Page 1 of 26
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 June 30, 1997 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange
Act of 1934 for the Period ____________ to ____________.
Commission file number 000-22117
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 August 1,1997, the number of shares outstanding of the registrant's common
stock, $0.01 par value, was 18,862,834.
Page 2 of 26
Part I. Financial Information
Item 1. Financial Statements
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, June 30, Dec. 31,
1997 1996 1996
ASSETS (unaudited) (unaudited) (audited)
- ------ ----------- ----------- ---------
Current assets:
Cash and cash equivalents ......... $ 11,394 $ 1,859 $ 1,017
Accounts receivable, net .......... 147,708 125,724 101,436
Inventories ....................... 307,826 286,448 195,981
Prepaid expenses and other
current assets .................. 10,350 5,691 7,403
----------- ----------- ---------
Total current assets .......... 477,278 419,722 305,837
Property, plant and equipment, net .. 525,804 482,723 499,781
Other non-current assets ............ 129,823 102,161 107,928
----------- ----------- ---------
$ 1,132,905 $ 1,004,606 $ 913,546
=========== =========== =========
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
- --------------------------------------------------
Current liabilities:
Trade accounts payable ............ $ 95,685 $ 90,361 $ 122,623
Accrued payroll and related costs . 42,318 41,378 41,799
Accrued interest payable .......... 8,423 6,551 9,522
Accrued expenses and other current
liabilities .................... 47,637 32,801 35,456
Bank revolving loans .............. -- 148,550 27,800
Current portion of long-term debt . 135,000 27,192 38,427
----------- ----------- ---------
Total current liabilities ..... 329,063 346,833 275,627
Long-term debt ...................... 808,799 745,550 693,783
Deferred income taxes ............... -- 6,836 6,836
Other long-term liabilities ......... 79,914 75,523 74,508
Cumulative exchangeable redeemable
preferred stock .................. -- -- 52,998
Deficiency in stockholders' equity:
Common stock ..................... 189 195 152
Additional paid-in capital ....... 110,935 33,423 18,466
Accumulated deficit .............. (195,995) (203,754) (208,824)
----------- ----------- ---------
Total deficiency in
stockholders' equity .... (84,871) (170,136) (190,206)
----------- ----------- ---------
$ 1,132,905 $ 1,004,606 $ 913,546
=========== =========== =========
See accompanying notes.
Page 3 of 26
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended
------------------
June 30, June 30,
1997 1996
---- ----
Net sales .............................................. $ 357,584 $ 327,062
Cost of goods sold ..................................... 300,623 278,077
--------- ---------
Gross profit ...................................... 56,961 48,985
Selling, general and administrative expenses ........... 15,192 14,673
--------- ---------
Income from operations ............................ 41,769 34,312
Interest expense and other related financing costs ..... 21,139 23,288
--------- ---------
Income before income taxes ........................ 20,630 11,024
Income tax provision ................................... 6,600 1,500
--------- ---------
Income before extraordinary charge ................ 14,030 9,524
Extraordinary charge relating to early
extinguishment of debt, net of taxes ................ (8,282) --
--------- ---------
Net income before preferred stock
dividend requirement ........................... 5,748 9,524
Preferred stock dividend requirement ................... (1,469) --
--------- ---------
Net income available to common stockholders ....... $ 4,279 $ 9,524
========= =========
Income per share:
Income before extraordinary charge ................ $0.68 $0.45
Extraordinary charge .............................. (0.40) --
Preferred stock dividend requirement .............. (0.07) --
------ -----
Net income per common share ................... $0.21 $0.45
===== =====
Weighted average number of common and
common equivalent shares outstanding (in 000's) ...... 20,564 21,068
See accompanying notes.
Page 4 of 26
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
Six Months Ended
----------------
June 30, June 30,
1997 1996
---- ----
Net sales ............................................ $ 657,011 $ 606,922
Cost of goods sold ................................... 557,330 520,284
--------- ---------
Gross profit .................................... 99,681 86,638
Selling, general and administrative expenses ......... 29,228 28,609
Non-cash stock option charge ......................... 22,522 --
--------- ---------
Income from operations .......................... 47,931 58,029
Interest expense and other related financing costs ... 41,104 45,861
--------- ---------
Income before income taxes ...................... 6,827 12,168
Income tax provision (benefit) ....................... (18,250) 2,500
--------- --------
- -
Income before extraordinary charge .............. 25,077 9,668
Extraordinary charge relating to early
extinguishment of debt, net of taxes .............. (9,024) --
--------- ---------
Net income before preferred stock
dividend requirement ......................... 16,053 9,668
Preferred stock dividend requirement ................. (3,224) --
--------- ---------
Net income available to common stockholders ..... $ 12,829 $ 9,668
========= =========
Income per share:
Income before extraordinary charge .............. $ 1.27 $0.46
Extraordinary charge ............................ (0.46) --
Preferred stock dividend requirement ............ (0.16) --
------ -----
Net income per common share ................. $ 0.65 $0.46
====== =====
Weighted average number of common and
common equivalent shares outstanding (in 000's) .... 19,625 21,068
See accompanying notes.
