Page 1 of 23
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, 1996 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 4, 1996, 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 417,500
Class C 50,000
Page 2 of 23
Part I. Financial Information
Item 1. Financial Statements
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Sept. 30, Sept. 30, Dec. 31,
1996 1995 1995
---- ---- ----
(unaudited) (unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents .......... $ 2,874 $ 3,860 $ 2,102
Accounts receivable, net ........... 218,883 262,819 109,929
Inventories ........................ 190,690 196,584 210,471
Prepaid expenses and other
current assets .................. 9,801 21,142 5,801
---------- ---------- ----------
Total current assets ........... 422,248 484,405 328,303
Property, plant and equipment, net ...... 479,505 496,392 487,301
Goodwill, net ........................... 72,218 53,966 53,562
Other assets ............................ 32,208 32,491 30,880
---------- ---------- ----------
$1,006,179 $1,067,254 $ 900,046
========== ========== ==========
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ............ $ 86,609 $ 96,159 $ 138,195
Accrued payroll and related costs . 40,811 35,400 32,805
Accrued interest payable .......... 16,543 10,449 4,358
Accrued expenses and other current
liabilities .................... 32,496 35,719 43,457
Bank working capital loans ........ 126,000 184,000 7,100
Current portion of long-term debt . 28,454 7,250 28,140
---------- --------- ----------
Total current liabilities ..... 330,913 368,977 254,055
Long-term debt ......................... 732,288 772,292 750,873
Deferred income taxes .................. 6,836 6,836 6,836
Other long-term liabilities ............ 73,454 77,171 68,086
Cumulative exchangeable redeemable
preferred stock ..................... 51,307 -- --
Deficiency in stockholders' equity:
Common stock ...................... 9 12 12
Additional paid-in capital ........ 18,609 33,606 33,606
Accumulated deficit ............... (207,237) (191,640) (213,422)
---------- ---------- ----------
Total deficiency in
stockholders' equity ....... (188,619) (158,022) (179,804)
---------- ---------- ----------
$1,006,179 $1,067,254 $ 900,046
========== ========== ==========
See accompanying notes.
Page 3 of 23
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Three Months Ended
------------------
Sept. 30, Sept. 30,
1996 1995
---- ----
Net sales ............................................. $473,563 $406,515
Cost of goods sold .................................... 414,714 364,832
-------- --------
Gross profit ..................................... 58,849 41,683
Selling, general and administrative expenses .......... 15,200 13,366
-------- --------
Income from operations ........................... 43,649 28,317
Interest expense and other related financing costs .... 22,425 22,925
-------- --------
Income before income taxes ....................... 21,224 5,392
Income tax provision .................................. 500 1,700
-------- --------
Income before extraordinary charge ............... 20,724 3,692
Extraordinary charge relating to early
extinguishment of debt, net of taxes ............... 2,089 5,837
-------- --------
Net income (loss) before preferred stock
dividend requirement .......................... 18,635 (2,145)
Preferred stock dividend requirement .................. 1,307 --
-------- --------
Net income (loss) available to common
stockholders .................................. $ 17,328 $ (2,145)
======== =========
See accompanying notes.
Page 4 of 23
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Nine Months Ended
-----------------
Sept. 30, Sept. 30,
1996 1995
---- ----
Net sales ........................................... $1,080,486 $811,505
Cost of goods sold .................................. 936,397 710,975
---------- --------
Gross profit ................................... 144,089 100,530
Selling, general and administrative expenses ........ 42,411 31,095
---------- --------
Income from operations ......................... 101,678 69,435
Interest expense and other related financing costs .. 68,286 57,722
---------- --------
Income before income taxes ..................... 33,392 11,713
Income tax provision ................................ 3,000 5,900
---------- --------
Income before extraordinary charge ............. 30,392 5,813
Extraordinary charge relating to early
extinguishment of debt, net of taxes ............. 2,089 5,837
---------- --------
Net income (loss) before preferred stock
dividend requirement ........................ 28,303 (24)
Preferred stock dividend requirement ................ 1,307 --
---------- --------
Net income (loss) available to common
stockholders ................................ $ 26,996 $ (24)
========== ========
See accompanying notes.
