-----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, H0GCCZfAaKsG5JmZKrvx5agDDgG/P8UoipujTI6kpnYGOTRyoOzMv8km+LIIu/AT xsjuxuQGTy5NOtJ/OY1rzg== 0000950144-98-008323.txt : 19980714 0000950144-98-008323.hdr.sgml : 19980714 ACCESSION NUMBER: 0000950144-98-008323 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980713 SROS: NONE 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/A SEC ACT: SEC FILE NUMBER: 333-31363-01 FILM NUMBER: 98665372 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/A 1 CONSUMERS US 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (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, 1997 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 [ ] No [X]. 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 March 27, 1998: Common Stock, $.01 par value, 17,000,100 shares DOCUMENTS INCORPORATED BY REFERENCE None 2 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 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".
PERIOD FROM FEBRUARY 5, 1997 TO DECEMBER 31, 1997(1) ---------------------- (dollars in thousands) STATEMENT OF OPERATIONS DATA: Net sales $ 569,441 Cost of products sold 523,709 Selling and administrative expenses 25,120 --------- Income from operations 20,612 Other expense, net (2,602) Interest expense (18,281) --------- Loss before extraordinary item (271) Extraordinary item(2) (11,200) --------- Loss before preferred stock dividends and minority interest (11,471) Preferred stock dividends of subsidiary (5,062) --------- Loss before minority interest (16,533) Minority interest (5,451) --------- Net loss $ (11,082) ========= BALANCE SHEET DATA (at end of period): Accounts receivable $ 56,940 Inventories 120,123 Total assets 614,022 Total debt 163,793 Total stockholder's equity 62,040 OTHER FINANCIAL DATA: Net cash provided by operating activities $ 28,996 Net cash used in investing activities (257,255) Net cash provided by financing activities 229,319 Depreciation and amortization 51,132 Capital expenditures 41,634
- ------------------------ 1) The Anchor Acquisition was consummated on February 5, 1997. 2) 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. 3 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. On February 5, 1997, pursuant to an Asset Purchase Agreement, the Company and Owens acquired substantially all of the assets of, and assumed certain liabilities, of Old Anchor. In the Anchor Acquisition, the Company purchased eleven operating glass container manufacturing facilities and other related assets. Prior to the Anchor Acquisition, the Company had no operations and therefore the following discussion represents activity from February 5, 1997 through December 31, 1997 (the "1997 Period"). Accordingly, operations for the Company for the 1997 Period are not directly comparable to operations of Old Anchor for 1996. RESULTS OF OPERATIONS Net Sales. Net sales for the 47 weeks in the 1997 Period for the continuing plants operated by the Company were approximately $569.4 million, or approximately $12.1 million per week. Net sales for the same nine plants for 1996 (52 weeks) under Old Anchor were approximately $722.7, or $13.9 million per week. Net sales per week decreased principally as a result of lower sales of beer products by the Company. Cost of Products Sold. The Company's cost of products sold in the 1997 Period was $523.7 million (or 92.0% of net sales), while Old Anchor's cost of products sold in 1996 was $831.6 million (or 102.1% of net sales) in 1996. Despite closing four plants in 1995 and 1996, Old Anchor still maintained excess capacity which reduced its ability to withstand the adverse industry conditions prevailing in 1996. In an attempt to fill excess capacity, some of Old Anchor's lost volume was replaced with smaller orders requiring shorter production runs as well as more frequent retooling and color changes, which led to higher unit costs and lower margins. Following the Anchor Acquisition, the Company closed its Houston and Dayville plants and removed from production two furnaces, one at each of two other plants. By reducing excess capacity and through a better utilization of the Company's workforce during the 1997 Period, wage increases of approximately 7% during the 1997 Period had only a limited impact. Selling and Administrative Expenses. Selling and administrative expenses for the 1997 Period were approximately $25.1 million (or 4.4% of net sales), while Old Anchor's selling and administrative expenses were $39.6 million in 1996 (or 4.8% of net sales). This slight decline in selling and administrative expenses as a percentage of net sales reflects lower personnel and fringe benefit costs primarily as a result of the headquarters cost reductions which occurred in March 1997. Net Income (Loss). The Company had a net loss in the 1997 Period of approximately $11.1 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. Despite lower net sales per week in the 1997 Period compared to Old Anchor's net sales per week in 1996, income form operations during the 1997 Period for the continuing plants was approximately $17.1 million, while Old Anchor has a loss from operations in 1996 from these same plants of $63.2 million, principally as a result of the return to higher margin business and reduced cost of products sold and selling and administrative expenses. LIQUIDITY AND CAPITAL RESOURCES In the 1997 Period, operating activities provided $29.0 million in cash, reflecting the loss before extraordinary item adjusted for changes in working capital items. Cash consumed in 4 investing activities for the 1997 Period was $257.3 million, principally reflecting the cash component of the Anchor Acquisition. Additionally, in February 1997, the Company contributed $9.0 million in cash to the Company's defined benefit pension plans. Capital expenditures in the 1997 Period were $41.6 million. Cash increased from financing activities for the 1997 Period by $229.3 million reflecting the issuance of capital stock and borrowings in connection with the Anchor Acquisition. Capital expenditures required for environmental compliance were approximately $0.8 million for 1997 and are anticipated to be approximately $1.7 million annually in 1998 and 1999. However, there can be no assurance that future changes in such laws, regulations or interpretations thereof or the nature of the Company's operations will not require the Company to make significant additional capital expenditures to ensure compliance in the future. The purchase price of the Anchor Acquisition was approximately $250.0 million and was comprised of: approximately $200.5 million in cash, $47.0 million face amount (1,879,320 shares) of Series A Preferred Stock of Anchor and $2.5 million of common stock (490,898 shares) of Class A Common Stock of Anchor. However, the purchase price paid by the Company is subject to adjustment. On June 13, 1997, Old Anchor delivered to the Company the unaudited Closing Balance Sheet, which indicated that Old Anchor believed that it was entitled to additional payments from the Company and Owens totaling approximately $76.3 million. On July 28, 1997, the Company delivered its notice of disagreement to Old Anchor, which requested a reduction to the purchase price of approximately $96.8 million. 