-----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, CFEpbx3YSkrBgURmZ0pupEq+4wIhEbOwrrGoGEMi2oSty7G+8UAvcBtI51KLfYHX qD5H2NnabPNG1bVh+BLOCQ== 0000950117-98-000611.txt : 19980326 0000950117-98-000611.hdr.sgml : 19980326 ACCESSION NUMBER: 0000950117-98-000611 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980325 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONTINENTAL CAN CO INC /DE/ CENTRAL INDEX KEY: 0000103392 STANDARD INDUSTRIAL CLASSIFICATION: METAL CANS [3411] IRS NUMBER: 112228114 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06690 FILM NUMBER: 98572651 BUSINESS ADDRESS: STREET 1: ONE AERIAL WAY CITY: SYOSSET STATE: NY ZIP: 11791 BUSINESS PHONE: 5168224940 MAIL ADDRESS: STREET 1: ONE AERIAL WAY CITY: SYOSSET STATE: NY ZIP: 11791 FORMER COMPANY: FORMER CONFORMED NAME: LOCKWOOD KESSLER & BARTLETT INC DATE OF NAME CHANGE: 19710815 10-K 1 CONTINENTAL CAN COMPANY, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) 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 (NO FEE REQUIRED) For the transition period from _____ to _____. Commission File Number: 1-6690 CONTINENTAL CAN COMPANY, INC. ----------------------------- (Exact name of registrant as specified in its charter) Delaware 11-2228114 -------------------------------- ------------------------------------ (State of Incorporation) (I.R.S. Employer Identification No.) 301 Merritt 7 Corporate Park, Norwalk, CT 06856 - ------------------------------------------- ---------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (203) 750-5900 Securities registered pursuant to Section 12 (b) of the Act: Common Stock ($.25 par value) New York Stock Exchange - ----------------------------------- ------------------------------------------- (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12 (g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of 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 {__}. The aggregate market value of voting stock held by non-affiliates of the Registrant based on the closing price at which such stock was sold on the New York Stock Exchange on March 23, 1998 was $111,504,687. The number of shares of Common Stock outstanding on March 23, 1998 was 3,387,213 shares. ITEM 1. BUSINESS (a) General Development of Business Continental Can Company, Inc. (the Company) is a publicly traded company incorporated in Delaware in 1970 under the name Viatech, Inc. The name of the Company was changed to Continental Can Company, Inc. in October 1992. The Company is engaged in the packaging business through a number of operating subsidiaries. The Company's packaging business consists of (i) its 84% owned domestic subsidiary, Plastic Containers, Inc. (PCI), which owns Continental Plastic Containers, Inc. and Continental Caribbean Containers, Inc. (collectively, CPC), (ii) its wholly owned German operating subsidiary, Dixie Union GmbH & Company KG (Dixie Union) and (iii) its majority-owned European operating subsidiary, Ferembal S.A. (Ferembal), which in turn owns 96% of Obalex, A.S. (Obalex). PCI is a leading manufacturer of extrusion blow-molded containers in the United States. Ferembal is a manufacturer of rigid packaging, primarily food cans, of which it is the second largest supplier in France. Obalex is a manufacturer of metal cans in the Czech Republic. Dixie Union manufactures plastic films and packaging machines, primarily for the food and pharmaceutical industries. The Company also owns Lockwood, Kessler & Bartlett, Inc. (LKB) which provides services principally in the fields of mapping and survey, civil and structural engineering, mechanical and electrical engineering, and construction administration and inspection. In January 1998, Suiza Foods Corporation signed a definitive agreement to acquire the Company for stock and assumption of debt in a purchase transaction. The transaction is expected to be completed during the second quarter of 1998. Any impact of the transaction on the consolidated financial statements of the Company has not yet been determined. (b) Financial Information About Industry Segments The Company has one reportable industry segment - packaging, as determined in accordance with the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 14. (c) Narrative Description of Business The Company manufactures packaging which accounted for 98.1%, 98.5%, and 98.4% of its consolidated revenues in 1997, 1996 and 1995 respectively. CPC - The Company's 84% owned subsidiary, PCI, acquired CPC in November 1991. CPC, headquartered in Norwalk, Connecticut, has fourteen manufacturing plants in the continental United States and one in Puerto Rico. CPC is a leader in the development, manufacture and sale of a wide range of extrusion blow-molded plastic containers for household chemicals, food and beverages, automotive products and motor oil, industrial and agricultural chemicals and cosmetics and toiletries. CPC manufactures single and multi-layer containers, primarily from high density polyethylene and polypropylene resins, ranging in size from two ounces to 2.5 gallons. Some of these multi-layer containers include a barrier layer of ethyl vinyl alcohol which renders the container oxygen tight and makes it suitable for use in food products which are subject to spoilage or deterioration if exposed to oxygen. CPC sells containers to national consumer products companies, including Clorox Company, Coca-Cola Foods, Colgate-Palmolive Company, Lever Brothers, Mobil Oil Corporation, Pennzoil Products Company, Procter & Gamble Company, and Quaker Oats Company. CPC, in many cases, manufactures substantially all of a customer's container requirements for specific product categories or for particular container sizes. CPC has long-standing relationships with most of its customers and has long-term contracts or agreements with customers representing a substantial portion of its dollar sales volume. Ferembal - The Company owns 64% of Ferembal. Ferembal, headquartered in Paris, has five manufacturing plants located in each of the main agricultural regions of France. The Roye plant, located in Picardie, was built in 1964 and expanded substantially in 1968. Its three main divisions include coil cutting, printing and varnishing; the manufacture of ends and bodies; and assembly. There are five welded lines in operation at Roye and all industrial products are manufactured at this plant. The Moelan plant, located in Brittany, is set up along similar lines as the Roye plant with five welded lines. The Ludres plant, in eastern France, is Ferembal's largest facility. In addition to twelve presses and two easy-open end manufacturing units, Ludres has nine body assembly lines. Ferembal's research and development and technical service departments are also located at Ludres. The Veauche plant was built in 1982 to service southern France. 2 Approximately 90% of the output of the two welded lines is "passed through the wall" to a customer for the canning of pet food. The Ville Neuve sur Lot plant was built in 1991 and went into production with a three piece can line in early 1992. A two piece can line went into production at this facility in mid-1992. Ferembal also operates a three piece can line at a customer's facility in Locmine. Ferembal is the second largest producer of food cans in France and also produces cans for pet foods and industrial products. Ferembal's products include three-piece cans for food with over two hundred sets of specifications, two-piece cans in several different diameters, easy-open ends, "hi-white enamel" cans, and a large number of can products for industrial end uses. Ferembal's production for the food and pet food markets accounts for approximately 85% of its sales with remaining sales coming from cans produced for industrial products. Ferembal's customers are primarily vegetable and prepared food processors, pet food processors, and paint and other industrial can users. Obalex - The Company's subsidiary, Ferembal, owns 96% of the outstanding stock of Obalex. Obalex is headquartered in a three building complex on a 5 acre site in Znojmo, Czech Republic, which also serves as its sole manufacturing facility. Obalex manufacturers both two and three-piece cans for food which account for approximately 80% of its sales and a number of can products for industrial end users. Dixie Union - The Company, through wholly owned subsidiaries, owns all of the outstanding stock of Dixie Union. Dixie Union is headquartered in Kempten, Germany and has a subsidiary company in France. Dixie Union manufactures three main product lines for the packaging industry: multi-layer shrink bags, composite plastic films and packaging machines and slicers. Most of Dixie Union's customers are in the food and pharmaceutical industries. LKB - The Company owns 100% of LKB, a consulting engineering firm, located in Syosset, New York. LKB provides services to clients in the fields of transportation, site, municipal, electrical and mechanical, and environmental engineering. Most of LKB's clients are public sector state and municipal agencies, utilities, financial institutions and developers. Most of its projects involve infra-structure design and rehabilitation, environmental reports and services, and utility substation design. Other Matters - The primary users of products manufactured by the Company are firms in the food and snack food, pet food, household chemical, motor oil and pharmaceutical industries. The raw materials used in the production of plastic containers, cans and packaging films are readily available commodity materials and chemicals produced by a large number of manufacturers. It is the practice of the Company to obtain these raw materials from several sources in order to ensure an economical, adequate and timely supply. Some of the products manufactured by the Company are manufactured pursuant to license. With regard to composite films, a fully paid up license from the American National Can Company is in effect. With regard to shrink bags and film, a license from the American National Can Company is in effect. Present patents under this license expire at various times through 2000. The license will expire on the date the last of the licensed patents expire. This license is non-exclusive as to manufacture and sale of shrink bags and film in Europe and non-exclusive as to sales to the rest of the world. Sales may not be made in the Western Hemisphere, except to certain countries in South America. The Company does not believe these licenses are material to its packaging business taken as a whole. The Company's business is seasonal insofar as the sales of Ferembal and Obalex to the vegetable packing industry are dependent on agricultural production and occurs primarily in the second and third quarters. The Company's remaining products are not seasonal. The Company is not dependent upon a single customer or a few customers. Sales to one customer exceeded 10% of the Company's consolidated revenues in 1997. 3 As of December 31, 1997, the Company's backlog was approximately $15.8 million (compared to $20.2 million at December 31, 1996). All backlog is expected to be filled within the current fiscal year. Ferembal, Obalex, and Plastic Containers, Inc. produce most of their products under open orders. As a result, none of the foregoing backlog is attributable to them. The Company's business in total is highly competitive with a large number of competitors. The main competitors include Owens Illinois, Inc. and Graham Packaging with regard to plastic containers, Crown, Cork & Seal, Inc. with regard to cans, W. R. Grace & Co. with regard to barrier shrink films, and Multi-Vac with regard to packaging machinery. The principal methods of competition are price, quality and service. The amount spent on research and development activities amounted to approximately $12,509,000 in 1997, $11,495,000 in 1996 and $12,187,000 in 1995. The number of persons employed by the Company as of December 31, 1997 and 1996 was 3,442 and 3,463 respectively. (d) Foreign and Domestic Operations Sales to unaffiliated customers are set out below:
1997 1996 1995 -------- -------- ------ (In thousands) Europe $246,355 $297,491 $312,137 United States 295,682 282,703 295,470 Other 4,247 4,840 6,780 --------- ---------- --------- Total $546,284 $585,034 $614,387 ======== ======== ========
Information regarding the operating profit and the identifiable assets attributable to the Company's foreign operations is incorporated herein by reference to Note 16 of the Consolidated Financial Statements appearing on page 27. ITEM 2. PROPERTIES The Company believes its facilities are suitable, adequate, and properly sized to provide the capacity necessary to meet its sales. The Company's production facilities are utilized for the manufacture and storage of the Company's products. The extent of utilization in each of the Company's facilities varies based on a number of factors but primarily on sales and inventory levels for specific products. The location of the customer also affects utilization since shipment costs beyond a certain distance can make production of some products at a remote facility uneconomic. Seasonality affects utilization substantially at Ferembal and Obalex with very high utilization in the pre-harvest and harvest season and substantially lower utilization during the late fall and winter. The Company adjusts labor levels and capital investment at each of its facilities in order to optimize their utilization. The Company's main production facility for LKB is located in Syosset, New York in a 25,000 square foot building owned by the Company. This steel and concrete block building was constructed in 1955 on a 2-1/2 acre lot. CPC is headquartered in 19,812 square feet of leased office space in Norwalk, Connecticut. CPC also leases its technical center in Elk Grove, Illinois (78,840 sq. ft.), its accounting office space in Omaha, NE (5,489 sq. ft.), and sales offices in Cincinnati, Ohio (1,266 sq. ft.) and Houston, Texas (703 sq. ft.). 4 The following table sets forth the location and square footage of CPC's production facilities which are used for both manufacture and warehousing of finished goods:
SIZE IN SIZE IN PLANT LOCATION SQUARE FEET PLANT LOCATION SQUARE FEET -------------- ----------- -------------- ----------- Santa Ana, CA 103,000 Lima, OH 123,000 Fairfield, CA 66,000 Newell, WV 50,000 Houston, TX 80,000 Oil City, PA 96,000 Kansas City, KS 173,000 Baltimore, MD 151,000 Elk Grove, IL 183,000 Lakeland, FL 218,000 DuPage, IL 104,000 Caguas, Puerto Rico 47,000 Cincinnati, OH 130,000 West Memphis, AR 60,000 Atlanta, GA 85,000
PCI owns the facilities in Santa Ana, Fairfield, Oil City, Baltimore and Puerto Rico; all others are leased. Ferembal is headquartered in 20,000 square feet of office space subject to a capital lease in Clichy, a suburb of Paris. Ferembal operates five manufacturing facilities in five locations in France. Ferembal owns a 384,000 square foot manufacturing facility on a 21 acre site in Roye for the production of food and industrial cans. Ferembal owns a 42,000 square foot manufacturing facility for the production of food cans at Veauche on a 5 acre site. The facility at Veauche is located next to a customer's plant and food can production is "passed through the wall" to the customer. Ferembal has a capital lease with regard to several buildings totaling 229,000 square feet on a 23 acre site in Ludres. In addition, Ferembal owns a 29,000 square foot building on a 3 acre site. These facilities are used for the manufacture of food cans and for research and development activities. Ferembal has a capital lease with regard to several buildings totaling 252,000 square feet on an 18 acre site in Moelan which are used for the manufacture of food cans. Ferembal operates a manufacturing facility for food cans in a 42,000 square foot building on a 4 acre site in Villeneuve sur Lot under a rental agreement. Each of the manufacturing facilities utilizes a portion of its building space for warehousing its finished goods. Obalex is located in several buildings with approximately 182,000 square feet on an 5 acre site in Znojmo, Czech Republic. This facility is the sole manufacturing site for Obalex which also uses the complex for the storage of its finished goods. Dixie Union is headquartered in a three-story, 108,000 square foot manufacturing facility on a 5 acre site in Kempten, Germany, leased through 2004. In addition, a small facility is leased as sales and distribution center. ITEM 3. LEGAL PROCEEDINGS The Company's subsidiaries are defendants in a number of actions which arose in the normal course of business. In the opinion of management, the eventual outcome of these actions will not have a significant effect on the Company's financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the quarter ended December 31, 1997. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The common stock of Continental Can Company, Inc. is traded on the New York Stock Exchange. The following table indicates the quarterly high and low sales prices for Continental Can Company, Inc. (CAN) common stock for the last two years. 5
1997 1996 - ------------------------------------------------------------------------------------------- Quarter High Low High Low - ------------------------------------------------------------------------------------------- First $16-3/8 12-5/8 $17 15-1/8 Second 20-1/4 14-1/2 15-1/2 13-7/8 Third 27 19-1/2 14-7/8 10-3/4 Fourth 26-9/16 20-9/16 16-3/4 11
No dividends were paid to the holders of common stock for the years 1997, 1996 and 1995. The Company has no present intention to pay dividends on its common stock. There were 274 stockholders of record as of March 16, 1998. 6 ITEM 6. SELECTED FINANCIAL DATA(1)
1997 1996 1995 1994 1993 -------- -------- -------- -------- ------ Net sales (2) $546,284 $585,034 $614,387 $537,180 $481,842 ======== ======== ======== ======== ======== Net income (loss) (2) (3) $ 7,986 $ (5,560) $ 555 $ 4,445 $ 988 ======= ======== ======== ======== ======== Earnings (loss) per common share (3) Basic $ 2.49 $ (1.74) $ .17 $ 1.45 $ .34 ======= ======== ======== ======== ======== Diluted $ 2.41 $ (1.71) $ .17 $ 1.34 $ .33 ======= ======== ======== ======== ======== Weighted average shares outstanding - Basic (4) 3,210 3,200 3,167 3,057 2,867 ======= ======== ======== ======== ======== - Diluted 3,312 3,252 3,257 3,057 2,867 ======= ======== ======== ======== ======== Total assets $375,406 $391,032 $445,411 $423,585 $385,907 ======== ======== ======== ======== ======== Long term debt and capitalized lease obligations $156,418 $170,750 $143,138 $142,361 $153,982 ======== ======== ======== ======== ======== Total stockholders' equity (4) $ 68,782 $ 68,624 $ 76,298 $ 70,696 $ 60,855 ======== ======== ======== ======== ======== Working capital $ 69,034 $ 78,747 $ 46,195 $ 71,348 $ 66,105 ========= ======== ======== ======== ======== Current ratio 1.66 1.76 1.29 1.52 1.67 ==== ==== ==== ==== ====
