-----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, VNbMUw4WccASkeljFXG0OXe4UA4T4r5dY8F9YjPvz/KyyzhT1ptn8HlgzHcPD1cy bYe0GfpZZytbI8naPZpCHg== 0000950137-96-001854.txt : 19961003 0000950137-96-001854.hdr.sgml : 19961003 ACCESSION NUMBER: 0000950137-96-001854 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960802 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19961002 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: US CAN CORP CENTRAL INDEX KEY: 0000895726 STANDARD INDUSTRIAL CLASSIFICATION: METAL CANS [3411] IRS NUMBER: 061094196 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-13678 FILM NUMBER: 96638490 BUSINESS ADDRESS: STREET 1: 900 COMMERCE DR STREET 2: SUITE 302 CITY: OAK BROOK STATE: IL ZIP: 60521 BUSINESS PHONE: 7085712500 MAIL ADDRESS: STREET 1: 900 COMMERCE DRIVE CITY: OAK BROOK STATE: IL ZIP: 60521 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED STATES CAN COMPANY /DE/ CENTRAL INDEX KEY: 0000880657 STANDARD INDUSTRIAL CLASSIFICATION: METAL CANS [3411] IRS NUMBER: 061145011 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 033-43734 FILM NUMBER: 96638491 BUSINESS ADDRESS: STREET 1: 900 COMMERCE DR STREET 2: SUITE 302 CITY: OAK BROOK STATE: IL ZIP: 60521 BUSINESS PHONE: 7085712500 MAIL ADDRESS: STREET 1: 900 COMMERCE DRIVE CITY: OAK BROOK STATE: IL ZIP: 60521 8-K/A 1 AMEND #1 TO FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K/A-1 Amendment No. 1 to Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of report (Date of earliest event reported): August 2, 1996; September 11, 1996 U.S. CAN CORPORATION UNITED STATES CAN COMPANY (Exact name of registrant as (Exact named of registrant specified in its charter) as specified in its charter) DELAWARE DELAWARE (State or other jurisdiction (State or other jurisdiction of incorporation) or incorporation) 0-21314 33-43734 (Commission File Number) (Commission File Number) 06-1094196 06-1145011 (I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.) 900 Commerce Drive 900 Commerce Drive Oak Brook, Illinois 60521 Oak Brook, Illinois 60521 (Address of principal (Address of principal executive offices) executive offices) (630) 571-2500 (630) 571-2500 (Registrant's telephone number, (Registrant's telephone number, including area code) including area code) Not Applicable Not Applicable (Former name or former address, (Former name or former address, if changed since last report.) if changed since last report.) (Explanatory Note: United States Can Company is not required by Section 13 or 15(d) of the Exchange Act to file reports thereunder, but has agreed, pursuant to the Indenture under which its 13 1/2% Senior Subordinated Notes Due 2002 were issued, to file all reports required by Section 13 or 15(d) whether or not required by law. Explanatory Note 2: This Form 8-K/A-1 amends each of the two Form 8-K's filed jointly by U.S. Can Corporation and United States Can Company dated August 2, 1996 and September 11, 1996 regarding the acquisitions of the CPI Group (as defined herein) and USC Europe (as defined herein), respectively.) 2 The undersigned registrant hereby amends the following items, financial statements, exhibits or other portions of its Reports on Form 8-K dated August 2, 1996 and September 11, 1996, respectively, as set forth in the pages attached hereto. Item 7. Financial Statements and Exhibits. The financial statements are amended by filing the following financial statements and pro forma financial information:
ACQUIRED BUSINESSES FINANCIAL STATEMENTS CPI GROUP: Combined Financial Statements: Independent Auditor's Report...................................................... F-1 Combined Balance Sheets as of December 31, 1994 and 1995.......................... F-2 Combined Statements of Income for the Years Ended December 31, 1993, 1994 and 1995............................................................................. F-3 Combined Statements of Stockholders' Equity for the Years Ended December 31, 1993, 1994 and 1995.................................................................... F-4 Combined Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995............................................................................. F-5 Notes to the Combined Financial Statements........................................ F-6 Unaudited Combined Interim Financial Statements: Combined Interim Balance Sheets as of June 30, 1995 and June 30, 1996............. F-13 Combined Interim Statements of Income for the Six Months Ended June 30, 1995 and 1996............................................................................. F-14 Combined Interim Statements of Stockholders' Equity for the Six Months Ended June 30, 1995 and 1996................................................................ F-15 Combined Interim Statements of Cash Flows for the Six Months Ended June 30, 1995 and 1996......................................................................... F-16 Notes to Combined Interim Financial Statements.................................... F-17 USC EUROPE (AEROSOLS DIVESTITURE PACKAGE): Combined Financial Statements: Report of Independent Accountants................................................. F-23 Combined Statements of Financial Position as of December 31, 1994 and 1995........ F-24 Combined Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995............................................................................. F-25 Notes to the Combined Financial Statements........................................ F-26 Unaudited Combined Interim Financial Statements: Combined Interim Statement of Financial Position as of June 30, 1996.............. F-34 Combined Interim Statements of Operations for the Six Months Ended June 30, 1995 and 1996......................................................................... F-35 Notes to the Combined Interim Financial Information............................... F-36 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS U.S. CAN CORPORATION AND SUBSIDIARIES: Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 1996............. F-43 Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 1995.................................................................. F-44 Unaudited Pro Forma Condensed Combined Statement of Operations for the Six Months Ended July 2, 1995....................................................................... F-45 Unaudited Pro Forma Condensed Combined Statement of Operations for the Six Months Ended June 30, 1996...................................................................... F-46 Notes to Unaudited Pro Forma Condensed Combined Financial Statements................. F-47
In connection with the USC Europe Acquisition consummated September 11, 1996, Crown (as defined herein) provided to the Company audited balance sheets and income statements for USC Europe for the years 1993 through 1995. However, the various entities which constitute USC Europe historically have been organized in a manner that does not permit consolidation or combining of individual capital accounts, and the financing and cash management for the various entities were centralized in a manner that did not permit identification of cash flows at the USC Europe level prior to the USC Europe Acquisition. Consequently, the Company is unable to provide historical statements of cash flows and historical statements of changes in stockholder's equity for USC Europe for the periods prior to the USC Europe Acquisition, and therefore the Company cannot meet the requirements of Rules 3-02 and 3-04 of Regulation S-X to file statements of cash flows and statements of changes in stockholder's equity for USC Europe. The staff of the Commission, in a letter dated September 19, 1996, has indicated that so long as the Company presents financial information concerning USC Europe consisting of combined statements of financial position and combined statements of operations prepared in conformity with United States Generally Accepted Accounting Principles ("GAAP") for all periods specified by Rules 3-02 and 3-05 of Regulation S-X, the staff of the Commission will not object to the Company's presentation of financial data regarding USC Europe. However, the Commission staff has stated that, in light of the significance of USC Europe to the Company, narrative discussion of the operating cash flow characteristics of USC Europe, quantified to the extent practicable, should be provided. The Commission staff also stated that historical investing and financing transactions that would be material to a shareholder's understanding of the operations of USC Europe should also be disclosed and that the Company should also disclose the reasonably likely effects of the acquisition of USC Europe on the Company's cash flows, liquidity, capital resources and results of operations. The financial statements for USC Europe supplied by Crown and included herein have been prepared in accordance with international accounting principles issued by the International Accounting Standards Committee. These principles, as applied to the USC Europe combined financial statements included herein, do not differ materially from GAAP with the exception of certain disclosure requirements. Such combined financial statements are not intended to be a complete presentation of USC Europe's financial position or cash flows. USC Europe's liquidity needs since January 1995 have principally been met through internally generated cash flows or advances from its previous owners. Working capital increased to $25.1 million as of June 30, 1996 from $24.4 million and $15.0 million as of December 31, 1995 and 1994, respectively. Net income plus non-cash depreciation and amortization charges and less the change in working capital amounted to $4.5 million and ($0.5 million) for the six months ended June 30, 1996 and the year ended December 31, 1995, respectively. Based on information provided to the Company by Crown, capital expenditures for USC Europe were approximately $4.6 million, $8.5 million and $4.8 million for the six months ended June 30, 1996 and the years ended December 31, 1995 and 1994, respectively. Indebtedness of USC Europe decreased from $12.6 million as of December 31, 1994 to $10.8 million as of December 31, 1995 and $8.9 million as of June 30, 1996. Changes to Crown's net investment in USC Europe, excluding the effect of net income on such investment, was an increase of $11.2 million during the year ended December 31, 1995 and a decrease of $2.2 million during the six months ended June 30, 1996. Based on USC Europe's performance in the six months ended June 30, 1996, the Company expects that USC Europe will increase the Company's consolidated cash flows, enhance its liquidity and improve consolidated results of operations. INCLUSION OF FORWARD-LOOKING INFORMATION Certain of the foregoing statements constitute "forward-looking statements" within the meaning of Section 21E of the Exchange Act. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following: general economic and business and market conditions, changes in product demand, changes in competition, the ability of the Company to integrate acquisitions or complete future acquisitions, interest rate fluctuations, currency fluctuations, dependence on raw material producers, dependence on and availability of qualified personnel, changes in or failure to comply with governmental regulations including environmental laws, ability to obtain adequate financing in the future and other factors indicated in the Company's other filings with the Commission. These important factors may also cause the forward-looking statements made by the Company in this report to be materially different from actual results achieved by the Company. In light of these and other uncertainties, the inclusion of a forward-looking statement herein should not be regarded as a representation by the Company that the Company's plans and objectives will be achieved. EXHIBITS Consent of Independent Accountants: Plante & Moran LLP Exhibit 23.1 Consent of Independent Accountants: Befec-Price Waterhouse Exhibit 23.2 3 INDEPENDENT AUDITOR'S REPORT To the Directors and Stockholders CPI Plastics, Inc., CP Illinois, Inc. and CP Ohio, Inc. We have audited the accompanying combined balance sheet of CPI Plastics, Inc., CP Illinois, Inc. and CP Ohio, Inc. as of December 31, 1994 and 1995 and the related combined statements of income, stockholders' equity and cash flows for each year in the three-year period ended December 31, 1995. These combined financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these combined 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 audits 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 combined financial statements referred to above present fairly, in all material respects, the combined financial position of CPI Plastics, Inc., CP Illinois, Inc. and CP Ohio, Inc. at December 31, 1994 and 1995 and the combined results of their operations and their cash flows for each year in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. PLANTE & MORAN, LLP Southfield, Michigan February 2, 1996 F-1 4 CPI PLASTICS, INC. ET AL. (NOTE 1) COMBINED BALANCE SHEET
DECEMBER 31 -------------------------- 1994 1995 ----------- ----------- ASSETS CURRENT ASSETS Cash............................................................ $ 53,751 $ 9,749 Accounts receivable: Trade -- Less allowance for doubtful accounts of $35,000 in 1994 and $70,000 in 1995.................................... 2,647,937 2,795,737 Officer...................................................... -- 68,554 Notes receivable -- Stockholders (Note 2)....................... 995,000 995,000 Inventories (Note 3)............................................ 2,041,758 2,377,137 Prepaid expenses and other...................................... 121,898 236,281 ----------- ----------- Total current assets......................................... 5,860,344 6,482,458 PROPERTY AND EQUIPMENT (Note 4)................................... 8,637,134 8,439,678 OTHER ASSETS (Note 5)............................................. 69,044 47,106 ----------- ----------- Total assets................................................. $14,566,522 $14,969,242 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable (Note 6): Bank......................................................... $ 2,427,763 $ 1,781,373 Stockholders................................................. 1,560,000 1,560,000 Current portion of long-term debt (Note 7)...................... 1,439,664 1,475,014 Accounts payable -- Trade....................................... 2,819,235 2,622,470 Accrued payroll and related liabilities......................... 321,503 362,652 Other accrued liabilities (Note 4).............................. 419,345 492,575 ----------- ----------- Total current liabilities.................................... 8,987,510 8,294,084 LONG-TERM LIABILITIES Debt (Note 7)................................................... 1,491,008 895,994 Other (Note 4).................................................. 647,646 416,470 STOCKHOLDERS' EQUITY (Note 8) Common stock.................................................... 300,000 300,000 Paid-in capital................................................. 400,000 400,000 Retained earnings............................................... 2,740,358 4,662,694 ----------- ----------- Total stockholders' equity................................... 3,440,358 5,362,694 ----------- ----------- Total liabilities and stockholders' equity................... $14,566,522 $14,969,242 =========== ===========
