-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SRnhFZUv58Di4eaTHH52i57Z8tkl1hgriR5NV7T+go+6jqNP4iRV93WAkf28lD7P K3aZSnpLlgo2Vc1IwaQJPA== 0000950144-00-005061.txt : 20000417 0000950144-00-005061.hdr.sgml : 20000417 ACCESSION NUMBER: 0000950144-00-005061 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSUMERS US INC CENTRAL INDEX KEY: 0001041195 STANDARD INDUSTRIAL CLASSIFICATION: GLASS CONTAINERS [3221] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-31363-01 FILM NUMBER: 602213 BUSINESS ADDRESS: STREET 1: 3140 WILLIAM FLINN HWY CITY: ALLISON PARK STATE: PA ZIP: 15101 BUSINESS PHONE: 813884000 MAIL ADDRESS: STREET 1: 3140 WILLIAM FLINN HWY CITY: ALLISON PARK STATE: PA ZIP: 15101 10-K405 1 CONSUMERS U.S., INC. 1 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, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 CONSUMERS U.S., INC. (Exact name of registrant as specified in its charter) Delaware 23-2874087 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3140 William Flinn Highway, Allison Park, Pennsylvania 15101 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 412-486-9100 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: None 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. [X] All voting and non-voting stock of the registrant is held by an affiliate of the registrant. Number of shares outstanding of each class of common stock at February 29, 2000: Common Stock, $.01 par value, 17,000,100 shares DOCUMENTS INCORPORATED BY REFERENCE None Page 1 2 PART I ITEM 1. BUSINESS. COMPANY OVERVIEW Consumers U.S., Inc. ("Consumers U.S."), a wholly-owned subsidiary of Consumers International Inc. ("Consumers International"), which is a wholly-owned subsidiary of Consumers Packaging Inc. ("Consumers"), was formed in January 1997 to hold an investment in Anchor Glass Container Corporation ("Anchor" or "New Anchor") which acquired certain assets and assumed certain liabilities of the former Anchor Glass Container Corporation ("Old Anchor"), now Anchor Liquidating Trust, which is being liquidated in a proceeding under Chapter 11 of the United States Bankruptcy Code of 1978, as amended. Consumers U.S., has no independent operations, and is consolidated with its majority-owned subsidiary, Anchor (together the "Company"). Consumers U.S. holds 41.8% of the total outstanding voting common shares of Anchor and holds the majority of Anchor board of directors positions. Anchor 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. Anchor was formed in January 1997 to acquire certain assets and assume certain liabilities of Old Anchor. 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. 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 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 Anchor announced in 1999 that it signed an agreement with Anheuser-Busch Companies, Inc. ("Anheuser-Busch") to provide all the bottles for Anheuser-Busch's Jacksonville, Florida and Cartersville, Georgia breweries for at least five years, beginning in 2001 (the "Southeast Contract"). To meet the expanded demand from the supply contract, Anchor will invest approximately $30.0 to $40.0 million in new equipment for its Jacksonville, Florida and Warner Robins, Georgia plants over the next 18 months to increase production efficiency. The funding for this project will be provided through certain leasing transactions, the proceeds from the sale of Anchor's Houston plant (see below) and internal cash flows. In March 2000, Anheuser-Busch purchased the 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 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. The Company expects to negotiate a contract with Anheuser-Busch to provide management assistance in the operations of the facility upon its refurbishment. 2 3 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 period from February 5, 1997 to December 31, 1997 (the "1997 Period") and the years ended 1998 and 1999.
February 5 to Years ended December 31, Products December 31, 1997 1998 1999 - -------- ----------------- ----------------- ----------------- Beer $ 202.0 35.5% $ 279.3 43.4% $ 294.1 46.8% Liquor/Wine 125.8 22.1 111.0 17.3 79.5 12.7 Food 113.5 19.9 95.5 14.8 93.3 14.8 Tea 43.8 7.7 67.9 10.6 93.1 14.8 Beverage/Water 37.3 6.6 31.2 4.9 20.9 3.3 Other 47.0 8.2 58.4 9.0 47.8 7.6 -------- ----- -------- ----- -------- ----- Total $ 569.4 100.0% $ 643.3 100.0% $ 628.7 100.0% ======== ===== ======== ===== ======== =====
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 2000 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 such as: - Anheuser-Busch, - Triarc Beverage, - SOBE (Healthy Refreshment), - Latrobe (Rolling Rock), - Saxco International, Inc., - Alltrista Corporation, - Jim Beam Brands, - Specialty Products Company (Nabisco), - Heaven Hill Distilleries, Inc. and - The Coca-Cola Trading Company (non-carbonated). 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 29.0%, 17.1% and 8.8%, respectively, of its net sales for the years ended December 31, 1999 and 1998 and the 1997 Period. The Stroh Brewery Company ("Stroh's"), accounted for approximately 16.8% and 15.6%, respectively, of its net sales for the year ended December 31, 1998 and the 1997 Period. In 1999, Stroh's sold its assets to Pabst Brewing Company ("Pabst") and Miller Brewing Company ("Miller"). A portion of certain production for Stroh's has been replaced with production for Pabst and Miller. The Company's ten largest continuing customers, named above, accounted for approximately 61% of net sales for the year ended December 31, 1999. 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, Inc. to provide all the bottles for Anheuser-Busch's Jacksonville, Florida and Cartersville, Georgia breweries beginning in 3 4 2001. In March 2000, Anheuser-Busch purchased the 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. Anchor expects to negotiate a contract with Anheuser-Busch to provide management assistance in the operations 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, Chairman and Chief Executive Officer of each of Anchor and Consumers, has extensive industry and customer networks. From 1995 through 1997, he served as Chairman of the Board of Trustees of the Glass Packaging Institute, the leading industry organization of glass container manufacturers and he remains a member of its board. As a result of the Company's affiliation with Consumers and GGC, L.L.C. ("GGC," which acquired the glass manufacturing net operating assets of Glenshaw Glass Company, Inc. "Glenshaw"), Consumers and GGC sales personnel will also market the capabilities of Anchor with respect to certain production in exchange for a market-based commission. See Item 13. - Certain Relationships and Related Transactions. In addition, certain production has been and will continue to be reallocated among the Company's plants, Consumers' plants and the GGC plant in order to maximize machine capability and geographic proximity to customers. In each case, the entity shifting its existing production or responsible for the new business will receive a market-based commission from the entity to whom the existing production or new business was shifted. 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 generally schedules 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 adversely affect profitability during the first and fourth quarters. 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 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. 4 5 All of the Company's glass melting furnaces are equipped to burn natural gas, which is the primary fuel used at its manufacturing facilities. Backup systems are in place at most facilities to permit the use of fuel oil or propane should that become necessary. Electricity is used in certain instances for enhanced melting. The Company expects to be continually involved in programs to conserve and reduce its consumption of fuel. Although natural gas remains generally less expensive than electricity, prices for natural gas have fluctuated in recent years. Prices have increased in 1999 and are expected to continue to increase in 2000, as compared to 1998 levels. While certain of these energy sources may become increasingly in short supply, or subject to governmental allocation or excise taxes, the Company cannot predict the effects, if any, of such events on its future operations. In addition, the Company utilizes a natural gas risk management program to hedge future requirements and to minimize fluctuation in the price of natural gas. COMPETITION The glass container industry is a mature, low growth industry. This low growth combined with 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 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 1999, which included Anchor, estimated to have accounted for 95% of 1999 domestic volume by management's estimate. 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 sales 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 or 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 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. 5 6 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. The agreement, entered into in February 1997, provides for a term of up to ten years. This agreement has become the subject of litigation between Anchor and Owens. See Item 3. Legal Proceedings. Anchor 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 Anchor's modernization and expansion plans. While Anchor 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 29, 2000, Anchor employed approximately 3,000 persons on a full-time basis. Approximately 570 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 Anchor's hourly employees, and the American Flint Glass Workers Union (the "AFGWU"), which represents approximately 10% of the Company's hourly employees. Anchor'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. Anchor'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, Anchor 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. Anchor 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 Anchor 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 Anchor 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 Anchor. See Item 3. Legal Proceedings. Capital expenditures required for environmental compliance were approximately $0.5 million for 1999 and are anticipated to be approximately $1.0 million annually in 2000 and 2001. However, there can be no assurance that future changes in such laws, regulations or interpretations thereof or the nature of Anchor's operations will not require Anchor to make significant additional capital expenditures to ensure compliance in the future. 6 7 Employee Health and Safety Regulations. Anchor's operations are subject to a variety of worker safety laws. OSHA and analogous laws mandate general requirements for safe workplaces for all employees. Anchor 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 impose other restrictions, on the sales 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 Anchor'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. 7 8 ITEM 2. PROPERTIES. Anchor's administrative and executive offices are located in Tampa, Florida. Anchor owns and operates nine glass manufacturing plants. Anchor 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 Anchor's owned and leased properties are pledged as collateral securing Anchor's obligations under the $150.0 million aggregate principal amount, 11.25% First Mortgage Notes due 2005 (the "First Mortgage Notes") and the related indenture. As part of its long-term business strategy, Anchor closed its Houston plant effective as of February 1997 and its Dayville plant effective as of April 1997. Also in 1997, two furnaces and five machines were removed from service, one furnace and one machine at Anchor's Jacksonville plant and one furnace and four machines at its Connellsville plant. In December 1998, one furnace and one machine was 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. Anchor expects to negotiate a contract with Anheuser-Busch to provide management assistance in the operations of the facility upon its refurbishment. The following table sets forth certain information about the facilities owned and being operated by Anchor as of February 29, 2000. 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 Anchor'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
1) Anchor 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) Anchor removed one furnace and four machines from production at this facility in February 1997. Headquarters Lease. Anchor 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. 8 9 ITEM 3. LEGAL PROCEEDINGS. On February 17, 2000, Owens commenced an action against Anchor and certain of its affiliates, including Consumers and GGC, in the United States District Court for the Southern District of New York. Owens alleges violations of the Technical Assistance Agreement and its resulting termination. Owens is seeking various forms of relief including (1) a permanent injunction restraining Anchor and its affiliates from infringing Owens' patents and using or disclosing Owens' trade secrets and (2) damages for breaches of the Technical Assistance Agreement. Anchor and its affiliates filed a demand for arbitration with the American Arbitration Association on February 24, 2000. On March 15, 2000, the Court ruled that the dispute as to whether there was a valid termination of the Technical Assistance Agreement is subject to arbitration. Anchor has moved to dismiss or stay the action pending arbitration. On March 31, 2000, Owens submitted its answer and counterclaims in the arbitration. Owens has asserted the position that (i) the Court referred to arbitration only the question whether there was a valid termination of the Technical Assistance Agreement and (ii) certain of Owens' claims are not arbitrable. On April 14, 2000, Owens and Anchor and certain of its affiliates consented to the entry of an order by the Court which effectively requires compliance with the Technical Assistance Agreement until further order of the Court. In addition, the order requires Anchor and certain of its affiliates to inventory all equipment, other technology and documents subject to the Technical Assistance Agreement and certify to the Court periodically that all royalties have been paid and no unauthorized technology transfer has occurred. In compliance with the order, Consumers' Italian subsidiary ceased using the disputed technology. The Company believes that it has meritorious defenses to the claims in the action and intends to conduct a vigorous defense. An unfavorable outcome in this matter could have a material and adverse effect on the Company's business prospects and financial condition. In addition, even if the ultimate outcome of the case were resolved in favor of the Company, the defense of such litigation may involve considerable cost, which could be material, and could divert the efforts of management. 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. Anchor 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 sites. Anchor has assumed responsibility with respect to four sites. While Anchor may be jointly and severally liable for costs related to these sites, in most cases, it is only one of a number of PRP's who are also jointly and severally liable. With respect to the four sites for which Anchor has assumed responsibility, Anchor estimates that its share of the aggregate cleanup costs of such sites should not exceed $2.0 million, and that the likely range after taking into consideration the contributions anticipated from other potentially responsible parties could be significantly less. However, no assurance can be given that the cleanup costs of such sites will not exceed $2.0 million or that the Company will have these funds available. Anchor 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 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. None. 9 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. All of the issued capital stock of Consumers U.S. is owned by Consumers International. All of such shares are pledged by Consumers International to secure its obligations under the Consumers senior secured notes. 10 11 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 two years ended December 31, 1999 and the period from February 5, 1997 to December 31, 1997 has been derived from the Company's audited financial statements included elsewhere in the Form 10-K. 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 1999 1998 DECEMBER 31, 1997(1) (dollars in thousands) STATEMENT OF OPERATIONS DATA: Net sales $ 628,728 $ 643,318 $ 569,441 Cost of products sold 582,975 594,256 523,709 Restructuring charges -- 4,400 -- Allocable portion of software write-off (2) 9,600 -- -- Selling and administrative expenses 28,465 30,246 25,120 --------- --------- --------- Income from operations 7,688 14,416 20,612 Other income (expense), net 3,671 2,912 (2,602) Interest expense (28,870) (27,098) (18,281) --------- --------- --------- Loss before extraordinary item (17,511) (9,770) (271) Extraordinary item(3) -- -- (11,200) --------- --------- --------- Loss before preferred stock dividends of (17,511) (9,770) (11,471) subsidiary and minority interest Preferred stock dividends of subsidiary (5,598) (5,598) (5,062) --------- --------- --------- Loss before minority interest (23,109) (15,368) (16,533) Minority interest 3,533 5,570 5,451 --------- --------- --------- Net loss $ (19,576) $ 9,798 $ (11,082) ========= ========= ========= BALANCE SHEET DATA (at end of period): Accounts receivable $ 53,556 $ 86,846 $ 56,940 Inventories 106,977 104,329 120,123 Total assets 601,716 640,254 614,730 Total debt 253,132 253,922 163,793 Total stockholders' equity 35,506 53,724 62,040 OTHER FINANCIAL DATA: Depreciation and amortization $ 54,054 $ 53,881 $ 51,132 Capital expenditures 53,905 42,288 41,634
- ------------ 1) The Anchor Acquisition was consummated on February 5, 1997. 2) Represents Anchor's allocable portion of the write-off of costs relating to a software system (SAP) that is being replaced by a corporate-wide system (JDEdwards). 3) Extraordinary item in the period from February 5, 1997 to December 31, 1997 resulted from the write-off of financing costs related to debt extinguished. 11 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW The Company was formed in January 1997 to consummate the Anchor Acquisition. The Company is a holding company whose only asset is the ownership of 59.1% of its sole subsidiary, Anchor Glass Container Corporation ("Anchor"). On February 5, 1997, pursuant to an Asset Purchase Agreement, Anchor acquired substantially all of the assets and assumed certain liabilities, of the former Anchor Glass Container Corporation ("Old Anchor"), now being liquidated in a proceeding under Chapter 11 of the U.S. Bankruptcy Code of 1978, as amended. Anchor purchased eleven operating glass container manufacturing facilities and other related assets (the "Anchor Acquisition"). Prior to the Anchor Acquisition, neither Anchor nor the Company had any operations. RESULTS OF OPERATIONS 1999 COMPARED 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 is being 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 is in the process of transitioning 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. 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 Investments, Inc. ("G&G"). This decrease is partially offset by costs associated with Year 2000 upgrades incurred in the first half of 1999. 12 13 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, Anchor completed an offering of an aggregate principal amount of $50.0 million of 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., Inc. 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 Anchor's $110.0 million Revolving Credit Facility (the "Revolving Credit Facility") during 1999, as compared to 1998. Net Loss. The Company had a net loss in the year ended 1999 of approximately $19.6 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. 1998 COMPARED TO THE 1997 PERIOD Net Sales. Net sales for the year ended 1998 were $643.3 million, or approximately $12.4 million per week, compared to $569.4 million, or approximately $12.1 million per week, for the 1997 Period. This slight increase in net sales was principally as a result of higher sales of beer and tea products in 1998 as compared to the 1997 Period. The continued shift in product mix in 1998 towards higher volume, lower priced products has unfavorably impacted margins, as noted below. Also, despite operating at near full manufacturing capacity, the industry has experienced significant pricing pressures, unfavorably affecting margins. Cost of Products Sold. The Company's cost of products sold for the year ended December 31, 1998 was $594.3 million (or 92.4% of net sales), while the cost of products sold for the 1997 Period was $523.7 million (or 92.0% of net sales). The slight increase in the percentage of cost of products sold for 1998, as compared with 1997, reflects higher freight costs and the impact of increased sales of lower margin items, offset by more favorable employee benefit costs, particularly in the areas of pensions and health insurance, as the result of favorable claims and census experience, which may be non-recurring. This variation also reflects the impact of costs related to the delay and start-up of a rebuilt furnace and machine rebuilds at one manufacturing plant, originally scheduled for December 1997 but completed in February 1998, and is partially offset by the cost savings associated with the closing of the Dayville, Connecticut plant effective during the second quarter of 1997. Additionally, a modification in the handling of mold replacement parts resulted in an approximate $3.5 million increase in costs in 1998. Restructuring Charges. 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 was closed in December 1998 and approximately 100 hourly employees were terminated. The Company recorded a restructuring charge of $4.4 million in 1998. Of this total charge, approximately $2.3 million relates to operating lease exit costs, approximately $0.9 million represents closing and other costs and approximately $0.8 million relates to the write-down of certain equipment to net realizable value. This plan was announced in October 1998 and, as a result, the Company recorded $0.4 million of the total restructuring charge in the fourth quarter of 1998 related to certain employee costs. Selling and Administrative Expenses. Selling and administrative expenses for the year ended December 31, 1998 were $30.2 million (or 4.7% of net sales) while expenses for the 1997 Period were approximately $25.1 million (or 4.4% of net sales). This slight increase in selling and administrative expenses as a percentage of net sales reflects slightly higher personnel costs as the Company augmented its management team in the second half of 1997 and expenditures in connection with Year 2000 compliance, offset by focused reductions in other selling and administrative categories. Interest Expense. Interest expense for 1998 was approximately $27.1 million compared to $18.3 million in the 1997 Period, an increase on a comparable basis of 34.0%. On March 16, 1998, Anchor completed an offering of an aggregate principal amount of $50.0 million of 9 7/8% Senior Notes. Annual interest expense on the Senior Notes approximates $4.9 million. Additionally, interest expense has increased based upon higher average outstanding borrowings under the Revolving Credit Facility during 1998, as compared to 1997. 