(1) In thousands, except per share amounts and current ratio. (2) In 1993, includes sales of $10,682 and net income of $238 related to the purchase of Obalex. (3) Includes an extraordinary charge of $6,136 ($1.92 per share basic and $1.89 diluted) in 1996. Includes an extraordinary charge of $115 ($.04 per share both basic and diluted) in 1995. Includes a charge for the cumulative effect of an accounting change of $262 ($.08 per share both basic and diluted) and an extraordinary charge of $108 ($.04 per share basic and $.03 diluted) in 1994. (4) The 1994 weighted average shares outstanding include 268 shares issued in May 1994 upon the conversion of the Company's 10-3/4% Convertible Subordinated Debentures. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1997 VS. 1996 In 1997 net sales decreased 6.6% to $546.3 million from $585 million in 1996. This decline resulted primarily from foreign currency translation rate differences (approximately $36 million). The decline in sales resulting from the deconsolidation of Onena in 1996 of (approximately $20 million) was almost completely offset by an increase in resin prices which are passed-through to customers of PCI (approximately $14 million) and unit volume increases (approximately $4 million). Backlog at December 31, 1997 amounted to $15.8 million as compared to $20.2 million at December 31, 1996. Since PCI, Ferembal and Obalex produced most of their products under open order, none of this backlog is attributable to them. Gross profit in 1997 was negatively impacted by lower sales and an increase in operating lease expense of approximately $5.3 million resulting from the PCI refinancing in late 1996. Positive impacts on gross profit were cost reduction efforts at PCI and Ferembal, S.A. (Ferembal). Also, in January 1997, the Company revised its estimates of the useful lives of certain machinery and equipment to better reflect the estimated periods during which these assets will be in service and capitalized spare parts at Ferembal to be consistent with the Company's other subsidiaries. Therefore, depreciation expense decreased by $4.5 million, and spare parts expense also decreased by $3 million. As a result of these offsetting factors, gross profit increased 2.6% to $89.3 million in 1997 from $87 million in 1996. Gross profit as a percentage of sales improved to 16.3% in 1997 from 14.9% in 1996. 7 There were no restructuring charges in 1997. Restructuring charges in 1996 totalled $7.6 million and included the costs associated with two plant closings at PCI ($6.5 million) and termination benefits for certain employees at Ferembal ($1.1 million). Selling, general and administrative expense declined approximately $1.7 million from 1996 to 1997. Selling, general and administrative expense as a percentage of sales increased to 10.6% in 1997 from 10.2% in 1996 reflecting the relatively fixed cost of many of these expenses in relation to sales. As a result of these various factors operating income increased substantially to $31.5 million in 1997 as compared to $19.9 million in 1996. The operating income margin increased to 5.8% in 1997 as compared to 3.4% in 1996. Net interest expense decreased to $16 million from $19.6 million in 1996. This decline resulted from both lower weighted average rates and reduced net debt balances during 1997 than 1996. The Company's provision for taxes is an amalgamation of the tax charges and tax benefits of itself and its subsidiaries. Minority interest in 1997 and 1996 reflects the interest of other shareholders in PCI, Ferembal and Obalex. Net income amounted to $7.986 million in 1997 ($2.49 per share basic; $2.41 per share diluted). Income before extraordinary item amounted to $576,000 in 1996 ($.18 per share basic and diluted). An extraordinary item amounting to $6.136 million was recorded in 1996 relating to the cost of an early extinguishment of debt. Net loss amounted to $5.560 million in 1996 ($1.74 per share basic; $1.71 per share diluted). 1996 VS. 1995 In 1996, net sales decreased 4.8% to $585 million from $614.4 million in 1995. This decline resulted primarily from foreign currency translation rate differences (approximately $10 million), resin price decreases which are a customer pass-through at PCI (approximately $9 million), and volume decreases primarily in the Company's European flexible packaging operations (approximately $8 million). Backlog at December 31, 1996, amounted to $20.2 million as compared to $22.6 million at December 31, 1995. Since PCI, Ferembal and Obalex produce most of their products under open order, none of this backlog is attributable to them. Gross profit decreased 3.7% to $87 million in 1996 from $90.4 million in 1995. Gross profit as a percentage of sales improved to 14.9% in 1996 as compared to 14.7% in 1995. The decrease in gross profit resulted from lower sales volume and foreign currency translation rate differences. The increase in gross profit margin reflected the pass-through of resin price decreases, equally reducing sales and cost. Restructuring charges amounted to $7,624,000 and $4,905,000 in 1996 and 1995, respectively. Charges of $1,124,000 in 1996 and $5,003,000 in 1995 related to termination benefits for certain employees of Ferembal and reflect a response to continuing competitive pressure in Ferembal's marketplace. Restructuring charges reflected two plant closings at PCI and amounted to $6,500,000 in 1996. One closing had been completed by year-end while the other plant was expected to be completed in the first quarter of 1997. Selling, general and administrative expenses as a percentage of net sales amounted to 10.2% in 1996 as compared to 10.6% in 1995 and reflects the Company's continued emphasis on cost reductions. As a result of these various factors, operating income decreased to $19,874,000 in 1996 from $20,598,000 in 1995, while operating margin remained at 3.4% in 1996 and 1995. Net interest expense decreased slightly to $19.6 million in 1996 from $19.9 million in 1995. Foreign currency exchange gains amounted to $115,000 in 1996 compared to losses of $299,000 in 1995. The Company's consolidated effective tax rate is an amalgamation of the tax charges and tax benefits of itself and its subsidiaries. This rate reflects the offsetting nature of these items in consolidation. PCI utilized tax benefits of $1,876,000 and $2,505,000 in 1996 and 1995, respectively. 8 Minority interest in 1996 and 1995 reflects the interest of other shareholders in PCI, Ferembal, Onena and Obalex. Income before extraordinary item in 1996 amounted to $576,000 ($.18 per share both basic and diluted). An extraordinary charge in 1996, net of the portion attributable to the minority interest, amounting to $6,136,000 ($1.92 per share basic; $1.89 diluted) related to costs associated with the early redemption of PCI's 10.75% Senior Secured Notes due in 2001. Net loss amounted to $5,560,000 ($1.74 per share basic; $1.71 per share diluted) in 1996 and net income amounted to $555,000 ($.17 per share both basic and diluted) in 1995. FINANCIAL CONDITION Capital Resources The packaging business utilizes relatively large amounts of specialized machinery and equipment which are periodically upgraded or replaced. Capital expenditures in 1997 amounted to $21.5 million primarily for the purchase of machinery and equipment. During 1997, major capital expenditures included the purchase of extrusion blow-molding lines and line changes at PCI and a can line at Ferembal. Expenditures in 1998 are expected to amount to approximately $28 million and be similar in character to those in 1997. The Company met its 1997 capital requirements with cash generated from operations, from existing funds and through borrowings. It is anticipated that such expenditures in 1998 will be financed in a similar manner. LIQUIDITY The Company's liquidity position at December 31, 1997 declined slightly. Working capital decreased to $69.0 million at December 31, 1997 from $78.7 million at December 31, 1996. The current ratio decreased to 1.66 at December 31, 1997 from 1.76 at December 31, 1996. The Company's cash position decreased by $9.53 million between December 31, 1997 and 1996. Cash flows from operating activities provided $31.7 million for the Company in 1997, most of which related to depreciation and amortization. Cash from operations was used primarily for capital expenditures. The Company invested approximately $21.5 million in 1997 in property, plant and equipment. In addition, investment securities increased from $1.2 million to $20.4 million. The Company's packaging subsidiaries had available various unutilized credit facilities of approximately $80.9 million at December 31, 1997. However, the Company's ability to draw upon these lines for other than certain subsidiary purposes is restricted. The Company expects that cash from operations and its existing banking facilities will be sufficient to meet its needs both in 1998 and on a long-term basis. UTILIZATION OF NET OPERATING LOSS CARRYFORWARDS The Company and its subsidiaries account for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes," issued in February 1992. This statement requires, among other things, recognition of future tax benefits, measured by enacted tax rates, attributable to deductible temporary differences between financial statement and income tax bases of assets and liabilities and to tax net operating loss carryforwards, to the extent that realization of such benefits is more likely than not. As discussed in Note 9, PCI has tax net operating loss carryforwards (NOL's) totaling approximately $50 million which expire through 2010. SFAS No. 109 requires that the tax benefit of such NOL's be recorded as an asset to the extent that management assesses the utilization of such NOL's to be "more likely than not." Based upon the scheduled reversals 9 of deferred tax liabilities, projected future taxable income and tax planning strategies, management believes it is more likely than not the Company will realize the benefits of these deductible differences net of the existing valuation allowances at December 31, 1997. The NOL's available for future utilization were generated principally by operating losses caused by increased post-acquisition depreciation and amortization charges and additional interest expense on debt incurred in connection with the purchase. Additionally, in the year ended December 31, 1996, extraordinary losses were incurred due to the write-off of deferred financing costs. The operations of the Continental Plastic Container Companies have historically been profitable (excluding non-recurring items). In assessing the likelihood of utilization of existing NOL's, management considered the historical results of the Continental Plastic Container Companies' operations, both prior to the purchase and as subsidiaries of PCI, subsequent to the purchase and the current operating environment. INFLATION AND CHANGING PRICES Costs and revenues are subject to inflation and changing prices in the packaging business. Since all competitors are similarly affected, product selling prices generally reflect cost increases resulting from inflation. At PCI, changes in the cost of plastic resin are passed-through to customers and have equal and offsetting effects on sales and costs of goods sold and, therefore, have no material effect on earnings and cash flow. Such changes can have a substantial impact on sales. Inflation has not been a material factor in the Company's revenues and earnings in the past three years. YEAR 2000 DATE CONVERSION This issue affects computer systems that have time-sensitive programs that may not properly recognize the year 2000. Management believes it has identified the significant computer systems which are not year 2000 compliant and is in the process of correcting the problem. Corrections should be completed by the end of 1998. Costs are not expected to be material. If necessary modifications and conversions by those with which the Company does business are not completed timely or if any of the Company's significant computer systems are not year 2000 compliant, the year 2000 issue may have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. NEW ACCOUNTING STANDARDS In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive Income," effective for fiscal years beginning after December 15, 1997. This Statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This Statement further requires that an entity display an amount representing total comprehensive income for the period in that financial statement. This Statement also requires that an entity classify items of other comprehensive income by their nature in a financial statement. For example, other comprehensive income may include foreign currency items and unrealized gains and losses on investments in equity securities. Reclassification of financial statements for earlier periods, provided for comparative purposes, is required. Based on current accounting standards, this Statement is not expected to have a material impact on the Company's consolidated financial statements. The Company will adopt this accounting standard effective January 1, 1998, as required. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosure About Segments of an Enterprise and Related Information," which is effective for fiscal years beginning after December 15, 1997. This statement established standards for reporting information about operating segments, and related disclosures about products and services, geographic areas and major customers. The Company has not determined the impact that the adoption of this new accounting standard will have on its consolidated financial statement disclosures. The Company will adopt this statement effective January 1, 1998, as required. Interim information is not required until the second year of application, at which time comparative information is required. 10 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 (In thousands, except share data)
1997 1996 ------------- ------------- ASSETS Current Assets: Cash and cash equivalents $ 5,486 $ 15,020 Investment securities 20,385 1,210 Accounts Receivable: Trade 62,883 74,677 Other 6,958 7,217 Less allowance for doubtful accounts (5,549) (4,378) ------------- ------------- Accounts receivable, net 64,292 77,516 Inventories 79,113 82,911 Prepaid expenses and other current assets 4,788 5,938 ------------- ------------- Total current assets 174,064 182,595 ------------- ------------- Property, plant and equipment, at cost: Land, building and improvements 46,405 49,788 Manufacturing machinery and equipment 212,300 216,760 Furniture, fixtures and equipment 8,683 9,434 Construction in progress 8,114 8,644 ------------- ------------- 275,502 284,626 Less accumulated depreciation and amortization (131,050) (132,850) ------------- ------------- Net property, plant and equipment 144,452 151,776 Goodwill, net of accumulated amortization of $3,450 and $2,645, in 1997 and 1996, respectively 28,975 31,130 Other assets, net of accumulated amortization 27,915 25,531 ------------- ------------- Total assets $ 375,406 $ 391,032 ============= =============
See accompanying notes to consolidated financial statements 11 CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) DECEMBER 31, 1997 AND 1996
(In thousands, except share data) 1997 1996 ------------ ------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Short-term borrowings $ 11,778 $ 8,633 Accounts payable - trade 43,532 44,169 Accrued liabilities: Employee compensation and benefits 17,330 18,421 Other accrued expenses 15,154 13,536 Current installments of long-term debt and Obligations under capital leases 8,513 5,080 Income taxes payable 757 1,710 Other current liabilities 7,952 12,299 ------------ ------------- Total current liabilities 105,016 103,848 Long-term debt, excluding current installments 144,942 156,373 Obligations under capital leases, excluding current installments 11,476 14,377 Deferred income taxes 4,725 3,641 Other liabilities 26,408 32,179 ------------ ------------- Total liabilities 292,567 310,418 Minority interest 14,057 11,990 Stockholders' Equity: Capital stock: First preferred stock, cumulative $25 par value. Authorized 250,000 shares; no shares issued. - - Second preferred stock, 4% non-cumulative, $100 par value. Authorized 1,535 shares; no shares issued. - - Common stock, $.25 par value. Authorized 20,000,000 shares; outstanding 3,217,355 Shares in 1997 and 3,201,035 shares in 1996. 804 800 ------------ ------------- 804 800 Additional paid-in capital 44,226 43,997 Retained earnings 29,168 21,182 Cumulative foreign currency translation adjustment (5,416) 2,645 ------------- ------------- Total stockholders' equity 68,782 68,624 Commitments and contingencies - - ------------- ------------- Total liabilities and stockholders' equity $ 375,406 $ 391,032 ============= =============
See accompanying notes to consolidated financial statements 12 CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (In thousands, except per share data)
1997 1996 1995 -------------- -------------- -------------- Net sales $ 546,284 $ 585,034 $ 614,387 Cost of sales 456,998 498,008 523,978 -------------- -------------- -------------- Gross profit 89,286 87,026 90,409 Selling, general and administrative expenses 57,799 59,528 64,906 Restructuring charges - 7,624 4,905 -------------- -------------- -------------- Operating income 31,487 19,874 20,598 Other income (expense): Interest expense, net (15,965) (19,593) (19,917) Foreign currency exchange gain (loss) 58 115 (299) Other, net (496) (397) (291) -------------- -------------- -------------- Net other expense (16,403) (19,875) (20,507) Income (loss) before provision (recovery) for income taxes, Minority interest and extraordinary item 15,084 (1) 91 Provision (recovery) for income taxes 3,850 1,245 (503) -------------- -------------- -------------- Income (loss) before minority interest and Extraordinary item 11,234 (1,246) 594 Minority interest 3,248 (1,822) (76) -------------- -------------- -------------- Income before extraordinary item 7,986 576 670 Extraordinary item, net - (6,136) (115) -------------- -------------- -------------- Net income (loss) $ 7,986 $ (5,560) $ 555 ============== ============== ============== Earnings (loss) per common share - basic: Before extraordinary item $ 2.49 $ 0.18 $ 0.21 Extraordinary item, net - (1.92) (0.04) -------------- -------------- -------------- Net earnings (loss) per common share - basic $ 2.49 $ (1.74) $ 0.17 ============== ============== ============== Earnings (loss) per common share - diluted: Before extraordinary item $ 2.41 $ 0.18 $ 0.21 Extraordinary item - (1.89) (0.04) -------------- -------------- -------------- Net earnings (loss) per common share - diluted $ 2.41 $ (1.71) $ 0.17 ============== ============== ==============
