decrease in selling and administrative
expenses principally reflects increased allocations of overhead expenses to
affiliated companies resulting from the integration of corporate functions,
lower employee benefit costs and lower management fees payable to G&G. This
decrease is partially offset by costs associated with Year 2000 upgrades
incurred in the first half of 1999.
Interest Expense. Interest expense for 1999 was approximately $28.9
million compared to $27.1 million in 1998, an increase of 6.5%. On March 16,
1998, the Company completed an offering of its Senior Notes issued under an
Indenture dated as of March 16, 1998, among the Company, Consumers U.S. and The
Bank of New York, as Trustee. Annual interest expense on the Senior Notes
approximates $4.9 million. Additionally, interest expense has increased based
upon higher average outstanding borrowings under the Original Credit Facility
during 1999, as compared to 1998.
Net Loss. The Company had a net loss in the year ended December 31,
1999 of approximately $17.6 million, including the write-off of allocable
software costs of $9.6 million, compared to a net loss in 1998, of
approximately $9.8 million, including the restructuring charge of $4.4 million.
LIQUIDITY AND CAPITAL RESOURCES
In 2000, operating activities provided $10.0 million in cash as
compared to $53.1 million in the same period of 1999. This decrease in cash
provided reflects the decline in earnings and changes in working capital items.
Accounts receivable at December 31, 2000 increased approximately $1.7 million
as compared with the December 1999 year end. Inventory levels increased
approximately $22.7 million in 2000. Cash outlays for natural gas purchases in
2000 increased approximately $15.0 million over 1999 levels. In the second half
of 2000, the Company initiated a price recovery program for the escalating
natural gas costs incurred. Approximately $6.0 million was recovered through
this program in 2000.
Cash consumed in investing activities for the years ended December 31,
2000 and 1999 were $23.7 million and $51.1 million, respectively. Capital
expenditures in 2000 were $39.8 million compared to $44.7 million in 1999. In
2000, the Company applied cash that had been deposited into escrow, as provided
for under the terms of the indentures, to fund capital expenditures. These
escrowed funds resulted from the proceeds of asset sales in the fourth quarter
of 1999 and the first and fourth quarters of 2000.
In conjunction with the Anchor Acquisition, the Company entered into a
credit agreement providing for a $110.0 million revolving credit facility. In
October 2000, the Company replaced the Original Credit Facility with a credit
facility under a Loan and Security Agreement dated as of October 16, 2000, with
Bank of America, National Association, as agent, to provide a $100.0 million
senior secured revolving credit facility. The Replacement Credit Facility
enables the Company to obtain revolving credit loans for working capital
purposes and the issuance of letters of credit for its account in an aggregate
amount not to exceed $100.0 million. Advances outstanding at any one time
cannot exceed an amount equal to the borrowing base as defined in the Loan and
Security Agreement.
At February 28, 2001, advances outstanding under the Replacement
Credit Facility were $74.2 million, borrowing availability was $8.8 million and
total outstanding letters of credit on this facility were $10.6 million. Net
cash of $12.9 million was provided in financing activities in 2000, principally
reflecting borrowings under the Replacement Credit Facility.
The Company's obligations under the Replacement Credit Facility are
secured by a first priority lien on all of the Company's inventories and
accounts receivable and related collateral and a second priority pledge of all
of the issued and issuable Series B Preferred Stock of the Company and 902,615
shares of the Company's Common Stock. In addition, the Company's obligations
under the Loan and Security Agreement are guaranteed by Consumers U.S., the
holder of the outstanding Series B Preferred Stock of the Company and 902,615
shares of the Company's Common Stock.
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The Loan and Security Agreement contains certain covenants that
restrict the Company's ability to take various actions, including, subject to
specified exceptions, the incurrence of additional indebtedness, the granting
of additional liens, the making of investments, the payment of dividends and
other restricted payments, mergers, acquisitions, sales of assets and other
fundamental corporate changes, capital expenditures, operating lease payments
and transactions with affiliates. The Loan and Security Agreement also contains
a financial covenant that requires the Company to maintain a fixed charge
coverage ratio.
On February 2, 2001, Consumers, the majority owner of Anchor,
announced a suspension of interest payments on its senior notes maturing in
2007 and its senior secured notes maturing in 2005, until it has reached
agreement on restructuring this part of Consumers' capital structure. Further,
on March 22, 2001, Consumers announced the appointment of Brent Ballantyne as
its Chief Restructuring Officer and Chief Executive Officer. Mr. Ballantyne
will report to a committee of the Consumers Board of Directors comprised of
independent directors. Mr. Ghaznavi stepped down as Chief Executive Officer of
Consumers but remains as Chairman of Consumers and Chairman and Chief Executive
Officer of Anchor. On March 31, 2001, Consumers announced the appointment of
Graeme Eadie as Chief Financial Officer. Mr. Buckwalter stepped down as Chief
Financial Officer of Consumers but will continue as Chief Financial Officer of
Anchor. Consumers has begun discussions with its noteholders regarding a
restructuring.
Management of Anchor is unable to determine what impact this
restructuring will have on Anchor, but it may be significant. If a
restructuring of Consumers results in Mr. Ghaznavi owning, directly or
indirectly, less than 40% of the voting stock of Consumers, this would trigger
a "change in control" as defined in the Indentures. In addition, G&G and one of
its affiliates have pledged common shares of Consumers that they own as
collateral for certain indebtedness guaranteed by G&G. If an event of default
were to occur on this indebtedness, the lenders would have the right to
foreclose on those common shares, which would also trigger a "change in
control" as defined in the Indentures. Upon a "change of control" as defined
in the Indentures, Anchor would be required to make an offer to repurchase all
of the First Mortgage Notes and the Senior Notes at 101% of the outstanding
principal amount. Anchor does not have the cash available to make this
repurchase offer. The failure to make the offer would result in an event of
default that would give the noteholders the right to accelerate the debt
resulting in a default under Anchor's Replacement Credit Facility. Anchor
intends to approach its noteholders regarding a modification of the Indentures
but does not know whether the notes could be restructured in a consensual
manner with the noteholders before the occurrence of an event of default. These
issues represent significant uncertainties as to the future financial position
of Anchor.
As a result of these uncertainties the Company's outside auditors have
rendered a qualified opinion on the Company's financial statements. The failure
by the Company to obtain an unqualified opinion on its financial statements is
an event of default under the Loan and Security Agreement. The Company will seek
a waiver from its lenders but there is no assurance that this will be
forthcoming. In the event no waiver is received and the lenders demand
repayment, an event of default is also created under the First Mortgage Note and
Senior Note Indentures, causing the possibility of an acceleration as described
above. Furthermore, such a demand by the lenders also creates an event of
default under various equipment leases.
G&G, Consumers and their affiliates owe Anchor approximately $20.6
million, in addition to the advance to affiliate receivable of approximately
$17.3 million, while Anchor owes G&G, Consumers and their affiliates
approximately $11.7 million (of which approximately $9.3 million relates to the
allocation of the write off of certain software costs and is the subject of
litigation. See Item 3. Legal Proceedings.) Although Anchor does not expect the
restructuring to adversely affect operations at Anchor, there can be no
assurance that vendors and customers who do business with both Anchor and
Consumers will continue to do so. The impact on Anchor of the financial
restructuring by Consumers cannot be determined at this time and may negatively
impact the liquidity and capital resources of the Company.
The Company signed an agreement with Anheuser-Busch to provide all the
bottles for the Anheuser-Busch Jacksonville, Florida and Cartersville, Georgia
breweries, beginning in 2001. To meet the expanded demand from the supply
contract, the Company invested approximately $18.0 million in new equipment for
its Jacksonville plant to increase production efficiency. To date, the funding
for this project has been provided through the proceeds from the sale of the
Houston plant (see below), certain leasing transactions and internal cash
flows. In December 1999, the Company entered into an agreement with a
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major lessor for $30.0 million of lease transactions. Under this agreement, in
December 2000 and March 2001, the Company financed approximately $4.2 million
and $7.8 million, respectively, of the expansion through sale leaseback
arrangements and sold, in December 1999, and leased back under a capital lease,
equipment located at the Warner Robins facility, for a net selling price of
approximately $8.2 million. The Company is continuing discussions with certain
co-lessors identified as part of the $30.0 million transaction for the
remaining Jacksonville expansion funding.
In March 2000, Anheuser-Busch purchased the Company's previously
closed Houston, Texas glass container manufacturing facility and certain
related operating rights. Anchor received proceeds of $10.0 million from the
sale. Concurrently, Consumers, for an aggregate consideration of $15.0 million,
entered into a contract with Anheuser-Busch to manage the renovation and
provide the technical expertise in the re-opening of the Houston facility,
while simultaneously agreeing to give up all rights under a proposed joint
venture agreement with Anheuser-Busch to own and operate the Houston facility.
These transactions are the subject of litigation. See Item 3. Legal
Proceedings. In December 2000, the Company entered into a contract with
Anheuser-Busch to provide management assistance in the operation of the
facility upon its refurbishment, scheduled for the second quarter of 2001.
Effective April 1, 1999, the Company finalized its labor contract with
approximately 90% of its hourly personnel. As a result, the Company experienced
an increase in hourly labor costs and pension expense in 1999 and 2000 and will
incur increased costs in subsequent years.
In September 1998, G&G entered into an agreement to purchase a
controlling interest in a European glass manufacturer and advanced approximately
$17.3 million toward that end. This amount was funded by G&G through a loan from
the Company of approximately $17.3 million in September 1998. The funds were
obtained through a borrowing under the Original Credit Facility. The loan was
evidenced by a promissory note that originally matured in January 1999. There is
a disagreement among the directors as to the propriety of the extension of the
original maturity date of the promissory note beyond January 1999. See Item 3.
Legal Proceedings. The transaction has not closed. Should the transaction not
close, the seller is obligated to return the advance to G&G. G&G has demanded
the return of the advance plus interest accrued to date and related costs
including the devaluation of the Deutschemark. Discussions have been held, but
as of this date outstanding issues have not been resolved. In March 2000, G&G
commenced an arbitration proceeding in accordance with the terms of the
agreement to secure a return of the advance. A hearing is scheduled for June
2001. In connection with the pledge of the note to Bank of America, National
Association, as agent under the Loan and Security Agreement, the original
promissory note was replaced by a new promissory note (the "Replacement Note").
G&G has provided security against the Replacement Note to Bank of America,
National Association, as agent under the Loan and Security Agreement. The
maturity date of the Replacement Note is October 31, 2003. Interest on the
Replacement Note is payable at the interest rate payable by the Company on
advances under the Loan and Security Agreement plus 0.5% and has been paid
through September 2000. Unpaid interest of $457,000 and $391,000 is due for the
quarters ended December 31, 2000 and March 31, 2001, respectively. Various
rights, including the right to enforce the obligations under the Replacement
Note were assigned to Bank of America, National Association. Any property
received by G&G in respect of the arbitration proceeding has been pledged to
Bank of America, National Association, and will be used to repay outstanding
borrowings under the Loan and Security Agreement. There is a disagreement among
the directors as to the propriety of the assignment of those rights, the pledge
of those proceeds and the replacement of the original promissory note with the
Replacement Note.
The Indentures contain certain covenants that restrict the Company
from taking various actions, including, subject to specified exceptions and
limits, the incurrence of additional indebtedness, the granting of additional
liens, the making of investments, the payment of dividends and other restricted
payments, mergers, acquisitions and other fundamental corporate changes,
capital expenditures, asset sales and transactions with affiliates.
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The level of the Company's indebtedness could have important
consequences, including:
- a substantial portion of the Company's cash flow from
operations must be dedicated to debt service,
- the Company's ability to obtain additional future debt
financing may be limited and
- the level of indebtedness could limit the Company's
flexibility in reacting to changes in the industry and
economic conditions in general.
The Company expects significant expenditures in 2001, including
interest expense on the First Mortgage Notes, the Senior Notes and advances
under the Replacement Credit Facility, capital expenditures of approximately
$40.0 million and payment of the $2.9 million litigation settlement as
discussed in Part I - Item 3. Legal Proceedings. In addition, the Company
anticipates purchases of natural gas at significantly higher prices during 2001
and estimates that its cash outlays for purchases of natural gas, based on
current natural gas prices, will increase by approximately $19.0 million over
2000 levels. Peak needs are in spring and fall at which time working capital
borrowings are estimated to be $20.0 million higher than at other times of the
year.
The Company's results of operations were significantly impacted by the
cost of natural gas in 2000. This is a variable cost over which the Company has
little control. Significant increases in natural gas or energy costs could
materially impact the Company's results of operations or liquidity plans in
2001.
The Company's principal sources of liquidity through 2001 are expected
to continue to be funds derived from operations, borrowings under the
Replacement Credit Facility, proceeds from the sale/leaseback transactions
noted above and proceeds from sales of discontinued manufacturing facilities.
The Company's plans to increase liquidity include continuation of its cost
reduction efforts, continuation of its natural gas cost recovery program, as
well as increased sales volumes from its supply agreements with major
customers. Unexpected cash needs resulting from an unusual increase in energy
or other costs could force the Company to take additional measures, such as
reduction in capital asset spending, price increases, production curtailments
and consideration of other cost reduction measures.
Management believes that the cash flows discussed above will provide
adequate funds for the Company's working capital needs and capital
expenditures through December 31, 2001. However, cash flows from operations
depend on future operating performance which is subject to prevailing
conditions and to financial, business and other factors, many of which are
beyond the Company's control. Should the Company suffer material adverse
conditions from the issues discussed above, additional measures may be
required, including sales of assets and consideration of other strategic
alternatives.
IMPACT OF INFLATION
The impact of inflation on the costs of the Company, and the ability
to pass on cost increases in the form of increased sales prices, is dependent
upon market conditions. While the general level of inflation in the domestic
economy has been relatively low, the Company has experienced significant cost
increases in specific materials and energy and has not been fully able to pass
on inflationary cost increases to its customers for several years, although it
did realize some price relief in 2000, primarily due to the abnormally high
energy costs experienced during the year.
SEASONALITY
Due principally to the seasonal nature of the brewing, iced tea and
other beverage industries, in which demand is stronger during the summer
months, the Company's shipment volume is typically higher in the second and
third quarters. Consequently, the Company will build inventory during the first
quarter in anticipation of seasonal demands during the second and third
quarters. In addition, the Company has historically scheduled shutdowns of its
plants for furnace rebuilds and machine repairs in the first and fourth
quarters of the year to coincide with scheduled holiday and vacation time under
its labor union
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contracts. These shutdowns normally adversely affect profitability during the
first and fourth quarters, however the Company has in the past and will
continue in the future to implement alternatives to reduce downtime during
these periods in order to minimize disruption to the production process and its
negative effect on profitability.
NEW ACCOUNTING STANDARDS
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 --Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS 137 and SFAS 138, ("SFAS
133"). SFAS 133, effective for fiscal years beginning after June 15, 2000,
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS 133 requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the income statement, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting. The Company has implemented SFAS 133 effective January 1, 2001 and
has determined that the impact of this pronouncement is currently not material.
However, accounting for SFAS 133 could increase volatility in earnings and
other comprehensive income in future periods.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
With the exception of the historical information contained in this
report, the matters described herein contain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, without limitation, any statement that may
predict, forecast, indicate or imply future results, performance or
achievements, and may contain the words "believe," "anticipate," "expect,"
"estimate," "intend," "project," "will be," "will likely continue," "will
likely result," or words or phrases of similar meaning including, statements
concerning:
- the Company's liquidity and capital resources,
- the Company's debt levels and ability to obtain financing and
service debt,
- competitive pressures and trends in the glass container
industry,
- prevailing interest rates,
- legal proceedings and regulatory matters, and
- general economic conditions.
Forward-looking statements involve risks and uncertainties (including,
but not limited to, economic, competitive, governmental and technological
factors outside the control of the Company) which may cause actual results to
differ materially from the forward-looking statements. These risks and
uncertainties may include the restructuring of Consumers; the ability of
management to implement its business strategy in view of the Company's limited
operating history; the highly competitive nature of the glass container
industry and the intense competition from makers of alternative forms of
packaging; the Company's focus on the beer industry and its dependence on
certain key customers; the fluctuation in the price of natural gas; the
seasonal nature of brewing, iced tea and other beverage industries; the
Company's dependence on certain executive officers; and changes in
environmental and other government regulations. The Company operates in a very
competitive environment in which new risk factors can emerge from time to time.
It is not possible for management to predict all such risk factors, nor can it
assess the impact of all such risk factors on the Company's business or the
extent to which any factor, or a combination of factors, may cause actual
results to differ materially from those contained in forward-looking
statements. Given
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these risks and uncertainties, readers are cautioned not to place undue
reliance on forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Replacement Credit Facility is subject to variable interest rates.
A change in interest rates could have an impact on results of operations. The
Company's long-term debt instruments are subject to fixed interest rates and,
in addition, the amount of principal to be repaid at maturity is also fixed.
Therefore, the Company is not subject to market risk from its long-term debt
instruments. Less than 1% of the Company's sales are denominated in currencies
other than the U.S. dollar, and the Company does not believe its total exposure
to be significant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page No.
--------
Index to Financial Statements of Anchor F-1
Report of Independent Certified Public Accountants F-2
Statements of Operations and Other Comprehensive Income
Three years ended December 31, 2000, 1999 and 1998 F-3
Balance Sheets
December 31, 2000 and 1999 F-4
Statements of Cash Flows
Three years ended December 31, 2000, 1999 and 1998 F-6
Statements of Stockholders' Equity (Deficit)
Three years ended December 31, 2000, 1999 and 1998 F-8
Notes to Financial Statements F-10
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Directors and Executive Officers. The following table sets forth
certain information regarding each of the Company's directors and executive
officers.
NAME AGE POSITION
John J. Ghaznavi 65 Chairman, Chief Executive Officer and Class Three Director
Richard M. Deneau 54 President and Chief Operating Officer and Class Three Director
Dale A. Buckwalter 43 Senior Vice President and Chief Financial Officer
Roger L. Erb 58 Senior Vice President-Operations and Class Two Director
David T. Gutowski 53 Senior Vice President-Administration and Class Two Director
C. Kent May 61 Senior Vice President, General Counsel, Secretary and Class One Director
Gordon S. Love 51 Senior Vice President-Sales and Marketing
Lawrence M. Murray 58 Senior Vice President-Finance
Ahmad Ghaznavi 30 Vice President, Hiram Walker Sales and Class Two Director
Joel A. Asen 50 Director (no class designation, appointed by holders of Series A
Preferred Stock)
Andrew M. Boas 45 Director (no class designation, appointed by holders of Series A
Preferred Stock)
Patrick T. Connelly 48 Class Two Director
Paul J. Coughlin III 36 Director (no class designation, appointed by holders of Series A
Preferred Stock)
Eugene I. Davis 46 Director (no class designation appointed by holders of Series A Preferred
Stock)
Paul H. Farrar 66 Class Three Director
Steven J. Friesen 55 Class Three Director
Jonathan K. Hergert 57 Class Three Director
M. William Lightner, Jr. 66 Class Two Director
Christopher M. Mackey 41 Class One Director
Irwin Nathanson 79 Director (no class designation, appointed by holders of Series A
Preferred Stock)
Robert C. Ruocco 42 Class One Director
David Jack 62 Vice President, Treasurer
Mark J. Karrenbauer 45 Vice President, Human Resources
Eugene K. Pool 65 Vice President, Associate General Counsel and Assistant Secretary
Executive Officers' Terms of Office. Each officer serves at the
discretion of the Board or until the first meeting of the Board of Directors
following the next annual meeting of the stockholders and until such officer's
successor is chosen and qualified.
John J. Ghaznavi became Chairman of the Board and Chief Executive
Officer of the Company in January 1997. He has been Chairman and Chief
Executive Officer and a director of Glenshaw and G&G since 1988 and 1987,
respectively. He has been Chairman and Chief Executive Officer and a director
of Consumers since 1993. Mr. Ghaznavi stepped down as Chief Executive Officer
of Consumers in March 2001. Mr. J. Ghaznavi is currently a member of the Board
of Directors of the Glass Packaging Institute. Mr. J. Ghaznavi is the father of
Mr. A. Ghaznavi.