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 Anchor to Old Anchor of an additional $1.0 million in cash and the issuance of 1,225,000 warrants for the purchase of additional shares of common stock of Anchor, together valued at $7.1 million. In addition, Anchor will issue 525,000 warrants to purchase additional shares of common stock to an affiliate of Consumers U.S., valued at $2.6 million. None of the warrants to be issued will require any payment upon exercise. The Proposed Settlement is subject to final approval by the Company, Old Anchor and the bankruptcy court. The Company obtained the cash portion of the purchase price from an $85.0 million cash investment by Consumers International in common stock Of Consumers U.S. and borrowings under the $130.0 million Anchor Loan Facility. In conjunction with the Anchor Acquisition, Anchor entered into a credit agreement providing for a $110.0 million Revolving Credit Facility. At March 20, 1998, advances outstanding under the Revolving Credit Facility were $5.9 million and the total outstanding letters of credit on this facility were $11.1 million. On April 17, 1997, Anchor completed an offering of $150.0 million aggregate principal amount of First Mortgage Notes. The First Mortgage Notes are senior secured obligations of the Company, ranking senior in right of payment to all existing and future subordinate indebtedness of Anchor and pari passu with all existing and future senior indebtedness of Anchor. The First Mortgage Notes are guaranteed by Consumers U.S. Proceeds from the issuance of the First Mortgage Notes, net of fees, were approximately $144.0 million and were used to repay $130.0 million outstanding under the Anchor Loan Facility and $8.8 million outstanding under the Revolving Credit Facility, with the balance used for general corporate purposes. As a result of its failure to have an exchange offer registration statement declared effective and to have exchanged all First Mortgage Notes validly tendered, Anchor has paid additional interest on the First Mortgage Notes. The amount of additional interest that the Company has paid has ranged from 0.5% in October 1997 to 1.5% in February 1998. This additional interest is expected to be nonrecurring and not significant to the Company's continuing operations. 5 In March 1998, Anchor issued $50.0 million aggregate principal amount of its 9 7/8% Senior Notes due 2008. The Senior Notes are senior unsecured obligations ranking pari passu in right of payment with all existing and future senior indebtedness of Anchor. Proceeds of the offering will be used for capital expenditures necessary to expand to meet customer needs and general corporate purposes. The First Mortgage Notes Indenture and the Senior Notes Indenture contain certain covenants that restrict the Company 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 certain financial covenants that require the Company to meet and maintain certain financial tests and minimum ratios, including a minimum working capital ratio, a minimum consolidated net worth test and a minimum interest coverage ratio. Anchor may enter into a new revolving credit facility that will provide for revolving credit loans, and the issuance of letters of credit, in an aggregate amount not to exceed the lessor of $125.0 million and the borrowing base in effect. The new revolving credit facility will also contain certain customary covenants contained in the Revolving Credit Facility, including an event of default upon a change of control and upon a default under the Notes and/or certain other Indebtedness of Anchor. The new revolving credit facility will also require Anchor to meet and maintain certain financial tests and minimum ratios, including minimum leverage ratio, a minimum consolidated net worth test and a minimum interest coverage ratio. The Company expects significant expenditures in the 1998, including interest expense on the First Mortgage Notes and the Senior Notes, required pension plan contributions of $17.0 million, payment in respect of Anchor's supply agreement with The Stroh Brewery Company of $7.0 million, capital expenditures of approximately $55.0 million and closing costs associated with the closed manufacturing facilities of approximately $11.0 million. In addition, Anchor is required to make pension plan contributions for underfundings of $13.9 million in 1999 and $40.5 million to be contributed over the three years thereafter. Also, as a result of the valuation performed by an independent appraiser of the Series A Preferred Stock contributed to the plans, which was completed in November 1997, Anchor is required to make an additional pension contribution of $0.7 million in 1998. 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 1998 are expected to be funds derived from operations, proceeds from the Senior Note offering, borrowings under the Revolving Credit Facility and proceeds from asset sales. 