Page 5 of 23
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
-----------------
Sept. 30, Sept. 30,
1996 1995
---- ----
Cash flows from operating activities:
Net income (loss) .................................... $ 28,303 $ (24)
Adjustments to reconcile net income (loss) to
net cash (used) provided by operating activities:
Depreciation ..................................... 40,009 27,233
Amortization ..................................... 6,803 5,321
Accretion of discount on discount debentures ..... 12,077 21,931
Extraordinary charge relating to early
extinguishment of debt, net of taxes .......... 2,089 5,837
Changes in assets and liabilities:
(Increase) in accounts receivable ........... (106,461) (55,512)
Decrease in inventories ..................... 21,238 14,472
(Decrease) increase in trade accounts payable (51,586) 2,508
Net working capital used by AN Can from
8/1/95 to 9/30/95 ........................ -- (11,195)
Other, net .................................. (461) 6,193
-------- --------
Total adjustments ....................... (76,292) 16,788
-------- --------
Net cash (used) provided by operating activities . (47,989) 16,764
-------- --------
Cash flows from investing activities:
Acquisition of ANC's Food Metal & Specialty business . (13,121) (347,052)
Capital expenditures ................................. (38,624) (30,414)
Proceeds from sale of assets ......................... 1,521 3,398
-------- --------
Net cash used in investing activities ............ (50,224) (374,068)
-------- --------
Cash flows from financing activities:
Borrowings under working capital loans ............... 710,550 490,410
Repayments under working capital loans ............... (591,650) (333,672)
Proceeds from issuance of long-term debt ............. 125,000 450,000
Repayment of long-term debt .......................... (155,348) (227,256)
Proceeds from issuance of preferred stock ............ 50,000 --
Repurchase of common stock ........................... (35,811) --
Debt issuance costs .................................. (3,756) (21,000)
-------- --------
Net cash provided by financing activities ........ 98,985 358,482
-------- --------
Net increase in cash and cash equivalents .............. 772 1,178
Cash and cash equivalents at beginning of year ......... 2,102 2,682
-------- --------
Cash and cash equivalents at end of period ............. $ 2,874 $ 3,860
======== ========
Supplementary data:
Interest paid ..................................... $ 41,112 $ 23,017
Income taxes paid ................................. 568 8,592
Preferred stock issued in lieu of cash dividend ... 1,307 --
See accompanying notes.
Page 6 of 23
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1996 and 1995 and for the
three months and nine 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, 1996 and 1995 and December 31, 1995 and, the
results of operations for the three and nine months ended September 30, 1996 and
1995, and the statements of cash flows for the nine months ended September 30,
1996 and 1995.
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 Holdings' financial statements and notes included in
its Annual Report on Form 10-K for the year ended December 31, 1995.
Certain reclassifications have been made to prior year's financial statements to
conform with current year presentation.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" in the first quarter of 1996. Under SFAS No. 121,
impairment losses will be recognized when events or changes in circumstances
indicate that the undiscounted cash flows generated by the assets are less than
the carrying value of such assets. Impairment losses are then measured by
comparing the fair value of assets to their carrying amount. There were no
impairment losses recognized during the first nine months of 1996 as a result of
the adoption of SFAS No. 121.
In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123, "Accounting for Stock-Based Compensation", effective for the 1996
fiscal year. Under SFAS No. 123, compensation expense for all stock-based
compensation plans would be recognized based on the fair value of the options at
the date of grant using an option pricing model. As permitted under SFAS No.
123, the Company may either adopt the new pronouncement or follow the current
accounting methods as prescribed under APB No. 25. The Company continues to
recognize compensation expense in accordance with APB No. 25.
Page 7 of 23
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1996 and 1995 and for the
three months and nine months then ended is unaudited)
2. Inventories
Inventories consisted of the following (in thousands):
Sept. 30 Sept. 30, Dec. 31,
1996 1995 1995
---- ---- ----
Raw materials and supplies ......... $ 37,314 $ 39,675 $ 46,027
Work-in-process .................... 32,792 22,588 24,869
Finished goods ..................... 111,229 132,804 135,590
Spare parts and other .............. 7,663 6,345 6,344
-------- -------- --------
188,998 201,412 212,830
Adjustment to value inventory
at cost on the LIFO Method ...... 1,692 (4,828) (2,359)
-------- -------- --------
$190,690 $196,584 $210,471
======== ======== ========
3. Acquisitions
Set forth below is the Company's summary unaudited pro forma results of
operations for the nine months ended September 30, 1995. The unaudited pro forma
results of operations of the Company for the nine months ended September 30,
1995 include the historical results of the Company and the Food Metal &
Specialty business of American National Can Company ("AN Can") for such period
and give effect to certain pro forma adjustments. The pro forma adjustments made
to the historical results of operations for September 30, 1995 reflect the
effect of purchase accounting adjustments based upon appraisals and valuations,
the financing of the acquisition of AN Can by the Company, the refinancing of
certain of the Company's debt obligations, and certain other adjustments as if
these events had occurred as of the beginning of 1995. The pro forma adjustments
are based upon available information and upon certain assumptions that the
Company believes are reasonable. The pro forma results of operations do not give
effect to adjustments for decreased costs from manufacturing synergies resulting
from the integration of AN Can with Containers' existing can manufacturing
operations and benefits the Company may realize as a result of its planned
rationalization of plant operations. Pro forma adjustments have not been made to
interest expense for the nine months ended September 30, 1995 for the
refinancings as described in Note 5 or for the subsequent events discussed in
Note 6.
Page 8 of 23
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1996 and 1995 and for the
three months and nine months then ended is unaudited)
3. Acquisitions (continued)
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 to project the
Company's results of operations for any future period (in thousands):
Pro forma
September 30, 1995
------------------
Net sales ............................... $1,113,982
Income from operations .................. 92,359
Income before income taxes .............. 25,880
Net income .............................. 16,155
In connection with the acquisition of AN Can, the Company has finalized its
plant rationalization and integration plans. These plans consist primarily of
the closing or downsizing of certain manufacturing plants and the integration of
the selling, general, and administrative functions of the former AN Can
operations with the Company. The Company estimates that costs related to such
plans include approximately $6.6 million related to plant exit costs, $22.6
million related to employee severance and relocation costs, and $3.5 million
related to administrative workforce reductions. The timing of the plant
rationalizations, among other things, will be dependent on covenants in existing
labor agreements and accordingly these costs will be incurred during the period
from late 1996 through early 1998. Through September 30, 1996, costs of $3.3
million related to administrative workforce reductions and relocation were
incurred.
