Page 1 of 20
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended September 30, 1995 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities
Exchange Act of 1934 for the Period ____________ to ____________.
Commission file number 1-11200
SILGAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 06-1207662
(State of Incorporation) (I.R.S. Employer Identification Number)
4 Landmark Square
Stamford, Connecticut 06901
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (203) 975-7110
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
As of November 13, 1995, the number of shares outstanding of each of the
issuer's classes of common stock is as follows:
Classes of shares of Number of
common stock outstanding, $0.01 par value shares outstanding
Class A 1
Class B 1<PAGE>
Page 2 of 20
Part I. Financial Information
Item 1. Financial Statements
SILGAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Sept. 30, Sept. 30, Dec. 31,
1995 1994 1994
(unaudited)(unaudited)(audited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,847 $ 2,450 $ 2,665
Accounts receivable, net 268,469 108,612 65,229
Inventories 196,584 100,993 122,429
Prepaid expenses and other current
assets 21,111 4,170 8,044
Total current assets 490,011 216,225 198,367
Property, plant and equipment, net 496,392 279,523 251,810
Advance to Parent 57,596 - -
Goodwill, net 43,966 23,518 30,009
Other assets 41,007 22,291 20,491
$1,128,972 $541,557 $500,677
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Trade accounts payable $ 96,159 $ 50,536 $ 36,845
Accrued payroll and related costs 35,400 25,382 26,019
Accrued interest payable 10,449 5,325 1,713
Accrued expenses and other current
liabilities 44,001 14,804 17,542
Bank working capital loans 184,000 850 12,600
Current portion of long-term debt 7,250 20,000 21,968
Total current liabilities 377,259 116,897 116,687
Long-term debt 577,750 300,000 282,568
Deferred income taxes 13,017 13,544 13,017
Other long-term liabilities 78,659 34,542 25,060
Common stockholder's equity:
Additional paid-in capital 74,635 74,835 69,535
Retained earnings (deficit) 7,652 1,739 (6,190)
Total common stockholder's equity 82,287 76,574 63,345
$1,128,972 $541,557 $500,677
See accompanying notes.<PAGE>
Page 3 of 20
SILGAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Three Months Ended
Sept. 30, Sept. 30,
1995 1994
Net sales $406,515 $286,037
Cost of goods sold 364,832 249,596
Gross profit 41,683 36,441
Selling, general and administrative expenses 13,144 9,094
Income from operations 28,539 27,347
Interest expense and other related financing costs 15,977 9,547
Income before income taxes 12,562 17,800
Income tax provision 5,100 7,175
Income before extraordinary charge 7,462 10,625
Extraordinary charge relating to early
extinguishment of debt, net of taxes 2,967 -
Net income $ 4,495 $ 10,625
See accompanying notes.<PAGE>
Page 4 of 20
SILGAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Nine Months Ended
Sept. 30, Sept. 30,
1995 1994
Net sales $811,505 $673,240
Cost of goods sold 710,975 585,729
Gross profit 100,530 87,511
Selling, general and administrative expenses 30,459 27,145
Income from operations 70,071 60,366
Interest expense and other related financing costs 35,068 26,844
Income before income taxes 35,003 33,522
Income tax provision 14,400 13,625
Income before extraordinary charge 20,603 19,897
Extraordinary charge relating to early
extinguishment of debt, net of taxes 2,967 -
Net income $ 17,636 $ 19,897
See accompanying notes.<PAGE>
Page 5 of 20
SILGAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
Sept.30, Sept.30,
1995 1994
Cash flows from operating activities:
Net income $ 17,636 $ 19,897
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 27,233 27,469
Amortization 4,848 4,540
Other items 1,122 629
Contribution by Parent for federal income tax
provision 6,700 10,700
Extraordinary charge relating to early
extinguishment of debt, net of taxes 2,967 -
Changes in assets and liabilities:
(Increase) in accounts receivable (114,262) (64,766)
Decrease in inventories 63,748 7,660
Increase (decrease) in trade accounts payable (4,863) 18,623
Other, net 15,433 7,684
Total adjustments 2,926 12,539
Net cash provided by operating activities 20,562 32,436
Cash flows from investing activities:
Acquisition of ANC's Food Metal & Specialty business (347,052) -
Capital expenditures (30,414) (17,015)
Proceeds from sale of assets 3,398 -