13 14 Net Loss. The Company had a net loss in the year ended 1998 of approximately $9.8 million, including the restructuring charge of $4.4 million, compared to a net loss in the 1997 Period of approximately $11.0 million, including an extraordinary loss of approximately $11.2 million as result of the write-off of certain financing fees in connection with the refinancing of the Anchor Loan Facility. LIQUIDITY AND CAPITAL RESOURCES In 1999, operating activities provided $53.1 million in cash as compared to $14.5 million of cash used in the same period of 1998. This increase in cash provided reflects adjustments for changes in working capital items and the lower net loss in 1999 as compared to 1998, exclusive of the allocable portion of the software write-off of $9.6 million. The balance of trade related accounts receivable decreased approximately $33.3 million from year-end 1998 reflecting the receipt of $20.0 million of intercompany receivable balances and the impact of credit terms of certain customers. Cash consumed in investing activities in 1999 and 1998 were $51.1 million and $50.9 million, respectively, principally reflecting the capital expenditures and payments in respect of strategic alliances with customers in 1999 and 1998. Capital expenditures in 1999 and 1998 were $44.7 million and $42.3 million, respectively. Cash from financing activities in 1999 included the sale of a note receivable partially offset by net repayments under the Revolving Credit Facility. In conjunction with the Anchor Acquisition, Anchor entered into the Revolving Credit Facility. At February 29, 2000, advances outstanding under the Revolving Credit Facility were $44.6 million, borrowing availability was $11.1 million and total outstanding letters of credit under this facility were $11.3 million. In September 1998, G&G (acting on behalf of Consumers) entered into an agreement to purchase a controlling interest in a European glass manufacturer and advanced $17.3 million toward that end. This amount was funded by G&G through a loan from Anchor of approximately $17.3 million in September 1998. The loan is evidenced by a promissory note which originally matured in January 1999. This loan was permitted through an amendment to the Intercompany Agreement, which was approved by Anchor's Board of Directors. The repayment date of the promissory note has been extended to December 31, 2000, consistent with a recent amendment to the Revolving Credit Facility. The funds were obtained through borrowings under the Revolving Credit Facility. Anchor has pledged the promissory note to the lenders under the Revolving Credit Facility and G&G has provided security against the promissory note to the lenders. Interest on the note is payable at the interest rate payable by Anchor on its revolving credit advances plus -1/2 % and has been paid through December 1999. A number of issues have arisen and 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, and will upon receipt, repay the loan from Anchor. 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. The indentures covering the First Mortgage Notes and the Senior Notes contain certain covenants that restrict Anchor from taking 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 and other fundamental corporate changes, capital expenditures, operating lease payments and transactions with affiliates. The Revolving Credit Facility contains other and more restrictive covenants, including certain financial covenants that require Anchor to meet and maintain certain financial tests and minimum ratios, such as a minimum working capital ratio, a minimum consolidated net worth and a fixed charge ratio. Anchor was in violation of one of these covenants, having exceeded the allowed amount of capital expenditures, for which it received a waiver. The level of Anchor's indebtedness could have important consequences, including: - a substantial portion of Anchor's cash flow from operations must be dedicated to debt service, - Anchor's ability to obtain additional future debt financing may be limited and 14 15 - the level of indebtedness could limit Anchor's flexibility in reacting to changes in the industry and economic conditions in general. The Company expects significant expenditures in 2000, including interest expense on the First Mortgage Notes, the Senior Notes and advances under the Revolving Credit Facility and capital expenditures in the range of $40.0 million to $45.0 million (a portion of which may be acquired through capital leases). Anchor announced that it signed an agreement with Anheuser-Busch to provide all the bottles for the Anheuser-Busch's Jacksonville, Florida and Cartersville, Georgia breweries beginning in 2001. To meet the expanded demand from the supply contract, Anchor will invest approximately $30.0 to $40.0 million in new equipment for its Jacksonville and Warner Robins plants over the next 18 months to increase production efficiency. The funding for this project will be provided through certain leasing transactions, the proceeds from the sale of the Houston plant (see below) and internal cash flows. In December 1999, Anchor entered into a firm agreement with a major lessor for $30.0 million of lease transactions. Under this agreement, Anchor 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. In March 2000, Anheuser-Busch purchased the 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 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. Anchor expects to negotiate a contract with Anheuser-Busch to provide management assistance in the operations of the facility upon its refurbishment. In addition, effective April 1, 1999, Anchor 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 will incur increased costs in subsequent years. 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 principal sources of liquidity through the end of the year are expected to be funds derived from operations, borrowings under the Revolving Credit Facility, proceeds from the sale/leaseback transactions noted above and proceeds from sales of discontinued manufacturing facilities. Without taking into account the litigation with Owens, the impact of which cannot be determined at this time, management believes that the cash flows discussed above, will provide adequate funds for the Company's working capital needs and capital expenditures. 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. 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 pricing pressures in the current market and has not been fully able to pass on inflationary cost increases to its customers. 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 generally schedules 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 and seasonal sales patterns adversely affect profitability during the first and fourth quarters. The Company has in the past and expects to continue in the future to implement alternatives to reduce 15 16 downtime during these periods in order to minimize disruption to the production process and its negative effect on profitability. 16 17 YEAR 2000 The Company did not experience any significant malfunctions or errors in its operating or business systems when the date changed from 1999 to 2000. Based on operations since January 1, 2000, the Company does not expect any significant impact to its ongoing business as a result of the Year 2000. However, it is possible that the full impact of the date change, which was of concern due to computer programs that use two digits instead of four digits to define years, has not been fully recognized. The Company believes that any such problems are likely to be minor and correctable. The Company currently is not aware of any significant Year 2000 or similar problems that have arisen for its customers or suppliers. The Company's aggregate expenditures for Year 2000 compliance and system upgrades approximated $2.5 million from 1998 to 1999. All of these expenditures had been funded through cash flows from operations. 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 ("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 not yet quantified the impacts of adopting SFAS 133 and has not determined the timing or method of adoption. SFAS 133 could increase volatility in earnings and other comprehensive income. 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 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 market 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 seasonal nature of brewing, iced tea and other beverage industries; the Company's dependence on certain executive officers; and changes in 17 18 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 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. Anchor's 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 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. 18 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page No. -------- Index to Financial Statements of Consumers U.S. F-1 Report of Independent Certified Public Accountants F-2 Consolidated Statements of Operations and Other Comprehensive Income- Two Years ended December 31, 1999 and the Period from February 5, 1997 to December 31, 1997 F-3 Consolidated Balance Sheets- December 31, 1999 and 1998 F-4 Consolidated Statements of Cash Flows- Two Years ended December 31, 1999 and the Period from February 5, 1997 to December 31, 1997 F-6 Consolidated Statements of Stockholder's Equity- Two Years ended December 31, 1999 and the Period from February 5, 1997 to December 31, 1997 F-8 Notes to Consolidated Financial Statements F-9 Index to Financial Information of Old Anchor H-1 Report of Independent Certified Public Accountants H-2 Consolidated Statements of Operations- Period from January 1, 1997 to February 4, 1997 H-3 Consolidated Balance Sheets- February 4, 1997 H-4 Consolidated Statements of Cash Flows- Period from January 1, 1997 to February 4, 1997 H-6 Consolidated Statements of Stockholder's Equity (Deficiency in Assets)- Period from January 1, 1997 to February 4, 1997 H-7 Notes to Consolidated Financial Statements H-8
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 19 20 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 directors and executive officers of Consumers U.S..
NAME AGE POSITION John J. Ghaznavi 64 Chairman, Chief Executive Officer and Director Patrick T. Connelly 47 Treasurer David T. Gutowski 52 Director C. Kent May 60 Secretary and Director
Term of Office. Each director serves until the first annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal, except as set forth in the Certificate of Incorporation. Each officer serves until the first meeting of the Board of Directors following the next annual meeting of the stockholders and until his successor shall have been chosen and qualified. John J. Ghaznavi became Chairman of the Board and Chief Executive Officer of Consumers U.S. in January 1997. He has been Chairman and Chief Executive Officer of each of Anchor, Consumers, Glenshaw and G&G since 1997, 1993, 1988 and 1987, respectively. Mr. Ghaznavi currently a member of the Board of Directors of the Glass Packaging Institute. Patrick T. Connelly became Treasurer if Consumers U.S. in 1999. He became a director of Anchor 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. David T. Gutowski became a director of Consumers U.S. in January 1997. He joined Anchor 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 and in 1999 was appointed Vice President, Finance and Chief Financial Officer of Consumers. He has been a director of Consumers since 1993. Mr. Gutowski served as Treasurer and Chief Financial Officer of G&G since 1988. C. Kent May became a director and Secretary of Consumers U.S. in January 1997. He became Vice President, General Counsel and Secretary of Anchor 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. 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. Officers of Consumers U.S. serve at the discretion of the Board of Directors. BOARD OF DIRECTORS OF CONSUMERS U.S. Compensation of Directors. Directors of Consumers U.S. do not receive any compensation or reimbursement. 20 21 ITEM 11. EXECUTIVE COMPENSATION. EXECUTIVE COMPENSATION Consumers U.S. was organized in January 1997 as a holding company for Anchor. Consumers U.S. does not conduct any operations. Officers and directors for Consumers U.S. are not compensated for acting in such capacity. COMPENSATION OF DIRECTORS There are no non-employee directors of Consumers U.S. Employee directors are not compensated in such capacity. EMPLOYMENT CONTRACTS Consumers U.S. does not, as a general rule, enter into employment agreements with its executive officers and/or other key employees. 21 22 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. PRINCIPAL STOCKHOLDERS OF CONSUMERS U.S. All of the issued and outstanding capital stock of Consumers U.S. is owned by Consumers International. All of such shares were pledged by Consumers International to secure its obligations under the Consumers International Notes and the Consumers International Indenture. The address of Consumers International is 777 Kipling Avenue, Toronto, Ontario, Canada, M8Z 5Z4. The following table sets forth information with respect to the beneficial ownership of the Common Stock of Consumers U.S. as of December 31, 1999 by (i) each Director of Consumers U.S. and (ii) the Chief Executive Officer of Consumers U.S. Unless otherwise indicated in these footnotes, 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"). All fully diluted share amounts and percentages reflect beneficial ownership of Voting 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 December 31, 1999.
CLASS AND AMOUNT OF BENEFICIAL OWNERSHIP PERCENTAGE ------------------------- ----------------- Primary and Fully NAME Actual Fully Diluted Primary Diluted ---- ------ ------------- ------- ------- DIRECTORS AND EXECUTIVE OFFICERS: John J. Ghaznavi(1) - - - - Patrick T. Connelly(2) - - - - David T. Gutowski(3) - - - - C. Kent May(4) - - - - All Directors and executive officers as a group (4 persons) - - - - GREATER THAN FIVE PERCENT STOCKHOLDERS Consumers International Inc. 17,000,100 17,000,100 100.0% 100.0%
(1) Through G&G, Ghaznavi Canada, Inc. and other affiliates, Mr. J. Ghaznavi beneficially owns 23,575,345 shares of the voting common stock 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 Anchor. G&G is also deemed to beneficially own shares of the common stock owned by Consumers U.S. (2) Mr. Connelly beneficially owns 10,500 shares of the voting common stock of Consumers. (3) Mr. Gutowski beneficially owns 162,460 shares of the voting common stock of Consumers, including 125,000 shares issuable upon the exercise of currently exercisable options. (4) Mr. May beneficially owns 109,140 shares of the voting common stock of Consumers, including 95,000 shares issuable upon the exercise of currently exercisable options. 22 23 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 (and intends to expand) 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 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 an Intercompany Agreement (the "Intercompany Agreement") with G&G, Consumers, Anchor, 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. 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. In such case, where the customer is not a common customer, the company that does the manufacturing will pay 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 Manufacturers or to an Affiliated Glass Manufacturers by the Company, the transfer is treated as though the transferee had filled the orders for the transferred customer. 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 Revolving Credit Facility and the indentures 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. Anchor 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 Revolving Credit Facility and the indentures limit management fee payments by the Company under the Management Agreement to $1.5 million per year unless Anchor meets certain financial tests, in which case such fees will accrue. Payment of fees in excess of $1.5 million are made based upon calculations of restricted payments under the indentures. In 1999, certain tests were not met and the fees due under the Management Agreement were limited to $1.5 million. 23 24 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. In June 1999, CUS II, Inc. a newly-formed U.S. wholly-owned subsidiary of Consumers, acquired the net operating glass manufacturing assets of Glenshaw. The purchase price of $54.3 million was paid in the form of interests in GGC, that will be exchangeable for common shares of Consumers. In March 2000, Anheuser-Busch purchased the previously closed Houston, Texas glass container manufacturing facility and certain related operating rights. See Item 1. Business-Recent Developments. The Company from time to time has engaged the law firm of Eckert Seamans Cherin and Mellott, LLC, to represent it on a variety of matters. C. Kent May, an executive officer and director of the Company, is a member of such law firm. INDEBTEDNESS OF MANAGEMENT Indebtedness to the Corporation, of all directors and officers of Anchor, entered into in connection with a securities purchase program of Consumers common stock, aggregated $229,667 at February 29, 2000. Indebtedness, in excess of $60,000, of directors and executive officers of Anchor under this program consists of $72,094, outstanding at February 29, 2000 (which is the largest amount outstanding during 1999) from Mr. Ghaznavi. This indebtedness is secured by 47,130 shares of Consumers common stock. In addition, as described under "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 Anchor of approximately $17.3 million. Mr. Ghaznavi controls G&G. 24 25 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 Consumers U.S. Inc. and Anchor Resolution Corp. and the Reports of Independent Certified Public Accountants are included beginning at page F-1 and beginning at page H-1 of this Form 10-K. See the index included on page 18. 2. Financial Statement Schedules. The following Financial Statement Schedules are filed as part of this Form 10-K and should be read in conjunction with the Financial Statements of Consumers U.S. Inc. and the Consolidated Financial Statements of Anchor Resolution Corp. SCHEDULE II CONSUMERS U.S., INC. VALUATION AND QUALIFYING ACCOUNTS TWO YEARS ENDED DECEMBER 31, 1999 AND THE PERIOD FROM FEBRUARY 5, 1997 TO DECEMBER 31, 1997 (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, 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 Period from February 5, 1997 to December 31, 1997 Allowance for doubtful accounts $ 1,630 $ 375 $ 360(B) $ 340(A) $ 2,025 Plant closing reserves 25,800 -- -- 20,800 5,000
- ----------------- (A) Accounts written off (B) Amount recognized as part of Anchor Acquisition 25 26 SCHEDULE II ANCHOR RESOLUTION CORP. VALUATION AND QUALIFYING ACCOUNTS PERIOD FROM JANUARY 1, 1997 TO FEBRUARY 4, 1997 (DOLLARS IN THOUSANDS)
Column A Column B Column C Column D Column E Column F - -------- -------- -------- -------- -------- -------- Additions ------------------------- Balance at Charged to Charged to Balance at end beginning of costs and other of Description period expenses accounts Deductions period - ----------- ------ -------- -------- ---------- ------ Interim Period 1997 Allowance for doubtful accounts $1,503 $ 127 - - $1,630
(A) Accounts written off Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the financial statements or notes thereto. 26 27 3. Exhibits
EXHIBIT NUMBER ITEM ------ ---- 2.1 Asset Purchase Agreement dated as of December 18, 1996 among 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 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 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 Delaware approving the Amendment to the Asset Purchase Agreement 2.5 Memorandum of Understanding dated February 5, 1997 among Old Anchor, Consumers Packaging Inc. and the Company 2.6### Stipulation and Order of United States Bankruptcy Court for the District of Delaware relating to the Settlement 3.1 Amended and Restated Certificate of Incorporation of the Company 3.2 Bylaws of the Company 3.5 Certificate of Designation of Series A 10% Cumulative Convertible Preferred Stock 3.6 Certificate of Designation of Series B 8% Cumulative Convertible Preferred Stock 3.7### Amendment to Certificate of Designation for Series A 10% Cumulative Convertible Preferred Stock 3.8### Amendment to Certificate of Designation for Series B 8% Cumulative Convertible Preferred Stock 3.9### Certificate of Amendment of Certificate of Incorporation of the Company 4.1 Indenture dated as of April 17, 1997 among the Company, Consumers U.S. and The Bank of New York, as trustee 4.2 Form of Initial Notes (included in Exhibit 4.1) 4.3 Form of Exchange Notes (included in Exhibit 4.1) 4.4 Security Agreement dated as of April 17, 1997 among the Company, Bankers Trust Company, as Collateral Agent under the Revolving Credit Agreement 4.5 Assignment of Security Agreement dated as of April 17, 1997 among 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. and The Bank of New York, as trustee under the Indenture 4.7 Intercreditor Agreement dated as of February 5, 1997 among The 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 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 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 U.S. and The Bank of New York, as trustee 4.11# Form of Initial Notes (included in Exhibit 4.10) 4.12# Form of Exchange Notes (included in Exhibit 4.10) 4.13# Registration Rights Agreement dated as of March 16, 1998 among the Company, TD Securities and BT Alex. Brown
27 28
EXHIBIT NUMBER ITEM ------ ---- 10.1 Credit Agreement (the "Credit Agreement") dated as of February 5, 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, 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, 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 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 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 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 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 Commercial Corporation and the other financial institutions party to the Credit Agreement Plan 10.9 Termination Agreement dated February 3, 1997 by and between Consumers Packaging Inc., the Company and the Pension Benefit Guaranty Corporation 10.10 Release Agreement among Old Anchor, the Company, the Official 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 between Old Anchor and Consumers Packaging Inc. 10.12 First Amendment to the Vitro Agreement dated as of February 4, 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 Anchor and Consumers Packaging Inc. 10.14 Assignment and Assumption Agreement dated as of February 5, 1997 by and between Consumers Packaging, Inc. 10.15 Assignment and Assumption Agreement dated as of February 5, 1997 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 between Consumers Packaging Inc. and the Company relating to certain commitment letters 10.17 Bill of Sale, Assignment and Assumption Agreement dated as of February 5, 1997 by and between Old Anchor and the Company 10.18 Assignment of Patent Property and Design Property from Old Anchor to the Company 10.19 Trademark Assignment from Old Anchor to the Company 10.20 Foreign Trademark Assignment from Old Anchor to the Company 10.21 Copyright Assignment from Old Anchor to the Company 10.22 Agreement dated as of February 5, 1997 between the Travelers 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 Consumers Packaging Inc. and Owens-Brockway Glass Container Inc. 10.24 Supply Agreement dated as of February 5, 1997 by and between the Company and Owens-Brockway Glass Container Inc.