During 1996, the purchase price allocation for the AN Can acquisition was
adjusted for differences between the actual and preliminary valuations for the
asset appraisals and for projected employee benefit costs as well as for a
revision in estimated costs of plant rationalizations, administrative workforce
reductions and other various matters. The final purchase price allocation
resulted in an adjustment to increase goodwill by $20.7 million.
Page 9 of 23
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1996 and 1995 and for the
three months and nine months then ended is unaudited)
4. Exchangeable Preferred Stock
On July 22, 1996, the Company issued 50,000 shares of 13 1/4% Exchangeable
Preferred Stock ("Preferred Stock"), mandatorily redeemable in 2006, at $1,000
per share which represents the liquidation preference of the Preferred Stock.
The Company used $35.8 million of these proceeds to purchase its Class B Common
Stock held by Mellon Bank, as trustee for First Plaza Group Trust, pursuant to
the right the Company had to purchase such stock under the Organization
Agreement entered into as of December 21, 1993 among R. Philip Silver, D. Greg
Horrigan, MSLEF II, BTNY, First Plaza and Holdings. As of September 30, 1996,
additional paid in capital was reduced by $15.0 million, the original issuance
amount received for the Class B Common Stock, and the remainder of the payment
was applied to Holdings' accumulated deficit. Additionally, the balance of the
proceeds received from the issuance of Preferred Stock was used to redeem $12.0
million principal amount of Holdings' 13 1/4% Senior Discount Debentures due
2002 (the "Discount Debentures").
The Preferred Stock holders are entitled to receive cumulative dividends at 13
1/4% per annum, which are payable quarterly in cash or, on or prior to July 15,
2000 at the sole option of the Company, in additional shares of Preferred Stock.
After July 15, 2000, dividends may be paid only in cash. As of September 30,
1996, the Company accrued $1.3 million for a dividend on the Preferred Stock,
payable in additional shares of Preferred Stock issued on October 15, 1996.
The Preferred Stock is exchangeable into Holdings' Subordinated Debentures due
2006 (the "Exchange Debentures"), in whole but not in part, at the option of the
Company, subject to certain conditions. The Exchange Debentures will bear
interest at the dividend rate in effect with respect to the Preferred Stock.
Interest on the Exchange Debentures will be payable semi-annually and, on or
prior to July 15, 2000, the Company may pay such interest by issuing additional
Exchange Debentures. If by July 22, 1997 the Preferred Stock has not been
exchanged for Exchange Debentures, the dividend rate on the Preferred Stock will
increase by 0.5% per annum to 13 3/4% per annum until such exchange occurs.
Page 10 of 23
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1996 and 1995 and for the
three months and nine months then ended is unaudited)
4. Exchangeable Preferred Stock (continued)
The Company is required to redeem the Preferred Stock or Exchange Debentures on
July 15, 2006, but may elect to redeem the Preferred Stock or Exchange
Debentures prior to this date for a redemption price (expressed as a percentage
of the liquidation preference of the Preferred Stock or principal amount of the
Exchange Debentures) set forth below, plus an amount equal to all the
accumulated and unpaid dividends or accrued and unpaid interest.
Year Percentage
---- ----------
2000............................ 109.938%
2001............................ 106.625%
2002............................ 103.313%
2003 and thereafter............. 100.000%
In addition, all (but not less than all) of the outstanding Preferred Stock or
Exchange Debentures may be redeemed prior to July 15, 2000 for a redemption
price equal to 110% of the liquidation preference of the Preferred Stock plus
accrued and unpaid dividends, or 110% of the principal amount of the Exchange
Debentures plus accrued and unpaid interest, to the redemption date with the
proceeds of any sale of its common stock.
The holders of the Preferred Stock do not have voting rights except in certain
limited circumstances. The Company's Credit Agreement and various debt
indentures restrict the Company's ability to, among other things, pay dividends,
incur additional indebtedness, and purchase or redeem shares of capital stock.
5. Refinancings
During 1996, the Company redeemed $154.4 million principal amount of Discount
Debentures at par. These redemptions were funded through the borrowing of $125.0
million of additional B term loans under the Company's Credit Agreement, excess
proceeds of $12.0 million from the issuance of Preferred Stock, and the
borrowing of $17.4 million of working capital loans under the Company's Credit
Agreement. In connection with the early redemption of the Discount Debentures,
the Company incurred an extraordinary charge of $2.1 million, net of tax, for
the write-off of unamortized deferred financing costs.
Page 11 of 23
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1996 and 1995 and for the
three months and nine months then ended is unaudited)
5. Refinancings (continued)
As a result of these refinancings, the aggregate annual maturities of long-term
debt of the Company are as follows (in thousands):
1996............................ $ 28,454
1997............................ 38,433
1998............................ 53,401
1999............................ 53,401
2000............................ 126,130
2001 and thereafter............. 460,923
--------
$760,742
========
6. Subsequent Events
1996 Acquisition
- -----------------
On October 9, 1996, the Company acquired substantially all of the assets of
Finger Lakes Packaging Company, Inc. ("Finger Lakes"), a metal food container
manufacturer and a wholly-owned subsidiary of Curtice Burns Foods, Inc.