Richard M. Deneau assumed his duties as President and Chief Operating
Officer of the Company in July 1997 and as a director in June 1998. From
January 1996 until June 1997, Mr. Deneau was Senior Vice President and Chief
Operating Officer of Ball-Foster. From October 1992 to January 1996, he was
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Senior Vice President in charge of domestic beverage can operations of American
National Can Company. Prior to October 1992, Mr. Deneau was Senior Vice
President of Sales at American National Can Company's Foster-Forbes division,
the predecessor of Ball-Foster ("Foster-Forbes").
Dale A. Buckwalter joined the Company in August 2000 as Senior Vice
President and Chief Financial Officer. Prior to joining Anchor, he served as
Chief Financial Officer and was a principal of Anthony Crane Rental, L.P. Mr.
Buckwalter served as Chief Financial Officer of Consumers from August 2000
through March 2001.
Roger L. Erb became Senior Vice President-Operations of the Company in
October 1997 and a director in March 2000. From September 1995 until June 1997,
Mr. Erb was Senior Vice President of Technical Services at Ball-Foster. Prior
thereto, he was employed at Foster-Forbes, serving as Senior Vice President of
Technical Services from June 1994 to September 1995, Senior Vice President of
Operations from January 1993 to June 1994, and Vice President of Technical
Services prior to 1993.
David T. Gutowski joined the Company in January 1997 as a director and
as a Vice President and became Vice President-Administration in March 1997 and
Senior Vice President-Administration in June 1997. He served as Vice President,
Finance and Chief Financial Officer of Consumers from December 1999 to
September 2000. He has been a director of Consumers since 1993. Mr. Gutowski
served as Treasurer of G&G since 1988.
C. Kent May became a director of the Company in January 1997 and
became Vice President, General Counsel and Secretary of the Company in March
1997. He became Senior Vice President in June 1997. Mr. May has served as a
director of Consumers since 1993 and he was appointed General Counsel of
Consumers in March 1997 and Secretary in 1999. Mr. May has been an associate,
partner or member of the law firm of Eckert Seamans Cherin & Mellott, LLC since
1964, and served as the managing partner of such firm from 1991 to 1996. He is
currently a director of Universal Compression Holdings, Inc.
Gordon S. Love became Senior Vice President-Sales and Marketing of the
Company in July 1997. From October 1996 until June 1997, Mr. Love was Vice
President of Sales for Beer and Liquor at Ball-Foster. From September 1995
until October 1996, he was Senior Vice President of Beverage Sales at
Ball-Foster. Prior thereto, he was employed at Foster-Forbes, serving as Senior
Vice President of Sales and Marketing from July 1993 to September 1995, Vice
President of Sales from October 1992 to July 1993, and Beer Product Manager
prior to October 1992.
Lawrence M. Murray joined the Company in June 2000 as Senior Vice
President - Finance. From 1998 to June 2000, Mr. Murray served as President of
a private company in the restaurant business. From 1992 to 1998, he served as
Vice President and Chief Financial Officer of DeVlieg-Bullard, Inc.
Ahmad Ghaznavi joined the Company in 1997 as Manager of Special
Projects. From 1998 through 1999, he was Director of Sales Administration and
became Vice President of Sales Administration in February 2000 and a director
in March 2000. Since August 2000, he has been Vice President - Hiram Walker
Sales. Mr. A. Ghaznavi is the son of Mr. J. Ghaznavi.
Joel A. Asen became a director of the Company in April 2001. Since
1993, Mr. Asen is the President of Asen Advisory. He is also on the board of
directors for Resolution Performance Products, Inc.
Andrew M. Boas became a director of the Company in April 2001. Since
1982, Mr. Boas has served as Co-President of Carl Marks & Co. Inc. He also
serves as a member of the board of directors for Thousand Trails, Inc., Sport &
Health Company L.C. and Seneca Foods Corporation.
Patrick T. Connelly became a director of the Company in March 2000.
Mr. Connelly has been Chief Financial Officer of Ghaznavi Investments, Inc.
since 1995 and Chief Financial Officer of G&G since 1998.
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Paul J. Coughlin III became a director of the Company in April 2001.
Mr. Coughlin is currently a co-partner and founder of CoMac Partners L.P. Mr.
Coughlin currently serves on the board of directors of Southern Mineral Corp.,
Aluma Enterprises Inc. and Washington Aluminum Corp.
Eugene I. Davis became a director of the Company in April 2001. Mr.
Davis is currently Chairman and Chief Executive Officer of Pirinate Consulting
Group, L.L.C. He also serves on the board of directors of CD Warehouse, Inc.,
Elder-Beerman Stores, Inc., Eagle Geophysical, Inc., COHO Energy, Inc. and
Murdock Communications Corporation.
Paul H. Farrar became a director of the Company in February 1997 and
has served as a director of Consumers since 1994. Mr. Farrar was Chairman and a
director of Canadian Airlines Corporation until his resignation from that
position in mid 2000. He remains Chairman of Adelaide Capital Corporation, an
investment company, a position he has held since 1994. He served as Senior Vice
President of Canadian Imperial Bank of Commerce, a Canadian chartered bank from
1986 to December 1993. He currently serves as a director of Aluma Enterprises
Inc.
Steven J. Friesen became a director of the Company in June 1998. Mr.
Friesen has been Vice Chairman of G&G since September 1997. For the two years
prior to joining G&G he was an independent consultant and managed his own
investments. Prior thereto he was Chief Executive Officer of Foster-Forbes.
Jonathan K. Hergert became a director of the Company in March 2000.
Mr. Hergert has been an associate, partner or member of the law firm of Eckert
Seamans Cherin & Mellott, LLC since 1977.
M. William Lightner, Jr. retired from the Company in September 2000
but remains a director. He joined Anchor in January 1997 as a director and Vice
President, Treasurer and Chief Financial Officer. He became Vice
President-Finance in March 1997 and Senior Vice President-Finance in June 1997.
In January 1999, he became Senior Vice President and Chief Financial Officer.
From July 1994 until 1999, Mr. Lightner was Vice President of Finance and Chief
Financial Officer of Consumers. From 1989 to 1992, Mr. Lightner served as
Chairman of MICA Resources, a privately held aluminum processor and brokerage
company. Mr. Lightner was a partner with Arthur Andersen & Co. from 1969 to
1989.He is currently a director of Azco Mining Inc.
Christopher M. Mackey became a director of the Company in June 1998.
Mr. Mackey has been President and Co-Chairman of the Board of Directors of CMS
Advisors, Inc., an investment company, since 1992.
Irwin Nathanson became a director of the Company in April 2001. Mr.
Nathanson was formerly the President of Trans World Products, Inc. from 1975
through 1996 and director of Troy Mills, Inc. He is currently a retired
investor. Mr. Nathanson is a limited partner of Pequod Investments, L.P..
Robert C. Ruocco became a director of the Company in November 1998.
Since 1993, Mr. Ruocco has served as general partner for Carl Marks Management
Company, L.P., an investment advisor for private investment partnerships and
managed accounts. He also serves as a member of the board of directors of Sport
& Health Company, L.C. and Tejon Ranch Company.
David Jack joined the Company in December 1998 and served as
Vice-President, Treasurer until April 2001. He has served as Vice-President,
Accounting and Treasurer of Consumers since March 1997. Mr. Jack served as
Secretary-Treasurer of Consumers from 1983 to March 1997. Mr. Jack resumed his
role of Treasurer of Consumers in April 2001.
Mark J. Karrenbauer joined Old Anchor in 1994 as Vice President, Human
Resources.
Eugene K. Pool joined Old Anchor in June 1988 as Senior Counsel. Mr.
Pool was appointed Assistant Secretary of Old Anchor in 1988, Associate General
Counsel of Old Anchor in 1991 and Vice President-Associate General Counsel of
Old Anchor in 1995. In February 1997, Mr. Pool became
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Assistant Secretary of the Company and in March 1997, he became Vice President
and Associate General Counsel of the Company.
William J. Shaw resigned as a director of the Company in March 2001.
He had been a director of the Company since June 1998. Myron M. Sheinfeld
resigned as a director in April 2001. He had been director of the Company since
November 1998.
Certain officers and directors of the Company were named as defendants
in the stockholder derivative litigation. See Item 3. Legal Proceedings.
BOARD OF DIRECTORS OF THE COMPANY
Since February 5, 2000, the Board of Directors (each a "Director") is
divided into three classes, as nearly equal in number as possible. The term of
Directors of the first, second and third class will expire at the first, second
and third annual meeting after their election, respectively. At each annual
meeting, the number of Directors constituting the class whose term has expired
at the time of such meeting will be elected to hold office until the third
succeeding annual meeting. Pursuant to the Bylaws of the Company (the
"Bylaws"), Directors may be removed only with cause by the affirmative vote of
the holders of 75% of the outstanding shares of the Common Stock.
The foregoing provisions of the Restated Charter and the Bylaws are
subject to the rights, if any, of any series of preferred stock of the Company
to elect additional Directors under circumstances specified in the Restated
Certificate of Incorporation relating to such preferred stock.
Pursuant to the certificate of designation of the Series A Preferred
Stock, as amended, and upon the failure of the Company to pay dividends on the
Series A Preferred Stock for twelve quarters, the number of Directors on the
Board automatically increased by five and the holders of the Series A Preferred
Stock exercised their right to elect the five directors to fill the newly
created directorships. On April 5, 2001, Messrs. Asen, Boas, Coughlin, Davis
and Nathanson were elected to the Board. The five new Directors will serve
until such time as the accrued and unpaid Series A Preferred Stock dividends
are paid.
On March 8, 2000, pursuant to the By-laws, the number of Directors on
the Board was increased from 11 to 15. The Board approved the election of
Messrs. Connelly, Erb, A. Ghaznavi and Hergert to fill the newly created
vacancies.
On March 8, 2000, Consumers U.S. and its affiliates, the owners of
66.1% of the outstanding common stock of the Company, agreed to vote their
shares in favor of the Class One Directors to extend their terms at the next
election of directors. See Item 1. Business - Recent Developments.
The Company maintains director and officer liability insurance on
behalf of its directors and officers through a policy covering G&G and certain
affiliates. The policy for that insurance currently expires on April 27, 2001.
Efforts have been undertaken to obtain an extension of that policy or to obtain
a new policy. There is no assurance that these efforts will be successful. The
Company's failure to maintain director and officer liability insurance could
have a material adverse effect on its ability to retain its directors and
officers.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to Rule 16a-3 under the Securities Exchange
Act of 1934, as amended, (the "Exchange Act"), during its most recent fiscal
year and Form 5 and amendments thereto furnished to the Company with respect to
its most recent fiscal year, the Company believes that during the fiscal year,
no director, officer, or beneficial owner of more than ten percent of any class
of registered equity securities of the Company failed to file on a timely
basis, as disclosed in the above forms, reports required by Section 16(a) of
the Exchange Act, during the most recent fiscal year, except that Messrs.
Buckwalter and Murray, who do not beneficially own any of such equity
securities, filed their initial reports on Form 3 late.
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ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
Included in the table below, is compensation awarded to, earned by or
paid, during the three years ended December 31, 2000, to the Company's Chief
Executive Officer and the five most highly compensated executive officers who
were serving as officers at the end of 2000 and one officer that would have been
included other than for retiring from the Company prior to year end.
All Other
Compensation
Annual Compensation (3) (4) (5)
------------------------------------------------------
Other (1)
Annual
Name and Principal Position Year Salary Bonus Compensation
--------------------------- ---- ------ ----- ------------
John J. Ghaznavi 2000 $ -- $ -- $72,094 $ --
Chairman, Chief Executive 1999 -- -- -- --
Officer (6) 1998 -- -- -- --
Richard M. Deneau 2000 $350,040 $ -- $92,413 $ 8,500
President, Chief Operating 1999 350,040 -- -- 7,200
Officer 1998 350,040 115,012 -- 26,970
Roger L. Erb 2000 $242,580 $ -- $92,413 $ 8,500
Senior Vice President- 1999 219,245 -- -- 20,701
Operations 1998 200,040 80,012 -- 15,283
David T. Gutowski 2000 $200,040 $ -- $58,983 $ 8,500
Senior Vice President- 1999 200,040 -- -- 7,200
Administration 1998 200,040 60,012 -- 7,200
Gordon S. Love 2000 $200,040 $ -- $42,267 $ 8,500
Senior Vice President- 1999 200,040 -- -- 7,200
Sales and Marketing 1998 200,040 60,012 -- 26,644
C. Kent May 2000 $200,040 $ -- $33,911 $ --
Senior Vice President-General 1999 200,040 -- -- --
Counsel and Secretary 1998 200,040 60,012 -- --
M. William Lightner (7) 2000 $150,030 $ -- $58,983 $ 4,962
Former Senior Vice President- 1999 200,040 -- -- 42,360
Finance, Chief Financial Officer 1998 200,040 60,012 -- 73,883
(1) Information provided in the column labeled "Other Annual Compensation"
for 2000 includes (i) compensation associated with the 1999 Officer
Stock Purchase Plan for : Mr. Deneau - $66,861, Mr. Erb - $66,861, Mr.
Gutowski - $33,431, Mr. Love - $16,715, Mr. May - $8,359 and Mr.
Lightner - $33,431 and (ii) compensation associated with the 2000
Executive Stock Purchase Plan for : Mr. Deneau - $25,552, Mr. Erb -
$25,552, Mr. Gutowski - $25,552, Mr. Love - $25,552, Mr. May - $25,552
and Mr. Lightner - $25,552.
(2) All options indicated as having been granted are options to purchase
common shares of Consumers. A portion of the options granted are
allocable to the executives' services as executive officers of
Consumers.
(3) Information provided in the column labeled "All Other Compensation" for
2000 represents the Company's contributions under the Company's 401(K)
plan for: Mr. Deneau - $8,500, Mr. Erb - $8,500, Mr. Gutowski - $8,500,
Mr. Love - $8,500 and Mr. Lightner - $4,962.
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(4) Information provided in the column labeled "All Other Compensation" for
1999 includes moving expenses paid by the Company for: Mr. Erb -
$13,837 and includes the Company's contributions under the Company's
401(K) plan for: Mr. Deneau - $7,200, Mr. Erb - $6,864, Mr. Gutowski -
$7,200 and Mr. Love - $7,200.
(5) Information provided in the column labeled "All Other Compensation" for
1998 includes moving expenses paid by the Company for: Mr. Deneau -
$19,770, Mr. Erb - $8,083 and Mr. Love - $19,444 and includes the
Company's contributions under the Company's 401(K) plan for: Mr. Deneau
- $7,200, Mr. Erb - $7,200, Mr. Gutowski - $7,200 and Mr. Love -
$7,200.
(6) Mr. J. Ghaznavi received no compensation from Anchor, other than as
noted below. Anchor is a party to a Management Agreement with G&G
whereby G&G provides specified managerial services for Anchor and is
entitled to receive an annual management fee of up to $3.0 million. Per
this agreement, the Company accrued $1.5 million in 2000 and 1999 and
$3.0 million in 1998. Compensation associated with the 1999 Officer
Stock Purchase Plan for 2000 was $72,094.
(7) Mr. Lightner retired from Anchor as of September 30, 2000.
ANNUAL INCENTIVE PLAN
The Anchor Glass Container Corporation Annual Incentive Plan is
designed to compensate salaried employees of Anchor for performance with respect
to planned business objectives. Participants will be compensated based on the
achievement of predetermined goals of Anchor. Plan participation is limited to
salaried employees within the organization. Eligible participants are designated
at the beginning of each fiscal year as approved by the Compensation Committee.
The Plan began January 1, 1998.
DIRECTOR AND EMPLOYEE INCENTIVE STOCK OPTION PLAN OF CONSUMERS
The Director and Employee Incentive Stock Option Plan, 1996, as
amended, of Consumers, permits Consumers to grant options to purchase common
shares of Consumers to directors and employees of Consumers and any subsidiary
or affiliate, including Anchor. Options may be granted by Consumers to purchase
an aggregate of 3,300,000 common shares of Consumers. Options granted by
Consumers to salaried employees of Anchor and the original exercise price
follow:
Year Options Granted Original Exercise Price
---- --------------- -----------------------
2000 144,500 $5.00 (Cdn.)
1999 123,000 $8.00 (Cdn.)
1998 51,000 $9.75 (Cdn.)
1997 1,066,500 $9.65 to $13.50(Cdn.)
Granted options have a term of ten years and vest one third each year
over a three-year period. At the Annual Shareholders Meeting of Consumers in
June 1999, the Director and Employee Incentive Stock Option Plan was amended
whereby the exercise price of certain outstanding stock options issued under the
plan for which the current exercise price exceeded $8.00 (Canadian dollars),
other than for those options owned by Mr. John J. Ghaznavi and his associates,
were reduced to an exercise price of $8.00 (Canadian dollars).
STOCK PURCHASE PLANS
Under the 2000 Executive Stock Purchase Plan, executives of Anchor
participated in the purchase of common shares of Consumers. Anchor made loans to
plan participants to finance the purchase of an aggregate of 332,998 shares. The
loans had a term of ten years, were secured by a pledge of the shares purchased
with the loan proceeds and required that a percentage of future management
incentive awards be applied against outstanding loan balances. The plan
terminated on December 28, 2000. The Board approved bonus compensation repaying
aggregate indebtedness of $476,000.
Under the 1999 Officer Stock Purchase Plan, certain officers of Anchor
participated in the purchase of shares of Consumers common stock. Anchor made
loans to plan participants to finance the
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purchase of an aggregate of 183,250 shares. The loans had a term of ten years
and were secured by a pledge of the shares purchased with the loan proceeds. On
June 30, 2000, management authorized bonus compensation repaying aggregate
indebtedness of approximately $280,000.
The Director and Employee Incentive Stock Option Plan, 1996, as amended, of
Consumers, the 2000 Executive Stock Purchase Plan and the 1999 Officer Stock
Purchase Plan were approved by the Board of Directors of Consumers. The Anchor
Board of Directors did not participate in the approval of these plans.
OPTION GRANTS
There were no grants of stock options made during the fiscal year ended
December 31, 2000 to the named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table summarizes details of all exercises of stock
options during the fiscal year ended December 31, 2000 by each of the officers
named below and the fiscal year end value of unexercised options.
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY OPTIONS
UNEXERCISED OPTIONS AT FISCAL
SHARES AT FISCAL YEAR-END YEAR-END (2)
ACQUIRED ON AGGREGATED VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE(1) UNEXERCISABLE
- ---- ----------- ---------------- ------------------- --------------------
John J. Ghaznavi -- -- 1,588,126/-- --/--
Richard M. Deneau -- -- 126,667/23,333 --/--
Roger L. Erb -- -- 86,667/23,333 --/--
David T. Gutowski -- -- 130,000/-- --/--
Gordon S. Love -- -- 45,000/-- --/--
C. Kent May -- -- 100,000/-- --/--
(1) Options for common shares of Consumers.
(2) Value of unexercised options calculated using the closing price for
common shares of Consumers on The Toronto Stock Exchange on December
31, 2000, less the exercise price.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company are entitled to receive an annual
director's fee of $15,000. In addition, fees of $750 are paid to non-employee
directors for each director's meeting and committee meeting attended unless more
than one meeting is held on the same day, in which case the fee for attending
each subsequent meeting is $500.
EMPLOYMENT CONTRACTS
The Company does not, as a general rule, enter into employment
agreements with its executive officers and/or other key employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The compensation committee is comprised of Messrs. J. Ghaznavi and
Deneau. Mr. Ghaznavi is also a member of Consumers' compensation committee.