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 at relatively low levels, the Company has begun to pass on inflationary cost increases either as a result of contractual arrangements permitting the pass on of cost increases or as the result of recent negotiations with various customers. SEASONALITY Due principally to the seasonal nature of the brewing, iced tea and soft drink industries, in which demand is stronger during the summer months, the Company's shipment volume is expected to be 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 will schedule shutdowns of its plants for furnace rebuilds and machine 6 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 is reviewing alternatives to reduce downtime during these periods in order to minimize disruption to the production process and its negative effect on profitability. YEAR 2000 The Company's plan is to achieve Year 2000 compliance while integrating the operations of the Company and Consumers. The Company's information systems cover a broad spectrum of software applications and hardware custom designed for its manufacturing processes and are similar to those of Consumers. Consumers, after an extensive study of its general technology needs, decided to upgrade its information systems from a platform based on large IBM mainframes to a platform based on mid-range database servers. This upgrade will resolve any Year 2000 issues. To better integrate its information systems with those of Consumers, the Company will begin a similar upgrade of its systems in the second quarter of 1998 with a planned implementation date of March 1999, which management believes provides sufficient time to resolve any unexpected issues. Certain of these upgrades are included in the capital expenditure budget. 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. 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 and the recent insolvency of Old Anchor; 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 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, any 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. Not applicable 7 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page No. -------- Index to Financial Statements of Consumers U.S., Inc. F-1 Report of Independent Public Accountants F-2 Consolidated Statement of Operations - Period from February 5, 1997 to December 31, 1997 F-3 Consolidated Balance Sheet- December 31, 1997 F-4 Consolidated Statement of Cash Flows - Period from February 5, 1997 to December 31, 1997 F-6 Consolidated Statement of Stockholder's Equity - 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 Public Accountants H-2 Consolidated Statements of Operations - Period from January 1, 1997 to February 4, 1997 and Years Ended December 31, 1996 and 1995 H-3 Consolidated Balance Sheets- February 4, 1997 and December 31, 1996 H-4 Consolidated Statements of Cash Flows - Period from January 1, 1997 to February 4, 1997 and Years Ended December 31, 1996 and 1995 H-6 Consolidated Statements of Stockholder's Equity (Deficiency in Assets)- Period from January 1, 1997 to February 4, 1997 and Years Ended December 31, 1996 and 1995 H-8 Notes to Consolidated Financial Statements H-9
8 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. and Old Anchor and the Reports of Independent Public Accountants are included beginning at page F-1 and beginning at page H-1 of this Form 10-K. See the index to financial statements in Item 8. 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 Consolidated Financial Statements of Old Anchor and the Financial Statements of Anchor. SCHEDULE II ANCHOR RESOLUTION CORP. VALUATION AND QUALIFYING ACCOUNTS PERIOD FROM JANUARY 1, 1997 TO FEBRUARY 4, 1997 AND YEARS ENDED DECEMBER 31, 1996 AND 1995 (DOLLARS IN THOUSANDS)
Column A Column B Column C Column D Column E Column F - -------- -------- -------- -------- -------- -------- Additions ------------------------ Balance at Charged to Charged to Balance at beginning of costs and other end Description year expenses accounts Deductions of year - ----------- ------------ -------- -------- ---------- ------- Interim Period 1997 Allowance for doubtful accounts $1,503 $ 127 $1,630 Year ended December 31, 1996 Allowance for doubtful accounts $1,826 $1,126 -- $1,449(A) $1,503 Year ended December 31, 1995 Allowance for doubtful accounts $3,447 $ 656 -- $2,277(A) $1,826
- -------------------------- (A) Accounts written off SCHEDULE II CONSUMERS U.S., INC. VALUATION AND QUALIFYING ACCOUNTS 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 to Balance at beginning of costs and other end Description period expenses accounts Deductions of period - ----------- ------ -------- -------- ---------- --------- Period from February 5, 1997 to December 31, 1997 Allowance for doubtful accounts $1,630 $ 375 $ 360(B) $ 340(A) $2,025
- -------------------------- (A) Accounts written off (B) Amount recognized as part of Anchor Acquisition 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. 9 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 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 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 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 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
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EXHIBIT NUMBER ITEM ------- ---- 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 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 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.
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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
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EXHIBIT NUMBER ITEM -------- ---- 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 Association and the various financial institutions part to the Credit Agreement 10.47** Sixth Amendment to the Credit Agreement dated as of March 11, 1998 among the Association and the various financial institutions part to the Credit Agreement 12.1++ Statement re: computation of ratio of earnings to fixed charges for the period from February 5, 1997 to December 31, 1997 12.2** Statement re: computation of ratio of earnings to fixed charges for the years ended December 31, 1993, 1994, 1995 and 1996 and the period from January 1, 1997 to February 4, 1997. 21.1*** List of subsidiaries of the Company 23.1++ Consent of Independent Public Accountants 27.1++ Financial Data Schedule of the Company (for SEC use only)
- ------------------------ + 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. * - Filed as an exhibit to the Company's Registration Statement on Form S-4 (Reg. No. 333-31363) originally filed with the Securities and Exchange Commission on July 16, 1997 and incorporated herein by reference. ** - Filed as an exhibit to Annual Report on Form 10-K for Anchor Glass Container Corporation for the fiscal year ended December 31, 1997 and incorporated herein by reference. *** - Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and incorporated herein by reference. ++ - Filed herewith. (b) Reports on Form 8-K None 13 INDEX TO FINANCIAL INFORMATION FOR CONSUMERS U.S.