("Curtice Burns") for approximately $29.9 million. As part of the transaction,
the Company entered into a ten-year supply agreement with Curtice Burns to
supply all of the metal food container requirements of Curtice Burns' Comstock
Michigan Fruit and Brooks Foods divisions. For its fiscal year ended June 29,
1996, Finger Lakes had net sales of $48.8 million. The Company financed this
acquisition through working capital borrowings under its Credit Agreement.
1996 Public Offering
- --------------------
In September 1996, the Company filed a registration statement on Form S-2 for an
initial public offering ("IPO") of the Company's common stock. In the event that
the proposed IPO occurs, the Company expects to use the net proceeds received to
redeem the remaining Discount Debentures outstanding (approximately $59.0
million).
Upon the closing of the IPO, the Company will recognize a non-cash charge of
approximately $16.1 million for the excess of fair market value over the grant
price of the variable stock options under the Containers and Plastics option
plans which convert to Holdings options. In addition, to the extent the net
proceeds of the IPO are used as expected, the Company will recognize an
additional extraordinary charge of approximately $0.7 million, net of tax, for
the write-off of unamortized deferred financing costs related to the early
redemption of the remaining Discount Debentures.
Page 12 of 23
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTHS
Summary unaudited historical results for the Company's two business segments,
metal and plastic containers, for the three months ended September 30, 1996 and
1995 and summary pro forma results for the Company's two business segments for
the three months ended September 30, 1995 (after giving effect to the
acquisition of AN Can as of the beginning of 1995) are provided below.
The pro forma data includes the historical results of the Company and AN Can and
reflects the effect of purchase accounting adjustments based on appraisals and
valuations, the financing of the acquisition of AN Can, the refinancing of
certain of the Company's debt obligations, and certain other adjustments, as if
these events occurred as of the beginning of the period presented. The unaudited
pro forma financial data do not purport to represent what the Company's
financial position or results of operations would actually have been had these
transactions in fact occurred at the beginning of the period indicated, or to
project the Company's financial position or results of operations for any future
date or period. The pro forma financial data do not give effect to adjustments
for decreased costs from manufacturing synergies resulting from the integration
of AN Can with the Company's existing can manufacturing operations and benefits
the Company may realize as a result of its planned rationalization of plant
operations. The pro forma information presented should be read in conjunction
with the historical results of operations of the Company for the periods ended
September 30, 1996 and 1995.
Three Months Ended September 30,
--------------------------------
Historical Pro Forma
---------- ---------
1996 1995 1995
---- ---- ----
(In millions)
Net sales:
Metal containers and other ......... $417.6 $353.8 $411.3
Plastic containers ................. 56.0 52.7 52.7
------ ------ ------
Consolidated ................... $473.6 $406.5 $464.0
====== ====== ======
Operating profit:
Metal containers and other ......... $ 39.6 $ 26.7 $ 29.2
Plastic containers ................. 4.2 2.0 2.0
Corporate expense .................. (0.1) (0.4) (0.4)
------ ------ ------
Consolidated ................... $ 43.7 $ 28.3 $ 30.8
====== ====== ======
Page 13 of 23
Historical Three Months Ended September 30, 1996 Compared with Historical Three
Months ended September 30, 1995
Net Sales. Consolidated net sales increased $67.1 million, or 16.5%, to $473.6
million for the three months ended September 30, 1996, as compared to net sales
of $406.5 million for the same three months in the prior year. For the three
months ended September 30, 1996 as compared to the same period in 1995, the
Company had higher net sales of metal containers to existing customers, higher
net sales of plastic containers and realized the benefit of an additional month
of sales in 1996 from the former AN Can operations. AN Can was acquired on
August 1, 1995, and therefore the Company's historical 1995 results did not
include its financial results before that date.
Net sales for the metal container business (including net sales of its specialty
business of $23.9 million) were $417.6 million for the three months ended
September 30, 1996, an increase of $63.8 million from net sales of $353.8
million for the same period in 1995. Net sales of metal cans of $393.7 million
for the three months ended September 30, 1996 were $54.8 million greater than
net sales of metal cans of $338.9 million for the same period in 1995. This
increase resulted from net sales of metal cans generated by the former AN Can
operations during July 1996 of $52.1 million, an increase in unit sales of metal
containers in the third quarter of 1996 due to a better vegetable pack harvest
in 1996 as compared to 1995, and the planned shift of production and shipment of
some fruit and vegetable pack metal containers from the first half of the year
to the third and fourth quarters to more closely coincide production with the
fruit and vegetable pack harvest, offset to a limited extent by volume losses
with certain customers.
Sales of specialty items included in the metal container segment increased $9.0
million to $23.9 million during the three months ended September 30, 1996 as
compared to the same period in 1995, due to both increased unit sales and
additional sales generated during July 1996 by the former AN Can operations. As
mentioned above, the historical results of the Company did not include AN Can's
financial results until August 1995.