Net cash used in investing activities (374,068) (17,015)
Cash flows from financing activities:
Borrowings under working capital loans 490,410 281,100
Repayments under working capital loans (including
$14,662 due from ANC at 9/30/95) (333,672) (282,450)
Proceeds from issuance of long-term debt 450,000 -
Repayment of long-term debt (169,660) (5,000)
Advance to Parent (57,596) -
Payments to former shareholders (3,794) (6,826)
Debt issuance costs (21,000) -
Net cash provided (used) by financing activities 354,688 (13,176)
Net increase in cash and cash equivalents 1,182 2,245
Cash and cash equivalents at beginning of year 2,665 205
Cash and cash equivalents at end of period $ 3,847 $ 2,450
Supplementary data:
Interest paid $ 23,017 $ 18,938
Income taxes paid 8,592 2,283
See accompanying notes.<PAGE>
Page 6 of 20
SILGAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1995 and 1994 and for the
three months and nine months then ended is unaudited)
1. Basis of Presentation
The accompanying condensed unaudited consolidated financial statements of
Silgan Corporation ("Silgan" 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 Silgan's financial
position as of September 30, 1995 and 1994 and December 31, 1994, the
results of operations for the three months and nine months ended September
30, 1995 and 1994, and the statements of cash flows for the nine months
ended September 30, 1995 and 1994.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these financial
statements be read in conjunction with the financial statements and notes
included in Silgan's Annual Report on Form 10-K for the year ended
December 31, 1994.
Effective October 1, 1994, the Company extended the estimated useful lives
of certain fixed assets to more properly reflect the true economic lives
of such assets and to better align the Company's depreciable lives with
the predominate practice in its industry. The change had the effect of
decreasing depreciation expense for the nine months ended September 30,
1995 by $4.5 million and increasing net income by $2.6 million.
2. Inventories
Inventories consisted of the following (in thousands):
Sept. 30, Sept. 30, Dec. 31,
1995 1994 1994
Raw materials and supplies $ 46,020 $ 27,973 $ 40,196
Work-in-process 22,588 15,907 19,045
Finished goods 132,804 56,133 63,409
201,412 100,013 122,650
Adjustment to value inventory
at cost on the LIFO Method (4,828) 980 (221)
$196,584 $100,993 $122,429<PAGE>
Page 7 of 20
SILGAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1995 and 1994 and for the
three months and nine months then ended is unaudited)
3. Acquisitions
On August 1, 1995, Silgan Containers Corporation, a wholly-owned
subsidiary of the Company ("Containers"), acquired from American National
Can Company ("ANC") substantially all of the fixed assets and working
capital, and assumed certain specified limited liabilities, of ANC's Food
Metal & Specialty business (the "Business"), which manufactures, markets
and sells metal food containers and rigid plastic containers for a variety
of food products and metal caps and closures for food and beverage
products. The final purchase price for the assets acquired and the
assumption of certain specified liabilities was $362.3 million in cash,
which included $170.3 million for the net working capital of the Business.
The acquisition has been accounted for as a purchase transaction and the
results of operations have been included with the Company's results from
the acquisition date. The total purchase cost was allocated to the
tangible and identifiable intangible assets acquired and liabilities
assumed based upon their respective fair values as determined from
preliminary appraisals and valuations, and the excess ($15.0 million) was
allocated to goodwill and is being amortized over 40 years using the
straight line method.
As part of the acquisition, the Company intends to acquire the operations
of the St. Louis, MO facility of ANC's Food Metal & Specialty business
upon completion by ANC of a rationalization project at that facility. The
Company anticipates that the St. Louis operation will be acquired by mid-
1996 for an estimated purchase price of $15.2 million and related
assumption of certain post-retirement benefit obligations for active
employees. The aggregate purchase price of $362.3 million referred to
above assumes that the purchase of this facility was coincident with the
acquisition of the remainder of the Business.
