Page 1 of 18
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 March 31, 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 May 1, 1997, the number of shares outstanding of the registrant's common
stock, $0.01 par value, was 18,862,834.
Page 2 of 18
Part I. Financial Information
Item 1. Financial Statements
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, March 31, Dec. 31,
1997 1996 1996
--------- --------- ---------
ASSETS (unaudited) (unaudited) (audited)
Current assets:
Cash and cash equivalents ................. $ 5,860 $ 5,991 $ 1,017
Accounts receivable, net .................. 104,730 98,177 101,436
Inventories ............................... 248,679 254,092 195,981
Prepaid expenses and other current assets . 11,046 10,957 7,403
--------- --------- ---------
Total current assets .................... 370,315 369,217 305,837
Property, plant and equipment, net .......... 496,197 491,177 499,781
Other non-current assets .................... 122,898 82,360 107,928
--------- --------- ---------
$ 989,410 $ 942,754 $ 913,546
========= ========= =========
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable .................... $ 106,212 $ 113,674 $ 122,623
Accrued payroll and related costs ......... 43,013 40,613 41,799
Accrued interest payable .................. 12,105 8,340 9,522
Accrued expenses and other current
liabilities ............................ 35,874 38,903 35,456
Bank working capital loans ................ 88,400 60,150 27,800
Current portion of long-term debt ......... 29,547 27,192 38,427
--------- --------- ---------
Total current liabilities ............... 315,151 288,872 275,627
Long-term debt .............................. 634,843 757,501 693,783
Deferred income taxes ....................... -- 6,836 6,836
Other long-term liabilities ................. 73,818 69,206 74,508
Cumulative exchangeable redeemable
preferred stock .......................... 54,748 -- 52,998
Deficiency in stockholders' equity:
Common stock ............................. 189 195 152
Additional paid-in capital ............... 110,935 33,423 18,466
Accumulated deficit ...................... (200,274) (213,279) (208,824)
--------- --------- ---------
Total deficiency in stockholders' equity (89,150) (179,661) (190,206)
--------- --------- ---------
$ 989,410 $ 942,754 $ 913,546
========= ========= =========
See accompanying notes.
Page 3 of 18
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended
------------------
March 31, March 31,
1997 1996
---- ----
Net sales ............................................ $ 299,427 $279,860
Cost of goods sold ................................... 256,708 242,207
--------- --------
Gross profit .................................... 42,719 37,653
Selling, general and administrative expenses ......... 14,035 13,737
Non-cash stock option charge ......................... 22,522 200
--------- --------
Income from operations .......................... 6,162 23,716
Interest expense and other related financing costs ... 19,965 22,573
--------- --------
Income (loss) before income taxes ............... (13,803) 1,143
Income tax provision (benefit) ....................... (24,850) 1,000
--------- --------
Income before extraordinary charge .............. 11,047 143
Extraordinary charge relating to early
extinguishment of debt, net of taxes .............. (742) --
--------- --------
Net income before preferred stock
dividend requirement ......................... 10,305 143
Preferred stock dividend requirement ................. (1,755) --
--------- --------
Net income available to common stockholders ..... $ 8,550 $ 143
========= ========
Income per share:
Income before extraordinary charge .............. $0.59 $0.01
Extraordinary charge ............................ (0.04) -
Preferred stock dividend requirement ............ (0.09) -
----- -----
Net income per common share ................. $0.46 $0.01
===== =====
Weighted average number of common and
common equivalent shares outstanding ............... 18,674,108 21,068,071
See accompanying notes.