See Notes to Combined Financial Statements. F-2 5 CPI PLASTICS, INC. ET AL. (NOTE 1) COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31 ----------------------------------------- 1993 1994 1995 ----------- ----------- ----------- NET SALES.......................................... $22,263,167 $25,946,351 $29,350,842 COST OF SALES...................................... 19,262,875 22,361,752 24,906,390 ----------- ----------- ----------- GROSS PROFIT....................................... 3,000,292 3,584,599 4,444,452 SELLING AND ADMINISTRATIVE EXPENSES................ 1,813,659 2,005,680 1,861,804 ----------- ----------- ----------- OPERATING INCOME................................... 1,186,633 1,578,919 2,582,648 INTEREST EXPENSE................................... 649,327 637,943 660,312 ----------- ----------- ----------- NET INCOME......................................... $ 537,306 $ 940,976 $ 1,922,336 =========== =========== ===========
See Notes to Combined Financial Statements. F-3 6 CPI PLASTICS, INC. ET AL. (NOTE 1) COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
ADDITIONAL TOTAL COMMON PAID-IN RETAINED STOCKHOLDERS' STOCK CAPITAL EARNINGS EQUITY -------- ---------- ---------- ------------- BALANCE -- January 1, 1993................... $300,000 $ 400,000 $1,306,076 $ 2,006,076 Net income................................... -- -- 537,306 537,306 Cash dividends............................... -- -- (44,000) (44,000) -------- -------- ---------- ---------- BALANCE -- January 1, 1994................... 300,000 400,000 1,799,382 2,499,382 Net income................................... -- -- 940,976 940,976 -------- -------- ---------- ---------- BALANCE -- January 1, 1995................... 300,000 400,000 2,740,358 3,440,358 Net income................................... -- -- 1,922,336 1,922,336 -------- -------- ---------- ---------- BALANCE -- December 31, 1995................. $300,000 $ 400,000 $4,662,694 $ 5,362,694 ======== ======== ========== ==========
See Notes to Combined Financial Statements. F-4 7 CPI PLASTICS, INC. ET AL. (NOTE 1) COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31 ----------------------------------------- 1993 1994 1995 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income....................................... $ 537,306 $ 940,976 $ 1,922,336 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization................. 1,171,063 1,240,301 1,268,332 Bad debt expense.............................. 29,605 722 35,000 Loss on disposal.............................. -- -- 2,745 Changes in assets and liabilities: Increase in accounts receivable............. (462,253) (423,471) (251,354) (Increase) decrease in inventories.......... (203,839) 129,124 (335,379) (Increase) decrease in prepaid expenses..... 164,324 (99,471) (114,382) (Increase) decrease in other assets......... (49) 14,636 -- Increase (decrease) in accounts payable..... (178,801) 814,223 (196,765) Increase in accrued payroll and other accrued liabilities...................... 101,631 24,063 185,822 ----------- ----------- ----------- Net cash provided by operating activities............................. 1,158,987 2,641,103 2,516,355 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property and equipment..... 9,070 -- 5,500 Purchase of property and equipment............... (361,618) (1,000,115) (1,359,803) Issuance of note receivable...................... (80,000) -- -- Collections on note receivable................... 32,751 -- -- ----------- ----------- ----------- Net cash used in investing activities.... (399,797) (1,000,115) (1,354,303) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds (repayments) on short-term debt -- Net........................................... 480,266 (66,503) (646,390) Principal payments on long-term debt............. (1,813,840) (1,499,636) (1,439,664) Proceeds (repayments) from issuance of long-term debt.......................................... -- (37,658) 880,000 Proceeds from issuance of notes to stockholders.................................. 580,000 -- -- Dividends paid................................... (6,342) -- -- ----------- ----------- ----------- Net cash used in financing activities.... (759,916) (1,603,797) (1,206,054) ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH.................... (726) 37,191 (44,002) CASH -- Beginning of year.......................... 17,286 16,560 53,751 ----------- ----------- ----------- CASH -- End of year................................ $ 16,560 $ 53,751 $ 9,749 =========== =========== ===========
See Notes to Combined Financial Statements. F-5 8 CPI PLASTICS, INC. ET AL. (NOTE 1) NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1994 AND 1995 NOTE 1 NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES The Companies operate plants in Georgia, Illinois and Ohio and are engaged in manufacturing plastic shipping containers. The Companies' customers are located throughout the United States and are engaged in the chemical, petroleum, paint and food industries. Principles of Combination -- The combined financial statements include the following companies that are related by common ownership: CPI Plastics, Inc. CP Illinois, Inc. CP Ohio, Inc. All material intercompany accounts and transactions have been eliminated in the accompanying combined financial statements. Inventories -- Inventories are stated at the lower of cost, determined by the last-in, first-out (LIFO) method, or market. Property and Equipment -- Property and equipment are recorded at cost. Depreciation is computed principally on the straight-line basis over the estimated useful lives of the assets. Costs of maintenance and repairs are charged to expense when incurred. Intangible Assets -- Patents are being amortized on the straight-line basis over their remaining lives. Goodwill is being amortized on the straight-line basis over ten years. Organization costs are recorded at cost and are being amortized on the straight-line basis over five to ten years. Major Customers -- One major customer accounted for approximately 31, 32 and 36 percent of sales for the years ended December 31, 1993, 1994 and 1995, respectively. Accounts receivable from this customer was $724,013, $869,390 and $801,423 as of December 31, 1993, 1994 and 1995, respectively. Income Taxes -- The Companies have elected to be treated as S Corporations for income tax purposes. Under this election, the stockholders report the taxable income (or loss) and pay any income tax (or receive any tax benefit) personally. Pension Plans -- CPI Plastics, Inc. maintains a defined contribution plan for its union employees. Contributions in 1993 and 1994 were based on a percentage of employee compensation. Contributions for 1995 are based upon $.30 for each hour worked. Contributions were paid not less than annually based on the provisions set forth by each plan. Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 NOTES RECEIVABLE -- STOCKHOLDERS Notes receivable -- stockholders represent unsecured demand loans to stockholders. The loans bear interest at 8 percent to 10 percent per annum. Interest income earned relating to these notes amounted to $73,200, $81,400 and $81,400 for the years ended December 31, 1993, 1994 and 1995, respectively. F-6 9 CPI PLASTICS, INC. ET AL. (NOTE 1) NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 NOTE 3 INVENTORIES Inventories at December 31 are comprised of the following:
1994 1995 ---------- ---------- Current cost: Raw materials: Resin.......................................... $1,061,857 $ 869,723 Other.......................................... 435,117 655,448 Finished goods.................................... 1,152,154 1,325,979 ---------- ---------- Total current cost........................... 2,649,128 2,851,150 Excess of current cost over LIFO.................... 607,370 474,013 ---------- ---------- LIFO cost.................................... $2,041,758 $2,377,137 ========== ==========
NOTE 4 PROPERTY AND EQUIPMENT Cost of property and equipment is summarized as follows:
1994 1995 ----------- ----------- Land.............................................. $ 90,000 $ 90,000 Land improvements................................. 1,479,085 1,475,442 Building and improvements......................... 1,264,019 1,330,591 Machinery and equipment........................... 7,886,027 8,299,224 Molds............................................. 3,631,129 4,175,350 Furniture and fixtures............................ 156,030 180,800 ----------- ----------- Total cost................................... 14,506,290 15,551,407 Less accumulated depreciation..................... 5,869,156 7,111,729 ----------- ----------- Net carrying amount.......................... $ 8,637,134 $ 8,439,678 =========== ===========
Depreciation expense totaled $1,090,093, $1,173,919 and $1,246,394 during the years ended December 31, 1993, 1994 and 1995, respectively. During 1994, the Companies identified an environmental problem on one of their real properties. In connection with remediation of the problem, the Companies have capitalized the estimated total corrective cost of approximately $1,415,000 as land improvements. Approximately $563,000 and $303,000 was paid in 1994 and 1995, respectively, and the remainder has been classified in the accompanying balance sheet based on the expected payment period. F-7 10 CPI PLASTICS, INC. ET AL. (NOTE 1) NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 NOTE 5 OTHER ASSETS Intangible assets included in other assets consist of the following:
1994 1995 ----------- ----------- Patents........................................... $ 400,000 $ 400,000 Goodwill.......................................... 80,000 80,000 Organization costs................................ 149,791 149,791 -------- -------- Total cost................................... 629,791 629,791 Less accumulated amortization..................... 582,665 604,603 -------- -------- Net carrying amount.......................... $ 47,126 $ 25,188 ======== ========
Total amortization expense charged to operations during the years ended December 31, 1993, 1994 and 1995 was $80,970, $66,382 and $21,938, respectively. Other assets also includes a deposit with an insurance carrier in the amount of $21,918 at December 31, 1994 and 1995. NOTE 6 NOTES PAYABLE Notes payable consist of the following:
1994 1995 ---------- ---------- Line of credit with a bank with a ceiling of $4,000,000, requiring monthly payment of interest at one-half of 1% above the prime rate, (8.5 percent at December 31, 1994 and 1995) collateralized by property and equipment, accounts receivable and inventories of the Companies (also see Note 7)....................................... $2,427,763 $1,781,373 ========== ========== Unsecured demand notes payable to stockholders, bearing interest at rates ranging from 8% to 10% per annum......................................... $1,560,000 $1,560,000 ========== ==========
F-8 11 CPI PLASTICS, INC. ET AL. (NOTE 1) NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 NOTE 7 LONG-TERM DEBT
1994 1995 ---------- ---------- Term loan payable to bank in monthly installments of $119,972 plus interest at 1% over the prime rate, (8.5 percent at December 31, 1994 and 1995) maturing January 1997, collateralized by substantially all assets of the Company. During 1995, the note was amended and increased by $700,000.......................................... $2,930,672 $2,191,008 Equipment note payable, bearing interest at 8.25%, payable in monthly installments of $4,415 beginning February 1996, including interest, collateralized by specific items of equipment..... -- 180,000 ---------- ---------- Total........................................ 2,930,672 2,371,008 Less current portion......................... 1,439,664 1,475,014 ---------- ---------- Long-term portion............................ $1,491,008 $ 895,994 ========== ==========
In connection with the line of credit and term loan, the Companies have agreed to, among other things, covenants that require maintenance of certain working capital and fixed charge ratios, prohibit payments for dividends or stock redemptions and place restrictions on repayment of subordinated stockholder notes. Minimum principal payments on long-term debt to maturity as of December 31, 1995 are as follows: 1996................................ $1,475,014 1997................................ 793,985 1998................................ 46,295 1999................................ 50,262 2000................................ 5,452 ---------- Total............................. $2,371,008 ==========
Total interest expense incurred during the years ended December 31, 1993, 1994 and 1995 was $649,327, $637,943 and $660,312, respectively, including approximately $139,000, $124,000 and $152,400 to notes payable to stockholders in 1993, 1994 and 1995, respectively. F-9 12 CPI PLASTICS, INC. ET AL. (NOTE 1) NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 NOTE 8 STOCKHOLDERS' EQUITY Stockholders' equity consists of the following as of December 31, 1994 and 1995:
CPI PLASTICS, CP ILLINOIS, CP OHIO, INC. INC. INC. TOTAL ------------- ------------ --------- ---------- 1994 Common stock -- $100 par value, 1,000 shares authorized and issued for each Company.... $ 100,000 $ 100,000 $ 100,000 $ 300,000 Additional paid-in capital.................. 400,000 -- -- 400,000 Retained earnings (accumulated deficit)..................... 3,579,440 130,296 (969,378) 2,740,358 ---------- -------- --------- ---------- Total stockholders' equity (deficit)...... $ 4,079,440 $ 230,296 $(869,378) $3,440,358 ========== ======== ========= ========== 1995 Common stock -- $100 par value, 1,000 shares authorized and issued for each Company.... $ 100,000 $ 100,000 $ 100,000 $ 300,000 Additional paid-in capital.................. 400,000 -- -- 400,000 Retained earnings (accumulated deficit)..................... 5,185,340 395,414 (918,060) 4,662,694 ---------- -------- --------- ---------- Total stockholders' equity (deficit)...... $ 5,685,340 $ 495,414 $(818,060) $5,362,694 ========== ======== ========= ==========
NOTE 9 LEASE COMMITMENTS CP Ohio, Inc. leases its facility from an affiliate. The lease is renegotiated quarterly and currently provides for quarterly payments of $16,200. Additionally, the Companies lease transportation equipment and machinery under agreements expiring from 1995 to 2000. The following is a schedule of future minimum rental payments under the lease agreements: 1996.................................. $121,304 1997.................................. 20,709 1998.................................. 13,323 1999.................................. 8,489 2000.................................. 4,953 -------- Total............................... $168,778 ========
Rent expense for 1993, 1994 and 1995 amounted to $227,983, $251,010 and $241,278, respectively, including $64,800 to affiliates in each year. NOTE 10 MANAGEMENT SERVICE FEES The Companies purchased certain sales, marketing and administrative services from an affiliate through February 1994. Expenses of the Companies approximated $656,000 in 1993 and $86,000 in 1994 related to such services. NOTE 11 EMPLOYEE BENEFIT PLANS The total expense for the Companies' defined contribution pension plans amounted to $125,605, $35,847 and $38,540 for the years ended December 31, 1993, 1994 and 1995, respectively. F-10 13 CPI PLASTICS, INC. ET AL. (NOTE 1) NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 The Companies have a partially self-insured medical and dental plan for the benefit of substantially all employees. Under the plan, the Companies are liable for claims up to a maximum annual amount of $100,000 per employee and approximately $750,000 in the aggregate. Expenses incurred under the plan, including administrative charges, approximated $606,000, $631,000 and $592,000 in 1993, 1994 and 1995, respectively. During 1995, CPI Plastics, Inc. and CP Illinois, Inc. were partially uninsured for workers' compensation claims. The Companies have insurance coverage that limits the workers' compensation loss. Under the plan, the maximum loss is limited to $500,000 with a $2,500 deductible per occurrence. CP Ohio, Inc. maintains workers' compensation insurance with the State of Ohio. Total workers' compensation expense for 1993, 1994 and 1995 under the above plans amounted to approximately $500,000, $490,000 and $349,000, respectively. NOTE 12 SUPPLEMENTAL INCOME INFORMATION As disclosed in the combined financial statements, the Companies use the last-in, first-out (LIFO) method of costing inventories. Following is summarized financial data showing what the results would have been if the first-in, first-out (FIFO) method had been used:
1993 1994 1995 ----------- ----------- ----------- Inventories at lower of cost, (first in, first-out) or market.......... $ 2,426,043 $ 2,649,128 $ 2,851,150 =========== =========== =========== Net sales........................... $22,263,167 $25,946,351 $29,350,842 Cost of sales....................... 19,238,569 22,009,543 25,039,747 ----------- ----------- ----------- Gross profit........................ $ 3,024,598 $ 3,936,808 $ 4,311,095 =========== =========== =========== Net income.......................... $ 561,612 $ 1,293,185 $ 1,788,979 =========== =========== ===========
NOTE 13 CASH FLOWS During 1993, a significant noncash financing activity consisted of the declaration of a cash dividend of $44,000, of which $37,658 was not paid. Cash paid for interest during the years ended December 31, 1993, 1994 and 1995 was $679,592, $628,360 and $661,312, respectively. NOTE 14 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash, Trade Accounts Receivable and Payable, Accrued Receivables and Accrued Liabilities -- The fair value approximates the carrying amount because of the short maturity of these instruments. Long-term Debt -- The carrying amount of the Companies' long-term debt, $2,371,008 at December 31, 1995, approximates the fair value and is estimated based on rates currently available to the Company; however, it may not be possible to settle the liability at the reported value. Notes Receivable from Stockholders -- The estimated fair value of these instruments, which approximates the carrying amount, has been determined by discounting the future cash flows using the interest rate at which the Companies would currently make similar loans to stockholders. F-11 14 CPI PLASTICS, INC. ET AL. (NOTE 1) NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 Notes Payable to Bank and Stockholders -- The carrying amount of notes payable to bank and stockholders of $1,781,373 and $1,560,000, respectively, at December 31, 1995 approximates the fair value because of the short maturity of those instruments. F-12 15 CPI PLASTICS, INC. ET AL. (NOTE 1) COMBINED INTERIM BALANCE SHEET
JUNE 30 -------------------------- 1995 1996 ----------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents....................................... $ 726,642 $ 16,117 Accounts receivable: Trade -- Less allowance for doubtful accounts of $50,000 in 1995 and $35,000 in 1996.................................... 3,295,943 3,595,724 Notes receivable -- Stockholders (Note 2)....................... 995,000 995,000 Inventories (Note 3)............................................ 1,816,072 1,986,793 Prepaid expenses and other...................................... 124,718 216,800 ----------- ----------- Total current assets......................................... 6,958,375 6,810,434 PROPERTY AND EQUIPMENT (Note 4)................................... 8,483,322 8,273,141 OTHER ASSETS (Note 5)............................................. 57,280 72,363 ----------- ----------- Total assets................................................. $15,498,977 $15,155,938 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable (Note 6): Bank......................................................... $ 3,513,000 $ 2,971,373 Stockholders................................................. 1,560,000 995,000 Current portion of long-term debt (Note 7)...................... 1,439,664 1,512,097 Accounts payable -- Trade....................................... 2,085,311 2,657,637 Accrued payroll and related liabilities......................... 236,263 214,404 Other accrued liabilities (Note 4).............................. 273,977 487,292 ----------- ----------- Total current liabilities.................................... 9,108,215 8,837,803 LONG-TERM LIABILITIES Debt (Note 7)................................................... 1,471,176 123,769 Other (Note 4).................................................. 638,409 412,422 STOCKHOLDERS' EQUITY Common stock, $100 par value, 1,000 shares authorized and issued for each Company............................................. 300,000 300,000 Paid-in capital................................................. 400,000 400,000 Retained earnings............................................... 3,581,177 5,081,944 ----------- ----------- Total stockholders' equity................................... 4,281,177 5,781,944 ----------- ----------- Total liabilities and stockholders' equity................... $15,498,977 $15,155,938 =========== ===========
See Notes to Combined Interim Financial Statements. F-13 16 CPI PLASTICS, INC. ET AL. (NOTE 1) COMBINED INTERIM STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30 -------------------------- 1995 1996 ----------- ----------- NET SALES....................................................... $15,853,099 $15,739,682 COST OF SALES................................................... 13,727,307 12,378,353 ----------- ----------- GROSS PROFIT.................................................... 2,125,792 3,361,329 SELLING AND ADMINISTRATIVE EXPENSES............................. 942,971 1,173,154 ----------- ----------- OPERATING INCOME................................................ 1,182,821 2,188,175 INTEREST EXPENSE................................................ 342,002 266,259 ----------- ----------- NET INCOME...................................................... $ 840,819 $ 1,921,916 =========== ===========
See Notes to Combined Interim Financial Statements. F-14 17 CPI PLASTICS, INC. ET AL. (NOTE 1) COMBINED INTERIM STATEMENT OF STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL TOTAL ------------------ PAID-IN RETAINED STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS EQUITY ------ -------- ---------- ----------- ------------- BALANCE -- January 1, 1995......... 3,000 $300,000 $ 400,000 $ 2,740,358 $ 3,440,358 Net income -- Six months ended June 30, 1995......................... -- -- -- 840,819 840,819 ----- -------- -------- ----------- ----------- BALANCE -- June 30, 1995........... 3,000 $300,000 $ 400,000 $ 3,581,177 $ 4,281,177 ===== ======== ======== =========== =========== BALANCE -- January 1, 1996......... 3,000 $300,000 $ 400,000 $ 4,662,694 $ 5,362,694 Net income -- Six months ended June 30, 1996......................... -- -- -- 1,921,916 1,921,916 Cash distributions................. -- -- -- (1,502,666) (1,502,666) ----- -------- -------- ----------- ----------- BALANCE -- June 30, 1996........... 3,000 $300,000 $ 400,000 $ 5,081,944 $ 5,781,944 ===== ======== ======== =========== ===========
See Notes to Combined Interim Financial Statements. F-15 18 CPI PLASTICS, INC. ET AL. (NOTE 1) COMBINED INTERIM STATEMENT OF CASH FLOWS
PERIOD ENDED JUNE 30 ------------------------- 1995 1996 ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income...................................................... $ 840,819 $ 1,921,916 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization................................ 628,106 680,551 Bad debt expense............................................. 8,080 16,000 Changes in assets and liabilities: Increase in accounts receivable............................ (656,086) (747,433) Decrease in inventories.................................... 225,686 390,344 Decrease (increase) in prepaid expenses.................... (2,820) 19,481 Increase in other assets................................... -- (33,000) Increase (decrease) in accounts payable.................... (733,924) 35,167 Decrease in accrued payroll and other accrued liabilities............................................... (239,845) (157,579) ----------- ---------- Net cash provided by operating activities............... 70,016 2,125,447 CASH FLOWS FROM INVESTING ACTIVITIES -- Purchase of property and equipment....................................................... (462,530) (506,271) CASH FLOWS FROM FINANCING ACTIVITIES Borrowings on short-term debt, net.............................. 1,085,237 1,190,000 Repayment on stockholders' debt................................. -- (565,000) Principal payments on long-term debt............................ (719,832) (915,142) Proceeds from issuance of long-term debt........................ 700,000 180,000 Dividends paid.................................................. -- (1,502,666) ----------- ---------- Net cash (used in) provided by financing activities..... 1,065,405 (1,612,808) ----------- ---------- NET INCREASE IN CASH.............................................. 672,891 6,368 CASH AND CASH EQUIVALENTS -- Beginning of period.................. 53,751 9,749 ----------- ---------- CASH AND CASH EQUIVALENTS -- End of period........................ $ 726,642 $ 16,117 =========== ==========
See Notes to Combined Interim Financial Statements. F-16 19 CPI PLASTICS, INC. ET AL. (NOTE 1) NOTES TO COMBINED INTERIM FINANCIAL STATEMENTS JUNE 30, 1995 AND 1996 NOTE 1 NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES The Companies operate plants in Georgia, Illinois and Ohio and are engaged in manufacturing plastic shipping containers. The Companies' customers are located throughout the United States and are engaged in the chemical, petroleum, paint and food industries. Principles of Combination -- The combined financial statements include the following companies that are related by common ownership: CPI Plastics, Inc. CP Illinois, Inc. CP Ohio, Inc. All material intercompany accounts and transactions have been eliminated in the accompanying combined interim financial statements. Cash Equivalents -- The Companies consider all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Inventories -- Inventories are stated at the lower of cost, determined by the last-in, first-out (LIFO) method, or market. Property and Equipment -- Property and equipment are recorded at cost. Depreciation is computed principally on the straight-line basis over the estimated useful lives of the assets. Cost of maintenance and repairs are charged to expense when incurred. Intangible Assets -- Patents are being amortized on the straight-line basis over their remaining lives. Goodwill is being amortized on the straight-line basis over ten years. Organization costs are recorded at cost and are being amortized on the straight-line basis over five to ten years. Major Customers -- Three customers accounted for approximately 45 percent of sales for each of the six months ended June 30, 1995 and 1996. Accounts receivable from these customers approximated $1,200,000 as of June 30, 1995 and 1996. Income Taxes -- The Companies have elected to be treated as S Corporations for income tax purposes. Under this election, the stockholders report the taxable income (or loss) and pay any income tax (or receive any tax benefit) personally. Pension Plans -- CPI Plastics, Inc. maintains a defined contribution plan for its union employees. Contributions are based upon $.30 for each hour worked. Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 NOTES RECEIVABLE -- STOCKHOLDERS Notes receivable -- stockholders represent unsecured demand loans to stockholders. The loans bear interest at 10 percent per annum. F-17 20 CPI PLASTICS, INC. ET AL. (NOTE 1) NOTES TO COMBINED INTERIM FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 1995 AND 1996 NOTE 3 INVENTORIES Inventories are comprised of the following:
1995 1996 ---------- ---------- Current cost: Raw materials: Resin.......................................... $ 826,531 $ 655,934 Other.......................................... 545,822 657,767 Finished goods.................................... 1,152,099 1,175,195 ---------- ---------- Total current cost........................... 2,524,452 2,488,896 Excess of current cost over LIFO.................... 708,380 502,103 ---------- ---------- LIFO cost.................................... $1,816,072 $1,986,793 ========== ==========
NOTE 4 PROPERTY AND EQUIPMENT Cost of property and equipment is summarized as follows:
1995 1996 ----------- ----------- Land.............................................. $ 90,000 $ 90,000 Land improvements................................. 1,465,599 1,507,522 Building and improvements......................... 1,322,755 1,330,591 Machinery and equipment........................... 8,011,380 8,402,205 Molds............................................. 3,917,570 4,546,560 Furniture and fixtures............................ 161,516 180,800 ----------- ----------- Total cost................................... 14,968,820 16,057,678 Less accumulated depreciation..................... (6,485,498) (7,784,537) ----------- ----------- Net carrying amount.......................... $ 8,483,322 $ 8,273,141 =========== ===========
Depreciation expense totaled $616,342 for the six-month period ended June 30, 1995 and $672,808 for the six-month period ended June 30, 1996. During 1994, the Companies identified an environmental problem on one of their real properties. In connection with remediation of the problem, the Companies have capitalized the estimated total corrective cost of approximately $1,448,000 as land improvements. Approximately $158,000 and $82,000 was paid during the six-month periods ended June 30, 1995 and 1996, respectively, and the remainder has been classified in the accompanying balance sheet based on the expected payment period. F-18 21 CPI PLASTICS, INC. ET AL. (NOTE 1) NOTES TO COMBINED INTERIM FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 1995 AND 1996 NOTE 5 OTHER ASSETS Intangible assets included in other assets consist of the following:
1996 1995 ----------- ----------- Patents........................................... $ 400,000 $ 400,000 Goodwill.......................................... 80,000 80,000 Organization costs................................ 149,791 149,791 --------- --------- Total cost................................... 629,791 629,791 Less accumulated amortization..................... (594,429) (612,346) --------- --------- Net carrying amount.......................... $ 35,362 $ 17,445 ========= =========
Total amortization expense charged to operations during the six-month periods ended June 30, 1995 and 1996 was $11,764 and $7,743, respectively. Other assets also include deposits with insurance carriers in the amount of $21,918 and $54,918 at June 30, 1995 and 1996, respectively. NOTE 6 NOTES PAYABLE Notes payable consist of the following:
1995 1996 ---------- ---------- Line of credit with a bank with a ceiling of $4,000,000, requiring monthly payment of interest at .50% above the prime rate, (9% and 7% at June 30, 1995 and 1996, respectively) collateralized by property and equipment, accounts receivable and inventories of the Companies (also see Note 7).... $3,513,000 $2,971,373 ========== ========== Unsecured demand notes payable to stockholders, bearing interest at rates ranging from 8% to 10% per annum......................................... $1,560,000 $ 995,000 ========== ==========