Page No. -------- Financial Statements of Consumers U.S.: Report of Independent Public Accountants F-2 Consolidated Statement of Operations - Period from February 5, 1997 to December 31, 1997 F-3 Consolidated Balance Sheet- December 31, 1997 F-4 Consolidated Statement of Cash Flows - Period from February 5, 1997 to December 31, 1997 F-6 Consolidated Statement of Stockholder's Equity - Period from February 5, 1997 to December 31, 1997 F-8 Notes to Consolidated Financial Statements F-9 See Index to Financial Information of Old Anchor at H-1
F-1 14 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Consumers U.S., Inc.: We have audited the accompanying consolidated balance sheet of Consumers U.S., Inc. (a Delaware corporation) as of December 31, 1997, and the related consolidated statements of operations, stockholder's equity and cash flows for the period from February 5, 1997 through 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 audit. 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 provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Consumers U.S., Inc. as of December 31, 1997, and the results of its operations and its cash flows for the period from February 5, 1997 to December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania February 25, 1998 (Except with respect to the financing matter as discussed in Note 13, as to which the date is March 11, 1998) F-2 15 CONSUMERS U.S., INC. CONSOLIDATED STATEMENT OF OPERATIONS PERIOD FROM FEBRUARY 5, 1997 TO DECEMBER 31, 1997 RESTATED (DOLLARS IN THOUSANDS) Net sales ........................................................ $ 569,441 Costs and expenses: Costs of products sold ......................................... 523,709 Selling and administrative expenses ............................ 25,120 --------- Income from operations ........................................... 20,612 Other expense, net ............................................... (2,602) Interest expense ................................................. (18,281) --------- Loss before extraordinary item ................................... (271) Extraordinary item - Write-off of deferred financing costs .......................... (11,200) --------- Loss before preferred stock dividends and minority interest ...... (11,471) Preferred stock dividends of subsidiary .......................... (5,062) --------- Loss before minority interest .................................... (16,533) Minority interest ................................................ 5,451 --------- Net loss ......................................................... $ (11,082) ========= - -------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements F-3 16 CONSUMERS U.S., INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 RESTATED (DOLLARS IN THOUSANDS) - ----------------------------------------------------------------------------------------- Assets - ----------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents .................................................... $ 1,060 Accounts receivable, less allowance for doubtful accounts of $2,025 .......... 56,940 Inventories - Raw materials and manufacturing supplies ................................... 23,303 Finished products .......................................................... 96,820 Other current assets ......................................................... 8,082 --------- Total current assets ..................................................... 186,205 - ----------------------------------------------------------------------------------------- Property, plant and equipment: Land ....................................................................... 7,769 Buildings .................................................................. 63,438 Machinery, equipment and molds ............................................. 297,317 Less accumulated depreciation .............................................. (43,653) --------- 324,871 - ----------------------------------------------------------------------------------------- Other assets.................................................................. 22,462 Strategic alliance with customers, net of accumulated amortization of $811 ... 25,389 Goodwill, net of accumulated amortization of $2,857 .......................... 55,095 --------- $ 614,022 ========= - -----------------------------------------------------------------------------------------
F-4 17 CONSUMERS U.S., INC. BALANCE SHEET DECEMBER 31, 1997 RESTATED (DOLLARS IN THOUSANDS) (CONTINUED)
- ----------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity - ----------------------------------------------------------------------------------------- Current liabilities: Revolving credit facility .................................................... $ 10,468 Current maturities of long-term debt ......................................... 567 Accounts payable ............................................................. 63,796 Accrued expenses ............................................................. 67,588 Accrued interest ............................................................. 4,576 Accrued compensation and employee benefits ................................... 25,185 --------- Total current liabilities .................................................. 172,180 - ----------------------------------------------------------------------------------------- Long-term debt ............................................................... 152,758 Long-term pension liabilities ................................................ 48,826 Long-term post retirement liabilities ........................................ 57,900 Other long-term liabilities .................................................. 57,522 --------- 317,006 Commitments and contingencies - ----------------------------------------------------------------------------------------- Redeemable preferred stock of subsidiary, Series A, $.01 par value; authorized 2,239,320 shares; issued and outstanding 2,239,320 shares; $25 liquidation and redemption value ........................................ 55,983 --------- Minority interest ............................................................ 6,813 --------- Stockholders' equity: Common stock, $.10 par value; authorized 20,000,000 shares; issued and outstanding 17,000,100 shares ................................... 170 Capital in excess of par value ............................................... 86,330 Accumulated deficit .......................................................... (23,920) Additional minimum pension liability ......................................... (540) --------- 62,040 --------- $ 614,022 ========= - -----------------------------------------------------------------------------------------
F-5 18 CONSUMERS U.S., INC. CONSOLIDATED STATEMENT OF CASH FLOWS PERIOD FROM FEBRUARY 5, 1997 TO DECEMBER 31, 1997 RESTATED (DOLLARS IN THOUSANDS) Cash flows from operating activities: Net loss ........................................................... $ (11,082) Extraordinary item ................................................. 11,200 Adjustments to reconcile loss before extraordinary item to net cash provided by operating activities: Depreciation and amortization ................................... 51,132 Other ........................................................... 3,101 Dividends accrued on preferred stock of subsidiary............... 5,062 Minority interest ............................................... (5,451) Decrease in cash resulting from changes in assets and liabilities ........................................... (24,966) --------- 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 ..................... (40,519) Payment of strategic alliance with customers ....................... (6,000) Acquisition related contribution to defined benefit pension plans .. (9,056) Other .............................................................. (1,210) --------- (257,255) - ---------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from issuance of long-term debt ........................... 