Item 1. Business.
General
The Company manufactures and sells roofing materials used primarily in commercial re-roofing projects. These materials are also used in new construction projects. The Company was organized in 1980 and imported roofing materials from Europe until it opened its first manufacturing facility in Port Arthur, Texas in April 1982. The Company has subsequently built or acquired manufacturing facilities in North Branch, New Jersey; Stockton, California; Corvallis, Oregon; and Monroe, Georgia.
The Company's operating and marketing philosophy emphasizes a quality product with available warranty, application training and support services for wholesale distributors and roofing contractors. As of December 31, 1994, the Company sold domestically to approximately 650 independent distributors, for resale to an estimated 5,500 roofing contractors who install the Company's roofing products for their customers. Sales to its largest customer, ABC Supply Co., Inc., accounted for approximately 15.5% of the Company's total 1994 sales.
The Company is one of the leading domestic producers of modified bitumen roofing products. Based upon industry information supplied by Ducker Research Co., Inc., United States sales of modified bitumen roofing materials, measured in square feet, accounts for an estimated 25% of the total low-slope roofing market.
The Company also engages in the manufacture and sale of roll products utilized in the built-up roofing (``BUR'') business. According to information furnished by Ducker Research Co., Inc., BUR accounts for approximately 45% of the total low-slope roofing market. The Company's BUR roofing activities are conducted through its Intec/Permaglas Division which utilizes the same sales and distribution network used to market the Company's other products.
The Company holds a 40% interest in Thermo Manufacturing Company, L.P. (the "Partnership"). The Partnership purchases products manufactured by the Company, and the Company purchases products manufactured by the Partnership. During the first quarter of 1994, the Partnership purchased assets to manufacture roof coating products and will focus its marketing and manufacturing efforts principally in this area, although it will continue to market a complete line of roofing products. To date, incremental sales by the Partnership have not been significant.
In 1993, the Company purchased a manufacturing facility and related assets in Houston, Texas where the Company has installed a residential shingle manufacturing line. The Company began shingle production at this location during the first quarter of 1995. This represents the Company's entry into the residential roofing segment of the roofing products market.
According to information furnished by Ducker Research Co., Inc. the pitched (primarily residential) roofing market, measured in square feet, is approximately 75% of the total roofing market, or about three times the size of the total low-slope roofing market.
Products
The Company's atactic polypropylene (``APP'') modified bitumen roofing membrane is sold in rolls, each consisting of a sheet approximately 33 feet long and 40 inches wide. To apply the material, the installer applies heat to the underside of the roll, usually with a hand held propane torch, as the material is unrolled onto the roof. The material's flexibility allows proper forming around vent openings and other protrusions.
The Company also manufactures granulated surface APP products. The embedded granules provide solar reflectivity and ultraviolet-ray protection to the roof membrane surface, thereby promoting energy efficiency and longer roof life.
The Company also manufactures styrene butadiene styrene(``SBS'') modified bitumen membrane. SBS modified bitumen membrane is sold in rolls of approximately the same length and width as APP modified bitumen membrane and is applied to the roof with hot asphalt or cold adhesive. SBS modified bitumen membrane has a granulated surface of minerals to provide solar reflectivity and ultraviolet-ray protection. This product provides the contractor who has made a large capital investment in BUR roofing equipment and application technology with the opportunity to install modified bitumen membrane roofing systems as well.
Through the Intec/Permaglas Division, the Company also manufactures and sells base and inter-ply sheets. Base sheet is used as the primary layer in modified bitumen and built-up roofing systems, while inter-ply sheets are used as secondary layers in built-up systems as well as multiple-ply modified bitumen systems.
During the first quarter of 1995, the Company began manufacturing residential shingle products. Initially the Company will focus most of its shingle marketing efforts on conventional asphalt laminate shingles, but with time, hopes to move most of its Houston production capacity over to an APP modified laminate product.
Through a wholly-owned subsidiary, the Company manufactures and sells roofing accessories designed to improve labor efficiency in the installation process. These include a perimeter edge metal roof flashing with modified bitumen membrane attached; prefabricated aluminum roof drains, pitch pans, and adjustable and standard vent covers with modified bitumen membrane attached to assist the roofing contractor with application. The Company also provides application training, roof inspection, consulting, and diagnostic services.
The Market
The commercial roofing market is divided into three major product segments: built-up roofing, single-ply roofing, and modified bitumen roofing. A built-up roof is constructed by using a vapor barrier and insulation topped with three to five layers of fiberglass sheets which are attached and waterproofed using layers of hot asphalt. Built-up roofing has been the traditional commercial roofing technology used in the United States. Advantages of built-up systems include proven technology, a large body of trained applicators, and excellent durability resulting from multiple material layers. A single-ply roof is constructed by adhering to the roof a single-ply membrane system (which is principally rubber or plastic-based) through mechanical means or through the use of various adhesive methods. The Company does not compete in the single-ply roofing segment. Modified bitumen roofs are applied by heating the membrane, or by applying hot asphalt or cold adhesive, as it is unrolled on the roof. Modified bitumen systems offer excellent waterproofing characteristics, durability, flexibility and relative ease of application. The Company has also introduced to the market the concept of the hybrid multiple-ply modified bitumen system, utilizing built-up roofing techniques with modified bitumen materials.
The residential shingle market is divided into two major product segments: the commodity market and the premium market. In the commodity market, the three-tab shingle is the dominant product. Commodity three-tab shingles are constructed of a single-ply and are usually lighter in weight than premium shingles. The premium shingle market consists of five major product groups: premium asphalt shingles, laminated asphalt shingles, wood shingles, concrete roof tile and metal roofing products. Premium and laminated shingles are thicker and heavier in weight than the typical commodity shingle, and usually provide a high fire resistance rating. In addition, laminated shingles are double-ply and have a higher profile appearance than other asphalt shingles. Typically, asphalt shingles are lower in cost than the other premium shingle market products. The Company manufactures premium and laminated asphalt shingles.
Competition
The Company competes with a large number of concerns which manufacture materials used in commercial roofing and re-roofing projects, many of which have significantly greater financial resources than does the Company. At December 31, 1994, there were approximately 15 domestic producers of modified bitumen roofing membranes and a significantly greater number of BUR and shingle manufacturers. Management believes that the Company accounted for approximately 23% of 1994 sales (in square feet) of modified bitumen roofing membranes and approximately 6% of BUR materials.
For the foreseeable future, the Company does not expect to be a major factor in the market for shingle roofing products.
Manufacturing
The Company's APP modified bitumen membrane is composed primarily of three raw materials: asphalt, polyester fabric, and APP. After testing, asphalt and APP are blended together in heated tanks. Once blending is complete, the compound is sampled by the Company's quality control laboratory and, if within specification, is pumped into a holding tank. From the holding tank, the compound is pumped into a vat through which a polyester fabric passes and is saturated with the compound. The saturated mat then goes through sizing rollers that regulate membrane thickness. On granular surfaced materials, the granules are applied just after exiting the sizing rollers and the second cooling tank is bypassed. The Company manufactures material in thicknesses of two, three, and four millimeters. The material then passes through a cooling tray to solidify the bottom surface. At the end of the first cooling tray, a plastic film is applied to the still-molten top surface and the material is then submerged into a second cooling tank, completely solidified and dried with a fan. The material is then coated with talc to prevent sticking, wound into rolls and prepared for shipment.
The SBS modified bitumen membrane manufactured by the Company is composed of asphalt, reinforcement fabric, and SBS. The manufacturing process is similar to that used to produce APP modified bitumen membrane except that certain changes are made in the method of blending the SBS and asphalt and in the method of cooling the membrane.
The built-up roofing products manufactured by the Company's Intec/Permaglas Division are composed of an asphalt saturated fiberglass mat. The manufacturing process is similar to that used to produce modified bitumen products.
The Company began production of asphalt shingle products in the first quarter of 1995. Asphalt shingles are composed primarily of asphalt, fiberglass mat, mineral filler and granules. The manufacturing process is similar to that used to produce built-up roofing products.
Quality Control
The Company's quality control department monitors production to insure product quality. There is separate testing and evaluation of raw materials, compound and finished product. Raw materials are evaluated for basic physical characteristics such as viscosity, flexibility, flash point and volatility. Compound evaluation ensures that formulation is acceptable and provides batch analysis information prior to manufacturing. To ensure consistency, batches are then transferred to holding tanks and blended with previously transferred material. Finally, samples of the finished product are inspected to assure proper roll length, weight, width, thickness and general appearance.
Raw Materials
The principal raw materials used by the Company in the manufacture of its roofing products are asphalt, APP, SBS, polyester fabric and fiberglass mat, granules, and mineral filler. These raw materials are purchased by the Company under short-term or spot-market arrangements, or alternatively under longer term contracts when management believes such contracts to be advantageous to the Company. The Company utilizes or has available multiple sources for each of its raw materials. The prices and availability of raw materials have generally reflected the price and availability of crude oil and other petrochemical feedstocks.
Distribution and Marketing
The Company sells its products nationwide to wholesale distributors of building products and roofing materials. No significant backlog of orders exists. As of December 31, 1994, the Company had approximately 60 sales and independent representatives who contact architects, distributors and contractors.
The Company has historically focused its marketing efforts on re-roofing, which is believed by management to have represented approximately 75% of total U.S. commercial roofing sales during 1994. This market has been relatively stable, growing at approximately 2-3% per year.
The Company concentrates its marketing efforts on developing a quality distribution network and educating contractors on the advantages of using its products. Also, the Company devotes substantial effort to educating architects, consultants and large property managers on the benefits of using its products.
The Company plans to market its shingle products through its existing distribution network.
Warranty
Under certain circumstances, the Company warrants that its modified bitumen membrane will be free from manufacturing defects and will not fail due to ordinary wear and tear from exposure to the elements or under certain other specified conditions. Through December 31, 1994, the Company's warranty had been issued for approximately 25% of its total production. The limited warranty, which is offered at no additional cost to the purchaser, is for a period of 10 to 12 years. The Company also offers 15 and 20 year warranties at additional cost.
The Company also offers, at additional cost, a pro-rated guarantee on its built-up roofing products.
The Company offers, at no additional cost, a pro-rated 20 to 40 year warranty on certain of its shingle products.
The Company maintains a reserve for warranty claims, which is in an amount management believes is adequate to cover such claims. As of December 31, 1994, such reserve amounted to $6,139,000. The amounts of warranty claims paid by the Company during 1994 and 1993 were $1,266,000 and $1,330,000, respectively.
Licensing and Trademark Matters
The Company produces certain of its APP modified bitumen membranes pursuant to an agreement with Asfalti Breitner S.p.A., an Italian company, under which the Company is granted the non-transferable right to produce and sell in the United States modified bitumen roofing membranes utilizing technology developed by Asfalti Breitner. The BRAI name under which certain of the Company's products are sold is registered by Asfalti Breitner with the United States Patent and Trademark Office, and Asfalti Breitner has granted the Company all rights it possesses to use the BRAI name in the United States through 1995. The Company pays Asfalti Breitner an annual royalty based on the amount of APP modified bitumen membrane of a certain thickness or weight sold by the Company. The Company's right to use the BRAI name after 1995 is subject to negotiation of a new, mutually acceptable royalty agreement. The inability to conclude a mutually acceptable agreement, in management's opinion, would not have a material impact on the Company's operating results or financial condition.
Government Regulation
The application of federal, state and local laws, particularly those concerning occupational safety (Occupational Safety and Health Act) and environmental matters (Federal Clean Air Act), involves or may involve review, certification or issuance of permits with respect to construction, modification and operation of the Company's manufacturing facilities. The Company believes that it is in substantial compliance with all presently applicable requirements. The cost of compliance with such laws and with the regulations promulgated thereunder has not been a major factor in the Company's operating costs or the costs of its capital projects.
Employees
As of December 31, 1994, the Company had 356 employees. Employees are provided competitive wages and fringe benefits. None of the employees is represented by unions, and management believes that its relations with employees are satisfactory.
Executive Officers of the Company
Set forth below is certain information with respect to the executive officers of the Company: Positions and Offices Name Age with Company
Danny J. Adair. . . . . . . 50 President and Chief Executive Officer J. Roane Ruddy . . . . . . 41 Chief Financial Officer Ken D. Latiolais. . . . . . 48 Vice President-Production S. Craig Noble. . . . . . . 49 Vice President-Technical Services
No family relationships exist among any of the officers of the Company, and there are or were no arrangements or understandings between any of the officers and any other person pursuant to which any officer was selected as an officer.
Mr. Adair has served as President and Chief Executive Officer and a Director of the Company since its founding in 1980.
Mr. Ruddy was elected Chief Financial Officer of the Company in November 1992 and became a Director in May of 1993. He has been with the Company since 1986 and served as the Company's Controller prior to assuming his present position.
Mr. Latiolais has been with the Company since 1982. He was Plant Manager of the Company's Port Arthur, Texas facility prior to assuming his present position as Vice President in 1984 and became a Director in 1985.
Mr. Noble has been with the Company since 1982. Prior to becoming Vice President in 1984, he served as Manager of Technical Services. He became a Director of the Company in 1987.
Item 2.