In conjunction with the acquisition, the Company entered into a $675.0
million credit facility pursuant to a new credit agreement (the "Credit
Agreement"), the proceeds of which were used to finance the acquisition,
to refinance in full amounts owing under the existing credit agreement and
Silgan's $50.0 million Senior Secured Floating Rate Notes due 1997 (the
"Secured Notes"), to advance on a non-interest bearing basis to Silgan
Holdings Inc., the parent company of Silgan ("Holdings"), up to $75.0
million for the repurchase by Holdings of its 13-1/4% Senior Discount
Debentures due 2002 (the "13-1/4% Debentures"), and to pay fees and
expenses associated therewith. As a result of the early extinguishment of
amounts owed under its existing secured debt facilities, the Company
incurred a pre-tax charge of $5.1 million.<PAGE>
Page 8 of 20
SILGAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1995 and 1994 and for the
three months and nine months then ended is unaudited)
The credit facility permits Silgan at any time prior to June 30, 1996 to
borrow up to $75.0 million of working capital loans which may be advanced
to Holdings to fund Holdings' repurchase of a portion of its 13-1/4%
Debentures. During the third quarter, Silgan advanced $57.6 million to
Holdings to fund such repurchases. The Company intends to make further
advances of up to $17.4 million to fund additional repurchases by Holdings
of its 13-1/4% Debentures prior to June 30, 1996.
Set forth below is the Company's summary unaudited pro forma results of
operations for the nine months ended September 30, 1995 and 1994. The
unaudited pro forma results of operations for the nine months ended
September 30, 1995 include the historical results of the Business for the
period ended July 31, 1995 and give effect to certain pro forma
adjustments. The unaudited pro forma results of operations for the nine
months ended September 30, 1994 include the historical results of the
Business and the Company for such period and give effect to certain pro
forma adjustments.
The pro forma adjustments to the historical results of operations reflect
the effect of purchase accounting adjustments based upon preliminary
appraisals and valuations, the financing of the acquisition and the
refinancing of the Company's secured debt obligations and certain other
adjustments as if these events had occurred as of the beginning of the
periods presented. The following unaudited pro forma results of operations
do not purport to represent what the Company's results of operations would
actually have been had the transactions in fact occurred on January 1, 1995
or 1994, or to project the Company's results of operations for any future
period (in thousands):
September 30,
1995 1994
Net sales $1,113,982 $1,144,041
Income from operations 97,807 101,599
Income before income taxes 47,493 51,564
Net income 28,021 30,423<PAGE>
Page 9 of 20
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The results of operations presented below include the operating results of
ANC's Food Metal & Specialty business from August 1, 1995, its acquisition
date. For segment reporting purposes, the acquired Business, which
manufactures, markets and sells metal food containers and certain
specialty items, principally metal caps and closures for food and beverage
products, will be included in Containers' business and reported under the
metal containers & specialty segment.
The acquisition of the Business provides the Company with the opportunity
to realize cost reductions through both the integration of the
selling, general and administrative operations of its existing metal
container business with that of the Business and through production
and manufacturing synergies of combined operations. The Company
anticipates it will fully realize the benefit of integrating
selling and administrative functions and certain manufacturing
economies by early 1996. On the other hand, benefits which
may be realized by rationalization of plant operations will not occur
before 1997. Because of higher labor costs of the acquired Business and
the fact that any benefits from plant rationalizations will not occur
until after 1996, the Company expects that the gross margin for its metal
container business will decline modestly from its historical rate.
Although employee termination costs associated with plant rationalizations
and administrative workforce reductions and other plant exit costs
associated with the acquired Business have been accrued through purchase
accounting adjustments, the Company will be incurring other non-recurring
costs during 1995 and 1996 which under current accounting pronouncements
will be charged against operating income. These costs, which include
redundant and one-time charges incurred for the integration of the selling
and administrative functions as well as costs associated with plant
rearrangement and clean-up, are estimated to approximate $4.0 million.
Because the Company sells food containers to vegetable and fruit
processors, its sales are seasonal. A significant portion of sales to
fresh-pack customers are made during the third quarter and are dependent<PAGE>
Page 10 of 20
upon crop yields. In 1995 poor weather conditions affected crop yields
which resulted in a below-normal pack and, accordingly, lower sales of the
Company's vegetable and fruit containers. By contrast, in 1994 growing
conditions were ideal resulting in an above-average pack.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1995 Compared with
Three Months Ended September 30, 1994
Summary results for the Company's two business segments, metal and plastic
containers, for the three months ended September 30, 1995 and 1994 are
provided below.
September 30
1995 1994
(In millions)
Net sales:
Metal containers & specialty $353.8 $233.2
Plastic containers 52.7 52.8
Consolidated $406.5 $286.0
Operating profit:
Metal containers & specialty $ 26.7 $ 24.9
Plastic containers 2.0 2.5
Corporate (0.2) (0.1)
Consolidated $ 28.5 $ 27.3
Consolidated net sales of $406.5 million for the three months ended
September 30, 1995 increased $120.5 million (42.1%) as compared with sales
of $286.0 million for the same period in 1994. This increase resulted
from net sales of $152.5 million generated by the Business since its
acquisition, offset, in part, by a $32.0 million decline in net sales of
metal containers to Silgan's existing customer base. Net sales of plastic
containers during the quarter were flat as compared with the same period
in 1994.