Page 5 of 26
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
----------------
June 30, June 30,
1997 1996
---- ----
Cash flows from operating activities:
Net income ......................................... $ 16,053 $ 9,668
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation ................................... 29,545 27,153
Amortization ................................... 3,435 4,761
Accretion of discount on discount debentures ... -- 12,077
Extraordinary charge relating to early
extinguishment of debt, net of taxes ........ 9,024 --
Non-cash stock option charge ................... 22,522 400
Changes in assets and liabilities:
(Increase) in accounts receivable ......... (41,695) (13,155)
(Increase) in inventories ................. (102,130) (74,520)
(Increase) decrease in other non-current
assets ................................. (12,352) (1,757)
(Decrease) in trade accounts payable ...... (29,487) (47,834)
Other, net ................................ (7,009) 493
--------- ---------
Total adjustments ..................... (128,147) (92,382)
--------- ---------
Net cash used by operating activities .......... (112,094) (82,714)
--------- ---------
Cash flows from investing activities:
Acquisition of businesses .......................... (42,357) (13,121)
Capital expenditures ............................... (25,441) (29,031)
Proceeds from sale of assets ....................... 4,247 1,521
--------- ---------
Net cash used in investing activities .......... (63,551) (40,631)
--------- ---------
Cash flows from financing activities:
Borrowings under revolving loans .................. 504,900 489,100
Repayments under revolving loans .................. (532,700) (347,650)
Net proceeds from issuance of common stock ........ 67,220 --
Proceeds from long-term debt ...................... 375,000 --
Repayment of long-term debt ....................... (219,617) (18,348)
Debt financing costs .............................. (8,781) --
--------- ---------
Net cash provided by financing activities ..... 186,022 123,102
--------- ---------
Net increase in cash and cash equivalents ............ 10,377 (243)
Cash and cash equivalents at beginning of year ....... 1,017 2,102
--------- ---------
Cash and cash equivalents at end of period ........... $ 11,394 $ 1,859
========= =========
Supplementary data:
Cash interest payments .......................... $ 40,033 $ 29,456
Cash income tax payments ........................ 593 363
Preferred stock issued in lieu of cash dividend . 3,208 --
See accompanying notes.
Page 6 of 26
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS'EQUITY
(Dollars in thousands, except per share data)
Common Stock Total
------------ Additional Accum- deficiency in
Par paid-in ulated stockholders'
Shares Value capital deficit equity
------ ----- ------- ------- ------
Balance at
December 31, 1996 ...... 885,000 $ 9 $ 18,609 $(208,824) $(190,206)
Adjustment for 17.133145
for 1 stock split .... 14,277,833 143 (143) -- --
---------- ---- -------- --------- ---------
As restated at
December 31, 1996 for
stock split .......... 15,162,833 152 18,466 (208,824) (190,206)
Issuance of common stock . 3,700,001 37 67,183 -- 67,220
Conversion of subsidiary
stock options to parent
company .............. -- -- 25,286 -- 25,286
Net income ............... -- -- -- 12,829 12,829
---------- ---- -------- --------- ---------
Balance at
June 30, 1997 .......... 18,862,834 $189 $110,935 $(195,995) $ (84,871)
========== ==== ======== ========= =========
See accompanying notes.
Page 7 of 26
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1997 and 1996 and for the
three 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, the
accompanying financial statements contain all adjustments (consisting solely of
a normal recurring nature) necessary to present fairly Holdings' financial
position as of June 30, 1997 and 1996 and December 31, 1996, Holdings' results
of operations for the three and six months ended June 30, 1997 and 1996, the
statement of cash flows for the six months ended June 30, 1997 and 1996, and the
statement of deficiency in stockholders' equity for the six months ended June
30, 1997.
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 Company's financial statements and notes
included in its Annual Report on Form 10-K for the year ended December 31, 1996.
As of June 26, 1997, Silgan Corporation, a wholly owned subsidiary of Holdings
was merged into Holdings (the "Merger"). As a result, all of the indebtedness
and other obligations of Silgan Corporation have become indebtedness and
obligations of Holdings. Since Holdings' consolidated financial information
included Silgan Corporation, the Merger had no effect on the consolidated
financial results of Holdings.
Certain reclassifications have been made to prior year's financial statements to
conform with current year presentation.
2. Initial Public Offering
On February 20, 1997 the Company completed an initial public offering
("Offering") of 5,175,000 shares of common stock, par value $.01 per share (the
"Common Stock"), of the Company. In connection with the Offering, the Company
amended its Restated Certificate of Incorporation to change its authorized
capital stock to 100,000,000 shares of Common Stock, par value $.01 per share,
and 10,000,000 shares of preferred stock, par value $.01 per share.
Page 8 of 26
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1997 and 1996 and for the
three and six months then ended is unaudited)
2. Initial Public Offering (continued)
In addition, the existing Class A, Class B and Class C Common Stock of Holdings
were converted to Common Stock on a one for one basis, and immediately
thereafter Holdings effected a 17.133145 to 1 stock split of its outstanding
Common Stock.
All prior period share and per share data have been adjusted to give effect to
the amendment to Holdings' Restated Certificate of Incorporation and the stock
split. Per share amounts have been computed based upon the weighted average
number of common and common equivalent shares outstanding for each of the
periods presented.
In the Offering, the Company sold to the underwriters 3,700,000 previously
unissued shares of Common Stock at an initial public offering price of $20.00
per share. The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF") and
Bankers Trust New York Corporation ("BTNY"), existing stockholders of the
Company prior to the Offering, sold to the underwriters 1,317,246 and 157,754
previously issued and outstanding shares of Common Stock owned by them,
respectively. The Company did not receive any of the proceeds from the sale of
the shares of Common Stock by MSLEF or BTNY.