F-19 22 CPI PLASTICS, INC. ET AL. (NOTE 1) NOTES TO COMBINED INTERIM FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 1995 AND 1996 NOTE 7 LONG-TERM DEBT
1995 1996 ---------- ---------- Term loan payable to bank in monthly installments of $119,972 plus interest at 1% over the prime rate, (9% and 7% at June 30, 1995 and 1996, respectively) maturing January 1997, collateralized by substantially all assets of the Company. During the six-month period ended June 30, 1995, the note was amended and increased by $700,000.......................................... $2,910,840 $1,471,176 Equipment note payable, bearing interest at 8.25%, payable in monthly installments of $4,415 beginning February 1996, including interest, collateralized by specific items of equipment..... -- 164,690 ---------- ---------- Total........................................ 2,910,840 1,635,866 Less current portion......................... 1,439,664 1,512,097 ---------- ---------- Long-term portion............................ $1,471,176 $ 123,769 ========== ==========
In connection with the line of credit and term loan, the Companies have agreed to, among other things, covenants requiring maintenance of certain working capital and fixed charge ratios, prohibit payments for dividends or stock redemptions and place restrictions on repayment of subordinated stockholder notes. Minimum principal payments on the long-term debt to maturity as of June 30, 1996 are as follows:
YEAR ENDING JUNE 30 AMOUNT ------------------------------------- ---------- 1997.............................. $1,512,097 1998.............................. 44,432 1999.............................. 48,056 2000.............................. 31,281 ---------- Total......................... $1,635,866 ==========
Total interest expense incurred during the six-month periods ended June 30, 1995 and 1996 was $342,002 and $266,259, respectively, including approximately $36,000 to related parties for both six-month periods ended June 30, 1995 and 1996. F-20 23 CPI PLASTICS, INC. ET AL. (NOTE 1) NOTES TO COMBINED INTERIM FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 1995 AND 1996 NOTE 8 LEASE COMMITMENTS CP Ohio, Inc. leases its facility from an affiliate. The lease is renegotiated quarterly and currently provides for quarterly payments of $16,200. Additionally, the Companies lease transportation and phone equipment and machinery under agreements expiring from 1996 to 2005. The following is a schedule of future minimum rental payments under the lease agreements: 1997.............................. $ 56,445 1998.............................. 23,001 1999.............................. 11,836 2000.............................. 8,688 2001 and after.................... 45,609 -------- Total......................... $145,579 ========
Rent expense for the six-month periods ended June 30, 1995 and 1996 amounted to $128,602 and $84,687, respectively, including $32,400 to affiliates in both 1995 and 1996. NOTE 9 EMPLOYEE BENEFIT PLANS The total expense for the Companies' defined contribution pension plans amounted to $20,130 for the six-month period ended June 30, 1995 and $19,476 for the six-month period ended June 30, 1996. The Companies have a partially self-insured medical and dental plan for the benefit of substantially all employees. Under the plan, the Companies are liable for claims up to a maximum annual amount of $100,000 per employee and approximately $750,000 in the aggregate. Expenses incurred under the plan, including administrative charges, approximated $341,915 in 1995 and $368,195 in 1996. NOTE 10 WORKERS' COMPENSATION Through April 1996, CPI Plastics, Inc. and CP Illinois, Inc. were partially uninsured for workers' compensation claims. The Companies have insurance coverage that limits the workers' compensation loss. Under the plan, the maximum loss is limited to $500,000 with a $2,500 deductible per occurrence. CP Ohio, Inc. maintains workers' compensation insurance with the State of Ohio. Total workers' compensation expense for the six-month periods ended June 30, 1995 and 1996 under the above plans amounted to approximately $178,000 and $116,000, respectively. F-21 24 CPI PLASTICS, INC. ET AL. (NOTE 1) NOTES TO COMBINED INTERIM FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 1995 AND 1996 NOTE 11 SUPPLEMENTAL INCOME INFORMATION As disclosed in the combined interim financial statements, the Companies use the last-in, first-out (LIFO) method of costing inventories. Following is summarized financial data showing what the results would have been if the first-in, first-out (FIFO) method had been used:
1995 1996 ----------- ----------- Inventories at lower of cost (first-in, first-out) or market....................................... $ 2,524,452 $ 2,488,896 =========== =========== Net sales......................................... $15,853,099 $15,739,682 Cost of sales..................................... 13,626,297 12,350,263 ----------- ----------- Gross profit...................................... $ 2,226,802 $ 3,389,419 =========== =========== Net income........................................ $ 941,829 $ 1,950,006 =========== =========== Total stockholders' equity........................ $ 4,989,557 $ 6,284,047 =========== ===========
NOTE 12 CASH FLOWS Cash paid for interest during the six-month periods ended June 30, 1995 and 1996 was $342,241 and $271,593, respectively. NOTE 13 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash, Trade Accounts Receivable and Payable, Accrued Receivables and Accrued Liabilities -- The carrying amount approximates fair value because of the short maturity of those instruments. Long-term Debt -- The fair value of the Companies' long-term debt, $1,635,866 at June 30, 1996, approximates its carrying amount and is estimated based on rates currently available to the Companies. Notes Receivable From Stockholders -- The estimated fair value of these instruments has been determined by discounting the future cash flows using the interest rate at which the Companies would currently make similar loans to stockholders. Notes Payable to Bank and Stockholders -- The carrying amount of notes payable to bank and stockholders of $2,971,373 and $995,000, respectively, at June 30, 1996 approximates fair value because of the short maturity of those instruments. NOTE 14 SUBSEQUENT EVENT On July 29, 1996, the Companies' common stock was acquired by United States Can Company. A portion of the proceeds was used by the stockholders as a capital contribution to pay, in full, the line of credit and term loans payable to bank as described in Notes 6 and 7. Additionally, during July 1996, in conjunction with the transaction, all real property and improvements were sold to a related entity and the notes receivable distributed resulting in a net decrease to retained earnings of approximately $2,070,000. F-22 25 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of CROWN CORK & SEAL COMPANY, INC. We have audited the accompanying combined statements of financial position of the Aerosols Divestiture Package (the "DP"), (a combination of several operations of Crown Cork & Seal Company, Inc. and CarnaudMetalbox, collectively the "Company"), at December 31, 1995 and 1994, and the combined statements of operations of the DP for the years ended December 31, 1995, 1994 and 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with 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. The accompanying combined financial statements were prepared in accordance with International Accounting Standards and on the basis of accounting described in Note A and are not intended to be a complete presentation of the DP's financial position or cash flows. In our opinion, based on our audits, the combined financial statements present fairly, in all material respects, the financial position of the DP at December 31, 1995 and 1994 and the results of its operations for the three years ended December 31, 1995, 1994 and 1993 in conformity with International Accounting Standards. Paris, March 1, 1996 Befec-Price Waterhouse Jean-Pierre Caroff F-23 26 AEROSOLS DIVESTITURE PACKAGE COMBINED STATEMENTS OF FINANCIAL POSITION (SEE NOTE A) (US DOLLARS IN THOUSANDS)
DECEMBER 31 -------------------- 1994 1995 ------- ------- ASSETS Current assets Accounts receivable -- trade...................................... $21,668 $25,904 Accounts receivable -- related parties............................ 1,216 1,395 Inventories....................................................... 19,294 22,255 Prepaid expenses and other current assets......................... 2,407 1,900 ------- ------- Total current assets...................................... 44,585 51,454 ------- ------- Property, plant and equipment, net................................ 40,957 45,804 Other non-current assets.......................................... 269 259 ------- ------- Total..................................................... $85,811 $97,517 ======= ======= LIABILITIES & OWNER'S NET INVESTMENT Current liabilities Short-term debt................................................... $ 4,424 $ 2,948 Accounts payable -- trade......................................... 16,071 15,048 Accounts payable -- related parties............................... 2,697 4,728 Accrued liabilities............................................... 6,377 4,288 ------- ------- Total current liabilities................................. 29,569 27,012 ------- ------- Long-term debt.................................................... 8,159 7,897 Other non-current liabilities..................................... 2,976 3,509 Owner's net investment............................................ 45,107 59,099 ------- ------- Total..................................................... $85,811 $97,517 ======= =======
The accompanying notes are an integral part of these financial statements. F-24 27 AEROSOLS DIVESTITURE PACKAGE COMBINED STATEMENTS OF OPERATIONS (SEE NOTE A) (US DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31 --------------------------------------- 1993 1994 1995 --------- --------- --------- Sales Trade.............................................. $ 88,884 $ 95,501 $ 109,471 Group.............................................. 4,807 7,666 9,635 --------- --------- --------- $ 93,691 $ 103,167 $ 119,106 ========= ========= ========= Costs and expenses Cost of products sold (excluding depreciation and amortization)................................... 81,380 86,150 99,156 Depreciation and amortization...................... 4,730 5,074 6,137 Selling and administrative expenses................ 5,208 4,610 5,700 Other (income)/expense -- net...................... (50) (274) 29 Management fees -- Group........................... 1,295 1,734 1,900 Provision for restructuring........................ 1,000 1,877 20 Interest expense................................... 2,035 1,541 1,445 --------- --------- --------- 95,598 100,712 114,387 --------- --------- --------- Income/(loss) before taxes........................... (1,907) 2,455 4,719 Provision for income taxes........................... 614 1,312 1,915 --------- --------- --------- Net income/(loss).................................... $ (2,521) $ 1,143 $ 2,804 ========= ========= =========
The accompanying notes are an integral part of these financial statements. F-25 28 AEROSOLS DIVESTITURE PACKAGE NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1995 (US DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------- A. BASIS OF PRESENTATION In January 1996 Crown Cork & Seal Company, Inc. ("Crown") offered to purchase all outstanding shares of CarnaudMetalbox SA for either cash or Crown shares. The transaction was initiated by an announcement on May 22, 1995 that Crown and Compagnie Generale d'Industrie et de Participations ("CGIP"), the principal shareholder of CarnaudMetalbox, had signed an agreement under which CGIP irrevocably committed (subject to certain conditions which were subsequently met) to sell its shares to Crown. The proposed transaction was reviewed by the European Commission and approved by the Commission on November 15, 1995. The offer closed on February 1, 1996 resulting in 98.7% of outstanding shares being tendered. The European Commission's approval was conditional on the divestiture of five aerosol businesses within the aerosols' operations, hereafter referred to as the Divestiture Package ("DP"). The group of companies constituting Crown and CarnaudMetalbox, excluding operations comprising the DP, is hereafter referred to as the "Group". The DP includes the following aerosol can making operations:
COUNTRY LOCATION ------------------------------------------ ------------------------------------------ France.................................... Laon Germany................................... Schwedt Italy..................................... Voghera Spain..................................... Reus United Kingdom ("UK")..................... Southall/Tredegar
The accompanying Combined (combined is used instead of consolidated due to the two different parent companies) Financial Statements have been prepared in connection with the sale of the DP and are in accordance with international accounting principles issued by the International Accounting Standards Committee. These principles, as applied to the Combined Financial Statements, do not differ materially from accounting principles generally accepted in the United States of America with the exception of certain disclosure requirements. Further these financial statements are not intended to be a complete presentation of the DP's financial position or cash flows. Throughout the period covered by the Combined Financial Statements, the DP's UK and Italian operations were conducted and accounted for as product lines of subsidiaries of Crown and as such were not legal entities. The DP's French, German and Spanish operations were operating subsidiaries of CarnaudMetalbox. Accordingly, financial statements were not previously prepared for the DP. These Combined Financial Statements have been derived from the historical accounting records of Crown and CarnaudMetalbox subsidiaries, and present the financial position and results of operations as if the DP was a separate operating entity. The Combined Financial Statements have been prepared as if the operations of the DP in each country had been conducted exclusively within a wholly-owned subsidiary in that country. In that context, there is no direct ownership among the various units comprising the DP. Accordingly, Crown's net investment in the DP (Owner's Net Investment) is shown in lieu of Stockholders' Equity in the Combined Financial Statements. Under Crown and CarnaudMetalbox's cash management systems, cash requirements and cash generated were generally centralized under cash pooling agreements. In addition, Crown operations' F-26 29 AEROSOLS DIVESTITURE PACKAGE NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1995 (US DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------- systems were not designed to track liabilities and payments or receivables and receipts on a business specific basis. Given these constraints, statements of cash flows are not presented. Intercompany loans and debt in connection with the Group, net of cash, are included in Owner's Net Investment. Two Group manufacturing operations share sites with operations of the DP. Assets and liabilities which relate to non-DP operations, specifically at Southall and Voghera, are not included in the Combined Statement of Financial Position while assets not owned by two of the DP operations, specifically Reus and Laon, but included in the assets to be sold, have been reflected in the combined financial statements. The building in Laon (France) is leased by a CarnaudMetalbox group company under a finance-type lease. This finance lease has been recognized in the Combined Financial Statements as an asset and a liability in accordance with International Accounting Standards. The building in Reus (Spain) is currently owned by a CarnaudMetalbox group company and is intended to be sold to the DP. This building has been accounted for in the Combined Financial Statements at historical cost. The depreciation and interest expenses in respect of the buildings in Laon and Reus are included in these Combined Financial Statements. The Combined Statements of Operations include revenues and costs directly attributable to the DP including a) facility costs, b) interest on third party debt and c) management charges. Excluded from the Statements of Operations are intercompany interest charges (all intercompany debt has been reflected as Owners's Net Investment). All the allocations and estimates in the Combined Financial Statements are based on assumptions that Group management believes are reasonable under the circumstances. These allocations and estimates are not, however, necessarily indicative of the costs that would have resulted if the DP had been operated as a separate entity. Transactions between the DP and Group entities have been identified in the Combined Financial Statements among related parties. B. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES BASIS OF COMBINATION The Combined Financial Statements include the accounts of the various businesses comprising the DP. All material transactions and accounts between DP operations have been eliminated in combination. USE OF ESTIMATES AND ASSUMPTIONS The Combined Financial Statements have been prepared on the basis of presentation disclosed in Note A. They reflect management estimates and assumptions. Actual results could differ from these estimates, impacting reported results of operations and financial position. F-27 30 AEROSOLS DIVESTITURE PACKAGE NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1995 (US DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------- CASH The DP participates in Group cash pooling systems and, as such, its cash funding requirements are met by and cash generated is transferred to the Group. All cash balances are offset against Owner's Net Investment in the Combined Statements of Financial Position. INVENTORIES Inventories are stated principally at the lower of cost or estimated net realizable value. Cost is determined on a first in, first out basis. The cost of work in progress and finished goods comprises material, labor and attributable manufacturing overheads. PROPERTY, PLANT AND EQUIPMENT (PP&E) PP&E is shown at historical cost. Depreciation is provided, except on freehold land, on a straight-line basis over the estimated useful lives of the assets, as follows (in years): Buildings and improvements.................... 10 to 40 years Plant and machinery........................... 5 to 12 years Other assets.................................. 5 to 10 years
PENSIONS AND RETIREMENT BENEFITS French legislation requires the company to provide for employees' lump sum termination benefits depending upon the length of employee service in its consolidated financial statements. The employer is required to meet the full cost of retirement benefits, and provision is made in the DP Combined Statements of Financial Position under other non-current liabilities in respect of those liabilities. Regular actuarial valuations are carried out in order to determine the Group's obligation in respect of those retirement benefits. Retirement benefit obligations are valued using the accumulated benefit valuation method. The accumulated benefit obligation at December 31, 1994 and 1995, is the present value of benefits (whether vested or non vested) based on employee service and compensation prior to December 31, 1994 and 1995 respectively. The employees of the DP's UK operations participate in a Crown sponsored pension plan. The plan is currently funded. The benefits under the plan are based primarily on years of service and the employees remuneration. Pension expense allocated to the Combined Financial Statements, of $188, $364 and $325 for the years ended December 31, 1993, 1994 and 1995, respectively was determined under statutory accounting principles which are not considered materially different from International Accounting Principles. In other countries amounts are set aside in accordance with local legislation to provide fully for termination and retirement benefit obligations relating to employees. FOREIGN CURRENCY TRANSLATION The US dollar has been used as the reporting currency of the DP's combined financial statements. Foreign currency asset and liability amounts are translated into U.S. dollars at end-of-period exchange rates. Income and expenses are translated at average rates in effect during each year. F-28 31 AEROSOLS DIVESTITURE PACKAGE NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1995 (US DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------- The following rates (1 $ =) have been used: -- to translate assets and liabilities at
DECEMBER 31, ----------------- 1994 1995 ------- ------- French Franc......................................................... 5.35 4.90 UK Pound............................................................. 0.641 0.645 German DM............................................................ 1.551 1.433 Spanish Pesetas...................................................... 131.77 121.28 Italian Lira (100)................................................... 16.2622 15.8583
-- to translate income and expenses for the year ended
DECEMBER 31, --------------------------- 1993 1994 1995 ------- ------- ------- French Franc................................................ 5.66 5.55 4.99 UK Pound.................................................... 0.666 0.653 0.633 German DM................................................... 1.655 1.623 1.434 Spanish Pesetas............................................. 126.62 134.05 124.75 Italian Lira (100).......................................... 15.7227 16.3238 16.0965
REVENUE RECOGNITION Sales and related cost of goods sold are included in income when goods are shipped to the customer. RESEARCH AND DEVELOPMENT EXPENSES Expenditures for research and development at the operations level are charged to operations as incurred and are included in selling and administrative expenses. Research and development costs incurred at CarnaudMetalbox group level are charged to subsidiaries through management fees (0.2% of revenues). INCOME TAXES The taxable income of the various operations comprising the DP is included in the consolidated tax returns of the Group company of which it is a part. As such, separate income tax returns are not prepared or filed by the DP. Income tax expense has been measured as if each member of the DP were a separate taxpayer using the local statutory rate for each period presented. Income taxes currently payable are deemed remitted by the DP to the Group in the period in which the liability arose. No tax benefit has been recorded for any member of the DP whose operations resulted in a loss during any year in the period covered. No deferred taxes have been recorded in the Combined Financial Statements. C. RELATED PARTY TRANSACTIONS The Combined Financial Statements include transactions with other Group organisations involving sales of goods, purchase of materials and components and functions and services (such as cash F-29 32 AEROSOLS DIVESTITURE PACKAGE NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1995 (US DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------- management, tax administration, legal, research and development and data processing) that were provided to the DP. MANAGEMENT FEES The costs of some group functions and services have been charged and/or allocated to the DP. Such intercompany charges and allocations are not necessarily indicative of the costs that would be incurred directly if the DP had been operated as a separate entity. SALES AND PURCHASES Sales by the DP to other operations of the Group were approximately $4,807, $7,666 and $9,635 for the years ended December 31, 1993, December 31, 1994 and December 31, 1995 respectively. Purchases by the DP from other operations of the Group, were approximately $18,640, $20,180, and $28,286 for the years ended December 31, 1993, December 31, 1994 and December 31, 1995 respectively and approximate fair market value. Such purchases relate mainly to the purchase of metal by the UK DP operations from the Group which amounted to approximately $13,285, $13,560 and $17,579 in 1993, 1994 and 1995 respectively. Although sourced locally, these transactions reflect the centralised purchasing and billing arrangements within Crown. BORROWINGS As stated in Note A, intercompany borrowings are included in Owner's Net Investment. No interest expense related to intercompany borrowings is reflected in the Combined Financial Statements. D. RECEIVABLES Accounts receivable are presented in the Combined Statements of Financial Position net of allowances of $1,086 and $1,080 at December 31, 1994 and December 31, 1995, respectively. E. INVENTORIES
DECEMBER 31 --------------------- 1994 1995 -------- -------- Raw materials and consumables.................................... $ 6,173 $ 7,259 Work in progress................................................. 6,523 8,599 Finished goods................................................... 4,638 4,486 Spare parts and supplies......................................... 1,960 1,911 -------- -------- $ 19,294 $ 22,255 ======== ========
F-30 33 AEROSOLS DIVESTITURE PACKAGE NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1995 (US DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------- F. PROPERTY, PLANT AND EQUIPMENT
DECEMBER 31, --------------------- 1994 1995 -------- -------- Land & Buildings................................................. $ 11,727 $ 12,885 Plant & Machinery................................................ 54,829 64,075 Other tangible assets............................................ 1,829 2,151 Construction in progress......................................... 4,524 5,765 -------- -------- 72,909 84,876 Less: Accumulated depreciation and amortization.................. (31,952) (39,072) -------- -------- $ 40,957 $ 45,804 ======== ========
As stated in Note A, the historical cost of two buildings (including land) to be comprised in the divestiture, specifically in France and in Spain, is included above. Depreciation expense has been adjusted to reflect the capitalisation of these two buildings. Gross book value for the buildings in France and Spain amount to $7,298 and $1,015, respectively for the year ended December 31, 1994 and $7,968 and $1,202, respectively, for the year ended December 31, 1995. Accumulated depreciation for the buildings in France and Spain amount to $730 and $85, respectively, for the year ended December 31, 1994 and $1,062 and $122 respectively for the year ended December 31, 1995. Coating and printing lines used by the Italian aerosol operations are shared with other product lines and are owned by a Crown subsidiary not part of the DP. However, Crown has committed to provide, subject to the requirements of a prospective buyer, coating and printing facilities similar to the existing lines. Therefore, the annual depreciation charge of the coating and printing lines has been maintained in the Combined Statements of Operations for the years ended December 31, 1993, 1994 and 1995 for $64, $70 and $84 respectively. G. CAPITAL LEASE The building in Laon, dedicated to operating activities, was financed in 1993 under a 15 years lease contract (see Note A and F), Minimum commitments are $1,097 per annum and can be detailed as follows:
INTEREST CAPITAL -------- ------- 1996................................................................ $ 757 $ 340 1997................................................................ 717 380 1998................................................................ 673 424 1999................................................................ 624 473 2000................................................................ 569 528 Over five years..................................................... 1,840 4,914
F-31 34 AEROSOLS DIVESTITURE PACKAGE NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1995 (US DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------- H. ACCRUED LIABILITIES
DECEMBER 31, --------------- 1994 1995 ------ ------ Accrued employee related charges....................................... $3,938 $3,517 Other.................................................................. 2,439 771 ------ ------ $6,377 $4,288 ====== ======
I. SHORT TERM AND LONG TERM DEBT
DECEMBER 31, --------------- 1994 1995 ------ ------ Short term debt Overdraft............................................................ $1,245 $ 153 Bank loans (fixed rate 6.25% -- 11.75%).............................. 577 627 Discounted Notes..................................................... 2,309 1,809 Capital lease and other.............................................. 293 359 ------ ------ Total short term debt.................................................. $4,424 $2,948 ====== ====== Long term debt Bank loans -- due 1996............................................... $ 335 $ -- 6.25% bank loan -- due 2001.......................................... 1,353 1,178 Capital lease (see notes A and F).................................... 6,471 6,719 ------ ------ Total long term debt................................................... $8,159 $7,897 ====== ======
J. OTHER NON-CURRENT LIABILITIES
DECEMBER 31, 1994 1995 ------ ------ Pensions............................................................... $1,208 $1,474 Grants................................................................. 966 1,195 Other.................................................................. 802 840 ------ ------ $2,976 $3,509 ====== ======