Net sales for the metal container business (including its specialty
business) were $353.8 million for the three months ended September 30,
1995, an increase of $120.6 million from net sales of $233.2 million for
the same period in 1994. Excluding net sales of metal cans of $139.7
million generated by the Business since its acquisition, net sales of
metal cans to Silgan's customers were $199.2 million in the three month
period ended September 30, 1995, as compared to $231.2 million for the
same period in 1994. Net sales of metal cans to Nestle Food Company
("Nestle") increased $0.3 million to $66.0 million, principally as a<PAGE>
Page 11 of 20
RESULTS OF OPERATIONS (continued)
result of change in the mix of products sold and higher average sales
prices reflecting the pass through of higher material costs, offset by a
decline in unit volume during the quarter. Net sales to Del Monte
Corporation ("Del Monte") decreased $22.8 million to $58.7 million
principally due to significantly lower unit volume resulting from the
below normal vegetable and fruit pack. For 1995, unseasonably wet and
cool weather followed by hot and dry summer conditions in the Midwest and
wet weather in California during the spring season resulted in low crop
yields. The below normal 1995 Midwest vegetable pack as compared to an
above-average vegetable pack in 1994 and soft market conditions in certain
other product lines, net of higher average sales prices, contributed to a
decline of $9.5 million in sales of metal cans to other customers.
Sales of specialty items, principally metal closures, included in the
metal container segment increased $12.9 million to $14.9 million during
the three months ended September 30, 1995, as compared to the same period
in 1994 due to the acquisition of the Business which generated sales of
$12.8 million of specialty items during the quarter.
Net sales for the plastic container business of $52.7 million during the
three months ended September 30, 1995 were flat as compared to sales for
the same period in 1994. During the quarter, sales prices increased due
to the pass through of higher resin costs but were offset by a modest
decline in unit volume resulting from soft market conditions.
Cost of goods sold as a percentage of consolidated net sales was 89.7%
($364.8 million) for the three months ended September 30, 1995, an
increase of 2.4 percentage points, as compared to 87.3% ($249.6 million)
for the same period in 1994. The increase in cost of goods sold as a
percentage of consolidated net sales principally resulted from increased
per unit manufacturing costs realized by Silgan's base business as a
result of lower production and the liquidation of inventory built up
earlier in the year in anticipation of normal third quarter demand which
did not materialize due to the aforementioned below normal vegetable and
fruit pack, lower margins realized on certain products due to competitive
market conditions and inefficiencies caused by a work stoppage at one of
the Company's existing California facilities. Due to factors discussed
above, the gross margin percentage realized by the acquired Business for
such period was comparable to the margin realized by the Company's
existing business base.
Selling, general and administrative expenses as a percentage of
consolidated net sales remained flat at 3.2% for the three months ended
September 30, 1995 ($13.1 million) and September 30, 1994 ($9.1 million).
The Company expects its selling, general and administrative costs as a<PAGE>
Page 12 of 20
RESULTS OF OPERATIONS (continued)
percentage of sales will decline by the end of the first quarter of 1996
as it integrates the selling and administrative operations of its existing
metal container business with that of the acquired Business.
Income from operations as a percentage of consolidated net sales was 7.0%
($28.5 million) for the three months ended September 30, 1995 compared
with 9.5% ($27.3 million) for the same period in 1994. The decrease in
income from operations as a percentage of consolidated net sales was
principally attributable to the aforementioned lower margins which largely
resulted because of the inventory reduction as discussed above.
Income from operations as a percentage of net sales for the metal
container business was 7.5% ($26.7 million) during the third quarter of
1995, as compared to 10.7% ($24.9 million) for the same period in the
prior year. The decrease in income from operations as a percentage of net
sales principally resulted from higher per unit manufacturing costs
realized as a result of the inventory reduction as discussed above.
Selling, general and administrative expenses as a percentage of sales
remained flat with the historical rate because the increased costs were
spread over the larger third quarter sales base.