Certain members of Consumers' board of directors also serve as executive
officers and/or directors of Anchor, including Messrs. J. Ghaznavi, Farrar,
Gutowski and May.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL STOCKHOLDERS OF COMPANY
The following table sets forth information with respect to the
beneficial ownership of the Company's Common Stock as of February 28, 2001 by
(i) each person who is known by the Company to beneficially own 5% or more of
such Common Stock, (ii) each Director of the Company, (iii) the Company's Chief
Executive Officer and the other executive officers named in the Summary
Compensation Table and (iv) all current Directors and executive officers of the
Company as a group. Prior to February 5, 2000, the common stock consisted of
three classes: Classes A, B and C. Until February 5, 2000, the Company's Class C
Common Stock was non-voting. Thereafter, all classes of common stock of the
Company have been consolidated on a one to one share basis into one class of
Common Stock. Upon such consolidation, all holders of the Common Stock have the
same voting and other rights. The number of shares in the table is rounded to
the nearest whole share and the percentages are rounded to the nearest tenth of
a percent.
Unless otherwise indicated in the footnotes to the table, each
stockholder has sole voting and investment power with respect to shares
beneficially owned and all addresses are in care of the Company. All primary
share amounts and percentages reflect beneficial ownership determined pursuant
to Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and assume, on a stockholder by stockholder basis, that each
stockholder has converted all securities owned by such stockholder that are
convertible into Common Stock at the option of the holder currently or within 60
days of February 28, 2001 and that no other stockholder so converts. All fully
diluted share amounts and percentages reflect beneficial ownership of Common
Stock determined on a fully diluted basis. All information with respect to
beneficial ownership has been furnished by the respective Director, executive
officer or stockholder, as the case may be, as of February 28, 2001.
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AMOUNT OF BENEFICIAL
OWNERSHIP PERCENT OF CLASS
--------------------------- -------------------
Primary and Fully
NAME Actual Fully Diluted Primary Diluted
- ---- ------ ------------- ------- -------
DIRECTORS AND EXECUTIVE OFFICERS:
John J. Ghaznavi(1) -- -- -- --
Richard M. Deneau(2) -- -- -- --
Joel A. Asen -- -- -- --
Andrew M. Boas(3) 83,873 1,310,977 38.7 3.9
Patrick T. Connelly (4) -- -- -- --
Paul J. Coughlin III(5) 405,601 2,266,123 56.4 6.7
Eugene I. Davis -- -- -- --
Roger L. Erb(6) -- -- -- --
Paul H. Farrar(7) -- -- -- --
Steven J. Friesen(8) -- -- -- --
Ahmad Ghaznavi(9) -- -- -- --
David T. Gutowski(10) -- -- -- --
Jonathan K. Hergert -- -- -- --
M. William Lightner(11) -- -- -- --
Gordon S. Love(12) -- -- -- --
Christopher M. Mackey(13) 405,659 2,267,073 56.4 6.7
C. Kent May(14) -- -- -- --
Irwin Nathanson -- -- -- --
Robert C. Ruocco(15) 84,013 1,313,205 38.8 3.9
All Directors and executive officers as a
group (24 persons) (16) 489,672 3,580,278 68.2 10.6
GREATER THAN FIVE PERCENT STOCKHOLDERS:
Anchor Glass Container Corporation Service
Retirement Plan(17) -- 1,500,000 41.0 4.4
Salomon Smith Barney, as escrow agent for
certain creditors of Old Anchor(18) 58,030 322,851 13.3 1.0
Consumers U.S., Inc.(19) 902,615 20,126,406 94.1 59.5
G&G Investments, Inc.(20) 525,000 525,000 24.3 1.6
- -----------------------
(1) Through G&G, Ghaznavi Canada, Inc. and other affiliates, Mr. J.
Ghaznavi beneficially owns 23,621,745 common shares of Consumers,
including 1,588,126 shares issuable upon the exercise of currently
exercisable options. Mr. Ghaznavi is the controlling shareholder of G&G
and Consumers U.S. G&G is also deemed to beneficially own shares of the
common stock owned by Consumers U.S. See footnote (17).
(2) Mr. Deneau beneficially owns 191,769 common shares of Consumers,
including 126,667 shares issuable upon the exercise of currently
exercisable options.
(3) Includes 1,075,642 shares issuable upon conversion of 258,154 shares of
Series A Preferred Stock and 151,462 shares issuable upon the exercise
of certain currently exercisable warrants. Mr. Boas has beneficial
ownership of 83,873 shares of Common Stock, 258,154 shares of Series A
Preferred Stock and warrants to acquire 151,462 shares through Carl
Marks Strategic Investments, L.P. and Carl Marks Strategic Investments
II, L.P. Mr. Boas may be deemed to share voting (as applicable) and
investment power with respect to such shares. Pursuant to Rule 13d-4
under the Securities Act, Mr. Boas disclaims beneficial ownership of
such shares. The address for this stockholder is c/o Carl Marks
Management Co., 135 East 57th Street, New York, New York 10022.
(4) Mr. Connelly beneficially owns 10,500 common shares of Consumers.
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(5) Includes 1,858,946 shares issuable upon conversion of 446,147 shares of
Series A Preferred Stock Stock and 1,576 shares issuable upon the
exercise of certain currently exercisable warrants. Mr. Coughlin has
beneficial ownership of 405,601 shares of Common Stock and 446,147
shares of Series A Preferred Stock Stock and 1,576 shares issuable upon
the exercise of certain currently exercisable warrants through CoMac
Partners, L.P., Co Mac International N.V., Co Mac Opportunities Fund,
L.P. and CoMac Endowment Fund, L. P. Mr. Coughlin may be deemed to
share voting (as applicable) and investment power with respect to such
shares. Pursuant to Rule 13d-4 under the Securities Act, Mr. Coughlin
disclaims beneficial ownership of such shares. The address for this
stockholder is 1 Greenwich Office Park, 3rd Floor, Greenwich,
Connecticut 06831.
(6) Mr. Erb beneficially owns 150,179 common shares of Consumers, including
86,667 shares issuable upon the exercise of currently exercisable
options.
(7) Mr. Farrar beneficially owns 30,000 common shares of Consumers,
including 25,000 shares issuable upon the exercise of currently
exercisable options.
(8) Mr. Friesen beneficially owns 166,192 common shares of Consumers,
including 90,000 shares issuable upon the exercise of currently
exercisable options.
(9) Mr. A. Ghaznavi beneficially owns 16,192 common shares of Consumers,
including 5,000 shares issuable upon the exercise of currently
exercisable options.
(10) Mr. Gutowski beneficially owns 178,652 common shares of Consumers,
including 130,000 shares issuable upon the exercise of currently
exercisable options.
(11) Mr. Lightner beneficially owns 176,152 common shares of Consumers,
including 135,000 shares issuable upon the exercise of currently
exercisable options, but not including 1,500 shares owned by Mr.
Lightner's spouse with respect to which Mr. Lightner disclaims
beneficial ownership.
(12) Mr. Love beneficially owns 69,432 common shares of Consumers including
45,000 shares issuable upon the exercise of currently exercisable
options.
(13) Includes 1,859,725 shares issuable upon conversion of 446,334 shares of
Series A Preferred Stock and 1,689 shares issuable upon the exercise of
certain currently exercisable warrants. Mr. Mackey has beneficial
ownership of 405,601 shares of Common Stock, 446,147 shares of Series A
Preferred Stock and warrants to acquire 1,576 shares through CoMac
Partners, L.P., Co Mac International N.V., Co Mac Opportunities Fund,
L.P. and CoMac Endowment Fund, L. P. Mr. Mackey may be deemed to share
voting (as applicable) and investment power with respect to such
shares. Mr. Mackey is an executive officer, director and shareholder of
CoMac Advisors, Inc., which is the sole general partner of CoMac
Associates, L.P., CoMac Opportunities Fund, L.P. and CoMac Endowment
Fund, L. P. CoMac Associates, L.P. is the sole general partner of CoMac
Partners, L.P. Mr. Mackey is a member of the supervisory board of
directors of CoMac International N.V. and is an executive officer,
director and shareholder of CMS Advisors Inc., the investment advisor
to CoMac International N.V. Pursuant to Rule 13d-4 under the Securities
Act, Mr. Mackey disclaims beneficial ownership of such shares. The
address for this stockholder is 1 Greenwich Office Park, 3rd Floor,
Greenwich, Connecticut 06831.
(14) Mr. May beneficially owns 125,332 common shares of Consumers, including
100,000 shares issuable upon the exercise of currently exercisable
options.
(15) Includes 1,077,471 shares issuable upon conversion of 258,593 shares of
Series A Preferred Stock and 151,721 shares issuable upon the exercise
of certain currently exercisable warrants. Mr. Ruocco has beneficial
ownership of 83,873 shares of Common Stock, 258,154 shares of Series A
Preferred Stock and warrants to acquire 151,462 shares through Carl
Marks Strategic Investments, L.P. and Carl Marks Strategic Investments
II, L.P. Mr.
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Ruocco beneficially owns 1,086,200 common shares of Consumers through
Carl Marks Strategic Investments, L.P. and Carl Marks Strategic
Investments II, L.P. Mr. Ruocco may be deemed to share voting (as
applicable) and investment power with respect to such shares. Pursuant
to Rule 13d-4 under the Securities Act, Mr. Ruocco disclaims beneficial
ownership of such shares. The address for this stockholder is c/o Carl
Marks Management Co., 135 East 57th Street, New York, New York 10022.
(16) Represents the shares of Common Stock discussed in footnotes (3) and
(5).
(17) All 1,500,000 shares of this stockholder's beneficially owned shares of
Common Stock are issuable upon conversion of 360,000 shares of Series A
Preferred Stock. This stockholder's shares of Series A Preferred Stock
are held in trust by the Chase Manhattan Bank, as trustee of such
benefit plan and the current address for this stockholder is c/o PNC
Advisors, Two PNC Plaza, 620 Liberty Avenue, Pittsburgh, PA 15222.
However, an "investment manager", as that term is defined in Section
3(38) of ERISA, has been appointed to control the shares contributed to
the plans and has exclusive control over this stockholder's shares of
Series A Preferred Stock and any shares of Common Stock into which such
shares of Series A Preferred Stock may be converted.
(18) Includes 264,821 shares issuable upon conversion of 63,557 shares of
Series A Preferred Stock. The 58,030 shares of Common Stock and the
63,557 shares of Series A Preferred Stock are held by Salomon Smith
Barney, as escrow agent, pursuant to an escrow agreement between Old
Anchor and Smith Barney. Such shares are to be distributed to the
creditors of Old Anchor pursuant to the reorganization plan of Old
Anchor as approved by the United States Bankruptcy Court of the
District of Delaware. Under the terms of such escrow agreement, Smith
Barney may not exercise any voting rights with respect to the Common
Stock held in escrow except as expressly instructed in an order of such
Bankruptcy Court. The address of Salomon Smith Barney is 388 Greenwich
Street, 19th Floor, New York, New York 10013.
(19) Includes 19,223,791 shares issuable upon conversion of 4,229,234 shares
of Series B Preferred Stock (including 869,234 shares of Series B
Preferred Stock, accrued as of December 31, 1999 as a payment-in-kind
dividends). On a fully diluted basis, Consumers U.S. owns approximately
59.5% of the Common Stock of the Company. All of the shares of Common
Stock and Series B Preferred Stock currently owned or subsequently
acquired by Consumers U.S. are pledged to secure the Consumers U.S.
guarantee of the Company's obligations under the First Mortgage Notes
and the related Indenture. Upon the closing of the First Mortgage Notes
offering, the Company issued to Consumers U.S. 702,615 shares of Common
Stock (or 2.5% of the Common Stock outstanding on such date on a fully
diluted basis). The address for Consumers U.S. is 3140 William Flinn
Highway, Allison Park, Pennsylvania 15101.
(20) The address for G&G is 3140 William Flinn Highway, Allison Park,
Pennsylvania 15101.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company is part of a group of glass manufacturing companies (the
"Affiliated Glass Manufacturers") with Consumers and GGC, each of which is
controlled by Mr. J. Ghaznavi through G&G. The Company currently engages in a
variety of transactions with Consumers and GGC as a part of its strategy to
achieve synergies among the companies. These transactions include bulk
purchasing of raw and packaging materials, provision of technical and
engineering services, joint utilization of Anchor's mold and repair shops and
the possible consolidation of certain functions such as sales, engineering and
management information services.
The Company has entered into a Restated Intercompany Agreement (the
"Intercompany Agreement") with G&G, Consumers, Consumers U.S., Consumers
International Inc., GGC, Hillsboro Glass Company ("Hillsboro"), I.M.T.E.C.
Enterprises, Inc., a machinery manufacturer majority-owned by G&G, and certain
related companies which establishes standards for certain intercompany
transactions. There is a disagreement among the directors as to the propriety of
the replacement of the original intercompany agreement with the Restated
Intercompany Agreement. Pursuant to the Intercompany Agreement, the Company may,
from time to time, fill orders for customers of Affiliated Glass Manufacturers
and Affiliated Glass Manufacturers may, from time to time, fill orders for
customers of the Company. Through 2000, in such case, where the customer was not
a common customer, the manufacturing company paid a market commission, up to 5%
of the invoiced amount, to the company that referred the customer. In the event
of a transfer of a customer to the Company by an Affiliated Glass Manufacturer
or to an Affiliated Glass Manufacturer by the Company, the transfer is treated
as though the transferee had filled the orders for the transferred customer. The
commission program ceased in 2001 and was replaced with a cost sharing
arrangement.
In connection with any bulk purchasing of raw materials, packaging
materials, machinery, insurance, maintenance services, environmental services,
design and implementation of certain software systems and other items and
services used in this business, each of the Affiliated Glass Manufacturers will
share out-of-pocket costs of the purchasing activities without payment of
commissions. Similarly, in connection with the provision of technical,
engineering or mold design services, the company providing the services will
receive reasonable per diem fees and costs for the employees provided. For
services such as the provision of molds, the company providing the service will
receive cost plus a reasonable market mark-up.
Transactions carried out in accordance with the Intercompany Agreement
do not require approval of the board of directors or fairness opinions. Any
amendment to the Intercompany Agreement is subject to the indenture requirement
that it be in writing, on terms no less favorable to the Company than could have
been obtained in a comparable arm's-length transaction between the Company and
third parties and is subject to the approval of the Board of Directors
("Affiliate Transaction Provisions"). The Original Credit Facility, the
Replacement Credit Facility and the indentures for the First Mortgage Notes and
the Senior Notes require that transactions between the Company and an affiliate
be in writing on no less favorable terms to the Company than would be obtainable
in a comparable arm's-length transaction between the Company and a person that
is not an affiliate. In addition, transactions exceeding certain threshold
values require the approval of the Company's board of directors, including the
approval of a majority of the Company's independent directors, or an independent
fairness opinion.
Certain affiliates of the Company are engaged in businesses other than
the manufacture of glass containers, such as manufacturing or rehabilitating
manufacturing equipment, automobile and truck leasing, shipping and real estate
management. Transactions between the Company and these affiliates are subject to
the Affiliate Transaction provisions of the Indentures.
The Company is party to the Management Agreement with G&G. Pursuant to
the Management Agreement, G&G is to provide specified managerial services for
the Company. For these services, G&G is entitled to receive an annual management
fee of up to $3.0 million and to reimbursement of its out-of-pocket costs plus
an administrative charge not to exceed 10% of those costs. The Replacement
Credit Facility and the indentures limit management fee payments by the Company
under the Management Agreement to $1.5 million per year unless the Company meets
certain financial tests. Payment of fees in
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excess of $1.5 million are made based upon calculations of restricted payments
under the indentures. In 2000 and 1999, these certain tests were not met and the
fees due under the Management Agreement were limited to $1.5 million. Depending
on the facts and circumstances at the time, amounts not paid, may be payable,
when not prohibited under the Indentures or other senior indebtedness.
During the years 1997, 1998, 1999 and 2000, the Company participated in
bulk purchases of supplies for the Company and certain of its affiliates,
including Consumers, with vendors that were unrelated to the Company and
Consumers. The bulk purchases were negotiated by a sister company to G&G. The
sister company received rebates from these unrelated vendors. The rebates
attributable to purchases by the Company totaled $711,413 over the four-year
period. When this practice became known, the Company took steps to ensure that
the practice was discontinued.
During the year 1997, the Company participated in bulk purchases of
soda ash for the Company and certain of its affiliates, including Consumers,
with vendors that were unrelated to the Company and Consumers. The bulk
purchases were negotiated by a subsidiary of G&G. The subsidiary received
rebates from the unrelated vendors. The rebates attributable to purchases by the
Company totaled $546,927. This practice was discontinued at the end of 1997.
A special committee of the Board has been appointed to review these
transactions.
The Company receives an allocation of aircraft charges from an
affiliate of G&G. The amount allocated in 2000 was $797,000.
In March 2000, Anheuser-Busch purchased the Company's previously closed
Houston, Texas glass container manufacturing facility and certain operating
rights. See Item 1. Business - Recent Developments.
In September 1997, Hillsboro, a glass container manufacturing plant
owned by G&G, discontinued manufacturing. All of Hillsboro's rights and
obligations to fill orders under a supply contract between Consumers and one of
its major customers have been purchased by Consumers and Anchor. This
transaction is the subject of litigation. See Item 3. Legal Proceedings.
The Company, and certain of its affiliates, from time to time have
engaged the law firm of Eckert Seamans Cherin and Mellott, LLC , to represent
them on a variety of matters. C. Kent May, an executive officer and director of
the Company and Jonathan K. Hergert, a director of the Company, are members of
such law firm.
INDEBTEDNESS OF MANAGEMENT
There is no indebtedness of management outstanding at February 28, 2001
or December 31, 2000.
Indebtedness to the Company, of all directors and officers of Anchor,
entered into in connection with certain securities purchase programs of
Consumers common stock, aggregated $476,000 during 2000. Indebtedness, in excess
of $60,000, of directors and executive officers of Anchor under this program
consisted of $72,094, which was the largest amount outstanding during 2000, from
Mr. J. Ghaznavi. This indebtedness under the 1999 Officer Stock Purchase Plan,
forgiven in 2000, was secured by 47,130 shares of Consumers common stock. See
Item 11. Executive Compensation - Stock Purchase Plans.
In addition, as described under Item 7. Liquidity and Capital
Resources, G&G funded an advance on the purchase of a controlling interest in a
European glass manufacturer through a loan from the Company of approximately
$17.3 million. Mr. J. Ghaznavi controls G&G. See Item 3. Legal Proceedings.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements, Schedules and Exhibits
1. Financial Statements. The Financial Statements of Anchor Glass
Container Corporation and the Report of Independent Certified Public
Accountants are included beginning at page F-1 of this Form 10-K. See
the index included on page 21.
2. Financial Statement Schedules. The following Financial
Statement Schedule is filed as part of this Form 10-K and should be
read in conjunction with the Financial Statements of Anchor Glass
Container Corporation.
SCHEDULE II
ANCHOR GLASS CONTAINER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS)
Column A Column B Column C Column D Column E Column F
- -------- -------- -------- -------- -------- --------
Additions
-----------------------
Balance at Charged to Charged Balance at
beginning of costs and to other end
Description period expenses accounts Deductions Of period
- ----------- ------ -------- -------- ---------- ---------
Year ended December 31, 2000
Allowance for doubtful accounts $1,100 $ 285 $ -- $ 285(A) $1,100
Plant closing reserves -- -- -- -- --
Year ended December 31, 1999
Allowance for doubtful accounts $1,288 $ 125 $ -- $ 313(A) $1,100
Plant closing reserves 300 -- -- 300 --
Year ended December 31, 1998
Allowance for doubtful accounts $2,025 $(525) $ -- $ 212(A) $1,288
Plant closing reserves 5,000 -- -- 4,700 300
- -------------------
(A) Accounts written off
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3. Exhibits
EXHIBIT
NUMBER ITEM
- ------ ----
2.1 Asset Purchase Agreement dated as of December 18, 1996 among (A)
Anchor Glass Container Corporation, now known as Anchor
Resolution Corp. ("Old Anchor"), Consumers Packaging Inc. and
Owens-Brockway Glass Container Inc.
