Page 1 of 20
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended September 30, 1995 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities
Exchange Act of 1934 for the Period ____________ to ____________.
Commission file number 33-28409
SILGAN HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1269834
(State of Incorporation) (I.R.S. Employer Identification Number)
4 Landmark Square
Stamford, Connecticut 06901
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (203) 975-7110
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
As of November 13, 1995, the number of shares outstanding of each of the
issuer's classes of common stock is as follows:
Classes of shares of Number of
common stock outstanding, $0.01 par value shares outstanding
Class A 417,500
Class B 667,500
Class C 50,000
Page 2 of 20
Part I. Financial Information
Item 1. Financial Statements
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Sept. 30, Sept. 30, Dec. 31,
1995 1994 1994
(unaudited)(unaudited)(audited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,860 $ 2,472 $ 2,682
Accounts receivable, net 268,469 108,612 65,229
Inventories 196,584 100,993 122,429
Prepaid expenses and other current
assets 21,142 4,191 8,044
Total current assets 490,055 216,268 198,384
Property, plant and equipment, net 496,392 279,523 251,810
Goodwill, net 53,966 23,518 30,009
Other assets 32,491 26,708 24,618
$1,072,904 $546,017 $504,821
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 96,159 $ 50,536 $ 36,845
Accrued payroll and related costs 35,400 25,382 26,019
Accrued interest payable 10,449 5,325 1,713
Accrued expenses and other current
liabilities 41,369 19,203 22,505
Bank working capital loans 184,000 850 12,600
Current portion of long-term debt 7,250 20,000 21,968
Total current liabilities 374,627 121,296 121,650
Long-term debt 772,292 521,064 510,763
Deferred income taxes 6,836 7,362 6,836
Other long-term liabilities 77,171 33,053 23,570
Deficiency in stockholders' equity:
Common stock 12 12 12
Additional paid-in capital 33,606 33,606 33,606
Accumulated deficit (191,640) (170,376) (191,616)
Total deficiency in stockholders'
equity (158,022) (136,758) (157,998)
$1,072,904 $546,017 $504,821
See accompanying notes.
Page 3 of 20
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Three Months Ended
Sept. 30, Sept. 30,
1995 1994
Net sales $406,515 $286,037
Cost of goods sold 364,832 249,596
Gross profit 41,683 36,441
Selling, general and administrative expenses 13,366 9,245
Income from operations 28,317 27,196
Interest expense and other related
financing costs 22,925 16,763
Income before income taxes 5,392 10,433
Income tax provision 1,700 1,475
Income before extraordinary charge 3,692 8,958
Extraordinary charge relating to early
extinguishment of debt, net of taxes 5,837 -
Net income (loss) $ (2,145) $ 8,958
See accompanying notes.
Page 4 of 20
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Nine Months Ended
Sept. 30, Sept. 30,
1995 1994
Net sales $811,505 $673,240
Cost of goods sold 710,975 585,729
Gross profit 100,530 87,511
Selling, general and administrative expenses 31,095 27,684
Income from operations 69,435 59,827
Interest expense and other related
financing costs 57,722 48,693
Income before income taxes 11,713 11,134
Income tax provision 5,900 2,925
Income before extraordinary charge 5,813 8,209
Extraordinary charge relating to early
extinguishment of debt, net of taxes 5,837 -
Net income (loss) $ (24) $ 8,209
See accompanying notes.