28 29
EXHIBIT NUMBER ITEM ------ ---- 10.25 Transition Agreement dated as of February 5, 1997 between Consumers Packaging Inc., the Company and Owens-Brockway Glass Container Inc. 10.26+ Technical Assistance and License Agreement executed December 18, 1996 by Owens-Brockway Glass Container Inc. and Consumers Packaging Inc. 10.27 Assurance Agreement (the "Assurance Agreement") dated as of 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, 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 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 the Company and G&G Investments, Inc. 10.31 Anchor Glass Container Corporation/Key Executive Employee Retention Plan 10.32 Lease Agreement - Anchor Place at Fountain Square (the "Lease 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, by and between Fountain Associates I Ltd. and Old Anchor 10.34 Second Amendment to Lease Agreement effective as of September 30, 1993, by and between Fountain Associates I Ltd. and Old Anchor 10.35 Third Amendment to Lease Agreement effective as of February 22, 1995, by and between Fountain Associates I Ltd. and Old Anchor 10.36 Agreement dated as of March 31, 1996 by and between Fountain Associates I Ltd. Citicorp Leasing, Inc. and Old Anchor 10.37 Amended and Restated Agreement effective as of September 12, 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 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 Fountain Associates I, Ltd. and Old Anchor 10.40 First Amendment to Building Option Agreement effective as of June 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 Brewery Company and the Company 10.42 Supply Agreement between Bacardi International Limited and the Company (Withdrawn upon the request of the registrant, the Commission consenting thereto) 10.43 Warrant Agreement dated as of February 5, 1997 between the Company and Bankers Trust Company 10.44 Form of Warrant issued pursuant to the Warrant Agreement 10.45 Rebate Agreement dated as of January 1, 1996 between Bacardi 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, 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, 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
29 30
EXHIBIT NUMBER ITEM ------ ---- 10.48## Seventh Amendment to the Credit Agreement dated as of April 1, 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, 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 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 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 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 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 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 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, Incorporated and Anchor Glass Container Corporation. 10.57++ Sixteenth Amendment and Waiver dated as of August 8, 1999, to 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. 10.58++ Seventeenth Amendment and Waiver dated as of October 11, 1999, to 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 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 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. 12.1++++ Statement re: computation of ratio of earnings to fixed charges for the years ended December 31, 1999 and 1998 and the period from February 5, 1997 to December 31, 1997 21.1 List of subsidiaries of the Company
30 31
EXHIBIT NUMBER ITEM ------ ---- 27.1++++ Financial Data Schedule of the Company
- ---------------- + - 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. # - Previously filed as an exhibit to Anchor's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and incorporated herein by reference. ## - 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. ### - Previously filed as an exhibit to Anchor's Registration Statement on Form 10 and incorporated herein by reference. * - Previously filed as an exhibit to Anchor's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 and incorporated herein by reference. ** - Previously filed as an exhibit to Anchor's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and incorporated herein by reference. *** - Previously filed as an exhibit to Anchor's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference. ++ - Previously filed as an exhibit to Anchor's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 and incorporated herein by reference. +++ - Filed as an exhibit to Anchor's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and incorporated herein by reference. ++++ - Filed herewith. All other exhibits are incorporated herein by reference 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) Reports on Form 8-K None 31 32 INDEX TO FINANCIAL INFORMATION FOR CONSUMERS U.S.
Page No. -------- Financial Statements of Consumers U.S.: Report of Independent Certified Public Accountants F-2 Consolidated Statements of Operations and Other Comprehensive Income - Two Years ended December 31, 1999 and the Period from February 5, 1997 to December 31, 1997 F-3 Consolidated Balance Sheets - December 31, 1999 and 1998 F-4 Consolidated Statements of Cash Flows - Two Years ended December 31, 1999 and the Period from February 5, 1997 to December 31, 1997 F-6 Consolidated Statements of Stockholder's Equity - Two Years ended December 31, 1999 and the Period from February 5, 1997 to December 31, 1997 F-8 Notes to Consolidated Financial Statements F-9
F-1 33 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Consumers U.S., Inc.: We have audited the accompanying consolidated balance sheets of Consumers U.S., Inc. (a Delaware corporation) as of December 31, 1999 and 1998, and the related consolidated statements of operations and other comprehensive income, cash flows and stockholder's equity for the years ended December 31, 1999 and 1998, and the period from February 5, 1997, to December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with 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 Consumers U.S., Inc. as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years ended December 31, 1999 and 1998, and the period from February 5, 1997, to December 31, 1997, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Tampa, Florida February 25, 2000 (except for the matters discussed in Note 13, as to which the date is April 14, 2000) F-2 34 CONSUMERS U.S., INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------------- Years Ended December 31, Period from ----------------------------- February 5, 1997 to 1999 1998 December 31, 1997 - -------------------------------------------------------------------------------------------------------------------------- Net sales ................................................. $ 628,728 $ 643,318 $ 569,441 Costs and expenses: Cost of products sold .............................. 582,975 594,256 523,709 Restructuring charges .............................. -- 4,400 -- Allocable portion of software write-off ............ 9,600 -- -- Selling and administrative expenses ................ 28,465 30,246 25,120 --------- --------- --------- Income from operations .................................... 7,688 14,416 20,612 Other income (expense), net ............................... 3,671 2,912 (2,602) Interest expense .......................................... (28,870) (27,098) (18,281) --------- --------- --------- Loss before extraordinary item ............................ (17,511) (9,770) (271) Extraordinary item- Write-off deferred financing costs ................. -- -- (11,200) --------- --------- --------- Loss before preferred stock dividends and minority interest (17,511) (9,770) (11,471) Preferred stock dividends of subsidiary ................... (5,598) (5,598) (5,062) --------- --------- --------- Loss before minority interest ............................. (23,109) (15,368) (16,533) Minority interest ......................................... 3,533 5,570 5,451 --------- --------- --------- Net loss .................................................. $ (19,576) $ (9,798) $ (11,082) ========= ========= ========= Other comprehensive income (loss): Net loss ........................................... $ (19,576) $ (9,798) $ (11,082) Other comprehensive income (loss): Minimum pension liability adjustment ........... 158 382 (540) --------- --------- --------- Comprehensive income (loss) ............................... $ (19,418) $ (9,416) $ (11,622) ========= ========= =========
See Notes to Consolidated Financial Statements. F-3 35 CONSUMERS U.S., INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------------------- December 31, ----------------------------- Assets 1999 1998 - --------------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents ............................ $ 5,278 $ 4,106 Accounts receivable, less allowance for doubtful accounts of $1,100 and $1,288, respectively ...... 53,556 86,846 Advance to affiliate ................................. 17,571 17,866 Inventories: Raw materials and manufacturing supplies ......... 24,415 23,099 Finished products ................................ 82,562 81,230 Other current assets ................................. 7,603 8,304 --------- --------- Total current assets .......................... 190,985 221,451 - --------------------------------------------------------------------------------------------- Property, plant and equipment: Land ............................................. 7,769 7,769 Buildings ........................................ 64,719 63,721 Machinery, equipment and molds ................... 369,042 334,714 Cash held in escrow .............................. 8,258 -- Less accumulated depreciation .................... (129,787) (89,499) --------- --------- 320,001 316,705 - --------------------------------------------------------------------------------------------- Other assets ......................................... 29,545 22,839 Strategic alliances with customers, net of accumulated amortization of $11,526 and $5,063, respectively . 11,089 26,187 Goodwill, net of accumulated amortization of $8,601 and $5,625, respectively .. 50,096 53,072 --------- --------- $ 601,716 $ 640,254 ========= ========= - ---------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. F-4 36 CONSUMERS U.S., INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
December 31, ----------------------------- Liabilities and Stockholder's Equity 1999 1998 - -------------------------------------------------------------------------------------------------- Current liabilities: Revolving credit facility ................................. $ 40,895 $ 50,162 Current maturities of long-term debt ...................... 2,029 840 Accounts payable .......................................... 48,729 51,838 Accrued expenses .......................................... 38,058 39,971 Accrued interest .......................................... 5,953 5,970 Accrued compensation and employee benefits ................ 23,895 27,249 --------- --------- Total current liabilities ............................. 159,559 176,030 - -------------------------------------------------------------------------------------------------- Long-term debt ............................................ 210,208 202,920 Long-term pension liabilities ............................. 24,569 38,855 Long-term post-retirement liabilities ..................... 59,464 59,853 Other long-term liabilities ............................... 35,120 37,236 --------- --------- 329,361 344,524 Commitments and contingencies - -------------------------------------------------------------------------------------------------- Redeemable preferred stock of subsidiary, Series A, $.01 par value; authorized, issued and outstanding 2,239,320 shares: $25 liquidation and redemption value .................. 70,830 66,643 --------- --------- Minority interest ......................................... 6,460 9,993 --------- --------- Stockholder's equity: Common stock, $.01 par value; authorized 20,000,000 shares; issued and outstanding 17,000,100 shares .............. 170 170 Capital in excess of par value ............................ 88,630 87,430 Accumulated deficit ....................................... (53,294) (33,718) Additional minimum pension liability ...................... -- (158) --------- --------- 35,506 53,724 --------- --------- $ 601,716 $ 640,254 ========= ========= - --------------------------------------------------------------------------------------------------
F-5 37 CONSUMERS U.S., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------------- Years Ended December 31, Period from ---------------------------- February 5, 1997 to 1999 1998 December 31, 1997 - ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net loss ....................................................... $(19,576) $ (9,798) $ (11,082) Extraordinary item ............................................. -- -- 11,200 Adjustments to reconcile loss before extraordinary item to net cash provided by (used in) operating activities: Depreciation and amortization ........................... 54,054 53,881 51,132 Restructuring charges ................................... -- 4,400 -- Allocable portion of software write-off ................. 9,600 -- -- Dividends accrued on preferred stock of subsidiary ...... 5,598 5,598 5,062 Minority interest ....................................... (3,533) (5,570) (5,451) Other ................................................... 2,136 183 3,101 Decrease in cash resulting from changes in assets and liabilities ................................... 4,863 (63,205) (24,966) -------- --------- --------- 53,142 (14,511) 28,996 - ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of assets and assumption of liabilities of Old Anchor . -- -- (200,470) Expenditures for property, plant and equipment ................. (44,709) (41,367) (40,519) Proceeds from the sale of property, plant and equipment ........ 8,533 2,723 -- Deposit of sale proceeds into escrow account ................... (8,258) -- -- Payments of strategic alliances with customers ................. (2,000) (10,000) (6,000) Stock in Parent, held for Pension Fund ......................... (3,000) -- -- Acquisition related contribution to pension plans .............. -- (745) (9,056) Other .......................................................... (1,644) (1,481) (1,210) -------- --------- --------- (51,078) (50,870) (257,255) - ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from issuance of long-term debt ....................... -- 50,000 280,000 Principal payments of long-term debt ........................... (984) (540) (130,278) Advance to affiliate ........................................... -- (17,330) -- Sale of note receivable ........................................ 11,200 -- -- Dividends paid on Series A Preferred Stock ..................... (1,411) -- -- Proceeds from issuance of common stock ......................... -- -- 85,000 Net draws on revolving credit facility ......................... (9,267) 39,694 10,468 Distribution to shareholder .................................... -- (3,513) Other, primarily financing fees ................................ (430) (3,397) (12,358) -------- --------- --------- (892) 68,427 229,319 - ----------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents: Increase in cash and cash equivalents .......................... 1,172 3,046 1,060 Balance, beginning of period ................................... 4,106 1,060 -- -------- --------- --------- Balance, end of period ......................................... $ 5,278 $ 4,106 $ 1,060 ======== ========= ========= - -----------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. F-6 38 CONSUMERS U.S., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
Years Ended December 31, Period from ----------------------- February 5, 1997 to 1999 1998 December 31, 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Supplemental disclosure of cash flow information: Cash paid during the period for: Interest ................................................................ $ 26,775 $ 23,973 $ 11,702 ======== ======== ======== Income tax payments (refunds), net ...................................... $ -- $ -- $ -- ======== ======== ======== Increase (decrease) in cash resulting from changes in assets and liabilities: Accounts receivable ..................................................... $ 12,013 $ (3,044) $ (7,523) Accounts receivable, intercompany ....................................... 11,466 (27,399) (2,112) Inventories ............................................................. (2,648) 15,794 (1,241) Other current assets .................................................... 931 (161) (620) Accounts payable, accrued expenses and other current liabilities .................................................. (13,211) (35,031) 3,688 Other, net .............................................................. (3,688) (13,364) (20,671) -------- -------- -------- $ 4,863 $(63,205) $(28,479) ======== ======== ======== Supplemental noncash activities: Non-cash equipment financing ................................................ $ 9,196 $ 930 $ 1,115 ======== ======== ========
In 1997, in connection with the Anchor Acquisition, the Company issued $46,983 face amount of Series A Preferred Stock and $2,454 of Class A Common Stock and incurred $1,500 of fees. In connection with the Anchor Loan Facility, the Company issued 1,405,229 warrants to the lenders valued at $7,012. In 1998, in settlement of the Anchor Acquisition purchase price, the Company issued 1,225,000 warrants valued at $6,125 and 525,000 warrants to an affiliate, valued at $2,625. Anchor Acquisition: Fair value of assets acquired ................... $ 525,500 Acquisition costs accrued ....................... (62,500) Goodwill ........................................ 59,000 Purchase price .................................. (250,000) --------- Liabilities assumed ............................. $ 272,000 =========
In February 1997, the Company contributed $9,000 face amount of Series A Preferred Stock to the Company's defined benefit pension plans. In connection with the issuance of the First Mortgage Notes, the Company issued 702,615 shares of Class B Common Stock to Consumers U.S. and 702,614 warrants valued at $3,506 to the initial purchasers of the First Mortgage Notes. Also, with the issuance of the First Mortgage Notes, the Company recorded an extraordinary loss for the write-off of deferred financing fees of the Anchor Loan Facility. The Company considers short-term investments with original maturities of ninety days or less as the date of purchase to be classified as cash equivalents. F-7 39 CONSUMERS U.S., INC. CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------ Capital - Minimum Total Common In-Excess Accumulated Pension Stockholder's Stock of Par Deficit Liability Equity - ------------------------------------------------------------------------------------------------------------------------------ Balance, February 5,1997 $ -- $ -- $ -- $ -- $ -- Issuance of 17,000,100 shares of common stock to Consumers International 170 86,330 -- -- 86,500 Acquisition of manufacturing rights -- -- (9,325) -- (9,325) Distribution to shareholder -- -- (3,513) -- (3,513) Net loss -- -- (11,082) -- (11,082) Amount related to minimum pension liability -- -- -- (540) (540) ---------------------------------------------------------------------------------- Balance, December 31, 1997 $170 $86,330 $(23,920) $(540) $ 62,040 ---------------------------------------------------------------------------------- Net loss -- -- (9,798) -- (9,798) Contribution from shareholder related to profit on intercompany sales -- 1,100 -- -- 1,100 Amount related to minimum pension liability -- -- -- 382 382 ---------------------------------------------------------------------------------- Balance, December 31, 1998 $170 $87,430 $(33,718) $(158) $ 53,724 ---------------------------------------------------------------------------------- Net loss -- -- (19,576) -- (19,576) Contribution from shareholder related to profit on intercompany sale -- 1,200 -- -- 1,200 Amount related to minimum pension liability -- -- -- 158 158 ---------------------------------------------------------------------------------- Balance, December 31, 1999 $170 $88,630 $(53,294) $ -- $ 35,506 ==================================================================================