Income from operations as a percentage of net sales attributable to the
plastic container business for the three months ended September 30, 1995
was 3.8% ($2.0 million), as compared to 4.7% ($2.5 million) for the same
period in 1994. Income from operations declined during the quarter,
principally reflecting higher per unit manufacturing costs resulting from
a reduction in production volumes in order to reduce inventories in
response to lower customer requirements offset, in part, by continued
control of manufacturing costs.
Interest expense was $16.0 million for the three months ended September
30, 1995, an increase of $6.5 million over the same period in the prior
year. The increase was principally attributable to increased borrowings
to finance the acquisition of the Business and the advance to Holdings of
$57.6 million to fund the repurchase of its 13-1/4% Debentures.
The provisions for income taxes for the three months ended September 30,
1995 and 1994 provide for federal, state and foreign taxes as if the
Company were a separate taxpayer in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
As a result of the items discussed above, income before the extraordinary
charge for the three months ended September 30, 1995 was $7.5 million, as
compared to $10.6 million for the three months ended September 30, 1994.<PAGE>
Page 13 of 20
RESULTS OF OPERATIONS (continued)
As a result of the refinancing of the Company's secured debt facilities,
the Company incurred an extraordinary charge of $3.0 million, net of
taxes, for the write-off of unamortized debt costs related to the retired
facilities.
Nine Months Ended September 30, 1995 Compared with
Nine Months Ended September 30, 1994
Summary results for the Company's two business segments, metal and plastic
containers, for the nine months ended September 30, 1995 and 1994 are
provided below.
September 30
1995 1994
(In millions)
Net sales:
Metal containers & specialty $642.9 $522.3
Plastic containers 168.6 150.9
Consolidated $811.5 $673.2
Operating profit:
Metal containers & specialty $ 60.6 $ 54.4
Plastic containers 9.8 6.4
Corporate (0.3) (0.4)
Consolidated $ 70.1 $ 60.4
Consolidated net sales of $811.5 million for the nine months ended
September 30, 1995 increased $138.3 million (20.5%) as compared with sales
of $673.2 million for the same period in 1994. This increase resulted
from net sales of $152.5 million generated by the Business since its
acquisition and a $17.7 million increase in sales of plastic containers
offset, in part, by a decline in sales of metal containers to Silgan's
existing customer base of $31.9 million.
Net sales for the metal container business (including its specialty
business) were $642.9 million for the nine months ended September 30,
1995, an increase of $120.5 million from net sales of $522.3 million for
the same period in 1994. Excluding net sales of metal cans of $139.7
million generated by the Business since its acquisition, net sales of
metal cans to Silgan's customers were $484.3 million during the nine month
period ended September 30, 1995, as compared to $514.9 million for the
same period in 1994. Net sales to Nestle increased $6.8 million to $174.4
million principally due to an increase in unit sales of pet food
containers and slightly higher average sales prices due to the pass
through of material cost increases. Net sales to Del Monte decreased
$16.3 million to $141.7 million due to lower unit volume resulting from
the below normal 1995 vegetable and fruit pack, offset, in part, by
slightly higher sales prices due to the pass through of material<PAGE>
Page 14 of 20
RESULTS OF OPERATIONS (continued)
cost increases. Sales of metal cans to other customers declined $21.2
million as a result of lower demand for vegetable cans due to the below-
normal 1995 Midwest vegetable pack and reduced demand for cans used in
certain other product lines, offset, in part, by higher average sales
prices.
Sales of specialty items included in the metal container segment increased
$11.5 million to $19.0 million during the nine months ended September 30,
1995, as compared to the same period in 1994, due to the acquisition of
the Business which generated sales of $12.8 million of specialty items
since its acquisition.
Net sales for the plastic container business of $168.6 million during the
nine months ended September 30, 1995 increased $17.7 million over net
sales of $150.9 million for the same period in 1994. This increase was
attributable to both higher average sales prices due to the pass through
of higher resin costs and increased unit sales for new customer products
offset, in part, by generally soft market conditions.
Cost of goods sold as a percentage of consolidated net sales was 87.6%
($711.0 million) for the nine months ended September 30, 1995, an increase
of 0.6 percentage points, as compared to 87.0% ($585.7 million) for the
same period in 1994. The increase in cost of goods sold as a percentage
of consolidated net sales principally resulted from increased per unit
manufacturing costs reflecting reduced production volumes, lower margins
realized on certain products due to competitive market conditions and
lower margins on sales by the acquired Business, offset by improved
manufacturing efficiencies and lower indirect operating costs and
depreciation expense.