Net proceeds received from the Offering of $67.2 million were used by the
Company to prepay bank term loans and to redeem the Company's remaining
outstanding 13 1/4% Senior Discount Debentures due 2002 ("13 1/4% Discount
Debentures"). In connection with the early redemption of the 13 1/4% Discount
Debentures, the Company incurred an extraordinary charge of $0.7 million, net of
tax, in the first quarter of 1997 for the write-off of unamortized deferred
financing costs.
In connection with the Offering, the Company recognized a non-cash, pre-tax
charge of $22.5 million for the excess of fair market value over the grant price
of stock options converted from Holdings' subsidiaries' stock option plans to
Holdings' stock option plan. Under Accounting Principles Board Statement ("APB")
No. 25, options granted under the subsidiary plans were considered variable
options with a final measurement date at the time of conversion. Paid in capital
was credited for $25.3 million which represented the current year charge and
amounts accrued in prior years.
3. Earnings per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128 ("SFAS No. 128"), Earnings per
Share, which supersedes APB No. 15, Earnings per Share.
Page 9 of 26
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1997 and 1996 and for the
three and six months then ended is unaudited)
3. Earnings per Share (continued)
The new pronouncement is effective for the December 31, 1997 financial
statements and earlier adoption is not permitted. Upon adoption, the Company
will be required to change its current method of computing earnings per share
and to restate all prior periods.
Under SFAS No. 128, primary earnings per share will be replaced with basic
earnings per share. Basic earnings per share will exclude the dilutive effect of
stock options. In addition, the new pronouncement requires that diluted earnings
per share, formerly known as fully diluted earnings per share, be calculated
using the treasury stock method applying the average market price for the period
rather than the higher of the average market price or the ending market price.
For the three and six months ended June 30, 1997, the Company's basic earnings
per share would have been $0.02 and $0.07, respectively, greater than its
primary earnings per share. The impact of SFAS No. 128 on the calculation of the
Company's fully diluted earnings per share for these quarters is not material.
The weighted average number of common and common equivalent shares decreased
from June 30, 1996 due to the repurchase of 4,283,287 shares of Class B Common
Stock (adjusted for the stock split) in July 1996, offset by the issuance of
3,700,001 shares of common stock in February 1997.
4. Acquisitions
Effective April 1, 1997, the Company acquired the aluminum roll-on closure
business ("Roll-on Closure") from Alcoa Closure Systems International, Inc. and
the North American plastic container business ("Rexam Plastics") from Rexam plc
and Rexam Plastics Inc. In 1996, Roll-on Closure and Rexam Plastics had combined
net sales of approximately $80.0 million. The acquisitions of Roll-on Closure
and Rexam Plastics were accounted for using the purchase method of accounting,
and accordingly the results of operations have been included in the consolidated
financial statements of the Company from April 1, 1997.
The aggregate purchase price for the acquisitions of $42.3 million was funded
through bank borrowings, and consisted of assets acquired of $54.4 million and
liabilities assumed of $12.1 million. The excess of the purchase price over the
fair market value of the assets acquired of approximately $3.5 million was
recorded as goodwill, which is being amortized over a forty-year period.
Page 10 of 26
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1997 and 1996 and for the
three and six months then ended is unaudited)
4. Acquisitions (continued)
The purchase price was allocated to inventory, machinery and equipment, and net
working capital acquired based upon estimated fair market values as of the date
of acquisition. The purchase price allocation will be finalized within one year
of the acquisition date and any valuation differences will adjust the purchase
price allocation.
5. Inventories
Inventories consisted of the following (in thousands):
June 30, June 30, Dec. 31,
1997 1996 1996
---- ---- ----
Raw materials and supplies .. $ 37,130 $ 27,158 $ 30,126
Work-in-process ............. 50,554 44,380 38,015
Finished goods .............. 210,395 205,233 116,498
Spare parts and other ....... 7,993 8,075 7,771
-------- -------- --------
306,072 284,846 192,410
Adjustment to value inventory
at cost on the LIFO Method 1,754 1,602 3,571
-------- -------- --------
$307,826 $286,448 $195,981
======== ======== ========
6. Issuance of 9.0% Senior Subordinated Debentures
On June 9, 1997, the Company issued $300.0 million aggregate principal amount of
9.0% Senior Subordinated Debentures (the "Debentures") due June 1, 2009. The
Debentures represent general unsecured obligations of the Company, subordinate
in right of payment to obligations of the Company under the Credit Agreement and
effectively subordinate to all obligations of the subsidiaries of the Company.
Interest on the Debentures is payable semi-annually in cash on each June 1 and
December 1 beginning on December 1, 1997.
Page 11 of 26
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1997 and 1996 and for the
three and six months then ended is unaudited)
6. Issuance of 9.0% Senior Subordinated Debentures (continued)
The Debentures are redeemable, at the option of the Company, in whole or in
part, at any time after June 1, 2002 at the following redemption prices
(expressed in percentages of principal amount) plus accrued and unpaid interest
thereon to the redemption date if redeemed during the twelve month period
beginning June 1 of the years set forth below:
Year Redemption Price
---- ----------------
2002 .............................. 104.500%
2003 .............................. 103.375%
2004 .............................. 102.250%
2005 .............................. 101.125%
2006 and thereafter ............... 100.000%
In addition, at any time on or prior to June 1, 2000, up to 35% of the aggregate
principal amount of the Debentures may be redeemed, at the option of the
Company, with the proceeds of one or more equity offerings by the Company of its
common stock at 109% of the principal amount, plus accrued and unpaid interest
to the redemption date. Upon the occurrence of a Change of Control (as defined
in the Indenture relating to the Debentures), the Company is required to make an
offer to purchase the Debentures at a purchase price equal to 101% of the
principal amount, plus accrued and unpaid interest to the date of purchase.