280,000 Principal payments of long-term debt ............................... (130,278) Proceeds from issuance of common stock ............................. 85,000 Net draws on revolving credit facility ............................. 10,468 Distribution to shareholder......................................... (3,513) Other, primarily financing fees .................................... (12,358) --------- 229,319 - ---------------------------------------------------------------------------------- Cash and cash equivalents: Increase in cash and cash equivalents .............................. 1,060 Balance, beginning of period ....................................... -- --------- Balance, end of period ............................................. $ 1,060 ========= - ----------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. F-6 19 CONSUMERS U.S., INC. STATEMENT OF CASH FLOWS PERIOD FROM FEBRUARY 5, 1997 TO DECEMBER 31, 1997 RESTATED (DOLLARS IN THOUSANDS) (CONTINUED) Supplemental disclosure of cash flow information: Cash paid during the period for: Interest ...................................................................... $ 11,702 ========= Income tax payments (refunds), net ............................................ $ -- ========= Equipment financing ............................................................. $ 1,115 ========= Increase (decrease) in cash resulting from changes in assets and liabilities: Accounts receivable ........................................................... $ (9,635) Inventories ................................................................... (1,241) Other current assets .......................................................... (620) Accounts payable, accrued expenses and other current liabilities .............. (13,682) Other, net .................................................................... 512 --------- $ (24,966) ========= - --------------------------------------------------------------------------------------------- Supplemental noncash activities: In connection with the Anchor Acquisition, Anchor 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, Anchor issued 1,405,229 warrants to the lenders valued at $7,012. 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, Anchor contributed $9,000 face amount of Series A Preferred Stock to Anchor's defined benefit pensions plans. In connection with the issuance of the First Mortgage Notes, Anchor 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, Anchor recorded an extraordinary loss for the write-off of deferred financing fees of the Anchor Lo Facility. 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. F-7 20 CONSUMERS U.S., INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY PERIOD FROM FEBRUARY 5, 1997 TO DECEMBER 31, 1997 RESTATED (DOLLARS IN THOUSANDS)
Capital Accumu- Minimum Total Common In-Excess lated Pension Stockholders' 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 Net loss -- -- (11,082) -- (11,082) Acquisition of manufacturing rights -- -- (9,325) -- (9,325) Distribution to shareholder -- -- (3,513) -- (3,513) Amount related to minimum pension liability -- -- -- (540) (540) ------------------------------------------------------------------ Balance, December 31, 1997 $ 170 $ 86,330 $(23,920) $ (540) $(62,040) ================================================================== - ----------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements F-8 21 CONSUMERS U.S., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM FEBRUARY 5, 1997 TO DECEMBER 31, 1997 (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 Resolution Corp. 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 64.8% 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 financing, the amount of minority interest originally recognized by the Company was $13,501, consisting of $2,983 attributable to minority common stockholders and $10,518 attributable to Anchor warrant holders. Therefore, 35.2% of the earnings (losses) of Anchor attributable to common stockholders is charged (credited) to the Company's statement of operations. The amount by which the minority common stockholders can participate in the losses attributable to common stockholders of Anchor is limited to $6,688, consisting of $2,983 attributable to minority common stockholders and 35.2% of the value of the warrants, after which the Company absorbs all of Anchor's losses. However, if future earnings do materialize, the Company's earnings shall be credited to the extent of such minority interest losses previously absorbed. The remaining carrying value of the warrants will not be adjusted by any further losses attributable to the common stockholders of Anchor. Should the warrant holders exercise their option to convert to Class C Common Stock, this event will be treated as issuance of stock by a subsidiary, and accordingly, the accounting treatment will be based on the facts and circumstances in existence at that time. Restatement The Company has restated the accompanying financial statements for the period ended December 31, 1997. The Company previously recorded the Acquisition of Manufacturing Rights, discussed below, at its purchase price of $12,525 and included that amount in the caption Strategic Alliance with Customers on its Consolidated Balance Sheet. As discussed below, because these manufacturing rights were acquired from a related party under common control, the $3,200 carrying value as recorded by the related party should have been maintained and accordingly, a restatement has been made. The Company has now reflected the remaining purchase price as a distribution from equity. Additionally, as discussed in Note 4, shares of Class B Common Stock issued to Consumers U.S. upon the issuance of the First Mortgage Notes, previously recorded as a deferred asset to be amortized over the life of the First Mortgage Notes, have now been treated as a shareholder distribution. As discussed in Note 6, Consumers has charged Consumers U.S. for services provided and since the cost of these services has already been charged to earnings by the Company, this amount has been treated as a distribution to a shareholder as opposed to a selling and administrative expense, as previously recorded. This reduced the loss before minority interest by $3,513, reduced the minority interest credit by $1,237 and reduced net loss by $2,276. 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 and soft drink industries. The Company markets its products throughout the United States. The Company's international and export sales are insignificant. Sales to The Stroh Brewery Company represented approximately 15.6% of total net sales for the period ended December 31, 1997. Revenues are recognized as product is shipped to customers. The loss of a significant customer, unless replaced, could have a material adverse effect on the Company's business. F-9 22 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 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 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 Alliance with Customers Anchor 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 11 and 15 years, based upon shipments. Acquisition of Manufacturing Rights In September 1997, Hillsboro Glass Company ("Hillsboro"), a glass-manufacturing plant owned by G&G Investments, Inc. ("G&G") (the majority owner of Consumers), 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, the majority of which will be paid in 1998. Although this amount 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 has been treated as a distribution to a shareholder. 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 period ended December 31, 1997 was $2,857. 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. 