K. PROVISION FOR RESTRUCTURING As part of the Group's continuing program of reorganisation and rationalization, certain members of the DP incurred costs principally in connection with labor force reductions. In 1993 the French and Spanish operations were restructured. In 1994 the French operation again incurred significant restructuring costs and additionally a charge was incurred by the UK. L. OTHER INCOME/EXPENSE Other income/expense mainly represents the gain/loss on disposal of assets and other miscellaneous income/expense. F-32 35 AEROSOLS DIVESTITURE PACKAGE NOTES TO THE COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1995 (US DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------- M. COMMITMENTS AND CONTINGENCIES Aerosol products have historically been subject to certain criticism on environmental grounds. The future development of unfavorable legislation or regulations may have a negative effect on the aerosols markets, and accordingly could potentially adversely affect the DP operations. To comply with local environmental regulations the UK operations will be required to upgrade its production equipment, in particular involving the installation of incinerators in the lithographic department, by 1997. The German operations received local government grants from 1990 to 1995 corresponding to around 23% of capital expenditures in return for employing a specified number of workers. The operation has not fully met its obligations in this respect, specifically, it has employed fifty five instead of sixty workers as stipulated by the local government at the end of 1995. The operation may therefore be required to reimburse part of these grants, estimated by management not to exceed the pro-rata terms of non-compliance with the conditions of these grants. The German operations are committed to pay termination indemnities to a sale agent of approximately $400 in the event of termination of its contract. The French DP operations are subject to two potential material claims. This entity was sued in the United States by an individual consumer, who alleges she suffered burns while using aerosol hairspray. The complaint includes counts for breach of warranty of merchantability, unsuitability for use and lack of appropriate warnings. This entity is also subject to a claim by Matrix Essentials Inc. for defective aerosol cans caused by flaking side strips on cans supplied to it. The DP's basic raw material is tinplate which is purchased from multiple sources. The DP is subject to material fluctuations in the cost of raw materials and adjusts its selling prices to reflect these movements. There can be no assurance, however, that the DP will be able to recover fully any increase in raw material costs from its customers. The DP is subject to various other claims and litigations and administrative proceedings. While the impact on future financial results is not subject to reasonable estimation because considerable uncertainty exists, management is of the opinion that their outcome will not have a material effect on the DP's financial position or results of operations. N. SUBSEQUENT EVENTS -- UNAUDITED On September 11, 1996, the operations comprising the DP were sold to U.S. Can Corporation by means of the sale and purchase of the entire issued share capital of the former CarnaudMetalbox French. German and Spanish DP entities and of the Crown UK and Italian DP businesses and related undertakings. The consideration for the transaction amounts to $58.6 million subject to adjustments based on working capital and net financial indebtedness as defined in the sale agreement. F-33 36 AEROSOLS DIVESTITURE PACKAGE COMBINED INTERIM STATEMENT OF FINANCIAL POSITION (SEE NOTE A) (US DOLLARS IN THOUSANDS) (UNAUDITED)
JUNE 30, 1996 ----------- ASSETS Current assets Accounts receivable -- trade................................................ $ 29,635 Accounts receivable -- related parties...................................... 1,947 Inventories................................................................. 19,660 Prepaid expenses and other current assets................................... 945 ----------- Total current assets..................................................... 52,187 ----------- Property, plant and equipment, net.......................................... 43,462 Other non-current assets.................................................... 224 ----------- Total.................................................................... $ 95,873 ========= LIABILITIES & OWNER'S NET INVESTMENT Current liabilities Short-term debt............................................................. $ 2,663 Accounts payable -- trade................................................... 14,985 Accounts payable -- related parties......................................... 4,434 Accrued liabilities......................................................... 4,983 ----------- Total current liabilities................................................ 27,065 ----------- Long-term debt.............................................................. 6,214 Other non-current liabilities............................................... 3,404 Owner's net investment...................................................... 59,190 ----------- Total.................................................................... $ 95,873 =========
The accompanying notes are an integral part of this financial information. F-34 37 AEROSOLS DIVESTITURE PACKAGE COMBINED INTERIM STATEMENTS OF OPERATIONS (SEE NOTE A) (US DOLLARS IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------- 1995 1996 -------- -------- Sales Trade.............................................................. $ 57,529 $ 59,868 Group.............................................................. 4,410 3,145 -------- -------- 61,939 63,013 Costs and expenses Cost of products sold (excluding depreciation and amortization).... 51,456 51,868 Depreciation and amortization...................................... 3,037 2,891 Selling and administrative expenses................................ 2,736 2,903 Other (income)/expense -- net...................................... 50 (8) Management fees -- Group........................................... 997 952 Provision for restructuring........................................ 21 62 Interest expense................................................... 777 561 -------- -------- 59,074 59,229 Income before taxes.................................................. 2,865 3,784 Provision for income taxes........................................... 1,124 1,511 -------- -------- Net income........................................................... $ 1,741 $ 2,273 ======== ========
The accompanying notes are an integral part of this financial information. F-35 38 AEROSOLS DIVESTITURE PACKAGE NOTES TO THE COMBINED INTERIM FINANCIAL INFORMATION JUNE 30, 1996 (U.S. DOLLARS IN THOUSANDS) (UNAUDITED) A. BASIS OF PRESENTATION In January 1996 Crown Cork & Seal Company, Inc. ("Crown") offered to purchase all outstanding shares of CarnaudMetalbox, for either cash or Crown shares. The transaction was initiated by an announcement on May 22, 1995 that Crown and Compagnie Generale d'Industrie et de Participations ("CGIP"), the principal shareholder of CarnaudMetalbox, had signed an agreement under which CGIP irrevocably committed (subject to certain conditions which were subsequently met) to sell its shares to Crown. The proposed transaction was reviewed by the European Commission and approved by the Commission on November 15, 1995. The offer closed on February 1, 1996 resulting in 98.7% of outstanding shares being tendered. The European Commission's approval was conditional on the divestiture of five aerosol businesses within the aerosols' operations, hereafter referred to as the Divestiture Package ("DP"). The group of companies constituting Crown and CarnaudMetalbox, excluding operations comprising the DP, is hereafter referred to as the "Group". The DP includes the following aerosol can making operations:
Country Location ------------------------------------------- ------------------ France..................................... Laon Germany.................................... Schwedt Italy...................................... Voghera Spain...................................... Reus United Kingdom ("UK")...................... Southall/Tredegar
The accompanying unaudited Combined Interim Financial Information has been prepared in connection with the sale of the DP. In the opinion of management it contains all material adjustments necessary to present the interim financial position of the DP as of June 30, 1996 and the interim results of its operations for the periods ended June 30, 1995 and June 30, 1996, respectively. These results have been determined on the basis of international accounting principles and practices applied consistently and are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. These principles, as applied to the unaudited Combined Interim Financial Information do not differ materially from accounting principles generally accepted in the United States of America. This unaudited Combined Interim Financial Information is not intended to be a complete presentation of the DP's financial position or cash flows. Throughout the period covered by the Combined Interim Financial Information, the DP's UK and Italian operations were conducted and accounted for as product lines of subsidiaries of Crown and as such were not legal entities. The DP's French, German and Spanish operations were operating subsidiaries of CarnaudMetalbox. Accordingly, financial statements were not previously prepared for the DP. This Combined Interim Financial Information has been derived from the historical accounting records of Crown and CarnaudMetalbox subsidiaries, and presents the interim financial position and results of operations as if the DP was a separate operating entity. The Combined Interim Financial Information has been prepared as if the operations of the DP in each country had been conducted exclusively within a wholly-owned subsidiary in that country. In that context, there is no direct ownership among the various units comprising the DP. Accordingly, Crown's net investment in the DP (Owner's Net Investment) is shown in lieu of Stockholders' Equity in the Combined Interim Financial Information. F-36 39 AEROSOLS DIVESTITURE PACKAGE NOTES TO THE COMBINED INTERIM FINANCIAL INFORMATION JUNE 30, 1996 (U.S. DOLLARS IN THOUSANDS) (UNAUDITED) Under Crown and CarnaudMetalbox's cash management systems, cash requirements and cash generated were generally centralized under cash pooling agreements. In addition, Crown operations' systems were not designed to track liabilities and payments or receivables and receipts on a business specific basis. Given these constraints, statements of cash flows are not presented. Intercompany loans and debt in connection with the Group, net of cash, are included in Owner's Net Investment. Two Group manufacturing operations share sites with operations of the DP. Assets and liabilities which relate to non-DP operations, specifically at Southall and Voghera, are not included in the Combined Interim Statement of Financial Position while assets not owned by the Laon DP operations, but included in the assets to be sold, have been reflected in the Combined Interim Financial Information. The building in Laon (France) is leased by a CarnaudMetalbox group company under a finance-type lease. This lease has been transferred to the DP in July 1996. This finance lease has been recognized in the Combined Interim Financial Information as an asset and a liability in accordance with International Accounting Standards. The building in Reus, Spain was owned by a Group company throughout the period covered by the Combined Interim Financial Information, until May 1996 when it was sold to the DP. This building has been accounted for at historical cost in the Combined Interim Financial Information (See Note F). The depreciation and interest expenses in respect of the buildings in Laon and Reus are included in this Combined Interim Financial Information. The Combined Interim Statements of Operations include revenues and costs directly attributable to the DP including a) facility costs, b) interest on third party debt and c) management charges. Excluded from the Interim Statements of Operations are intercompany interest charges (all intercompany debt has been reflected as Owner's Net Investment). All the allocations and estimates in the Combined Interim Financial Information are based on assumptions that Group management believes are reasonable under the circumstances. These allocations and estimates are not, however, necessarily indicative of the costs that would have resulted in the DP had been operated as a separate entity. Transactions between the DP and Group entities have been identified in the Combined Interim Financial information among related parties. Certain information and footnote disclosures, normally included in financial statements in accordance with generally accepted accounting principles, have been condensed or omitted. The accompanying Combined Interim Financial Information should be read in conjunction with the Combined Financial Statements for the year ended December 31, 1995. B. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES BASIS OF COMBINATION The Combined Interim Financial Information includes the accounts of the various businesses comprising the DP. All material transactions and accounts between DP operations have been eliminated in combination. F-37 40 AEROSOLS DIVESTITURE PACKAGE NOTES TO THE COMBINED INTERIM FINANCIAL INFORMATION JUNE 30, 1996 (U.S. DOLLARS IN THOUSANDS) (UNAUDITED) USE OF ESTIMATES AND ASSUMPTIONS The Combined Interim Financial Information has been prepared on the basis of presentation disclosed in Note A. It reflects management estimates and assumptions. Actual results could differ from these estimates, impacting results of operations and financial position. CASH The DP participates in Group cash pooling systems and, as such, its cash funding requirements are met by and cash generated is transferred to the Group. All cash balances are offset against Owner's Net Investment in the Combined Interim Statements of Financial Position. INVENTORIES Inventories are stated principally at the lower of cost or estimated net realizable value. Cost is determined on a first in, first out basis. The cost of work in progress and finished goods comprises material, labor and attributable manufacturing overheads. PROPERTY, PLANT AND EQUIPMENT (PP&E) PP&E is shown at historical cost. Depreciation is provided, except on freehold land, on a straight-line basis over the estimated useful lives of the assets, as follows (in years): Buildings and improvements.................... 10 to 40 years Plant and machinery........................... 5 to 12 years Other assets.................................. 5 to 10 years
PENSIONS AND RETIREMENT BENEFITS French legislation requires the company to provide for employees' lump sum termination benefits depending upon the length of employee service in its consolidated financial statements. The employer is required to meet the full cost of retirement benefits, and provision is made in the DP Combined Interim Statement of Financial Position under other non-current liabilities in respect of those liabilities. Regular actuarial valuations are carried out in order to determine the Group's obligation in respect of those retirement benefits. Retirement benefit obligations are valued using the accumulated benefit valuation method. The accumulated benefit obligation at June 30, 1996, is the present value of benefits (whether vested or non-vested) based on employees services and compensation prior to June 30, 1996. The employees of the DP's UK operations participate in a Crown-sponsored pension plan. This plan is currently funded. The benefits under the plan are based primarily on years of service and the employees remuneration. Pension expense allocated to the Combined Interim Financial Information of $216 for the six-month period ended June 30, 1996 was determined under statutory accounting principles which are not considered materially different from International Accounting Principles. In other countries amounts are set aside in accordance with local legislation to provide fully for termination and retirement benefit obligations relating to employees. F-38 41 AEROSOLS DIVESTITURE PACKAGE NOTES TO THE COMBINED INTERIM FINANCIAL INFORMATION JUNE 30, 1996 (U.S. DOLLARS IN THOUSANDS) (UNAUDITED) FOREIGN CURRENCY TRANSLATION The US dollar has been used as the reporting currency of the DP's Combined Interim Financial Information. Foreign currency asset and liability amounts are translated into U.S. dollars at end-of-period exchange rates. Income and expenses are translated at average exchange rates in effect during each period. The following rates (1 $ =) have been used: -- to translate assets and liabilities at June 30, 1996 French Franc................................................. 5.15 UK Pound..................................................... 0.646 German DM.................................................... 1.523 Spanish Pesetas.............................................. 128.25 Italian Lira (100)........................................... 15.3424
-- to translate income and expenses for the six-month period ended.