The Indenture relating to the Debentures contains covenants which are generally
less restrictive than those under the Credit Agreement. These covenants, among
other things, limit the ability of the Company and its subsidiaries to incur
indebtedness, make certain payments (including dividends) with respect to their
capital stock, make prepayments of subordinated indebtedness, make loans or
investments, enter into transactions with affiliates, engage in mergers or
consolidations, grant liens, and, with respect to the Company's subsidiaries,
issue stock and provide guarantees of indebtedness, as well as direct the
application of the proceeds from certain asset sales.
Net cash proceeds received from the issuance of the Debentures were
approximately $291.5 million, of which the Company used $148.6 million to repay
bank term loans and $142.9 to redeem the 11 3/4% Senior Subordinated Notes due
2002 (the "11 3/4% Notes"). The Company incurred pre-tax extraordinary charges
of $2.6 million for the write-off of unamortized deferred financing costs
related to the repayment of bank term loans.
Page 12 of 26
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1997 and 1996 and for the
three and six months then ended is unaudited)
6. Issuance of 9.0% Senior Subordinated Debentures (continued)
On June 9, 1997, the Company provided irrevocable notice to the holders of the
11 3/4% Notes for the redemption in full of the 11 3/4% Notes at 105.875% of
their principal amount ($142.9 million) on July 16, 1997. During the period from
June 9, 1997 to the date of the redemption, the amount required for the
redemption was used to repay Revolving Loans and the excess was held in a cash
collateral account.
As a result of the early redemption of the 11 3/4% Notes, the Company incurred
pre-tax extraordinary charges of $2.9 million for the write-off of unamortized
deferred financing costs and $7.9 million for the premium incurred in connection
with the early redemption.
7. 13 1/4% Subordinated Debentures
On June 13, 1997, the Company exchanged its outstanding 13 1/4% Cumulative
Exchangeable Redeemable Preferred Stock ("Preferred Stock") with a liquidation
value of $56.2 million for a like principal amount of 13 1/4% Subordinated
Debentures due 2006 (the "Exchange Debentures"). The Exchange Debentures are
general obligations of the Company, subordinate in right of payment to all
Senior Indebtedness (as defined in the Indenture relating to the Exchange
Debentures), including indebtedness under the Company's Credit Agreement and the
Debentures, and effectively subordinate to all obligations of the subsidiaries
of the Company.
The Exchange Debentures bear interest at the dividend rate of the Preferred
Stock. Interest is payable semi-annually in cash or, on or prior to July 15,
2000, at the option of the Company, in additional Exchange Debentures in an
aggregate principal amount equal to such interest. From and after July 15, 2000,
interest will be payable only in cash. Interest on the Exchange Debentures due
July 15, 1997 was paid in cash.
The Exchange Debentures may be redeemed at any time on or after July 15, 2000,
in whole or in part, at the option of the Company at the following redemption
prices (expressed in percentages of principal amount) plus accrued and unpaid
interest thereon to the redemption date if redeemed during the twelve month
period beginning July 15 in each of the years set forth below:
Year Redemption Price
---- ----------------
2000 ......................... 109.938%
2001 ......................... 106.625%
2002 ......................... 103.313%
2003 and thereafter .......... 100.000%
Page 13 of 26
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1997 and 1996 and for the
three and six months then ended is unaudited)
7. 13 1/4% Subordinated Debentures (continued)
In addition, on or prior to July 15, 2000, Holdings may redeem all (but not less
than all) outstanding Exchange Debentures, at a redemption price equal to 110%
of their principal amount, plus accrued and unpaid interest to the redemption
date, from proceeds of any sale of its common stock.
Upon the occurrence of a Change of Control (as defined in the Indenture relating
to the Exchange Debentures), the Company is required to make an offer to
purchase all of the Exchange Debentures at a purchase price equal to 101% of the
principal amount, plus accrued and unpaid interest to the date of purchase.
The Indenture relating to the Exchange Debentures contains covenants which are
generally comparable to or less restrictive than those under the Indenture
relating to the Debentures.
8. Income Taxes
During the first quarter of 1997, the Company determined that it was more likely
than not that a portion of the future tax benefits arising from its net
operating loss carryforwards would be realized in future years due to the
Company's continued improvement in earnings and the probability of future
taxable income. As a result, in accordance with SFAS No. 109, the Company
recognized an income tax benefit of $23.2 million by releasing a portion of the
valuation allowance.
The Company provides for income taxes during interim reporting periods based
upon an estimate of its annual effective tax rate. This estimate reflects the
benefits of net operating loss carryforwards and adjustments to the valuation
allowance related to the realizability of the Company's deferred tax assets.
9. Subsequent Events
On July 29, 1997, the Company refinanced the indebtedness outstanding under its
existing bank credit agreement with proceeds from a new $1.0 billion senior
secured credit facility (the "Credit Agreement"). As a result of the refinancing
of its existing credit agreement, the Company will incur a pre-tax extraordinary
charge of approximately $11.9 million for the write-off of unamortized deferred
financing costs in connection with such refinancing during the third quarter of
1997.