See accompanying notes to consolidated financial statements 13 CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(In thousands) 1997 1996 1995 -------------- -------------- -------------- Cash Flows From Operating Activities: Net income (loss) $ 7,986 $ (5,560) $ 555 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 18,969 32,300 34,353 Extraordinary loss on write off of capitalized Finance costs, net - 6,136 115 Minority interest 3,248 (1,822) (76) Deferred income taxes 779 (2,022) (2,805) Gain on sale of capital assets 506 722 68 Provision for doubtful accounts receivable 1,716 (769) 1,656 Changes in Assets and Liabilities: Decrease in accounts receivable, net 6,344 10,517 14,534 (Increase) decrease in other receivables (1,020) 4,007 697 (Increase) decrease in inventories (1,933) 224 (4,215) (Increase) decrease in prepaid expenses and other current assets (441) (235) 245 Decrease in intangible assets - 121 - Increase in other assets (1,933) (1,056) (1,338) (Increase) decrease in pension asset/liability (59) 182 (11,377) Increase (decrease) in accounts payable 2,089 (4,895) (9,144) Increase (decrease) in accrued liabilities 1,120 2,257 (1,021) (Decrease) increase in income taxes payable (741) 203 362 (Decrease) increase in other liabilities (4,944) 568 2,462 -------------- -------------- -------------- Net Cash Provided by Operating Activities 31,686 40,878 25,071 Cash Flows From Investing Activities: Purchase of minority interests (159) (30,715) (1,448) Proceeds from maturities of investment securities 25,834 70 2 Purchases of investment securities (45,009) (1,000) - Proceeds from sale of capital assets 667 41,813 986 Capital expenditures, net of investment grants (21,472) (33,301) (42,482) -------------- -------------- -------------- Net Cash Used in Investing Activities (40,139) (23,133) (42,942) Cash Flows From Financing Activities: Principal payments of long-term debt and Obligations under capital leases (6,101) (116,265) (14,742) Proceeds from long-term debt and obligations under Capital leases 3,077 147,836 9,164 Common stock issued 233 131 1,007 Proceeds from (repayments of) short-term borrowings 4,287 (32,866) 22,211 Dividends paid by subsidiary to minority interest (350) (71) (49) Financing fees paid (367) (5,514) - Premium on repurchase of bonds - (5,382) - -------------- -------------- -------------- Net Cash Provided by (Used in) Financing Activities 779 (12,131) 17,591 Effect of exchange rate changes on cash (1,860) 481 429 -------------- -------------- -------------- (Decrease) increase in cash and cash equivalents (9,534) 6,095 149 Cash and cash equivalents at beginning of year 15,020 8,925 8,776 -------------- -------------- -------------- Cash and cash equivalents at end of year $ 5,486 $ 15,020 $ 8,925 ============== ============== ==============
See accompanying notes to consolidated financial statements 14 CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(In thousands) Cumulative Common Stock Foreign Total ------------- Additional Currency Stock- Number Paid-in Retained Translation holders' of Shares Amount Capital Earnings Adjustment Equity --------------------------------------------------------------------------- Balances January 1, 1995 3,151 $ 788 $ 42,872 $ 26,187 $ 849 $ 70,696 Net income - - - 555 - 555 Common stock issued 45 11 996 - - 1,007 Foreign currency translation adjustment - - - - 4,040 4,040 --------------------------------------------------------------------------- Balances December 31, 1995 3,196 $ 799 $ 43,868 $ 26,742 $ 4,889 $ 76,298 Net loss - - - (5,560) - (5,560) Common stock issued 5 1 129 - - 130 Foreign currency translation adjustment - - - - (2,244) (2,244) --------------------------------------------------------------------------- Balances December 31, 1996 3,201 $ 800 $ 43,997 $ 21,182 $ 2,645 $ 68,624 Net income - - - 7,986 - 7,986 Common stock issued 16 4 229 - - 233 Foreign currency translation adjustment - - - - (8,061) (8,061) =========================================================================== Balances at December 31, 1997 3,217 $ 804 $ 44,226 $ 29,168 $(5,416) $ 68,782 ===========================================================================
See accompanying notes to consolidated financial statements 15 CONTINENTAL CAN COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (a) Pending Sale of Continental Can Company, Inc. In January 1998, Suiza Foods Corporation signed a definitive agreement to acquire the Company for stock and assumption of debt in a purchase transaction. The transaction is expected to be completed during the second quarter of 1998. Any impact of the transaction on the consolidated financial statements of the Company has not yet been determined. (b) Principles of Consolidation Continental Can Company, Inc. (the Company) through its subsidiaries, manufactures extrusion blow-molded plastic containers, metal cans, plastic films and equipment for the packaging industry, and prints and laminates flexible packaging for the food and snack food industries. The accompanying consolidated financial statements include the accounts of the Company and its majority-owned foreign and domestic subsidiaries. At December 31, 1997, the Company owned the following packaging related businesses: 64% of Ferembal S.A. (Ferembal) (see Note 2(d)), located in France which in turn owns 96% of Obalex A.S. (Obalex) (see Note 2(c)) located in the Czech Republic; 100% of Dixie Holding, Inc. and Dixie Union Geschaftsfuhrungs GmbH which own 100% of Dixie Union GmbH & Company KG (Dixie Union), located in the Federal Republic of Germany; and 84% of Plastic Containers, Inc. (PCI) (see Note 2(a)), which in turn owns 100% of Continental Plastic Containers, Inc. and Continental Caribbean Containers, Inc. (collectively, CPC). The Company also owned 49% of Onena Bolsas de Papel, S.A. (Onena), located in Spain, at December 31, 1996. In addition, the Company owns 100% of an engineering firm, Lockwood, Kessler & Bartlett, Inc. (LKB). Minority interests reflected in consolidation represent the portions of Ferembal, Obalex, and PCI not owned by the Company. After December 12, 1996, the results of Onena are presented using the equity method of accounting (see Note 2(b)). All significant intercompany balances and transactions have been eliminated in consolidation. (c) Investment Securities Investment securities at December 31, 1997 consist of held-to-maturity U.S. government obligations due within one year, certificates of deposit or Eurodollar deposits due within one year, and highly rated commercial paper. Investment securities are stated at amortized cost, which approximates market value. (d) Inventories Inventories consist principally of packaging materials, repair parts and supplies. The manufacturing inventories of PCI are stated at the lower of cost applied on the last-in, first-out (LIFO) method, which is not in excess of market. Spare parts in Ferembal were capitalized in 1997 to be consistent with the other Company subsidiaries. For the year ended December 31, 1997, the change had the effect of decreasing cost of sales by $3 million, and after adjusting for taxes and minority interest, thereby increasing net income by $1.2 million and $.37 per share basic. Inventories of the Company's other subsidiaries and the repair parts and supplies inventories of PCI and Ferembal are stated at the lower of cost applied on a first-in, first-out (FIFO) basis or market. 16 (e) Depreciation and Amortization Depreciation and amortization of property, plant and equipment are computed on a straight-line basis over the estimated useful lives of the assets, as follows: Estimated useful lives (years) ------------ Building and improvements 10 to 50 Manufacturing machinery and equipment 3 to 20 Furniture, fixtures and equipment 3 to 8 Effective January 1, 1997, the Company revised its estimates of the useful lives of certain machinery and equipment. These changes were made to better reflect the estimated periods during which these assets remain in service. For the year ended December 31, 1997, the change had the effect of decreasing depreciation expense by $4,533,000, and after adjusting for taxes and minority interest, thereby increasing net income by $2,067,000 and $.64 per share basic. Leasehold improvements are amortized over their estimated useful lives or the term of the lease, whichever is less. Provision for amortization of intangible assets is based upon the estimated useful lives of the related assets and is computed using the straight-line method. Intangible assets resulting from the acquisitions of (a) PCI consists of (i) goodwill (amortized on a straight-line basis over forty years), (ii) finance costs (amortized over periods ranging from six to ten years), and (iii) customer contracts (amortized over ten years); and (b) Ferembal consists of patents (amortized on a straight-line basis over their estimated useful lives) and goodwill (amortized on a straight-line basis over forty years). (f) Goodwill Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected periods to be benefited, generally forty years. The Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of goodwill impairment, if any, is measured based on projected undiscounted future operating cash flows using a discount rate reflecting the Company's average cost of funds. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. (g) Income Taxes The Company files a consolidated tax return for U.S. purposes for itself and its domestic subsidiaries (to the extent it owns at least 80% of such subsidiaries). Separate returns are filed for all other subsidiaries. U.S. deferred income taxes have not been provided on the unremitted earnings of the Company's foreign subsidiaries to the extent that such earnings have been invested in the business, as any taxes on dividends would be substantially offset by foreign and other tax credits. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 17 (h) Foreign Currency Translation The accounts of the Company's foreign subsidiaries have been converted to U.S. dollars utilizing SFAS No. 52 "Foreign Currency Translation," under which assets and liabilities are translated at the exchange rate in effect at the balance sheet date, while revenues, costs and expenses are translated at the average exchange rate for the reporting period. Resulting unrealized net gains or losses are recorded as a separate component of stockholders' equity. Realized foreign exchange gains or losses are reflected in operations. (i) Statement of Cash Flows Cash equivalents consist of short-term investments in government securities and bonds. The Company considers securities purchased within three months of their maturity date to be cash equivalents. Cash paid for interest and income taxes was as follows: 1997 1996 1995 ----------------------------------------------------- (in thousands) Interest $17,190 $21,265 $19,657 Income taxes $ 5,459 $ 1,955 $ 2,630 (j) Research, Development and Engineering Expenditures for research, development and engineering are expensed as incurred. Research, development and engineering costs amounted to $12,509,000, $11,495,000 and $12,187,000 in 1997, 1996 and 1995, respectively. (k) Insurance PCI purchases commercial insurance policies, but remains self-insured in certain states for the purposes of providing workers' compensation, general liability and property and casualty insurance coverage up to varying deductible amounts. PCI's self-insurance reserves are included in other liabilities on the consolidated balance sheets. Costs charged to operations for self-insurance for the years ended December 31, 1997, 1996 and 1995 were $1,784,000, $2,629,000 and $2,200,000, respectively. (l) Restructuring Charges Included in expenses in 1996 and 1995 are restructuring charges of $7,624,000 and $4,905,000, respectively. Charges relating to Ferembal amounted to $1,124,000 and $5,003,000 in 1996 and 1995, respectively. These charges include termination benefits for certain employees, approximately half of whom accepted early retirement. Terminated employees at Ferembal received $3,043,000 in 1996 and $1,882,000 in 1995. Included in other current liabilities in 1997 is $699,000 for termination benefits for the remaining employees of Ferembal, substantially, all of which is expected to be paid in 1998. In 1996, PCI recorded charges amounting to $6,500,000 for plant rationalization and realignment in connection with a plan to consolidate certain manufacturing operations. The Company closed one plant in 1996 and another plant in 1997. Production from these plants was transferred to other existing facilities. The components of the $6,500,000 charge included approximately $1,400,000 for employee severance costs, approximately $1,600,000 for an impairment loss related to fixed assets, and approximately $3,500,000 for noncancellable lease obligations and related facility closing costs. The Company remains obligated under a noncancellable operating lease at one of the facilities through June 1999. Payments made in 1997 against the accrued liability were approximately $800,000 for severance benefits and approximately $1,300,000 for other accrued charges. For the year ended December 31, 1995 a credit of $98,000 related to prior plant consolidations at PCI. 18 (m) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (n) Earnings Per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings Per Share," which the Company adopted in the fourth quarter of 1997. Under SFAS No. 128, the Company presents basic and diluted earnings per share (Note 11). Prior year earnings per share data have been restated to apply the provisions of SFAS No. 128. (o) Long-Lived Assets The Company reviews long-lived assets and certain identifiable intangibles to be held and used or disposed of for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. (p) Stock Option Plans The Company records compensation expense for employee and director stock options and warrants only if the current market price of the underlying stock exceeds the exercise price on the date of the grant. On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." The company has elected not to implement the fair value based accounting method for employee and director stock options and warrants, but has elected to disclose the pro forma net earnings and pro forma earnings per share for employee and director stock option and warrant grants made beginning in 1995 as if such method had been used to account for stock-based compensation cost. (q) Reclassifications Certain reclassifications have been made to conform prior year consolidated financial statements to the 1997 presentation. (2) ACQUISITIONS AND DISPOSALS (a) PCI In December 1996, the Company increased its interest in PCI to 84% by purchasing 34% of PCI from Merrywood, Inc. (Merrywood). In August 1996, Merrywood notified the Company of its intention to put its 50% interest in PCI to the Company for $30 million, plus interest at prime plus 1% from November 21, 1991 pursuant to an Agreement entered into in 1992. In October 1996, the Company and Merrywood entered into a new Agreement (the "1996 Agreement") pursuant to which the Company purchased 34% of PCI in December 1996 for $30 million, plus a warrant exercisable through December 31, 2000 to purchase 150,000 shares of Common Stock at the lesser of $20.00 per share or book value at December 31, 1996. The 1996 Agreement also provided that the remaining shares in PCI would be purchased by the Company prior to December 31, 2000 for approximately $15.4 million plus interest at 10%. The Company agreed to retain one of Merrywood's designees as a director of the Company and PCI. All prior agreements between the Company and Merrywood were terminated by the 1996 Agreement. The acquisition of these shares was accounted for under the purchase method with the excess of the purchase price over the fair value of the assets acquired ($17,648,000) allocated to goodwill. 19 The Company obtained the funds for such purchase from a loan of $30 million from PCI. The loan matures on June 15, 2007 and accrues interest, payable at maturity, at an annual rate of 6.9% compounded semi-annually. PCI obtained such funds through a refinancing of its existing Senior Notes (see Note 8) and a sale/leaseback financing by CPC. The sale/leaseback financing of all manufacturing and ancillary equipment at five of its facilities generated proceeds of $40,566,000 which approximated book value. The terms of the leases range from 88 to 109 months subject to CPC's option to repurchase the equipment at 78 and 83 months at a pre-established fair market value. (b) Onena On December 12, 1996, the Company sold 8% of its 57% interest in Onena to SODENA, an economic development corporation owned by the Government of Navarra, for nominal consideration. This sale reduced the Company's ownership to less than a majority of Onena's voting stock. In addition, the Company and SODENA entered into an amended shareholders' agreement which provides, among other things, that SODENA will appoint a majority of Onena's directors; that the Company's previous obligation to purchase SODENA's shares in Onena in 1999 is eliminated; and that, for nominal consideration, SODENA will have a call, and the Company a put, with regard to the Company's remaining shares in Onena. As a result of these changes, effective as of December 12, 1996, the Company had deconsolidated Onena and accounted for its investment in the common stock of Onena under the equity method. In November 1997 the Company sold its remaining 49% interest in Onena for a nominal consideration. (c) Obalex During 1997, Ferembal increased its equity interest in Obalex to 96% through the purchase of an additional 1% of Obalex for $85,000. During 1996 and 1995, Ferembal purchased an additional 9% and 22% of Obalex for $495,000 and $1,448,000, respectively. These transactions have been accounted for under the purchase method with the purchase price allocated to the fair value of the net assets acquired. (d) Ferembal As part of the 1989 purchase of Ferembal, a junior subordinated convertible bond was issued which was converted in April 1997. As a result, the Company's percentage ownership of Ferembal was reduced to 64%. In December 1997 and January 1998 the Company entered into agreements to purchase substantially all of the minority interests in Ferembal for approximately $21 million. (3) ACCOUNTS RECEIVABLE AND BUSINESS/CREDIT CONCENTRATIONS Most of the Company's customers are located in the United States and Europe. Sales to five customers in 1997, five customers in 1996 and three customers in 1995 accounted for 40%, 35% and 23% of the Company's net sales, respectively; accounts receivable from two customers at December 31, 1997 and five customers at December 31, 1996 amounted to 24% and 45%, respectively, of the Company's total accounts receivable. During 1997, 1996 and 1995, Ferembal discounted with banks approximately $63,133,000, $105,514,000 and $79,353,000, respectively, of trade accounts receivable with full recourse. Of these amounts, approximately $9,097,000 and $13,297,000 remains outstanding at December 31, 1997 and 1996, respectively. 20 The components of other accounts receivable at December 31 were as follows: 1997 1996 ---- ---- (in thousands) Recoverable value added taxes related to Ferembal $1,979 $ 983 Engineering fees billed 2,584 2,415 Cost of molds not yet billed - 588 Other taxes 387 57 Other 2,008 3,174 ------- -------- $6,958 $7,217 ======= ======== (4) INVENTORIES Inventories consist principally of packaging materials. The components of inventory at December 31 were as follows: 1997 1996 ---- ---- (in thousands) Raw materials and supplies $39,600 $40,785 Work in process 5,665 6,627 Finished goods 37,426 39,746 ------- -------- 82,691 87,158 LIFO reserve (3,578) (4,247) ------- -------- $79,113 $82,911 ======== ======= During 1996 and 1995, LIFO inventory layers were reduced. This reduction resulted in charging lower inventory costs prevailing in previous years to cost of goods sold in 1996 and 1995, thus reducing cost of goods sold by approximately $80,000 and $700,000, respectively, below the amount that would have resulted from liquidating inventory recorded at December 31, 1996 and 1995 prices. (5) DERIVATIVE FINANCIAL INSTRUMENTS The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used to manage well-defined interest rate and currency price risks. At December 31, 1997, Ferembal had an option to purchase 160,000 pounds sterling at 9.61 french francs to the pound sterling. The amount under option relates to purchase obligations of Ferembal in pounds sterling. At December 31, 1997, Ferembal had entered into several short-term interest rate hedge agreements in which it has exchanged an obligation to pay variable interest rates based on three-month Paris Inter-Bank Offering Rates (PIBOR) for fixed rates ranging from 3.56% to 3.91%. These agreements cover the period between March 1998 and December 1998 for principal amounts between $6.6 million and $16.7 million. At December 31, 1997, PIBOR was between 3.81% and 3.99%. The fair value of these agreements at December 31, 1997 was an unrecognized gain of $35,500. This positive fair value reflects the difference between the interest rates in effect for such agreements and the rates that could have been obtained on December 31, 1997 based on the principal amounts over the period covered. 