2.2 Amendment to Asset Purchase Agreement (the "Asset Purchase (A)
Agreement") dated as of February 5, 1997 by and among Old
Anchor, Consumers Packaging Inc. and Owens-Brockway Glass
Container Inc.
2.3 Order of United States Bankruptcy Court for the District of (A)
Delaware approving (i) the Asset Purchase Agreement and (ii)
the assumption and assignment of certain related executory
contracts
2.4 Order of United States Bankruptcy Court for the District of (A)
Delaware approving the Amendment to the Asset Purchase
Agreement
2.5 Memorandum of Understanding dated February 5, 1997 among Old (A)
Anchor, Consumers Packaging Inc. and the Company
2.6 Stipulation and Order of United States Bankruptcy Court for the (D)
District of Delaware relating to the Settlement
3.1 Amended and Restated Certificate of Incorporation of the Company (A)
3.2 Bylaws of the Company (A)
3.5 Certificate of Designation of Series A 10% Cumulative Convertible (A)
Preferred Stock
3.6 Certificate of Designation of Series B 8% Cumulative Convertible (A)
Preferred Stock
3.7 Amendment to Certificate of Designation for Series A 10%
Cumulative Convertible Preferred Stock (D)
3.8 Amendment to Certificate of Designation for Series B 8% (D)
Cumulative Convertible Preferred Stock
3.9 Certificate of Amendment of Certificate of Incorporation of the (D)
Company
4.1 Indenture dated as of April 17, 1997 among the Company, Consumers (A)
U.S. and The Bank of New York, as trustee
4.2 Form of Initial Notes (included in Exhibit 4.1) (A)
4.3 Form of Exchange Notes (included in Exhibit 4.1) (A)
4.4 Security Agreement dated as of April 17, 1997 among the Company, (A)
Bankers Trust Company, as Collateral Agent under the
Revolving Credit Agreement
4.5 Assignment of Security Agreement dated as of April 17, 1997 among (A)
the Company, Bankers Trust Company, as assignor, and The Bank
of New York, as assignee and as trustee under the Indenture
4.6 Pledge Agreement dated as of April 17, 1997 among Consumers U.S. (A)
and The Bank of New York, as trustee under the Indenture
4.7 Intercreditor Agreement dated as of February 5, 1997 among The (A)
Bank of New York, as Note Agent, and BT Commercial
Corporation, as Credit and Shared Collateral Agent
4.8 Amendment No. 1 to the Intercreditor Agreement, dated as of April (A)
17, 1997 among The Bank of New York as Note Agent, and BT
Commercial Corporation, as Credit and Shared Collateral Agent
4.9 Registration Rights Agreement dated as of April 17, 1997 among (A)
the Company, Consumers U.S., BT Securities Corporation and TD
Securities (USA) Inc.
4.10 Indenture dated as of March 16, 1998 among the Company, Consumers (B)
U.S. and The Bank of New York, as trustee
4.11 Form of Initial Notes (included in Exhibit 4.10) (B)
4.12 Form of Exchange Notes (included in Exhibit 4.10) (B)
4.13 Registration Rights Agreement dated as of March 16, 1998 among (B)
the Company, TD Securities and BT Alex. Brown
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EXHIBIT
NUMBER ITEM
- ------ ----
4.14 Amendment No. 2 to Intercreditor Agreement, dated as of October (L)
16, 2000 by and between The Bank of New York and Bank of America,
National Association.
10.1 Credit Agreement (the "Credit Agreement") dated as of February 5, (A)
1997 among the Company, Bankers Trust Company, as Issuing Bank,
BT Commercial Corporation, as Agent and Co-Syndication Agent, PNC
Bank, National Association, as Co-Syndication Agent and Issuing
Bank, and the various financial institutions party thereto
10.2 First Amendment to the Credit Agreement dated as of March 11, (A)
1997 among the Company, Bankers Trust Company, BT Commercial
Corporation, and PNC Bank, National Association
10.3 Second Amendment to the Credit Agreement dated as of April 9, (A)
1997 among the Company, Bankers Trust Company, BT Commercial
Corporation, and PNC Bank, National Association
10.4 Third Amendment and Waiver to the Credit Agreement dated as of (A)
May 23, 1997 among the Company, Bankers Trust Company, BT
Commercial Corporation, and PNC Bank, National Association, and
the various financial institutions party to the Credit Agreement
10.5 Fourth Amendment to the Credit Agreement dated as of September (A)
15, 1997 among the Company, Bankers Trust Company, BT Commercial
Corporation, and PNC Bank, National Association and the various
financial institutions part to the Credit Agreement
10.6 Assignment of Security Interest in U.S. Trademarks and Patents (A)
dated February 5, 1997 by the Company to BT Commercial
Corporation, as Collateral Agent under the Credit Agreement
10.7 Assignment of Security Interest in U.S. Copyrights dated February (A)
5, 1997 by the Company to BT Commercial Corporation, as
Collateral Agent under the Credit Agreement
10.8 Guaranty dated February 5, 1997, by Consumers U.S. in favor of BT (A)
Commercial Corporation and the other financial institutions party
to the Credit Agreement Plan
10.9 Termination Agreement dated February 3, 1997 by and between (A)
Consumers Packaging Inc., the Company and the Pension Benefit
Guaranty Corporation
10.10 Release Agreement among Old Anchor, the Company, the Official (A)
Committee of Unsecured Creditors of Anchor Glass Container
Corporation ("Old Anchor") and Vitro, Sociedad Anonima
10.11 Agreement (the "Vitro Agreement") dated as of December 18, 1996 (A)
between Old Anchor and Consumers Packaging Inc.
10.12 First Amendment to the Vitro Agreement dated as of February 4, (A)
1997 among Vitro, Sociedad Anonima, Consumers Packaging Inc., on
behalf of itself, and Consumers Packaging, Inc. on behalf of the
Company
10.13 Waiver Agreement dated as of February 5, 1997 by and between Old (A)
Anchor and Consumers Packaging Inc.
10.14 Assignment and Assumption Agreement dated as of February 5, 1997 (A)
by and between Consumers Packaging, Inc.
10.15 Assignment and Assumption Agreement dated as of February 5, 1997 (A)
by and between Consumers Packaging Inc. and the Company relating
to certain employee Benefit plans
10.16 Assignment and Assumption Agreement dated as of February 5, 1997 (A)
between Consumers Packaging Inc. and the Company relating to
certain commitment letters
10.17 Bill of Sale, Assignment and Assumption Agreement dated as of (A)
February 5, 1997 by and between Old Anchor and the Company
10.18 Assignment of Patent Property and Design Property from Old Anchor (A)
to the Company
10.19 Trademark Assignment from Old Anchor to the Company (A)
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EXHIBIT
NUMBER ITEM
- ------ ----
10.20 Foreign Trademark Assignment from Old Anchor to the Company (A)
10.21 Copyright Assignment from Old Anchor to the Company (A)
10.22 Agreement dated as of February 5, 1997 between the Travelers (A)
Indemnity Company and its Affiliates, including The Aetna
Casualty and Surety Company and their Predecessors, and the
Company
10.23 Allocation Agreement dated as of February 5, 1997 between (A)
Consumers Packaging Inc. and Owens-Brockway Glass Container Inc.
10.24 Supply Agreement dated as of February 5, 1997 by and between the (A)
Company and Owens-Brockway Glass Container Inc.
10.25 Transition Agreement dated as of February 5, 1997 between (A)
Consumers Packaging Inc., the Company and Owens-Brockway Glass
Container Inc.
10.26+ Technical Assistance and License Agreement executed December 18, (A)
1996 by Owens-Brockway Glass Container Inc. and Consumers
Packaging Inc.
10.27 Assurance Agreement (the "Assurance Agreement") dated as of (A)
February 5, 1997 among Owens-Brockway Glass Container, Inc.,
Consumers Packaging, Inc., the Company, BT Commercial
Corporation, Bankers Trust Company and The Bank of New York
10.28 Letter agreement relating to Assurance Agreement dated April 17, (A)
1997 addressed to Owens-Brockway Glass Container Inc. and signed
by Bankers Trust Company and The Bank of New York
10.29 Intercompany Agreement dated as of April 17, 1997 among G&G (A)
Investments, Inc., Glenshaw Glass Company, Inc., Hillsboro Glass
Company, I.M.T.E.C. Enterprises, Inc., Consumers Packaging Inc.,
Consumers International Inc., Consumers U.S., the Company, BT
Securities Corporation and The Bank of New York, as trustee under
the Indenture
10.30 Management Agreement dated as of February 5, 1997 by and between (A)
the Company and G&G Investments, Inc.
10.31 Anchor Glass Container Corporation/Key Executive Employee (A)
Retention Plan
10.32 Lease Agreement - Anchor Place at Fountain Square (the "Lease (A)
Agreement") dated March 31, 1988, by and between Old Anchor and
Fountain Associates I Ltd. Relating to the Company's headquarters
in Tampa, Florida
10.33 First Amendment to Lease Agreement effective as of June 16, 1992, (A)
by and between Fountain Associates I Ltd. And Old Anchor
10.34 Second Amendment to Lease Agreement effective as of September 30, (A)
1993, by and between Fountain Associates I Ltd. and Old Anchor
10.35 Third Amendment to Lease Agreement effective as of February 22, (A)
1995, by and between Fountain Associates I Ltd. and Old Anchor
10.36 Agreement dated as of March 31, 1996 by and between Fountain (A)
Associates I Ltd. Citicorp Leasing, Inc. and Old Anchor
10.37 Amended and Restated Agreement effective as of September 12, (A)
1996, by and between Fountain Associates I Ltd., Citicorp Leasing
Inc. and Old Anchor
10.38 Sixth Amendment to Lease and Second Amendment to Option Agreement (A)
dated as of February 5, 1997, by and between Fountain Associates
I Ltd., Citicorp Leasing, Inc. and Old Anchor
10.39 Building Option Agreement dated March 31, 1988, by and between (A)
Fountain Associates I, Ltd. and Old Anchor
10.40 First Amendment to Building Option Agreement effective as of June (A)
16, 1992, by and between Fountain Associates I. Ltd. and Old
Anchor
10.41+ Supply Agreement effective as of June 17, 1996 between The Stroh (A)
Brewery Company and the Company
10.42 Supply Agreement between Bacardi International Limited and the (A)
Company (Withdrawn upon the request of the registrant, the
Commission consenting thereto)
38
39
EXHIBIT
NUMBER ITEM
- ------ ----
10.43 Warrant Agreement dated as of February 5, 1997 between the (A)
Company and Bankers Trust Company
10.44 Form of Warrant issued pursuant to the Warrant Agreement (A)
10.45 Rebate Agreement dated as of January 1, 1996 between Bacardi (A)
International Limited and the Company (Withdrawn upon the request
of the registrant, the Commission consenting thereto)
10.46 Fifth Amendment to the Credit Agreement dated as of January 16, (B)
1998 among the Company, Bankers Trust Company, BT Commercial
Corporation, and PNC Bank, National Association and the various
financial institutions party to the Credit Agreement
10.47 Sixth Amendment to the Credit Agreement dated as of March 11, (B)
1998 among the Company, Bankers Trust Company, BT Commercial
Corporation, and PNC Bank, National Association and the various
financial institutions party to the Credit Agreement
10.48 Seventh Amendment to the Credit Agreement dated as of April 1, (C)
1998 among the Company, Bankers Trust Company, BT Commercial
Corporation, and PNC Bank, National Association and the various
financial institutions party to the Credit Agreement
10.49 First Amendment to Intercompany Agreement dated as of April 6, (D)
1998 among G&G Investments, Inc., Glenshaw Glass Company, Inc.,
Hillsboro Glass Company, I.M.T.E.C. Enterprises, Inc., Consumers
Packaging Inc., Consumers International Inc., Consumers U.S.
Inc., The Company, BT Securities Corporation and The Bank of New
York, as trustee under the indentures.
10.50+ Eleventh Amendment and Waiver dated as of September 8, 1998, to (E)
the Credit Agreement dated as of February 7, 1997, among the
Company, the financial institutions party to the Credit
Agreement, Bankers Trust Company, BT Commercial Corporation and
PNC Bank, National Association (Amendments numbered eighth, ninth
and tenth do not exist).
10.51 Second Amendment to Intercompany Agreement dated as of September (E)
8, 1998 among G&G Investments, Inc., Glenshaw Glass Company,
Inc., Hillsboro Glass Company, I.M.T.E.C. Enterprises, Inc.,
Consumers Packaging Inc., Consumers International Inc., Consumers
U.S., Inc., the Company, BT Commercial Corporation and PNC Bank.
10.52 Twelfth Amendment and Waiver dated as of January 6, 1999, to the (F)
Credit Agreement dated as of February 7, 1997, among the Company,
the financial institutions party to the Credit Agreement, Bankers
Trust Company, BT Commercial Corporation and PNC Bank, National
Association
10.53 Thirteenth Amendment and Waiver dated as of March 29, 1999, to (G)
the Credit Agreement dated as of February 7, 1997, among the
Company, the financial institutions party to the Credit
Agreement, Bankers Trust Company, BT Commercial Corporation and
PNC Bank, National Association.
10.54 Fourteenth Amendment and Waiver dated as of May 15, 1999, to the (G)
Credit Agreement dated as of February 7, 1997, among the Company,
the financial institutions party to the Credit Agreement, Bankers
Trust Company, BT Commercial Corporation and PNC Bank, National
Association.
10.55 Fifteenth Amendment and Waiver dated as of July 2, 1999, to the (G)
Credit Agreement dated as of February 7, 1997, among the Company,
the financial institutions party to the Credit Agreement, Bankers
Trust Company, BT Commercial Corporation and PNC Bank, National
Association.
10.56+ Southeast Glass Bottle Supply Agreement between Anheuser-Busch, (G)
Incorporated and Anchor Glass Container Corporation.
39
40
EXHIBIT
NUMBER ITEM
- ------ ----
10.57 Sixteenth Amendment and Waiver dated as of August 8, 1999, to the (H)
Credit Agreement dated as of February 7, 1997, among the Company,
the financial institutions party to the Credit Agreement, Bankers
Trust Company, BT Commercial Corporation and PNC Bank, National
Association.
10.58 Seventeenth Amendment and Waiver dated as of October 11, 1999, to (H)
the Credit Agreement dated as of February 7, 1997, among the
Company, the financial institutions party to the Credit
Agreement, Bankers Trust Company, BT Commercial Corporation and
PNC Bank, National Association.
10.59 Eighteenth Amendment and Waiver dated as of February 1, 2000, to (I)
the Credit Agreement dated as of February 7, 1997, among the
Company, the financial institutions party to the Credit
Agreement, Bankers Trust Company, BT Commercial Corporation and
PNC Bank, National Association.
10.60 Nineteenth Amendment and Waiver dated as of March 10, 2000, to (I)
the Credit Agreement dated as of February 7, 1997, among the
Company, the financial institutions party to the Credit
Agreement, Bankers Trust Company, BT Commercial Corporation and
PNC Bank, National Association.
10.61 Preliminary Injunction Entered Upon Consent, United States (J)
District Court Southern District of New York, Owens-Brockway
Glass Container Inc., Plaintiff, against Consumers Packaging
Inc., GGC, L.L.C., Hillsboro Glass Co., and Anchor Glass
Container Corp., Defendants.
10.62 Twentieth Amendment dated as of April 26, 2000, to the Credit (J)
Agreement dated as of February 7, 1997, among the Company, the
financial institutions party to the Credit Agreement, Bankers
Trust Company, BT Commercial Corporation and PNC Bank, National
Association.
10.63 Twenty First Amendment dated as of May 18, 2000, to the Credit (K)
Agreement dated as of February 7, 1997, among the Company, the
financial institutions party to the Credit Agreement, Bankers
Trust Company, BT Commercial Corporation and PNC Bank, National
Association.
10.64 Loan and Security Agreement dated as of October 16, 2000, among (L)
the Financial Institutions named therein, as the Lenders and Bank
of America, National Association, as the Agent and Anchor Glass
Container Corporation, as the Borrower.
10.65 Restated Intercompany Agreement dated as of October 16, 2000. (L)
10.66 Consumers U.S., Inc. Guaranty and Pledge Agreement dated as of (L)
October 16, 2000 among Consumers U.S., Inc. and Bank of America,
National Association, as agent.
10.67 Irrevocable Proxy and Pledge Agreement dated as of October 16, (L)
2000 by and between Anchor Glass Container Corporation and Bank
of America, National Association, as agent.
12.1 Statement re: computation of ratio of earnings to fixed charges
for the years ended December 31, 2000, 1999 and 1998 and the
period from February 5, 1997 to December 31, 1997
21.1 List of subsidiaries of the Company (A)
- -----------------
40
41
+ Portions hereof have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment in
accordance with Rule 406 of Regulation C.
(A) Previously filed as an exhibit to the Company's Registration Statement
on Form S-4 (Reg. No. 333-31363) originally filed with the Securities
and Exchange Commission on July 16, 1997.
(B) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and incorporated
herein by reference.
(C) Previously filed as an exhibit to the Company's Registration Statement
on Form S-4 (Reg. No. 333-50663) originally filed with the Securities
and Exchange Commission on April 21, 1998 and incorporated herein by
reference.
(D) Previously filed as an exhibit to the Company's Registration Statement
on Form 10 and incorporated herein by reference.
(E) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998 and incorporated
herein by reference.
(F) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998 and incorporated
herein by reference.
(G) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999 and incorporated herein
by reference.
(H) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999 and incorporated
herein by reference.
(I) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1999 and incorporated
herein by reference.
(J) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000 and incorporated herein
by reference.
(K) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000 and incorporated herein
by reference.
(L) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000 and incorporated
herein by reference.
All other exhibits filed herewith.
(b) Reports on Form 8-K
Current Report on Form 8-K dated October 13, 2000 (filed
October 24, 2000) reporting a stockholder derivative action
against certain of the Company's directors, officers and
certain related entities commenced by certain stockholders of
the Company. See Note 14 to the Financial Statements and Part
I - Item 3. Legal Proceedings.
Current Report on Form 8-K dated and filed November 8, 2000,
filing, as an exhibit, a press release regarding the
settlement of the litigation with Owens dated November 6,
2000. See Note 14 to the Financial Statements and Part I -
Item 3. Legal Proceedings.
41
42
INDEX TO FINANCIAL INFORMATION FOR ANCHOR
Page No.