Page 5 of 20
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
Sept. 30, Sept. 30,
1995 1994
Cash flows from operating activities:
Net income (loss) $ (24) $ 8,209
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 27,233 27,469
Amortization 5,321 5,043
Other items 1,122 629
Accretion of discount on discount debentures 21,931 20,346
Extraordinary charge relating to early
extinguishment of debt, net of taxes 5,837 -
Changes in assets and liabilities:
(Increase) in accounts receivable (114,262) (64,766)
Decrease in inventories 63,748 7,660
Increase (decrease) in trade accounts payable (4,863) 18,623
Other, net 10,721 2,400
Total adjustments 16,788 17,404
Net cash provided by operating activities 16,764 25,613
Cash flows from investing activities:
Acquisition of ANC's Food Metal & Specialty business (347,052) -
Capital expenditures (30,414) (17,015)
Proceeds from sale of assets 3,398 -
Net cash used in investing activities (374,068) (17,015)
Cash flows from financing activities:
Borrowings under working capital loans 490,410 281,100
Repayments under working capital loans (including
$14,662 due from ANC at 9/30/95) (333,672) (282,450)
Proceeds from issuance of long-term debt 450,000 -
Repayment of long-term debt (227,256) (5,000)
Debt issuance costs (21,000) -
Net cash provided (used) by financing activities 358,482 (6,350)
Net increase in cash and cash equivalents 1,178 2,248
Cash and cash equivalents at beginning of year 2,682 224
Cash and cash equivalents at end of period $ 3,860 $ 2,472
Supplementary data:
Interest paid $ 23,017 $ 18,938
Income taxes paid 8,592 2,283
See accompanying notes.
Page 6 of 20
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1995 and 1994 and for the
three months and six months then ended is unaudited)
1. Basis of Presentation
The accompanying condensed unaudited consolidated financial statements of
Silgan Holdings Inc. ("Holdings" or the "Company") have been prepared in
accordance with Rule 10-01 of Regulation S-X and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity
with generally accepted accounting principles. All adjustments of a
normal recurring nature have been made, including appropriate estimates
for reserves and provisions which are normally determined or settled at
year end. In the opinion of the Company, however, the accompanying
financial statements contain all adjustments (consisting solely of a
normal recurring nature) necessary to present fairly Holdings' financial
position as of September 30, 1995 and 1994 and December 31, 1994, the
results of operations for the three months and nine months ended September
30, 1995 and 1994, and the statements of cash flows for the nine months
ended September 30, 1995 and 1994.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these financial
statements be read in conjunction with the financial statements and notes
included in Holdings' Annual Report on Form 10-K for the year ended
December 31, 1994.
Effective October 1, 1994, the Company extended the estimated useful lives
of certain fixed assets to more properly reflect the true economic lives
of such assets and to better align the Company's depreciable lives with
the predominate practice in its industry. The change had the effect of
decreasing depreciation expense for the nine months ended September 30,
1995 by $4.5 million and increasing net income by $3.1 million.
2. Inventories
Inventories consisted of the following (in thousands):
Sept. 30, Sept. 30, Dec. 31,
1995 1994 1994
Raw materials and supplies $ 46,020 $ 27,973 $ 40,196
Work-in-process 22,588 15,907 19,045
Finished goods 132,804 56,133 63,409
201,412 100,013 122,650
Adjustment to value inventory
at cost on the LIFO Method (4,828) 980 (221)
$196,584 $100,993 $122,429
Page 7 of 20
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1995 and 1994 and for the
three months and nine months then ended is unaudited)
3. Acquisitions
On August 1, 1995, Silgan Containers Corporation, an indirect, wholly-
owned subsidiary of Holdings ("Containers"), acquired from American
National Can Company ("ANC") substantially all of the fixed assets and
working capital, and assumed certain specified limited liabilities, of
ANC's Food Metal & Specialty business (the "Business"), which
manufactures, markets and sells metal food containers and rigid plastic
containers for a variety of food products and metal caps and closures for
food and beverage products. The final purchase price for the assets
acquired and the assumption of certain specified liabilities was $362.3
million in cash, which included $170.3 million for the net working capital
of the Business. The acquisition has been accounted for as a purchase
transaction and the results of operations have been included with the
Company's results from the acquisition date. The total purchase cost was
allocated to the tangible and identifiable intangible assets acquired and
liabilities assumed based upon their respective fair values as determined
from preliminary appraisals and valuations, and the excess ($25.0 million)
was allocated to goodwill and is being amortized over 40 years using the
straight line method.
As part of the acquisition, the Company intends to acquire the operations
of the St. Louis, MO facility of ANC's Food Metal & Specialty business
upon completion by ANC of a rationalization project at that facility. The
Company anticipates that the St. Louis operation will be acquired by mid-
1996 for an estimated purchase price of $15.2 million and related
assumption of certain post-retirement benefit obligations for active
employees. The aggregate purchase price of $362.3 million referred to
above assumes that the purchase of this facility was coincident with the
acquisition of the remainder of the Business.