JUNE 30, ----------------- 1995 1996 ------- ------- French Franc.......................................... 4.98 5.12 UK Pound.............................................. 0.625 0.655 German DM............................................. 1.418 1.504 Spanish Pesetas....................................... 125.28 126.31 Italian Lira (100).................................... 16.5059 15.6127
REVENUE RECOGNITION Sales and related cost of goods sold are included in income when goods are shipped to the customer. RESEARCH AND DEVELOPMENT EXPENSES Expenditures for research and development at the operations level are charged to operations as incurred and are included in selling and administrative expenses. Research and development costs incurred at CarnaudMetalbox group level are charged to subsidiaries through management fees (0.2% of revenues). INCOME TAXES The taxable income of the various operations comprising the DP is included in the consolidated tax returns of the Group company of which it is a part. As such, separate income tax returns are not prepared or filed by the DP. Income tax expense has been measured as if each member of the DP were a separate taxpayer using the local statutory rate for each period presented. Income taxes currently payable are deemed remitted by the DP to the Group in the period in which the liability arose. No tax benefit has been recorded for any member of the DP whose operations resulted in a loss during any of the periods covered. No deferred taxes have been recorded in the Combined Interim Financial Information. F-39 42 AEROSOLS DIVESTITURE PACKAGE NOTES TO THE COMBINED INTERIM FINANCIAL INFORMATION JUNE 30, 1996 (U.S. DOLLARS IN THOUSANDS) (UNAUDITED) C. RELATED PARTY TRANSACTIONS The Combined Interim Financial Information includes transactions with other Group organizations involving sales of goods, purchase of materials and components and functions and services (such as cash management, tax administration, legal, research and development and data processing) that were provided to the DP. MANAGEMENT FEES The costs of some group functions and services have been charged and/or allocated to the DP. Such intercompany charges and allocations are not necessarily indicative of the costs that would be incurred directly if the DP had been operated as a separate entity. SALES AND PURCHASES Sales by the DP to other operations of the Group were approximately $4,410 and $3,145 for the periods ended June 30, 1995 and June 30, 1996 respectively. Purchases by the DP from other operations of the Group were $9,756 and $10,700 for the periods ended June 30, 1995 and June 30, 1996 respectively and approximate fair market value. Such purchases relate mainly to the purchase of metal by the UK DP operations from the Group which amounted to approximately $6,970 and $6,088 for the six-month periods ended June 30, 1995 and June 30, 1996, respectively. Although sourced locally, these transactions reflect the centralized purchasing and billing arrangements within Crown. BORROWINGS As stated in Note A, intercompany borrowings are included in Owner's Net Investment. No interest expense related to intercompany borrowings is reflected in the Combined Interim Financial Information. D. RECEIVABLES Accounts receivable are presented in the Combined Interim Statement of Financial Position net of allowances of $1,037 at June 30, 1996. E. INVENTORIES
JUNE 30, 1996 -------- Raw materials and consumables............................. $ 6,347 Work in progress.......................................... 7,831 Finished goods............................................ 3,564 Spare parts and supplies.................................. 1,918 -------- $ 19,660 ========
F-40 43 AEROSOLS DIVESTITURE PACKAGE NOTES TO THE COMBINED INTERIM FINANCIAL INFORMATION JUNE 30, 1996 (U.S. DOLLARS IN THOUSANDS) (UNAUDITED) F. PROPERTY, PLANT AND EQUIPMENT The building in Laon (France) is leased by a CarnaudMetalbox group company under a finance-type lease. This lease has been transferred to the DP in July 1996. This finance lease has been recognized in the Combined Interim Financial Information at June 30, 1996 as an asset and a liability in accordance with International Accounting Standards. The net book value for this building amounts to $6,441 at June 30, 1996. The building in Reus (Spain) was bought from a Crown Cork & Seal group company during the first half of 1996 for $2,401. As of June 1996, this building has been accounted for in the Combined Interim Financial Information at historical cost. The net book value for this building amounts to $1,006 at June 30, 1996. G. COMMITMENTS AND CONTINGENCIES Aerosol products have historically been subject to certain criticism on environmental grounds. The future development of unfavorable legislation or regulations may have a negative effect on the aerosols markets, and accordingly could potentially adversely affect the DP operations. The German operations received local government grants from 1990 to 1995 amounting to $1,520 and corresponding to around 23% of capital expenditures in return for employing a specified number of workers. The operation has not fully met its obligations in this respect, specifically, it has employed fifty-five instead of sixty workers as stipulated by the local government at the end of 1995. The operation may therefore be required to reimburse part of these grants, estimated by management not to exceed the pro-rata terms of non-compliance with the conditions of these grants. The German operations are committed to pay termination indemnities to a sale agent of approximately $400 in the event of termination of its contract. The French DP operations are subject to two potentially material claims. This entity was sued in the United States by an individual consumer, who alleges she suffered burns while using aerosol hairspray. The complaint includes counts for breach of warranty of merchantibility, unsuitability for use and lack of appropriate warnings. This entity is also subject to a claim by Matrix Essentials, Inc. To comply with local environmental regulations the UK operations will be required to upgrade its production equipment, in particular involving the installation of incinerators in the lithographic department, by 1997. The DP's basic raw material is tinplate which is purchased from multiple sources. The DP is subject to material fluctuations in the cost of raw materials and adjusts its selling prices to reflect these movements. There can be no assurance, however, that the DP will be able to recover fully any increase in raw material costs from its customers. The DP is subject to various other claims and litigations and administrative proceedings. While the impact on future financial results is not subject to reasonable estimation because considerable uncertainty exists, management is of the opinion that their outcome will not have a material effect on the DP's financial position or results of operations. F-41 44 AEROSOLS DIVESTITURE PACKAGE NOTES TO THE COMBINED INTERIM FINANCIAL INFORMATION JUNE 30, 1996 (U.S. DOLLARS IN THOUSANDS) (UNAUDITED) H. SUBSEQUENT EVENTS On September 11, 1996, the operations comprising the DP were sold to U.S. Can Corporation by means of the sale and purchase of the entire issued share capital of the former CarnaudMetalbox French, German and Spanish DP entities and of the Crown UK and Italian DP businesses and related undertakings. The consideration for the transaction amounts to $58.6 million subject to adjustments based on working capital and net financial indebtedness as defined in the sale agreement. F-42 45 U.S. CAN CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF JUNE 30, 1996
PRO FORMA ADJUSTMENTS FOR ACQUIRED U.S. CAN CPI USC BUSINESSES PRO FORMA CORPORATION GROUP EUROPE (NOTE 2) COMBINED ----------- ------- ------- ------------ --------- (000'S OMITTED) CURRENT ASSETS: Cash and cash equivalents... $ 740 $ 16 $ -- $ 3,077 $ 3,833 Accounts receivable......... 74,976 4,591 31,582 (995) 110,154 Inventories................. 86,864 1,987 19,660 507 109,018 Prepaid expenses and other assets.................... 10,975 217 945 -- 12,137 Prepaid income taxes........ 5,027 -- -- 197 5,224 --------- -------- ------- -------- --------- Total current assets...... 178,582 6,811 52,187 2,786 240,366 --------- -------- ------- -------- --------- NET PROPERTY, PLANT AND EQUIPMENT................... 243,789 8,273 43,462 (783) 294,741 --------- -------- ------- -------- --------- INTANGIBLE ASSETS............. 66,353 17 -- 2,608 68,978 OTHER ASSETS.................. 15,803 55 224 -- 16,082 --------- -------- ------- -------- --------- Total assets.............. $ 504,527 $15,156 $95,873 $ 4,611 $620,167 ========= ======== ======= ======== ========= CURRENT LIABILITIES: Current maturities of long-term debt............ $ 17,484 $ 1,512 $ 2,663 $ (1,482) $ 20,177 Notes payable............... -- 3,966 -- (3,966) -- Accounts payable............ 41,347 2,658 19,419 -- 63,424 Other current liabilities... 47,930 702 4,983 5,750 59,365 --------- -------- ------- -------- --------- Total current liabilities............. 106,761 8,838 27,065 302 142,966 --------- -------- ------- -------- --------- SENIOR DEBT................... 158,041 124 6,214 67,807 232,186 SUBORDINATED DEBT............. 100,000 -- -- -- 100,000 --------- -------- ------- -------- --------- Total long-term debt, less current maturities...... 258,041 124 6,214 67,807 332,186 --------- -------- ------- -------- --------- OTHER LONG-TERM LIABILITIES................. 47,917 412 3,404 1,474 53,207 --------- -------- ------- -------- --------- STOCKHOLDERS' EQUITY.......... 91,808 5,782 59,190 (64,972) 91,808 --------- -------- ------- -------- --------- Total liabilities and stockholders' equity.... $ 504,527 $15,156 $95,873 $ 4,611 $620,167 ========= ======== ======= ======== =========
The accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements are an integral part of this balance sheet. F-43 46 U.S. CAN CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
PRO FORMA ADJUSTMENTS FOR ACQUIRED U.S. CAN CPI USC BUSINESSES PRO FORMA CORPORATION GROUP EUROPE (NOTE 3) COMBINED ----------- ------- -------- ----------- --------- (000'S OMITTED, EXCEPT PER SHARE DATA) NET SALES................ $ 626,485 $29,351 $119,106 $ -- $ 774,942 COST OF SALES............ 555,478 24,906 105,293 (53) 685,624 -------- ------- -------- ------- -------- Gross income........... 71,007 4,445 13,813 53 89,318 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............... 27,369 1,862 7,620 -- 36,851 OVERHEAD REDUCTION PROVISION.............. 8,000 -- -- -- 8,000 -------- ------- -------- ------- -------- Operating income....... 35,638 2,583 6,193 53 44,467 INTEREST EXPENSE ON BORROWINGS............. 24,513 660 1,445 4,328 30,946 AMORTIZATION OF DEFERRED FINANCING COSTS........ 1,543 -- -- -- 1,543 OTHER EXPENSE............ 2,035 -- 29 55 2,119 -------- ------- -------- ------- -------- Income before income taxes and extraordinary item... 7,547 1,923 4,719 (4,330) 9,859 PROVISION FOR INCOME TAXES.................. 3,608 -- 1,915 (941) 4,582 -------- ------- -------- ------- -------- INCOME BEFORE EXTRAORDINARY ITEM..... $ 3,939 $ 1,923 $ 2,804 $(3,389) $ 5,277 ======== ======= ======== ======= ======== PER SHARE DATA: Income before extraordinary item..... $ 0.31 $ 0.41 ======== ======== Weighted average shares and equivalent shares outstanding............ 12,839 12,839 ======== ========
The accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements are an integral part of this statement. F-44 47 U.S. CAN CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JULY 2, 1995