Item 2. Properties.
The Company operates five manufacturing facilities for the production of its roofing products. The table below presents certain information regarding the facilities.
The Company also owns a manufacturing facility in Houston, Texas, situated on six acres. The facility has 3,750 square feet of office space, 87,000 square feet of manufacturing space and a 700 square foot laboratory. The Company began production of shingles for residential roofing applications at this facility during the first quarter of 1995.
Substantially all of the assets of the Company are pledged to secure indebtedness. See Note B of ``Notes to the Consolidated Financial Statements'' under Item 14.
Item 3.

Item 3. Legal Proceedings.
Not applicable.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
Item 5.

Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is traded on the American Stock Exchange under the symbol USI. The high and low quarterly closing prices for the Common Stock as reported on the American Stock Exchange, are shown below.
1994 High Low First Quarter........................................ 9 1/4 6 1/8 Second Quarter....................................... 6 3/4 5 1/2 Third Quarter........................................ 6 1/8 4 7/8 Fourth Quarter....................................... 7 5/8 5 1/4
1993 High Low First Quarter........................................ 6 3/8 3 3/4 Second Quarter....................................... 5 3/8 4 5/8 Third Quarter........................................ 7 7/8 4 1/2 Fourth Quarter....................................... 7 6 1/8
The number of record holders of the Company's Common Stock as of March 27, 1995, was 116.
Since its inception, the Company has not paid cash dividends on its Common Stock. The Company has no present plans to pay any cash dividends. The Company intends to continue a policy of retaining earnings for use in its business. Any payments of cash dividends in the future will depend upon the Company's earnings, financial condition, capital requirements and other factors that the Board of Directors deems relevant.
Item 6.

Item 6. Selected Financial Data.
The following table sets forth selected financial data of the Company. This data should be read in conjunction with the Company's financial statements and the notes thereto and ``Management's Discussion and Analysis of Financial Condition and Results of Operations'' included elsewhere herein.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
Years ended December 31, 1993 and 1994. Sales increased 14.8% from $83,311,000 in 1993 to $95,622,000 in 1994. The increase is due principally to increased roll sales, initiated in part by aggressive spring promotional programs during the second quarter, and to increased relabeled product sales, which are products manufactured by outside suppliers. The increase in the number of rolls sold was somewhat offset by lower pricing introduced in certain regions to improve product positioning.
Gross profit increased from $20,608,000 in 1993 to $21,198,000 in 1994. Gross profit as a percentage of sales decreased from 24.7% in 1993 to 22.2% in 1994. The decrease in profit margin percentage is due principally to the combined effect of generally lower selling prices and a shift in product sales mix. Roll product prices were adversely impacted by severe winter weather in the first quarter and by aggressive pricing used throughout the year to maintain and gain market share. This along with strong sales gains in both relabeled and built-up roofing products, both of which have lower margins, combined to lower the 1994 overall margin percentage. Also during 1994 the Company absorbed certain costs associated with its new Houston manufacturing facility.
Selling, general and administrative expenses increased from $16,390,000, or 19.7% of sales in 1993, to $18,694,000, or 19.6% of sales in 1994. The increase in expense primarily relates to the increase in sales volume.
Interest expense increased $281,000 from $919,000 in 1993 to $1,200,000 in 1994. The increase is largely the result of increased debt associated with increased sales and related accounts receivable. Construction period interest of $1,079,000 associated with the Houston facility was capitalized during 1994.
Net earnings were $991,000 or $.33 per share in 1994 compared with $2,203,000 or $.74 per share in 1993.
With the start of production at the new Houston manufacturing facility in February 1995, the Company will cease capitalizing certain construction period costs, including interest costs, incurred to acquire and build out the facility. Initially the Company plans to focus shingle marketing efforts on conventional laminate shingles, and with time, hopes to move most of the Houston production capacity over to the Company's new modified laminate product. The Company expects downward pressure on earnings from the Houston facility until a large percentage of the production capacity is moved to the new modified product, which is expected to be a gradual process that will be completed after 1995.
Years ended December 31, 1992 and 1993. Sales increased 12.8% from $73,856,000 in 1992 to $83,311,000 in 1993. The Company achieved sales increases in basically all of its sales regions, but the principal increase was along the West Coast. The Company continued to expand into the built-up roofing market and significantly increased its sales of relabeled products manufactured by outside suppliers.
Gross profit as a percentage of sales increased from 23.8% or $17,550,000 in 1992 to 24.7% or $20,608,000 in 1993. The increase in profit margin, in terms of total dollars, was primarily attributable to the sales increase for 1993, while the increase in profit margin, as a percentage of sales, was reflective of the Company's continued focus on reducing production costs through increased manufacturing efficiencies.
Selling, general and administrative expenses, as a percentage of sales, decreased 2.3% from 22.0% or $16,265,000 in 1992 to 19.7% or $16,390,000 in 1993. The percentage decrease relate primarily to the increased sales volume.
Net earnings increased $1,424,000 in 1993, from $779,000 or $.26 per share in 1992 to $2,203,000 or $.74 per share in 1993. Net earnings for 1992 reflect the adoption of the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109, which requires an asset and liability approach in accounting for income taxes. Under this new method, the deferred tax liability is calculated by applying the provisions and rates of current tax law to determine the amount of taxes payable. The cumulative effect of the change was to increase net income by $500,000 or $.17 per share.
The following table sets forth, for the time periods indicated, the percentage of certain income and expense items as they relate to total sales:
Liquidity and Capital Resources
Working capital as of December 31, 1994 was $8,562,000 compared with $13,035,000 as of December 31, 1993, a decrease of $4,473,000. Accounts receivable increased $2,378,000 primarily as a result of increased 1994 fourth quarter sales. Accounts payable increased $7,631,000 because of increased production volumes and because of construction costs incurred at the new shingle manufacturing facility in Houston.
Property, plant and equipment increased $21,243,000 and long-term debt increased $12,362,000, both primarily as a result of the Houston facility construction costs. As of December 31, 1994, the Company has expended $25,748,000 relating to the Houston facility, and during the first quarter of 1995, the Company expects additional capital expenditures of $1,000,000 relating to this facility. The Company does not anticipate any significant capital expenditures after construction at the Houston facility is completed.
The Company's $25 million credit facility is subject to an available borrowing base determined by certain manufacturing equipment and levels of trade receivables and inventories. The credit facility expires in 1999 and bears interest at prime rate. The credit agreement for the credit facility contains various restrictive covenants which, among other things, requires that the Company maintain a certain minimum tangible net worth. During February 1995, the loan balance exceeded the available borrowing base limit by approximately $4.7 million. As a result, the Company obtained a grace period in which to cure the over-extension. This over-extension of the credit facility is attributable to capital expenditures relating to the new Houston manufacturing facility, which amounted to approximately $19 million in 1994, and to a delay in obtaining term loans for that facility.
During March 1995, the over-extension was substantially reduced. The Company also obtained commitments for approximately $4.2 million of secured loans from other lenders to cure the over-extension position. The Company anticipates that the funds required to meet its seasonal increase in working capital needs will be available through the existing credit facility.
Inflation and Seasonality
Inflation has not been a significant factor in the Company's sales growth. The Company's sales of its roofing materials follow usual seasonal construction patterns and are highest in the third quarter and lowest in the first quarter. Borrowings tend to follow this trend.
Environmental Matters
The Company has made a commitment to protect the health and welfare of its employees, the public, and our environment. The Company's staff continuously reviews regulations and regularly interfaces with state and
federal environmental agencies to maintain a thorough knowledge of current requirements, and to ensure cost effective compliance with agency regulations. The Company expects the trend toward more stringent environmental regulations to continue, and uses this general philosophy when making capital expenditures for environmental purposes. The Company believes it is in compliance with all presently applicable requirements (primarily as they relate to the Environmental Protection Agency and comparable state agencies) and does not anticipate any significant expenditures to maintain its compliance.
Item 8.