In conjunction with the acquisition, Silgan Corporation, a wholly-owned
subsidiary of Holdings ("Silgan"), and its subsidiaries entered into a
$675.0 million credit facility pursuant to a new credit agreement (the
"Credit Agreement"), the proceeds of which were used to finance the
acquisition, to refinance in full amounts owing under the existing credit
agreement and Silgan's $50.0 million Senior Secured Floating Rate Notes
due 1997 (the "Secured Notes"), to repurchase a portion of Holdings' 13-
1/4% Senior Discount Debentures due 2002 (the "13-1/4% Debentures"), and
to pay fees and expenses associated therewith. As a result of the early
Page 8 of 20
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1995 and 1994 and for the
three months and nine months then ended is unaudited)
extinguishment of certain amounts owed under its debt facilities, the
Company incurred an aggregate pre-tax charge of $8.4 million for the
write-off of unamortized deferred financing costs of $6.4 million and for
premiums paid in connection with the repurchase of a portion of the 13-
1/4% Debentures of $2.0 million.
The credit facility permits Silgan at any time prior to June 30, 1996 to
borrow up to $75.0 million of working capital loans which may be advanced
to Holdings to fund Holdings' repurchase of a portion of its 13-1/4%
Debentures. During the third quarter, Silgan advanced $57.6 million to
Holdings to fund such repurchases. Silgan intends to make further
advances of up to $17.4 million to fund additional repurchases by
Holdings' of its 13-1/4% Debentures prior to June 30, 1996.
Set forth below is the Company's summary unaudited pro forma results of
operations for the nine months ended September 30, 1995 and 1994. The
unaudited pro forma results of operations for the nine months ended
September 30, 1995 include the historical results of the Business for the
period ended July 31, 1995 and give effect to certain pro forma
adjustments. The unaudited pro forma results of operations for the nine
months ended September 30, 1994 include the historical results of the
Business and the Company for such period and give effect to certain pro
forma adjustments.
The pro forma adjustments to the historical results of operations reflect
the effect of purchase accounting adjustments based upon preliminary
appraisals and valuations, the financing of the acquisition and the
refinancing of the Company's debt obligations and certain other
adjustments as if these events had occurred as of the beginning of the
periods presented. The following unaudited pro forma results of operations
do not purport to represent what the Company's results of operations would
actually have been had the transactions in fact occurred on January 1, 1995
or 1994, or to project the Company's results of operations for any future
period (in thousands):
September 30,
1995 1994
Net sales $1,113,982 $1,144,041
Income from operations 97,025 100,872
Income before income taxes 30,547 34,674
Net income 19,547 32,649
Page 9 of 20
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The results of operations presented below include the operating results of
ANC's Food Metal & Specialty business from August 1, 1995, its acquisition
date. For segment reporting purposes, the acquired Business, which
manufactures, markets and sells metal food containers and certain
specialty items, principally metal caps and closures for food and beverage
products, will be included in Containers' business and reported under the
metal containers & specialty segment.
The acquisition of the Business provides the Company with the opportunity
to realize cost reductions through both the integration of the selling,
general and administrative operations of its existing metal container
business with that of the Business and through production and
manufacturing synergies of combined operations. The Company anticipates
it will fully realize the benefit of integrating selling and
administrative functions and certain manufacturing economies by early
1996. On the other hand, benefits which may be realized by
rationalization of plant operations will not occur before 1997. Because
of higher labor costs of the acquired Business and the fact that any
benefits from plant rationalizations will not occur until after 1996, the
Company expects that the gross margin for its metal container business
will decline modestly from its historical rate.
Although employee termination costs associated with plant rationalizations
and administrative workforce reductions and other plant exit costs
associated with the acquired Business have been accrued through purchase
accounting adjustments, the Company will be incurring other non-recurring
costs during 1995 and 1996 which under current accounting pronouncements
will be charged against operating income. These costs, which include
redundant and one-time charges incurred for the integration of the selling
and administrative functions as well as costs associated with plant
rearrangement and clean-up, are estimated to approximate $4.0 million.