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 the Company to make significant additional contributions into its underfunded defined benefit plans. F-10 23 Postretirement Benefits Statement of Financial Accounting Standards No. 106 - Employers' Accounting for Postretirement Benefits Other Than Pensions ("SFAS 106") requires accrual of postretirement 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 postretirement 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. As the long-term debt has not been registered or traded in an established trading market, and the debt was issued during the current period, the Company has estimated the fair value of the debt to be the carrying value. 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 December 31, 1997. 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 are accrued and recognized as an adjustment to interest expense. 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 - PURCHASE OF ASSETS On February 5, 1997, pursuant to an Asset Purchase Agreement dated December 18, 1996, as amended (the "Asset Purchase Agreement"), between Consumers, Owens-Brockway Glass Container Inc. ("Owens") and Old Anchor, the Company (the rights and obligations of Consumers having been assigned to Anchor) and Owens acquired substantially all of the assets of, and assumed certain liabilities, of Old Anchor. 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. F-11 24 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 of Anchor ("Series A Preferred Stock") and $2,500 of common stock of Anchor (490,898 shares with an estimated value of $5.00 per share) (the "Class A Common Stock"). The purchase price paid by the Company is subject to adjustment. On June 13, 1997, Old Anchor delivered to Anchor the closing balance sheet which indicated that Old Anchor believed that is was entitled to additional payments from the Company and Owens totaling approximately $76,300. On July 28, 1997, Anchor delivered its notice of disagreement to Old Anchor, 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 Anchor to Old Anchor of an additional $1,000 in cash and the issuance of 1,225,000 warrants for the purchase of additional shares of common stock, together valued at approximately $7,100, recorded as an adjustment to goodwill. In addition, Anchor will issue 525,000 warrants to purchase additional shares of common stock to an affiliate of the Company, valued at approximately $2,600 which has been recorded as an expense. None of the warrants to be issued will require any payment upon exercise. The effect of the Proposed Settlement has been reflected in the financial statements for the period ended December 31, 1997. The Proposed Settlement is subject to final approval by the Company, Old Anchor and the bankruptcy court. The Company obtained the cash portion of the purchase price principally from an $85,000 cash investment by Consumers International in common stock of Consumers U.S. and a $130,000 bank loan. For the period from February 5, 1997 to February 5, 2000, the common stock of Anchor is divided into three classes, Class A and Class B, which are voting, and Class C, which is non-voting. During this period, the number of Directors of Anchor is fixed at nine, with the holders of the Class A shares having the right to elect four Directors and the holders of the Class B shares having the right to elect five Directors. In connection with the settlement of the issues surrounding the adjustment to the purchase price paid by the Company, it is expected that the certificate of incorporation of Anchor will be amended to increase the number of directors to be elected by the holders of Class B Common Stock. Holders of the Class C shares do not participate in the election of Directors. On February 5, 2000, the three classes of common stock will automatically be consolidated into one single class of common stock with identical rights. Anchor currently has outstanding warrants exercisable for 2,107,843 shares of Class C Common Stock at an exercise price of $.10 per share, which has already been deemed paid. Upon consummation of the purchase and effective February 6, 1997, Anchor changed its name to Anchor Glass Container Corporation. 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 asset purchased of $58,660 is classified as Goodwill on the accompanying balance sheet. The shares issued to Consumers U.S. in conjunction with the issuance of the First Mortgage Notes (see Note 4) were accounted for as a step acquisition, and accordingly, goodwill was reduced by $2,984. F-12 25 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 would 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 Anchor. 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 3 - 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 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. F-13 26 At December 31, 1997, advances outstanding under the Revolving Credit Facility were $10,468 and the borrowing availability was $52,497. The total outstanding letters of credit on this facility were $12,788. At December 31, 1997, the weighted average interest rate on borrowings outstanding was 8.4%. 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 Anchor's 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., the holder of Anchor's 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 certain financial covenants that require the Company to meet and maintain certain financial tests and minimum ratios, including a minimum working capital ratio, a minimum consolidated net worth test and a minimum interest coverage ratio. NOTE 4 - LONG-TERM DEBT Long-term debt at December 31, 1997 consists of the following: $150,000 First Mortgage Notes, interest at 11.25% due 2005..... $150,000 Other.......................................................... 3,325 -------- 153,325 Less current maturities........................................ 567 -------- $152,758 ========
In connection with the Anchor Acquisition, Anchor entered into a Senior Credit Agreement, dated as of February 5, 1997, with Bankers Trust Company, 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 11.25% 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 are 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 the second quarter of 1997. Effective April 17, 1997, Anchor completed an offering of the First Mortgage Notes, issued under an indenture dated as of April 17, 1997 (the "Indenture"), 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 Anchor and pari passu with all existing and future senior indebtedness of Anchor. 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. Interest on the First Mortgage Notes accrues at 11.25% 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 F-14 27 on the March 15 and September 15 immediately preceding the applicable interest payment date. The Company entered into a Registration Rights Agreement on April 17, 1997. Pursuant to this agreement, additional interest in an amount of up to 1.5% per annum accrues on the First Mortgage Notes under certain conditions. As a result of the Company's failure to have an exchange offer registration statement declared effective on or prior to October 14, 1997, additional interest in the amount of 0.5% accrued from October 14, 1997. Due to the Company's failure to have exchanged all First Mortgage Notes tendered in accordance with the terms of the exchange offer on or prior to November 28, 1997, additional interest increased to 1.0%. Additional interest increased to 1.5% on January 13, 1998 and accrued to February 11, 1998 when it was reduced to 0.5%. 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, the Company entered into an interest rate swap agreement to partially protect the Company from interest rate fluctuations until such time as the fixed interest rate on the First Mortgage Notes was established. The agreement was terminated concurrent with 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 pari passu with the security interest in favor of the Revolving Credit Facility. The Indenture, subject to certain exceptions, restricts the Company from taking various actions, including, but not limited to, subject to specified exceptions, the incurrence of additional indebtedness, the granting of additional liens, the payment of dividends and other restricted payments, mergers, acquisitions and transactions with affiliates. All of the Company's debt agreements contain cross-default provisions. Principal payments required on long-term debt are $567 in 1998, $291 in 1999, $297 in 2000, $303 in 2001 and $300 in 2002. Payments to be made in 2003 and thereafter are $151,567. 