--------
Financial Statements of Anchor:
Report of Independent Certified Public Accountants F-2
Statements of Operations and Other Comprehensive Income
Three Years ended December 31, 2000, 1999 and 1998 F-3
Balance Sheets-
December 31, 2000 and 1999 F-4
Statements of Cash Flows
Three Years ended December 31, 2000, 1999 and 1998 F-6
Statements of Stockholders' Equity (Deficit)
Three Years ended December 31, 2000, 1999 and 1998 F-8
Notes to Financial Statements F-10
F-1
43
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Anchor Glass Container Corporation:
We have audited the accompanying balance sheets of Anchor Glass Container
Corporation (a Delaware corporation) as of December 31, 2000 and 1999, and the
related statements of operations and other comprehensive loss, cash flows and
stockholders' equity (deficit) for each of the years in the three-year period
ended December 31, 2000. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
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 financial position of Anchor Glass Container
Corporation as of December 31, 2000 and 1999, and the results of its operations
and its cash flows for the each of the years in the three-year period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 14 to the
financial statements, the Company is currently facing significant uncertainties
regarding the acceleration provisions in its financing agreements that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to this matter are also described in Note 14. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. Schedule II has been subjected to the auditing procedures applied in
the audits of the basic financial statements and, in our opinion, fairly states
in all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Tampa, Florida
March 21, 2001
F-2
44
ANCHOR GLASS CONTAINER CORPORATION
STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended December 31,
---------------------------------------------------
2000 1999 1998
----------- ----------- -----------
Net sales ........................................ $ 629,548 $ 628,728 $ 643,318
Costs and expenses:
Cost of products sold ..................... 600,161 582,975 594,256
Litigation settlement ..................... 2,900 -- --
Allocable portion of software write-off ... -- 9,600 --
Restructuring charges ..................... -- -- 4,400
Selling and administrative expenses ....... 33,222 28,465 30,246
----------- ----------- -----------
Income (loss) from operations .................... (6,735) 7,688 14,416
Other income, net ................................ 5,504 2,080 2,384
Interest expense ................................. (29,750) (27,279) (26,570)
----------- ----------- -----------
Loss before extraordinary item ................... (30,981) (17,511) (9,770)
Extraordinary item-
Write-off deferred financing costs ........ (1,285) -- --
----------- ----------- -----------
Net loss ......................................... (32,266) (17,511) (9,770)
Preferred stock dividends ........................ (14,057) (13,650) (13,037)
----------- ----------- -----------
Loss applicable to common stock .................. $ (46,323) $ (31,161) $ (22,807)
=========== =========== ===========
Basic and diluted net loss per share applicable to
common stock before extraordinary item .... $ (8.58) $ (5.93) $ (5.12)
=========== =========== ===========
Basic and diluted net loss per share applicable to
common stock .............................. $ (8.82) $ (5.93) $ (5.12)
=========== =========== ===========
Basic weighted average number of common
shares outstanding ........................ 5,251,356 5,251,356 4,455,466
=========== =========== ===========
Other comprehensive loss:
Net loss .................................. $ (32,266) $ (17,511) $ (9,770)
Other comprehensive income (loss):
Minimum pension liability adjustment .. (13,000) 158 382
----------- ----------- -----------
Comprehensive loss ............................... $ (45,266) $ (17,353) $ (9,388)
=========== =========== ===========
See Notes to Financial Statements.
F-3
45
ANCHOR GLASS CONTAINER CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
December 31,
---------------------------
Assets 2000 1999
--------- ---------
Current assets:
Cash and cash equivalents ..................................... $ 4,532 $ 5,278
Accounts receivable, less allowance for doubtful accounts
of $1,100 and $1,100, respectively ...................... 35,260 46,201
Intercompany receivables ...................................... 20,558 7,355
Inventories:
Raw materials and manufacturing supplies ................ 22,408 24,415
Finished products ....................................... 103,113 82,562
Other current assets .......................................... 9,765 7,603
--------- ---------
Total current assets ................................ 195,636 173,414
Property, plant and equipment:
Land .................................................... 3,819 3,819
Buildings ............................................... 57,012 56,119
Machinery, equipment and molds .......................... 403,456 369,042
Cash held in escrow ..................................... -- 8,258
Less accumulated depreciation and amortization .......... (179,079) (129,787)
--------- ---------
285,208 307,451
Assets held for sale .......................................... 8,516 12,550
Other assets .................................................. 28,016 29,545
Intangible pension asset ...................................... 25,822 5,343
Advance to affiliate .......................................... 17,330 17,571
Strategic alliances with customers, net of accumulated
amortization of $8,828 and $4,976, respectively ......... 12,451 16,359
Goodwill, net of accumulated
amortization of $11,577 and $8,601, respectively ........ 47,828 50,804
--------- ---------
$ 620,807 $ 613,037
========= =========
See Notes to Financial Statements.
F-4
46
ANCHOR GLASS CONTAINER CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
December 31,
---------------------------
Liabilities and Stockholders' Equity (Deficit) 2000 1999
--------- ---------
Current liabilities:
Revolving credit facility ........................................... $ 58,957 $ 40,895
Current maturities of long-term debt ................................ 1,937 2,029
Accounts payable .................................................... 52,139 48,350
Intercompany payables ............................................... 11,746 9,979
Accrued expenses .................................................... 29,181 27,615
Accrued interest .................................................... 5,686 5,953
Accrued compensation and employee benefits .......................... 27,104 23,895
--------- ---------
Total current liabilities ..................................... 186,750 158,716
Long-term debt ...................................................... 208,385 210,208
Long-term pension liabilities ....................................... 65,033 29,912
Long-term post-retirement liabilities ............................... 60,107 59,464
Other long-term liabilities ......................................... 28,730 37,720
--------- ---------
362,255 337,304
Commitments and contingencies
Redeemable preferred stock, Series A, $.01 par value; authorized,
issued and outstanding 2,239,320 shares:
$25 liquidation and redemption value, plus accrued dividends ... 76,428 70,830
--------- ---------
Stockholders' equity (deficit):
Preferred stock, Series B, $.01 par value: authorized 5,000,000
shares; issued and outstanding 3,360,000 shares;
$25 liquidation and redemption value ........................... 34 34
Issuable preferred stock, 869,235 shares at $25 per share ...... 21,731 21,731
Common stock, $.10 par value; authorized 50,000,000 shares;
issued and outstanding 2,160,487 shares (1999-2,158,031) ....... 216 216
Warrants; issued and outstanding 3,090,869 shares (1999-3,093,325) .. 15,433 15,445
Capital in excess of par value ...................................... 98,403 98,340
Accumulated deficit ................................................. (127,443) (89,579)
Additional minimum pension liability ................................ (13,000) --
--------- ---------
(4,626) 46,187
--------- ---------
$ 620,807 $ 613,037
========= =========
F-5
47
ANCHOR GLASS CONTAINER CORPORATION
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Years Ended December 31,
------------------------------------------
2000 1999 1998
-------- -------- --------
Cash flows from operating activities:
Net loss .................................................... $(32,266) $(17,511) $ (9,770)
Extraordinary item .......................................... 1,285 -- --
Adjustments to reconcile loss before extraordinary item
to net cash provided by (used in) operating activities:
Depreciation and amortization ........................ 57,259 54,054 53,881
Litigation settlement ................................ 2,900 -- --
Gain on sale of property, plant and equipment ........ (4,161) (1,102) --
Allocable portion of software write-off .............. -- 9,600 --
Restructuring charges ................................ -- -- 4,400
Other ................................................ 879 1,423 183
Increase (decrease) in cash resulting from changes
in assets and liabilities ................................ (15,853) 4,574 (63,205)
-------- -------- --------
10,043 51,038 (14,511)
Cash flows from investing activities:
Expenditures for property, plant and equipment .............. (39,805) (44,709) (41,367)
Proceeds from the sale of property, plant and equipment ..... 12,382 10,637 2,723
Deposit of sale proceeds into escrow account ................ (14,205) (8,258) --
Withdrawal of funds from escrow account ..................... 22,463 -- --
Payments of strategic alliances with customers .............. (1,800) (2,000) (10,000)
Purchase of Stock in Parent, held for Pension Fund .......... -- (3,000) --
Acquisition related contribution to pension plans ........... -- -- (745)
Other ....................................................... (2,757) (1,644) (1,481)
-------- -------- --------
(23,722) (48,974) (50,870)
Cash flows from financing activities:
Proceeds from issuance of long-term debt .................... -- -- 50,000
Principal payments of long-term debt ........................ (2,058) (984) (540)
Net draws (repayments) on revolving credit facility ......... 18,062 (9,267) 39,694
Sale of note receivable ..................................... -- 11,200 --
Dividends paid on Series A Preferred Stock .................. -- (1,411) --
Advance to affiliate ........................................ -- -- (17,330)
Other, primarily financing fees ............................. (3,071) (430) (3,397)
-------- -------- --------
12,933 (892) 68,427
Cash and cash equivalents:
Increase (decrease) in cash and cash equivalents ............ (746) 1,172 3,046
Balance, beginning of year .................................. 5,278 4,106 1,060
-------- -------- --------
Balance, end of year ........................................ $ 4,532 $ 5,278 $ 4,106
======== ======== ========
See Notes to Financial Statements.
F-6
48
ANCHOR GLASS CONTAINER CORPORATION
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Years Ended December 31,
-------------------------------------------
2000 1999 1998
-------- -------- --------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ................................................................... $ 27,657 $ 26,775 $ 23,973
======== ======== ========
Increase (decrease) in cash resulting from changes in assets and liabilities:
Accounts receivable ........................................................ $ 10,607 $ 12,013 $ (3,044)
Accounts receivable, intercompany .......................................... (13,203) 11,466 (27,399)
Inventories ................................................................ (18,544) (2,648) 15,794
Other current assets ....................................................... (2,455) 931 (161)
Accounts payable, accrued expenses and other
current liabilities ..................................................... (4,683) (19,765) (35,031)
Other, net ................................................................. 12,425 2,577 (13,364)
-------- -------- --------
$(15,853) $ 4,574 $(63,205)
======== ======== ========
Supplemental noncash activities:
Non-cash equipment financing ................................................... $ -- $ 9,254 $ 930
======== ======== ========
Non-cash compensation .......................................................... $ 828 $ -- $ --
======== ======== ========
The Company considers short-term investments with original maturities of ninety
days or less at the date of purchase to be cash equivalents.
F-7
49
ANCHOR GLASS CONTAINER CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------------
Series B Issuable Capital Accumu- Minimum Total
Preferred Common Preferred In Excess lated Pension Stockholders'
Stock Stock Stock Warrants of Par Deficit Liability Equity
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1998 $ 34 $ 139 $ 6,240 $ 10,518 $ 92,294 $(35,611) $ (540) $ 73,074
Warrants issued -- -- 8,750 -- -- -- 8,750
Warrants exercised -- 24 (1,195) 1,171 -- -- --
Pay-in-kind dividends
Payable to Consumers
U.S. on Series B
Preferred Stock -- -- 7,439 -- -- (7,439) -- --
Contribution from shareholder
related to profit on
intercompany sales -- -- -- -- 1,100 -- -- 1,100
Dividends accrued on Series
A Preferred stock -- -- -- -- -- (5,598) -- (5,598)
Net loss -- -- -- -- -- (9,770) -- (9,770)
Amount related to minimum
pension liability -- -- -- -- -- -- 382 382
--------------------------------------------------------------------------------------------
Balance, December 31, 1998 $ 34 $ 163 $ 13,679 $ 18,073 $ 94,565 $(58,418) $ (158) $ 67,938
--------------------------------------------------------------------------------------------
Warrants exercised -- 53 -- (2,628) 2,575 -- -- --
Pay-in-kind dividends
Payable to Consumers
U.S. on Series B
Preferred Stock -- -- 8,052 -- -- (8,052) -- --
Contribution from shareholder
related to profit on
intercompany sales -- -- -- -- 1,200 -- -- 1,200
Dividends accrued on Series
A Preferred stock -- -- -- -- -- (5,598) -- (5,598)
Net loss -- -- -- -- -- (17,511) -- (17,511)
Amount related to minimum
pension liability -- -- -- -- -- -- 158 158
--------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ 34 $ 216 $ 21,731 $ 15,445 $ 98,340 $(89,579) $ -- $ 46,187
============================================================================================
F-8
50
ANCHOR GLASS CONTAINER CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------------
Series B Issuable Capital Accumu- Minimum Total
Preferred Common Preferred In Excess lated Pension Stockholders'
Stock Stock Stock Warrants of Par Deficit Liability Equity
- ---------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2000 $34 $216 $21,731 $ 15,445 $98,340 $ (89,579) $ -- $ 46,187
Warrants exercised -- -- -- (12) 12 -- -- --
Contribution from shareholder
related to profit on
intercompany sales -- -- -- -- 51 -- -- 51
Dividends accrued on Series
A Preferred stock -- -- -- -- -- (5,598) -- (5,598)
Net loss -- -- -- -- -- (32,266) -- (32,266)
Amount related to minimum
pension liability -- -- -- -- -- -- (13,000) (13,000)
----------------------------------------------------------------------------------------
Balance, December 31, 2000 $34 $216 $21,731 $ 15,433 $98,403 $(127,443) $(13,000) $ (4,626)
========================================================================================
See Notes to Financial Statements.
F-9
51
ANCHOR GLASS CONTAINER CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization of the Company
Anchor Glass Container Corporation (the "Company"), a Delaware
corporation and a majority-owned subsidiary of Consumers Packaging Inc.
("Consumers"), was formed in January 1997 to acquire certain assets and assume
certain liabilities of the former Anchor Glass Container Corporation ("Old
Anchor"), which was subsequently liquidated in a proceeding under Chapter 11 of
the United States Bankruptcy Code of 1978, as amended.
On February 5, 1997, pursuant to an Asset Purchase Agreement dated
December 18, 1996, as amended (the "Asset Purchase Agreement"), among Consumers,
Owens-Brockway Glass Container Inc. ("Owens") and Old Anchor, the Company (the
rights and obligations of Consumers having been assigned to the Company) and
Owens acquired substantially all of the assets, and assumed certain liabilities,
of Old Anchor (the "Anchor Acquisition").
The Company is part of a group of glass manufacturing companies with
Consumers and GGC, L.L.C. ("GGC"), each of which is controlled through G&G
Investments, Inc. ("G&G"), the majority owner of Consumers. The Company
currently engages in a variety of transactions with Consumers and GGC as a part
of its strategy to achieve synergies among the companies. These expected
transactions may include bulk purchasing of raw and packaging materials,
provision of technical and engineering services, joint utilization of the
Company's mold and repair shops and the consolidation of certain functions such
as sales, engineering and management information services.
Business Segment
The Company is engaged in the manufacture and sale of a diverse line of
clear, amber, green and other color glass containers of various types, designs
and sizes to customers principally in the beer, liquor, food, tea and beverage
industries. The Company markets its products throughout the United States. The
Company's international and export sales are insignificant. Sales to
Anheuser-Busch Companies, Inc. ("Anheuser-Busch") represented approximately
32.7%, 29.0% and 17.1%, respectively, of total net sales for the three years
ended December 31, 2000, 1999 and 1998. The loss of a significant customer,
unless replaced, could have a material adverse effect on the Company's business.
Revenue Recognition
Revenues are recognized as product is shipped to customers. The Company
may invoice customers to recover certain cost increases.
Inventories
Inventories are stated at the lower of cost or market. The cost of
substantially all inventories of raw materials and semi-finished and finished
products is determined on the first-in, first-out method. Manufacturing supplies
and certain other inventories are valued at weighted average costs.
F-10
52
Property, Plant and Equipment
Property, plant and equipment expenditures, including furnace rebuilds
which extend useful lives and expenditures for glass forming machine molds are
capitalized. For financial statement purposes, these assets are depreciated
using the straight-line method over the estimated useful lives of the assets,
except for molds which are depreciated on a unit of production method based on
units of glass produced, supplemented by a net realizable formula to cover
technical obsolescence. Accelerated depreciation methods are principally used
for tax purposes. Generally, annual depreciation rates range from 2.5% for
buildings and 6.3% to 20% for machinery and equipment. Furnace and machine
rebuilds, which are recurring in nature and which extend the lives of the
related assets, are capitalized and depreciated over the period of extension,
generally at rates of 20% to 25%, based on the type and extent of these
rebuilds. Depreciation of leased property recorded as capital assets is computed
on a straight-line basis over the estimated useful lives of the assets.
Maintenance and repairs are charged directly to expense as incurred.
Assets Held for Sale
Assets held for sale consist of real estate and closed manufacturing
facilities, that are carried at the lower of cost or net realizable value.
Strategic Alliances with Customers
The Company has entered into long-term agreements with several
customers. Payments made or to be made to these customers are being amortized as
a component of net sales on the statement of operations over the term of the
related supply contract, which range between 3 and 12 years, based upon
shipments.
On April 30, 1999, The Stroh Brewery Company ("Stroh") closed on an
agreement to sell its assets to Pabst Brewing Company ("Pabst") and Miller
Brewing Company ("Miller"). Under the terms of this agreement, the Company
received $5,000 in cash and a non-interest bearing note in the amount of $14,000
from Miller in satisfaction of the unamortized balance of the Stroh strategic
alliance agreement. The note was sold to a third party in the second quarter of
1999. In satisfaction of a portion of the Stroh outstanding trade accounts
receivable, the Company received from Pabst, a five year note in the amount of
$5,000 and a 68 month note in the amount of $5,000, representing a strategic
alliance with Pabst. Pabst is committed to take a specified quantity of
production during the note period or repay the strategic alliance note.
Goodwill
Goodwill represents the excess of the purchase price over the estimated
fair value of net assets acquired and is amortized on a straight-line basis over
a twenty-year period. Amortization expense for the years ended December 31,
2000, 1999 and 1998 were $2,976, $2,976 and $2,768, respectively.
Impairment of Long-Lived Assets
Statement of Financial Accounting Standards No. 121 - Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
("SFAS 121") establishes the recognition and measurement standards related to
the impairment of long-lived assets. The Company periodically assesses the
realizability of long-lived assets. SFAS 121 did not have a material effect on
the Company's results of operations or financial position for the three years
ended December 31, 2000.
Income Taxes
The Company applied Statement of Financial Accounting Standards No. 109
- - Accounting for Income Taxes ("SFAS 109") which establishes financial
accounting and reporting standards for the effects of income taxes which result
from a company's activities during the current and preceding years.
F-11
53
Accounts Payable
Accounts payable includes the amount of checks issued and outstanding.
Retirement Plans
The Company has non-contributory retirement plans, covering
substantially all salaried and hourly employees. The Company's funding policy is
to pay at least the minimum amount required by the Employee Retirement Income
Security Act of 1974 and the Retirement Protection Act of 1994, which requires
the Company to make significant additional contributions into its underfunded
defined benefit plans, under certain conditions. At December 31, 2000 and 1999,
the Company recorded an additional minimum pension liability representing the
excess of the underfunded liability over previously recorded accrued pension
costs.
Post-retirement Benefits
Statement of Financial Accounting Standards No. 106 - Employers'
Accounting for Post-retirement Benefits Other Than Pensions ("SFAS 106")
requires accrual of post-retirement benefits (such as healthcare benefits)
during the period that an employee provides service. This accounting method does
not affect the Company's cash outlays for these post-retirement benefits.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 - Disclosures about
Fair Value of Financial Instruments requires disclosure of the estimated fair
values of certain financial instruments. The estimated fair value amounts have
been determined using available market information or other appropriate
valuation methodologies that require considerable judgment in interpreting
market data and developing estimates. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts. Long-term debt is estimated to have a fair value of approximately
$125,000 as of December 31, 2000. The carrying amount of other financial
instruments, except for the natural gas futures discussed in Note 13,
approximate their estimated fair values.
The fair value information presented herein is based on information
available to management as of December 31, 2000. Although management is not
aware of any factors that would significantly affect the estimated value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date and, therefore, the current estimates
of fair value may differ significantly from the amounts presented herein.
From time to time, the Company may enter into interest rate swap
agreements that effectively hedge interest rate exposure. The net cash amount
paid or received on these agreements is accrued and recognized as an adjustment
to interest expense.
New Accounting Standards
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 - Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS 137 and SFAS 138 ("SFAS
133"). SFAS 133, effective for fiscal years beginning after June 15, 2000,
establishing accounting and reporting standards requiring every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS 133 requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting
treatment. The Company has implemented SFAS 133 effective
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January 1, 2001 and has determined that the impact of this pronouncement is
currently not material. However, accounting for SFAS 133 could increase
volatility in earnings and other comprehensive income in future periods.
Earnings per Share
Basic income (loss) per common share is computed by dividing net income
(loss) applicable to common stock by the weighted-average number of common
shares and contingently issuable shares outstanding during the period. Warrants
outstanding are contingently issuable shares as they are issuable for no
additional consideration and the conditions necessary for share exercise have
been met. There is no effect given for the assumed conversion of preferred
stock, as the conversion would be anti-dilutive.