Item 8. Financial Statements and Supplementary Data.
The financial statements of the Company and its subsidiary required to be included in this Item 8 are set forth in Item 14 of this Report. The quarterly results of operations are included in the "Notes to the Consolidated Financial Statements" under Item 14.
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant.(*)
Item 11.

Item 11. Executive Compensation.(*)
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management.(*)
Item 13.

Item 13. Certain Relationships and Related Transactions.(*) _________ * The information called for by Items 10, 11, 12 and 13, to the extent not set forth under Item 1. ``Executive Officers of the Company,'' is or will be set forth in the definitive proxy statement relating to the 1995 Annual Meeting of Shareholders of U. S. Intec, Inc. pursuant to the Commission's Regulation 14A (File No. 1-10665). Such definitive proxy statement relates to a meeting of shareholders involving the election of directors and the portions therefrom called for by Items 10, 11, 12 and 13 (excluding, in the case of Item 11, the information required by paragraphs (i), (k), and (l) of Item 402 of Regulation S-K) are incorporated herein by reference pursuant to Instruction G to Form 10-K.
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) Financial Statements and Financial Statement Schedules.
(1) Financial Statements-
Page
Report of Independent Auditors....................................... Consolidated Balance Sheets as of December 31, 1994 and 1993 ........ Consolidated Statements of Earnings for the Three Years Ended December 31, 1994................................................. Consolidated Statements of Shareholders' Equity for the Three Years Ended December 31,1994..................................... Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1994........................................... Notes to the Consolidated Financial Statements.......................
(2) Schedules Supporting Financial Statements-
Schedule VIII-Valuation and Qualifying Accounts.............................................................
Other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are either not required under the related instructions or inapplicable.
(3) Listing of Exhibits-See Item 14(c).
(b) Current Reports on Form 8-K.
None
(c) Exhibits.
*10(a) - Lease agreement, effective as of February 1, 1993, by and between U.S. Intec, Inc., as Lessor, and Thunderhawk Manufacturing Company, L.P., as Lessee, pertaining to the Company's Georgia plant facility located in Walton County, Georgia, together with purchase option. (See form 10-K for 1992 filed March 1993). *10(b) - Amendment to the security agreement between U.S. Intec, Inc. and LaSalle National Bank of Chicago, formerly Exchange National Bank of Chicago, dated February 8, 1994. (See form 10-K for 1993 filed March 1994). *10(c) - Promissory Note and related Letter Agreement between U.S. Intec, Inc. and Danny J. Adair effective December 31, 1993. (See form 10-K for 1993 filed March 1994).
*10(d) - Asset Purchase Agreement between U.S. Intec, Inc. and Betontex, Inc. dated as of September 8, 1993. (See form 10-K for 1993 filed March 1994). *21 - List of Subsidiaries of U.S. Intec, Inc (see Form 10-K for 1990 filed in March 1991). 23(a) - Consent of Independent Auditors.
* Incorporated herein by reference as indicated.
(d) Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Port Arthur, Texas, on March 29, 1995.
U.S. Intec, Inc.
By Danny J. Adair ----------------------------- Danny J. Adair President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed on March 29, 1995 by the following persons in the capacities indicated.
Signature Title
Danny J. Adair President, Chief Executive ------------------------------- Danny J. Adair Officer and Director
J. Roane Ruddy Chief Financial Officer ------------------------------- J. Roane Ruddy and Director
Ken D. Latiolais Vice President ------------------------------ Ken D. Latiolais and Director
S. Craig Noble Vice President ------------------------------ S. Craig Noble and Director
Albert E. Brammer Director ------------------------------ Albert E. Brammer
Austin W. Gonsoulin Director ------------------------------ Austin W. Gonsoulin
Robert G. Hoag Director ----------------------------- Robert G. Hoag
Richard Earl Purkey, Sr. Director ------------------------------ Richard Earl Purkey, Sr.
Page Report of Independent Auditors ..................................... Consolidated Balance Sheets as of December 31, 1994 and 1993........ Consolidated Statements of Earnings for the Three Years Ended December 31, 1994........................................... Consolidated Statements of Shareholders' Equity for the Three Years Ended December 31, 1994............................... Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1994........................................... Notes to the Consolidated Financial Statements...................... Schedule VIII-Valuation and Qualifying Accounts.....................
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders U.S. Intec, Inc.
We have audited the accompanying consolidated balance sheets of U. S. Intec, Inc. as of December 31, 1994 and 1993, and the related consolidated statements of earnings, shareholders equity, and cash flows for each of the three years in the period ended December 31, 1994. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of U. S. Intec, Inc. at December 31, 1994 and 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
As discussed in Note C to the consolidated financial statements, in 1992 the Company changed its method of accounting for income taxes.
Ernst & Young LLP
Houston, Texas February 17, 1995, Except Note B as to which the date is March 24, 1995
See notes to the consolidated financial statements.
See notes to the consolidated financial statements
U.S. INTEC, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional Common Paid-In Retained Stock Capital Earnings Total ------- ---------- ---------- -----------
Balance at December 31, 1991 $59,384 $7,143,399 $11,388,455 $18,591,238 Net earnings for 1992..... 779,189 779,189 ------- ---------- ----------- ----------- Balance at December 31, 1992 $59,384 $7,143,399 $12,167,644 $19,370,427 Stock options exercised in 1993.................... 310 74,090 74,400 Net earnings for 1993..... 2,203,162 2,203,162 ------- ---------- ----------- ----------- Balance at December 31, 1993 $59,694 $7,217,489 $14,370,806 $21,647,989 Stock options exercised in 1994.................... 325 103,425 103,750 Restricted stock issuance and amortization........ 600 47,213 47,813 Net earnings for 1994..... 990,883 990,883 ------- ---------- ----------- ----------- Balance at December 31, 1994 $60,619 $7,368,127 $15,361,689 $22,790,435 ======= ========== =========== ===========
See notes to the consolidated financial statements
See notes to the consolidated financial statements
U.S. INTEC, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 1994
NOTE A-SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation: The consolidated financial statements include the accounts of the Company and its subsidiary. The Company's 40% interest in a partnership is accounted on the equity method. Because the Company has provided substantially all start-up funding for the partnership, the Company recorded 100% of the partnership earnings (losses) for 1994 and 1993 which, after elimination of intercompany transactions, were approximately $100,000 and ($200,000), respectively. All material intercompany amounts and transactions have been eliminated.
Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market.
Property, Plant and Equipment: Property, plant and equipment, including capitalized interest, is stated on the basis of cost. Interest of $1,079,204 and $143,027 was capitalized in 1994 and 1993, respectively. No interest was capitalized in 1992. Depreciation is computed by the straight-line method using the following estimated useful lives:
Asset Class Years Buildings and leasehold improvements. . . . . 15 Manufacturing equipment . . . . . . . . . . . 10 Furniture and fixtures. . . . . . . . . . . . 5 Automotive equipment. . . . . . . . . . . . . 3
Goodwill and Intangibles: Goodwill and intangibles are recorded at cost and are amortized using the straight-line method over their respective useful lives of 40 and 5 years. The Company periodically assesses and measures for impairment of goodwill and intangibles using projected net earnings (attributable to goodwill and intangibles) over the remaining amortization period.
Income Taxes: Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. Deferred income taxes arise principally from timing differences related to depreciation expense, warranty expense and safe harbor lease transactions.
Product Warranty: The Company offers a limited warranty covering up to twenty years on some of its products. The Company accrues for estimated warranty costs at the time of sale of warranted products. As of December 31, 1994, the reserve for warranty claims was $6,139,013. The Company feels that this reserve is adequate to provide for future warranty obligations.
U.S. INTEC, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) December 31, 1994
Net Earnings Per Share: Net earnings per share is based on the weighted average number of shares of common stock outstanding during each period - 2,999,425 in 1994, 2,974,703 in 1993 and 2,969,161 in 1992. Stock options are not included in the computation of the weighted average number of common shares outstanding since their effect is not significant. Fully diluted earnings per share is not presented because the stock options are not materially dilutive.
Supplemental Cash Flow Information: The Company paid interest (net of amounts capitalized) of approximately $1,199,800 in 1994, $919,000 in 1993 and $1,052,000 in 1992. The Company paid income taxes, net of refunds, of $450,000, $1,973,000 and $71,000 in 1994, 1993 and 1992, respectively.
Cash and Cash Equivalents: For purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Debt Maturities:
Aggregate maturities of long-term debt during the next five years, are as follows:
1995 . . . . . . . . . . . . . 867,299 1996 . . . . . . . . . . . . . 925,783 1997 . . . . . . . . . . . . . 988,519 1998 . . . . . . . . . . . . . 1,055,818 1999 . . . . . . . . . . . . . 24,781,105
Revolving Credit Facility: The facility, which expires in 1999, is subject to an available borrowing base determined by certain manufacturing equipment and levels of trade accounts receivable and inventory. During
U.S. INTEC, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) December 31, 1994
February 1995, the loan balance exceeded the available borrowing base limit by approximtely $4.7 million. As a result, the Company obtained a grace period in which to cure the over-extension. During March 1995, the over-extension was substantially reduced. The Company also obtained commitments for approximately $4.2 million of secured loans from other lenders to cure the over-extension position. Accordingly, the credit facility is classified as long-term.
Restrictive Covenants: The Company's credit agreements contain various restrictive covenants which, among other things, require that the Company maintain a minimum tangible net worth.
Collateral: Substantially all of the assets of the Company are pledged under the terms of the lending agreements.
NOTE C-INCOME TAXES
The income tax provision (benefit) consists of the following:
U.S. INTEC, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) December 31, 1994
NOTE C-INCOME TAXES (CONTINUED)
The income tax effect of the factors accounting for the difference between the statutory federal income tax rates and the actual provision for taxes on income are as follows:
The components of the net deferred tax liability as of December 31, 1994, 1993 and 1992 are as follows:
U.S. INTEC, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) December 31, 1994
In 1992, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109 requires the adjustment of previously deferred taxes for changes in tax rates under the liability method. The Company chose to reflect the cumulative effect of adopting the pronouncement as a change in accounting principle at the beginning of 1992. The effect of the change increased 1992 net earnings by $500,000, or $.17 per share, and is reported separately in the consolidated statement of operations. This benefit represents the writedown of net deferred tax assets and liabilities from tax rates in effect when they arose to current statutory tax rates.
NOTE D-RELATED PARTY TRANSACTIONS
During 1990, the Company accepted a note from its President for $2,803,000 bearing interest at the rate paid by the Company for funds borrowed under its senior credit facility. In December 1993, the Company renegotiated the note by extending the due date of principal payments and the note's maturity to December 31, 1996. Accrued interest on the note has been paid through December 31, 1994. The note is secured by 814,521 shares of the Company's Common Stock and certain real estate. The President has agreed that in the event the Company elects to raise capital through an underwritten public offering of its Common Stock prior to maturity of the renegotiated note, he will sell in such public offering a sufficient number of pledged shares in order to enable him to prepay the note in full. The President has also agreed that until the renegotiated note is paid in full, he will not be eligible to participate in any long-term incentive plans or programs based on the Company's Common Stock.
During the years ended December 31, 1994, 1993 and 1992, the Company purchased approximately $32,000, $32,000 and $33,000, respectively, of goods and services from the President of the Company or entities in which the President owns a controlling interest. These amounts were charged to expense in the respective periods and relate primarily to rental payments.
NOTE E-COMMITMENTS AND CONTINGENCIES
The Company is committed to pay an annual royalty of not less than $200,000 nor more than $500,000 for the use of the BRAI brand name in the United States through 1995.
The Company is installing a residential shingle manufacturing line in its newly acquired Houston facility. The Company expects capital expenditures of $1,000,000 during the first quarter of 1995 relating to this facility.
U.S. INTEC, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) December 31, 1994
Various claims are pending against the Company arising in the ordinary course of business. The Company maintains insurance, which serves to minimize exposure to claim losses. Beginning in 1992 through 1993, the Company's general liability coverage includes self-insured obligations of $250,000 per occurrence and $1,000,000 in the aggregate. In 1994 the per occurrence self-insured obligation was reduced to $100,000. For the period beginning in 1982 through August 1988, the Company purchased comprehensive general liability coverage from Employers Casualty Company ("Employers"). In 1994, Employers was placed in receivership which could potentially affect the direct indemnity obligations of Employers under the policies issued to the Company. However, the receivership is not expected to result in any material loss or deprivation of coverage to the Company due to other available insurance coverage and insurance guarantee pools maintained by the various states.
Additionally, for the period August 5, 1983 through March 17, 1985, the Company purchased excess liability coverage from an insurance company ("Mission National Insurance Company") which subsequently was placed in liquidation, such coverage being in addition to the Company's comprehensive general liability coverage. For the period referred to above, there is one lawsuit pending alleging total damages which, if awarded, would exceed coverage provided by the underlying comprehensive general liability policy. However, it is expected that additional funds for the satisfaction of this claim will be available through state insurance guarantee pools and from the liquidation of the assets of the bankrupt excess liability carrier.
The Company's claim liability has been determined based on an evaluation of claims incurred. The estimated liability of $1,034,000 at December 31, 1994 is included in other accrued liabilities in the consolidated balance sheet.
The Company does not possess sufficient information to evaluate certain claims. However, after taking into consideration legal counsel's evaluation and insurance coverage maintained by the Company, management believes that recoveries by claimants, if any, will not be material to the consolidated financial statements of the Company.
U.S. INTEC, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) December 31, 1994
NOTE F-RETIREMENT PLANS
The Company has a 401(k) Plan, which covers substantially all employees. The Company matches the first $500 the employee contributes to the Plan. Additionally, profit sharing contributions are made by the Company at the discretion of the Board of Directors. The Board approved contributions of $150,000 for 1994, 1993 and 1992. Total expense for the Plan was $300,000, $275,000 and $277,000 in 1994, 1993 and 1992, respectively.
During 1994, the Company terminated its Non-Qualified Deferred Compensation Plan for designated key employees. Plan assets of approximately $400,000 were transferred to Plan participants subsequent to year-end.
NOTE G-STOCK OPTION PLANS
Effective May 1994, the shareholders of the Company adopted the 1994 Long Term Incentive Plan of the Company (the "Incentive Plan"), which provides for the grant of stock options, stock appreciation rights, restricted stock, performance cash awards, performance stock awards, dividends equivalent rights, or any combination thereof. The Incentive Plan replaced the Company's 1985 Employee Stock Option Plan; however, stock options granted under the 1985 Plan which were outstanding at the time of adoption of the Incentive Plan are counted in determining the shares available for issuance under the Incentive Plan. The total number of shares of the Company's Common Stock available for issuance under the Incentive Plan is 450,000.
U.S. INTEC, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) December 31, 1994
Stock option transactions are summarized as follows:
All outstanding options are for terms of 5 to 10 years from date of grant.
The Non-Employee Director Stock Option Plan (the "Outside Director Plan") adopted in 1988 was terminated upon approval of the Incentive Plan. Accordingly, outstanding options to purchase 20,000 shares of Common Stock under the Outside Director Plan were cancelled. Pursuant to the Incentive Plan, the independent directors are each granted 10,000 shares of restricted stock, vesting 25% for each full year of service as an independent director. As of December 31, 1994, 30,000 restricted shares had been issued, of which 7,500 shares had vested.
NOTE H-MAJOR CUSTOMERS AND CREDIT CONCENTRATION
The Company's customers are not concentrated in any specific geographic region, but are concentrated in the building materials industry. The Company derived 15.5% of total revenue from a single customer in 1994.
The Company reviews a customer's credit history before extending credit. The Company establishes an allowance for doubtful accounts based upon factors affecting the creditworthiness of specific customers, historical trends and other information.
U.S. INTEC, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) December 31, 1994
NOTE I-SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Selected quarterly financial results for the years ended December 31, 1994 and 1993 are summarized below:
EXHIBIT 23(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-35861)pertaining to the 1985 Stock Option Plan of U.S. Intec, Inc. and in the related Prospectus and in the Registration Statement (Form S-3 No. 33-88528) and in the related Prospectus pertaining to the registration of 545,290 shares of common stock of our report dated February 17, 1995, with respect to the consolidated financial statements and schedules of U.S. Intec, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1994.
Ernst & Young LLP
March 28, 1995 Houston, Texas