Net sales for the plastic container business of $56.0 million during the three
months ended September 30, 1996 increased $3.3 million from net sales of $52.7
million for the same period in 1995. This increase in net sales resulted from
higher unit sales, offset, in part, by the pass through of lower resin costs.
Page 14 of 23
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 87.6% ($414.7 million) for the three months ended September 30, 1996, a
decrease of 2.1 percentage points as compared to 89.7% ($364.8 million) for the
same period in 1995. The decrease in cost of goods sold as a percentage of net
sales was primarily attributable to lower per unit manufacturing costs resulting
from significantly higher can production volumes, the benefit of synergies
realized through the acquisition of AN Can, lower indirect costs due to plant
consolidations, and improved manufacturing performance by the plastic container
business. Higher can production volumes during this quarter resulted from the
scheduled production of cans later in the year to more closely coincide
production with the fruit and vegetable pack harvest.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales decreased 0.1
percentage points to 3.2% ($15.2 million) for the three months ended September
30, 1996, as compared to 3.3% ($13.4 million) for the three months ended
September 30, 1995. Selling, general and administrative expenses were relatively
constant with the prior year and included an additional month of expenses by the
former AN Can operations in the third quarter of 1996 as compared to the third
quarter of 1995.
Income from Operations. Income from operations as a percentage of consolidated
net sales was 9.2% ($43.7 million) for the three months ended September 30,
1996, as compared with 7.0% ($28.3 million) for the same period in the prior
year. The increase in income from operations as a percentage of consolidated net
sales was primarily attributable to the aforementioned improvement in gross
margins.
Income from operations as a percentage of net sales for the metal container
business improved to 9.5% ($39.6 million) for the three months ended September
30, 1996, from 7.5% ($26.7 million) for the same period in the prior year. This
increase in income from operations as a percentage of net sales for the metal
container business resulted from both lower per unit costs realized as a result
of higher production volumes from the planned shift of production of fruit and
vegetable pack cans closer to the harvest and increased customer demand due to a
better vegetable pack harvest in 1996 as compared to 1995, as well as the
benefit of manufacturing synergies realized from the acquisition of AN Can.
Income from operations as a percentage of net sales for the plastic container
business improved to 7.5% ($4.2 million) for the three months ended September
30, 1996, as compared to 3.8% ($2.0 million) for the same period in 1995. The
improved operating performance of the plastic container business was
attributable to increased production volume due to higher unit sales which
resulted in improved productivity.
Page 15 of 23
Interest Expense. Interest expense declined $0.5 million to $22.4 million for
the three months ended September 30, 1996. Interest expense on the Discount
Debentures for the third quarter of 1996 declined $4.4 million as compared to
the same period in the prior year as a result of the redemption of $154.4
million of Discount Debentures during 1996. Since the redemptions of the
Discount Debentures were funded principally with proceeds from lower cost bank
financing, interest on bank debt increased. Additionally, since AN Can was not
acquired until August 1, 1995, interest expense for the three months ended
September 30, 1995 did not include any interest expense relating to the AN Can
operations for the month of July. Due to the benefit of the redemption of the
Discount Debentures, interest expense for the fourth quarter of 1996 and the
first and second quarters of 1997 will decline significantly from the comparable
quarters in the prior year.
Income Taxes. The provisions for income taxes for the three months ended
September 30, 1996 and 1995 provide for federal, state and foreign taxes
currently payable. The decrease in the provision for income taxes of $1.2
million for the three months ended September 30, 1996 as compared to the same
period in the prior year reflects the benefit of the current cash tax savings
realized from the deduction of accreted interest on the retired Discount
Debentures.
Net Income. As a result of the items discussed above, net income of $20.7
million (before the extraordinary charge of $2.1 million and the preferred stock
dividend requirement of $1.3 million) increased $17.0 million for the three
months ended September 30, 1996, as compared to net income of $3.7 million
before the extraordinary charge of $5.8 million for the three months ended
September 30, 1996.
During the third quarter of 1996 the Company incurred an extraordinary charge of
$2.1 million, net of taxes, for the write-off of unamortized debt cost
associated with the early redemption of Discount Debentures. In the third
quarter of 1995, the Company incurred an extraordinary charge of $5.8 million,
net of taxes, for the write-off of unamortized debt costs related to the
refinancing of its secured debt facilities in connection with the acquisition of
AN Can, the repurchase of a portion of the Discount Debentures, and premiums
paid on the repurchase of the Discount Debentures.
Historical Three Months Ended September 30, 1996 Compared with Pro Forma Three
Months Ended September 30, 1995
Net Sales. Consolidated net sales for the three months ended September 30, 1996
increased $9.6 million as compared to pro forma consolidated net sales for the
same period in the prior year. This increase in net sales resulted from greater
unit sales by both the metal and plastic container segments. The increase in net
sales by the metal container business of $6.3 million was principally
attributable to the planned shift of production and shipment of fruit and
vegetable pack cans to the second half of 1996 instead of during the first half
of 1995, and increased unit sales due to a better vegetable pack harvest in 1996
as compared to 1995, offset to a limited extent by volume losses with certain
customers. As mentioned above, the increase in net sales of the plastic
containers business resulted from higher unit sales.