The computation of basic loss per share is as follows (dollars in
thousands, except per share data):
Years Ended December 31,
------------------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------
Basic and diluted net loss per share
Loss applicable to common stock .................... $ (46,323) $ (31,161) $ (22,807)
Divided by
Weighted average shares outstanding, plus ...... 2,158,431 1,764,892 1,410,531
Weighted average warrants outstanding .......... 3,092,925 3,486,464 3,044,935
----------- ----------- -----------
5,251,356 5,251,356 4,455,466
----------- ----------- -----------
Basic and diluted net loss per share applicable
to common stock ................................ $ (8.82) $ (5.93) $ (5.12)
=========== =========== ===========
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 estimated.
Reclassifications
Certain reclassifications have been made to prior year financial
statements to be consistent with the current year presentation.
NOTE 2 - SALE OF CLOSED MANUFACTURING FACILITY
In March 2000, Anheuser-Busch purchased the Company's previously closed
Houston, Texas glass container manufacturing facility and certain related
operating rights. The Company received proceeds of $10,000 from the sale.
Concurrently, Consumers, for an aggregate consideration of $15,000, entered into
a contract with Anheuser-Busch to manage the renovation and provide the
technical expertise in the re-opening of the Houston facility, while
simultaneously agreeing to give up all rights under a proposed joint venture
agreement with Anheuser-Busch to own and operate the Houston facility. These
transactions are the subject of litigation. See Note 13. In December 2000, the
Company entered into a contract with Anheuser-Busch to provide management
assistance in the operation of the facility upon its refurbishment. The contract
becomes effective at the completion of the renovation, scheduled for the second
quarter of 2001.
NOTE 3 - PURCHASE OF ASSETS
The purchase price of the Anchor Acquisition approximated $250,000 and
was comprised of: approximately $200,500 in cash, $47,000 face amount (1,879,320
shares) of mandatorily redeemable 10% cumulative convertible preferred stock
("Series A Preferred Stock") and $2,500 of common stock (490,898 shares with an
estimated value of $5.00 per share) of the Company.
F-13
55
In June 1998, as part of an adjustment to the purchase price for the
Anchor Acquisition, the Company paid to Old Anchor an additional $1,000 in cash
and issued 1,225,000 warrants to purchase additional shares of common stock,
valued at approximately $6,100. In addition, the Company issued 525,000 warrants
to purchase additional shares of common stock, valued at approximately $2,600,
to an affiliate of Consumers U.S., Inc., ("Consumers U.S.") the Company's parent
and a wholly-owned indirect subsidiary of Consumers. No payment is required upon
exercise of these warrants.
The Company obtained the cash portion of the purchase price principally
from an $85,000 cash investment by Consumers in $84,000 face amount (3,360,000
shares) of redeemable 8% cumulative convertible preferred stock (the "Series B
Preferred Stock") and $1,000 of common stock (200,000 shares) and a $130,000
bank loan.
The Anchor Acquisition was accounted for by using the purchase method,
with the purchase price being allocated to the assets acquired and
pre-acquisition liabilities assumed based on their estimated fair value at the
date of acquisition. These allocations were based on appraisals, evaluations,
estimations and other studies. Certain acquisition costs and fees, including the
costs of closing and consolidating certain facilities, were recorded at the date
of acquisition. The excess of the purchase price over the fair value of net
assets purchased of approximately $59,405 is classified as Goodwill on the
accompanying balance sheet.
NOTE 4 - REVOLVING CREDIT FACILITY
In conjunction with the Anchor Acquisition, the Company entered into a
credit agreement providing for a $110,000 revolving credit facility (the
"Original Credit Facility"). In October 2000, the Company replaced the Original
Credit Facility with a credit facility under a Loan and Security Agreement dated
as of October 16, 2000, with Bank of America, National Association, as agent
(the "Loan and Security Agreement"), to provide a $100,000 senior secured
revolving credit facility (the "Replacement Credit Facility"). The Replacement
Credit Facility enables the Company to obtain revolving credit loans for working
capital purposes and the issuance of letters of credit for its account in an
aggregate amount not to exceed $100,000. Advances outstanding at any one time
cannot exceed an amount equal to the borrowing base as defined in the Loan and
Security Agreement.
As a result of the uncertainties discussed in Note 14, the Company's
outside auditors have rendered a qualified opinion on the Company's financial
statements. The failure by the Company to obtain an unqualified opinion on its
financial statements is an event of default under the Loan and Security
Agreement (as defined). The Company will seek a waiver from its lenders but
there is no assurance that this will be forthcoming. In the event no waiver is
received and the lenders demand repayment, an event of default is also created
under the First Mortgage Note and Senior Note Indentures, causing the
possibility of an acceleration as described in Note 14. Furthermore, such a
demand by the lenders also creates an event of default under various equipment
leases.
Revolving credit loans bear interest at a rate based upon the prime
rate or LIBOR rate, plus a variable margin, as defined. Interest is payable
monthly. An unused line fee of 0.5% on the unused portion of the facility and
letter of credit fees, as defined, are payable monthly. The Replacement Credit
Facility expires October 16, 2003.
The Company's obligations under the Loan and Security Agreement are
secured by a first priority lien on all of the Company's inventories and
accounts receivable and related collateral and a second priority pledge of all
of the issued and issuable Series B Preferred Stock of the Company and 902,615
shares of the Company's Common Stock. In addition, the Company's obligations
under the Loan and Security Agreement are guaranteed by Consumers U.S., the
holder of the outstanding Series B Preferred Stock of the Company and 902,615
shares of the Company's Common Stock.
The Loan and Security Agreement contains certain covenants that
restrict the Company's ability to take various actions, including, subject to
specified exceptions, the incurrence of additional indebtedness, the granting of
additional liens, the making of investments, the payment of dividends and other
restricted payments, mergers, acquisitions, sales of assets and other
fundamental corporate changes, capital
F-14
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expenditures, operating lease payments and transactions with affiliates. The
Loan and Security Agreement also contains a financial covenant that requires the
Company to maintain a fixed charge coverage ratio.
At December 31, 2000, advances outstanding under the Replacement Credit
Facility were $58,957 and the borrowing availability was $11,260. The total
outstanding letters of credit on this facility were $11,296. At December 31,
2000, the weighted average interest rate on borrowings outstanding was 9.2%.
During 2000, average advances outstanding were approximately $49,669, the
average interest rate was 9.3% and the highest month-end advance was $58,957.
As a result of the refinancing of the Original Credit Facility,
deferred financing fees of $1,285 were written off in the fourth quarter of
2000.
The Original Credit Facility enabled the Company to obtain revolving
credit loans for working capital purposes and the issuance of letters of credit
for its account in an aggregate amount not to exceed $110,000. Advances
outstanding at any one time could not exceed an amount equal to the borrowing
base as defined in the Original Credit Facility. Revolving credit loans bore
interest at a rate based upon, at the Company's option, (i) the higher of the
prime rate of BTCo, 0.5% in excess of the overnight federal funds rate and 0.5%
in excess of the adjusted certificate of deposit rate, as defined, each plus a
defined margin, or (ii) the average of the offering rates of banks in the New
York interbank Eurodollar market, plus a defined margin. Interest was payable
monthly. A commitment fee of 0.5% on the unused portion of the facility and
letter of credit fees, as defined, were payable quarterly.
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
December 31,
-----------------------
2000 1999
--------- ---------
$150,000 First Mortgage Notes, interest at 11 1/4% due 2005...... $ 150,000 $ 150,000
$ 50,000 Senior Notes, interest at 9 7/8% due 2008............... 50,000 50,000
Other............................................................ 10,322 12,237
--------- ---------
210,322 212,237
Less current maturities.......................................... 1,937 2,029
--------- ---------
$ 208,385 $ 210,208
========= =========
Effective March 16, 1998, the Company completed an offering of an
aggregate principal amount of $50,000 of its 9 7/8% Senior Notes due 2008 (the
"Senior Notes") issued under an indenture dated as of March 16, 1998, among the
Company, Consumers U.S. and The Bank of New York, as Trustee. The Senior Notes
are unsecured obligations of the Company ranking equal in right of payment with
all existing and future senior indebtedness of the Company and senior in right
of payment to all existing and future subordinated indebtedness of the Company.
Proceeds from the issuance of the Senior Notes have been used for growth capital
expenditures and general corporate purposes.
Interest on the Senior Notes accrues at 9 7/8% per annum and is payable
semiannually on each March 15 and September 15 to registered holders of the
Senior Notes at the close of business on the March 1 and September 1 immediately
preceding the applicable interest payment date.
The Company entered into a Registration Rights Agreement on March 16,
1998. Pursuant to the agreement, the Company filed an exchange offer
registration statement with the Securities and Exchange Commission, which was
declared effective on April 28, 1998. In June 1998, the Company completed an
offer to the holders of the Senior Notes to exchange their Senior Notes for like
principal amount of new Senior Notes, substantially identical to the Senior
Notes except that the new Senior Notes do not contain terms with respect to
transfer restrictions.
The Senior Notes are redeemable at any time at the option of the
Company, in whole and not in part, at redemption prices defined in the
indenture. The Indenture provides that upon the occurrence of a
F-15
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change in control, the Company will be required to offer to repurchase all of
the Senior Notes at a purchase price equal to 101% of the principal amount plus
interest accrued to the date of purchase. See Note 14.
Effective April 17, 1997, the Company completed an offering of $150,000
11 1/4% First Mortgage Notes, due 2005, (the " First Mortgage Notes"), issued
under an indenture dated as of April 17, 1997, among the Company, Consumers U.S.
and The Bank of New York, as Trustee. The First Mortgage Notes are senior
secured obligations of the Company, ranking senior in right of payment to all
existing and future subordinate indebtedness of the Company and equal with all
existing and future senior indebtedness of the Company. The First Mortgage Notes
are guaranteed by Consumers U.S.
The Company entered into a Registration Rights Agreement on April 17,
1997. Following the issuance of the First Mortgage Notes, the Company filed with
the Securities and Exchange Commission an exchange offer registration statement,
declared effective on February 12, 1998, with respect to an issue of 11 1/4%
First Mortgage Notes, due 2005, identical in all material respects to the First
Mortgage Notes, except that the new First Mortgage Notes would not bear legends
restricting the transfer thereof. In March 1998, the Company completed an offer
to the holders of the First Mortgage Notes to exchange their First Mortgage
Notes for a like principal amount of new First Mortgage Notes. As a result of
delays in having the registration statement declared effective and in
consummating the related exchange offer within prescribed periods, additional
interest was payable to the holders of the First Mortgage Notes in 1998.
Interest on the First Mortgage Notes accrues at 11 1/4% per annum and
is payable semiannually on each April 1 and October 1 to registered holders of
the First Mortgage Notes at the close of business on the March 15 and September
15 immediately preceding the applicable interest payment date.
The First Mortgage Notes are redeemable, in whole or in part, at the
Company's option on or after April 1, 2001, at redemption prices defined in the
indenture. The indenture provides that upon the occurrence of a change in
control, the Company will be required to offer to repurchase all of the First
Mortgage Notes at a purchase price in cash equal to 101% of the principal amount
plus interest accrued to the date of purchase. See Note 14. Prior to the sale of
the First Mortgage Notes, the Company entered into an interest rate swap
agreement to partially protect the Company from interest rate fluctuations until
such time as the fixed interest rate on the First Mortgage Notes was
established. The agreement was terminated concurrent with the interest rate of
the First Mortgage Notes being set. The realized gain on the agreement,
approximately $1,900, has been deferred and is being amortized over the term of
the First Mortgage Notes.
All of the obligations of the Company under the First Mortgage Notes
and the indenture are secured by a first priority perfected security interest in
substantially all of the existing and future real property, personal property
and other assets of the Company and a first priority perfected security interest
in collateral ranking equal with the security interest in favor of the
Replacement Credit Facility.
The indentures covering the First Mortgage Notes and the Senior Notes
(the "Indentures"), subject to certain exceptions, restrict the Company from
taking various actions, including, but not limited to, subject to specified
exceptions, the incurrence of additional indebtedness, the granting of
additional liens, the payment of dividends and other restricted payments,
mergers, acquisitions and transactions with affiliates.
All of the Company's debt agreements contain cross-default provisions.
Other long-term debt includes capital leases, which have imputed
interest rates ranging from 6.0% to 9.0%. Imputed interest on capital leases as
of December 31, 2000 was $3,594.
Principal payments required on long-term debt are $1,937 in 2001,
$2,099 in 2002, $2,049 in 2003, $1,998 in 2004 and $151,887 in 2005. Payments to
be made in 2006 and thereafter are $50,352.
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58
NOTE 6 - REDEEMABLE PREFERRED STOCK
The Company has designated 2,239,320 shares as Series A Preferred Stock
and 5,000,000 shares as Series B Preferred Stock. The Series A Preferred Stock
ranks, as to dividends and redemption and upon liquidation, prior to all other
classes and series of capital stock of the Company. The holders of Series A
Preferred Stock are entitled to receive, when and as declared by the Board of
Directors of the Company, cumulative dividends, payable quarterly in cash, at an
annual rate of 10%. Unpaid dividends have been accrued and included with the
value of the related preferred stock on the balance sheets. Holders of Series A
Preferred Stock are not entitled to vote, except as defined in its Certificate
of Designation. The Company has paid one quarterly dividend in 1999 of
approximately $1,411. Unpaid dividends have been accrued and included with the
value of the related preferred stock on the balance sheets.
The Company is required to redeem all outstanding shares of the Series
A Preferred Stock on January 31, 2009, and, on or after February 5, 2000, may,
at its option, redeem outstanding shares of Series A Preferred Stock at a price
of $25.00 per share, if the trading price of the common stock equals or exceeds
$6.00 per share. Shares of Series A Preferred Stock are convertible into shares
of common stock, at the option of the holder, at a ratio determined by dividing
the liquidation value of the Series A Preferred Stock by $6.00 and such ratio is
subject to adjustment from time to time.
Pursuant to the Asset Purchase Agreement, the Company registered all
common stock and Series A Preferred Stock under the Securities Exchange Act and
is obligated to qualify the shares for listing on a nationally recognized United
States securities exchange or on The NASDAQ Stock Market's National Market.
The Series B Preferred Stock ranks, as to dividends and redemption and
upon liquidation, junior to the Series A Preferred Stock but senior to all other
classes and series of capital stock of the Company. The holders of Series B
Preferred Stock are entitled to receive cumulative dividends, payable quarterly
at an annual rate of 8%. Dividends on the Series B Preferred Stock are recorded
within the caption accumulated deficit on the balance sheet until declared.
Cumulative and unpaid dividends at December 31, 2000 were approximately $8,500.
During the period from February 5, 1997 through and including December 31, 1999,
the dividend was payable in additional shares of Series B Preferred Stock.
Thereafter, the dividends are payable in cash when and as declared by the Board
of Directors. Holders of Series B Preferred Stock are not entitled to vote,
except as defined in its Certificate of Designation.
Shares of Series B Preferred Stock are not subject to mandatory
redemption. On or after February 5, 2000, the Company may, at its option, redeem
outstanding shares of Series B Preferred Stock at a price of $25.00 per share,
if the trading price of the common stock equals or exceeds $5.50 per share.
Shares of Series B Preferred Stock are convertible into shares of common stock,
at the option of the holder, at a ratio determined by dividing the liquidation
value of the Series B Preferred Stock by $5.50 and such ratio is subject to
adjustment from time to time.
NOTE 7 - COMMON STOCK
For the period from February 5, 1997 to February 5, 2000, the common
stock was divided into three classes, Class A and Class B, which were voting,
and Class C, which was non-voting. On February 5, 2000, the three classes of
common stock were consolidated into one single class of common stock with
identical rights. At December 31, 2000, the Company had outstanding warrants
exercisable for 3,090,869 shares of common stock. None of the warrants will
require any payment upon exercise.
NOTE 8 - RELATED PARTY INFORMATION
The Company has entered into a Restated Intercompany Agreement (the
"Intercompany Agreement") with G&G, Consumers, Consumers U.S., Consumers
International Inc., GGC, Hillsboro Glass Company ("Hillsboro"), I.M.T.E.C.
Enterprises, Inc., a machinery manufacturer majority-owned by G&G, and certain
related companies which establishes standards for certain intercompany
transactions. There is a disagreement among the directors as to the propriety of
the replacement of the original intercompany agreement with the Restated
Intercompany Agreement. Pursuant to the Intercompany Agreement, the Company may,
from time to time, fill orders for customers of Affiliated Glass Manufacturers
and Affiliated Glass Manufacturers may, from time to time fill orders for
F-17
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customers of the Company. Through 2000, in such case, where the customer was not
a common customer, the manufacturing company paid a market commission, up to 5%
of the invoiced amount, to the company that referred the customer. In the event
of a transfer of a customer to the Company by an Affiliated Glass Manufacturer
or to an Affiliated Glass Manufacturer by the Company, the transfer is treated
as though the transferee had filled the orders for the transferred customer. The
commission program ceased in 2001 and was replaced with a cost sharing
arrangement.
In connection with any bulk purchasing of raw materials, packaging
materials, machinery, insurance, maintenance services, environmental services,
design and implementation of certain software systems and other items and
services used in this business, each of the Affiliated Glass Manufacturers will
share out-of-pocket costs of the purchasing activities without payment of
commissions. Similarly, in connection with the provision of technical,
engineering or mold design services, the company providing the services will
receive reasonable per diem fees and costs for the employees provided. For
services such as the provision of molds, the company providing the service will
receive cost plus a reasonable market mark-up.
G&G Investments, Inc.
The Company is party to a management agreement with G&G, in which G&G
is to provide specified managerial services for the Company. For these services,
G&G is entitled to receive an annual management fee of up to $3,000 and
reimbursement of its out-of-pocket costs. The terms of the indentures, the
Original Credit Facility and the Replacement Credit Facility limit the
management fee annual payment to $1,500 unless certain financial maintenance
tests are met. The Company has recorded a management fee expense of $1,500,
$1,500 and $3,000, respectively, for this agreement for the three years ended
December 31, 2000, 1999 and 1998, of which $375 remains outstanding as of
December 31, 2000. Depending on the facts and circumstances at the time, amounts
not paid, may be payable, when not prohibited under the Indentures or other
senior indebtedness. Out-of-pocket costs for the two years ended December 31,
2000 were approximately $250 and $296, respectively, of which $171 remains
outstanding.
Related party transactions with affiliates of G&G, including Interstate
Express for freight purchases, (and including GGC for the year ended December
31, 1998, prior to its acquisition by Consumers) are summarized as follows:
- ------------------------------------------------------------------------------------------------
Years Ended December 31,
---------------------------------
2000 1999 1998
- ------------------------------------------------------------------------------------------------
Purchases of freight .................................. $ 3,078 $ 3,904 $ 3,340
Payable for freight ................................... 456 131 82
Purchases of inventory and other ...................... 89 879 2,363
Payable for inventory and other ....................... 27 211 83
Allocation of aircraft charges ........................ 958 727 745
Interest income on advance to affiliate ............... 1,829 1,591 528
Interest receivable on advance to affiliate ........... 457 -- --
Sales of inventory and allocation of expenses ......... -- 502 3,616
Receivable from sales of inventory and allocations .... 342 623 2,047
Advance to affiliate .................................. 17,330 17,330 17,330
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60
Other affiliates
Related party transactions with Consumers and its affiliates,
(including GGC for the two years ended December 31, 2000) are summarized as
follows:
- -------------------------------------------------------------------------------------------------------
Years Ended December 31,
----------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------------------------------
Purchases of inventory and other................... $ 1,811 $ 2,234 $ 1,818
Payable for inventory and other.................... 1,402 37 141
Sales of molds and inventory....................... 12,038 13,448 14,200
Receivable from sales of molds and inventory....... 6,413 6,232 12,792
Allocation of expenses and other................... 14,133 2,500 11,167
Receivable from allocation of expenses and other... 13,346 500 10,060
Payable for allocable portion of software
write-off, including interest.................. 9,315 9,600 --
G&G, Consumers and their affiliates owe Anchor $20,558, in addition to
the advance to affiliate receivable of $17,330, while Anchor owes G&G, Consumers
and their affiliates $11,746 (of which approximately $9,315 relates to the
allocation of the write off of certain software costs and is the subject of
litigation. See Note 13). Management does not believe these receivables to be
uncollectible.