Item 1. Business.
ZERO Corporation (the "Company", ZERO, or "Registrant") was incorporated in Delaware in 1988 as a successor in interest to a California corporation of the same name that was originally incorporated in 1952. Its executive offices are located at 444 South Flower Street, Suite 2100, Los Angeles, CA 90071-2922, telephone (213) 629-7000.
The Company, through nine U.S. companies and one foreign company, considers itself a leader in the engineering, manufacturing and marketing of engineered cases, system packaging, and various products used in the airline/air cargo industry. ZERO's engineered cases include custom and standard deep drawn aluminum ZERO boxes; ZERO Halliburton (Register Mark) luggage, attaches and carrying cases; thermoformed and rotationally molded plastic cases and enclosures; other standard and custom fabricated cases (marketed under the Anvil Cases (Register Mark) brand name); and specialized case hardware. The Company's engineered cases are widely used in commercial, industrial and government/military applications. The Company's system packaging business involves engineering, manufacturing and/or integrating standard and custom electronic enclosures and cabinets, and related components such as card cages, backplanes, and power supplies; and cooling equipment, including motorized impellers, blowers, fan trays, heat exchangers and air conditioners. The Company's airline/air cargo products include specialized aluminum, polycarbonate and fiberglass air cargo containers; patented telescoping baggage/cargo systems; air cargo restraint systems and hardware; and transit cases engineered to meet the Air Transport Association's highest specifications. Over fifty percent of ZERO's net sales in fiscal 1994 were linked to the electronics industry through customers doing business in the telecommunication/instrumentation, and data processing/peripherals markets.
ZERO's operations are classified under two business segments: Enclosures and Accessories, and Other. Information about ZERO's business segments is set forth in Note 8 "Segment Information" on page 28 of the 1994 Annual Report, which is incorporated herein by reference.
During the three years ended March 31, 1994, the Company did not derive a material portion of its sales or net income from its foreign operations nor has the Company been dependent upon a single customer, or a few customers, the loss of which would have a material adverse effect on its operations.
Patents, licenses, franchises and concessions are not an important factor in ZERO's overall production process and are not material to its results of operation.
Development of new products is not a significant part of the Company's business. During the year ended March 31, 1994, the Company spent less than 1% of net sales on research and development activities.
Marketing
In marketing non-consumer oriented products in its two business segments, ZERO employs manufacturers' representatives, direct salespeople and some distributors to market its products worldwide. Technical support for these manufacturers' representatives, salespeople and distributors is provided by engineering personnel from ZERO's various plants. The Company's standard enclosure products and accessories are sold through catalogs, advertisements, trade journals and independent distributors. Nonstandard or specialized enclosure products and accessories are marketed through manufacturers' representatives and direct sales. ZERO's consumer oriented products are marketed worldwide through catalogs, advertisements in selected publications, telemarketing programs, trade journals and are distributed through established independent dealers who specialize in the market to which each of ZERO's products is related.
Competition
While reliable statistics are not available that would permit the Company to accurately estimate its share of the total market for each of its business segments, the Company believes it has a significant share of the enclosures and accessories market that it serves. ZERO competes with a number of other companies, both larger and smaller. The degree and type of competition that ZERO encounters varies for both of its business segments.
The Company believes it effectively competes in both of its business segments by providing engineering expertise, innovative design, superior quality and on-time delivery at a competitive price. ZERO's ability to successfully compete in the Enclosures and Accessories segment is also attributable to its broad range of standard products. Approximately 2,000 dies, capable of producing over 75,000 standard deep drawn aluminum enclosures, provides ZERO with both a cost and service advantage in a large portion of its metal case and enclosure business. In addition, ZERO offers thousands of sizes of fabricated cases and hundreds of standard configurations for system packaging. Competitive strength is also derived by the Company's ability to modify standard products to satisfy a virtually limitless number of applications and customer requirements.
Sales and Backlog
ZERO's backlog at March 31, 1994 and 1993 was $40,302,000 and $39,415,000, respectively. Backlog is based on contracts which were signed as of the respective dates set forth. Approximately 93% of the backlog at March 31, 1994 is scheduled for delivery during fiscal 1995.
Certain contracts, particularly those with the United States Government and its contractors, provide for cancellation for convenience of the customer. If such cancellation occurs, the contractor is paid for costs incurred to date plus the costs of settling and paying claims of terminated subcontractors, other settlement expenses and a reasonable profit on its costs. During the five years ended March 31, 1994, the aggregate amount of orders cancelled for the convenience of the United States Government has not been material. However, no assurance can be given that this pattern will continue in the future.
For the year ended March 31, 1994, approximately 12% of Zero's sales were made to the government/military market.
A majority of ZERO's sales orders are in amounts of less than $10,000 each. These orders generally are delivered 1 to 6 weeks from the time the order is booked. Larger orders and custom orders may take several weeks to over a year depending on the delivery schedule set by the customer. Because of the large number of customers served (in excess of 19,000), the relatively small size of each order and the relatively short delivery cycles involved, the Company believes the risk of any order being cancelled which would have a significant adverse effect on operations is low.
Raw Materials
The principal raw materials used by ZERO in manufacturing its products are aluminum and steel and, to a lesser extent, plastics. Such materials are purchased under competitive bids at levels sufficient to meet foreseeable production and delivery schedules. For the year ended March 31, 1994, ZERO purchased aluminum and steel from over ten principal suppliers. Plastics and other raw materials and supplies necessary for the production of ZERO's products are purchased from a variety of suppliers. As of June 17, 1994, the Company was not experiencing shortages in the supply of its raw materials. Based on market and economic conditions at that date, ZERO believes that the supply and availability of these materials will be adequate to support its level of operations projected through March 31, 1995. However, the Company can make no assurances that such materials will be available beyond that period, and any shortage of such materials could have a significant and material adverse impact on the operations of the Company.
Environmental Matters
ZERO has developed and implemented an environmental program to reduce or eliminate the use of hazardous material and possible contamination. Through changes in production processes, capital expenditures, proper training and the use of state-of-the-art treatment and monitoring equipment, the Company believes its program is controlling the use and discharge of hazardous materials and is in substantial compliance with applicable local, state and Federal regulations. The Company does not expect that any assertions of noncompliance with such laws will materially adversely affect its earnings or competitive position or will require any significant capital expenditures during fiscal year 1995.
Information in Note 7 - "Contingent Liabilities" on page 27 of the 1994 Annual Report addressing environmental matters in which ZERO has been named a "potentially responsible party" is incorporated herein by reference.
Employees
As of May 31, 1994, ZERO employed 1,684 persons. Employee relations are considered good. Certain employees at the Company's Samuel Groves & Co. Limited subsidiary and ZERO Stantron Cabinets division are represented by unions which are not affiliated with any national unions. In the past ten years the Company has not experienced a significant work stoppage from a labor dispute.
Item 2.

Item 2. Properties.
As of June 17, 1994, ZERO used manufacturing plants and office buildings containing an aggregate of approximately 1,389,000 square feet of floor space. ZERO's plants are located in California (Camarillo, City of Industry, El Monte, Pacoima, Rancho Dominguez and San Diego); Utah (North Salt Lake); Massachusetts (Monson); New Jersey (Princeton Junction); Minnesota (Brooklyn Park); Connecticut (Hartford); Tijuana, Mexico; and Birmingham and Feltham, England. The plants located in Camarillo, City of Industry, El Monte, Pacoima and San Diego, California; in Brooklyn Park, Minnesota; in Princeton Junction, New Jersey; and in North Salt Lake, Utah, are used in the production of enclosures and accessories. The remaining plants are used by both business segments.
ZERO owns all its plants and facilities, except for the following leased properties:
PLANT SQUARE FOOTAGE LEASE EXPIRES - - --------------------------------------------------------------------------------
Camarillo, CA 36,000 June 30, 1996 Camarillo, CA 22,000 February 28, 1996* City of Industry, CA 63,000 November 30, 1996* El Monte, CA 72,000 May 31, 2006 Hartford, Ct 8,000 January 31, 1996 Pacoima, CA 114,000 August 5, 1999* Rancho Dominguez, CA 33,000 November 30, 1994* Rancho Dominguez, CA 121,000 September 30, 1999* Tijuana, Mexico 35,000 January 31, 1995* Feltham, England 31,000 October 1, 2002 --------- TOTAL 535,000 =========
* Lease contains renewal option.
ZERO's plants and facilities used in operations are generally constructed of concrete block, brick, concrete tilt-up, steel or a combination thereof. ZERO's facilities and equipment are well maintained and are believed to be adequate to support a substantial increase in its operations, assuming a comparable product mix.
Item 3.

Item 3. Legal Proceedings.
Information concerning legal proceedings in Note 7 - "Contingent Liabilities" on page 27 of the 1994 Annual Report is incorporated herein by reference.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders.
Registrant submitted no matters to a vote of its security holders during the fiscal quarter ended March 31, 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT ------------------------------------
Information regarding the Company's officers as of June 17, 1994 is as follows:
EXECUTIVE NAME AGE POSITION OFFICER SINCE - - --------------------------------------------------------------------------------
John B. Gilbert 73 Chairman Emeritus 1952
Wilford D. Godbold Jr. 56 President, Chief Executive Officer and Director 1982
Howard W. Hill 67 Chairman of the Board 1960
George A. Daniels 56 Vice President and Chief Financial Officer 1987
James F. Hermanson 57 Vice President 1984
Bernard B. Heiler 48 Vice President of Marketing and Sales 1992
Anita J. Cutchall 55 Director of Legal Affairs and Corporate Secretary 1992
None of the directors or executive officers are related to one another. All executive officers except Mr. Heiler and Ms. Cutchall have served in their current capacities or in other managerial positions with the Company for a minimum of the past five years. Mr Heiler has held his current position with the Company since October 1992, prior to which he was Vice President of GTE California, a telephone public utility, from 1984 through 1992, and President of GTEL, a telecommunications integrator and a subsidiary of GTE, from January 1986 through October 1992. Ms. Cutchall has held her current position with the Company since August 1992, prior to which she held the same position with Continental Graphics Corporation, a provider of specialty graphics, commercial printing and film services, from July 1990 through August 1992, and was Legal Associate and Corporate Secretary at Triton Group Ltd,. a diversified holding company, from 1986 through 1990.
PART II
Item 5.