Page 16 of 23
Income from Operations. Income from operations as a percentage of consolidated
net sales for the three months ended September 30, 1996 was 9.2% ($43.7
million), as compared to pro forma income from operations as a percentage of pro
forma consolidated net sales of 6.6% ($30.8 million) for the three months ended
September 30, 1995. The increase in income from operations for the three months
ended September 30, 1996 as compared to pro forma income from operations for the
same period in the prior year was attributable to lower per unit costs realized
on scheduled higher can production volumes, the realization of can manufacturing
synergies resulting from the acquisition of AN Can, and improved operating
performance of the plastic container business, offset, in part, by the
incurrence of redundant administrative costs associated with the AN Can
operations.
RESULTS OF OPERATIONS - NINE MONTHS
Summary unaudited historical results for the Company's two business segments,
metal and plastic containers, for the nine months ended September 30, 1996 and
1995 and summary pro forma results for the Company's two business segments for
the nine months ended September 30, 1995 (after giving effect to the acquisition
of AN Can as of the beginning of 1995) are provided below.
The pro forma data includes the historical results of the Company and AN Can and
reflects the effect of purchase accounting adjustments based on final appraisals
and valuations, the financing of the acquisition of AN Can, the refinancing of
certain of the Company's debt obligations, and certain other adjustments, as if
these events occurred as of the beginning of the period presented. The unaudited
pro forma financial data do not purport to represent what the Company's
financial position or results of operations would actually have been had these
transactions in fact occurred at the beginning of the period indicated, or to
project the Company's financial position or results of operations for any future
date or period. The pro forma financial data do not give effect to adjustments
for decreased costs from manufacturing synergies resulting from the integration
of AN Can with the Company's existing can manufacturing operations and benefits
the Company may realize as a result of its planned rationalization of plant
operations. The pro forma information presented should be read in conjunction
with the historical results of operations of the Company for the periods ended
September 30, 1996 and 1995.
Nine Months Ended September 30,
-------------------------------
Historical Pro Forma
---------- ---------
1996 1995 1995
---- ---- ----
(In millions)
Net sales:
Metal containers and other ........ $ 917.8 $642.9 $ 945.4
Plastic containers ................ 162.7 168.6 168.6
-------- ----- -------
Consolidated .................. $1,080.5 $811.5 $1,114.0
======== ===== =======
Operating profit:
Metal containers and other ........ $ 89.4 $ 60.6 $ 83.6
Plastic containers ................ 13.1 9.8 9.8
Corporate expense ................. (0.8) (1.0) (1.0)
-------- ----- -------
Consolidated .................. $ 101.7 $ 69.4 $ 92.4
======== ===== =======
Page 17 of 23
Historical Nine Months Ended September 30, 1996 Compared with Historical Nine
Months Ended September 30, 1995
Net Sales. Consolidated net sales increased $269.0 million, or 33.1%, to
$1,080.5 million for the nine months ended September 30, 1996, as compared to
net sales of $811.5 million for the same nine months in the prior year. This
increase resulted predominantly from net sales generated by the former AN Can
operations.
Net sales for the metal container business (including net sales of its specialty
business of $66.2 million) were $917.8 million for the nine months ended
September 30, 1996, an increase of $274.9 million from net sales of $642.9
million for the same period in 1995. Net sales of metal cans of $851.6 million
for the nine months ended September 30, 1996 were $227.7 million greater than
net sales of metal cans of $623.9 million for the same period in 1995. This
increase resulted from net sales of approximately $236.0 million generated from
the former AN Can operations during the first seven months of 1996 and increased
unit sales due to a better vegetable pack harvest in 1996 as compared to 1995,
offset to a limited extent by volume losses with certain customers.
Sales of specialty items included in the metal container segment increased $47.2
million to $66.2 million during the nine months ended September 30, 1996 as
compared to the same period in 1995, due predominantly to additional sales
generated by the former AN Can operations.
Net sales for the plastic container business of $162.7 million during the nine
months ended September 30, 1996 decreased $5.9 million from net sales of $168.6
million for the same period in 1995. Despite an increase in unit sales, net
sales of plastic containers declined as a result of the pass through of lower
resin costs.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 86.7% ($936.4 million) for the nine months ended September 30, 1996, a
decrease of 0.9 percentage points as compared to 87.6% ($711.0 million) for the
same period in 1995. The decrease in cost of goods sold as a percentage of net
sales was principally attributable to synergies realized from the AN Can
acquisition, improved operating efficiencies due to can plant consolidations as
well as the improved manufacturing performance by the plastic container
business, offset, in part, by the higher cost base of the former AN Can
operations and the realization of higher per unit costs due to the Company's
one-time planned reduction in finished goods inventory. The additional
production capacity provided by AN Can has enabled the Company to produce its
product closer to the time of sale and, as a result, during 1996 the Company
reduced the amount of finished goods that it carries.
Page 18 of 23
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales increased 0.1
percentage points to 3.9% ($42.4 million) for the nine months ended September
30, 1996, as compared to 3.8% ($31.1 million) for the nine months ended
September 30, 1995. This increase in selling, general and administrative
expenses as a percentage of net sales principally reflects redundant costs,
estimated to be $4.0 million, associated with the integration of the AN Can
operations. Beginning in 1997, redundant costs are expected to decline as the
Company completes its integration of the administrative functions of AN Can with
the Company.