See Notes to Consolidated Financial Statements. F-8 40 CONSUMERS U.S., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD FROM FEBRUARY 5, 1997 TO DECEMBER 31, 1997 (THE "1997 PERIOD") (DOLLARS IN THOUSANDS) NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Organization of the Company Consumers U.S., Inc. ("Consumers U.S."), a Delaware corporation and a wholly-owned subsidiary Consumers International Inc. ("Consumers International"), which is a wholly-owned subsidiary of Consumers Packaging Inc. ("Consumers"), was formed in January 1997 to hold an investment in Anchor Glass Container Corporation ("Anchor") which acquired certain assets and assumed certain liabilities of the former Anchor Glass Container Corporation ("Old Anchor"), now Anchor Liquidating Trust, which is being liquidated in a proceeding under Chapter 11 of the United States Bankruptcy Code of 1978, as amended. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Consumers U.S., which has no independent operations, and its majority-owned subsidiary, Anchor (together the "Company"). All material intercompany accounts and transactions have been eliminated in consolidation. Consumers U.S. holds 45.5% of the total outstanding voting common shares of Anchor and holds the majority of Anchor board of directors positions, and accordingly, the results of Anchor's operations have been consolidated in these financial statements. Giving effect to the Anchor Acquisition (see Note 2) and the related transactions, the amount of minority interest recognized by the Company was $21,014, consisting of $2,983 attributable to minority common stockholders and $18,031 attributable to Anchor warrant holders. Given the ownership percentages through the third quarter of 1998, 35.2% of the losses of Anchor attributable to common stockholders were credited to the Company's statement of operations. In October 1998, certain warrant holders exercised their warrants into common stock, increasing the minority interest ownership percentage to 44.7%. Through the third quarter of 1999, certain warrant holders exercised warrants for common stock, increasing the minority interest ownership percentage to 58.2%. As a result of the exercise of warrants in 1999 and 1998, the Company recorded a dilution gain of approximately $3,533 and $5,570, respectively, for the years ended December 31, 1999 and 1998. The remaining carrying value of minority interest related to the warrants will not be adjusted by any further losses attributable to common stockholders of Anchor. However, if future earnings do materialize, the Company will recognize 100% of these earnings, to the extent of such minority interest losses previously charged to the Company. 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") and The Stroh Brewery Company ("Stroh's") represented approximately 29.0% and 6.6%, respectively, of total net sales for the year ended December 31, 1999, 17.1% and 16.8%, respectively, of total net sales for the year ended December 31, 1998 and 8.8% and 15.6%, respectively, of total net sales for the 1997 Period. 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. F-9 41 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. Property, Plant and Equipment Property, plant and equipment expenditures, including renewals, betterments and furnace rebuilds which extend useful lives, and expenditures for glass forming machine molds are capitalized and depreciated using the straight-line method over the estimated useful lives of the assets for financial statement purposes, except for molds for which depreciation is recorded on a unit of production method based on units of glass produced supplemented by a net realizable formula to cover technical obsolescence, while 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. 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 1 and 12 years, based upon shipments. On April 30, 1999, Stroh's closed on an agreement to sell its assets to Pabst Brewing Company ("Pabst") and Miller Brewing Company ("Miller"). Under the terms of this agreement, Anchor received $5,000 in cash and a non-interest bearing note of $14,000 from Miller in satisfaction of the unamortized balance of the Stroh's 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's outstanding trade accounts receivable, Anchor received from Pabst, a five year note for $5,000 and an additional 68 month note for $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. Acquisition of Manufacturing Rights 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 Anchor effective December 31, 1997. The purchase price of Anchor's portion of this contract was $12,525, of which $11,550 has been paid through 1999. Although the purchase price was based upon an independent valuation, because these manufacturing rights were acquired from a related party under common control, the $3,200 carrying value of these rights previously recorded on Hillsboro's books was maintained. The excess of the purchase price over the carrying value had been treated as a distribution to a shareholder in 1997. 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 two years ended December 31, 1999 and 1998 and the 1997 Period were $2,976, $2,768 and $2,857, respectively. F-10 42 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. Accounts Payable Accounts payable includes the amount of checks issued and outstanding. Retirement Plans Anchor has retirement plans, principally non-contributory, 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 Anchor to make significant additional contributions into its underfunded defined benefit plans, under certain conditions. 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 has no effect on 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 $163,000 as of December 31, 1999. The carrying amount of other financial instruments, except for the natural gas futures discussed in Note 12, approximate their estimated fair values. The fair value information presented herein is based on information available to management as of December 31, 1999. 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 ("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, F-11 43 designate, and assess the effectiveness of transactions that receive hedge accounting. The Company has not yet quantified the impacts of adopting SFAS 133 and has not determined the timing or method of adoption. SFAS 133 could increase volatility in earnings and other comprehensive income. 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 financials statements to be consistent with the current year presentation. NOTE 2 - ALLOCABLE PORTION OF SOFTWARE WRITE-OFF 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 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 is in the process of transitioning to a JDEdwards based system, currently in place in Anchor. As authorized by the Intercompany Agreement (see Note 7), Consumers has allocated $9,600 to Anchor representing Anchor's pro forma share of the original implementation costs based upon number of plants, number of workstations and sales. NOTE 3 - PURCHASE OF ASSETS During 1997, the Company purchased eleven operating glass container manufacturing facilities and other related assets (the "Anchor Acquisition"). Owens purchased assets and assumed liabilities of Old Anchor's Antioch and Hayward, California facilities and purchased certain other existing inventories. Owens also purchased Old Anchor's investment in Rocky Mountain Bottle Company, a joint venture with Coors Brewing Company ("Coors"), and assumed Old Anchor's agreement to manufacture Coors' glass packaging products in the United States. The total purchase price approximated $378,000, excluding fees of approximately $1,500, which were paid by Consumers and recorded as capital in excess of par by Anchor. The portion of the purchase price paid in cash by Owens amounted to approximately $128,000. The remaining purchase price of approximately $250,000 from the Company 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 Anchor. In June 1998, as part of an adjustment to the purchase price for the Anchor Acquisition, Anchor 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, Anchor issued 525,000 warrants to purchase additional shares of common stock to an affiliate of Consumers U.S. valued at approximately $2,600. No payment is required upon exercise of these warrants. The effects of the settlement have been reflected in the financial statements for the period ended December 31, 1997. 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 of Anchor (the "Series B Preferred Stock") and $1,000 of common stock of Anchor (200,000 shares) and a $130,000 bank loan. F-12 44 The Anchor Acquisition is accounted for by using the purchase method, with the purchase price being allocated to the assets acquired and preacquisition liabilities assumed based on their estimated fair value at the date of acquisition. These allocations are based on appraisals, evaluations, estimations and other studies. Certain acquisition costs and fees, including the costs of closing and consolidating certain facilities have also been recorded by the Company at the date of acquisition. The excess of the purchase price over the fair value of net assets purchased of approximately $59,000 is classified as Goodwill on the accompanying balance sheet. The estimated values of assets acquired and liabilities assumed as of February 5, 1997 after giving effect to the Anchor Acquisition and consideration paid is as follows: Accounts receivable ......... $ 46,000 Inventories ................. 119,000 Property, plant and equipment 327,000 Goodwill .................... 59,000 Other assets ................ 32,000 Current liabilities ......... (149,000) Long-term debt .............. (2,000) Other long-term liabilities . (182,000) --------- $ 250,000 =========
The following unaudited pro forma results of operations for the Company for the year ended December 31, 1997 assumes the Anchor Acquisition occurred on January 1, 1997 (dollars in thousands): Net sales .................... $ 623,518 Loss before extraordinary item (11,561) Net loss ..................... (22,192)
These pro forma amounts represent historical operating results with appropriate adjustments of the Anchor Acquisition which give effect to interest expense and the impact of purchase price adjustments to depreciation and amortization expense. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained had the Anchor Acquisition been completed as of January 1, 1997, or that may be obtained in the future. On January 9, 1997, the Pension Benefit Guaranty Corporation ("PBGC") notified Old Anchor that it intended to institute involuntary termination proceedings with respect to the three defined benefit pension plans then maintained by Old Anchor, and currently maintained by the Company. However, 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 Anchor's defined benefit plans, if the plans, or any one of them, are terminated before August 1, 2006. Consequently, the PBGC agreed not to terminate the plans as a result of the Asset Purchase Agreement and the assumption of the plans by Anchor. In conjunction with the purchase, Anchor assumed all liabilities of the plans and funded $9,056 of plan contributions, previously unfunded following Old Anchor's filing of Chapter 11. Additionally, Anchor issued to the plans $9,000 face amount (360,000 shares) of Series A Preferred Stock. NOTE 4 - REVOLVING CREDIT FACILITY In conjunction with the Anchor Acquisition, Anchor entered into a credit agreement dated as of February 5, 1997, with Bankers Trust Company ("BTCo") as issuing bank and BT Commercial Corporation, as agent, to provide a $110,000 senior secured revolving credit facility (the "Revolving Credit Facility"). The Revolving Credit Facility enables Anchor 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 cannot exceed an amount equal to the borrowing base as defined in the Revolving Credit Facility. Revolving credit loans bear interest at a rate based upon, at Anchor'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 F-13 45 York interbank Eurodollar market, plus a defined margin. Interest is payable monthly. A commitment fee of 0.5% on the unused portion of the facility and letter of credit fees, as defined, are payable quarterly. The Revolving Credit Facility expires February 5, 2002. At December 31, 1999, advances outstanding under the Revolving Credit Facility were $40,895 and the borrowing availability was $5,611. The total outstanding letters of credit on this facility were $11,300. At December 31, 1999, the weighted average interest rate on borrowings outstanding was 8.6%. During 1999, average advances outstanding were approximately $51,150, the average interest rate was 7.8% and the highest month-end advance was $69,036. Anchor's obligations under the Revolving Credit Facility are secured by a first priority lien on substantially all of Anchor's inventories and accounts receivable and related collateral and a second priority pledge of all of the Series B Preferred Stock and the Class B Common Stock. In addition, Anchor's obligations under the Revolving Credit Facility are guaranteed by Consumers U.S. and the holder of the outstanding Series B Preferred Stock and Class B Common Stock. The Revolving Credit Facility contains certain covenants that restrict Anchor from taking 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 and other fundamental corporate changes, capital expenditures, operating lease payments and transactions with affiliates. The Revolving Credit Facility also contains financial covenants that require Anchor to meet and maintain certain financial tests and minimum ratios, including a minimum working capital ratio, a minimum consolidated net worth test and a fixed charge ratio. Anchor was in violation of one of these covenants, having exceeded the allowed amount of capital expenditures, for which it received a waiver. NOTE 5 - LONG-TERM DEBT Long-term debt consists of the following:
December 31, ------------------------ 1999 1998 -------- -------- $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 ..................................................................... 12,237 3,760 -------- -------- 212,237 203,760 Less current maturities ................................................... 2,029 840 -------- -------- $210,208 $202,920 ======== ========
Effective March 16, 1998, Anchor 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 Anchor, Consumers U.S. and The Bank of New York, as Trustee. The Senior Notes are unsecured obligations of Anchor ranking equal in right of payment with all existing and future senior indebtedness of Anchor and senior in right of payment to all existing and future subordinated indebtedness of Anchor. 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. Anchor entered into a Registration Rights Agreement on March 16, 1998. Pursuant to the agreement, Anchor filed an exchange offer registration statement with the Securities and Exchange Commission, which was declared effective on April 28, 1998. In June 1998, Anchor 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. F-14 46 The Senior Notes are redeemable at any time at the option of Anchor, in whole and not in part, at redemption prices defined in the indenture. The Indenture provides that upon the occurrence of a change in control, Anchor 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. In connection with the Anchor Acquisition, Anchor entered into a Senior Credit Agreement, dated as of February 5, 1997, with BTCo, as agent, to provide a $130,000 bank loan (the "Anchor Loan Facility"). The Anchor Loan Facility was repaid in full from the net proceeds of the issuance of the $150,000 11-1/4% First Mortgage Notes, due 2005, (the " First Mortgage Notes"). The Anchor Loan Facility bore interest at a rate of 12.50%. As additional consideration in providing the Anchor Loan Facility, Anchor issued to BT Securities Corporation and TD Securities, 1,405,229 warrants convertible to Class C Common Stock. The warrants were valued at approximately $7,000. As a result of the refinancing of the Anchor Loan Facility, deferred financing fees of $11,200 were written off as an extraordinary loss in 1997. Effective April 17, 1997, Anchor completed an offering of the First Mortgage Notes, issued under an indenture dated as of April 17, 1997, among Anchor, Consumers U.S. and The Bank of New York, as Trustee. The First Mortgage Notes are senior secured obligations of Anchor, 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. Proceeds from the issuance of the First Mortgage Notes, net of fees, were approximately $144,000 and were used to repay $130,000 outstanding under the Anchor Loan Facility and $8,800 of advances outstanding under the Revolving Credit Facility, with the balance used for general corporate purposes. Anchor 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, Anchor 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 Anchor'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, Anchor 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. Prior to the sale of the First Mortgage Notes, Anchor entered into an interest rate swap agreement to partially protect Anchor 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 Anchor 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 Anchor and a first priority perfected security interest in collateral ranking equal with the security interest in favor of the Revolving Credit Facility. The indentures covering the First Mortgage Notes and the Senior Notes, subject to certain exceptions, restrict Anchor from taking various actions, including, but not limited to, subject to specified exceptions, the incurrence F-15 47 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. Principal payments required on long-term debt are $2,029 in 2000, $1,816 in 2001, $1,963 in 2002, $2,036 in 2003 and $2,000 in 2004. Payments to be made in 2005 and thereafter are $202,393. In connection with the issuance of the First Mortgage Notes on April 17, 1997, Anchor issued 702,615 shares of Class B Common Stock to Consumers U.S. and 702,614 warrants, valued at $5.00 for each share and warrant, to the initial purchasers. As Anchor has already incurred the internal general and administrative expenses related to the issuance of the First Mortgage Notes, the issuance of the shares to Consumers U.S. was treated as a shareholder distribution. The value of the warrants issued to the initial purchasers was deferred and is amortized over the life of the First Mortgage Notes. 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, 1999 was $4,346. NOTE 6 - REDEEMABLE PREFERRED STOCK Anchor 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 Anchor. The holders of Series A Preferred Stock are entitled to receive, when and as declared by the Board of Directors of Anchor, cumulative dividends, payable quarterly in cash, at an annual rate of 10%. Holders of Series A Preferred Stock are not entitled to vote, except as defined in its Certificate of Designation. Anchor 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. Anchor 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 Class A 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, Anchor registered all of the shares of the Class A Common Stock, Class C 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. NOTE 7 - RELATED PARTY INFORMATION The Company has entered into an Intercompany Agreement (the "Intercompany Agreement") with G&G, Consumers, Anchor, 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. 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. In such case, where the customer is not a common customer, the company that does the manufacturing will pay 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 Manufacturers or to an Affiliated Glass Manufacturers by the Company, the transfer is treated as though the transferee had filled the orders for the transferred customer. 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 F-16 48 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 model 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. Anchor 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 $3,000 and reimbursement of its out-of-pocket costs. The terms of the Revolving Credit Facility and the indentures limit the management fee annual payment to $1,500 unless certain financial maintenance tests are met. The Company has recorded an expense of $1,500, $3,000 and $2,750, respectively, for this agreement for the two years ended December 31, 1999 and the 1997 Period, of which $375 remains outstanding. Related party transactions with affiliates of G&G, including Interstate Express, and including Glenshaw for the year ended December 31, 1998 and the 1997 Period, are summarized as follows:
Years ended ---------------------- 1997 1999 1998 Period -------- -------- ------ Purchases of freight ............................. $3,904 $3,340 $ 1,367 Payable for freight .............................. 131 82 78 Purchases of inventory and other ................. 879 2,363 2,853 Payable for inventory and other .................. 1,018 83 1,034 Allocation of aircraft charges ................... 727 745 270 Sales of inventory and allocation of expenses .... 2,093 4,144 15,038 Receivable from sales of inventory and allocations 623 2,047 3,678
Other affiliates Related party transactions with Consumers and its affiliates, including GGC, for the year ended December 31, 1999, are summarized as follows:
Years ended ----------------------- 1997 1999 1998 Period -------- ------- ------ Purchases of inventory and other .................. $ 2,234 $ 1,818 $ 982 Payable for inventory and other ................... 37 141 170 Sales of molds and inventory ...................... 13,448 14,200 5,276 Receivable from sales of molds and inventory ...... 6,232 12,792 2,113 Allocation of expenses and other .................. 2,500 11,167 -- Receivable from allocation of expenses and other .. 500 10,060 -- Payable for allocable portion of software write-off 9,600 -- --
The receivables owed to the Company by Consumers and its affiliates, as of December 31, 1998, were substantially paid in February 1999. In September 1998, G&G (acting on behalf of Consumers) entered into an agreement to purchase a controlling interest in a European glass manufacturer and had advanced $17,300 toward that end. This amount was funded by G&G through a loan from Anchor of approximately $17,300 in September 1998. The loan is evidenced by a promissory note which originally matured in January 1999. This loan was permitted through an amendment to the Intercompany Agreement, which was approved by Anchor's Board of Directors. The repayment date of the promissory note has been extended to December 31, 2000, consistent with a recent amendment to the Revolving Credit Facility. The funds were obtained through borrowings under the Revolving Credit Facility. Anchor has pledged the promissory note to the lenders F-17 49 under the Revolving Credit Facility and G&G has provided security against the promissory note to the lenders. Interest on the note is payable at the interest rate payable by Anchor on its revolving credit advances plus 1/2 % and has been paid through December 1999. A number of issues have arisen and 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, and will upon receipt, repay the loan from Anchor. 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. In 1998, Anchor advanced $950 to Consumers, which was repaid in February 1999. All transactions with the Company and its affiliates are conducted on terms which, in the opinion of management, are no less favorable than with third parties. The sale of molds to Consumers is invoiced as cost plus a profit mark-up. The amounts of these mark-ups, $1,200 and $1,100, respectively, for the years ended December 31, 1999 and 1998, have been recorded as contributions from shareholder and included in capital in excess of par value. Stock Option Plan Employees of Anchor participate in the Director and Employee Incentive Stock Option Plan, 1996 of Consumers. Options to purchase 1,066,500 shares of Consumers common stock, at exercise prices that range from $9.65 to $13.50 (Canadian dollars), were granted to all salaried employees of Anchor in 1997. Options to purchase 51,000 shares of Consumers common stock at an exercise price of $9.75 were granted in 1998. Options to purchase 123,000 shares of Consumers common stock at an exercise price of $8.00 were granted in 1999. These options generally have a life of 10 years and vest ratably over three years. Additional options to purchase 70,000 shares of Consumers common stock at an exercise price of $3.80 were granted in 1999. The Company has elected to follow Accounting Principals Board Opinion No. 25 - Accounting for Stock Issued to Employees ("APB 25"). Under APB 25, because the exercise price of employee stock options equals the market price of the stock on the date of the grant, no compensation expense is recorded. The Company adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123 - Accounting for Stock-Based Compensation ("SFAS 123"). Information related to stock options for the periods ended December 31, 1999 is as follows:
Weighted Weighted Number Average Average of Exercise Fair Shares Price (Cdn$) Value (Cdn$) ------ ------------ ------------ Options outstanding, February 5, 1997 -- -- Granted ....................... 1,066,500 $8.00 $5.63 Exercised ..................... -- -- Forfeited ..................... -- -- --------- ----- Options outstanding, December 31,1997 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 ========= =====
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 F-18 50 under the plan for which the current exercise price exceeds $8.00 (Canadian dollars) were reduced to an exercise price of $8.00 (Canadian dollars). Pursuant to SFAS 123, incremental compensation 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 458,000 of the options are exercisable at December 31, 1999 and the weighted average remaining contractual life of the options is 8.2 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 periods ended December 31, 1999In 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 5.57% 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 ------------------------- 1997 1999 1998 Period -------- -------- --------- Net loss As reported ................................... $(17,511) $ (9,770) $(11,471) Pro forma ..................................... (19,234) (10,858) (11,617) Loss applicable to common stock As reported ................................... $(31,161) $(22,807) $(22,773) Pro forma ..................................... (32,884) (23,895) (22,919) Basic net loss per share applicable to common stock As reported ................................... $ (5.93) $ (5.12) $ (7.11) Pro forma ..................................... (6.26) (5.36) (7.16)
NOTE 8 - PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS As part of the Anchor Acquisition, Anchor assumed the pension plans previously maintained by Old Anchor. Anchor has defined benefit retirement plans for salaried and hourly-paid employees. Effective December 31, 1998, the salary and hourly plans were merged. Benefits are calculated on a salary-based formula for salaried participants and on a service-based formula for hourly participants. Anchor 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, Anchor funds these healthcare benefits on a pay-as-you-go basis. Anchor also contributes to a multi-employer trust, and under the requirements of SFAS 106, recognizes as post-retirement benefit cost the required F-19 51 annual contribution. The Company's cash flows are not affected by implementation of SFAS 106. The components of net periodic benefit costs are summarized below:
Pensions Post-retirement -------------------------------------- -------------------------------- Years Ended Years Ended ----------------------- 1997 -------------------- 1997 1999 1998 Period 1999 1998 Period -------- -------- -------- ------- ------ ------ Service cost-benefits earned during the year ..... $ 5,001 $ 4,137 $ 3,934 $ 861 $ 737 $ 755 Interest cost on projected benefit obligation ......... 32,745 29,689 28,219 3,907 3,905 3,855 Return on plan assets ........ (38,139) (37,526) (29,087) -- -- -- Amortization of: Actuarial gains ............ -- -- -- (568) -- -- Prior service cost ......... 2,458 -- -- -- -- -- -------- -------- -------- ------- ------ ------ Total periodic benefit cost $ 2,065 $ (3,700) $ 3,066 $ 4,200 $4,642 $4,610 ======== ======== ======== ======= ====== ======
Anchor has unfunded obligations related to its employee pension plans. The Retirement Protection Act of 1994 requires Anchor to make significant additional funding contributions into its underfunded defined benefit retirement plans, under certain conditions, and will increase the premiums paid to the PBGC. Effective January 1, 1998, a change to the market value asset valuation method for determining pension plan contributions was made. As a result, there were no required pension contributions in 1999 with respect to either current funding or past underfundings. Excluding payments made as part of the Anchor Acquisition, Anchor 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. As an objection to the sale, the PBGC entered a determination to terminate Old Anchor's qualified defined benefit pension plans. However, in conjunction with the sale, Anchor assumed all liabilities of the plans and funded $9,056 of plan contributions, previously unfunded following Old Anchor's filing of Chapter 11. Additionally, Anchor issued $9,000 face amount of Series A Preferred Stock and Vitro, the parent of Old Anchor, has guaranteed to fund certain qualified defined benefit plan obligations, should Anchor default on its obligations. Consequently, the PBGC agreed not to terminate the plans as a result of the acquisition and the assumption of the plans by Anchor. The agreement with the PBGC requires Anchor to appoint an independent trustee to hold the Series A Preferred Stock which was completed in 1999. F-20 52 The funded status of Anchor's pension and post-retirement plans, at December 31, are as follows:
Pensions Post-retirement --------------------------- ------------------------- Year ended Year ended --------------------------- ------------------------- 1999 1998 1999 1998 --------- --------- -------- -------- Change in benefit obligation: Benefit obligation at beginning of year ........ $ 439,014 $ 439,730 $ 57,828 $ 61,122 Service cost ................................ 5,001 4,137 861 737 Interest cost ............................... 32,745 29,689 3,907 3,910 Plan amendments ............................. 31,544 -- -- -- Actuarial gain (loss) ....................... (16,378) (1,578) (8,925) (4,613) Benefits paid ............................... (33,230) (32,964) (3,889) (3,328) --------- --------- -------- -------- Benefit obligation at end of year .............. 458,696 439,014 49,782 57,828 --------- --------- -------- -------- Change in plan assets: Fair value of plan assets at beginning of year . 415,426 401,788 -- -- Actual return on plan assets ................ 37,399 37,933 -- -- Employer contributions ...................... 11,193 10,886 3,889 3,328 Benefits paid ............................... (35,234) (35,181) (3,889) (3,328) --------- --------- -------- -------- Fair value of plan assets at end of year ....... 428,784 415,426 -- -- --------- --------- -------- -------- Funded status .................................. (29,912) (23,588) (49,782) (57,828) Unrecognized actuarial (gain) loss .......... (23,697) (10,267) (13,582) (5,225) Unrecognized prior service cost ............. 29,040 -- -- -- --------- --------- -------- -------- Net amount recognized .......................... (24,569) 33,855 (63,364) (63,053) --------- --------- -------- -------- Amounts recognized in the balance sheet consists of: Accrued benefit liability ...................... (24,569) (33,855) (63,364) (63,053) Additional minimum pension liability ........... (158) (382) -- -- Accumulated other comprehensive income ......... 158 382 -- -- --------- --------- -------- -------- Net amount recognized .............................. $ (24,569) $ (33,855) $(63,364) $(63,053) ========= ========= ======== ========
Significant assumptions used in determining net periodic benefit cost and related obligations for the plans are as follows:
Pensions Post-retirement --------------------------------------- ------------------------------------ Year ended 1997 Year Ended 1997 1999 1998 Period 1999 1998 Period ------- ------- ------- ------- ------- ------- Discount rate ................... 7.75% 7.00% 7.25% 7.75% 7.00% 7.25% Expected long-term rate of return on plan assets .................. 9.50 9.50 9.00 -- -- --
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 public market for the Series A Preferred Stock and dividends for one quarter only have been paid during the current year. Anchor receives annual valuations of the contributed Series A Preferred Stock. Based upon the 1997 valuation, Anchor was required to contribute approximately $745 in 1998 to bring the total value of the Series A Preferred Stock contribution up to the $9,000 contributed value. In 1999, Anchor purchased 1,842,000 shares of Consumers common stock for $3,000. These shares are held pending government approval for contribution into Anchor's defined benefit pension plan in 2000. At December 31, 1999, these shares are included in other assets on the balance sheet. Anchor also sponsors two defined contribution plans covering substantially all salaried and hourly employees. In 1994, the salaried retirement and savings programs were changed, resulting in the freezing of benefits under the defined benefit pension plans for salaried employees and amending the defined contribution savings plan for salaried employees. Under the amended savings plan, Anchor matched employees' basic contributions to F-21 53 the plan in an amount equal to 150% (through December 31, 1997) of the first 4% of an employee's compensation (increased to 5% effective July 1, 1999). Effective January 1, 1998, Anchor match was reduced to 100% of the first 4% of an employee's compensation. Expenses under the savings programs for the years ended December 31, 1999 and 1998 and the 1997 Period were approximately $2,130, $2,010 and $2,000, respectively. Anchor 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, 1999 and 1998 and the 1997 Period were $3,999, $4,107 and $3,781, respectively. The assumed healthcare cost trend used in measuring the accumulated post-retirement benefit obligation as of December 31, 1999 was 7.0% 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, 1999 by approximately $5,000 and the net post-retirement healthcare cost for the year ended December 31, 1999 by approximately $540. 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, 1999 by approximately $4,300 and the net post-retirement healthcare cost for the year ended December 31, 1999 by approximately $470. NOTE 9 - 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 has 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. This plan was announced in October 1998 and, as a result, the Company recorded $400 of the total restructuring charge in the fourth quarter of 1998 related to certain employee costs. As of December 31, 1999, $1,219 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 plant effective February 1997 and its Dayville, Connecticut plant effective April 1997 and included the liabilities assumed as part of the Anchor Acquisition cost. Substantially all of the hourly and salaried employees at these plants, approximately 600 in total, have been terminated. Closure of these facilities have resulted in the consolidation of underutilized manufacturing operations and was completed in 1999. Exit charges and the amounts charged against the liability as of December 31, 1999 are as follows:
Amount Charged Exit Charges Against Liability ------------ ----------------- Severance and employee benefit costs $13,000 $13,000 Plant shutdown costs related to consolidation and discontinuation of manufacturing facilities 12,800 12,800
NOTE 10 - 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, 1999, management has deemed it appropriate to establish a valuation allowance against the net deferred tax asset. F-22 54 The significant components of the deferred tax assets and liabilities are as follows:
December 31, ------------------------- 1999 1998 -------- -------- Deferred tax assets: Pension and post-retirement liabilities ...... $ -- $ 8,400 Reserves and allowances ...................... 18,400 7,900 Inventory uniform capitalization ............. 5,900 2,500 Tax loss carryforwards ....................... 36,400 32,800 -------- -------- 60,700 51,600 Deferred tax liabilities: Accumulated depreciation and amortization .... 24,300 21,100 Pension and post-retirement liabilities ...... 3,200 -- Other current assets ......................... 2,000 1,700 -------- -------- 29,500 22,800 Net deferred tax assets ......................... 31,200 28,800 Valuation allowance ............................. (31,200) (28,800) -------- -------- Net deferred tax assets after valuation allowance $ -- $ -- ======== ========
The effective tax rate reconciliation is as follows:
Years ended December 31, ------------------------ 1997 1999 1998 Period ---- ---- ------ Federal rate ........ (34)% (34)% (34)% State rate .......... (5) (5) (5) Permanent differences 18 12 25 --- --- --- (21) (27) (14) Valuation allowance . 21 27 14 --- --- --- Effective rate ...... -- % -- % -- % === === ===
NOTE 11 - LEASES The Company leases distribution and office facilities, machinery, transportation, data processing and office equipment under non-cancelable leases which 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: 2000 .............................. $13,900 2001 .............................. 10,700 2002 .............................. 10,100 2003 .............................. 9,300 2004 .............................. 8,000 After 2004 ........................ 13,100 ------- $65,100 =======
Rental expense for all operating leases for the years ended December 31, 1999 and 1998 and the 1997 Period were $15,300, $17,745 and $17,547, respectively. In connection with the Anchor Acquisition, Anchor 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 F-23 55 expired February 1, 1998. In January 1998, Anchor exercised its option to purchase the headquarters facility and assigned such option to a third party purchaser of the facility. Anchor has entered into a ten year lease pursuant to which the Company leases a portion of the headquarters facility. NOTE 12 - COMMITMENTS AND CONTINGENCIES Anchor announced in 1999, that it signed an agreement with Anheuser-Busch, Inc. to provide all the bottles for the brewer's Jacksonville, Florida and Cartersville, Georgia breweries beginning in 2001. To meet the expanded demand from the supply contract, Anchor will invest approximately $30,000 to $40,000 in new equipment for its Jacksonville, Florida and Warner Robins, Georgia plants over the next 18 months to increase production efficiency. The funding for this project will be provided through certain leasing transactions, the proceeds from the sale of the Houston plant and internal cash flows. In December 1999, Anchor entered into a firm agreement with a major lessor for $30,000 of lease transactions. Under this agreement, Anchor 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. Proceeds of the sale were deposited into an escrow account that will be used to fund future capital expenditures, as defined in the indentures covering the First Mortgage Notes and the Senior Notes. Anchor 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. 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. See Note 14 - Subsequent Event. At December 31, 1999, Anchor has hedged certain of its 2000 estimated natural gas purchases through the purchase of natural gas futures in the amount of $3,811. These future contracts are accounted for as hedges of future production costs, and accordingly, the unrealized loss of $444 on these contracts is deferred and will be included in the cost of inventory production in the month related to the future contract. NOTE 13 - SUBSEQUENT EVENTS On February 17, 2000, Owens commenced an action against Anchor and certain of its affiliates, including Consumers and GGC, in the United States District Court for the Southern District of New York. Owens alleges violations of the Technical Assistance Agreement resulting in its termination. Owens is seeking various forms of relief including (1) a permanent injunction restraining Anchor and its affiliates from infringing Owens' patents and using or disclosing Owens' trade secrets and (2) damages for breaches of the Technical Assistance Agreement. Anchor and its affiliates filed a demand for arbitration with the American Arbitration Association on February 24, 2000. On March 15, 2000, the Court ruled that the dispute as to whether there was a valid termination of the Technical Assistance Agreement is subject to arbitration. Anchor has moved to dismiss or stay the action pending arbitration. On March 31, 2000, Owens submitted its answer and counterclaims in the arbitration. Owens has asserted the position that (i) the Court referred to arbitration only the question whether there was a valid termination of the Technical Assistance Agreement and (ii) certain of Owens' claims are not arbitrable. On April 14, 2000, Owens and Anchor and certain of its affiliates consented to the entry of an order by the Court which effectively requires compliance with the Technical Assistance Agreement until further order of the Court. In addition, the order requires Anchor and certain of its affiliates to inventory all equipment, other technology and documents subject to the Technical Assistance Agreement and certify to the Court periodically that all royalties have been paid and no unauthorized technology transfer has occurred. In compliance with the order, Consumers' Italian subsidiary ceased using the disputed technology. Anchor believes that it has meritorious defenses to the claims in the action and intends to conduct a vigorous defense. An unfavorable outcome in this matter could have a material and adverse effect on Anchor's business prospects and financial condition. In addition, even if the ultimate outcome of the case F-24 56 were resolved in favor of Anchor, the defense of such litigation may involve considerable cost, which could be material, and could divert the efforts of management. In March 2000, an affiliate of Anheuser-Busch purchased the previously closed Houston, Texas glass manufacturing facility and certain related operating rights. Anchor received proceeds of $10,000 from the sale. Concurrently, Consumers entered into a $15,000 contract with Anheuser-Busch to manage the renovation and provide the technical expertise in the re-opening of the Houston facility. The Company expects to negotiate a contract with Anheuser-Busch to provide management assistance in the operations of the facility upon its refurbishment. F-25 57 INDEX TO FINANCIAL INFORMATION FOR OLD ANCHOR