During the years 1997, 1998, 1999 and 2000, the Company participated in
bulk purchases of supplies for the Company and certain of its affiliates,
including Consumers, with vendors that were unrelated to the Company and
Consumers. The bulk purchases were negotiated by a sister company to G&G. The
sister company received rebates from these unrelated vendors. The rebates
attributable to purchases by the Company totaled $711 over the four-year period.
When this practice became known, the Company took steps to ensure that the
practice was discontinued.
During the year 1997, the Company participated in bulk purchases of
soda ash for the Company and certain of its affiliates, including Consumers,
with vendors that were unrelated to the Company and Consumers. The bulk
purchases were negotiated by a subsidiary of G&G. The subsidiary received
rebates from the unrelated vendors. The rebates attributable to purchases by the
Company totaled $547. This practice was discontinued at the end of 1997.
A special committee of the Board has been appointed to review these
transactions.
In September 1998, G&G entered into an agreement to purchase a
controlling interest in a European glass manufacturer and advanced approximately
$17,300 toward that end. This amount was funded by G&G through a loan from the
Company of approximately $17,300 in September 1998. The funds were obtained
through a borrowing under the Original Credit Facility. The loan was evidenced
by a promissory note that originally matured in January 1999. There is a
disagreement among the directors as to the propriety of the extension of the
original maturity date of the promissory note beyond January 1999. See Note 13.
The transaction has not closed. Should the transaction not close, the seller is
obligated to return the advance to G&G. G&G has demanded the return of the
advance plus interest accrued to date and related costs including costs related
to the devaluation of the Deutschemark. Discussions have been held, but as of
this date outstanding issues have not been resolved. In March 2000, G&G
commenced an arbitration proceeding in accordance with the terms of the
agreement to secure a return of the advance. A hearing is scheduled for June
2001. In connection with the pledge of the note to Bank of America, National
Association, as agent under the Loan and Security Agreement, the original
promissory note was replaced by a promissory note (the "Replacement Note"). G&G
has provided security against the Replacement Note to Bank of America, National
Association, as agent under the Loan and Security Agreement. The maturity date
of the Replacement Note is October 31, 2003. Interest on the Replacement Note is
payable at the interest rate payable by the Company on advances under the Loan
and Security Agreement plus 1/2% and has been paid through September 2000.
Unpaid interest of $457 and $391 is due for the quarters ended December 31, 2000
and March 31, 2001,
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61
respectively. Various rights, including the right to enforce the obligations
under the Replacement Note were assigned to Bank of America, National
Association. Any property received by G&G in respect of the arbitration
proceeding has been pledged to Bank of America, National Association, and will
be used to repay outstanding borrowings under the Loan and Security Agreement.
There is a disagreement among the directors as to the propriety of the
assignment of those rights, the pledge of those proceeds and the replacement of
the original promissory note with the Replacement Note.
In 1998, the Company advanced $950 to Consumers, which was repaid in
February 1999.
All transactions with the Company and its affiliates are conducted on
terms which management believes, are no less favorable than with third parties.
The sale of molds to Consumers is invoiced at cost plus a profit mark-up. The
amounts of these mark-ups, $51, $1,200 and $1,100, respectively, for the three
years ended December 31, 2000, have been recorded as contributions from
shareholder and included in capital in excess of par value.
In September 1997, Hillsboro Glass Company ("Hillsboro"), a
glass-manufacturing plant owned by G&G, discontinued manufacturing. All of
Hillsboro's rights and obligations to fill orders under a supply contract
between Consumers and one of its major customers was purchased by Consumers and
the Company effective December 31, 1997. The purchase price of the Company's
portion of this contract was $12,525, of which $11,725 has been paid through
2000.
Stock Option Plan
Salaried employees of the Company participate in the Director and
Employee Incentive Stock Option Plan, 1996 of Consumers. These options generally
have a life of 10 years and vest ratably over three years. The Company has
elected to follow Accounting Principles Board Opinion No. 25 - Accounting for
Stock Issued to Employees ("APB 25"). Under APB 25, because the exercise price
of employee stock options equals or exceeds the market price of the stock on the
date of the grant, no compensation expense is recorded. The Company adopted the
disclosure only provisions of Statement of Financial Accounting Standards No.
123 - Accounting for Stock-Based Compensation ("SFAS 123").
Information related to stock options for the three years ended December
31, 2000 is as follows:
Weighted Weighted
Number Average Average
of Exercise Fair
Shares Price (Cdn$) Value (Cdn$)
--------- ------------ ------------
Options outstanding, January 1, 1998 ...... 1,066,500 $8.00
========= =====
Granted ............................. 51,000 $8.00 $4.90
Exercised ........................... -- --
Forfeited ........................... (47,500) 8.00 $5.60
--------- -----
Options outstanding, December 31, 1998 .... 1,070,000 $8.00
========= =====
Granted ............................. 193,000 $6.48 $2.53
Exercised ........................... -- --
Forfeited ........................... (161,500) 8.00 $5.15
--------- -----
Options outstanding, December 31, 1999 .... 1,101,500 $7.78
========= =====
Granted ............................. 144,500 $5.00 $4.47
Exercised ........................... -- --
Forfeited ........................... (162,500) 5.00 $4.91
--------- -----
Options outstanding, December 31, 2000 .... 1,083,500 $7.33
========= =====
At the Annual Shareholders Meeting of Consumers in June 1999, the
Director and Employee Incentive Stock Option Plan was amended whereby the
exercise price of certain outstanding stock options issued under the plan for
which the current exercise price exceeded $8.00 (Canadian dollars) was reduced
to an exercise price of $8.00 (Canadian dollars). Pursuant to SFAS 123,
incremental compensation
F-20
62
expense will be recognized between 1999 and 2003 on a pro forma basis in the
amount of $961 related to the amended exercise price.
Approximately 819,000 of the options are exercisable at December 31,
2000 and the weighted average remaining contractual life of the options is 7.5
years.
The Company applied APB 25 in accounting for these stock options and
accordingly, no compensation cost has been reported in the financial statements
for the three years ended December 31, 2000. In accordance with SFAS 123, the
fair value of option grants is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions for pro forma
footnote purposes: (i) risk-free interest rate ranging from 5.50% to 5.99%, (ii)
expected option life of 4 years, (iii) expected volatility of 41.51% and (iv) no
expected dividend yield.
Had the Company determined compensation cost based on the fair value at
the grant date for these options under SFAS 123, the Company's net loss would
have increased to the pro forma amounts indicated below:
- -------------------------------------------------------------------------------------------------------------
Years Ended December 31,
---------------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------
Net loss
As reported ..................................... $(32,266) $(17,511) $ (9,770)
Pro forma ....................................... (33,131) (18,634) (10,503)
Loss applicable to common stock
As reported ..................................... $(46,323) $(31,161) $(22,807)
Pro forma ....................................... (47,188) (32,284) (23,540)
Basic and diluted net loss per share applicable to
common stock
As reported ..................................... $ (8.82) $ (5.93) $ (5.12)
Pro forma ....................................... (8.99) (6.15) (5.28)
Stock Purchase Plans
Under the 2000 Executive Stock Purchase Plan, executives of Anchor
participated in the purchase of shares of Consumers common stock. Anchor made
loans to plan participants to finance the purchase of an aggregate of 332,998
shares. The loans had a term of ten years, were secured by a pledge of the
shares purchased with the loan proceeds and required that a percentage of future
management incentive awards be applied against outstanding loan balances. The
plan terminated on December 28, 2000. The Board approved bonus compensation
repaying aggregate indebtedness of approximately $476. Under the 1999 Officer
Stock Purchase Plan, certain officers of Anchor participated in the purchase of
shares of Consumers common stock. Anchor made loans to plan participants to
finance the purchase of an aggregate of 183,250 shares. The loans had a term of
ten years and were secured by a pledge of the shares purchased with the loan
proceeds. On June 30, 2000, management authorized bonus compensation repaying
aggregate indebtedness of approximately $280.
Other
The Company recorded a write-off in 1999 of its allocable share of
parent company software costs. Consumers implemented the SAP based software
system with the intention that all affiliated companies would adopt that system
and share ratably in the initial design, reengineering and implementation
originated by Consumers. The SAP based system had proven to be a complicated
system requiring extensive and expensive maintenance. With the objective of
having one operating system, Consumers has converted to a JDEdwards based
system, currently in place in Anchor. As authorized by the Intercompany
Agreement, Consumers allocated $9,600 to Anchor (of which $1,000 has been paid)
representing Anchor's pro rata share of the original implementation costs based
upon number of plants, number of licensed users and sales. The foregoing
allocation is the subject of litigation. See Note 13.
F-21
63
NOTE 9 - PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS
The Company has a defined benefit retirement plan for salaried and
hourly-paid employees. Effective December 31, 1998, the salary and hourly plans
were merged. Benefits are calculated on a service-based formula for hourly
participants. Benefits are calculated on a salary-based formula for salaried
participants and were frozen in 1994. The Company provides other post-retirement
benefits to substantially all salaried and certain hourly employees under
several plans. SFAS 106 requires accrual of post-retirement benefits (such as
healthcare benefits) during the years an employee provides services. Currently,
the Company funds these healthcare benefits on a pay-as-you-go basis. The
Company also contributes to a multi-employer trust, and under the requirements
of SFAS 106, recognizes the required annual contribution as an additional
benefit cost. The components of net periodic benefit costs are summarized below:
Pensions Post-retirement
-------------------------------------- -------------------------------------
Years Ended Years Ended
-------------------------------------- -------------------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- -------- -------- --------
Service cost-benefits
earned during the year ............. $ 4,414 $ 5,001 $ 4,137 $ 1,110 $ 861 $ 737
Interest cost on projected
benefit obligation ................. 33,521 32,745 29,689 4,087 3,907 3,905
Return on plan assets ................ (39,145) (38,139) (37,526) -- -- --
Amortization of:
Actuarial gains .................... -- -- -- (758) (568) --
Prior service cost ................. 3,263 2,458 -- 438 -- --
-------- -------- -------- ------- ------- ------
Total periodic benefit cost ....... $ 2,053 $ 2,065 $ (3,700) $ 4,877 $ 4,200 $4,642
======== ======== ======== ======= ======= ======
The Company has unfunded obligations related to its employee pension
plans. The Retirement Protection Act of 1994 requires the Company to make
significant additional funding contributions into its underfunded defined
benefit retirement plans, under certain conditions, and will increase the
premiums paid to the Pension Benefit Guaranty Corporation ("PBGC"). There were
no required pension contributions in 2000 or in 1999 with respect to either
current funding or past underfundings. Excluding payments made as part of the
Anchor Acquisition, the Company funded contributions of approximately $10,800,
$10,900 and $20,000, respectively, in 1999, 1998 and 1997. The 1999 contribution
of $10,800 represented a voluntary contribution, the effect of which is to limit
contributions in the immediate future.
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64
The funded status of the Company's pension and post-retirement plans,
at December 31, are as follows:
Pensions Post-retirement
------------------------- -----------------------
Year ended Year ended
------------------------- -----------------------
2000 1999 2000 1999
--------- --------- -------- --------
Change in benefit obligation:
Benefit obligation at beginning of year ................ $ 458,696 $ 439,014 $ 49,782 $ 57,828
Service cost ........................................ 4,414 5,001 1,110 861
Interest cost ....................................... 33,521 32,745 4,087 3,907
Plan amendments ..................................... -- 31,544 3,282 --
Plan participants' contributions .................... -- -- 574 525
Actuarial (gain) loss ............................... (7,784) (16,378) 1,049 (9,450)
Benefits paid ....................................... (33,660) (33,230) (4,387) (3,889)
--------- --------- -------- --------
Benefit obligation at end of year ...................... 455,187 458,696 55,497 49,782
--------- --------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning of year ......... 428,784 415,426 -- --
Actual return on plan assets ........................ (2,853) 37,399 -- --
Employer contributions .............................. 412 11,193 3,813 3,364
Plan participants' contributions .................... -- -- 574 525
Benefits and expenses paid ......................... (36,189) (35,234) (4,387) (3,889)
--------- --------- -------- --------
Fair value of plan assets at end of year ............... 390,154 428,784 -- --
--------- --------- -------- --------
Funded status .......................................... (65,033) (29,912) (55,497) (49,782)
Unrecognized actuarial (gain) loss .................. 13,000 (23,697) (11,854) (13,582)
Unrecognized prior service cost ..................... 25,822 29,040 2,844 --
--------- --------- -------- --------
Net amount recognized .................................. (26,211) (24,569) (64,507) (63,364)
--------- --------- -------- --------
Amounts recognized in the balance sheet consists of:
Accrued benefit liability .............................. (26,211) (24,569) (64,507) (63,364)
Additional minimum pension liability ................... (38,822) (5,343) -- --
Intangible pension asset ............................... 25,822 5,343 -- --
Accumulated other comprehensive income ................. 13,000 -- -- --
--------- --------- -------- --------
Net amount recognized ...................................... $ (26,211) $ (24,569) $(64,507) $(63,364)
========= ========= ======== ========
Significant assumptions used in determining net periodic benefit cost
and related obligations for the plans are as follows:
Pensions Post-retirement
---------------------------- -----------------------------
Years Ended Years Ended
---------------------------- -----------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- -------- -------- --------
Discount rate................................ 7.625% 7.75% 7.00% 7.625% 7.75% 7.00%
Expected long-term rate of return
on plan assets.......................... 9.50 9.50 9.50 -- -- --
The Company recognized an additional minimum liability that is equal to
the difference between the accumulated benefit obligation over plan assets in
excess of accrued pension cost. A corresponding amount is recognized as either
an intangible asset or a reduction of equity. Pursuant to this requirement, the
Company recorded, as of December 31, 2000 and 1999, respectively, an additional
liability of $38,822 and $5,343, an intangible asset of $25,822 and $5,343 and
accumulated other comprehensive loss of $13,000 and $0.
As part of the Anchor Acquisition, the PBGC reached an agreement with
Vitro, S.A., the parent of Old Anchor, in which Vitro, S.A. agreed to provide a
limited guaranty to the PBGC with respect to the unfunded benefit liabilities of
the Company's defined benefit plans, if the plans, or any one of them, are
terminated before August 1, 2006. The Company assumed all plan liabilities,
funded $9,056 of plan contributions, previously unfunded following Old Anchor's
filing of Chapter 11 and issued to the plans $9,000 face amount (360,000 shares)
of Series A Preferred Stock. Under the agreement with the PBGC, the Company
appointed an independent trustee to hold the Series A Preferred Stock.
F-23
65
Pension plan assets are held by an independent trustee and consist
primarily of investments in equities, fixed income and government securities.
There is currently no active public market for the Series A Preferred Stock and
dividends for one quarter only have been paid in 1999. The Company receives
annual valuations of the contributed Series A Preferred Stock.
In 1999, management approved the purchase of 1,842,000 shares of
Consumers common stock for $3,000. These shares were held pending government
approval for contribution into the Company's defined benefit pension plan in
2000. Currently, the Company does not anticipate contributing these shares in
the near term and recorded a write down for a non-temporary decline in market
value, as of December 31, 2000, of approximately $1,158 to reflect the
investment at fair value. At December 31, 2000 and 1999, these shares are
included in other assets on the balance sheet.
The Company also sponsors two defined contribution plans covering
substantially all salaried and hourly employees. Effective January 1, 1998, the
Company matches 100% of the first 4% of an employee's compensation (increased to
5% effective July 1, 1999). Expenses under the savings programs for the years
ended December 31, 2000, 1999 and 1998 were approximately $2,318, $2,130 and
$2,010, respectively.
The Company also contributes to a multi-employer trust that provides
certain other post-retirement benefits to retired hourly employees. Expenses
under this program for the years ended December 31, 2000, 1999 and 1998 were
$4,035, $3,999 and $4,107, respectively.
The assumed healthcare cost trend used in measuring the accumulated
post-retirement benefit obligation as of December 31, 2000 was 6.5% declining
gradually to 5.0% by the year 2003, after which it remains constant. A one
percentage point increase in the assumed healthcare cost trend rate for each
year would increase the accumulated post-retirement benefit obligation as of
December 31, 2000 by approximately $6,200 and the net post-retirement healthcare
cost for the year ended December 31, 2000 by approximately $730. A one
percentage point decrease in the assumed healthcare cost trend rate for each
year would decrease the accumulated post-retirement benefit obligation as of
December 31, 2000 by approximately $5,300 and the net post-retirement healthcare
cost for the year ended December 31, 2000 by approximately $620.
NOTE 10 - RESTRUCTURING CHARGES AND PLANT CLOSING COSTS
In the third quarter of 1998, formal plans were approved to remove from
service one furnace and one machine at the Jacksonville, Florida manufacturing
facility. The furnace ceased operation in December 1998 and approximately 100
hourly employees were terminated. The Company recorded a restructuring charge in
1998 of $4,400. Of this total charge, approximately $2,365 relates to operating
lease exit costs, approximately $875 represents closing and other costs and
approximately $760 relates to the write-down of certain equipment to net
realizable value. As of December 31, 2000, $1,923 has been charged against this
liability.
In an effort to reduce the Company's cost structure and improve
productivity, the Company closed its Houston, Texas and its Dayville,
Connecticut plants in 1997 and included the liabilities assumed as part of the
Anchor Acquisition cost. Closure of these facilities was completed in 1999.
NOTE 11 - INCOME TAXES
The Company applies SFAS 109 under which the liability method is used
in accounting for income taxes. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes, and are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. Under SFAS 109, if on the
basis of available evidence, it is more likely than not that all or a portion of
the deferred tax asset will not be realized, the asset must be reduced by a
valuation allowance. Since realization is not assured as of December 31, 2000,
management has deemed it appropriate to establish a valuation allowance against
the net deferred tax assets.
F-24
66
The significant components of the deferred tax assets and liabilities are as
follows:
December 31,
-----------------------
2000 1999
-------- --------
Deferred tax assets:
Reserves and allowances ..................................... $ 18,200 $ 22,100
Pension and post-retirement liabilities ..................... 7,100 --
Inventory uniform capitalization ............................ 3,000 5,900
Tax loss carryforwards ...................................... 49,500 36,400
-------- --------
77,800 64,400
Deferred tax liabilities:
Accumulated depreciation and amortization ................... 18,900 24,300
Pension and post-retirement liabilities ..................... -- 3,200
Other current assets ........................................ 2,800 2,000
-------- --------
21,700 29,500
-------- --------
Net deferred tax assets ........................................ 56,100 34,900
Valuation allowance ............................................ (56,100) (34,900)
-------- --------
Net deferred tax assets after valuation allowance .............. $ -- $ --
======== ========
The Company has unused net operating loss carryforwards expiring at
various dates between 2012 through 2020.
F-25
67
The effective tax rate reconciliation is as follows:
Years Ended December 31,
------------------------------
2000 1999 1998
-----------------------------------------------------------------------------------
Federal rate ................................... (34)% (34)% (34)%
State rate ..................................... (5) (5) (5)
Permanent differences .......................... 5 18 12
--- --- ---
(34) (21) (27)
Valuation allowance ............................ 34 21 27
--- --- ---
Effective rate ................................. --% --% --%
=== === ===
NOTE 12 - LEASES
The Company leases distribution and office facilities, machinery,
transportation, data processing and office equipment under non-cancelable leases
that expire at various dates through 2008. These leases generally provide for
fixed rental payments and include renewal and purchase options at amounts which
are generally based on fair market value at expiration of the lease. The Company
includes capital leases in other long-term debt (see Note 5).
Future minimum lease payments under non-cancelable operating leases are
as follows:
2001....................................................... $17,920
2002....................................................... 17,480
2003....................................................... 16,680
2004....................................................... 10,550
2005....................................................... 4,620
After 2005................................................. 15,130
-------
$82,380
=======
Rental expense for all operating leases for the years ended December
31, 2000, 1999 and 1998 were $13,000, $15,300 and $17,700, respectively.