Page 14 of 26
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1997 and 1996 and for the
three and six months then ended is unaudited)
9. Subsequent Events (continued)
The Credit Agreement provides the Company with (i) $250.0 million of A Term
Loans, (ii) $200.0 million of B Term Loans and (iii) up to $550.0 million of
Revolving Loans. The A Term Loans and Revolving Loans mature on December 31,
2003 and the B Term Loans mature on June 30, 2005.
Principal on the A Term Loans and B Term Loans is required to be repaid in
installments during each of the years set forth below (in millions):
Year A Term Loan B Term Loan
---------- ----------- -----------
1997 $ -- $ 1.0
1998 25.0 2.0
1999 30.0 2.0
2000 35.0 2.0
2001 40.0 2.0
2002 55.0 2.0
2003 65.0 2.0
2004 -- 2.0
2005 -- 185.0
------ ------
Total $250.0 $200.0
====== ======
Generally, Revolving Loans may be borrowed, repaid, and reborrowed from time to
time until their maturity.
The borrowings under the Credit Agreement may be designated as Base Rate or
Eurodollar Rate borrowings. The Base Rate is the higher of (i) 1/2 of 1.0% in
excess of the Adjusted Certificate of Deposit Rate, (ii) 1/2 of 1.0% in excess
of the Federal Funds Rate, or (iii) Banker's Trust Company's prime lending rate.
Currently, Base Rate borrowings bear interest at the Base Rate in the case of A
Term Loans and Revolving Loans; and at the Base Rate plus a margin of 0.5% in
the case of B Term Loans. Eurodollar Rate borrowings currently bear interest at
the Eurodollar Rate plus a margin of 1.0% in the case of A Term Loans and
Revolving Loans; and a margin of 1.5% in the case of B Term Loans. In accordance
with the Credit Agreement, the interest rate margin on Base Rate and Eurodollar
Rate borrowings is reset quarterly for the period beginning January 1, 1998
based upon certain financial ratios.
The indebtedness under the Credit Agreement is guaranteed by Holdings and its
U.S. subsidiaries and is secured by a security interest in substantially all of
their real and personal property. The stock of all U.S. subsidiaries of the
Company has been pledged to the lenders under the Credit Agreement.
Page 15 of 26
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1997 and 1996 and for the
three and six months then ended is unaudited)
9. Subsequent Events (continued)
The Credit Agreement contains various covenants which limit, among other things,
the ability of the Company and its subsidiaries to grant liens, sell assets and
use the proceeds from certain asset sales, make certain payments (including
dividends) on its capital stock, incur indebtedness or provide guarantees, make
loans or investments, enter into transactions with affiliates, make capital
expenditures, engage in any business other than the packaging business, and,
with respect to the Company's subsidiaries, issue stock, as well as require the
Company to meet specified financial covenants.
Page 16 of 26
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain information contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this Quarterly
Report on Form 10-Q regarding the Company's financial results and condition, and
plans and strategy for its business and related financing includes forward
looking statements made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Such forward looking statements
involve uncertainties and risks, including, but not limited to, factors
described in this Quarterly Report on Form 10-Q and in the Company's other
filings with the Securities and Exchange Commission. The Company's actual
financial results and condition, and plans and strategy for its business and
related financing may differ from such forward looking statements.
RESULTS OF OPERATIONS - THREE MONTHS
Summary unaudited results of operations for the Company's two business segments,
metal and plastic containers, for the three months ended June 30, 1997 and 1996
are provided below.
Three Months Ended June 30,
---------------------------
1997 1996
---- ----
(In millions)
Net sales:
Metal containers and specialty ........... $288.0 $273.9
Plastic containers ....................... 69.6 53.2
------ ------
Consolidated ......................... $357.6 $327.1
====== ======
Operating profit:
Metal containers and specialty ........... $ 33.6 $ 30.0
Plastic containers ....................... 8.4 4.7
Corporate expense ........................ (0.3) (0.4)
------ ------
Consolidated ......................... $ 41.7 $ 34.3
====== ======
Three Months Ended June 30, 1997 Compared with Three Months ended June 30, 1996
Net Sales. Consolidated net sales increased $30.5 million, or 9.3%, to $357.6
million for the three months ended June 30, 1997, as compared to net sales of
$327.1 million for the same three months in the prior year. This increase
resulted from sales generated by the recent acquisitions and an increase in unit
sales by the plastic container business, offset in part by lower sales from the
existing metal container business.
Page 17 of 26
Net sales for the metal container business (including net sales of its specialty
business of $32.0 million) were $288.0 million for the three months ended June
30, 1997, an increase of $14.1 million, or 5.2%, from net sales of $273.9
million for the same period in 1996.
Sales of metal cans of $256.0 million for the three months ended June 30, 1997
were $1.8 million, or 0.7%, greater than net sales of metal cans of $254.2
million for the same period in 1996. This increase resulted from net sales of
Finger Lakes Packaging Company, Inc. ("Finger Lakes"), acquired by the Company
in October 1996, offset in part by lower unit sales to existing metal can
customers.
Sales of specialty items included in the metal container segment increased $12.3
million to $32.0 million during the three months ended June 30, 1997, as
compared to $19.7 million for the same period in 1996. The increase was the
result of additional revenue generated by Roll-on Closure, acquired by the
Company on April 1, 1997.