21 (6) OTHER ASSETS The components of other assets at December 31, were as follows: 1997 1996 ------ ----- (in thousands) Intangibles: Financing and acquisition costs $ 6,228 $ 5,861 Customer contracts 7,630 7,630 Prefunded pension 5,030 4,971 Deferred tax assets 7,614 5,359 Non-current receivables, principally VAT 850 1,081 Other 7,721 5,929 ------- ------- 35,073 30,831 Less accumulated amortization of intangibles 7,158 5,300 ------- ------- $27,915 $25,531 ======= ======= (7) SHORT-TERM BORROWINGS At December 31, 1997 and 1996, approximately $11,778,000 and $8,633,000, respectively, were outstanding representing at December 31, 1997 amounts drawn by (a) LKB ($650,000 at an interest rate of 9.25%) (b) Ferembal, including Obalex, ($8,843,000 at interest rates ranging from 5.46% to 14.95%) and (c) Dixie Union ($2,285,000 at interest rates ranging from 6.25% to 8.75%). LKB's borrowings are pursuant to a Revolving Credit Facility which provides for borrowings up to $2.5 million. A commitment fee of 0.5% is payable on the unused portion of the facility. The facility is secured by the receivables of LKB and a $1.3 million mortgage on LKB's headquarters in Syosset, NY. At December 31, 1997, Ferembal had unutilized short-term unsecured borrowing agreements of approximately $18.9 million. At December 31, 1997, Dixie Union had total lines of credit available under short-term unsecured borrowing agreements of approximately $8.6 million. PCI has a $50 million revolving credit facility with a commercial bank with interest on individual borrowings based on the bank's prime rate or LIBOR, at PCI's option. Borrowings are secured by accounts receivable and inventories. At December 31, 1997, there were no borrowings outstanding under this facility. PCI is required to pay an annual commitment fee of 0.25% on the unused facility up to $25 million and 0.5% on the unused amount in excess of $25 million. Commitment fees for the years ended December 31, 1997, 1996 and 1995 were $167,000, $104,000 and $23,000, respectively. The facility contains certain restrictive covenants, including the maintenance of minimum levels of net worth, fixed charge coverage and interest coverage, limitations on capital expenditures and additional indebtedness, and restrictions on the payment of dividends. At December 31, 1997, PCI was in compliance with these covenants. The facility also provides for the issuance of letters of credit by the bank on PCI's behalf. At December 31, 1997, letters of credit amounting to $4,610,000 had been issued to guarantee obligations carried on PCI's consolidated balance sheet. The extraordinary loss of $115,000 in 1995, which is net of the portion attributable to minority interest, relates to the write-off of unamortized fees for a prior revolving credit agreement. 22 (8) LONG-TERM DEBT, CAPITAL LEASES AND OTHER LONG-TERM LIABILITIES Long-term debt, and capital leases and other long term liabilities as of December 31 are summarized as follows:
1997 1996 ------- ------ (in thousands) 10% Senior Secured Notes due 2006 (a).............................................. $125,000 $125,000 Term loan payable by Ferembal through 1997 at 10.25% (denominated in francs: 2 million at December 31, 1996)............................ - 385 Notes payable by Ferembal in installments through 1997 at PIBOR (3.43% at December 31, 1996) plus 0.6% to 0.75% (denominated in francs: 4.2 million at December 31, 1996).......................... - 814 Notes payable by Ferembal in installments through 2001 at PIBOR plus 0.55% to 0.6% (denominated in francs: 70 million and 75 million at December 31, 1997 and 1996)..................................................... 11,666 14,449 Term loans payable by Ferembal through 2001 at weighted average interest rates of 10% and a range of 8.5% to 15.5% (denominated in francs: 8.0 million and 11.1 million at December 31, 1997 and 1996, respectively)......................................... 2,731 2,139 Convertible Subordinated Bond due 2000 at PIBOR (denominated in francs: 10 million at December 31, 1996) (b).................................... - 1,927 Term loans payable through 1999 at rates of 13% (denominated in Czech crowns: 4.9 million at December 31,1996)..................... - 184 Obligations under capital leases (c)............................................... 14,266 17,029 Notes payable by Dixie Union at 5.5% to 6.25% (denominated in deutsch marks: 16 million for December 31, 1997 and 1996).......................... 8,939 10,390 Notes payable by Dixie Union in semi-annual installments through 2003 at rates of 7.3% to 7.78% (denominated in deutsch marks: 4.2 million and 5.4 million at December 31, 1997 and 1996, respectively)............................................................ 2,329 3,513 -------- --------- 164,931 175,830 Less current installments.......................................................... (8,513) (5,080) -------- --------- $156,418 $170,750 ======== =========
(a) In 1996, PCI completed an offering of 10% Senior Secured Notes due 2006, (the "Senior Secured Notes"), payable semi-annually on July 15th and December 15th, are secured by all the issued stock of CPC and substantially all the assets and properties owned by PCI other than inventory, receivables and certain equipment securing capital lease obligations. The Senior Secured Notes are not redeemable by PCI prior to December 15, 2001. On or after that date the notes are redeemable, in whole or in part, at the option of PCI at an initial price of 105% of par declining ratably per annum, to par on December 15, 2004. In the event of a change of control as defined in the indenture, PCI is obligated to offer to purchase all outstanding Senior Secured Notes at a redemption price of 101% of the principal amount thereof plus accrued interest. In addition, PCI is obligated in certain instances to offer to purchase Senior Secured Notes at a redemption price of 100% of the principal 23 amount thereof plus accrued interest with the net cash proceeds of certain sales or dispositions of assets. The indenture places certain restrictions on payment of dividends, additional liens, disposition of the proceeds from asset sales, sale/leaseback transactions and additional borrowings. At December 31, 1997, PCI was in compliance with these restrictions. The extraordinary loss of $6,136,000 in 1996, (which is net of the portion attributable to minority interest) relates to the early extinguishment by PCI of a portion of the 10-3/4% Senior Secured Notes due in 2001. (b) In 1989, Ferembal issued a subordinated bond convertible into 100,000 shares of capital stock at the option of the holder which was converted in April 1997. As a result the Company's ownership interest in Ferembal decreased to 64%. (c) The capital lease obligations represent lease payments due through 2004 which are capitalized. The following is a schedule of future minimum lease payments under the capitalized leases together with the present value of the net minimum lease payments as of December 31, 1997: Fiscal Year (in thousands) ----------------------------------------- 1998 $ 3,653 1999 3,320 2000 2,783 2001 2,692 2002 1,896 Thereafter 2,867 Total minimum lease payments 17,211 Less amount representing interest (2,945) Present value of net minimum lease payments, including current maturities, with interest rates ranging from 5.8% to 10.6% $14,266 ======= ----------------------------------------------------------- Maturities of long-term debt are as follows: Year Ending December 31 (in thousands) --------------------------------------------------------------- 1998 $ 5,723 1999 10,394 2000 4,284 2001 5,096 2002 84 Later Years 125,084 -------- $150,665 ======== Other long-term liabilities at December 31, 1997 primarily include pension and profit sharing amounts related to PCI and Ferembal of $3,889,000 ($4,710,000 at December 31, 1996), self-insurance reserves at PCI of $8,896,000 ($9,638,000 at December 31, 1996), and accrued postretirement benefits at PCI of $6,346,000 ($6,298,000 at December 31, 1996). 24 (9) INCOME TAXES The components of the provision (recovery) for income taxes for the years ended December 31, 1997, 1996 and 1995 are as follows:
1997 1996 1995 ------ ------ ----- (in thousands) Current - Federal $ 400 $ - $ 145 - Foreign 2,632 3,247 2,075 - State 39 20 82 ------- -------- ------- Total Current 3,071 3,267 2,302 ------- -------- ------- Deferred - Federal (705) (1,746) (2,569) - Foreign 1,779 (126) (73) - State (295) (150) (163) ------- -------- ------- Total Deferred 779 (2,022) (2,805) ------- --------- -------- Provision (recovery) for income taxes $3,850 $ 1,245 $ (503) ======= ======== ========
The income tax provision (recovery) differed from the provision (benefit) that would result from applying the U.S. Federal statutory income tax rate to income before provision (recovery) for income taxes, minority interest, and extraordinary item as a result of the following:
1997 1996 1995 ---- ---- ---- (in thousands, except for percentage amounts) AMOUNT % Amount % Amount % ------ --- ------ --- ------ --- Provision at U.S. federal statutory rate $5,128 34.0 $ - * $ 31 34.0 Losses not providing tax benefits - - 5,414 * - - Change in valuation allowance allocated to operations (2,343) (15.4) (4,154) * (383) (420.9) State and local income taxes, net of federal income tax benefit 170 1.1 (86) * (53) (58.2) Differential in foreign tax rates 311 2.1 (11) * (247) (271.4) Other 584 3.7 82 * 149 163.8 -------- ---- --------- ------ ------- Provision (recovery) for income taxes $3,850 25.5 $1,245 * $(503) (552.7) ======== ==== ========= ====== =======
*Percentages not meaningful The significant components of deferred income tax (recovery) expense attributable to income from continuing operations for the years ended December 31 are as follows:
1997 1996 1995 ---- ---- ---- (in thousands) Deferred tax expense (recovery) (exclusive of the effects of other components below) $1,413 $(2,366) $ (844) Benefit of operating loss carryforwards - 8,643 (5,922) Book over tax basis of principally fixed assets 988 (6,104) 109 Pension and postretirement benefits reserves 698 (450) 2,277 Prefunded pension 23 (74) 1,958 Decrease in valuation allowance for deferred tax assets (2,343) (1,671) (383) ------- --------- --------- $ 779 $(2,022) $(2,805) ========= ======== ========
25 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 are presented below:
1997 1996 ---- ---- Deferred tax assets: (in thousands) Net operating loss carryforwards $18,811 $18,811 Vacation pay, due to accrual for financial reporting purposes 1,060 1,131 Restructuring 758 2,437 Self-insurance reserves 3,730 4,012 Pension and postretirement benefit reserves 3,069 3,767 Stock options, due to accrual for financial reporting purposes 349 349 Accounts Receivable principally due to allowance for doubtful accounts 14 1,671 Other 5,296 2,747 ------- --------- Total gross deferred tax assets 33,087 34,925 Less valuation allowance (7,027) (9,370) ------- ---------- Net deferred tax assets 26,060 25,555 ------- ------ Deferred tax liabilities: Taxable gain on merger 1,423 2,169 Book over tax basis of principally fixed assets 16,595 15,607 Prefunded pension 1,907 1,884 Other 599 429 ------- --------- Total gross deferred tax liabilities 20,524 20,089 ------- --------- Net deferred tax asset $ 5,536 $ 5,466 ========= ========
The valuation allowance for deferred tax assets as of January 1, 1997 and 1996 was $9,370,000 and $11,041,000, respectively. The net change in the total valuation allowance for the years ended December 31, 1997 and 1996 was a decrease of $2,343,000 and $1,671,000, respectively. Due to different tax jurisdictions of the Company's subsidiaries, net deferred tax assets of $5,536,000 and $5,466,000 at December 31, 1997 and 1996, respectively, shown above are reflected in the consolidated balance sheets as:
1997 1996 ------ ----- (in thousands) Current deferred tax assets (included in prepaid expenses and other current assets) $2,647 $3,748 Non-current deferred tax assets (included in other assets) 7,614 5,359 ------ ------- 10,261 9,107 Non-current deferred tax liabilities 4,725 3,641 ------ ------- Net deferred tax asset $5,536 $5,466 ======= ======
At December 31, 1997, PCI has operating loss carryforwards for Federal income tax purposes of approximately $50 million, which are available to offset future Federal taxable income through 2010. In addition, PCI has alternative minimum tax credit carryforwards of approximately $132,000 which are available to reduce future Federal regular income taxes over an indefinite period and research and experimentation credits of approximately $342,000 available to reduce Federal income taxes through 2010. Based upon the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies, management believes it is more likely than not that PCI will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 1997. 26 (10) COMMON STOCK (a) Stock Options The Company has three plans pursuant to which stock options may be granted. The 1988 Restricted Stock Option Plan, as amended (the Restricted Plan), provides for grants of options to purchase up to 500,000 shares of authorized but unissued common stock at an exercise price determined by the Personnel Committee of the Board of Directors (the Committee) but not less than $1.00 per share. The Committee may determine the exercise period of the option up to a maximum of twenty years from the date of the grant and may determine a restricted period during which any portion of the option may not be exercised. At December 31, 1997, there was 70,000 shares available for grant under the Restricted Plan. The per share weighted-average fair value of stock options granted under the Restricted Plan during 1997, 1996 and 1995 was $1.43, $7.07 and $11.02, respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 1997 1996 1995 ---- ---- ---- Expected dividend yield 0 0 0 Risk free interest rate 6.2% 5.5% 7.21% Expected life 3 YEARS 5 years 5 years Stock option activity under the Restricted Plan for the periods shown is as follows: WEIGHTED AVERAGE SHARES* EXERCISE PRICE Outstanding at 12-31-94 472,800 $19.64 Granted 25,000 $24.50 Forfeited (57,200) $23.03 Expired (1,300) $26.75 -------- Outstanding at 12-31-95 439,300 $19.45 Granted 37,500 $16.82 Forfeited (9,100) $23.18 Expired (10,800) $26.75 --------- Outstanding at 12-31-96 456,900 $18.98 Granted 197,500 $18.23 Forfeited (202,499) $23.98 Expired (19,900) $25.74 Exercised (2,000) $16.88 ------- Outstanding at 12-31-97 430,001 $15.87 ======== *No options were exercised under the Restricted Plan in 1996 or 1995. The 1988 Director Stock Option Plan, as amended (the Retainer Plan), provides for the grant of stock options to purchase up to 50,000 shares of authorized but unissued common stock to directors that elect to receive a stock option in lieu of cash as an annual retainer and for attendance fees. Each electing director will receive an option equal to the nearest number of whole shares determined by dividing the annual retainer plus attendance fees by the fair market value of the stock less one dollar. The option price is one dollar per share and an option may not be exercised prior to the first anniversary of the date it was granted nor more than ten years after such date. At December 31, 1997, there were 29,230 shares available for grant under the Retainer Plan. The per share weighted-average fair value of stock options granted under the Restricted Plan during 1997, 1996 and 1995, respectively, was $0.17, $0.17 and $0.30 on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 27 1997 1996 1995 ---- ---- ---- Expected dividend yield 0 0 0 Risk free interest rate 6.36% 6.46% 5.76% Expected life 3 YEARS 3 years 3 years Stock option activity under the Retainer Plan for the periods shown is as follows: WEIGHTED AVERAGE SHARES* EXERCISE PRICE Outstanding at 12-31-94 12,702 $1.00 Granted 2,791 $1.00 Exercised - $1.00 - Outstanding at 12-31-95 15,493 $1.00 Granted 6,644 $1.00 Exercised (1,367) $1.00 ------- Outstanding at 12-31-96 20,770 $1.00 Granted 4,218 $1.00 Exercised (3,920) $1.00 ------- Outstanding at 12-31-97 21,068 $1.00 ======= *No options were forfeited or expired under the Retainer Plan in 1997, 1996 or 1995. The 1990 Stock Option Plan for Non-Employee Directors (the Director Plan) provides for grant of options to purchase up to 200,000 shares of authorized but unissued common stock to directors who are not employees of the Company or its subsidiaries. The Director Plan is administered by a Board Committee. The Director Plan provides for the grant to each non-employee director, at the commencement of his initial term, of an option to purchase up to 10,000 shares of Common Stock at a price equal to the fair market value of a share of Common Stock on the date of the grant. The options become exercisable as to one-tenth of the shares subject to option on the date of the grant and on the nine successive anniversaries of such date. The term of the options is ten years provided that any option holder who ceases to be a member of the Board of Directors forfeits any part of the option grant which has not become exercisable as of such date. There are 125,000 shares available for grant under the Director Plan. The per share weighted average fair value of stock options granted under the plan during 1997 was $8.90. Stock option activity under the Director Plan for the periods shown is as follows: WEIGHTED AVERAGE SHARES* EXERCISE PRICE Outstanding at 12-31-94 95,000 $17.11 Forfeited (9,000) $17.28 Expired (5,000) $17.00 -------- Outstanding at 12-31-95 81,000 $17.09 Forfeited - - Expired (11,000) $17.23 --------- Outstanding at 12-31-96 70,000 $17.07 Granted 10,000 $20.69 Forfeited or expired - - Exercised (5,000) $17.00 ------- Outstanding at 12-31-97 75,000 $17.56 ======= *No options were granted or exercised under the Director Plan in 1996 or 1995. 28 Some options, which are not pursuant to any plan, have been granted. At December 31, 1997 a total of 85,000 shares were subject to such options at exercise prices ranging from $2.94 to $25.75 per share, which represented the fair market value of a share of the Company's stock on the date each of such options was granted. These options expire between 2002 and 2004. In 1995, options to purchase 10,000 shares of Common Stock at a price of $17.00 per share were exercised. The Company applies APB Opinion No. 25 in accounting for its plans and, accordingly, no compensation cost has been recognized in the financial statements for stock options which are issued at or above the fair market value of a share of the Company's common stock on the date of the grant. Compensation expense is charged for the difference between the option price and the fair market value of a share of Common Stock with regard to discounted stock options. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income would have been reduced to the pro forma amounts indicated below:
1997 1996 1995 ---- ---- ---- Net Income (Loss) As reported $7,986,000 $(5,560,000) $555,000 Pro forma $7,366,000 $(5,631,000) $484,000 Net Earnings (Loss) per Share - basic As reported $2.49 $(1.74) $ .18 - diluted Pro forma $2.29 $(1.76) $ .14 As reported $2.41 $(1.71) $ .17 Pro forma $2.22 $(1.73) $ .15
Pro forma net income (loss) reflects only options granted in 1997, 1996 and 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income (loss) amounts presented above because compensation cost is reflected over the options' vesting period of one to five years and compensation cost for options granted prior to January 1, 1995 is not considered. (b) Stock Grants The Company has two plans pursuant to which restricted stock grants may be made. Pursuant to the 1992 Restricted Stock Plan for Non-Employee Directors (the "1992 Plan"), each non-employee director of the Company receives an annual award of 600 shares of Company Common Stock. Such shares are restricted from transfer while such recipient remains a member of the Board of Directors and the shares are subject to forfeiture under certain circumstances including failure to stand for re-election prior to age 70. The Company issued 4,800, 3,300 and 3,900 shares under the 1992 Plan for the 1997, 1996, and 1995 plan years, respectively. The Company has charged to expense $39,000 in 1997, $51,975 in 1996 and $93,113 in 1995 for shares which were issued. The 1995 Restricted Stock Compensation Plan (the "1995 Plan") provides for the issuance of restricted shares to key employees of the Company. During 1995, the Chairman was granted 8,163 shares under the 1995 Plan in lieu of a cash bonus of $200,000. Such amount was charged to compensation expense in 1994. Also in 1995, the Chairman and five other employees received a total of 21,740 shares under the 1995 Plan. All such shares vest five years after the date of the grant subject to the continued employment of the recipients by the Company or its subsidiaries. The amount charged to compensation expense for these shares was $106,526 in 1997, $106,526 in 1996 and $88,772 in 1995. 29 (11) EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
1997 1996 1995 ---- ---- ---- IN THOUSANDS, EXCEPT SHARE PER DATA Income Shares Income Shares Income Shares Numerator Denominator Numerator Denominator Numerator Denominator --------- ----------- --------- ----------- --------- ----------- Basic EPS: Net Income (loss) $7,986 3,210 ($5,560) 3,200 $555 3,167 Effect of dilutive: Options and warrants 102(1) 52(2) 91(3) ---------------- -------------- ----------------- Diluted EPS: Net Income and Assumed conversions $7,986 3,312 ($5,560) 3,252 $555 3,257
(1) Options to purchase 50,000 shares of common stock at a weighted average price of $24.44 per share were outstanding as of December 31, 1997, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the shares. (2) Options to purchase 495,900 shares of common stock at a weighted average price of $21.10 per share were outstanding as of December 31, 1996, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the shares. (3) Options to purchase 268,300 shares of common stock at a weighted average price of $25.19 per share were outstanding as of December 31, 1995, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the shares. (12) PENSION, PROFIT SHARING AND OTHER PLANS PCI maintains a defined benefit pension plan for substantially all salaried employees. Plan benefits are based on all years of continuous service and the employee's compensation during the highest five continuous years of the last ten years of employment, minus a profit-sharing annuity. The profit-sharing annuity is based on the amount of profit-sharing contributions received for 1988 through 1992. Any employee who terminated employment prior to August 31, 1993 is governed by the terms of the plan in effect at the time the termination occurred. PCI maintains a noncontributory defined benefit pension plan for substantially all hourly workers hired prior to August 1, 1997 who have attained 21 years of age. Plan benefits are variable by location/contract but are based primarily on years of service and the employee's highest wage classification for twelve consecutive months in the five years prior to retirement. "Normal" retirement is at age 65, with at least five years of continuous service. However, employees may retire as early as age 55 and receive reduced benefits. Subject to the limitation on deductibility imposed by Federal income tax laws, PCI's policy has been to contribute funds to the plans annually in amounts required to maintain sufficient plan assets to provide for accrued benefits. Plan assets are held in a master trust and are comprised primarily of common stock, corporate bonds and U.S. Government and government agency obligations. 30 The following table sets forth the plans' funded status at December 31, 1997 and 1996 based primarily on January 1, 1997 participant data and plan assets:
1997 1996 ----------- ---------- (in thousands) Actuarial present value of benefit obligation, including vested benefits of $32,167 and $22,612 in 1997 and $30,280 and $20,372 in 1996 for the salaried and hourly plans, respectively $(59,092) $(54,478) ========= ========= Projected benefit obligation (PBO) (60,921) (56,582) Plan assets, at fair value 62,787 58,898 Unrecognized net loss 3,474 2,820 Prior service cost not yet recognized in net periodic pension cost (310) (165) -------- --------- Prefunded pension asset $ 5,030 $ 4,971 ======== =========
Net periodic pension costs under the above mentioned PCI plans included the following components for the years ended December 31, 1997, 1996 and 1995:
1997 1996 1995 -------- -------- ------ (in thousands) Service cost $1,208 $1,362 $ 992 Interest cost 4,246 4,001 4,002 (Return) loss on plan assets (8,976) (8,505) (6,292) Net amortization and deferral 3,919 3,897 2,922 ------ ------- ------ Net periodic pension costs $ 397 $ 755 $1.624 ====== ======= ======
PCI contributions to the plans for the years ended December 31, 1997, 1996 and 1995 were $456,000, $573,000 and $12,800,000, respectively.
Assumptions used in the accounting were: As of December 31, ------------------------------------ 1997 1996 1995 ---- ---- ---- Discount rates 7.35% 7.75% 7.50% Rates of increase in compensation levels 5.00% 5.00% 5.00% Expected long-term rate on return on assets 9.50% 9.50% 9.50%
PCI contributes to various union pension plans pursuant to its labor agreements. Union benefit plan expense was $1,013,000, $1,083,000 and $1,080,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Ferembal provides retirement benefits pursuant to an industry-wide labor agreement. Costs charged (income credited) to operations amounted to $267,000, $144,110 and ($213,000) in 1997, 1996 and 1995, respectively. The liability related to this agreement was transferred to an insurance company in 1997. Other non-current liabilities at December 31, 1996 include $1,730,000, for this plan. Ferembal also provides an employee profit-sharing plan, the annual contributions to which are determined by a prescribed formula. Amounts charged to expense amounted to $460,000, $590,000 and $86,000 in 1997, 1996 and 1995, respectively. Amounts are paid to employees after five years with accrued interest. Other non-current liabilities at December 31, 1997 include $2,445,000 ($2,980,000, at December 31, 1996) for the plan. Dixie Union provides selected managers with pension and disability benefits. Amounts charged to expense amounted to $107,000, $183,000 and $192,000 in 1997, 1996 and 1995, respectively. PCI maintains a defined contribution plan which covers substantially all hourly employees who meet eligibility requirements. Provisions regarding employee and employer contributions and the benefits provided under the plan vary between PCI's manufacturing facilities. PCI's defined contribution plan's expense was $302,000, $303,000 and $292,000 for the years ended December 31, 1997, 1996 and 1995, respectively. 31 PCI maintains a contributory defined contribution 401(k) savings plan which covers substantially all non-organized salaried employees. Employees may contribute up to twelve and eight percent of pay on a pre-tax and after-tax basis, respectively. However, the total employee contribution rate may not exceed fifteen percent of pay. PCI matches up to three percent of employees' pre-tax contributions. Employees vest in PCI's contributions at twenty-five percent per year, becoming fully vested after four years of employment. Employees may make withdrawals from the plan prior to attaining age 59-1/2, subject to certain penalties. PCI's savings plan expense was $570,000, $553,000 and $518,000 for the years ended December 31, 1997, 1996 and 1995, respectively. (13) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND POSTEMPLOYMENT BENEFITS PCI provides certain health care and life insurance benefits for retired PCI employees. Certain of PCI's hourly and salaried employees become eligible for these benefits when they become eligible for an immediate pension under a formal company pension plan. In 1993, the plan was amended to eliminate health care benefits for employees hired after January 1, 1993. PCI's policy is to fund the cost of medical benefits in amounts determined at the discretion of management. Summary information on PCI's plan at December 31, 1997 and 1996 is as follows:
1997 1996 ---- ---- (in thousands) Accumulated postretirement benefit obligation: Retirees $2,730 $2,895 Fully eligible, active plan participants 816 740 Other active plan participants 1,713 1,472 ------- ------ 5,259 5,107 Unrecognized net gain from experience and changes in assumptions 723 793 Prior service cost in net periodic postretirement benefit cost 364 398 --------- ------- Accrued postretirement benefit obligation (included in other liabilities) $6,346 $6,298 ======== ======
The components of net periodic postretirement benefit cost at December 31, 1997, 1996 and 1995 are as follows:
1997 1996 1995 ---- ---- ---- (in thousands) Service cost $ 83 $ 87 $ 52 Interest cost 380 447 480 Net amortization and deferral (53) (34) (34) ---- ------ ----- Net periodic postretirement benefit cost $410 $500 $ 498 ===== ===== =====
For measurement purposes, a 8.24% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) was assumed for 1997; the rate was assumed to decrease gradually to 5.0% by the year 2001 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1997 by $416,000 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 1997 by $39,000. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.35% and 7.75% at December 31, 1997 and 1996, respectively. PCI provides certain postemployment benefits to former and inactive employees, their beneficiaries and covered dependents. These benefits include disability related benefits, continuation of health care benefits and life insurance coverage. Additional costs charged to operations for postemployment benefits in 1997, 1996 and 1995 were $57,000, $38,000 and $24,000, respectively. 32 (14) EXECUTIVE COMPENSATION The Company entered into employment agreements with its Chairman and former Vice-Chairman. The Company is a party to an employment agreement with the Chairman of the Board, which expires on May 17, 2006, pursuant to which his annual salary is to be not less than $420,000. The employment agreement provides that in the event of his death prior to May 17, 2006, his spouse will continue to receive one-half of his salary until her death. In the event of a change of control of the Company, as defined in his employment agreement, the Chairman will have the right, for a period of five years, to deem his employment terminated and to receive a payment equal to three times his average annual compensation during the five preceding years. The contract with the former Vice Chairman, who died in January 1989, provided that in the event of his death prior to its expiration on December 31, 1998, his spouse would receive one-half of the amounts which would otherwise have been paid to him until her death or until December 31, 1998, whichever occurs first. This obligation which amounted to $67,500 and $135,000 at December 31, 1997 and 1996, respectively, is included in accrued liabilities. (15) NET INTEREST EXPENSE The details of net interest expense are as follows: 1997 1996 1995 -------- -------- ------ (in thousands) Interest income $ 2,358 $ 730 $ 759 Interest expense (18,323) (20,323) (20,676) -------- --------- --------- Interest expense, net $(15,965) $(19,593) $(19,917) ========= ========= ========= (16) FOREIGN AND DOMESTIC OPERATIONS The Company performs services principally in the packaging industry. Manufacturing operations are performed domestically through PCI, whereas manufacturing operations are performed overseas in Europe through Ferembal, Obalex and Dixie Union. Information about the Company's foreign and domestic operations is as follows.
1997 1996 1995 ---- ---- ---- (in thousands) Net sales to unaffiliated customers: Foreign $250,602 $302,331 $318,917 Domestic 295,682 282,703 295,470 ------- -------- -------- Total $546,284 $585,034 $614,387 ======== ======== ======== Income (loss) before provision (recovery) for income taxes, minority interest and extraordinary item: Foreign $11,573 $ 6,616 $ 3,937 Domestic 3,511 (6,617) (3,846) -------- -------- -------- Total $15,084 $ (1) $ 91 ======= ======== ======== Identifiable assets: Foreign $164,763 $179,833 $220,740 Domestic 210,643 211,199 224,671 --------- -------- -------- Total $375,406 $391,032 $445,411 ======== ======== ========
The above income (loss) includes restructuring charges of $7,624,000 and $4,905,000 for 1996 and 1995 (see Note 1(l)). 33 (17) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents, investment securities, derivative financial instruments, accounts receivable, other current assets, accounts payable and short-term borrowings approximate fair value because of the short maturity of these instruments. The fair value of the Company's long-term debt is estimated, based on the quoted market prices for the same or similar issues, or on the current rates offered to the Company for debt of the same remaining maturities, and approximates the carrying amount. (18) COMMITMENTS AND CONTINGENCIES The Company and its subsidiaries occupy offices and use equipment under various lease arrangements. The rent expense under non-cancellable long-term operating leases for the years ended December 31, 1997, 1996 and 1995 was approximately $13,932,000, $8,681,000 and $7,131,000, respectively. Total commitments under such arrangements are payable in annual installments of $14,112,000 in 1998, $13,579,000 in 1999, $12,963,000 in 2000, $11,860,000 in 2001, $31,557,000 in 2002 and thereafter. The Company also rents certain equipment and facilities on a month-to-month basis or through short-term leases. The rent expense under such arrangements amounted to approximately $1,201,000 in 1997, $1,321,000 in 1996 and $1,277,000 in 1995. The Company's subsidiaries are defendants in several actions which arose in the normal course of business and, in the opinion of management, the eventual outcome of these actions will not have a material adverse effect on the Company's consolidated financial statements. (19) QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for 1997 and 1996 (in thousands, except per share amounts) is as follows:
1st 2nd 3rd 4th 1997 Quarter Quarter Quarter Quarter - ---- ------- ------- ------- ------- Net Sales $122,610 $138,461 $153,294 $131,919 Gross Profit 19,848 23,624 23,763 22,051 Net Income 1,080 2,527 3,746 633 Net Earnings Per Common Share - Basic .34 .79 1.17 .20 - Diluted $ .33 $ .77 $ 1.12 $ .19
1st 2nd 3rd 4th 1996 Quarter Quarter Quarter Quarter - ---- ------- ------- ------- ------- Net Sales $131,382 $141,263 $170,882 $141,507 Gross Profit 18,861 21,525 28,160 18,480 (Loss) Income Before Extraordinary Item (441) 181 2,642 (1,806) Net (Loss) Income (441) 181 2,642 (7,942) (Loss) Earnings Per Share Before Extraordinary Item - Basic (.14) .06 .83 (.56) - Diluted (.14) .06 .81 (.56) Net (Loss) Earnings Per Common Share - Basic (.14) .06 .83 (2.48) - Diluted $ (.14) $ .06 $ .81 $ (2.44)
Since per share information is computed independently for each quarter and the full year, based on the respective average number of common and common equivalent shares outstanding, the sum of the quarterly per share amounts does not necessarily equal the per share amounts for each year. 34 INDEPENDENT AUDITORS' REPORT THE BOARD OF DIRECTORS AND STOCKHOLDERS CONTINENTAL CAN COMPANY, INC. We have audited the consolidated balance sheets of Continental Can Company, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Continental Can Company, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Jericho, New York March 5, 1998 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in nor disagreements with the Company's accountants on accounting and financial disclosure during the twenty-four month period ended December 31, 1997. 35 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Year First Became Name and Age Employment Experience a Director - ------------ --------------------- ----------- Donald J. Bainton(1) Chairman of the Board of Directors and Chief Executive Officer of the 1983 66 Company. Mr. Bainton is also a director of Plastic Containers, Inc. ("PCI"), a subsidiary of the Company. Robert L. Bainton(1) Vice Chairman of the Board of Directors. Prior to his retirement in 1991, Mr. 1988 70 Bainton was President and sole shareholder of B & B Beverage Company, a wholesale distributor of wine and malt alcoholic beverages in New Jersey. Kenneth O. Bainton(1) Partner of The Kouzmanoff Partnership, Architects, in New York City. 1990 41 Nils E. Benson Prior to his retirement in 1989, Mr. Benson was President of Penn Elastic 1989 74 Company, a manufacturer of apparel textiles. Charles DiGiovanna Chief Executive Officer and President of Continental Plastic Containers, Inc. 1995 57 and Continental Caribbean Containers, Inc., subsidiaries of PCI, since 1992. Mr. DiGiovanna is a director of PCI and Home Port Bancorp, Inc. Rainer N. Greeven Partner of the law firm of Greeven & Ercklentz, New York, N.Y. Mr. Greeven 1972 61 is a director of Smith Barney World Funds, Inc. and Smith Barney/Travelers Series Funds, Inc. V. Henry O'Neill Private investor. 1987(2) 73 John J. Serrell Prior to his retirement, Mr. Serrell was President of Kinetic Development, 1981 82 Inc., an engineering development company. During the last five years, Mr. Serrell has also devoted a portion of his time to activities as an independent business consultant. Robert A. Utting President of R.A. Utting & Associates, Inc., a business consulting firm. 1983 74 Prior to his retirement, in 1986, Mr. Utting served as Vice Chairman of The Royal Bank of Canada. Alexander E. Watson Chairman of the Padiham Group Ltd., John Hampden Press Ltd., and a 1997 60 director of Thomas Lockes plc. and R.H. Lowe plc. Abdo Yazgi Executive Vice President, Chief Administrative Officer and Assistant 1991(3) 45 Secretary of the Company. Mr. Yazgi is a director of PCI. Jose Luis Zapata Director of Corporate Finance of Taenza, S.A. de C.V., since 1989. Mr. 1992 38 Zapata is a director of Plastic Containers, Inc.