Page 4 of 18
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
------------------
March 31, March 31,
1997 1996
---- ----
Cash flows from operating activities:
Net income ......................................... $ 10,305 143
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation ................................... 13,714 14,589
Amortization ................................... 1,725 1,958
Accretion of discount on discount debentures ... -- 6,628
Extraordinary charge relating to early
extinguishment of debt, net of taxes ........ 742 --
Non-cash stock option charge ................... 22,522 200
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (3,227) 11,713
(Increase) in inventories ................. (52,987) (43,621)
(Increase) decrease in other non-current
assets.................................. (17,148) 159
(Decrease) in trade accounts payable ...... (16,411) (24,521)
Other, net ................................ (4,137) 1,602
--------- ---------
Total adjustments ..................... (55,207) (31,293)
--------- ---------
Net cash used by operating activities .......... (44,902) (31,150)
--------- ---------
Cash flows from investing activities:
Capital expenditures ............................... (10,284) (18,558)
Proceeds from sale of assets ....................... 29 1,495
--------- ---------
Net cash used in investing activities .......... (10,255) (17,063)
--------- ---------
Cash flows from financing activities:
Borrowings under working capital loans ............. 279,750 210,350
Repayments under working capital loans ............. (219,150) (157,300)
Net proceeds from issuance of common stock ......... 67,220 --
Repayment of long-term debt ........................ (67,820) (948)
--------- ---------
Net cash provided by financing activities ...... 60,000 52,102
--------- ---------
Net increase in cash and cash equivalents ............ 4,843 3,889
Cash and cash equivalents at beginning of year ....... 1,017 2,102
--------- ---------
Cash and cash equivalents at end of period ........... $ 5,860 $ 5,991
========= =========
Supplementary data:
Cash interest payments .......................... $ 16,253 $ 10,864
Cash income tax (refunds) payments .............. (56) 214
Preferred stock issued in lieu of cash dividend . 1,702 --
See accompanying notes.
Page 5 of 18
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 ............... -- -- -- 8,550 8,550
---------- ---- -------- --------- ---------
Balance at
March 31, 1997 ......... 18,862,834 $189 $110,935 $(200,274) $ (89,150)
========== ==== ======== ========= =========
See accompanying notes.
Page 6 of 18
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 1997 and 1996 and for the
three 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 March 31, 1997 and 1996 and December 31, 1996, and Holdings'
results of operations and statements of cash flows for the three months ended
March 31, 1997 and 1996.
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, 1996.
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. 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.
Page 7 of 18
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 1997 and 1996 and for the
three months then ended is unaudited)
2. Initial Public Offering (continued)
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 ("Discount Debentures").
In connection with the early redemption of the Discount Debentures, the Company
incurred an extraordinary charge of $0.7 million, net of tax, 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 Bulletin ("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. 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 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.
Page 8 of 18
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 1997 and 1996 and for the
three months then ended is unaudited)
3. Earnings per Share (continued)
For the quarter ended March 31, 1997, the Company's basic earnings per share
would have been $0.04 greater than its primary earnings per share. The Company's
basic and primary earnings per share would have been the same for the three
month period ended March 31, 1996. 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 March 31, 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. Inventories
Inventories consisted of the following (in thousands):
March 31, March 31, Dec. 31,
1997 1996 1996
---- ---- ----
Raw materials and supplies .. $ 44,694 $ 38,148 $ 40,280
Work-in-process ............. 31,468 28,261 27,861
Finished goods .............. 161,577 178,863 116,498
Spare parts and other ....... 7,977 7,823 7,771
-------- -------- --------
245,716 253,095 192,410
Adjustment to value inventory
at cost on the LIFO Method 2,963 997 3,571
-------- -------- --------
$248,679 $254,092 $195,981
======== ======== ========
5. Preferred Stock Dividend
As of March 31, 1997, the Company had 53,258 shares of its 13 1/4% Cumulative
Exchangeable Redeemable Preferred Stock ("Preferred Stock"), with a liquidation
preference of $1,000 per share, outstanding. Included in Preferred Stock at
March 31, 1997 were accrued dividends of $1.5 million. On April 15, 1997, the
Company made its quarterly dividend payment of $1.8 million in additional shares
of Preferred Stock.
Page 9 of 18
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 1997 and 1996 and for the
three months then ended is unaudited)
6. 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.
In addition, for the quarter ended March 31, 1997, the Company incurred a loss
as a result of the non-cash stock option charge and has recognized an income tax
benefit of $1.6 million. 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.
7. Subsequent Events
Effective April 1, 1997, the Company acquired the aluminum roll-on closure
business ("Alcoa Closure") from Alcoa Closure Systems International, Inc.