Because the Company sells food containers to vegetable and fruit
processors, its sales are seasonal. A significant portion of sales to
fresh-pack customers are made during the third quarter and are dependent
upon crop yields. In 1995 poor weather conditions affected crop yields
which resulted in a below-normal pack and, accordingly, lower sales of the
Company's vegetable and fruit containers. By contrast, in 1994 growing
conditions were ideal resulting in an above-average pack.
Page 10 of 20
RESULTS OF OPERATIONS
Three Months Ended September 30, 1995 Compared with
Three Months Ended September 30, 1994
Summary results for the Company's two business segments, metal and plastic
containers, for the three months ended September 30, 1995 and 1994 are
provided below.
September 30
1995 1994
(In millions)
Net sales:
Metal containers & specialty $353.8 $233.2
Plastic containers 52.7 52.8
Consolidated $406.5 $286.0
Operating profit:
Metal containers & specialty $ 26.7 $ 24.9
Plastic containers 2.0 2.5
Corporate (0.4) (0.2)
Consolidated $ 28.3 $ 27.2
Consolidated net sales of $406.5 million for the three months ended
September 30, 1995 increased $120.5 million (42.1%) as compared with sales
of $286.0 million for the same period in 1994. This increase resulted
from net sales of $152.5 million generated by the Business since its
acquisition, offset, in part, by a $32.0 million decline in net sales of
metal containers to the Company's existing customer base. Net sales of
plastic containers during the quarter were flat as compared with the same
period in 1994.
Net sales for the metal container business (including its specialty
business) were $353.8 million for the three months ended September 30,
1995, an increase of $120.6 million from net sales of $233.2 million for
the same period in 1994. Excluding net sales of metal cans of $139.7
million generated by the Business since its acquisition, net sales of
metal cans to the Company's customers were $199.2 million in the three
month period ended September 30, 1995, as compared to $231.2 million for
the same period in 1994. Net sales of metal cans to Nestle Food Company
("Nestle") increased $0.3 million to $66.0 million, principally as a
result of change in the mix of products sold and higher average sales
prices reflecting the pass through of higher material costs, offset by a
decline in unit volume during the quarter. Net sales to Del Monte
Corporation ("Del Monte") decreased $22.8 million to $58.7 million
principally due to significantly lower unit volume resulting from the
below normal vegetable and fruit pack. For 1995, unseasonably wet and
Page 11 of 20
RESULTS OF OPERATIONS (continued)
cool weather followed by hot and dry summer conditions in the Midwest and
wet weather in California during the spring season resulted in low crop
yields. The below normal 1995 Midwest vegetable pack as compared to an
above-average vegetable pack in 1994 and soft market conditions in certain
other product lines, net of higher average sales prices, contributed to a
decline of $9.5 million in sales of metal cans to other customers.
Sales of specialty items, principally metal closures, included in the
metal container segment increased $12.9 million to $14.9 million during
the three months ended September 30, 1995, as compared to the same period
in 1994 due to the acquisition of the Business which generated sales of
$12.8 million of specialty items during the quarter.
Net sales for the plastic container business of $52.7 million during the
three months ended September 30, 1995 were flat as compared to sales for
the same period in 1994. During the quarter, sales prices increased due
to the pass through of higher resin costs but were offset by a modest
decline in unit volume resulting from soft market conditions.
Cost of goods sold as a percentage of consolidated net sales was 89.7%
($364.8 million) for the three months ended September 30, 1995, an
increase of 2.4 percentage points, as compared to 87.3% ($249.6 million)
for the same period in 1994. The increase in cost of goods sold as a
percentage of consolidated net sales principally resulted from increased
per unit manufacturing costs realized by the Company's base business as a
result of lower production and the liquidation of inventory built up
earlier in the year in anticipation of normal third quarter demand which
did not materialize due to the aforementioned below normal vegetable and
fruit pack, lower margins realized on certain products due to competitive
market conditions and inefficiencies caused by a work stoppage at one of
the Company's existing California facilities. Due to factors discussed
above, the gross margin percentage realized by the acquired Business for
such period was comparable to the margin realized by the Company's
existing business base.