Income from Operations. Income from operations as a percentage of consolidated
net sales increased 0.8 percentage points to 9.4% ($101.7 million) for the nine
months ended September 30, 1996, as compared with 8.6% ($69.4 million) for the
same period in the prior year. This increase in income from operations as a
percentage of consolidated net sales was primarily attributable to the
aforementioned improvement in gross margin.
Income from operations as a percentage of net sales for the metal container
business improved to 9.7% ($89.4 million) for the nine months ended September
30, 1996, from 9.4% ($60.6 million) for the same period in the prior year. This
increase in income from operations as a percentage of net sales for the metal
container business was principally attributable to synergies resulting from the
acquisition of AN Can, improved operating efficiencies due to plant
consolidations and the benefit of cost reductions provided by the Company's
capital investment program, offset, in part, by the higher cost base of the AN
Can operations and the negative impact of the Company's one-time planned
reduction in the amount of finished goods inventory.
Income from operations as a percentage of net sales for the plastic container
business improved to 8.1% ($13.1 million) for the nine months ended September
30, 1996, from 5.8% ($9.8 million) for the same period in 1995. The improvement
in the operating performance of the plastic container business was principally
attributable to increased production volumes as well as the benefits realized
through capital investment and improved production planning and scheduling
efficiencies.
Interest Expense. Interest expense increased $10.6 million to $68.3 million for
the nine months ended September 30, 1996, principally as a result of increased
borrowings to finance the acquisition of AN Can in August 1995, offset, in part,
by the benefit realized from the redemption of $154.4 million of the Discount
Debentures with lower cost bank borrowings (additional B term loans of $125.0
million and working capital loans of $17.4 million) and with $12.0 million of
the proceeds from the Preferred Stock offering, and by lower average bank
borrowing rates. Due to the benefit of the redemption of the Discount
Debentures, interest expense for the fourth quarter of 1996 and the first and
second quarters of 1997 will decline significantly from the comparable quarters
in the prior years.
Page 19 of 23
Income Taxes. The provisions for income taxes for the nine months ended
September 30, 1996 and 1995 provide for federal, state and foreign taxes
currently payable. The decrease in the provision for income taxes of $2.9
million for the nine months ended September 30, 1996 as compared to the same
period in the prior year reflects the benefit of the current cash tax savings
realized from the deduction of accreted interest on the retired Discount
Debentures.
Net Income. As a result of the items discussed above, net income of $30.4
million (before extraordinary charges of $2.1 million and the preferred stock
dividend requirement of $1.3 million) increased $24.6 million for the nine
months ended September 30, 1996, as compared to net income of $5.8 million
(before extraordinary charges of $5.8 million) for the nine months ended
September 30, 1995.
During the third quarter of 1996 the Company incurred an extraordinary charge of
$2.1 million, net of taxes, for the write-off of unamortized debt cost
associated with the early redemption of Discount Debentures. In the third
quarter of 1995, the Company incurred an extraordinary charge of $5.8 million,
net of taxes, for the write-off of unamortized debt costs related to the
refinancing of its secured debt facilities to fund the AN Can acquisition, the
repurchase of a portion of the Discount Debentures, and premiums paid on the
repurchase of a portion of such Discount Debentures.
Historical Nine Months Ended September 30, 1996 Compared with Pro Forma Nine
Months Ended September 30, 1995
Net Sales. Consolidated net sales for the nine months ended September 30, 1996
declined $33.5 million as compared to pro forma consolidated net sales for the
same period in the prior year. This decline in net sales resulted primarily from
a decline in sales by the metal container business of $27.6 million, which was
principally attributable to the loss of an AN Can customer whose product line
was acquired by a company that manufactured its own cans and, to a lesser
extent, volume losses with certain other customers, offset, in part, by
increased unit sales due to a better vegetable pack harvest in 1996 as compared
to 1995. Although the plastic container business had increased unit volume in
1996, net sales declined $5.9 million due to the pass through of lower resin
costs.
Income from Operations. Income from operations as a percentage of consolidated
net sales for the nine months ended September 30, 1996 was 9.4% ($101.7
million), as compared to pro forma income from operations as a percentage of pro
forma consolidated net sales of 8.3% ($92.4 million) for the nine months ended
September 30, 1995. The increase in income from operations for the nine months
ended September 30, 1996 as compared to pro forma income from operations for the
same period in the prior year was attributable to more efficient production
planning, the realization of can manufacturing synergies resulting from the
acquisition of AN Can, the benefits realized from plant consolidations and
capital investments, and the improved operating performance of the plastic
container business, offset, in part, by redundant costs associated with the AN
Can operations and the negative impact of the Company's one-time planned
reduction of the amount of finished goods inventory.
Page 20 of 23
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.