Net sales for the plastic container business of $69.6 million during the three
months ended June 30, 1997 increased $16.4 million, or 30.8%, from net sales of
$53.2 million for the same period in 1996. This increase in net sales resulted
from both higher unit sales to existing customers and additional sales generated
by Rexam Plastics since its acquisition on April 1, 1997.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 84.1% ($300.6 million) for the three months ended June 30, 1997, a decrease
of 0.9 percentage points as compared to 85.0% ($278.1 million) for the same
period in 1996. The decrease in cost of goods sold as a percentage of net sales
was attributable to improved operating efficiencies achieved as a result of
plant rationalizations, capital investment and higher production volumes.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales decreased 0.2
percentage points to 4.3% ($15.2 million) for the three months ended June 30,
1997, versus 4.5% ($14.7 million) for the three months ended June 30, 1996. The
decrease in selling, general and administrative expenses as a percentage of net
sales principally resulted from increased revenue generated from recent
acquisitions without a commensurate increase in selling, general and
administration costs.
Income from Operations. Income from operations as a percentage of consolidated
net sales improved to 11.7% ($41.7 million) for the three months ended June 30,
1997, as compared with 10.5% ($34.3 million) for the same period in the prior
year, as a result of the aforementioned improvement in gross margins and
reduction in selling, general and administrative expenses as a percentage of net
sales.
Page 18 of 26
Income from operations as a percentage of net sales for the metal container
business improved to 11.7% ($33.6 million) for the three months ended June 30,
1997, from 11.0% ($30.0 million) for the same period in the prior year. This
increase in income from operations as a percentage of net sales primarily
related to the continued realization of operating efficiencies from plant
rationalizations, capital investment, and lower per unit manufacturing costs. In
the first half of 1997, the Company's metal container business also benefited
from a program to reduce its indirect costs as well as from a normalized
production schedule. In the first half of 1996, the metal container business was
negatively impacted by a planned reduction in finished goods inventory as the
Company adjusted its inventory levels to produce its product closer to the time
of sale.
Income from operations as a percentage of net sales for the plastic container
business was 12.1% ($8.4 million) for the three months ended June 30, 1997, as
compared to 8.8% ($4.7 million) for the same period in 1996. The improved
operating performance of the plastic container business was attributable to
continued manufacturing efficiencies and lower per unit manufacturing costs
realized as a result of higher unit sales.
Interest Expense. Interest expense for the three months ended June 30, 1997
declined $2.2 million, from $23.3 million for the same period in 1996 to $21.1
million. As compared to the second quarter of the prior year, the Company
benefited from the refinancing of its 13 1/4% Discount Debentures with lower
cost bank borrowings and proceeds from the initial public offering. This benefit
was partially offset by increased borrowings used to finance the acquisitions of
Finger Lakes, Roll-on Closure and Rexam Plastics, by interest on the Exchange
Debentures and by the impact of slightly higher average bank borrowing rates.
Income Taxes. The provision for income taxes in the second quarter of 1997
reflected an effective tax rate of 32% which was based on an estimate of the
Company's annual effective tax rate taking into consideration various factors,
such as operating results and the benefits of net operating loss carryforwards.
Management believes that the effective tax rate for the remainder of the year
will approximate 32%.
The Company's effective tax rate for the three months ended June 30, 1996 of 14%
was based on federal, state and foreign taxes currently payable and reflected
the benefit of cash tax savings realized from the deduction of accreted interest
on the retired 13 1/4% Discount Debentures.
Net Income. Before consideration of the extraordinary charge and preferred stock
dividend requirement, net income for the three months ended June 30, 1997 was
$14.0 million, a $4.5 million increase over net income of $9.5 million for the
three months ended June 30, 1996.
During the second quarter of 1997, the Company incurred extraordinary charges of
$8.3, net of tax, million for the write-off of unamortized deferred financing
costs and premiums in connection with the early redemption of the 11 3/4% Notes
and the prepayment of bank debt with proceeds from the issuance of the
Debentures.
Page 19 of 26
RESULTS OF OPERATIONS - SIX MONTHS
Summary unaudited results of operations for the Company's two business segments,
metal and plastic containers, for the six months ended June 30, 1997 and 1996
are provided below.
Six Months Ended June 30,
-------------------------
1997 1996
---- ----
(In millions)
Net sales:
Metal containers and specialty ........... $530.3 $500.3
Plastic containers ....................... 126.7 106.7
------ ------
Consolidated ......................... $657.0 $607.0
====== ======
Operating profit:
Metal containers and specialty ......... $ 56.0 $ 49.8
Plastic containers ..................... 15.1 8.9
Non-cash stock option charge ........... (22.5) --
Corporate expense ...................... (0.7) (0.7)
------ ------
Consolidated ........................ $ 47.9 $ 58.0
====== ======
Six Months Ended June 30, 1997 Compared with Six Months ended June 30, 1996
Net Sales. Consolidated net sales increased $50.0 million, or 8.2%, to $657.0
million for the six months ended June 30, 1997, as compared to net sales of
$607.0 million for the same six months in the prior year. This increase resulted
primarily from net sales generated by the recently acquired businesses.
Net sales for the metal container business (including net sales of its specialty
business of $51.1 million) were $530.3 million for the six months ended June 30,
1997, an increase of $30.0 million, or 6.0%, from net sales of $500.3 million
for the same period in 1996.
Sales of metal cans of $479.2 million for the six months ended June 30, 1997
were $21.4 million, or 4.7%, greater than net sales of metal cans of $457.8
million for the same period in 1996. The increase was principally related to
sales generated by Finger Lakes. Sales to the existing customer base during the
six month period in 1997 were slightly higher than in the same period in 1996.