(1) Donald and Robert Bainton are brothers and Kenneth Bainton is their nephew. (2) Mr. O'Neill previously served as a director of the Company from 1982 to 1986. (3) Mr. Yazgi previously served as a director of the Company from 1980 to 1984. 36 On November 15, 1995, Mr. D. Bainton settled a civil enforcement proceeding commenced by the Securities and Exchange Commission in the U.S. District Court for the Southern District of New York. This proceeding arose out of the sale by a business associate of Mr. Bainton of shares of the Company's common stock. Without admitting or denying the Commission's allegations, Mr. Bainton agreed to pay a civil penalty of $30,000 and consented to the entry of an order permanently enjoining him from violating the federal securities laws. The Board of Directors of the Company met five times in 1997. Mr. Zapata attended fewer than 75% of the Board and committee meetings held in 1997. The Board of Directors has a standing Personnel Committee which determines the compensation of the Company's officers and other matters relating to executive personnel. The members of the Personnel Committee are Messrs. O'Neill (Chairman), R. Bainton and Serrell. The Personnel Committee met twice in 1997. The Board of Directors has a standing Audit Committee which consults with the Company's independent auditors, and reviews the audit report and the adequacy of internal financial controls. The members of the Audit Committee are Messrs. Greeven, (Chairman), Benson and Zapata. The Audit Committee met once in 1997. The Board of Directors has a standing Nominating Committee which recommends to the Board nominees for Board membership, including committee assignments, organization and composition. The members of the Nominating Committee are Messrs. D. Bainton (Chairman), K. Bainton, Yazgi and Utting. The Nominating Committee will not consider nominees recommended by security holders. Executive officers of the registrant include Messrs. Donald J. Bainton and Abdo Yazgi who are also directors of the registrant and for whom information required by this item is included above. Information for other executive officers, is as follows:
Term of Year First Name and Age Position Held Office Became Officer - ------------ ------------- ------- -------------- John H. Andreas Vice President- (1) 1992 64 Manufacturing
(1) The term of office of all executive officers is indefinite, at the pleasure of the Board of Directors. The business experience of each executive officer is as follows: Mr. Andreas has served as Vice President of Manufacturing since April 1992. Prior to that time, he was an independent business consultant. Prior to his retirement in 1988, Mr. Andreas was employed by the former Continental Can Company, Inc. for 33 years, most recently as General Manager. ITEM 11. EXECUTIVE COMPENSATION The table below shows the compensation paid or credited by the Company and its subsidiaries during the past three fiscal years to the Chief Executive Officer and each other executive officer of the Company whose cash compensation (paid or deferred) in 1997 exceeded $100,000 (the "named executive officers"). 37 SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION ANNUAL COMPENSATION AWARDS ---------------------------- ------------------------------------------ Common Shares Name and Restricted Stock Underlying All Other Principal Position Year Salary Bonus Awards (1) Options Compensation - ---------------------------- ---------- ------------- -------------- ------------------- ---------------------- ----------------- Donald J. Bainton 1997 $420,000 $315,000 - 30,000 - Chairman of the Board 1996 $420,000 - - - - and CEO 1995 $415,813 - $269,500 - - Abdo Yazgi, 1997 $280,000 $210,000 - 20,000 - Executive VP & 1996 $280,000 - - - - Treasurer 1995 $276,924 - $117,600 - - John H. Andreas 1997 $110,000 $82,500 - 10,000 - VP-Manufacturing 1996 $110,000 - - - - 1995 $108,170 - $19,110 - -
(1) A holder of restricted Common Stock is entitled to receive dividends paid on such shares. The number and market value of the named executive officers' aggregate restricted stock holdings at the end of the Company's last fiscal year (December 31, 1997) were as follows: Mr. Bainton-102,383 shares ($2,572,373) Mr. Yazgi-4,800 shares ($120,600) and Mr. Andreas-780 shares ($19,598). STOCK OPTIONS The tables below show the total number and values of options to purchase common shares granted in 1997 and held by named executive officers at December 31, 1997. No options were exercised by such individuals during 1997. OPTION GRANTS
Number of Shares % of Total Exercise Price Expiration Grant Date Name Underlying Options Option Grants Per Share Date Value - ----------------------- ------------------------- ------------------- ------------------ ------------------- ------------------ Donald J. Bainton 30,000 15% $18.00 1-22-04 $37,605 Abdo Yazgi 20,000 10% $18.00 1-22-04 $25,070 John H. Andreas 10,000 5% $18.00 1-22-04 $12,535
FISCAL YEAR-END OPTION VALUES
Number of Common Shares Underlying Value of Unexercised In-the-Money Unexercised Options at Fiscal Year-End Options at Fiscal Year-End (1) -------------------------------------------- --------------------------------------------------- Name Exercisable Unexercisable Exercisable Unexercisable - ---------------------- -------------------- ------------------------- ------------------------ -------------------------- Donald J. Bainton 200,000 20,000 $2,672,400 $142,500 Abdo Yazgi 72,666 13,334 $ 847,250 $ 95,000 John H. Andreas 3,333 6,667 $ 23,748 $ 47,502
(1) The value of unexercised options is the difference between the aggregate value of the underlying common shares ($25.125 per share on December 31, 1997) and the aggregate exercise price of the options. 38 EMPLOYMENT AGREEMENT The Company is a party to an employment agreement with Donald J. Bainton, which expires on May 17, 2006, pursuant to which Mr. Bainton's annual salary is to be not less than $420,000. Mr. Bainton's employment agreement provides that in the event of his death prior to May 17, 2006, Mrs. Bainton will continue to receive one-half of his salary until her death. In the event of a change of control of the Company, as defined in his employment agreement, Mr. Bainton will have the right, for a period of five years, to deem his employment terminated and to receive a payment equal to three times his average annual compensation during the five preceding years. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of March 16, 1998, the following were the only persons known by the Company to be the beneficial owners of more than 5% of the Common Stock. Donald J. Bainton is Chairman and Chief Executive Officer of the Company.
Name and address Amount and nature of beneficial owner of beneficial ownership (1) Percent of class - ------------------- --------------------------- ---------------- Donald J. Bainton 453,445 (2) 13.3% One Aerial Way Syosset, New York Aileen Moody Bainton 184,018 (2) 5.4% Edgewater Drive Nassau, Bahamas Dimensional Fund Advisors, Inc. 170,300 (3) 5.0% 1299 Ocean Avenue 11th Floor Santa Monica, CA Montgomery Asset Management, LLC 173,000 5.1% 101 California Street San Francisco, CA 94111
The following table sets forth information concerning the beneficial ownership of Common Stock as of the March 16, 1998 by each director, nominee and named executive officer and by all directors, nominees and executive officers as a group:
Shares underlying Total amount of Percent Name of beneficial owner (1) stock options (4) beneficial ownership (5) of class - ------------------------ ------------- -------------------- -------- Donald J. Bainton 180,000 473,445(2) 13.3% Kenneth Bainton 10,000 76,241(2) 2.2% Robert L. Bainton 3,028 17,244(2) * Nils E. Benson 13,841 16,814 * Charles DiGiovanna 65,000 76,200 2.2% Rainer N. Greeven 13,508 42,282 1.2% V. Henry O'Neill 2,966 51,876 1.5% John J. Serrell 3,562 17,022 * Robert A. Utting ---- 55,118 1.6% Alexander E. Watson 10,000 11,200 * Abdo Yazgi 86,000 146,043 4.2% Jose Luis Zapata ---- 12,700 * John H. Andreas 10,000 13,415 * All directors and executive officers as a group (13 individuals) 397,905 1,009,600 28.9% * Less than 1%
39 (1) Beneficial ownership means direct ownership with sole voting and dispositive power unless otherwise indicated. (2) Pursuant to the regulations of the Securities and Exchange Commission relating to beneficial ownership, Donald, Robert, Kenneth and Aileen Moody Bainton may be deemed to be a group for purposes of determining beneficial ownership. On this basis, each would be deemed the beneficial owner of 750,948 shares of Common Stock (21.0%). Each of the Messrs. Bainton and Mrs. Bainton disclaims beneficial ownership of shares beneficially owned by the others. (3) Dimensional Fund Advisors, Inc. ("Dimensional"), a registered investment advisor, is deemed to have beneficial ownership of 5.0% shares of Common Stock as of December 31, 1997. All such shares are held in portfolios of DFA Investment Dimensions Group, Inc., a registered open-end investment company, or in series of the DFA Investment Trust Company, a Delaware business trust, or the DFA Group Trust and DFA Participation Group Trust, investment vehicles for qualified employee benefit plans, for all of which Dimensional serves as investment manager. Dimensional disclaims beneficial ownership of all such shares. (4) Stock options which were exercisable on March 16, 1998 or which will become exercisable within 60 days of such date. (5) Includes the shares underlying the stock options in the column to the left. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS PCI has outstanding an aggregate of 100 shares of common stock (the "PCI Shares"). Prior to December 17, 1996, 50 PCI Shares were owned by the Company, and 50 PCI Shares were owned by Merrywood, Inc. ("Merrywood"), in which Mr. Zapata has an ownership interest. In July 1996, Merrywood exercised its right to put its 50 PCI Shares to the Company for $30 million, plus interest of approximately $15.4 million, pursuant to an Agreement entered into in 1992. In October 1996, the Company and Merrywood entered into a new Agreement (the "1996 Agreement") pursuant to which the Company purchased 34 PCI Shares in December 1996 for $30 million, plus a warrant exercisable through December 31, 2000 to purchase 150,000 shares of Common Stock at the lesser of $20.00 per share or book value at December 31, 1996. The 1996 Agreement also provided that the remaining 16 PCI Shares would be purchased by the Company prior to December 31, 2000 for approximately $15.4 million plus interest at 10%. Until such shares are purchased, the Company has agreed to cause one of Merrywood's designees to be nominated as a director of the Company and PCI. Mr. Zapata is the designee of Merrywood. All prior agreements between the Company and Merrywood were terminated by the 1996 Agreement. Merrywood, with the Company's consent, has since assigned its rights under the 1996 Agreement to a related corporation in which Mr. Zapata does not have an interest. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements: Consolidated Balance Sheets as of December 31, 1997 and 1996 Consolidated Statements of Operations for the years ended December 31, 1997, 1996, and 1995 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements for the years ended December 31, 1997, 1996 and 1995 Independent Auditors' Report The above financial statements are included under Item 8 of Part II of this report. 40 2. Financial Statement Schedules: II Valuation & Qualifying Accounts................................................................p.44 III Condensed Financial Information of Registrant..................................................p.45
All other schedules are omitted because they are not applicable, not required, or the information is given in the financial statements or the notes thereto. 3. Exhibits Required: 2.1 Agreement and Plan of Merger dated as of January 14, 1998 among Suiza Foods Corporation, CC Acquisition Corporation and the Company..........................................(3) 3.1 Articles of Incorporation, as amended............................................................(2) 3.2 By-Laws, as amended..............................................................................(2) 4.1 Indenture dated as of December 17, 1996, among PCI, as Issuer, CPC and Caribbean, as Guarantors, and United States Trust Company of New York, as Trustee, providing for 10% Senior Secured Notes due 2006, Series A and Series B (including the definitive forms of the Notes)...........................................(1) 4.2 Registration Rights Agreement dated as of December 17, 1996, by and among PCI , CPC and Caribbean, and Donaldson, Lufkin & Jenrette Securities Corporation, Lehman Brothers Inc. and Societe Generale Securities Corporation.................................(1) 10.1 Amended and Restated Financing Agreement dated December 17, 1996, between The CIT Group/Business Credit, Inc. (as Lender) and PCI (as Borrower)............................(1) 10.2 Master Lease Agreement, dated as of May 20, 1994, between General Electric Capital Corporation and CPC......................................................................(1) 10.3 Schedules A-1 through A-6, each dated December 17, 1986, to the Master Lease Agreement (Exhibit 10.2).........................................................................(1) 10.4 Corporate Guaranty dated May 20, 1994, from PCI to General Electric Capital Corporation, and Amendments Nos. 1 and 2 thereto, both made as of December 17, 1996..............(1) 10.5 1988 Restricted Stock Option Plan, as amended....................................................(2)* 10.6 1988 Director Stock Option Plan..................................................................(2)* 10.7 1990 Stock Option Plan for Non-Employee Directors................................................(2)* 10.8 Shareholders' Agreement dated July 7, 1989, among Viatech, Inc., Le Fer Blac S.A., Citicorp Capital Investors Europe Limited and Citibank S.A.......................................(2) 10.9 Revolving Credit and Term Loan Agreement dated as of December 1, 1992............................(2) 10.10 Stock Purchase Agreement dated November 2, 1991..................................................(2) 10.11 1992 Restricted Stock Plan for Non-Employee Directors, as amended................................(2)* 10.12 Agreement Among PCI Stockholders, dated October 22, 1996.........................................(2) 10.13 Employment Contract with Donald J. Bainton, as amended...........................................(2)* 10.14 1995 Restricted Stock Compensation Plan .........................................................(2)* 10.15 Amendment No. 2 to Revolving Credit and Term Loan Agreement......................................(2) 10.16 Investment Certificate Transfer Agreement between the Company and Citicorp Capital Investors Europe Limited (with a schedule of substantially identical agreements.)......p.48 10.17 Employment Agreement with Abdo Yazgi (with a schedule of substantially identical agreements.)...................................................................................p.53* 11.1 Statement re computation of per share earnings (See Note 11)...................................p.30 21 Subsidiaries of the Registrant.................................................................p.57 23.1 Independent Auditors' Report on Schedules......................................................p.58 23.2 Consent of Independent Auditors................................................................p.59 27 Financial Data Schedule........................................................................p.60 * Management contract or compensatory plan or arrangement. (1) These documents have been previously filed with the Commission by Plastic Containers, Inc. (2) These documents have previously been filed with the Commission. (3) This document was filed with the Commission by Suiza Foods Corporation as an appendix to Form S-4 on February 18, 1998.