PRO FORMA ADJUSTMENTS FOR ACQUIRED U.S. CAN CPI USC BUSINESSES PRO FORMA CORPORATION GROUP EUROPE (NOTE 3) COMBINED ----------- ------- ------- ------------ --------- (000'S OMITTED, EXCEPT PER SHARE DATA) NET SALES................. $ 320,042 $15,853 $61,939 $ -- $ 397,834 COST OF SALES............. 276,969 13,727 54,493 (26) 345,163 --------- ------- ------- ------- --------- Gross income............ 43,073 2,126 7,446 26 52,671 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 13,692 943 3,754 -- 18,389 --------- ------- ------- ------- --------- Operating income........ 29,381 1,183 3,692 26 34,282 INTEREST EXPENSE ON BORROWINGS.............. 12,147 342 777 2,152 15,418 AMORTIZATION OF DEFERRED FINANCING COSTS......... 739 -- -- -- 739 OTHER EXPENSE............. 881 -- 50 27 958 --------- ------- ------- ------- --------- Income before income taxes and extraordinary item.... 15,614 841 2,865 (2,153) 17,167 PROVISION FOR INCOME TAXES................... 6,532 -- 1,124 (515) 7,141 --------- ------- ------- ------- --------- INCOME BEFORE EXTRAORDINARY ITEM...... $ 9,082 $ 841 $ 1,741 $ (1,638) $ 10,026 ========= ======= ======= ======= ========= PER SHARE DATA: Income before extraordinary item.... $ 0.71 $ 0.78 ========= ========= Weighted average shares and equivalent shares outstanding........... 12,860 12,860 ========= =========
The accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements are an integral part of this statement. F-45 48 U.S. CAN CORPORATION AND SUBSIDIARY UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996
PRO FORMA ADJUSTMENTS FOR ACQUIRED U.S. CAN CPI USC BUSINESSES PRO FORMA CORPORATION GROUP EUROPE (NOTE 3) COMBINED ----------- ------- ------- ------------ --------- (000'S OMITTED, EXCEPT PER SHARE DATA) NET SALES.................... $ 344,207 $15,739 $63,013 $ -- $422,959 COST OF SALES................ 299,595 12,378 54,759 (26) 366,706 --------- ------- ------- -------- -------- Gross income............... 44,612 3,361 8,254 26 56,253 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................... 13,930 1,173 3,917 -- 19,020 --------- ------- ------- -------- -------- Operating income........... 30,682 2,188 4,337 26 37,233 INTEREST EXPENSE ON BORROWINGS................. 12,520 266 561 2,236 15,583 AMORTIZATION OF DEFERRED FINANCING COSTS............ 802 -- -- -- 802 OTHER (INCOME) EXPENSE....... 1,003 -- (8) 27 1,022 --------- ------- ------- -------- -------- Income before income taxes and extraordinary item... 16,357 1,922 3,784 (2,237) 19,826 PROVISION FOR INCOME TAXES... 6,950 -- 1,511 (116) 8,345 --------- ------- ------- -------- -------- INCOME BEFORE EXTRAORDINARY ITEM....................... $ 9,407 $ 1,922 $ 2,273 $ (2,121) $ 11,481 ========= ======= ======= ======== ======== PER SHARE DATA: Income before extraordinary item..................... $ 0.72 $ 0.88 ========= ========= Weighted average shares and equivalent shares outstanding.............. 13,042 13,042 ========= =========
The accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements are an integral part of this statement. F-46 49 U.S. CAN CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (000'S OMITTED) NOTE 1 -- DESCRIPTION OF PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS United States Can Company acquired all of the stock of three related companies, CPI Plastics, Inc., CP Ohio, Inc. and CP Illinois, Inc. (collectively, "CPI Group") on August 2, 1996, at a purchase price of $15 million, subject to adjustment for the change in net working capital (as defined in the acquisition agreement) from December 31, 1995 through the closing date, plus potential contingent payments (in an amount not to exceed $1 million) based upon CPI Group's financial performance for the years 1996 and 1997. This acquisition was financed with borrowings under the Company's primary credit facilities which include a $95 million revolving line of credit (the "Revolving Credit Facility") and a supplemental $97 million credit facility to fund certain acquisitions (the "Acquisition Facility"), including the acquisitions of the CPI Group and USC Europe. U.S. Can Corporation (together with its subsidiaries, the "Company") completed the acquisition of certain aerosol can businesses owned by Crown Cork & Seal Company, Inc. ("Crown") in the United Kingdom and Italy as well as the aerosol can businesses owned by the Crown affiliate, CarnaudMetalbox S.A. in France, Spain and Germany (collectively, "USC Europe") on September 11, 1996 at a purchase price of $52.8 million, subject to a post-closing adjustment for changes in working capital from April 30, 1996 through the closing date. This acquisition was also funded with borrowings under the Acquisition Facility. The pro forma adjustments included herein do not consider the effect of any post-closing adjustment or contingent payments related to the purchase prices as such effect is not expected to be material. The unaudited pro forma condensed combined balance sheet of the Company gives effect to the acquisitions as if such acquisitions had occurred on June 30, 1996. The unaudited pro forma condensed combined statements of operations of the Company give effect to the acquisitions as if such acquisitions had occurred on January 1, 1995. For purposes of the accompanying pro forma combined financial statements, acquisition-related adjustments, all made pursuant to the purchase method of accounting have been reflected on an estimated basis using the most recent information available. Pending finalization of property appraisals, plant consolidation requirements and other studies, no assurances can be given that the final determination of the fair value of assets acquired and liabilities assumed by the Company in the acquisitions will not differ from the adjustments presented herein. Such determinations will be made within one year of the related acquisitions and are not expected to be materially different from the estimates used herein. The unaudited pro forma combined financial statements should be read in conjunction with the separate historical financial statements and related notes thereto of the Company, the CPI Group and USC Europe. The pro forma condensed combined financial statements do not purport to be indicative of the results that actually would have been obtained had all the transactions been completed as of the assumed dates and for the periods presented and are not intended to be a projection of future results or trends. Operating results for any interim period are not necessarily indicative of results that may be expected for the full year. On July 16, 1996, the Company's Board of Directors authorized the issuance of $225.0 million of senior subordinated notes (the "Notes") in a private placement. The Noteholders will have registration rights with respect to the Notes. Net proceeds from the issuance of the Notes are expected to be approximately $218.6 million and to be used to retire or pay down outstanding indebtedness. The effect of this potential refinancing is not reflected in the accompanying pro forma combined financial statements. F-47 50 U.S. CAN CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (000'S OMITTED) NOTE 2 -- PRO FORMA ADJUSTMENTS FOR ACQUIRED BUSINESSES TO THE JUNE 30, 1996 CONDENSED COMBINED BALANCE SHEET
PRO FORMA ADJUSTMENTS FOR ACQUIRED BUSINESSES ------------ Cash and cash equivalents -- Record cash received to offset debt assumed................................... $ 3,077 ======= Accounts receivable -- Eliminate officer and shareholder receivables not retained by the Company..... $ (995) ======= Inventories -- Revalue inventories to estimated fair market value............................ $ 507 ------- Prepaid income taxes -- Record prepaid income taxes related to historical and revalued net assets $ 197 ======= Net property, plant and equipment -- Revalue CPI Group's property, plant and equipment to estimated fair market value...................................................................... $ 3,684 Apply excess of estimated fair value of net assets acquired over purchase price to USC Europe's long-lived assets.................................... (4,467) ------- $ (783) ======= Intangible assets -- Record excess purchase price over estimated fair value of USC Group's net assets acquired............................................................ $ 2,608 ======= Current maturities of long-term debt -- Eliminate existing debt not assumed by the Company............................ $ (1,482) ======= Notes payable -- Eliminate existing notes payable not assumed by the Company................... $ (3,966) ======= Other current liabilities -- Revalue certain liabilities, including plant consolidation reserves, to estimated fair market value................................................ $ 3,750 Accrue acquisition costs...................................................... 2,000 ------- $ 5,750 ======= Senior debt -- Record borrowings under the Acquisition Facility to fund the acquisitions..... 67,307 Record borrowings under the Revolving Credit Facility to fund the acquisitions............................................................... 500 ------- $ 67,807 ======= Other long-term liabilities -- Record long-term deferred income taxes related to revalued property........... $ 1,474 ======= Stockholder's equity -- Eliminate equity of acquired businesses....................................... $(64,972) =======
F-48 51 U.S. CAN CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (000'S OMITTED) NOTE 3 -- PRO FORMA ADJUSTMENTS FOR ACQUIRED BUSINESSES TO THE STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED -------------------- DECEMBER 31, JULY 2, JUNE 30, 1995 1995 1996 ------------------ -------- -------- Cost of sales -- Record additional depreciation expense on revalued property, plant and equipment -- CPI Group........... 245 123 123 Reduce depreciation expenses on revalued property, plant and equipment -- USC Europe.................... $ (298) $ (149) $ (149) ------------- -------- -------- $ (53) $ (26) $ (26) ============= ======== ======== Interest expense on borrowings -- Eliminate debt not assumed by the Company -- CPI Group................................................ $ (649) $ (337) $ (253) Record interest expense on borrowings used to fund the acquisitions (7.13% annually)........................ 4,977 2,489 2,489 ------------- -------- -------- $ 4,328 $ 2,152 $ 2,236 ============= ======== ======== Other expense -- Amortize goodwill related to the CPI Group acquisition.......................................... $ 55 $ 27 $ 27 ============= ======== ======== Provision for income taxes -- Income tax effect of CPI Group's historical pretax income and of the pro forma adjustments at the Company's effective tax rate (40%)(a)................ $ (941) $ (515) $ (116) ============= ======== ========
- --------------- (a) The CPI Group had been treated as an S Corporation. As such, no income taxes were reflected in its historical statements of income. F-49 52 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. U.S. CAN CORPORATION Date: October 2, 1996 By /s/ John R. McGowan ---------------------------------- John R. McGowan Vice President and Controller 53 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. UNITED STATES CAN COMPANY Date: October 2, 1996 By /s/ John R. McGowan ---------------------------------- John R. McGowan Vice President and Controller 54 EXHIBIT INDEX Exhibit Number Description of Exhibit - ------- ---------------------- 23.1 Consent of Independent Accountants: Plante & Moran LLP 23.2 Consent of Independent Accountants: Befec- Price Waterhouse EX-23.1 2 PLANTE AND MORAN CONSENT 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation of our report dated February 2, 1996 on the combined financial statements of CPI Plastics, Inc., CP Illinois, Inc., and CP Ohio, Inc. as of December 31, 1995 and 1994 and for the three year period ended December 31, 1995, included in this Form 8-K/A-1 and into U.S. Can Corporation's previously filed Registration Statement Files Nos. 33-76742, 333-04202, 33-91820 and 33-61888 on Form S-8, and 33-79556 on Form S-3. PLANTE & MORAN, LLP Southfield, Michigan October 2, 1996 EX-23.2 3 BEFEC-PRICE WATERHOUSE CONSENT 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33-79556) and in the Registration Statements on Form S-8 (Nos. 33-61888, 33-76742, 33-91820 and 333-04202) of U.S. Can Corporation, of our report dated March 1, 1996 relating to the combined financial statements of the Aerosols Divestiture Package, which appears in the Current Report on Form 8-K/A-1 of U.S. Can Corporation dated October 2, 1996. Paris, October 2, 1996 Befec-Price Waterhouse Jean-Pierre Caroff -----END PRIVACY-ENHANCED MESSAGE-----