Selling, general and administrative expenses as a percentage of
consolidated net sales remained relatively flat at 3.3% ($13.4 million)
for the three months ended September 30, 1995 as compared to 3.2% ($9.2
million) for the three months ended September 30, 1994. The Company
expects its selling, general and administrative costs as a percentage of
sales will decline by the end of the first quarter of 1996 as it
integrates the selling and administrative operations of its existing metal
container business with that of the acquired Business.
Page 12 of 20
RESULTS OF OPERATIONS (continued)
Income from operations as a percentage of consolidated net sales was 7.0%
($28.3 million) for the three months ended September 30, 1995 compared
with 9.5% ($27.2 million) for the same period in 1994. The decrease in
income from operations as a percentage of consolidated net sales was
principally attributable to the aforementioned lower margins which largely
resulted because of the inventory reduction as discussed above.
Income from operations as a percentage of net sales for the metal
container business was 7.5% ($26.7 million) during the third quarter of
1995, as compared to 10.7% ($24.9 million) for the same period in the
prior year. The decrease in income from operations as a percentage of net
sales principally resulted from higher per unit manufacturing costs
realized as a result of the inventory reduction as discussed above.
Selling, general and administrative expenses as a percentage of sales
remained flat with the historical rate because the increased costs were
spread over the larger third quarter sales base.
Income from operations as a percentage of net sales attributable to the
plastic container business for the three months ended September 30, 1995
was 3.8% ($2.0 million), as compared to 4.7% ($2.5 million) for the same
period in 1994. Income from operations declined during the quarter,
principally reflecting higher per unit manufacturing costs resulting from
a reduction in production volumes in order to reduce inventories in
response to lower customer requirements offset, in part, by continued
control of manufacturing costs.
Interest expense was $22.9 million for the three months ended September
30, 1995, an increase of $6.2 million over the same period in the prior
year. The increase was principally attributable to increased borrowings
to finance the acquisition of the Business, offset, in part, by the
benefit realized from the repurchase of a portion of the 13-1/4%
Debentures with proceeds from the lower cost credit facility.
The provisions for income taxes for the three months ended September 30,
1995 and 1994 are comprised of federal, state and foreign taxes currently
payable.
As a result of the items discussed above, income before the extraordinary
charge for the three months ended September 30, 1995 was $3.7 million, as
compared to $9.0 million for the three months ended September 30, 1994.
As a result of the refinancing of the Company's secured debt facilities
and the repurchase of a portion of the 13-1/4% Debentures, the Company
incurred an extraordinary charge of $5.8 million, net of taxes, for the
write-off of unamortized debt costs related to the retired facilities and
for premiums paid on the repurchase of the 13-1/4% Debentures.
Page 13 of 20
RESULTS OF OPERATIONS (continued)
Nine Months Ended September 30, 1995 Compared with
Nine Months Ended September 30, 1994
Summary results for the Company's two business segments, metal and plastic
containers, for the nine months ended September 30, 1995 and 1994 are
provided below.
September 30
1995 1994
(In millions)
Net sales:
Metal containers & specialty $642.9 $522.3
Plastic containers 168.6 150.9
Consolidated $811.5 $673.2
Operating profit:
Metal containers & specialty $ 60.6 $ 54.4
Plastic containers 9.8 6.4
Corporate (1.0) (1.0)
Consolidated $ 69.4 $ 59.8
Consolidated net sales of $811.5 million for the nine months ended
September 30, 1995 increased $138.3 million (20.5%) as compared with sales
of $673.2 million for the same period in 1994. This increase resulted
from net sales of $152.5 million generated by the Business since its
acquisition and a $17.7 million increase in sales of plastic containers
offset, in part, by a decline in sales of metal containers to the
Company's existing customer base of $31.9 million.
Net sales for the metal container business (including its specialty
business) were $642.9 million for the nine months ended September 30,
1995, an increase of $120.5 million from net sales of $522.3 million for
the same period in 1994. Excluding net sales of metal cans of $139.7
million generated by the Business since its acquisition, net sales of
metal cans to the Company's customers were $484.3 million during the nine
month period ended September 30, 1995, as compared to $514.9 million for
the same period in 1994. Net sales to Nestle increased $6.8 million to
$174.4 million principally due to an increase in unit sales of pet food
containers and slightly higher average sales prices due to the pass
through of material cost increases. Net sales to Del Monte decreased
$16.3 million to $141.7 million due to lower unit volume resulting from
the below normal 1995 vegetable and fruit pack, offset, in part, by
slightly higher sales prices due to the pass through of material cost
increases. Sales of metal cans to other customers declined $21.2 million
as a result of lower demand for vegetable cans due to the below-normal
1995 Midwest vegetable pack and reduced demand for cans used in certain
other product lines, offset, in part, by higher average sales prices.