Item 5. Market For Registrant's Common Equity and Related Stockholder Matters.
The information under the caption "Market and Dividend Information" on page 30 of the 1994 Annual Report is incorporated herein by reference. On June 17, 1994 the Company had 6,122 stockholders of record.
Item 6.

Item 6. Selected Financial Data.
The information under the caption "Five Year Consolidated Financial Highlights" on the inside front cover of the 1994 Annual Report is incorporated herein by reference.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The information under the caption "Management's Discussion and Analysis of Results of Operations and Financial Condition" on page 18 of the 1994 Annual Report is incorporated herein by reference.
Item 8.

Item 8. Financial Statements and Supplementary Data.
The following consolidated financial statements of the Registrant and its subsidiaries included in the 1994 Annual Report (on the pages therein shown in parentheses) are incorporated herein by reference:
Statements of Consolidated Income--Years Ended March 31, 1994, 1993 and 1992. (Page 19)
Consolidated Balance Sheets--March 31, 1994 and 1993. (Pages 20 and 21)
Statements of Consolidated Stockholders' Equity--Years ended March 31, 1994, 1993 and 1992. (Page 22)
Statements of Consolidated Cash Flows--Years Ended March 31, 1994, 1993 and 1992. (Page 23)
Notes to Consolidated Financial Statements. (Pages 24 to 28, inclusive)
The independent auditors' report and management's report on page 29 of the 1994 Annual Report covering ZERO's consolidated financial statements are also incorporated herein by reference.
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant.
The information under the caption "Election of Directors" in the 1994 Proxy Statement is incorporated herein by reference.
Information concerning the Company's executive officers is included under the caption "Executive Officers of the Registrant" following Part I, Item 4 of this report.
Item 11.

Item 11. Executive Compensation.
The information under the captions "Meetings of the Board of Directors, Committees of the Board and Directors' Fees" and "Executive Compensation" in the 1994 Proxy Statement is incorporated herein by reference.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information under the captions "General Information" and "Voting Securities and Certain Stockholders" in the 1994 Proxy Statement is incorporated herein by reference.
Registrant does not know of any arrangement, including any pledge by any person of securities of Registrant, which may at a subsequent date result in a change of control of Registrant.
Item 13.

Item 13. Certain Relationships and Related Transactions.
Not applicable.
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1). Financial Statements.
Reference is made to Item 8 in Part II of this report, where these statements are listed.
(a)(2). Financial Statement Schedules.
The following consolidated financial statement schedules of Registrant are included in Item 14(d) below:
Schedule I--Short-Term Investments as of March 31, 1994.
Schedule VIII--Valuation and Qualifying Accounts for the years ended March 31, 1994, 1993 and 1992.
Schedule IX--Short-Term Bank Borrowings for the years ended March 31, 1994, 1993 and 1992.
Schedule X--Supplementary Income Statement Information for the years ended March 31, 1994, 1993 and 1992.
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
(a)(3). Exhibits.
The following exhibits are part of this Form 10-K and are either incorporated by reference to the prior filings indicated below or are filed herewith under Item 14(c):
3.1 The Restated Certificate of Incorporation filed as Exhibit 3-(3)(a) of the Company's Form 8-B filed on September 7, 1988.
3.2 Bylaws of ZERO Corporation, as amended on April 22, 1994.
4.2 Specimen form of certificate of common stock $0.01 par value per share filed as Exhibit 3-(4) of the Company's Form 8-B filed on September 7, 1988.
10.1 Deferred Compensation Plan adopted by the Board of Directors on December 17, 1973 as amended by the Board of Directors on December 11, 1974 filed as Exhibit 13.10 to the Company's Form 10-K for the year ended March 31, 1975.
10.2 Deferred Compensation Plan as amended through April 1, 1986 filed as Exhibit 10.13 to the Company's Form 10-K for the year ended March 31, 1986.
10.3 Directors' Deferred Compensation Plan adopted by the Board of Directors on October 20, 1993.
10.4 Executive Deferred Compensation Plan adopted by the Board of Directors on October 20, 1993.
10.5 ZERO Corporation Management Bonus Plan adopted by the Board of Directors on April 22, 1994.
10.6 Articles of Association of the ZERO Corporation Employees Stock Purchase Plan filed as Exhibit 1 to Form S-8 Registration Statement (File No. 2-26009).
10.7 ZERO Corporation 1988 Stock Option Plan, as amended, filed on Form S-8 Registration Statements (File Nos. 33-44143, 33-27929 and 2-54344).
10.8 ZERO Corporation 1994 Stock Option Plan, filed as Appendix A to the Company's 1994 Proxy Statement.
10.9 Description of ZERO Corporation Supplemental Executive Retirement Plan adopted by the Board of Directors on January 19, 1994.
10.10 Description of ZERO Corporation Contract and Joint Supplemental Life Insurance Plan adopted by the Board of Directors on April 22, 1994.
13 Annual Report for the year ended March 31, 1994 (not deemed filed except for those portions specifically incorporated by reference herein).
21 Listing of the Company's subsidiaries as of March 31, 1994.
23 Consent of Independent Auditors dated June 27, 1994 to the incorporation by reference of their reports filed herewith into the Company's Form S-8 Registration Statements (File Nos. 33-53943, 33-44143, 33-27929 and 2- 54344).
(b). REPORTS ON FORM 8-K.
During the quarter ended March 31, 1994 the Company filed no reports on Form 8-K.
(c). EXHIBITS.
See listing of exhibits filed herewith on page 16 of this report.
(d). FINANCIAL STATEMENT SCHEDULES.
The financial statement schedules listed in Item 14(a)(2) above are shown on pages 12 through 15 of this report. The report of the Registrant's independent auditors, Deloitte & Touche, is set forth on page 11 of this report.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - - --------- ----- ----
Vice President and Chief /s/ GEORGE A. DANIELS Financial Officer June 27, 1994 - - ----------------------- George A. Daniels
Controller and Chief /s/ ERIC A. SAND Accounting Officer June 27, 1994 - - ----------------------- Eric A. Sand
DIRECTORS:
/s/ GARY M. CUSUMANO Director June 27, 1994 - - ----------------------- Gary M. Cusumano
/s/ BRUCE J. DEBEVER Director June 27, 1994 - - ----------------------- Bruce J. DeBever
/s/ CLINTON G. GERLACH Director June 27, 1994 - - ----------------------- Clinton G. Gerlach
/s/ JOHN B. GILBERT Director June 27, 1994 - - ----------------------- John B. Gilbert
Director and Chief /s/ WILFORD D. GODBOLD JR. Executive Officer June 27, 1994 - - ----------------------- Wilford D. Godbold Jr.
/s/ BERNARD B. HEILER Director June 27, 1994 - - ----------------------- Bernard B. Heiler
/s/ HOWARD W. HILL Director June 27, 1994 - - ----------------------- Howard W. Hill
/s/ WHITNEY A. MCFARLIN Director June 27, 1994 - - ----------------------- Whitney A. McFarlin
INDEPENDENT AUDITORS' REPORT ----------------------------
To the Stockholders of ZERO Corporation:
We have audited the consolidated financial statements of ZERO Corporation and its subsidiaries (the "Company") as of March 31, 1994 and 1993, and for each of the three years in the period ended March 31, 1994, and have issued our report thereon dated May 12, 1994; such financial statements and report are included in your 1994 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the financial statement schedules of the Company, listed in Item 14(a)(2). These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE
Los Angeles, California May 12, 1994
S C H E D U L E I
ZERO CORPORATION AND SUBSIDIARIES
SHORT-TERM INVESTMENTS
AS OF MARCH 31, 1994
S C H E D U L E V I I I
ZERO CORPORATION AND SUBSIDIARIES ---------------------------------
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1994, 1993 AND 1992
(1) Net of recoveries
S C H E D U L E IX
ZERO CORPORATION AND SUBSIDIARIES ---------------------------------
SHORT-TERM BANK BORROWINGS
FOR THE YEARS ENDED MARCH 31, 1994, 1993 AND 1992
S C H E D U L E X
ZERO CORPORATION AND SUBSIDIARIES ---------------------------------
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED MARCH 31, 1994, 1993 AND 1992
ZERO CORPORATION AND SUBSIDIARIES
FORM 10K, ITEM 14(c)
EXHIBITS FILED HEREWITH
3.2 Bylaws of ZERO Corporation, as amended on April 22, 1994.
10.3 Directors' Deferred Compensation Plan adopted by the Board of Directors on October 20, 1993.
10.4 Executive Deferred Compensation Plan adopted by the Board of Directors on October 20, 1993.
10.5 ZERO Corporation Management Bonus Plan adopted by the Board of Directors on April 22, 1994.
10.9 Description of ZERO Corporation Supplemental Executive Retirement Plan adopted by the Board of Directors on January 19, 1994.
10.10 Description of ZERO Corporation Contract and Joint Life Insurance Plan adopted by the Board of Directors on April 22, 1994.
13 Annual Report for the year ended March 31, 1994 (not deemed filed except for those portions specifically incorporated by reference herein).
21 Subsidiaries of Registrant as of March 31, 1994.
23 Consent of Independent Auditors to incorporation by reference of $599,000 reports filed herewith into the Company's Form S-8 Registration Statements (File Nos. 33-53943, 33-44143, 33-27929 and 2-54344).