("Alcoa") and the North American plastic container business ("Rexam Plastics")
from Rexam plc and Rexam Plastics Inc. ("Rexam"). In 1996, Alcoa Closure and
Rexam Plastics had combined net sales of approximately $80.0 million. The
aggregate purchase price, net of cash acquired, of approximately $42.3 million
will be allocated to inventory, machinery and equipment, and net working capital
acquired based on fair market value as of the date of each acquisition,
respectively. The acquisitions of Alcoa Closure and Rexam Plastics will be
accounted for using the purchase method of accounting, and accordingly the
results of operations will be included in the consolidated financial statements
of the Company from April 1, 1997.
The Company used borrowings of $50.0 million of additional B term loans and
$25.0 million of additional A term loans under the Company's credit agreement to
finance the acquisitions of Alcoa Closure and Rexam Plastics and to repay
working capital loans in April 1997.
Page 10 of 18
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 March 31, 1997 and 1996
are provided below.
Three Months Ended
-------------------
March 31,
1997 1996
---- ----
(In millions)
Net sales:
Metal containers and specialty .............. $242.2 $226.4
Plastic containers .......................... 57.2 53.5
------ ------
Consolidated ............................ $299.4 $279.9
====== ======
Operating profit:
Metal containers and specialty ............. $ 22.3 $ 20.0
Plastic containers ......................... 6.8 4.2
Non-cash stock option charge ............... (22.5) (0.2)
Corporate expense .......................... (0.4) (0.3)
------ ------
Consolidated ........................... $ 6.2 $ 23.7
====== ======
Three Months Ended March 31, 1997 Compared with
Three Months ended March 31, 1996
Net Sales. Consolidated net sales increased $19.5 million, or 7.0%, to $299.4
million for the three months ended March 31, 1997, as compared to net sales of
$279.9 million for the same three months in the prior year. This increase
resulted primarily from an increase in unit sales by both the metal container
business and the plastic container business.
Page 11 of 18
Net sales for the metal container business (including net sales of its specialty
business of $19.0 million) were $242.2 million for the three months ended March
31, 1997, an increase of $15.8 million (7.0%) from net sales of $226.4 million
for the same period in 1996. Net sales of metal cans of $223.2 million for the
three months ended March 31, 1997 were $19.4 million (9.5%) greater than net
sales of metal cans of $203.8 million for the same period in 1996. This increase
resulted from greater unit sales, of which $7.6 million related to net sales
from Finger Lakes Packaging Company, Inc. ("Finger Lakes"), acquired by the
Company in October 1996.
Sales of specialty items included in the metal container segment declined $3.6
million to $19.0 million during the three months ended March 31, 1997, as
compared to $22.6 million in the same period in 1996, due to lower unit sales
volume.
Net sales for the plastic container business of $57.2 million during the three
months ended March 31, 1997 increased $3.7 million (6.9%) from net sales of
$53.5 million for the same period in 1996. This increase in net sales resulted
from higher unit sales, offset, in part, by the pass through of lower average
resin costs.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 85.7% ($256.7 million) for the three months ended March 31, 1997, a decrease
of 0.8 percentage points as compared to 86.5% ($242.2 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 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 4.7% ($14.0 million) for the three months ended March 31,
1997, as compared to 4.9% ($13.7 million) for the three months ended March 31,
1996. The decrease in selling, general and administrative expenses as a
percentage of net sales principally related to the increase in net sales revenue
in 1997, and to a lesser extent to the expected 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. Income from operations as a percentage of consolidated
net sales was 2.1% ($6.2 million) for the three months ended March 31, 1997, as
compared with 8.5% ($23.7 million) for the same period in the prior year.
Included in income from operations for the three months ended March 31, 1997 was
a non-cash stock option charge of $22.5 million. Excluding this charge, income
from operations as a percentage of consolidated net sales for the three months
ended March 31, 1997 would have increased 1.1 percentage points to 9.6% ($28.7
million), primarily as a result of the aforementioned gross margin improvement.
Page 12 of 18
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 9.2% ($22.3 million) for the three months ended March 31,
1997, from 8.8% ($20.0 million) for the same period in the prior year. The
increase in income from operations as a percentage of net sales resulted from
lower selling, general and administrative expenses, improved operating
efficiencies realized from plant rationalizations and capital investment, and
the incurrence of lower depreciation expense related to the former AN Can
operations which reflected the completion of the AN Can purchase accounting in
the second quarter of 1996, offset to a limited extent by price adjustments on
certain long term contracts.