Page 14 of 20
RESULTS OF OPERATIONS (continued)
Sales of specialty items included in the metal container segment increased
$11.5 million to $19.0 million during the nine months ended September 30,
1995, as compared to the same period in 1994, due to the acquisition of
the Business which generated sales of $12.8 million of specialty items
since its acquisition.
Net sales for the plastic container business of $168.6 million during the
nine months ended September 30, 1995 increased $17.7 million over net
sales of $150.9 million for the same period in 1994. This increase was
attributable to both higher average sales prices due to the pass through
of higher resin costs and increased unit sales for new customer products
offset, in part, by generally soft market conditions.
Cost of goods sold as a percentage of consolidated net sales was 87.6%
($711.0 million) for the nine months ended September 30, 1995, an increase
of 0.6 percentage points, as compared to 87.0% ($585.7 million) for the
same period in 1994. The increase in cost of goods sold as a percentage
of consolidated net sales principally resulted from increased per unit
manufacturing costs reflecting reduced production volumes, lower margins
realized on certain products due to competitive market conditions and
lower margins on sales by the acquired Business, offset by improved
manufacturing efficiencies and lower indirect operating costs and
depreciation expense.
Selling, general and administrative expenses as a percentage of
consolidated net sales declined 0.3 percentage points to 3.8% ($31.1
million) for the nine months ended September 30, 1995, as compared to 4.1%
($27.7 million) for the nine months ended September 30, 1994. The
decrease in selling, general and administrative expense as a percentage of
net sales resulted from continued cost control of the Company's base
business.
Income from operations as a percentage of consolidated net sales was 8.6%
($69.4 million) for the nine months ended September 30, 1995 as compared
with 8.9% ($59.8 million) for the same period in 1994. The decrease in
income from operations as a percentage of consolidated net sales was
attributable to the aforementioned decline in gross margins offset, in
part, by the continued reduction of selling, general and administrative
expenses as a percentage of sales.
Income from operations as a percentage of net sales for the metal
container business was 9.4% ($60.6 million) for the nine months ended
September 30, 1995, as compared to 10.4% ($54.4 million) for the same
period in the prior year. The decrease in income from operations as a
Page 15 of 20
RESULTS OF OPERATIONS (continued)
percentage of sales principally resulted from higher per unit
manufacturing costs realized on lower production volume and lower margins
realized on sales by the acquired Business offset, in part, by lower
selling and administrative expenses realized on the larger sales base.
Income from operations as a percentage of net sales attributable to the
plastic container business for the nine months ended September 30, 1995
was 5.8% ($9.8 million), as compared to 4.2% ($6.4 million) for the same
period in 1994. The improved operating performance of the plastic
containers business resulted from improved manufacturing efficiencies
realized as a result of capital investment.
Interest expense increased $9.0 million to $57.7 million for the nine
months ended September 30, 1995 principally as a result of increased
borrowings to finance the acquisition of the Business and slightly higher
average interest rates, offset, in part, by the benefit realized from the
repurchase of a portion of the 13-1/4% Debentures with proceeds from the
lower cost credit facility.
The provisions for income taxes for the nine months ended September 30,
1995 and 1994 were comprised of federal, state and foreign income taxes
currently payable. The provision for income taxes for the nine months
ended September 30, 1995 increased over the same period in the prior year
because the Company fully utilized its alternative minimum tax net
operating loss carryovers in 1994 and, therefore, is subject to tax at the
rate of 20% in 1995 on its alternative minimum taxable income.
As a result of the items discussed above, income before the extraordinary
charge for the nine months ended September 30, 1995 was $5.8 million, as
compared to $8.2 million for the nine months ended September 30, 1994.