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 treated the issuance of the shares to the Company as a distribution, the effect of the issuance has been eliminated upon consolidation. The value of the warrants issued to the initial purchasers has been deferred to be amortized over the life of the First Mortgage Notes. NOTE 5 - 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 the Company. 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. No dividends have been declared or paid as of December 31, 1997. 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 F-15 28 Common Stock, at the option of the holder, at a ratio determined by dividing the liquidation value of the Series A Preferred Stock by $6.00 and such ratio is subject to adjustment from time to time. Pursuant to the Asset Purchase Agreement, the Company is obligated to register all of the shares of the Class A Common Stock and Series A Preferred Stock under the Securities Exchange Act and to qualify the shares for listing on a nationally recognized United States securities exchange or on The Nasdaq Stock Market's National Market. NOTE 6 - RELATED PARTY INFORMATION 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 Anchor. 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 Revolving Credit Facility and the Indenture limit the management fee annual payment to $1,500 unless certain financial maintenance tests are met. The Company has recorded an expense of $2,750 for this agreement for the period ended December 31, 1997 of which $975 has been paid. Other affiliates Related party transactions with Consumers and its affiliates for the period from February 5, 1997 to December 31, 1997 are summarized as follows: Purchases of inventory and other...................... $ 5,201 Payable for inventory and other....................... 1,283 Sales of inventory and other.......................... 20,314 Receivable from sales of inventory and other.......... 5,791
All transaction with Consumers and its affiliates are conducted on terms which, in the opinion of management, are no less favorable than with third parties. Consumers has charged Consumers U.S. $3,513 for services provided which resulted in Consumers U.S. receiving 702,615 shares of Class B common stock of Anchor. This amount is unpaid as of December 31, 1997. Since the cost of these services has already been charged to earnings by the Company, this amount has been treated as a distribution to a shareholder. Stock Option Plan Anchor participates in the Director and Employee Incentive Stock Option Plan, 1996 of Consumers. Options to purchase 1,261,500 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. The Company has elected to follow Accounting Principles Board Opinion No. 25 -- Accounting for Stock Issued to Employees ("APB 25"). Under APB 25, because the exercise price of employee stock options equals the market price of the stock on the date of 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 during the period ended December 31, 1997 follows:
WEIGHTED WEIGHTED NUMBER AVERAGE AVERAGE OF EXERCISE FAIR SHARES PRICE VALUE --------- --------- -------- Options outstanding, February 5, 1997.... -- Granted............................... 1,261,500 12.95 $4,43 Exercised............................. -- Forfeited............................. -- --------- --------- -------- Options outstanding, December 31, 1997... 1,261,500 $12.95 ========= =========
No options are exercisable at December 31, 1997 and, the weighted average remaining contractual life of the options is 9.5 years. The Company applied APB 25 in accounting for these stock options and, accordingly, no compensation cost has been reported in the financial statements for the period ended December 31, 1997. In accordance with SFAS 123, the fair value of option grants is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions for pro forma footnote purposes: (i) risk-free interest of 5.76%, (ii) expected option life of 3 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 been reduced to the pro forma amounts indicated below: Net loss As reported...................................................... $(11,082) Pro forma........................................................ (11,228)
NOTE 7 - PENSION PLANS 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. Benefits are calculated on a salary-based formula for salaried plans and on a service-based formula for hourly plans. Pension costs for the period from February 5, 1997 to December 31, 1997 are summarized below: Service cost-benefits earned during the year.......... $ 3,934 Interest cost on projected benefit obligation......... 28,219 Return on plan assets................................. (29,087) -------- Total pension cost.................................. $ 3,066 ========
F-16 29 Anchor has substantial 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 and will increase the premiums paid to the PBGC. Excluding payments made as part of the Anchor Acquisition, the Company funded required contributions of approximately $20,000 in 1997. 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 Agreement and the assumption of the plans by Anchor. 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 matches employees' basic contributions to the plan in an amount equal to 150% of the first 4% of an employee's compensation. Expenses under the savings programs for the period from February 5, 1997 to December 31, 1997 were approximately $2,000. The funded status of Anchor's pension plans at December 31, 1997 is as follows:
Accumulated Assets Exceed Benefits Accumulated Exceed Assets Benefits ------------- ------------- Actuarial present value of accumulated plan benefits: Vested benefit obligation........................... $ 314,427 $ 114,381 ========= ========= Accumulated benefit obligation...................... $ 325,349 $ 114,381 ========= ========= Projected benefit obligation........................ 325,349 114,381 Plan assets at fair value................................ 270,157 131,631 --------- --------- Projected benefit obligation in excess of (less than) plan assets......................................... 55,192 (17,250) Amounts not recognized - Subsequent gains.................................... 4,651 5,693 Additional minimum liability............................. 540 -- --------- --------- Accrued (prepaid) pension cost........................... $ 60,383 $ (11,557) ========= =========
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 no dividends have been paid during the current year. The Company has received a valuation of the contributed Series A Preferred Stock in the fourth quarter of 1997. Based upon this valuation, the Company will be required to contribute approximately $745 to bring the total value of the Series A Preferred Stock contribution up to the $9,000 contributed value. Significant assumptions used in determining net pension cost and related pension obligations for the benefit plans for 1997 are as follows: Discount rate......................................... 7.25% Expected long-term rate of return on plan assets.................................... 9.0