Page No. -------- CONSOLIDATED FINANCIAL STATEMENTS: Report of Independent Certified Public Accountants H-2 Consolidated Statement of Operations - Period from January 1, 1997 to February 4, 1997 H-3 Consolidated Balance Sheet- February 4, 1997 H-4 Consolidated Statement of Cash Flows - Period from January 1, 1997 to February 4, 1997 H-6 Consolidated Statement of Stockholder's Equity (Deficiency in Assets)- Period from January 1, 1997 to February 4, 1997 H-7 Notes to Consolidated Financial Statements H-8 SELECTED CONSOLIDATED FINANCIAL DATA H-20
H-1 58 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Anchor Glass Container Corporation: We have audited the accompanying consolidated balance sheet of Anchor Resolution Corp. (Debtor-in-Possession) (the Company) as of February 4, 1997 and the related consolidated statements of operations, stockholder's equity (deficiency in assets) and cash flows for the period from January 1, 1997 to February 4, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to report on these financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. 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 audit provide a reasonable basis for our report. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Anchor Resolution Corp. as of February 4, 1997 and the results of its operations and its cash flows for the period from January 1, 1997, to February 4, 1997 in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has experienced significant losses in the last three fiscal years, and has a net deficiency in assets of $284,959,000 at February 4, 1997. As described in Notes 2 and 3 to the accompanying consolidated financial statements, in September 1996, the Company filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. Furthermore, as discussed in Note 2, on February 5, 1997, the Company sold substantially all of its assets and certain liabilities. The Company's bankruptcy petition and remaining deficiency in assets after this sale raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania March 27, 1998 H-2 59 ANCHOR RESOLUTION CORP. (DEBTOR-IN-POSSESSION) (FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION) CONSOLIDATED STATEMENTS OF OPERATIONS PERIOD FROM JANUARY 1, 1997 TO FEBRUARY 4, 1997 (DOLLARS IN THOUSANDS) Net sales ............................................................ $ 62,560 Costs and expenses: Cost of products sold ........................................... 70,608 Selling and administrative expenses ............................. 3,745 --------- Loss from operations ................................................. (11,793) Other income (expense), net .......................................... (595) Interest expense (contractual interest of $5,353) .................... (2,437) --------- Loss before reorganization items ..................................... (14,825) Reorganization items ................................................. (827) --------- Net loss ............................................................. $ (15,652) ========= - -------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements H-3 60 ANCHOR RESOLUTION CORP. (DEBTOR-IN-POSSESSION) (FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION) CONSOLIDATED BALANCE SHEETS AT FEBRUARY 4, 1997 (DOLLARS IN THOUSANDS)
Assets - ------------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents ............................................ $ 3,449 Accounts receivable, less allowance for doubtful accounts of $1,630 ....................................................... 60,978 Inventories- Raw materials and manufacturing supplies ........................ 29,649 Semi-finished and finished products ............................. 119,082 Other current assets ................................................. 19,184 --------- Total current assets ........................................ 232,342 - ------------------------------------------------------------------------------------------- Property, plant and equipment: Land and land improvements ...................................... 10,405 Buildings ....................................................... 120,377 Machinery, equipment, and molds ................................. 531,827 Less accumulated depreciation ................................... (350,967) --------- 311,642 - ------------------------------------------------------------------------------------------- Other assets ......................................................... 50,943 Intangible pension asset ............................................. 17,140 Investment in joint venture .......................................... 39,734 --------- $ 651,801 ========= - -------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements H-4 61 ANCHOR RESOLUTION CORP. (DEBTOR-IN-POSSESSION) (FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION) CONSOLIDATED BALANCE SHEETS AT FEBRUARY 4, 1997 (DOLLARS IN THOUSANDS)
Liabilities and Stockholders' Equity (Deficiency in Assets) - ------------------------------------------------------------------------------------------- Liabilities not subject to compromise: Current liabilities: Debtor-in-Possession Facility ........................................ $ 107,939 Senior Secured Notes ................................................. 158,025 Accounts payable ..................................................... 32,558 Accrued expenses ..................................................... 35,192 Accrued interest ..................................................... 914 Accrued compensation and employee benefits ........................... 58,545 --------- Total current liabilities ....................................... 393,173 - ------------------------------------------------------------------------------------------- Pension liabilities .................................................. 44,198 Other long-term liabilities .......................................... 120,206 --------- 164,404 Liabilities subject to compromise .................................... 379,183 --------- Total liabilities .................................................. 936,760 Commitments and contingencies - ------------------------------------------------------------------------------------------- Stockholder's Equity (Deficiency in Assets): Common stock - $.10 par value: authorized 1,000 shares, issued and outstanding, 1 share ................................. -- Capital in excess of par value ....................................... 576,300 Accumulated deficit .................................................. (838,865) Amount related to minimum pension liability .......................... (22,394) --------- (284,959) --------- $ 651,801 ========= - -------------------------------------------------------------------------------------------
H-5 62 ANCHOR RESOLUTION CORP. (DEBTOR-IN-POSSESSION) (FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION) CONSOLIDATED STATEMENTS OF CASH FLOWS PERIOD FROM JANUARY 1, 1997 TO FEBRUARY 4, 1997 (DOLLARS IN THOUSANDS) Cash flows from operating activities: Net loss .......................................................................... $ (15,652) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation ............................................................. 6,312 Amortization ............................................................. 1,293 Other .................................................................... 127 Decrease in cash resulting from changes in assets and liabilities ......................................................... (3,507) --------- (11,427) - ---------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Expenditures for property, plant and equipment .................................... (7,186) Investment in joint venture ....................................................... (10) Other ............................................................................. (304) --------- (7,500) - ---------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Principal payments on long-term debt .............................................. (6) Net draws on Debtor-In-Possession Facility ........................................ 17,484 --------- 17,478 Cash and cash equivalents: Decrease in cash and cash equivalents ............................................. (1,449) Balance, beginning of period ...................................................... 4,898 --------- Balance, end of period ............................................................ $ 3,449 ========= - ---------------------------------------------------------------------------------------------------------- SUPPLEMENTAL CASH FLOW INFORMATION Net cash used in operating activities reflects net cash payments for interest and taxes as follows: Interest ............................................................................ $ 3,033 ========= Increase (decrease) in cash resulting from changes in assets and liabilities: Accounts receivable ............................................................... $ (5,127) Inventories ....................................................................... (4,312) Other current assets .............................................................. (591) Accounts payable, accrued expenses and other current liabilities .................................................... 6,645 Other, net .......................................................................... (122) --------- $ (3,507) ========= - ----------------------------------------------------------------------------------------------------------
The Company considers short-term investments with original maturities of ninety days or less at the date of purchase to be classified as cash equivalents. See Notes to Consolidated Financial Statements. H-6 63 ANCHOR RESOLUTION CORP. (DEBTOR-IN-POSSESSION) (FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION) CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS) PERIOD FROM JANUARY 1, 1997 TO FEBRUARY 4, 1997 (DOLLARS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------- Total Stockholder's Common Capital in Retained Minimum Equity Stock Excess of Earnings Pension (Deficiency (A) Par Value (Deficit) Liability in Assets) - ----------------------------------------------------------------------------------------------------------------------------- Balance, January 1, 1997 $ -- $ 576,300 $(823,213) $ (22,394) $(269,307) Net loss -- -- (15,652) -- (15,652) - ----------------------------------------------------------------------------------------------------------------------------- Balance, February 4, 1997 $ -- $ 576,300 $(838,865) $ (22,394) $(284,959) - -----------------------------------------------------------------------------------------------------------------------------
(A) One share, $.10 par value outstanding See Notes to Consolidated Financial Statements H-7 64 ANCHOR RESOLUTION CORP. (DEBTOR-IN-POSSESSION) (FORMERLY KNOWN AS ANCHOR GLASS CONTAINER CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements are prepared on a historical cost basis of accounting and reflect adjustments for the impairment of goodwill and other long-lived assets. As discussed in Note 3, Anchor Resolution Corp. (formerly known as Anchor Glass Container Corporation) (the "Company") is operating as a debtor-in-possession under Chapter 11 of the United States Bankruptcy Code ("Chapter 11"). The accompanying consolidated financial statements do not purport to reflect or provide for the consequences of the bankruptcy proceedings. In particular, the consolidated financial statements do not purport to show (a) as to assets, the remaining assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (b) as to prepetition liabilities, the amounts that may be allowed for claims or contingencies, or the status and priority thereof; or (c) as to stockholder's accounts, the effect of any changes that may be made in the capitalization of the Company; or (d) as to operations, the effect of any changes that may be made in the Company's remaining business. Organization of the Company At February 4, 1997, the Company is a wholly-owned subsidiary of Container Holdings Corp. ("Container") which is a direct wholly-owned subsidiary of Vitro, Sociedad Anonima ("Vitro"), a limited liability corporation incorporated under the laws of the United Mexican States. On September 13, 1996, the Company filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code ("Chapter 11") (See Note 3). On February 5, 1997, Consumers Packaging Inc. ("CPI") and Owens-Brockway Glass Container, Inc. ("OI") acquired substantially all of the assets and business of the Company in accordance with the terms of the Agreement (See Note 2). The financial statements for the period from January 1, 1997 to February 4, 1997 (the "1997 Interim Period") represent the final period of operations of the Company. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. 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, food, iced tea, distilled spirits, wine and soft drink industries. The Company markets its products throughout the United States. The Company's international operations and export sales are insignificant. Sales to The Stroh Brewery Company and Anheuser-Busch represented 10.0% and 6% of total net sales, respectively for the 1997 Interim Period. As a result of the current highly competitive environment, the Company had been informed by Anheuser-Busch that the Company's 1996 and future volume allocations would be reduced. H-8 65 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 last-in, first-out ("LIFO") method. At February 4, 1997, the estimated current cost of these inventories exceeds their stated value determined on the LIFO basis by approximately $16,740. Manufacturing supplies and certain other inventories are valued at weighted average actual or standard costs that approximate actual costs. Property, Plant and Equipment Property, plant and equipment expenditures, including renewals, betterments and furnace rebuilds, which extend useful lives, and expenditures for glass forming machine molds are capitalized and depreciated using the straight-line method over the estimated useful lives of the assets for financial statement purposes while accelerated depreciation methods are principally used for tax purposes. Generally, annual depreciation rates range from 2.5% for buildings, 6.3% to 20% for machinery and equipment and 40% for molds. Furnace and machine rebuilds, which are recurring in nature and which extend the lives of the related assets, are recorded as a charge to accumulated depreciation. Annual depreciation rates for such expenditures range from 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. Income Taxes Statement of Financial Accounting Standards No. 109 - Accounting for Income Taxes ("SFAS 109") 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. In general, SFAS 109 requires that each company within a consolidated group recognize tax expense based on its own income. The Company and its subsidiaries file a consolidated tax return with Container and its subsidiaries. To the extent that current operating loss benefits of the consolidated group or post acquisition loss carryforwards are allocated to the Company as a reduction of current income taxes payable, such benefits are reflected as a contribution of capital. The Company's tax benefits arising prior to acquisition (preacquisition losses) are reflected as a reduction in goodwill when the losses are utilized. Post acquisition losses of the Company are used to offset current or future income tax provisions. Retirement Plans The Company has retirement plans, principally non-contributory, 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. As a result of the Bankruptcy Proceedings (See Note 3), certain plan contributions were not made as of February 4, 1997 (See Note 12). At February 4, 1997, the Company had recorded an additional minimum pension liability for underfunded plans 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. The transition obligation from the adoption of SFAS 106 approximated $3,400 and is being amortized on a straight-line basis over a period of twenty years. This accounting method has no effect on the Company's cash outlays for these 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 H-9 66 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. Based on the uncertainty of the ultimate outcome of the Bankruptcy Proceedings, discussed in Note 3, the Company is unable to estimate the fair value of long-term debt at February 4, 1997. The carrying amount of other financial instruments approximate their estimated fair values. The fair value information presented herein is based on information available to management as of February 4, 1997. 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. As a result of the Bankruptcy Proceedings discussed in Note 3, the ultimate value of these financial instruments is dependent upon the payment under the Company's future plan of reorganization. 