During 1996, the Company borrowed $125.0 million of additional B term loans
under its Credit Agreement and used such proceeds to redeem $125.0 million
principal amount of Discount Debentures. Additionally, the Company sold 50,000
shares of Preferred Stock and received proceeds of $47.8 million, net of
transaction costs of $2.2 million. Concurrent with the sale of the Preferred
Stock the Company purchased its Class B Common Stock held by Mellon Bank N.A.
for $35.8 million and used the remaining proceeds from the sale of the Preferred
Stock to redeem an additional $12.0 million principal amount of Discount
Debentures.
As of September 30, 1996, the Company had outstanding $59.0 million principal
amount of Discount Debentures and redeemed and repurchased an aggregate of
$216.0 million principal amount of Discount Debentures since August 1995. By
refinancing the Discount Debentures with borrowings under the Company's Credit
Agreement and proceeds from the Preferred Stock offering, the Company has
lowered its average cost of indebtedness, and will realize approximately $11.5
million of annual current cash interest savings and approximately $19.5 million
of current cash tax savings as a result of the deduction by the Company of the
accreted interest on the retired Discount Debentures. In addition, due to the
Company's net operating loss carryforwards, the Company does not expect to have
any federal tax liability in 1996, and expects to incur minimal federal tax
liability in 1997. For the next several years thereafter, the Company expects to
incur a federal tax liability at the alternative minimum tax rates then in
effect.
For the first nine months of 1996, net borrowings of working capital loans under
the Company's Credit Agreement of $118.9 million, borrowings of $125.0 million
of additional B term loans under the Company's Credit Agreement, net proceeds of
$47.8 million from the issuance of Preferred Stock and proceeds of $1.5 million
from the sale of assets were used to fund cash used by operations of $48.0
million for the Company's seasonal working capital needs, capital expenditures
of $38.6 million, the purchase by the Company of ANC's St. Louis facility for
$13.1 million, the redemption of $154.4 million of Discount Debentures, the
repurchase of the Company's Class B Common Stock held by Mellon Bank N.A. for
$35.8 million, the repayment of $0.9 million of term loans under the Company's
Credit Agreement, the payment of $1.6 million of financing costs associated with
the borrowing of additional B term loans under the Company's Credit Agreement,
and an increase in cash balances of $0.8 million.
Page 21 of 23
The Company's EBITDA for the nine months ended September 30, 1996 in comparison
to the same period in 1995 increased by $48.6 million to $148.0 million. The
increase in EBITDA resulted primarily from the generation of additional cash
flow from the former AN Can operations and, to a lesser extent, from increased
cash earnings by both the metal container business and the plastic container
business.
For the nine months ended September 30, 1996, net cash provided by operating
activities declined from the same period in the prior year primarily as a result
of the increased working capital needed, mainly for trade receivables and trade
payables, to support the former AN Can operations which are more seasonal than
the Company's existing business. Due to the seasonal nature of some of the
Company's business, a significant portion of the Company's cash flow is
generated in the fourth quarter. The Company expects that the change in its
fourth quarter net working capital position will be similar to last year.
Because the Company sells metal containers used in fruit and vegetable pack
processing, its sales are seasonal. As a result, a significant portion of the
Company's revenues are generated in the first nine months of the year. As is
common in the 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. The acquisition of AN Can increased the Company's seasonal metal
containers business. The Company's average outstanding trade receivables have
increased in 1996 as compared to 1995 due to the acquisition of AN Can which had
more seasonal sales than the Company. As a result, the Company increased the
amount of working capital loans available to it under its credit facility to
$225.0 million. Due to the Company's seasonal requirements, the Company expects
to incur short term indebtedness to finance its working capital requirements.
Approximately $182.5 million of the working capital revolver under the Company's
Credit Agreement, including letters of credit, was utilized at its peak in
September 1996.
As of September 30, 1996, the outstanding principal amount of working capital
loans was $126.0 million and, subject to a borrowing base limitation and taking
into account outstanding letters of credit, the unused portion of working
capital commitments under the Company's Credit Agreement at such date was $91.6
million.
Management believes that cash generated by operations and funds from working
capital borrowings under the Company's Credit Agreement will be sufficient to
meet the Company's expected operating needs, planned capital expenditures, debt
service and tax obligations for the foreseeable future.
The Company is in compliance with all financial and operating covenants
contained in the instruments and agreements governing its indebtedness and
believes that it will continue to be in compliance during 1996 with all such
covenants.
The Company intends to refinance the remaining Discount Debentures with net
proceeds from an initial public offering of shares of its common stock. Any
remaining net proceeds from the offering would be used to prepay a portion of
the term loans under the Company's Credit Agreement. The offering is dependent
upon market conditions existing at that time.
Page 22 of 23
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, 1996, Silgan Holdings Inc. filed a Current Report on Form 8-K
regarding the issuance of 50,000 shares of its 13 1/4% Exchangeable Preferred
Stock.
On September 13, 1996, Silgan Holdings Inc. filed a Current Report on Form 8-K
regarding the proposed initial public offering of shares of its common stock.
Page 23 of 23
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 4, 1996 /s/Harley Rankin, Jr.
- ------------------------ ---------------------
Harley Rankin, Jr.
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
Dated: November 4, 1996 /s/Harold J. Rodriguez, Jr.
- ------------------------ ---------------------------
Harold J. Rodriguez, Jr.
Vice President and Controller
(Chief Accounting Officer)