In connection with the Anchor Acquisition, the Company assumed and
amended Old Anchor's lease of the headquarters facility located in Tampa,
Florida and a related option to purchase. The term of the amended lease expired
February 1, 1998. In January 1998, the Company exercised its option to purchase
the headquarters facility and assigned such option to a third party purchaser of
the facility. The Company entered into a ten-year lease pursuant to which it
leases a portion of the headquarters facility.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
In 1999, the Company signed an agreement with Anheuser-Busch to provide
all the bottles for the Anheuser-Busch Jacksonville, Florida and Cartersville,
Georgia breweries, beginning in 2001. To meet the expanded demand from the
supply contract, the Company invested approximately $18,000 in new equipment for
its Jacksonville plant to increase production efficiency. To date, the funding
for this project has been provided through the proceeds from the sale of the
Houston plant (see Note 2), certain leasing transactions and internal cash
flows. In December 1999, the Company entered into an agreement with a major
lessor for $30,000 of lease transactions. Under this agreement, in December 2000
and March 2001, the Company financed approximately $4,200 and $7,800,
respectively, of the expansion through a sale leaseback arrangement and sold, in
December 1999, and leased back under a capital lease, equipment located at the
Warner Robins facility, for a net selling price of approximately $8,200. The
Company is continuing discussions with certain co-lessors identified as part of
the $30,000 transaction for the remaining Jacksonville expansion funding.
F-26
68
Historically, the Company hedged certain of its estimated natural gas
purchases through the purchase of natural gas futures. These future contracts
are accounted for as cash flow hedges of future production costs, and
accordingly, the unrealized gain or loss on these contracts is deferred and
included in the cost of inventory production in the month related to the future
contract. At December 31, 2000, the Company had no open natural gas purchase
futures contracts.
The Company is a respondent in various environment-related cases. The
measurement of liabilities in these cases and other environmental concerns is
based on available facts of each situation and considers factors such as prior
experience in remediation efforts and presently enacted environmental laws and
regulations. In the opinion of management, based upon information presently
known, the Company has adequately provided for environmental liabilities.
On October 13, 2000, certain stockholders of the Company, specifically
CoMac Partners, L.P., CoMac Endowment Fund, L.P., CoMac Opportunities Fund,
L.P., CoMac International, N.V., Carl Marks Strategic Investments, LP, Carl
Marks Strategic Investments II, LP, Varde Partners, L.P., Varde Fund (Cayman)
Ltd., Pequod Investments, L.P., Pequod International Ltd., Cerberus Partner L.P.
and Cerberus International Ltd. (collectively, the "Plaintiffs"), commenced a
shareholder derivative action against certain of the Company's directors,
officers and certain related entities in The Court of Chancery of the State of
Delaware in and for New Castle County. The action seeks recovery to the Company,
which is named as a party to the action in the capacity of a nominal defendant,
for damages Plaintiffs allege the Company suffered through breach of fiduciary
duties (including extension of the G&G promissory note without proper authority
and approval of an allocation of the write off of certain software costs from
Consumers to Anchor), unjust enrichment and usurpation of corporate opportunity
of the Company (including the receipt of $15.0 million by Consumers in
connection with an agreement to manage the renovation of the Houston facility).
The Company is named as a party to the case for procedural purposes but no
recovery is sought from the Company. The Company has been advised by the other
defendants that they will vigorously defend the action and that they believe
they have meritorious defenses.
On February 16, 2000, Owens commenced an action against the Company and
certain of its affiliates, including Consumers and GGC, in the United States
District Court for the Southern District of New York. Owens alleged violations
of the Technical Assistance and License Agreement ("TALA") and its resulting
termination. Owens sought various forms of relief including (1) a permanent
injunction restraining the Company and its affiliates from infringing Owens'
patents and using or disclosing Owens' trade secrets and (2) damages for
breaches of the TALA.
On November 6, 2000, the Company and its affiliates, including
Consumers, reached a settlement concerning all aspects of the Owens dispute. As
part of the settlement, Owens will grant the Company and its affiliates a
limited license through 2005. The limited license will cover technology in place
during the term of the TALA, at the same royalty rate as in the TALA. Upon
expiration of the limited license agreement, the Company and its affiliates,
including Consumers, will receive a paid-up license for that technology.
Documentation for the settlement (including mutual releases) and the limited
license agreement is being negotiated. Under the settlement, the Company,
Consumers and GGC will pay an aggregate of $5,000 to Owens. The Company
estimated its allocation of this settlement to be $2,900, based on sales and
machine installations. Consumers, GGC and another affiliate will receive a
refund of $1,213, in the aggregate, of royalties paid previously under protest.
Consummation of the settlement will terminate all litigation over the matter,
including the federal court suit and an overseas lawsuit, as well as arbitration
proceedings.
The Company is not otherwise party to, and none of its assets are
subject to any other pending legal proceedings, other than ordinary routine
litigation incidental to its business and against which the Company is
adequately insured and indemnified or which is not material. The Company
believes that the ultimate outcome of these cases will not materially affect
future operations.
The Company maintains director and officer liability insurance on
behalf of its directors and officers through a policy covering G&G and certain
affiliates. The policy for that insurance currently expires on April 27, 2001.
Efforts have been undertaken to obtain an extension of that policy or to obtain
a
F-27
69
new policy. There is no assurance that these efforts will be successful. The
Company's failure to maintain director and officer liability insurance could
have a material adverse effect on its ability to retain its directors and
officers.
NOTE 14 - LIQUIDITY
On February 2, 2001, Consumers, the majority owner of Anchor, announced
a suspension of interest payments on its senior notes maturing in 2007 and its
senior secured notes maturing in 2005, until it has reached agreement on
restructuring this part of Consumers' capital structure. Further, on March 22,
2001, Consumers announced the appointment of Brent Ballantyne as its Chief
Restructuring Officer and Chief Executive Officer. Mr. Ballantyne will report to
a committee of the Consumers Board of Directors comprised of independent
directors. Mr. Ghaznavi stepped down as Chief Executive Officer of Consumers but
remains as Chairman of Consumers and Chairman and Chief Executive Officer of
Anchor. On March 31, 2001, Consumers announced the appointment of Graeme Eadie
as Chief Financial Officer. Mr. Dale A. Buckwalter stepped down as Chief
Financial Officer of Consumers but will continue as Chief Financial Officer of
Anchor. Consumers has begun discussions with its noteholders regarding a
restructuring.
Management of Anchor is unable to determine what impact this
restructuring will have on Anchor, but it may be significant. If a restructuring
of Consumers results in Mr. Ghaznavi owning, directly or indirectly, less than
40% of the voting stock of Consumers, this would trigger a "change in control"
as defined in the Indentures. In addition, G&G and one of its affiliates have
pledged common shares of Consumers that they own as collateral for certain
indebtedness guaranteed by G&G. If an event of default were to occur on this
indebtedness, the lenders would have the right to foreclose on those common
shares, which would also trigger a "change in control" as defined in the
Indentures. Upon a "change in control" as defined in the Indentures,, Anchor
would be required to make an offer to repurchase all of the First Mortgage Notes
and the Senior Notes at 101% of the outstanding principal amount. Anchor does
not have the cash available to make this repurchase offer. The failure to make
the offer would result in an event of default that would give the noteholders
the right to accelerate the debt resulting in a default under Anchor's credit
facility provided by Bank of America. Anchor intends to approach its noteholders
regarding a modification of the Indentures but does now know whether the notes
could be restructured in a consensual manner with the noteholders before the
occurrence of an event of default. These issues represent significant
uncertainties as to the future financial position of Anchor.
As a result of these uncertainties the Company's outside auditors have
rendered a qualified opinion on the Company's financial statements. The failure
by the Company to obtain an unqualified opinion on its financial statements is
an event of default under the Loan and Security Agreement (as defined). The
Company will seek a waiver from its lenders but there is no assurance that this
will be forthcoming.
The Company's results of operations were significantly impacted by the
cost of natural gas in 2000. This is a variable cost over which the Company has
little control. Significant increases in natural gas or energy costs could
materially impact the Company's results of operations or liquidity plans in
2001.
The Company's principal sources of liquidity through 2001 are expected
to continue to be funds derived from operations, borrowings under the
Replacement Credit Facility, proceeds from sale/leaseback transactions and
proceeds from sales of discontinued manufacturing facilities. The Company's
plans to increase liquidity include continuation of its cost reduction efforts,
continuation of its natural gas cost recovery program, as well as increased
sales volumes from its supply agreements with major customers. Unexpected cash
needs resulting from an unusual increase in energy or other costs could force
the Company to take additional measures such as, reduction in capital asset
spending, price increases, production curtailments and other cost reductions
measures.
Management believes that the cash flows discussed above will provide
adequate funds for the Company's working capital needs and capital expenditures
through December 31, 2001. However, cash flows from operations depend on future
operating performance which is subject to prevailing conditions and
F-28
70
to financial, business and other factors, many of which are beyond the Company's
control. Should the Company suffer material adverse conditions from the issues
discussed above, additional measures may be required, including sales of assets
and consideration of other strategic alternatives.
F-29
71
QUARTERLY FINANCIAL INFORMATION - UNAUDITED
Quarter Ended
------------------------------------------------------------
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
--------- --------- ------------- -------------
Net sales ................................ $ 153,884 $ 175,099 $ 163,729 $ 136,836
Cost of products sold .................... 143,606 159,246 150,635 146,674
Litigation settlement .................... -- -- 2,300 600
Selling and administrative expenses ...... 7,504 8,073 7,229 10,416
--------- --------- --------- ---------
Income (loss) from operations ............ 2,774 7,780 3,565 (20,854)
Other income (expense), net ............ 6,207 75 11 (789)
Interest expense ......................... (7,151) (7,235) (7,783) (7,581)
Extraordinary loss ....................... -- -- -- (1,285)
--------- --------- --------- ---------
Net income (loss) .................... $ 1,830 $ 620 $ (4,207) $ (30,509)
========= ========= ========= =========
Quarter Ended
-------------------------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
--------- --------- ------------- -------------
Net sales .................................. $ 146,927 $ 169,655 $ 170,105 $ 142,041
Cost of products sold ...................... 137,937 153,746 156,782 134,510
Allocable portion of software write-off .... -- -- -- 9,600
Selling and administrative expenses ........ 8,044 5,837 6,939 7,645
Income (loss) from operations .............. 946 10,072 6,384 (9,714)
--------- --------- --------- ---------
Other income (expense), net ................ (137) (50) 337 1,930
Interest expense ........................... (6,926) (6,933) (6,626) (6,794)
--------- --------- --------- ---------
Net income (loss) ...................... $ (6,117) $ 3,089 $ 95 $ (14,578)
========= ========= ========= =========
Quarter Ended
-------------------------------------------------------------
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
----------- ---------- ------------- -------------
Net sales .............................. $ 149,187 $ 175,215 $ 169,211 $ 149,705
Cost of products sold .................. 143,393 158,410 154,467 137,986
Restructuring charges .................. -- -- 4,000 400
Selling and administrative expenses .... 7,193 7,241 7,763 8,049
--------- --------- --------- ---------
Income (loss) from operations ........ (1,399) 9,564 2,981 3,270
Other income (expense), net ............ (153) 313 (5) 2,229
Interest expense ....................... (6,204) (6,876) (6,867) (6,623)
--------- --------- --------- ---------
Net income (loss) .................... $ (7,756) $ 3,001 $ (3,891) $ (1,124)
========= ========= ========= =========
FOURTH QUARTER 2000 OPERATIONS
There are several factors affecting results of operations for the year
ended December 31, 2000, which occurred primarily in the fourth quarter. The
cost of natural gas rose significantly in 2000, negatively impacting fourth
quarter operations by approximately $5,500. Due to the high natural gas costs
being incurred in December 2000, the Company extended the length of its year end
shutdown period to curtail the use of natural gas, resulting in additional
unabsorbed expenses of approximately $5,400. In addition, the Company recorded a
provision of $3,200 for the net realizable value of inventories related to the
cost of natural gas. A decrease in sales volume impacted earnings by
approximately $2,000. Additional employee salary and benefit costs added
approximately $3,000 to the loss. The Company recorded a write down for a
non-temporary decline in market value of 1,842,000 shares of Consumers common
stock, of approximately $1,158 to reflect the investment at fair value, held
pending government approval for contribution into the Company's defined benefit
pension plan. As a result of the refinancing of the Company's revolving credit
facility, deferred financing fees of $1,285 were written off in the fourth
quarter of 2000.
F-30
72
INDEX TO FINANCIAL INFORMATION FOR OLD ANCHOR
Page No.
--------
SELECTED CONSOLIDATED FINANCIAL DATA H-1
ANCHOR RESOLUTION CORP.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain historical financial information
of Old Anchor. The selected financial data for the period from January 1, 1997
to February 4, 1997 (the "Interim Period 1997") and the year ended December 31,
1996 has been derived from Old Anchor's consolidated financial statements, not
included in this report.
YEAR ENDED INTERIM
DECEMBER 31, PERIOD
-------------------------
1996 1997
--------- ---------
(dollars in thousands)
STATEMENT OF OPERATIONS DATA:
Net sales $ 814,370 $ 62,560
Cost of products sold 831,612 70,608
Selling and administrative expenses 39,570 3,745
Restructuring and other charges(1) 49,973 --
Impairment of long-lived assets(2) 490,232 --
Write-up of assets held for sale(1) (8,967) --
--------- ---------
Loss from operations (588,050) (11,793)
Other expense, net (10,020) (595)
Interest expense(3) (48,601) (2,437)
--------- ---------
Loss before reorganization items, income taxes and
extraordinary items (646,671) (14,825)
Reorganization items (5,008) (827)
Income taxes(4) (1,825) --
Extraordinary items(5) (2,336) --
--------- ---------
Net loss $(655,840) $ (15,652)
========= =========
OTHER FINANCIAL DATA:
Net cash used in operating activities $ (28,411) $ (11,427)
Net cash used in investing activities (63,892) (7,500)
Net cash provided by financing activities 78,886 17,478
Depreciation and amortization 101,656 7,605
Capital expenditures 46,254 7,186
BALANCE SHEET DATA (AT END OF PERIOD):
Accounts receivable $ 55,851 $ 60,978
Inventories 144,419 148,731
Total assets 643,468 651,801
Total debt(6) 552,848 570,335
Total stockholder's equity (deficiency in assets) (269,307) (284,959)
(1) Restructuring and other charges reflects Old Anchor's implementation of a
series of restructuring plans in an effort to respond to the continued
decline in the industry sales volume combined with, in 1996, the loss of a
significant portion of the business of Old Anchor's largest customer. The
H-1
73
following represents information regarding the amounts charged against the
restructuring liability for old Anchor's restructuring plans:
AMOUNT CHARGED
RESTRUCTURING AGAINST LIABILITY
CHARGES AS OF DECEMBER 31, 1996
------------- -----------------------
(DOLLARS IN THOUSANDS)
1996 RESTRUCTURING PLAN
Plant shutdown costs, including severance costs and
pension curtailment losses $25,100 $20,100
Writedown of certain manufacturing assets to net
realizable value 24,900 --
1994/1995 RESTRUCTURING PLAN
Plant shutdown costs, including severance costs and
pension curtailment losses $39,200 $33,700
Writedown of certain manufacturing assets to net
realizable value 36,600 --
Writedown of previously shutdown manufacturing
facilities to net realizable value 14,000 --
During the year ended December 31, 1996, Old Anchor recorded an adjustment
to the carrying value of certain idled facilities held for sale. These
assets were previously written down to an estimated net realizable value.
Upon a current evaluation of quotes and offers on these properties in 1996,
Old Anchor increased their net carrying value by approximately $9.0
million. The balance of the restructuring liability is anticipated to be
expended and charged against the liability over the next three years.
(2) Impairment of long-lived assets reflects the adjustment for the write-off
of goodwill and other long-lived assets. As a result of the declining
profitability, diminishing cash flow and the bankruptcy proceedings, the
recoverable value of the carrying amount of long-lived assets and
intangibles was reviewed for impairment. Based upon this review, the amount
of remaining excess of the purchase price over the fair value of net assets
acquired at December 31, 1996, of $457.2 million and other long-lived
assets of $33.0 million were written off in the year ended December 31,
1996. The excess cost over fair value of net assets acquired had been
amortized on a straight-line basis over a 40 year period. Amortization
expense, included as a component of cost of products sold, was
approximately $13.9 million for the years ended December 31, 1996.
(3) Because of Chapter 11 proceedings, there was no accrual of interest on the
$100.0 million 10.25% Senior Notes or the $200.0 million 9.875% Senior
Subordinated Debentures since September 12, 1996. If accrued, interest
expense would have increased $2.9 million and $9.2 million, respectively
during the 1997 Interim Period and the year ended December 31, 1996.
(4) Income tax provision reflects any additional valuation allowances required
to be recorded under SFAS 109. The adoption of SFAS 109 effective January
1, 1993 resulted in an increase in the cumulative net deferred tax asset by
$1.8 million. Under SFAS 109, deferred income taxes reflect the net tax
effects of temporary differences between carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. If on
the basis of available evidence, it is more likely than not that all or a
portion of the deferred tax asset will not be realized, the asset must be
reduced by a valuation allowance.
(5) Extraordinary item in the year ended December 31, 1996, results from the
write-off of financing costs related to debt extinguished during the
relevant periods, net of taxes.
(6) Total debt as of December 31, 1996 included $462.3 million of pre-petition
liabilities and $90.5 million outstanding under Old Anchor's
debtor-in-possession credit facility.
H-2
74
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ANCHOR GLASS CONTAINER CORPORATION
Date: April 16, 2001 By /s/ Dale A. Buckwalter
-------------------------------------
Dale A. Buckwalter
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Paul H. Farrar
- -------------------------------------------- -------------------------------------------
Joel A. Asen Paul H. Farrar
Director April 16, 2001 Director April 16, 2001
/s/ Andrew M. Boas /s/ Steven J. Friesen
- -------------------------------------------- -------------------------------------------
Andrew M. Boas Steven J. Friesen
Director April 16, 2001 Director April 16, 2001
/s/ Patrick T. Connelly /s/ John J. Ghaznavi
- -------------------------------------------- -------------------------------------------
Patrick T. Connelly John J. Ghaznavi
Director April 16, 2001 Director, April 16, 2001
Chairman and Chief Executive Officer
/s/ Paul J. Coughlin III /s/ Ahmad Ghaznavi
- -------------------------------------------- -------------------------------------------
Paul J. Coughlin III Ahmad Ghaznavi
Director April 16, 2001 Director April 16, 2001
/s/ Eugene I. Davis /s/ David T. Gutowski
- -------------------------------------------- -------------------------------------------
Eugene I. Davis David T. Gutowski
Director April 16, 2001 Director April 16, 2001
/s/ Richard M. Deneau /s/ Jonathan K. Hergert
- -------------------------------------------- -------------------------------------------
Richard M. Deneau Jonathan K. Hergert
Director April 16, 2001 Director April 16, 2001
/s/ Roger L. Erb /s/ M. William Lightner, Jr.
- -------------------------------------------- -------------------------------------------
Roger L. Erb M. William Lightner, Jr.
Director April 16, 2001 Director April 16, 2001
75
SIGNATURES
(continued)
/s/ Christopher M. Mackey /s/ Irwin Nathanson
- -------------------------------------------- -------------------------------------------
Christopher M. Mackey Irwin Nathanson
Director April 16, 2001 Director April 16, 2001
/s/ C. Kent May /s/ Robert C. Ruocco
- -------------------------------------------- -------------------------------------------
C. Kent May Robert C. Ruocco
Director April 16, 2001 Director April 16, 2001
/s/ Lawrence M. Murray
- --------------------------------------------
Lawrence M. Murray
Chief Accounting Officer April 16, 2001