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. NOTE 2 - SALE OF ASSETS On February 5, 1997, OI and Anchor Glass Acquisition Corporation ("New Anchor"), a majority-owned subsidiary of CPI, acquired substantially all of the assets and business of the Company, pursuant to the Asset Purchase Agreement dated December 18, 1996, as amended (the "Agreement"). New Anchor purchased eleven operating glass container manufacturing facilities, five idled glass container manufacturing facilities and other related assets. OI purchased assets and assumed liabilities of the Company's Antioch, California and Hayward, California facilities and purchased certain other existing inventories. OI also purchased the Company's investment in Rocky Mountain Bottle Company, a joint venture with Coors Brewing Company ("Coors"), and assumed the Company's agreement to manufacture Coors' glass packaging products in the United States. The total purchase price approximated $378,000, excluding fees of approximately $1,500. The purchase price received from OI amounted to approximately $128,000 and was received in cash. The remaining purchase price of approximately $250,000 from New Anchor was comprised of: approximately $200,500 in cash, $47,000 face amount (1,879,320 shares) of mandatorily redeemable 10% cumulative convertible preferred stock and $2,500 of common stock (490,898 shares with an estimated value of $5.00 per share) of New Anchor. The purchase price paid by New Anchor in connection with the Anchor Acquisition is subject to adjustment. On June 13, 1997, the Company delivered to New Anchor the closing balance sheet which indicated that the Company believed that it was entitled to additional payments from New Anchor and Owens totaling approximately $76,300. On July 28, 1997, New Anchor delivered its notice of disagreement to the Company, which requested a reduction of the purchase price of approximately $96,800. Since that time, the parties have been negotiating the amount of the adjustment, and have reached a proposed settlement (the "Proposed Settlement"). The Proposed Settlement requires the payment by New Anchor to the Company of an additional $1,000 in cash and the issuance of 1,225,000 warrants for the purchase of additional shares of common stock. None of the warrants to be issued will require any payment upon exercise. The Proposed Settlement is subject to final approval by the Company, New Anchor and the bankruptcy court. Proceeds from the sale were used to repay the outstanding balance of the DIP Facility and accrued interest thereon, of approximately $109,000 at February 4, 1997. The remainder of the proceeds will be used against prepetition liabilities, as ultimately determined under the Company's Plan of Reorganization (see Note 3). H-10 67 Upon consummation of the purchase and effective February 6, 1997, New Anchor changed its name to Anchor Glass Container Corporation and the Company changed its name to Anchor Resolution Corp. As an objection to the sale, the Pension Benefit Guaranty Corporation ("PBGC") entered a determination to terminate the Company's qualified defined benefit pension plans. However, in conjunction with the sale, New Anchor assumed all liabilities of the plans and funded approximately $9,100 of plan contributions, previously unfunded following the Company's filing of Chapter 11 (see Note 3). Additionally, New Anchor issued to the plans $9,000 face amount (360,000 shares) of mandatorily redeemable 10% cumulative preferred stock and Vitro agreed to provide a limited guaranty to the PBGC with respect to the unfunded benefit liabilities of the Company's defined benefit plans. Consequently, the PBGC agreed not to terminate the plans as a result of the Agreement and the assumption of the plans by New Anchor. On October 4, 1996, the Company entered into an asset purchase agreement with Ball-Foster Glass Container Co. L.L.C., ("Ball-Foster"). Pursuant to that agreement, Ball-Foster was to acquire substantially all of the assets of the Company for $365 million in cash at closing, subject to adjustment, as set forth in that agreement. In addition, Ball-Foster was to assume specified liabilities of the Company. Payment of the purchase price was guaranteed by Saint-Gobain Corporation, parent company of Ball-Foster. Also on October 4, 1996, the Company filed a motion with the Bankruptcy Court seeking an order (i) authorizing the sale to Ball-Foster, subject to higher and better bids, of substantially all of the Company's assets free and clear of certain liens, claims and encumbrances and (ii) authorizing assumption and assignment of certain unexpired leases and executory contracts. The Court had entered several amended scheduling orders which established a timetable for the sale process. The amended deadline for submissions of higher and better bids was December 12, 1996. At that time, the Company received a higher and better offer from CPI and OI. Ball-Foster received a termination fee of $3,000 from the proceeds of the transaction. The following unaudited pro forma condensed balance sheet gives effect to the sale of assets and business and payoff of the DIP Facility (as defined) described above as if such transactions occurred on February 4, 1997: Cash ...................................................................... $ 223,000 Other current assets ...................................................... 7,500 Investment in Common Stock of Anchor Glass Container Corporation .......... 2,500 Investment in Preferred Stock of Anchor Glass Container Corporation ....... 47,000 Property, plant and equipment ............................................. 7,000 Other assets .............................................................. 10,000 --------- Total assets ..................................................... $ 297,000 --------- Liabilities not subject to compromise: Current liabilities ....................................................... $ 165,000 Other long-term liabilities ........................................... 16,000 Liabilities subject to compromise ..................................... 375,000 --------- Total liabilities ................................................ 556,000 --------- Deficiency in assets ............................................. $(259,000) =========
The Company's remaining deficiency in assets after this sale raises substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include adjustments that might result from the outcome of this uncertainty. NOTE 3 - BANKRUPTCY PROCEEDINGS As a result of the continued decline in the Company's results of operations from the effect of the highly competitive glass container market and the Company's high debt level, on September 13, 1996 (the "Petition Date"), the Company filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). On September 30, 1996, Anchor Recycling Corporation, a wholly-owned subsidiary of the Company, also filed a voluntary petition to reorganize under Chapter 11 in the same court. The Chapter 11 proceedings H-11 68 are being jointly administered, with the Company managing the business in the ordinary course as a debtor-in-possession under the supervision of the Bankruptcy Court. Vitro and the Company concluded that the Chapter 11 filing was necessary in order to preserve the value of its assets and to ensure that the business has sufficient cash resources to continue operations while it completed the sale of the business discussed in Note 2. Under Chapter 11 proceedings, litigation and actions by creditors to collect certain claims existing at the Petition Date are stayed, without specific Bankruptcy Court authorization to pay such claims. The Company had received authorization, pursuant to first day orders, to pay certain claims related to wages, salaries, vacation, sick pay and other claims. As a debtor-in-possession, the Company has the right, subject to Bankruptcy Court approval, and certain other limitations, to assume or reject certain executory contracts, including unexpired leases. Any claim for damages resulting from the rejection of an executory contract or an unexpired lease is treated as a general unsecured claim in the Chapter 11 proceedings. On September 26, 1996 the United States Trustee appointed a single unsecured creditors' committee (the "Creditors Committee"). The Creditors' Committee has the right to review and object to certain business transactions and has participated in the negotiation of the Company's plan of reorganization. The Creditors Committee has retained the firm of Wachtell, Lipton, Rosen & Katz as its counsel and Smith Barney Inc. as its financial advisors. The Company obtained debtor-in-possession ("DIP") financing from Foothill Capital Corporation, as agent and Congress Financial Corporation, as co-agent, (the "Lender Group") which provided for a $130,000 DIP Credit Facility (the "DIP Facility"), and was approved by the Bankruptcy Court on November 15, 1996. The DIP Facility, which expires September 30, 1997, provides up to $130,000 under a borrowing base formula, less prepetition advances under the Company's then existing New Senior Credit Facility (the "Prepetition Credit Facility") with the Lender Group, on terms substantially the same as the Prepetition Credit Facility. On February 5, 1997, the DIP Facility was repaid in full with proceeds from the sale as discussed in Note 2. The DIP Facility and prepetition secured claims are collateralized by substantially all of the assets of the Company including accounts receivable, inventories and property, plant and equipment. The Company has continued to accrue interest on its prepetition secured debt obligations. Because of the Chapter 11 filing, there has been no accrual of interest on prepetition unsecured debt subsequent to the Petition Date. Of the cash proceeds received from the sale of substantially all the assets and business of the Company (see Note 2), approximately $109,000 was used to repay in full the DIP Facility and approximately $11,000 was applied to the prepayment of real estate taxes, certain costs related to the Company's partnership with Coors (see Note 8) and the termination fee payable to Ball-Foster (see Note 2). The balance of the net proceeds of the sale remaining after application to the costs of the winddown and to other administrative and priority claims will be distributed to the creditors of the Company, including the holders of approximately $158,000 principal amount of the Company's Senior Secured Notes and holders of other secured and unsecured claims, pursuant to a Plan of Reorganization which is being developed by the Company in conjunction with the Creditors Committee. The Company has separately reported, as reorganization items on the consolidated statement of operations, professional fees and similar types of expenditures relating directly to the Chapter 11 filing. The Company's policy is to expense all such expenditures as incurred. These expenses are primarily for legal, claims and accounting services. H-12 69 NOTE 4 - PREPETITION LIABILITIES Prepetition liabilities subject to compromise include the following:
February 4, 1997 ----------- $100,000 10.25% Senior Notes $100,000 $200,000 9.875% Senior Subordinated Debentures 200,000 Other debt 4,368 Trade payables 67,890 Accrued interest 6,925 -------- $379,183 ========
Because of the Chapter 11 proceedings, there has been no accrual of interest on the $100,000 10.25% Senior Notes or the $200,000 9.875% Senior Subordinated Debentures since September 12, 1996. If accrued, interest expense would have increased $2,916 during the 1997 Interim Period. Additionally, the amounts reflected as prepetition liabilities do not include amounts related to potential claims, which are substantially in excess of the recorded liabilities at February 4, 1997. NOTE 5 - LONG-TERM DEBT At February 4, 1997, all debt which, by its terms was previously classified as long-term at the Petition Date, is classified as prepetition liabilities in the accompanying balance sheet. As a result of the Bankruptcy Proceedings (See Note 3), the Company is in default of various covenants relating to its outstanding prepetition debt. However, under Chapter 11 proceedings, litigation or actions by creditors related to these defaults are stayed. In addition, the DIP Facility required that the Company's collateral value and availability, as defined, could not be less than a specified amount and the outstanding credit facility balance could not be more than a specified amount as measured on a rolling four-week period throughout the term of the DIP Facility. Prior to the repayment of the DIP Facility, the Company was in full compliance with these covenants. Effective January 12, 1996, the Company and the holders of the Senior Secured Notes entered into a Noteholder Restructuring Agreement which provides for, among other things, consent by the holders to the replacement of the then current Credit Agreement with a new $130,000 credit facility (subsequently replaced by the DIP Facility) and waiver by the holders to identified defaults or events of default existing on the effective date or which may occur during the waiver period which expired not later than January 31, 1998. The restructuring period was defined as the period between the effective date and the termination date, which would have occurred no later than June 30, 1998 (the "Restructuring Period"). The following events occurred in connection with the effectiveness of the Noteholder Restructuring Agreement: - - execution of the $130,000 Prepetition Credit Facility - - mandatory prepayment on January 12, 1996 of the aggregate principal amount of the Senior Secured Notes as follows: - Series A $12,160; Series B $64,640 and Series C $3,200; - - payment of a restructuring fee of 1.75% of the principal amount of the consenting noteholders' Senior Secured Notes outstanding prior to giving effect to the prepayments above, approximately $4,100, and - - $40,000 capital contribution from Vitro and a commitment from Vitro to contribute an additional $25,000 on or before January 31, 1997. Capital contributions in 1996 amounted to $92,484. H-13 70 Compliance with the financial maintenance tests as defined in the amendments to the Note Purchase Agreement, including fixed charge coverage, net worth, current ratio and debt to equity were waived through the period ending January 31, 1998. However, the Company was required to maintain capital expenditures and net worth in amounts not less than those defined in the Noteholder Restructuring Agreement. During the Restructuring Period, the Series A Notes and Series C Notes bore a floating rate of interest at the one-month LIBOR rate, as defined, plus 2.0%. The interest rate was adjusted monthly. Interest on the Series B Notes is fixed at 9.91% per annum. Interest during the Restructuring Period is payable on the 15th of each month. Effective January 12, 1996, and concurrent with the Noteholder Restructuring Agreement, the Company entered into a Loan Agreement with Foothill Capital Corporation, as agent and Congress Financial Corporation, as co-agent, to provide for the $130,000 Prepetition Credit Facility. $80,000 of proceeds from the Prepetition Credit Facility were used to prepay at closing a significant portion of certain payments of the Senior Secured Notes originally scheduled to be made in July 1996 and July 1997 and the remaining $50,000 was used to finance working capital and other general corporate purposes. Advances outstanding at any one time are not to exceed an amount equal to the Borrowing Base as defined in the Prepetition Credit Facility. Interest, at prime plus 1.125%, as defined, is payable monthly. A commitment fee of .5% of the unused portion of the Prepetition Credit Facility is payable monthly. The Prepetition Credit Facility (which was subsequently replaced with the DIP Facility) was repaid February 5, 1997 with proceeds from the sale discussed in Note 2. Through February 5, 1997 the Company had borrowings outstanding under the DIP Facility. At February 4, 1997, advances outstanding under the DIP Facility were $107,939. At February 4, 1997, the weighted average interest rate on borrowings outstanding was 9.375%. In March 1994, Vitro provided a one year, $20,000 letter of credit facility on behalf of the Company, thereby effectively increasing the Company's letter of credit availability by $20,000. Outstanding letters of credit under this facility at December 31, 1996 were $15,000. In February 1997, the Company received an additional capital contribution of $8,400 in satisfaction of obligations outstanding under the letter of credit facility, which was terminated at that time. The Senior Secured Notes are collateralized by the property, plant and equipment of the Company with a secondary interest in inventories and accounts receivable. The DIP Facility is collateralized by inventories and accounts receivable with a secondary interest in the property, plant and equipment of the Company. Both the Note Purchase Agreement and the DIP Facility provide for various covenants that restrict the Company's ability to incur additional indebtedness, sell or transfer assets, make investments, enter into transactions with or make distributions to affiliates and pay dividends or make other distributions in respect of its capital stock, as well as require it to meet various financial maintenance tests. Effective with the Noteholder Restructuring Agreement, the holders of the Senior Secured Notes waived compliance with the financial maintenance covenants through January 31, 1998. However, the Company must maintain capital expenditures and net worth in amounts not less than those defined in the Noteholder Restructuring Agreement. Effective June 18, 1992, the Company issued $100,000 aggregate principal amount of 10.25% Senior Notes due June 30, 2002 (the "Exchange Notes"). The Company then completed an exchange offer with the exchange of all Exchange Notes for a like principal amount of 10.25% Senior Notes due 2002, Series A (the "Senior Notes"), issued under an Indenture dated as of October 15, 1992 between the Company and Continental Bank, National Association, as Trustee. The Senior Notes are unsecured obligations of the Company ranking senior in right of payment to the Debentures (described below) and equal with all other existing and future senior indebtedness of the Company. Interest is payable semi-annually in arrears on each June 30 and December 31. Interest has not been paid or accrued following the Petition Date. Effective December 2, 1993, the Company completed a public offering of $200,000 aggregate principal amount of 9.875% Senior Subordinated Debentures due December 15, 2008 (the "Debentures") under an Indenture dated December 1, 1993 between the Company and Chemical Bank, as Trustee. The Debentures H-14 71 are unsecured obligations, subordinate in right of payment to all existing and future senior debt, as defined, of the Company. Interest on the Debentures is payable semi-annually on June 15 and December 15. Interest has not been paid or accrued following the Petition Date. All of the Company's debt agreements contain cross-default provisions. NOTE 6 - RESTRUCTURING AND OTHER CHARGES In January 1996, formal plans were approved to further restructure certain of the Company's operations to respond to the continued decline in the industry sales volume combined with the loss of a significant portion of the business of the Company's largest customer. The Company closed its Cliffwood, New Jersey plant effective January 1996, and substantially all hourly and salaried employees of that plant, approximately 350, were terminated. A restructuring charge of approximately $50,000 was recorded in the 1996. Of this amount, approximately $24,900 related to the writedown to net realizable value of certain manufacturing assets. During 1994, formal plans were approved to significantly reduce the Company's cost structure and to improve productivity. This restructuring program relates primarily to consolidation of underutilized manufacturing operations and provided for the closure of three of the Company's 17 manufacturing plants then operating. The Company closed its Waukegan, Illinois and Los Angeles, California plants in the second quarter of 1995 and its Keyser, West Virginia plant in the third quarter of 1995. In the 1994 fourth quarter, the Company recorded a restructuring charge of $79,599 and in the 1995 first quarter, an additional $10,300 charge was recorded to reflect the benefit arrangements for employees affected by this plan. In total, substantially all hourly and salaried employees of these plants, approximately 725, were terminated. Of the total $89,800 charge, approximately $50,600 related to the writedown to net realizable value of certain manufacturing assets. The Keyser and Cliffwood plants have been recorded at net realizable value and are held for sale. The Waukegan plant was sold in 1996 and the Los Angeles plant will be retained by the Company as part of the acquisition discussed in Note 2 to the consolidated financial statements. The following represents information regarding amounts charged against the restructuring liability for the Company's restructuring plans.