Income from operations as a percentage of net sales for the plastic container
business improved to 11.9% ($6.8 million) for the three months ended March 31,
1997, as compared to 7.9% ($4.2 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 both new and
existing customers.
Interest Expense. Interest expense declined $2.6 million to $20.0 million for
the three months ended March 31, 1997 principally as a result of the refinancing
of the Discount Debentures in the third quarter of 1996 with lower cost bank
borrowings, offset, in part, by increased borrowings used to finance the
purchase of Finger Lakes and by higher average bank borrowing rates.
Income Taxes. During the first quarter of 1997 the Company determined that a
portion of 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. In accordance with
SFAS No. 109, the Company reduced its valuation allowance and recognized an
income tax benefit of $23.2 million.
The Company will provide for income taxes during interim reporting periods in
1997 based upon an estimate of its annual effective tax rate taking into
consideration various factors, such as operating results, benefits of net
operating loss carryforwards and levels of taxable income. Due to the pre-tax
loss realized by the Company during the first quarter of 1997 and as a result of
uncertainties inherent in the factors mentioned above, the Company has provided
an income tax benefit for the first quarter at a relatively low effective tax
rate. For future interim periods in 1997 management believes that the effective
tax rate may increase over the first quarter rate, but that the effective tax
rate will be less than the statutory rate due to benefits arising from the
recognition of the net operating loss carryforward.
Page 13 of 18
The provision for income taxes for the three months ended March 31, 1996 of $1.0
million provided for federal, state and foreign taxes currently payable and
included the benefit of 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 $11.0
million (before the extraordinary charge of $0.7 million and the preferred stock
dividend requirement of $1.8 million) increased $10.9 million for the three
months ended March 31, 1997, as compared to net income of $0.1 million for the
three months ended March 31, 1996.
During the first quarter of 1997 the Company incurred an extraordinary charge of
$0.7 million, net of taxes, for the write-off of unamortized debt cost
associated with the redemption of the remaining outstanding Discount Debentures.
CAPITAL RESOURCES AND LIQUIDITY
The Company's liquidity requirements arise primarily from its obligations under
the indebtedness incurred in connection with its acquisitions and the
refinancing of such indebtedness, capital investment in new and existing
equipment and the funding of the Company's seasonal working capital needs.
Historically, the Company has met these liquidity requirements through cash flow
generated from operating activities and working capital borrowings.
On February 20, 1997, the Company completed the Offering. With net proceeds to
the Company of $67.2 million from the Offering, the Company redeemed all of the
remaining outstanding Discount Debentures (approximately $59.0 million aggregate
principal amount) and prepaid a portion of its bank term loans.
With the redemption of a substantial portion of the Discount Debentures in the
third quarter of 1996 from borrowings under the Company's credit agreement and
proceeds from the Preferred Stock offering in July 1996, and the redemption of
the remaining $59.0 million of Discount Debentures in the first quarter of 1997
with proceeds from the Offering, the Company has lowered its average cost of
indebtedness and will continue to realize current tax savings.
For the first three months of 1997, net borrowings of working capital loans
under the Company's credit agreement of $60.6 million and net proceeds from the
Offering of $67.2 million were used to fund cash used by operations of $44.9
million for the Company's seasonal working capital needs, capital expenditures
of $10.3 million, the redemption of $59.0 million of Discount Debentures, the
repayment of $8.8 million of bank term loans under the Company's credit
agreement, and an increase in cash balances of $4.8 million.
Page 14 of 18
For the three months ended March 31, 1997, net cash used by operating activities
increased from the same period in the prior year primarily as a result of an
increase in trade receivables reflecting greater sales volume in the first
quarter of 1997 as compared to 1996 and an increase in the Company's raw
material inventory.
In April 1997, the Company acquired the aluminum roll-on closure business of
Alcoa and the North American plastic container business of Rexam for an
aggregate purchase price of approximately $42.3 million. The Company used
additional borrowings of $25.0 million of A Term Loans and $50.0 million of B
Term Loans under the Company's Credit Agreement to finance the acquisitions and
repay $32.7 million of working capital loans.