ITEM 1. BUSINESS - - -----------------
(a) General Development of Business -------------------------------
Continental Can Company, Inc. (the Company) is a publicly traded company incorporated in Delaware in 1970 under the name Viatech, Inc. The name of the Company was changed to Continental Can Company, Inc. in October 1992. The Company is engaged in the packaging business through a number of consolidated operating subsidiaries. The Company's packaging business consists of (i) its 50%-owned domestic subsidiary, Plastic Containers, Inc. (PCI), which owns Continental Plastic Containers, Inc. and Continental Caribbean Containers, Inc. (collectively, CPC), (ii) its wholly owned German operating subsidiary, Dixie Union Verpackungen GmbH (Dixie Union) and (iii) its majority-owned European operating subsidiaries, Ferembal S.A. (Ferembal), which in turn owns 64% of Obalex, A.S. (Obalex), and Onena Bolsas de Papel, S.A. (Onena). PCI is a leading manufacturer of extrusion blow-molded containers in the United States. Ferembal is a manufacturer of rigid packaging, primarily food cans, of which it is the second largest supplier in France. Obalex is a manufacturer of metal cans in the Czech Republic. Dixie Union manufactures plastic films and packaging machines, primarily for the food and pharmaceutical industries. Onena manufactures film, and laminates and prints plastic, paper and foil packaging materials for the food and snack food industries in Spain. The Company also owns Lockwood, Kessler & Bartlett, Inc. (LKB) which provides services principally in the fields of mapping and survey, civil and structural engineering, mechanical and electrical engineering, and construction administration and inspection.
(b) Financial Information About Industry Segments ---------------------------------------------
The Company has one reportable industry segment - packaging, as determined in accordance with the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 14.
(c) Narrative Description of Business ---------------------------------
The Company manufactures packaging which accounted for 98%, 97.5% and 97.3%, of its consolidated revenues in 1994, 1993 and 1992, respectively.
CPC - The Company's 50%-owned subsidiary, PCI, acquired CPC in November --- 1991. CPC, headquartered in Norwalk, Connecticut, has fifteen manufacturing plants in the continental United States and one in Puerto Rico. CPC is a leader in the development, manufacture and sale of a wide range of extrusion blow- molded plastic containers for household chemicals, food and beverages, automotive products and motor oil, industrial and agricultural chemicals and cosmetics and toiletries. CPC manufactures single and multi-layer containers, primarily from high density polyethylene and polypropylene resins, ranging in size from two ounces to five gallons. Some of these multi-layer containers include a barrier layer of ethyl vinyl alcohol which renders the container oxygen tight and makes it suitable for use in food products which are subject to spoilage or deterioration if exposed to oxygen. CPC sells containers to national consumer products companies, including Clorox Company, Coca-Cola Foods, Colgate-Palmolive Company, Lever Brothers, Mobil Oil Corporation, Pennzoil Products Company, Procter & Gamble Company, Quaker Oats Company and Quaker State Oil Refining Corporation. CPC, in many cases, manufactures substantially all of a customer's container requirements for specific product categories or for particular container sizes. CPC has long-standing relationships with most of its customers and has long-term contracts or agreements with customers representing approximately 70% of its dollar sales volume.
Ferembal - The Company acquired a 68% interest in Ferembal in the fourth -------- quarter of 1989, increased its interest to 84% in August, 1991 and at December 31, 1994 owned 85% of Ferembal. Ferembal, headquartered in Paris, has five manufacturing plants located in each of the main agricultural regions of France. The Roye plant, located in Picardie, was built in 1964 and expanded substantially in 1968. Its three main divisions include coil
cutting, printing and varnishing; the manufacture of ends and bodies; and assembly. There are five welded lines in operation at Roye and all industrial products are manufactured at this plant. The Moelan plant, located in Brittany, is set up along similar lines as the Roye plant with five welded lines. The Ludres plant, in eastern France, is Ferembal's largest facility. In addition to twelve presses and two easy-open end manufacturing units, Ludres has nine body assembly lines. Ferembal's research and development and technical service departments are also located at Ludres. The Veauche plant was built in 1982 to service southern France. Approximately 90% of the output of the two welded lines is "passed through the wall" to a customer for the canning of pet food. The Ville Neuve sur Lot plant was built in 1991 and went into production with a three piece can line in early 1992. A two piece can line went into production at this facility in mid-1992.
Ferembal is the second largest producer of food cans in France and also produces cans for pet foods and industrial products. Ferembal's products include three piece cans for food with over two hundred sets of specifications, two piece cans in several different diameters, easy open ends, "hi-white enamel" cans, and a large number of can products for industrial end uses. Ferembal's production for the food and pet food markets accounts for approximately 85% of its sales with remaining sales coming from cans produced for industrial products. Ferembal's customers are primarily vegetable and prepared food processors, pet food processors, and paint and other industrial can users.
Obalex - The Company, through Ferembal, owns 64% of the outstanding stock ------ of Obalex. Obalex is headquartered in a three building complex on a 5 acre site in Znojmo, Czech Republic, which also serves as its sole manufacturing facility. Obalex manufacturers both two and three piece cans for food which account for approximately 80% of its sales and a number of can products for industrial end users.
Dixie Union - The Company, through wholly owned subsidiaries, owns all of ----------- the outstanding stock of Dixie Union. Dixie Union is headquartered in Kempten, Germany and has subsidiary companies in France and the United Kingdom, which function as a sales, distribution and customer service network. Dixie Union manufactures three main product lines for the packaging industry: multi-layer shrink bags, composite plastic films and packaging machines and slicers. Most of Dixie Union's customers are in the food and pharmaceutical industries.
Onena - The Company owns 57% of the stock of Onena located in Pamplona, ----- Spain. Onena manufactures plastic film and prints and laminates paper, plastic and foil packaging material for the food and snack food industries in Spain. In 1994 the Company merged its subsidiary, Industrias Gomariz S.A. (Ingosa) with Onena. Ingosa printed and laminated paper, plastic and foil packaging material for the food and snack food industries in Spain and was also located in Pamplona.
LKB - The Company owns 100% of LKB, a consulting engineering firm, located --- in Syosset, New York. LKB provides services to clients in the fields of transportation, site, municipal, electrical and mechanical, and environmental engineering. Most of LKB's clients are public sector state and municipal agencies, utilities, financial institutions and developers. Most of its projects involve infra-structure design and rehabilitation, environmental reports and services, and utility substation design.
Other Matters - The primary users of products manufactured by the Company ------------- are firms in the food and snack food, pet food, household chemical, motor oil and pharmaceutical industries.
The raw materials used in the production of plastic containers, cans and packaging films are readily available commodity materials and chemicals produced by a large number of manufacturers. It is the practice of the Company to obtain these raw materials from several sources in order to ensure an economical, adequate and timely supply.
Some of the products manufactured by the Company are manufactured pursuant to license. With regard to composite films, a fully paid up license from the American National Can Company is in effect. With regard to shrink
bags and film, a license from the American National Can Company is in effect. Present patents under this license expire at various times through 2000. The license will expire on the date the last of the licensed patents expire. This license is non-exclusive as to manufacture and sale of shrink bags and film in Europe and non-exclusive as to sales to the rest of the world. Sales may not be made in the Western Hemisphere. The Company does not believe these licenses are material to its packaging business taken as a whole.
The Company's business is seasonal insofar as the sales of Ferembal and Obalex to the vegetable packing industry is dependent on agricultural production and occurs primarily in the second and third quarters. The Company's remaining products are not seasonal.
The Company is not dependent upon a single customer or a few customers. Sales to no single customer exceeded 10% of the Company's consolidated revenues in 1994.
As of December 31, 1994, the Company's backlog was approximately $29,952,000 (compared to $19,868,000, at December 31, 1993). All backlog is expected to be filled within the current fiscal year. Ferembal, Obalex, and Plastic Containers, Inc. produce most of their products under open orders. As a result, none of the foregoing backlog is attributable to them.
The Company's business in total is highly competitive with a large number of competitors. The main competitors include Owens Illinois, Inc. and Graham Packaging with regard to plastic containers, CMB Packaging with regard to cans, W. R. Grace & Co. with regard to barrier shrink films, and Multi-Vac with regard to packaging machinery. The principal methods of competition are price, quality and service.
The amount spent on research and development activities amounted to approximately $12,461,000 in 1994, $12,862,000 in 1993 and $14,603,000 in 1992.
The number of persons employed by the Company as of December 31, 1994 and 1993 was 3,729 and 3,712, respectively.
(d) Foreign and Domestic Operations -------------------------------
Sales to unaffiliated customers are set out below:
Information regarding the operating profit and the identifiable assets attributable to the Company's foreign operations is incorporated herein by reference to Note 16 of the Consolidated Financial Statements appearing in the Annual Report to Stockholders for the year ended December 31, 1994.
ITEM 2.