41 All other items for which provision is made in the applicable regulations of the Securities and Exchange Commission have been omitted as they are not required under the related instructions or they are inapplicable. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended December 31, 1997. 42 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. CONTINENTAL CAN COMPANY, INC. By: /s/ Abdo Yazgi Date: March 23, 1998 - ----------------------------------------------------- -------------------------- Abdo Yazgi, Executive Vice President (Principal Financial & Accounting 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/ Donald J. Bainton Date: March 23, 1998 - ----------------------------------------- --------------------- Donald J. Bainton, Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) /s/ Kenneth O. Bainton Date: March 23, 1998 - ------------------------------------ --------------------- Kenneth O. Bainton, Director /s/ Robert L. Bainton Date: March 23, 1998 - ------------------------------------ --------------------- Robert L. Bainton, Director /s/ Nils E. Benson Date: March 23, 1998 - ------------------------------------ --------------------- Nils E. Benson, Director /s/ Charles DiGiovanna Date: March 23, 1998 - ------------------------------------ --------------------- Charles DiGiovanna, Director /s/ Rainer N. Greeven Date: March 23, 1998 - ------------------------------------ --------------------- Rainer N. Greeven, Director /s/ V. Henry O'Neill Date: March 23, 1998 - ------------------------------------ --------------------- V. Henry O'Neill, Director /s/ John J. Serrell Date: March 23, 1998 - ------------------------------------ --------------------- John J. Serrell, Director /s/ Robert A. Utting Date: March 23, 1998 - ------------------------------------ --------------------- Robert A. Utting, Director /s/ Alexander E. Watson Date: March 23, 1998 - ------------------------------------ --------------------- Alexander E. Watson, Director /s/ Abdo Yazgi Date: March 23, 1998 - ------------------------------------ --------------------- Abdo Yazgi, Director Date: - ------------------------------------ --------------------- Jose Luis Zapata, Director 43 Continental Can Company, Inc. and Subsidiaries Schedule II - Valuation and Qualifying Accounts Years Ended December 31, 1997, 1996 and 1995 (in thousands) Balance at Balance beginning at end of Description of period Additions Deductions Period - ---------------------------------------------------------------------------------- December 31, 1997 LIFO reserve $ 4,247 $ - $ 669(1) $ 3,578 Allowance for doubtful accounts and accrued rebates $ 4,378 $ 2,762(3) $ 1,591(4) $ 5,549 December 31, 1996: LIFO reserve $ 2,025 $ 2,298(1) $ 76(2) $ 4,247 Allowance for doubtful $ 1,484(5) accounts and accrued rebates $ 6,144 $ 1,878(3) $ 2,160(4) $ 4,378 December 31, 1995: $ 704(2) LIFO reserve $ 3,924 $ - $ 1,195(1) $ 2,025 Allowance for doubtful accounts and accrued rebates $ 5,316 $ 1,909(3) $ 1,081(4) $ 6,144
(1) Charged/credited to costs - inventory repricing. (2) Credited to cost of sales - reduction in inventory quantities. (3) Charged to expense - accruals for customer rebates and doubtful receivables. (4) Represents uncollectible accounts written-off. (5) Represents $1,484 from deconsolidation of subsidiary in 1996. 44 Schedule III - Condensed Financial Information of Registrant Continental Can Company, Inc. Balance Sheets Years Ended December 31, 1997 and 1996 1997 1996 ---- ---- (in thousands) ASSETS: Cash $ 14 $ 24 Investments in Subsidiaries at Equity 102,929 101,356 Other Assets 1,047 1,436 -------- -------- Total Assets $103,990 $102,816 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities (a) $ 5,208 $ 4,192 Long Term Debt (a) 30,000 30,000 -------- -------- Total Liabilities 35,208 34,192 Stockholders' Equity 68,782 68,624 -------- -------- $103,990 $102,816 ======== ======== (a) See Note 8, Items (a) and (b) of Notes to Consolidated Financial Statements of Continental Can Company, Inc. and Subsidiaries. Continental Can Company, Inc. Statements of Operations Years Ended December 31, 1997, 1996 and 1995 (in thousands) 1997 1996 1995 ------ ------ ----- Management Fees $ 2,061 $ 2,103 $2,247 Selling, General and Administrative Expenses 3,808 2,917 3,817 -------- --------- ------ (1,747) (814) (1,570) Equity (Deficit) in Net Income (Loss) of Subsidiaries (b) 10,109 ( 4,361) 2,402 ------- --------- ------ 8,362 (5,175) 832 Other (376) (385) (277) --------- ---------- ------- Net Income $ 7,986 $(5,560) $ 555 ========= ======== ====== (b) Includes for 1996 and 1995 extraordinary charges of $6,136 and $115 respectively, relating to the extinguishment of debt. 45 Schedule III - Condensed Financial Information of Registrant (Continued) Continental Can Company, Inc. Statements of Cash Flows Years Ended December 31, 1997, 1996 and 1995 (in thousands) 1997 1996 1995 -------- -------- ------ Cash Flows from Operating Activities: Net Income (Loss) $7,986 $(5,560) $ 555 Adjustments to Reconcile Net Income (Loss) to Net Cash Used in Operating Activities: Dividends Received From Affiliates 350 311 344 Deficit (Equity) in Net Income (Loss) of Subsidiaries (10,109) 4,361 (2,402) (Decrease) Increase in Due to Affiliates (634) (1,590) 1,281 Other 2,164 669 51 --------- --------- ------- Net Cash Used in Operating Activities (243) (1,809) (171) Cash Flows From Investing Activities: Increase Investment in Subsidiaries - (29,163) - --------- --------- --------- Net Cash Used in Investing Activities - (29,163) - Cash Flows From Financing Activities: Common Stock Issued Upon Conversion of Debentures and Warrants 233 131 849 Proceeds from Short-Term Borrowings - 1,300 - Proceeds from (Repayment of) Long-Term Financing - 29,575 (767) --------- --------- --------- Net Cash Provided by Financing Activities 233 31,006 82 --------- --------- --------- Net (Decrease) Increase in Cash (10) 34 (89) Cash at Beginning of Year 24 (10) 79 --------- --------- --------- Cash at End of Year $ 14 $ 24 (10) ========= ========= ========= Cash paid for interest and income taxes was as follows: 1997 1996 1995 -------- -------- ------ Interest $124 $111 $ 76 Income Taxes $108 $ 76 $105 46 EXHIBIT INDEX: 10.16 Investment Certificate Transfer Agreement between the Company and Citicorp Capital Investors Europe Limited (with a schedule of substantially identical agreements.) 10.17 Employment Agreement with Abdo Yazgi (with a schedule of substantially identical agreements.) 11.1 Statement re computation of per share earnings 21 Subsidiaries of the Registrant 23.1 Independent Auditors' Report on Schedules 23.2 Consent of Independent Auditors 27 Financial Data Schedule 47 EX-10 2 EXHIBIT 10.16 Exhibit 10.16 INVESTMENT CERTIFICATE TRANSFER AGREEMENT BY AND BETWEEN THE UNDERSIGNED CONTINENTAL CAN COMPANY, INC. An American Company Having its registered office at 301 Merritt 7 Corporate Park, P.O. BOX 5395 Norwalk, Connecticut 06856 Registered with the State of Delaware (USA) Of the First Part Hereinafter designated <> AND: 1 - CITICORP CAPITAL INVESTORS EUROPE LIMITED An American Company having its registered office at New Castle Corporate Commons Operations One Building, One Penn's Way, New Castle, Delaware (19720-USA) Registered with the State of Delaware (USA) Of the Second Part Hereinafter designated <> PREAMBLE 1./ The Transferee and the Transferor are shareholders or owners or Investment Certificates of the following company: FEREMBAL A French Societe Anonyme with a capital of 40,830,000 FF Having its registered office at Boulevard du General LeClerc 91220 Clichy (FRANCE) Enrolled with the Register of Comerce and Companies of Nanterre under No B 334 384 054 Hereinafter designated <> The capitol of the Company is comprised of: -300.830 Shares, divided in: -204,822 Shares of Category A, and -96,008 Shares of Category B -and 100,000 Investment Certificates. 2./ The Transferor is the owner of 90,000 Investment Certificates of the Company. 3./ The Transferor expressly sets forth that it is also the beneficiary of a Promise to Sell for the 90,000 Voting Rights Certificates (Certificats De Droit de Vote) corresponding to the 90,000 Investment Certificates (Certificats d'Investissement) that it owns. The Voting Rights Certificates and the Investment Certificates refer to Certificats de Droit de Vote and Certificats d'Investissement, respectively, as these terms are defined in the French Commercial Companies Act of July 24, 1996 (Articles 283-1 to 283-5). These Voting Rights Certificates are, as of this date, owned by: - The Transferee, - Societe Generale, - First Britannia Mezzanine N.V., - and C.I.B.C. Various other shareholders of the Company own the remaining Voting Rights Certificates. The benefit of the promise, granted by various other shareholders of the Company, can be exercised at any time, with a price of 0.01 FF for the Voting Rights Certificate thus acquired. The Transferor and the Transferee have agreed to implement the transfer of 90,000 Investment Certificates of the Company between the Transferor and the Transferee. 48 AGREEMENT ARTICLE 1: TRANSFER The Transferor agrees to sell and transfer to the Transferee, who agrees to purchase, all of the 90,000 (NINETY THOUSAND) Investment Certificates that it owns in the legal capital of the Company. The Transferor agrees nevertheless to use its best effort to reconstitute, before the transfer of the Investment Certificates, the 90,000 corresponding Shares, at present split into Investment Certificates and Voting Right Certificates. The parties expressly and irrevocably agree by the present contract that the perfect the transfer of the Investment Certificates of the Company, and as the case may be, the Shares, shall be postponed to the day of the payment of the Base Price as defined in Article 2.1 hereafter, of the acquisition by the Transferee, payment of which shall occur no later than April 30, 1998. On the date of the payment of the price: - the Transferor shall submit to the Transferee the Transfer Orders, duly signed, for the Investment Certificates, and as the case may be, the Shares. - the Transferee shall become the owner of the transferred Investment Certificates of the Company, and as the case may be, the Shares, with all of the rights and obligations so attached. With regards to the pecuniary rights attached to the Investment Certificates and Shares of the Company, the Transferee shall also become the pecuniary owner of these, with the rights to all financial distributions or dividends, as of January 1, 1998. However, if the payment of the Base Price as defined in Article 2.1 hereafter, for the Investment Certificates of the Company, and as the case may be, the Shares, and, as a result, the transfer of these Investment Certificates and/or Shares, has not occurred on or including April 30, 1998, the present contract shall be null and void and the Transferee shall owe the Transferor the following contractual penalties: - before May 15, 1998, the Transferee shall pay the amount of 4,464,981 FF (FOUR MILLION FOUR HUNDRED SIXTY FOUR THOUSAND NINE HUNDRED EIGHTY ONE FRENCH FRANCS) to the Transferor, ARTICLE 2: PRICE 2.1: Base Price The Investment Certificates, and as the case may be, the Shares, shall be transferred for a base unit price of 898.13 FF (EIGHT HUNDRED NINETY EIGHT FRENCH FRANCS AND THIRTEEN CENTIMES). This unit price corresponds to the value, as estimated by the parties, of all the legal capital of the Company, for a total of 360,000,000 FF (THREE HUNDRED SIXTY MILLION FRENCH FRANCS), according to their joint estimate. As a result, on the date set forth for the payment of the price and the transfer of the Investment Certificates, and as the case may be, the Shares: - the Transferor shall receive a sum of 80,831,700.00 FF (EIGHTY MILLION EIGHT HUNDRED THIRTY ONE THOUSAND SEVEN HUNDRED FRENCH FRANCS) in exchange for the transfer of its 90,000 (NINETY THOUSAND) Investment Certificates of the Company, as the case may be, reconstituted wholly or in part, in as many Shares. 2.2: Supplemental Price As the case may be, the payment of a supplemental price (hereinafter <>) shall occur in the following situations: 2.2.1: Prior Causes (<>) of the Supplemental Price 49 2.2.1.1: Transfer The Supplemental Price shall be owed by the Transferee to the Transferor if: - before or including June 30, 1999, - the Transferee sells to one o more third parties, pursuant to one or more transfers, - Shares and/or Investment Certificates of the Company, that it owns, - at a unit price higher than the base unit price, as set forth in Article 2.1 above, of 898.13 FF (EIGHT HUNDRED NINETY-EIGHT FRENCH FRANCS AND THIRTEEN CENTIMES) per Share and Investment Certificate of the Company. 2.2.1.2: Exchange The Supplemental Price shall be owed by the Transferee to the Transferor if: - before or including June 30, 1999, - the Transferee exchanges with one or more third parties, pursuant to one or more transfers, - Shares and/or Investment Certificates of the Company, that it owns, - at a unit exchange value higher than the base unit price, as set forth in Article 2.1 above, of 898.13 FF (EIGHT HUNDRED NINETY-EIGHT FRENCH FRANCS AND THIRTEEN CENTIMES) per Share and Investment Certificates of the Company. 2.2.1.3 - Listing The Supplemental Price shall be owed by the Transferee to the Transferor if: - before or including June 30, 1999, - the Shares and/or Investment Certificates of the Company, wholly or in part, are listed on a regulated market (marche reglemente) of the Paris Stock Exchange, - and their initial listing price is higher than the base unit price, as set forth in Article 2.1 above, of 898.13 FF (EIGHT HUNDRED NINETY-EIGHT FRENCH FRANCS AND THIRTEEN CENTIMES) per Share and Investment Certificate of the Company. 2.2.1.4: Capital increase/listing The Supplemental Price shall be owed by the Transferee to the Transferor if: - before or including June 30, 1999, - the Company increases its share capital, and the resulting Shares and/or Investment Certificates of the Company, wholly or in part, are listed on a regulated market (marche reglemente) of the Paris Stock Exchange, - and their initial listing price is higher than the base unit price, as set forth in Article 2.1 above, of 898.13 FF (EIGHT HUNDRED NINETY-EIGHT FRENCH FRANCS AND THIRTEEN CENTIMES) per Share and Investment Certificate of the Company. 2.2.2: Amount of Supplemental Price The amount of the Supplemental Price owed to the Transferor shall be calculated as follows, for each transfer, exchange and/or listing in a manner set forth in Article 2.2.1 above: SP = (SUP - BUP) x [90.000/SC x TE] With: SP = Supplemental Price for the Transferor SUP= subsequent unit price per Share and Investment Certificate of the Company: - paid to the Transferee following a transfer of the type set forth in Article 2.2.1.1 above, or - calculated following an exchange of the type set forth in Article 2.2.1.2 above, or - equal to the initial listing price as set forth in Article 2.2.1.3 and 2.2.1.4 above. BUP = unit base price set forth in the present contract of 898.13 (EIGHT HUNDRED NINETY-EIGHT FRENCH FRANCS AND THIRTEEN CENTIMES) PER Share and Investment Certificate of the Company SC = number of Shares and Investment Certificates of the Company acquired by the Transferee: - from the Transferor after the completion of the operations set forth in the present contract, and - from the minority shareholders of the Company, between this day and April 30, 1998 included, and - from the owners of Investment Certificates of the Company, between this day and April 30, 1998 included. 50 It is specified that SC cannot exceed 143,921 (ONE HUNDRED AND FORTH THREE THOUSAND NINE HUNDRED AND TWENTY ONE), this number corresponding to the Shares and Investment Certificates of the Company which are not held at present by the Transferee. TE = number of Shares and Investment Certificates of the Company: - transferred to the Transferee following a transfer of the type set forth in Article 2.2.1.1 above, or - exchanged following an exchange of the type set forth in Article 2.2.1.2 above, or - listed as set forth in Article 2.2.1.3 and 2.2.1.4 above. It is expressly stipulated for the calculation of the total Supplemental Price for the Transferor, TE as defined above, shall not exceed SC, taking into account any and all transfers, exchanges, and listings that may occur until June 30, 1999. Therefore, until June 30, 1999: - if the cumulative number of Shares and/or Investment Certificates of the Company, transferred, exchanged and listed as set forth in Article 2.2.1 above, - exceeds the cumulative number of Shares and/or Investment Certificates of the Company acquired by the Transferee from the minority shareholders and owners of Investment Certificates of the Company until April 30, 1998. The Transferee shall not have to pay any further Supplemental Price to the Transferor for any further transfer, exchange and listing. 2.2.3: Arbitration Any dispute regarding the modes of application of the formula defined in Article 2.2.2 above shall be referred to an arbitrator, pursuant to Article 1592 of the French Civil Code. The parties shall agree upon the appointment of the arbitrator. If they are unable to agree upon the procedure of appointment of the arbitrator, he shall be appointed by the President of the Tribunal de Commerce de Paris, at the request of any party. The only duty of the arbitrator shall be to rule on the modes of application of the formula defined in Article 2.2.2 above and in any case shall not be extended to any other duty. The arbitration shall take place in PARIS. The arbitrator shall give his decision within one month of his appointment. 2.2.4: Payment of the Supplemental Price The Supplemental Price shall be paid to the Transferor no later than 30 (THIRTY) days after the complete and final payment to the Transferee of the price for the Shares of the Company, transferred by the Transferee in a manner set forth in Article 2.2.1 above. If the operations mentioned in Article 2.2.1 above give rise to a payment to be made at a future date for the benefit of the Transferee, it is expressly stipulated that: - the Transferee shall pay to the Transferor the amount of the Supplemental Price corresponding to the proportion of the sums to be paid cash, within 30 (THIRTY) days of their payment, - the balance of the Supplemental Price shall be payable to the Transferor at the same time and proportionally to the balance of the sums to be paid at a future date, - except if there are more than 180 (ONE HUNDRED AND EIGHTY) days between this future date and the date of signature of the contract giving rise to such payment for the benefit of the Transferee, in this case, the balance of the Supplemental Price shall be payable to the Transferor as soon as this period of 180 (ONE HUNDRED AND EIGHTY) days has expired. 