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 expects to incur short term
indebtedness to finance its working capital requirements and after taking into
account the repayment of working capital loans from the excess bank term loan
proceeds borrowed in April 1997, it is estimated that approximately $150.0
million of the working capital revolver under the Company's Credit Agreement,
including letters of credit, will be utilized at its peak in July 1997.
As of March 31, 1997, the outstanding principal amount of working capital loans
was $88.4 million 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 $129.4 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 also continually evaluating and pursuing acquisition
opportunities in the North American consumer goods packaging market. The Company
may need to incur additional indebtedness to finance any such acquisition and to
fund any resulting increased operating needs. Any such financing will have to be
effected in compliance with the Company's outstanding indebtedness. There can be
no assurance that the Company will be able to effect any such acquisition or any
such financing.
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 15 of 18
During the second quarter of 1997, the Company intends to issue its Subordinated
Debentures due 2006 (the "Exchange Debentures") in exchange for its Preferred
Stock. The Exchange Debentures will bear interest at 13 1/4%. Interest on the
Exchange Debentures will be payable semi-annually and, on or prior to July 15,
2000, the Company may pay interest by issuing additional Exchange Debentures.
Effective June 15, 1997 the 11 3/4% Senior Subordinated Notes due 2002 are
redeemable at the option of the Company, in whole or in part, at 105.875% of
their principal amount. The Company is evaluating the economic benefit of
refinancing these notes and may consider refinancing them with other debt
financings. Any such refinancings would be dependent upon market conditions at
the time and would have to be effected in compliance with the Company's and its
subsidiaries' agreements in respect of their indebtedness. There can be no
assurance that the Company will be able to effect any such refinancing.
Page 16 of 18
Part II. Other Information
Item 2. Changes in Securities
On February 14, 1997, Holdings sold one share of Common Stock directly to S&H
Inc., a corporation wholly-owned by Messrs. R. Philip Silver and D. Greg
Horrigan, the Co-Chief Executive Officers of the Company, for a purchase price
of $20.00. This sale was exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Act"), pursuant to Section 4(2) of the
Act as a transaction not involving a public offering.
Item 4. Submission of Matters to a Vote of Security Holders
On January 27, 1997, the stockholders of the Company that were entitled to vote
unanimously approved, by written consent, amendments to and the restatement of
the Company's Restated Certificate of Incorporation (as so amended and restated,
the "Restated Charter"), which Restated Charter was filed with the Delaware
Secretary of State on February 14, 1997. By such written consent, the Company's
stockholders that were entitled to vote also unanimously approved the Silgan
Holdings Inc. Fourth Amended and Restated 1989 Stock Option Plan.
On February 13, 1997, the stockholders of the Company that were entitled to
vote, by written consent in lieu of the 1997 annual meeting of the stockholders
of the Company, unanimously elected the Board of Directors of the Company.
Pursuant to such written consent, Messrs. R. Philip Silver and Leigh J. Abramson
were elected as Class I Directors (as defined in the Restated Charter) of the
Company, and Messrs. D. Greg Horrigan and Robert H. Niehaus were elected as
Class II Directors (as defined in the Restated Charter) of the Company.
Additionally, pursuant to such written consent, all of the stockholders that
were entitled to vote unanimously authorized the Board of Directors of the
Company to fill the vacant positions for the two Class III Directors (as defined
in the Restated Charter) in the manner set forth in the Restated Charter.
Reference is hereby made to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996, for additional information regarding the matters
discussed in this Item 4.
Page 17 of 18
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
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27 Financial Data Schedule.
(b) Reports on Form 8-K
On January 27, 1997, Silgan Holdings Inc. filed a Current Report on Form 8-K
regarding its net sales, estimated income from operations and estimated net
income for the year ended December 31, 1996.
On February 4, 1997, Silgan Holdings Inc. filed a Current Report on Form 8-K
which included its audited consolidated financial statements at December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996.
On February 20, 1997, Silgan Holdings Inc. filed a Current Report on Form 8-K
with respect to the completion of the initial public offering of shares of its
Common Stock.
Page 18 of 18
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: May 9, 1997 /s/Harley Rankin, Jr.
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Harley Rankin, Jr.
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
Dated: May 9, 1997 /s/Harold J. Rodriguez, Jr.
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Harold J. Rodriguez, Jr.
Vice President and Controller
(Chief Accounting Officer)