ITEM 2. PROPERTIES - - -------------------
The Company believes its facilities are suitable, adequate, and properly sized to provide the capacity necessary to meet its sales. The Company's production facilities are utilized for the manufacture and storage of the Company's products. The extent of utilization in each of the Company's facilities varies based on a number of factors but primarily on sales and inventory levels for specific products. The location of the customer also affects
utilization since shipment costs beyond a certain distance can make production of some products at a remote facility uneconomic. Seasonality affects utilization substantially at Ferembal and Obalex with very high utilization in the pre-harvest and harvest season and substantially lower utilization during the late fall and winter. The Company adjusts labor levels and capital investment at each of its facilities in order to optimize their utilization.
The Company's general corporate offices and the main production facility for LKB are located in Syosset, New York in a 25,000 square foot building owned by the Company. This steel and concrete block building was constructed in 1955 on a 2-1/2 acre lot.
CPC is headquartered in 19,812 square feet of leased office space in Norwalk, Connecticut. CPC also leases its technical center in Elk Grove, Illinois (78,840 sq. ft.), its accounting office space in Omaha, NE (5,489 sq. ft.), and sales offices in Cincinnati, Ohio (1,266 sq. ft.) and Houston, Texas (703 sq. ft.).
The following table sets forth the location and square footage of CPC's production facilities which are used for both manufacture and warehousing of finished goods:
CPC owns the plants in Santa Ana, Fairfield, Oil City, Baltimore and Puerto Rico; all others are leased. As of December 31, 1994, CPC had a total of 114 production lines spread throughout its manufacturing facilities. The smallest plants have as few as two lines while the largest has eleven.
Ferembal is headquartered in 20,000 square feet of office space subject to a capital lease in Clichy, a suburb of Paris. Ferembal operates five manufacturing facilities in five locations in France. Ferembal owns a 384,000 square foot manufacturing facility on a 21 acre site in Roye for the production of food and industrial cans. Ferembal owns a 42,000 square foot manufacturing facility for the production of food cans at Veauche on a 5 acre site. The facility at Veauche is located next to a customer's plant and food can production is "passed through the wall" to the customer. Ferembal has a capital lease with regard to several buildings totaling 229,000 square feet on a 23 acre site in Ludres. In addition, Ferembal owns a 29,000 square foot building on a 3 acre site. These facilities are used for the manufacture of food cans and for research and development activities. Ferembal has a capital lease with regard to several buildings totaling 252,000 square feet on an 18 acre site in Moelan which are used for the manufacture of food cans. Ferembal operates a manufacturing facility for food cans in a 42,000 square foot building on a 4 acre site in Villeneuve sur Lot under a rental agreement. Each of the manufacturing facilities utilizes a portion of its building space for warehousing its finished goods.
Obalex is located in several buildings with approximately 182,000 square feet on an 5 acre site in Znojmo, Czech Republic. This facility is the sole manufacturing site for Obalex which also uses the complex for the storage of its finished goods.
Dixie Union is headquartered in a three-story, 108,000 square foot manufacturing facility on a 5 acre site in Kempten, Germany, leased through 2004. In addition, two small facilities are leased as sales and distribution centers in Milton Keynes, England and Redon, France.
Onena owns two buildings totaling 173,000 square feet located on a 6.6 acre site in Pamplona, Spain, which also serve as its headquarters, manufacturing and warehousing facility. The former Onena headquarters and manufacturing facility consisting of 89,200 square feet on a 3.7 acre site is expected to be sold.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS - - --------------------------
The Company's subsidiaries are defendants in a number of actions which arose in the normal course of business. In the opinion of management, the eventual outcome of these actions will not have a significant effect on the Company's financial position.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - - ------------------------------------------------------------
No matters were submitted to a vote of security holders during the quarter ended December 31, 1994.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER - - -------------------------------------------------------------------------- MATTERS - - -------
The information required by this item is incorporated herein by reference to the section entitled "Common Stock Prices and Related Matters" of the Annual Report to Stockholders for the year ended December 31, 1994.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA(1) - - -----------------------------------
(1) In thousands, except per share amounts and current ratio.
(2) In 1993, includes sales of $10,682 and net income of $238 related to the purchase of Obalex. In 1991, includes sales of $17,030 and a net loss of $1,045 related to the purchase of PCI.
(3) Includes a charge for the cumulative effect of an accounting change of $262 ($.08 per share both primary and fully-diluted) and an extraordinary charge of $108 ($.03 per share both primary and fully-diluted) in 1994. Includes income for the cumulative effect of an accounting change of $460 ($.15 per share primary and $.14 per share fully-diluted) and an extraordinary charge of $1,502 ($.49 per share primary and $.44 per share fully-diluted) in 1992. Includes income for an extraordinary item of $22 ($.01 per share both primary and fully-diluted) in 1990.
(4) The 1991 weighted average shares outstanding include 1,020 shares and 255 warrants to purchase shares sold in June 1991 for net proceeds of $29,453. The 1990 weighted average shares outstanding include 460 shares sold in January 1990 for net proceeds of $6,756.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - - ------------------------------------------------------------------------ RESULTS OF OPERATIONS - - ---------------------
The information required by this item is incorporated herein by reference to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report to Stockholders for the year ended December 31, 1994.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - - ----------------------------------------------------
The information required by this item is incorporated by reference to the Company's consolidated financial statements and related notes, together with the independent auditors' report in the Annual Report to Stockholders for the year ended December 31, 1994.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - - ------------------------------------------------------------------------ FINANCIAL DISCLOSURE - - --------------------
There have been no changes in nor disagreements with the Company's accountants on accounting and financial disclosure during the twenty-four month period ended December 31, 1994.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - - ------------------------------------------------------------
The information required by this item, with respect to directors of the registrant, will be included under the caption "Election of Directors" of a definitive Proxy Statement to be dated March 28, 1994 which will be filed with the Commission pursuant to Regulation 14A and is hereby incorporated into this report by this reference.
Executive officers of the registrant include Messrs. Donald J. Bainton and Abdo Yazgi who are also directors of the registrant and for whom information required by this item is included in the Proxy Statement as previously mentioned.
Information for other executive officers, is as follows:
(1) The term of office of all executive officers is indefinite, at the pleasure of the Board of Directors.
The business experience of each executive officer is as follows:
Mr. Andreas has served as Vice President of Manufacturing since April 1992. Prior to that time, he was an independent business consultant. Prior to his retirement in 1988, Mr. Andreas was employed by the former Continental Can Company, Inc. for 33 years, most recently as General Manager.
Mr. L'Hommedieu has served as Treasurer or Assistant Treasurer of the Company and its subsidiary, Lockwood, Kessler & Bartlett, Inc., since 1963.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION - - --------------------------------
The information required by this item is included under the caption "Executive Compensation" of a definitive Proxy Statement to be dated March 28, 1995 which will be filed with the Commission pursuant to Regulation 14A and is hereby incorporated into this report by this reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - - -----------------------------------------------------------------------
The information required by this item is included under the caption "Stock Ownership" of a definitive Proxy Statement to be dated March 28, 1995 which will be filed with the Commission pursuant to Regulation 14A and is hereby incorporated into this report by this reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - - -------------------------------------------------------
The information required by this item is included under the caption "Transactions with Management" of a definitive Proxy Statement to be dated March 28, 1995 which will be filed with the Commission pursuant to Regulation 14A and is hereby incorporated into this report by this reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - - --------------------------------------------------------------------------
(a) 1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1994 and 1993 Consolidated Statements of Earnings for the years ended December 31, 1994, 1993, and 1992 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992
The above financial statements are included under Item 8 or Part II of this report.
2. Financial Statement Schedules:
III Condensed Financial Information of Registrant........ p. 11 VIII Allowance for Doubtful Accounts...................... p. 13
All other schedules are omitted because they are not applicable, not required, or the information is given in the financial statements or the notes thereto.
3. Exhibits Required:
* Management contract or compensatory plan or arrangement.
(1) These documents have been previously filed with the Commission as Exhibits to 1992 Quarterly Reports on Form 10-Q for Plastic Containers, Inc.
(2) These documents have previously been filed with the Commission as Exhibits to 1993 Quarterly Reports on Form 10-Q for Continental Can Company, Inc.
All other items for which provision is made in the applicable regulations of the Securities and Exchange Commission have been omitted as they are not required under the related instructions or they are inapplicable.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CONTINENTAL CAN COMPANY, INC.
By: /s/ Abdo Yazgi Date: March 7, 1994 --------------- -------------- Abdo Yazgi, Executive Vice President (Principal Financial & Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Schedule III - Condensed Financial Information of Registrant
Continental Can Company, Inc. Balance Sheets Years Ended December 31, 1994 and 1993
(a) See Note 9, Items (a) and (b) of Notes to Consolidated Financial Statements of Continental Can Company, Inc. and Subsidiaries. At December 31, 1993, current liabilities include $1,164 of Convertible Subordinated Debentures due in 1994. At December 31, 1994, current liabilities include $158 of current installments of long term debt.
Continental Can Company, Inc. Statements of Earnings Years Ended December 31, 1994, 1993 and 1992
(b) Includes for 1994 an extraordinary charge of $108 relating to the extinguishment of debt and a charge of $262 relating to the cumulative effect of adopting SFAS No. 112. Includes for 1992 an extraordinary charge of
$1,502 relating to the retirement of a promissory note and a benefit of $460 relating to the cumulative effect of adopting SFAS No. 109.
Schedule III - Condensed Financial Information of Registrant (Continued)
Continental Can Company, Inc. Statements of Cash Flows Years Ended December 31, 1994, 1993 and 1992
Continental Can Company, Inc. and Subsidiaries Schedule VIII - Allowance for Doubtful Accounts Years Ended December 31, 1994, 1993 and 1992
(1) Represents uncollectible accounts written-off.
(2) Represents $418 from the consolidation of acquired subsidiary in 1993.
EXHIBITS ATTACHED: ------------------
Subsidiaries of the Registrant
Independent Auditors' Report on Schedules
Consent of Independent Auditors
Amendment No. 1 to Revolving Credit and Term Loan Agreement
1995 Restricted Stock Compensation Plan
Financial Data Schedule
1994 Annual Report to Stockholders