F-17 30 NOTE 8 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company provides benefits to substantially all salaried, and certain hourly employees under several plans. SFAS 106 requires accrual of postretirement 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 postretirement benefit cost the required annual contribution. The Company's cash flows are not affected by implementation of SFAS 106. The accumulated postretirement benefit obligation at December 31, 1997 is as follows: Retirees ............................................................ $39,882 Eligible plan participants .......................................... 9,186 Other active plan participants ...................................... 12,054 ------- 61,122 Unrecognized gain ................................................... 568 ------- Accrued postretirement benefit costs (including $3,790 in current liabilities) ............................................. $61,690 =======
Net postretirement benefit costs for the period from February 5, 1997 to December 31, 1997 consist of the following components: Service cost - benefits earned during the year....................... $ 755 Interest cost on accumulated postretirement benefit obligation .............................................. 3,855 ------- $ 4,610 =======
The assumed healthcare cost trend used in measuring the accumulated postretirement benefit obligation as of December 31, 1997 was 8.5% 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, 1997 by approximately 11% and the net postretirement healthcare cost for the period ended December 31, 1997 by approximately 12%. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 7.25% for 1997. The Company also contributes to a multi-employer trust which provides certain other postretirement benefits to retired hourly employees. Expenses under this program for the period from February 5, 1997 to December 31, 1997 were $3,781. NOTE 9 - PLANT CLOSING COSTS 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. Closure of these facilities will result in the consolidation of underutilized manufacturing operations and is expected to be completed by February 5, 1999. Substantially all of the hourly and salaried employees at these plants, approximately 600 in total, have been terminated. Exit charges and the amounts charged against the liability as of December 31, 1997 are as follows:
Amount Charged Exit Charges Against Liability ------------ ----------------- Severance and employee benefit costs $13,000 $11,700 Plant shutdown costs related to consolidation and discontinuation of manufacturing facilities 12,800 9,100
F-18 31 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 at of December 31, 1997, management has deemed it appropriate to establish a realization reserve against the tax asset created during the period. The following significant components of the deferred tax assets and liabilities are as follows: Deferred tax assets: Pension and postretirement liabilities .... $ 1,200 Accumulated depreciation .................. 600 Other ..................................... 300 Tax loss carryforwards .................... 2,900 ------- 5,000 ------- Valuation allowance .......................... (1,600) ------- 3,400 Deferred tax liabilities: Accrued liabilities and reserves .......... 3,200 Other assets .............................. 200 ------- Net deferred tax assets ...................... 3,400 ------- $ -- =======
The effective tax rate reconciliation at December 31, 1997 is as follows: Federal rate .............................. (34)% State rate ................................ (5) ------- Permanent differences ..................... 25 ------- (14) Valuation allowance ....................... 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 2004. 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 has no material capital leases. Future minimum lease payments under non-cancelable operating leases are as follows: 1998.................................... $ 17,300 1999.................................... 13,600 2000.................................... 10,400 2001.................................... 9,200 2002.................................... 9,200 After 2002.............................. 20,300 --------- $ 80,000 =========
F-19 32 Rental expense for all operating leases for the period from February 5, 1997 to December 31, 1997 were $17,547. 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 expires January 2, 1998, unless Anchor has exercised its purchase right, and the term then expires February 1, 1998. In January 1998, Anchor exercised the option to purchase the headquarters facility and assigned such option to a third party purchaser of the facility. Anchor has to entered into a ten year lease pursuant to which Anchor will lease a portion of the headquarters facility. NOTE 12 - COMMITMENTS AND CONTINGENCIES 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. NOTE 13 - SUBSEQUENT EVENTS Following the issuance of the First Mortgage Notes, the Company filed, with the Securities and Exchange Commission, a Registration Statement on July 16, 1997, (File No.333-31363) on Form S-4 under the Securities Act of 1933, with respect to an issue of 11.25% First Mortgage 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. Upon the effectiveness of the Registration Statement, February 12, 1998, the Company commenced 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. The exchange offer is expected to be completed by March 30, 1998. In connection with a plan to simplify the corporate ownership structure of Consumers, Anchor and their affiliates, Glenshaw Glass Company, Inc., a wholly-owned subsidiary of G&G, may become a subsidiary of the Company. Subsequent to year end, Anchor has made definitive arrangements to issue 9 7/8% senior unsecured notes, due 2008 in the amount of $50,000 (the "Offering"), the proceeds of which are to be used to pay down the existing indebtedness under the Anchor's Revolving Credit Facility and to provide for future expansion to meet customer needs. F-20 33 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: July 13, 1998 By /s/ M. William Lightner, Jr. ------------------------------------------ M. William Lightner, Jr. Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ John J. Ghaznavi - -------------------------------------- John J. Ghaznavi Chairman and Chief Executive Officer (Principal Executive Officer) July 13, 1998 /s/ M. William Lightner, Jr. - -------------------------------------- M. William Lightner, Jr. Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) July 13, 1998 Directors: /s/ John J. Ghaznavi - -------------------------------------- John J. Ghaznavi July 13, 1998 /s/ David T. Gutowski - -------------------------------------- David T. Gutowski July 13, 1998 /s/ M. William Lightner, Jr. - -------------------------------------- M. William Lightner, Jr. July 13, 1998 /s/ C. Kent May - -------------------------------------- C. Kent May July 13, 1998 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 FEBRUARY 5, 1997 TO DECEMBER 31, 1997 - -------------------------------------------------------------------------------- EARNINGS - Loss before extraordinary item $ (271) Interest and amortization of debt expense 18,281 Rental expense representative of interest factor 5,849 -------- Total earnings $ 20,346 ======== FIXED CHARGES - Interest and amortization of debt expense $ 18,281 Rental expense representative of interest factor 5,849 -------- Total fixed charges $ 24,130 ======== RATIO OF EARNINGS TO FIXED CHARGES -- ======== DEFICIENCY OF EARNINGS AVAILABLE TO COVER FIXED CHARGES $ 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-23.1 3 CONSENT 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm) included in or made part of this annual report on Form 10-K/A. /s/ ARTHUR ANDERSEN LLP Pittsburgh, Pennsylvania July 13, 1998 EX-27.1 4 FINANCIAL DATA SCHEDULE (FOR SEC USE ONLY)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF CONSUMERS U.S., INC. INCLUDED IN FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS OTHER DEC-31-1997 FEB-05-1997 DEC-31-1997 1 1,060 0 56,940 2,025 120,123 186,205 368,524 43,653 614,022 172,180 152,758 55,983 0 170 61,870 614,022 569,441 569,441 523,709 523,709 0 375 18,281 (271) 0 (271) 0 (11,200) 0 (11,082) 0 0
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