Sales of specialty items included in the metal container segment increased $8.8
million to $51.1 million during the six months ended June 30, 1997, from $42.3
million in the same period in 1996. The increase related to sales realized from
Roll-on Closure, offset in part by lower unit volume to existing customers.
Page 20 of 26
Net sales for the plastic container business of $126.7 million during the six
months ended June 30, 1997 increased $20.0 million, or 18.7%, from net sales of
$106.7 million for the same period in 1996. This increase in net sales resulted
from significantly higher unit sales to existing customers and from the
acquisition of Rexam Plastics.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 84.8% ($557.3 million) for the six months ended June 30, 1997, a decrease of
0.9 percentage points as compared to 85.7% ($520.3 million) for the same period
in 1996. The decrease in cost of goods sold as a percentage of net sales was
primarily attributable to improved operating efficiencies achieved as a result
of plant rationalizations, capital investment and higher production volumes.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales decreased 0.2
percentage points to 4.5% ($29.2 million) for the six months ended June 30,
1997, versus 4.7% ($28.6 million) for the six months ended June 30, 1996. The
decrease in selling, general and administrative expenses as a percentage of net
sales related to the increase in net sales revenue in 1997 from the recent
acquisitions without a commensurate increase in selling, general and
administrative costs, and to a lesser extent to the elimination of redundant
costs incurred as a result of the integration of the Food, Metal and Specialty
Business ("AN Can") acquired by the Company from American National Can Company
in August 1995.
Income from Operations. Before consideration of the non-cash stock option
charge, income from operations as a percentage of consolidated net sales for the
six months ended June 30, 1997 would have increased 1.1 percentage points to
10.7% ($70.5 million), as compared to 9.6% ($58.0 million) for the same period
in the prior year. Including the non-cash stock option charge of $22.5 million
incurred in 1997, income from operations as a percentage of consolidated net
sales was 7.3% ($47.9 million) for the six months ended June 30, 1997.
In conjunction with the Offering, stock options issued under the stock option
plans of Holdings' subsidiaries were converted to Holdings stock options. In
accordance with generally accepted accounting principles, the Company recorded a
charge of $22.5 million at the time of the Offering for the excess of the fair
market value of the stock options issued under the subsidiary stock option plans
over the grant price of the options. The Company will not recognize any future
charges for these stock options.
Income from operations as a percentage of net sales for the metal container
business improved to 10.6% ($56.0 million) for the six months ended June 30,
1997, from 10.0% ($49.8 million) for the same period in the prior year. As
compared to the prior year the increase in income from operations as a
percentage of net sales principally resulted from improved operating
efficiencies realized from plant rationalizations and capital investment, and
from a normalized production schedule in 1997 as compared to the negative impact
of the planned inventory reduction in the first half of 1996.
Page 21 of 26
Income from operations as a percentage of net sales for the plastic container
business improved to 11.9% ($15.1 million) for the six months ended June 30,
1997, as compared to 8.3% ($8.9 million) for the same period in 1996. The
improved operating performance of the plastic container business was
attributable to continued manufacturing efficiencies and lower per unit
manufacturing costs realized as a result of higher unit sales to its existing
customer base.
Interest Expense. Interest expense for the six months ended June 30, 1997
declined $4.8 million, from $45.9 million for the same period in 1996 to $41.1
million, principally as a result of the refinancing of the 13 1/4% Discount
Debentures with lower cost bank borrowings and proceeds from the initial public
offering, offset in part by increased borrowings used to finance the purchases
of Finger Lakes, Roll-on Closure and Rexam Plastics and by slightly higher
average bank borrowing rates.
Income Taxes. The provision for income taxes for the first six months of 1997
was based upon an estimate of the Company's annual effective tax rate and
includes the benefit of the recognition of a portion of the net operating loss
carryforward.
In accordance with SFAS No. 109, the Company determined that the future tax
benefits arising from its net operating loss carryforward would be realized due
to the Company's continued improvement in earnings and increased probability of
future taxable income. Accordingly, the Company reduced its valuation allowance
and recognized an income tax benefit of $23.2 million during 1997.
The Company's effective tax rate for the six months ended June 30, 1996 was
based on federal, state and foreign taxes currently payable and reflected the
benefit of cash tax savings realized from the deduction of accreted interest on
the retired 13 1/4% Discount Debentures.
Net Income. Before consideration of the extraordinary charge and preferred stock
dividend requirement, net income for the six months ended June 30, 1997 was
$25.1 million, an increase of $15.4 million over net income of $9.7 million for
the six months ended June 30, 1996.
During 1997, the Company incurred extraordinary charges of $9.0 million, net of
tax, for the write-off of unamortized deferred financing costs and premiums
incurred associated with the early redemption of the 13 1/4% Discount
Debentures, 11 3/4% Notes and the prepayment of a portion of the bank term debt.
Page 22 of 26
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 Revolving Loan borrowings.
Since August 1995, the Company has pursued a strategy to further improve its
cash flow and operating and financial flexibility by refinancing its higher cost
indebtedness with lower cost indebtedness and equity. As part of that strategy,
in February 1997 the Company used net proceeds of $67.2 million from the
Offering to redeem all of the remaining outstanding 13 1/4% Discount Debentures
($59.0 million aggregate principal amount) and prepay a portion of its bank term
loans. Additionally, with net proceeds of $291.5 million received from the
issuance in June 1997 of $300.0 million of 9% Senior Subordinated Debentures due
2009, the Company repaid $148.6 million of bank term loans in June 1997 and used
all of the remaining net proceeds to redeem all of the outstanding 11 3/4% Notes
in July 1997.