51 ARTICLE 3: OBLIGATIONS OF THE TRANSFEROR If necessary, the Transferor agrees to tender, on the date of the transfer of the Shares, its resignation for all of the positions as director, member of the Board of Directors, and, more generally, all of the functions that it occupies as of that date in the Company. ARTICLE 4: APPLICABLE LAW The present contract shall be governed by the laws of France. ARTICLE 5: APPLICABLE COURT All disputes regarding the present contract shall be settled before the Tribunal Court in Paris. Executed in Paris In two Original Counterparts Date: December 23, 1997 CONTINENTAL CAN CCIEL /s/ Abdo Yazgi /s/ Findlay Black ------------------------ ------------------------- Schedule of Substantially Identical Agreements 1.) Between the Company and First Brittania Mezzenine N.V. to sell 23,043 shares of Ferembal S.A. dated December 23, 1997. 2.) Between the Company and SG Capital Developpement S.A. to sell 15,000 shares of Ferembal S.A. dated December 23, 1997. 3.) Between the Company and CIBC International Trust Limited to sell 5,052 shares of Ferembal S.A. dated January 1998. 52 EX-10 3 EXHIBIT 10.17 Exhibit 10.17 EMPLOYMENT AGREEMENT This Agreement (this "Agreement") is made as of January 1, 1998, by and between Continental Can Company, Inc., a Delaware corporation (the "Company") and Abdo Yazgi (the "Employee"). A. Employee is, and for some time in the past has been, a valued Employee of the Company. B. The Company and Employee now wish to enter into this Agreement on the terms and conditions set forth hereafter, replacing any prior agreement of employment between the Company and Employee; For good and valuable consideration, including the mutual covenants herein, the parties hereto agree as follows: 1. EMPLOYMENT; CAPACITY, DUTIES. Employee shall serve Company in the position of Executive Vice President and shall have the duties and responsibilities incident to that position. During the term of this Agreement, Employee shall devote his full attention and best efforts to the performance of such duties as shall be designated from time to time by Company's Board of Directors or CEO, which duties shall be generally consistent with Employee's position and with those duties that Employee has performed for Company prior to the date hereof. 2. TERM OF EMPLOYMENT. Unless earlier terminated as hereafter provided, this Agreement shall commence on the date hereof, and shall expire on December 31, 2000 (the "Expiration Date"). This Agreement may be extended by mutual written agreement of the parties. 3. TERMINATION. (a) Death. The employment of Employee under this Agreement shall immediately terminate upon the death of Employee. (b) Disability. In the event that Employee is for any reason unable to perform the duties to be performed by Employee hereunder for a period for 180 consecutive days (or for any 200 out of 365 consecutive days) by reason of Employee's Disability, the Board of Directors of the Company shall have the option to terminate the employment of Employee under this Agreement effective upon its giving written notice to Employee at any time following the expiration of such 180-day period (or such 200 days). The term "Disability" as used in this Section 3(b) means any mental or physical impairment that prevents the Employee from performing the essential functions of his position with or without reasonable accommodation as determined by a physician mutually agreeable to Employee and the Company. (c) Discharge for Cause. The employment of Employee under this Agreement shall terminate immediately if the Company discharges Employee for Cause. "Cause" means the Employee's (i) willful and intentional misconduct or gross negligence in the performance of, or willful neglect of, the Employee's duties, which has caused demonstrable and serious injury (monetary or otherwise) to the Company, or (ii) conviction of, or plea of nolo contendere to, a felony: provided, however, that no act or omission shall constitute "Cause" for purposes of this Agreement unless the Board of Directors of the Company provides to the Employee (a) written notice clearly and fully describing the particular acts or omissions which the Board reasonably believes in good faith constitutes "Cause" and (b) an opportunity, within 30 days following his receipt of such notice, to meet in person with the Board of Directors to explain or defend the alleged acts or omissions relied upon by the Board and, to the extent practicable, to cure such acts or omissions. Further, no act or omission shall be considered as "willful" or "intentional" if the Employee reasonably believed such acts or omissions were in the best interests of the Company. Employee shall have the right to contest a determination of Cause by the Company by requesting arbitration in accordance with the terms of Section 7 hereof. (d) Certain Terminations. If Employee's services should be terminated by Company for any reason other than for Employee's death, Employee's Disability for the period set forth in Section 3(b) hereof, or Cause, then Employee shall be entitled to receive a lump sum cash payment equal to (i) the total remaining unpaid amount of Employee's annual base salary under Section 4 hereof as in effect on the date of the termination, from the date of termination until the Expiration Date, plus (ii) a pro rated bonus for the period from the date of termination until the 53 Expiration Date, based on Employee's average cash bonus for the three full calendar years immediately preceding the date of termination ("Severance Pay"). (e) Offset for Other Severance Pay. There shall be no duplication of Severance Pay in any manner. In this regard, Employee shall not be entitled to Severance Pay hereunder for more than one position with the Company and its affiliates. Further, Severance Pay shall be in lieu of any other payments or benefits in the nature of severance benefits to which Employee has received or will receive from the Company or any of its affiliates. Any other arrangement providing severance benefits shall be deemed to be amended to eliminate any obligation for benefits to be provided thereunder. If Employee is entitled to any notice or payment in lieu of any notice of termination of employment required by Federal, state or local law, including but not limited to the Worker Adjustment and Retraining Notification Act, the Severance Pay to which the Employee would otherwise be entitled under this Agreement shall be reduced by the amount of any such payment, in lieu of notice. (f) Mutual Release. Severance pay described in paragraph (d) of this Section 3 shall be conditioned upon the execution of Employee and the Company of a valid mutual release, to be prepared by the Company, in which Employee and Company shall mutually release the other, to the maximum extent permitted by law, from any and all claims either party may have against the other party that relate to or arise out of Employee's employment or termination of employment, except such claims arising under this Agreement, any employee benefit plan or any other written plan or agreement ("Mutual Release"). The full amount of Severance Pay shall be paid to Employee within ten (10) days following receipt by the Company of a Mutual Release which is property executed by Employee and is not revoked by Employee before the eighth day following its receipt by the Company. 4. Compensation. In exchange for the Employee's performance under the terms of this Agreement and promises and covenants made by the Employee herein and subject to Section 3 hereof, during the term of this Agreement, as compensation for services to the Company pursuant to this Agreement, the Company shall pay to Employee a base salary of $308,000 per year in accordance with the normal payroll practices of Company. The Board of Directors of the Company will review annually Employee's performance and compensation, and it may, in its sole discretion from time to time, increase the compensation to be paid to Employee as provided in this Section 4, or provide additional compensation to Employee, whether permanently or for a limited period of time, in order to recognize and fairly compensate Employee for the value of his services to the Company. A bonus may be paid or stock options issued from time to time at the discretion of the Board of Directors of the Company. 5. Benefits. During the term hereof, Company shall provide Employee with the same benefits, including life and health insurance, vacation, and retirement programs, it provides to its other similarly situated Employees. 6. CERTAIN COVENANTS. (a) Covenant Not to Compete. In consideration of the payments made to Employee pursuant to this Agreement, Employee shall not during the term of this Agreement and for a period of two years after the termination of Employee's employment with the Company, directly or indirectly, engage (whether as owner, partner, stockholder, joint venturer, manager or investor) in any business that competes, directly or indirectly, with the Company in the continental United States, Puerto Rico or Europe (provided that the Employee shall not be restricted hereby from owning or acquiring 5% or less of the outstanding voting securities of a public company). (b) Protection of Confidential Information. (i) Employee agrees that he will not at any time during or following his employment by the Company, without Company's prior written consent, divulge any Confidential Information to any other person or entity or use any Confidential Information for his own benefit. "Confidential Information" means all information, whether oral or written, previously or hereafter developed, acquired or used by the Company or its subsidiaries and relating to the business of the Company and its subsidiaries that is not generally known to others in the Company's area of business, including without limitation trade secrets, methods or practices developed by Company or any of its subsidiaries, financial results or plans, customer or client lists, personnel information, information relating to negotiations with clients or prospective clients, proprietary software, databases, programming or data transmission methods, or copyrighted materials (including 54 without limitation, brochures, layouts, letters, art work, copy, photographs or illustrations). It is expressly understood that the foregoing list shall be illustrative only and is not intended to be an exclusive or exhaustive list of "Confidential Information." (ii) Upon termination of employment, for any reason whatsoever, regardless of whether either party may be at fault, Employee will return to Company all physical Confidential Information in Employee's possession. (c) Non-solicitation of Employees. Employee agrees, for so long as Employee remains employed by Company, and for a period of two (2) years following the termination of Employee's employment with the Company, Employee shall not, either for Employee's own account, or on behalf of any other person or entity, solicit, suggest or request that any other person employed by Company or one of its affiliates leave such employment for the purpose of becoming employed by Employee or any other person or entity. (d) Extent of Restrictions. Employee acknowledges that the restrictions contained in this Section 6 correctly set forth the understanding of the parties at the time this Agreement is entered into, are reasonable and necessary to protect the legitimate interests of Company, and that any violation will cause substantial injury to Company. In the event of any such violation, Company shall be entitled, in addition to any other remedy, to preliminary or permanent injunctive relief. If any court having jurisdiction shall find that any part of the restrictions set forth in this Agreement are unreasonable in any respect, it is the intent of the parties that the restrictions set forth herein shall not be terminated, but that this agreement shall remain in full force and effect to the extent (as to time periods and other relevant factors) that the court shall find reasonable. 7. ARBITRATION OF CLAIMS. Employee shall settle by arbitration any dispute or controversy arising in connection with the Agreement, whether or not such dispute involves a plan subject to the Employee Retirement Income Security of 1974, as amended ("ERISA"). Such arbitration shall be conducted in accordance with the rules of the American Arbitration Association before a panel of three arbitrators sitting in New York, NY. The award of the arbitrators shall be final and nonappealable, and judgment may be entered on the award of the arbitrators in any court having proper jurisdiction. All expenses of such arbitration shall be borne by the Company and Employee as determined by the arbitrators. 8. TAX WITHHOLDING. All payments to the Employee under this Agreement will be subject to the withholding of all applicable employment and income taxes. 9. SEVERABILITY. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 10. SUCCESSORS. This Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company. 11. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. This Agreement may not be modified in any manner except by a written instrument signed by both the Company and the Employee. 12. NOTICES. Any notice required under this Agreement shall be in writing and shall be delivered by certified mail return receipt requested to each of the parties as follows or to such other address as either by written notice to the other shall specify: To the Employee: Abdo Yazgi 5 Rhodonolia Park Norwalk, CT 06850 55 To the Company: CONTINENTAL CAN COMPANY, INC. 301 Merritt 7 Corporate Park P.O. Box 5395 Norwalk, CT 06856 Attn: Donald J. Bainton 13. GOVERNING LAW. The provisions of this Agreement shall be construed in accordance of the laws of the State of New York, except to the extent Ppreempted by ERISA. IN WITNESS WHEREOF, the Employee and the Company have executed this Agreement as of the date and year first above written. CONTINENTAL CAN COMPANY, INC. By: /s/ Donald J. Bainton ---------------------- Name: Donald J. Bainton Title: Chief Executive Officer /s/ Abdo Yazgi --------------- Abdo Yazgi Schedule of Substantially Identical Agreements 1.) Between the Company and John Andreas as Vice President at a salary of $121,000 per year. 2.) Between the Company and Charles DiGiovanna as President of Continental Plastic Containers, Inc. at a salary of $302,500 per year. 56 EX-11 4 EXHIBIT 11.1 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (11) EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
1997 1996 1995 ---- ---- ---- IN THOUSANDS, EXCEPT SHARE PER DATA Income Shares Income Shares Income Shares Numerator Denominator Numerator Denominator Numerator Denominator --------- ----------- --------- ----------- --------- ----------- Basic EPS: Net Income (Loss) $7,986 3,210 ($5,560) 3,200 $555 3,167 Effect of dilutive: Options and warrants 102(1) 52(2) 91(3) ------------------- ---------------- --------------- Diluted EPS: Net Income and Assumed conversions $7,986 3,312 ($5,560) 3,252 $555 3,257
(1) Options to purchase 50,000 shares of common stock at a weighted average price of $24.44 per share were outstanding as of December 31, 1997, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the shares. (2) Options to purchase 495,900 shares of common stock at a weighted average price of $21.10 per share were outstanding as of December 31, 1996, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the shares. (3) Options to purchase 268,300 shares of common stock at a weighted average price of $25.19 per share were outstanding as of December 31, 1995, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the shares. 57 EX-21 5 EXHIBIT 21 Exhibit 21 Subsidiaries of the Registrant The following listed companies represent the significant subsidiaries of the Company, all of which are included in the Company's consolidated financial statements:
Name Under Which State or Other Jurisdiction Percentage Owned - ---------------- --------------------------- ---------------- Business is Conducted of Incorporation by Company - --------------------- ---------------- ---------- Ferembal S.A. France 64% Lockwood, Kessler & Bartlett, New York 100% Inc. Dixie Union GmbH & Company KG Germany 100% Plastic Containers, Inc. Delaware 84% Continental Plastic Containers, Delaware 100% Inc. (1) Continental Caribbean Delaware 100% Containers, Inc. (1) Obalex A.S. (2) Czech Republic 96%
(1) Subsidiary of Plastic Containers, Inc. (2) Subsidiary of Ferembal. 58 EX-23 6 EXHIBIT 23.1 Exhibit 23.1 INDEPENDENT AUDITORS' REPORT ON SCHEDULES The Board of Directors and Stockholders Continental Can Company, Inc.: Under date of March 5, 1998, we reported on the consolidated balance sheets of Continental Can Company, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997, as contained in the Form 10K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedules as listed in the accompanying index. These consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statement schedules based on our audits. In our opinion, such schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP Jericho, New York March 5, 1998 59 EX-23 7 EXHIBIT 23.2 Exhibit 23.2 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Continental Can Company, Inc.: We consent to incorporation by reference, in the Registration Statements Nos. 33-7783, 33-37163, 33-37164 and 33-37165 on Form S-8 of Viatech, Inc. (now known as Continental Can Company, Inc.) of our reports dated March 5, 1998 on or relating to the related consolidated balance sheets of Continental Can Company, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows and related schedules for each of the years in the three year period ended December 31, 1997, which reports appear in the December 31, 1997 Annual Report on Form 10-K of Continental Can Company, Inc. /s/ KPMG Peat Marwick LLP Jericho, New York March 5, 1998 60 EX-27 8 EXHIBIT 27
5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 5,486 20,385 69,841 5,549 79,113 174,064 275,502 131,050 375,406 105,016 125,000 804 0 0 67,978 375,406 546,284 546,284 456,998 514,797 16,403 0 15,965 15,084 3,850 7,986 0 0 0 7,986 2.49 2.41
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