Page 16 of 20
CAPITAL RESOURCES AND LIQUIDITY
The Company's liquidity requirements arise primarily from its obligations
under the indebtedness incurred in connection with its acquisitions and
the refinancing of such indebtedness, capital investment in new and
existing equipment and the funding of the Company's seasonal working
capital needs. Historically, the Company has met these liquidity
requirements through cash flow generated from operating activities and
working capital borrowings.
On August 1, 1995, Silgan, Containers and Silgan Plastics Corporation, a
wholly-owned subsidiary of Silgan, entered into a $675.0 million credit
facility with various banks to finance the acquisition by Containers of
ANC's Food Metal & Specialty business, to refinance and repay in full all
amounts owing under their existing credit agreement and the Secured Notes
and to repurchase a portion of the 13-1/4% Debentures. The Credit
Agreement provides the Company with $225.0 million of A Term loans, $225.0
million of B Term loans and a working capital facility which will provide
the Company with borrowing availability of up to $225.0 million. With the
proceeds received from the Credit Agreement, the Company (i) repaid $117.1
million of term loans under its previous credit agreement, (ii) repaid in
full $50.0 million of its Secured Notes, (iii) acquired from ANC
substantially all of the fixed assets and working capital of ANC's Food
Metal & Specialty business for $347.1 million (excluding $15.2 million for
the St. Louis operations which the Company expects to purchase by mid-
1996), and (iv) incurred debt issuance costs of $21.0 million.
The Credit Agreement provides the Company with improved financial
flexibility by (i) enabling Silgan to transfer funds to Holdings for
payment by Holdings of cash interest on the 13-1/4% Debentures, (ii)
extending the maturity of the Company's secured debt facilities by repaying
amounts outstanding under the existing credit agreement and the Secured
Notes, (iii) lowering the interest rate spread on its floating rate
borrowings by 1/2%, as well as providing for further interest rate
reductions in the event the Company attains certain financial targets, and
(iv) lowering Holdings' consolidated average cost of indebtedness by
permitting Silgan to advance up to $75.0 million to Holdings with
borrowings under the Credit Agreement, which amounts are to be used by
Holdings to repurchase a portion of the 13-1/4% Debentures. Silgan will
fund such advances to Holdings through borrowings of working capital loans
under the Credit Agreement. The commitment under the Credit Agreement for
working capital loans was initially $150.0 million, and increases at the
time and by the amount of any such advances made by Silgan (up to a maximum
commitment of $225.0 million). During the third quarter, Silgan advanced
$57.6 million to Holdings for the repurchase by Holdings of a portion of
Page 17 of 20
CAPITAL RESOURCES AND LIQUIDITY (continued)
its outstanding 13-1/4% Debentures, thereby increasing the commitment under
the revolving credit facility to $207.6 million. Silgan intends to fund
further advances to Holdings of up to $17.4 million through borrowings of
working capital loans to enable Holdings to make additional repurchases of
its 13-1/4% Debentures prior to June 30, 1996.
For the first nine months of 1995, exclusive of amounts paid for the
purchase of the Business (including acquired working capital), cash
generated from operations of $16.8 million, net borrowings of $28.7
million of working capital loans, and proceeds of $3.4 million realized
from the sale of assets were used to fund capital expenditures of $30.4
million, repay $2.6 million of term loans, and increase cash balances by
$1.2 million. Additionally, in conjunction with the acquisition of the
Business, ANC agreed to provide transitional administrative services to
Containers for a period of up to one year. Under this agreement, ANC
collects and disburses cash for the acquired Business. Semi-monthly
transfers are made by the Company to ANC to repay excess disbursements or
by ANC to the Company to refund excess collections, as the case may be.
At September 30, 1995, ANC owed the Company $14.7 million.
The Company's earnings before depreciation, interest, taxes and
amortization ("EBITDA") for the nine months ended September 30, 1995
increased by $10.5 million over the same period in the prior year to $99.4
million. The increase in EBITDA reflected the generation of additional
cash earnings of the acquired Business since its acquisition on August 1,
1995, offset by a slight decline in cash earnings of the Company's existing
business principally due to the below normal 1995 vegetable and fruit pack.