In July 1997, the Company completed the refinancing of the remaining amounts
outstanding under its previous credit facility by entering into a new $1.0
billion senior secured credit facility. The Credit Agreement lowers interest
rates, increases the amount of borrowings available to the Company, extends
maturities and provides more flexibility to make acquisitions, pay dividends,
repurchase stock, and refinance existing indebtedness.
Borrowings under the Credit Agreement will initially bear interest at 150 basis
points less than the rates under the previous credit facility. The interest rate
for A Term Loans and Revolving Loans will initially be prime or LIBOR plus 1%
and for the B Term Loans 50 basis points higher. The interest rates will be
reset quarterly for the period beginning January 1, 1998 depending upon
financial ratios. Based upon current bank borrowing amounts, the Company expects
an annual reduction in interest expense related to bank borrowings of
approximately $8.0 million.
For the second half of 1997, based on currently anticipated borrowing amounts,
the Company believes that its interest expense will be approximately $4.0
million less than interest expense in the same period of 1996. As compared to
the last six months of 1996, the Company will realize a decrease in interest
expense due to the refinancing of $59.0 million of 13 1/4% Discount Debentures
with proceeds from the initial public offering, the refinancing in full of the
11 3/4% Notes with proceeds from the Debentures, and the refinancing of the
previous credit facility with the Credit Agreement. This decrease will be
partially offset by an increase in interest expense due to additional bank
borrowings incurred to finance the acquisitions of Finger Lakes, Rexam Plastics
and Roll-on Closure and by interest incurred on the Exchange Debentures which
were issued in June 1997 in exchange for the Preferred Stock.
Page 23 of 26
For the first six months of 1997, net proceeds of $291.5 million from the
issuance of the Debentures, borrowings of $75.0 million of term loans under the
previous credit agreement and net proceeds from the Offering of $67.2 million
were used to fund cash used by operations of $112.1 million for the Company's
seasonal working capital needs, capital expenditures of $21.5 million (net of
asset sales), the acquisitions of Roll-on Closure and Rexam Plastics for $42.3
million, the redemption of $59.0 million principal amount of 13 1/4% Discount
Debentures, the repayment of $160.6 million of bank term loans and of $27.8
million of Revolving Loans under the Company's previous credit agreement, and an
increase in cash balances of $10.4 million.
Because the Company sells metal containers used in fruit and vegetable pack
processing, its sales are seasonal. 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. Due to the
Company's seasonal requirements, the Company incurs short term indebtedness to
finance its working capital requirements. Approximately $180.0 million of
Revolving Loans under the Company's bank facility, including letters of credit,
were utilized at its peak in early August 1997.
The Credit Agreement increases the Company's current borrowing capacity for
Revolving Loans by approximately $325.0 million. The Company intends to use
these available funds to pursue its growth strategy through strategic
acquisitions in the metal food can, plastic bottle and closure businesses, and
by acquiring businesses in complementary areas of the North American consumer
goods packaging market. In addition, the Company may use this additional
borrowing capacity for other purposes, including operating needs. Revolving Loan
borrowings utilizing this additional borrowing capacity will be due and payable
on December 31, 2003.
In addition to its operating cash needs, the Company believes its cash
requirements over the next several years will consist primarily of (i) annual
capital expenditures of $55.0 to $65.0 million, (ii) scheduled principal
amortization payments of bank term loans under the Credit Agreement of $1.0
million, $27.0 million, $32.0 million, $37.0 million and $42.0 million over the
next five years, respectively, (iii) expenditures of approximately $30.0 million
over the next three years associated with plant rationalizations, employee
severance and administrative workforce reductions, other plant exit costs and
employee relocation costs relating to AN Can, (iv) the Company's interest
requirements, including interest on Revolving Loans under the Credit Agreement,
the principal amount of which will vary depending upon seasonal requirements,
bank term loans under the Credit Agreement, most of which bear fluctuating rates
of interest, the Exchange Debentures (for which the Company intends to make
future interest payments in cash) and the Debentures, and (v) payments of
approximately $5.0 million (based on the Company's current estimate of its 1997
net income) for federal and state tax liabilities in 1997. Beginning in 1998,
the Company expects to incur federal tax liability at the alternative minimum
tax rates then in effect.
Page 24 of 26
Management believes that cash generated by operations and funds received from
Revolving Loan 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 with all such covenants
during 1997.
Page 25 of 26
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 May 21, 1997, Silgan Holdings Inc. filed a Current Report on Form 8-K
regarding the exchange of its 13 1/4% Exchangeable Preferred Stock for its
13 1/4% Subordinated Debentures, the merger of Silgan Corporation into Silgan
Holdings Inc.; and the refinancing of Silgan Corporation's 11 3/4% Notes and a
portion of its bank term loans.
On June 9, 1997, Silgan Holdings Inc. filed a Current Report on Form 8-K
regarding the completion of its offering of 9% Senior Subordinated Debentures
due 2009 and its plan to refinance its exisiting credit agreement.
Page 26 of 26
Signatures
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: August 7, 1997 /s/Harley Rankin, Jr.
- ---------------------- ---------------------
Harley Rankin, Jr.
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
Dated: August 7, 1997 /s/Harold J. Rodriguez, Jr.
- ---------------------- ---------------------------
Harold J. Rodriguez, Jr.
Vice President and Controller
(Chief Accounting Officer)