Amount Charged Restructuring Against Charges Liability -------- -------- 1996 RESTRUCTURING PLAN Severance and employee benefit costs $ 10,800 $ 10,800 Plant shutdown costs related to consolidation and discontinuation of manufacturing activities $ 14,300 $ 12,600 1994/1995 RESTRUCTURING PLAN Severance and employee benefit costs $ 18,300 $ 18,300 Plant shutdown costs related to consolidation and discontinuation of manufacturing activities $ 20,900 $ 18,500
NOTE 7 - INVESTMENT IN JOINT VENTURE In March 1995, the Company and Coors entered into a long-term partnership (the "Partnership") to produce glass bottles at the Coors glass manufacturing facility in Wheat Ridge, Colorado. The Partnership will employ the Company's technology, along with capital contributions from both companies, to increase the efficiency, capacity and volume of the Coors facility. Coors has contributed, as its capital contribution, the facility's machinery, equipment and certain personal property. The Company's required capital contribution was H-15 72 approximately $54,000 in cash for capital spending needs over the first three years of the partnership. The Company's investment in the joint venture is accounted for on the equity method. Capital contributions are recorded as the investment is funded. The Partnership has an initial term of ten years, which can be extended for additional terms of two years each, and the partners will share the cost benefit of achieved operational efficiencies. In addition, Coors has entered into a separate long-term preferred supplier agreement with the Company. The preferred supplier agreement has an initial term of ten years, which can be extended for additional terms of two years each. This agreement will allow the Company to supply 100% of Coors' glass container requirements (exceeding the Partnership's production) beginning January 1, 1996. As discussed in Note 2, effective February 5, 1997, OI purchased the Company's investment in the joint venture (including the assumption of related obligations) and the preferred supplier agreement. NOTE 8 - SALE AND LEASEBACK In July and August 1995, the Company entered into sale and leaseback transactions of certain manufacturing equipment located at four of the Company's manufacturing facilities. Under the sale agreements, the Company sold the equipment at an aggregate net selling price of approximately $48,300. In addition, the Company entered into agreements to lease back the equipment for a nine-year term at an average annual rental of approximately $7,600. The deferred gain of approximately $14,200, representing the excess of the selling price over the net book value of the equipment, is being amortized at approximately $1,600 annually over the nine year operating lease term. NOTE 9 - INCOME TAXES The consolidated group of companies, of which the Company is a member, 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. The significant components of the deferred tax assets and liabilities are as follows:
February 4, 1997 --------- Deferred tax assets: Acquired tax benefits .............................................. $ 27,700 Post acquisition loss carryforwards ................................ 112,000 Pension and post-retirement liabilities ............................ 55,300 Accruals and reserves .............................................. 50,300 --------- 245,300 Valuation allowance ................................................ (158,400) --------- 86,900 --------- Deferred tax liabilities: Property, plant and equipment ...................................... 55,000 Inventories ........................................................ 22,300 Receivables and other assets ....................................... 9,600 --------- 86,900 --------- Net deferred tax asset .................................................... $ -- =========
At February 4, 1997, the Company had unused net operating losses and investment tax credit carryforwards of approximately $340,000 and $5,200, respectively, expiring at various dates through 2011. Of these amounts, $275,000 and $0, respectively, are not restricted as to use and expire at various dates through 2011. The balance of the carryforwards amounting to $65,000 and $5,200, respectively, expire at various dates through H-16 73 2004, and are restricted to offsetting future taxable income of the respective companies which generated the carryforwards. NOTE 10 - PENSION PLANS The Company has defined benefit retirement plans for salaried and hourly-paid employees. Benefits are calculated on a salary-based formula for salaried plans and on a service-based formula for hourly plans. Effective December 31, 1994, the Company changed its defined benefit plans for salaried employees resulting in the freezing of benefits, as discussed below. Pension costs incurred in the 1997 Interim Period were $848. The Company has substantial 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 and will increase the premiums paid to the PBGC. Subsequent to the Petition Date, the Company did not make scheduled contribution payments to its employee pension plans. Scheduled plan contribution payments not made in the year ended December 31, 1996, amounted to $16,330. Of the scheduled January 15, 1997 contribution, $3,599 was not paid. As an objection to the sale, the PBGC entered a determination to terminate the Company's qualified defined benefit pension plans. However, in conjunction with the sale, New Anchor assumed all liabilities of the plans and funded approximately $9,100 of plan contributions, previously unfunded following the Company's filing of Chapter 11 (see Note 3). Additionally, New Anchor issued $9,000 face amount of mandatorily redeemable 10% cumulative convertible preferred stock and Vitro has guaranteed to fund qualified defined benefit plan obligations up to $70,000, should New Anchor default on its obligations. Consequently, the PBGC agreed not to terminate the plans as a result of the Agreement and the assumption of the plans by New Anchor. Effective December 31, 1994, the Company changed its salaried retirement and savings programs, resulting in the freezing of benefits under its three defined benefit pension plans for salaried employees and amending its defined contribution savings plan for salaried employees. The freezing of benefits under the defined benefit pension plans for salaried employees resulted in a curtailment gain of $3,588. Under the amended savings plan, the Company will match, beginning in 1995, employees' basic contributions to the plan in an amount equal to 150% of the first 4% of an employee's compensation. The funded status of the Company's pension plans at December 31, 1996, the latest valuation date, follows:
1996 ----------------------------------- Accumulated Assets Exceed Benefits Accumulated Exceed Assets Benefits ------------- ------------- Actuarial present value of accumulated plan benefits: Vested benefit obligation ...................................... $ 290,589 $ 107,015 ========= ========= Accumulated benefit obligation ................................. $ 301,349 $ 107,015 ========= ========= Projected benefit obligation ......................................... 301,349 107,015 Plan assets at fair value ............................................ 218,013 116,139 --------- --------- Projected benefit obligation in excess of (less than) plan assets ........................................ 83,336 (9,124) Amounts not recognized - Subsequent losses .............................................. (22,394) (3,817) Prior service cost ............................................. (17,140) -- Additional minimum liability ......................................... 39,534 -- --------- --------- Accrued (prepaid) pension cost ....................................... $ 83,336 $ (12,941) ========= =========
H-17 74 Significant assumptions (weighted average rates) used in determining net pension cost and related pension obligations for the benefit plans for 1996 were as follows:
1996 ---- Discount rate.................................... 7.50% Expected long-term rate of return on plan assets................................ 9.0 Rate of increase on compensation level......................................... 5.0
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 (prepaid) 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 February 4, 1997, an additional liability of $39,534, an intangible pension asset of $17,140, and an equity reduction of $22,394. Plan assets are held by independent trustees and consist principally of investments in equities, fixed income and government securities. The Company also sponsors two defined contribution plans covering substantially all salaried and hourly employees. Expenses under these programs for the 1997 Interim Period were approximately $237. NOTE 11 - POST-RETIREMENT BENEFITS OTHER THAN PENSIONS The Company provides 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 as post-retirement benefit cost the required annual contribution. SFAS 106 allows recognition of the cumulative effect of this liability in the year of adoption or the amortization of the net initial transition obligation over a period of up to twenty years. The Company elected to recognize the net initial transition obligation of approximately $3,400 on a straight-line basis over a period of twenty years. The Company's cash flows are not affected by implementation of SFAS 106. The accumulated post-retirement benefit obligation at December 31, 1996, the latest valuation date, is as follows:
- ---------------------------------------------------------------------------------------------- December 31, 1996 - ---------------------------------------------------------------------------------------------- Retirees ............................................................. $ 38,403 Eligible plan participants ........................................... 8,743 Other active plan participants ....................................... 14,273 --------- 61,419 Unrecognized gain .................................................... 4,698 Unrecognized transition obligation ................................... (2,695) --------- Accrued post-retirement benefit costs ................................ $ 63,422 =========
Net post-retirement benefit costs for the 1997 Interim Period were $643. The assumed healthcare cost trend used in measuring the accumulated post-retirement benefit obligation as of December 31, 1996 was 9.0% declining gradually to 5.5% 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, 1996 by approximately 12% and the net post-retirement healthcare cost for the year ended December 31, 1996 by approximately 13%. The assumed discount rate used in determining the accumulated post-retirement benefit obligation was 7.25% for 1996. H-18 75 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 1997 Interim Period were $360. 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 2004. These leases generally provide for fixed rental payments and include renewal and purchase options at amounts that are generally based on fair market value at expiration of the lease. The Company has no material capital leases. Future minimum lease payments under non-cancelable operating leases are as follows: 1997................................................................ $22,100 1998................................................................ 17,600 1999................................................................ 13,300 2000................................................................ 9,700 2001................................................................ 8,600 After 2001.......................................................... 20,300 ------- $91,600 =======
Rental expense for all operating leases for the 1997 Interim Period was $3,012. NOTE 13 - COMMITMENTS AND CONTINGENCIES 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. 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. NOTE 14 - SUBSEQUENT EVENT Effective January 30, 1998, all of the remaining assets of the Company were transferred to Anchor Liquidating Trust. H-19 76 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 two years ended December 31, 1996 has been derived from Old Anchor's consolidated financial statements. The following information should be read in conjunction with Old Anchor's consolidated financial statements, including notes thereto, and the related Old Anchor Management's Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere in this report.
INTERIM YEARS ENDED DECEMBER 31, PERIOD ---------------------------------------------------- 1995 1996 1997 ---- ---- ---- (dollars in thousands) STATEMENT OF OPERATIONS DATA: Net sales ....................................................... $ 956,639 $ 814,370 $ 62,560 Cost of products sold ........................................... 906,393 831,612 70,608 Selling and administrative expenses ............................. 48,998 39,570 3,745 Restructuring and other charges(1) .............................. 10,267 49,973 -- Impairment of long-lived assets(2) .............................. -- 490,232 -- Write-up of assets held for sale(1) ............................. -- (8,967) -- ----------- ----------- ----------- Income (loss) from operations ................................... (9,019) (588,050) (11,793) Other income (expense), net ..................................... 171 (10,020) (595) Interest expense(3) ............................................. (56,871) (48,601) (2,437) ----------- ----------- ----------- Income (loss) before reorganization items, income taxes, extraordinary items and cumulative effect of accounting change.................... (65,719) (646,671) (14,825) Reorganization items ............................................ -- (5,008) (827) Income taxes(4) ................................................. (250) (1,825) -- Extraordinary items(5) -- (2,336) -- ----------- ----------- ----------- Net income (loss) ............................................... $ (65,969) $ (655,840) $ (15,652) =========== =========== =========== OTHER FINANCIAL DATA: Net cash provided by (used in) operating activities ........................................ $ 430 $ (28,411) $ (11,427) Net cash used in investing activities ........................... (48,500) (63,892) (7,500) Net cash provided by financing activities ................................................... 52,198 78,886 17,478 Depreciation and amortization ................................... 99,915 101,656 7,605 Capital expenditures ............................................ 70,368 46,254 7,186 BALANCE SHEET DATA (AT END OF PERIOD): Accounts receivable ............................................. $ 40,965 $ 55,851 $ 60,978 Inventories ..................................................... 180,574 144,419 148,731 Total assets .................................................... 1,208,348 643,468 651,801 Total debt(6) ................................................... 557,450 552,848 570,335 Total stockholder's equity (deficiency in assets) ................................................... 289,603 (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-20 77 following represents information regarding the amounts charged against the restructuring liability for old Anchor's restructuring plans:
AMOUNT CHARGED AGAINST LIABILITY RESTRUCTURING AS OF DECEMBER 31, CHARGES 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 each of the years ended December 31, 1996, 1995 and 1994. See Old Anchor's Notes to the Consolidated Financial Statements. (3) Because of Chapter 11 proceedings, there has been 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 includes $462.3 million of prepetition liabilities and $90.5 million outstanding under Old Anchor's debtor-in-possession credit facility. H-21 78 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 12, 2000 By /s/ M. William Lightner, Jr. ------------------------------------------- M. William Lightner, Jr. Senior Vice President, Finance 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 April 12, 2000. /s/ Patrick T. Connelly /s/ Jonathan K. Hergert - ------------------------------------------- ------------------------------------------- Patrick T. Connelly Jonathan K. Hergert Director Director /s/ Richard M. Deneau /s/ M. William Lightner, Jr. - ------------------------------------------- ------------------------------------------- Richard M. Deneau M. William Lightner, Jr. Director, Director and President and Chief Operating Officer Senior Vice President, Finance /s/ Roger L. Erb /s/ Christopher M. Mackey - ------------------------------------------- ------------------------------------------- Roger L. Erb Christopher M. Mackey Director Director /s/ Paul H. Farrar /s/ C. Kent May - ------------------------------------------- ------------------------------------------- Paul H. Farrar C. Kent May Director Director /s/ Steven J. Friesen /s/ Robert C. Ruocco - ------------------------------------------- ------------------------------------------- Steven J. Friesen Robert C. Ruocco Director Director /s/ John J. Ghaznavi /s/ William J. Shaw - ------------------------------------------- ------------------------------------------- John J. Ghaznavi William J. Shaw Director Director /s/ Ahmad Ghaznavi /s/ Myron M. Sheinfeld - ------------------------------------------- ------------------------------------------- Ahmad Ghaznavi Myron M. Sheinfeld Director Director /s/ David T. Gutowski - ------------------------------------------- David T. Gutowski Director
H-22 79 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. CONSUMERS U.S., INC. Date: April 14, 2000 By /s/ C. Kent May ------------------------- C. Kent May Secretary 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 April 14, 2000. /s/ John J. Ghaznavi - ----------------------------------------- John J. Ghaznavi Chairman, Chief Executive Officer and Director /s/ Patrick T. Connelly - ----------------------------------------- Patrick T. Connelly Director /s/ David T. Gutowski - ----------------------------------------- David T. Gutowski Director /s/ C. Kent May - ----------------------------------------- C. Kent May Director EX-12.1 2 STATEMENT RE: COMPUTATION OF RATIO 1 EXHIBIT 12.1 CONSUMERS U.S.,INC. STATEMENT RE COMPUTATION OF RATIOS (DOLLARS IN THOUSANDS)
PERIOD FROM YEAR ENDED DECEMBER 31, FEBRUARY 5, TO 1997 ------------------------- TO 1999 1998 DECEMBER 31, 1997 ---- ---- ------------------- EARNINGS - Loss before extraordinary item $(17,511) $ (9,770) $ (271) Interest and amortization of debt expense 28,870 27,098 18,281 Rental expense representative of interest factor 5,088 5,915 5,849 -------- -------- -------- Total earnings $ 16,447 $ 23,243 $ 23,859 FIXED CHARGES - Interest and amortization of debt expense $ 28,870 $ 27,098 $ 18,281 Rental expense representative of interest factor 5,088 5,915 5,849 -------- -------- -------- Total fixed charges $ 33,958 $ 33,013 $ 24,130 ======== ======== ======== RATIO OF EARNINGS TO FIXED CHARGES -- -- -- ======== ======== ======== DEFICIENCY OF EARNINGS AVAILABLE TO COVER FIXED CHARGES $ 17,511 $ 9,770 $ 271 ======== ======== ========
For the purposes of computing the ratio of earnings to fixed charges and the deficiency of earnings available to cover fixed charges, earnings consist of income (loss) before income taxes, extraordinary items and cumulative effect of change in accounting, plus fixed charges. Fixed charges consist of interest and amortization of debt expense plus a portion of operating lease expense. EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE FINANCIALS STATEMENTS OF CONSUMER U.S. INCLUDED IN FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999. 1,000 U.S. DOLLARS YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 1 5,278 0 53,556 1,100 106,977 190,985 449,788 129,787 601,716 159,559 210,208 70,830 0 170 35,336 601,716 628,728 628,728 582,975 582,975 0 125 28,870 (17,511) 0 (17,511) 0 0 0 (19,576) 0 0
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