Because the Company sells metal containers used in vegetable and fruit
processing, its sales are seasonal. As is common in the packaging
industry, the Company must access working capital to build inventory and
then carry accounts receivable for some customers beyond the end of the
summer and fall packing season. Seasonal accounts are generally settled by
year end. Due to this seasonality, as well as the acquisition of the
Business, the components of working capital increased significantly in the
nine months ended September 30, 1995. For the Company's base business,
trade receivables and inventories increased $13.5 million and $7.0 million,
respectively, while trade payables declined $11.1 million at September 30,
1995 as compared to September 30, 1994. The remainder of the change in
these working capital components at September 30, 1995 as compared to
September 30, 1994 related to the acquired Business. At September 30, 1995
the trade receivable balance of the acquired Business was $149.8 million
($90.2 million on the acquisition date), the inventory balance
Page 18 of 20
CAPITAL RESOURCES AND LIQUIDITY (continued)
was $88.6 million ($137.9 million on the acquisition date), and
the trade payable balance was $56.8 million ($64.2 million on the
acquisition date.) The Company expects that at year-end the net working
capital of the acquired Business will approximate $65.0 to $70.0 million.
The acquisition of ANC's Food Metal & Specialty business increased the
Company's seasonal metal containers business and as a result the Company
increased the amount of working capital loans available to it under its
credit facility to $225.0 million (subject to the limitation as discussed
above). On September 30, 1995, the outstanding principal amount of working
capital loans, which represented the Company's seasonal peak, was $184.0
million. Subject to a borrowing base limitation and taking into account
outstanding letters of credit, the unused portion of working capital
commitments at such date was $18.2 million. The Company anticipates that
cash generated from operations during the fourth quarter will be used to
reduce its outstanding working capital loan balance to near zero by
December 31, 1995.
In addition to its operating needs, the Company's cash requirements over
the next several years consist primarily of (i) annual capital expenditures
of $50.0 to $60.0 million, (ii) principal amortization payments of term
loans under the Credit Agreement of $7.3 million, $27.3 million, $37.3
million, $52.3 million and $52.3 million over the next five years,
respectively, (iii) expenditures of approximately $30.0 million over the
next two years associated with plant rationalizations and administrative
workforce reductions, other plant exit costs and employee relocation costs
of the acquired Business, (iv) the Company's interest requirements
(including interest on working capital loans, the principal amount of which
will vary depending upon seasonal requirements, and the term loans, all of
which bear fluctuating rates of interest, and the 11-3/4% Notes), (v) semi-
annual cash interest payments of up to $14.1 million (which amount may be
reduced depending upon the actual amount of 13-1/4% Debentures repurchased)
on the 13-1/4% Debentures commencing in December 1996, and (vi) payments of
approximately $13.0 million for federal and state tax liabilities in 1996
(assuming the redemption of the remainder of the 13-1/4% Debentures at
maturity) and increasing annually thereafter.
Management believes that cash generated by operations and funds from
working capital borrowings under the Credit Agreement will be sufficient to
meet the Company's expected operating needs, planned capital expenditures
and debt service requirements for the foreseeable future.
Page 19 of 20
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
27 Financial Data Schedule.
(b) Reports on Form 8-K
On August 2, 1995, Silgan Holdings Inc. filed a Current Report on Form 8-K
regarding its press release for its new credit agreement.
On August 14, 1995, Silgan Holdings Inc. filed a Current Report on Form
8-K regarding the acquisition of the Food Metal & Specialty business of
American National Can Company, and its new credit agreement.
On September 27, 1995, Silgan Holdings Inc. filed a Current Report on Form
8-K regarding the resolution of the shareholder appraisal proceedings with
respect to the June 30, 1989 merger.
On October 16, 1995, Silgan Holdings Inc. filed a Form 8-K/A amending its
Current Report on Form 8-K filed August 14, 1995 to append thereto certain
financial statements of the Business and certain pro forma financial
information of Silgan Holdings Inc.
Page 20 of 20
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its
behalf by the undersigned thereunto duly authorized.
SILGAN HOLDINGS INC.
Dated: November 13, 1995 /s/Harley Rankin, Jr.
Harley Rankin, Jr.
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
Dated: November 13, 1995 /s/Harold J. Rodriguez, Jr.
Harold J. Rodriguez, Jr.
Vice President and Controller
(Chief Accounting Officer)