Selling, general and administrative expenses as a percentage of
consolidated net sales declined 0.2 percentage points to 3.8% ($30.5
million) for the nine months ended September 30, 1995, as compared to 4.0%
($27.1 million) for the nine months ended September 30, 1994. The
decrease in selling, general and administrative expense as a percentage of
net sales resulted from continued cost control of Silgan's base business.
Income from operations as a percentage of consolidated net sales was 8.6%
($70.1 million) for the nine months ended September 30, 1995 as compared
with 9.0% ($60.4 million) for the same period in 1994. The decrease in
income from operations as a percentage of consolidated net sales was
attributable to the aforementioned decline in gross margins offset, in
part, by the continued reduction of selling, general and administrative
expenses as a percentage of sales.<PAGE>
Page 15 of 20
RESULTS OF OPERATIONS (continued)
Income from operations as a percentage of net sales for the metal
container business was 9.4% ($60.6 million) for the nine months ended
September 30, 1995, as compared to 10.4% ($54.4 million) for the same
period in the prior year. The decrease in income from operations as a
percentage of sales principally resulted from higher per unit
manufacturing costs realized on lower production volume and lower margins
realized on sales by the acquired Business offset, in part, by lower
selling and administrative expenses realized on the larger sales base.
Income from operations as a percentage of net sales attributable to the
plastic container business for the nine months ended September 30, 1995
was 5.8% ($9.8 million), as compared to 4.2% ($6.4 million) for the same
period in 1994. The improved operating performance of the plastic
containers business resulted from improved manufacturing efficiencies
realized as a result of capital investment.
Interest expense increased $8.3 million to $35.1 million for the nine
months ended September 30, 1995 principally as a result of increased
borrowings to finance the acquisition of the Business and the advance to
Holdings and slightly higher average interest rates.
The provisions for income taxes for the nine months ended September 30,
1995 and 1994 provide for federal, state and foreign taxes as if the
Company were a separate taxpayer in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
As a result of the items discussed above, income before the extraordinary
charge for the nine months ended September 30, 1995 was $20.6 million, as
compared to $19.9 million for the nine months ended September 30, 1994.<PAGE>
Page 16 of 20
CAPITAL RESOURCES AND LIQUIDITY
The Company's liquidity requirements arise primarily from its obligations
under the indebtedness incurred in connection with its acquisitions and
the refinancing of such indebtedness, capital investment in new and
existing equipment and the funding of the Company's seasonal working
capital needs. Historically, the Company has met these liquidity
requirements through cash flow generated from operating activities and
working capital borrowings.
On August 1, 1995, Silgan, Containers and Silgan Plastics Corporation, a
wholly-owned subsidiary of the Company, entered into a $675.0 million
credit facility with various banks to finance the acquisition by Containers
of ANC's Food Metal & Specialty business, to refinance and repay in full
all amounts owing under their existing credit agreement and the Secured
Notes and to make non-interest bearing advances to Holdings in an amount
not to exceed $75.0 million for the repurchase of a portion of Holdings'
13-1/4% Debentures. The Credit Agreement provides the Company with $225.0
million of A Term loans, $225.0 million of B Term loans and a working
capital facility which will provide the Company with borrowing availability
of up to $225.0 million. With the proceeds received from the Credit
Agreement, the Company (i) repaid $117.1 million of term loans under its
previous credit agreement, (ii) repaid in full $50.0 million of its Secured
Notes, (iii) acquired from ANC substantially all of the fixed assets and
working capital of ANC's Food Metal & Specialty business for $347.1 million
(excluding $15.2 million for the St. Louis operations which the Company
expects to purchase by mid-1996), and (iv) incurred debt issuance costs of
$21.0 million.
The Credit Agreement provides the Company with improved financial
flexibility by (i) enabling Silgan to transfer funds to Holdings for
payment by Holdings of cash interest on the 13-1/4% Debentures, (ii)
extending the maturity of the Company's secured debt facilities by repaying
amounts outstanding under the existing credit agreement and the Secured
Notes, (iii) lowering the interest rate spread on its floating rate
borrowings by 1/2%, as well as providing for further interest rate
reductions in the event the Company attains certain financial targets, and
(iv) lowering Holdings' consolidated average cost of indebtedness by
permitting Silgan to advance up to $75.0 million to Holdings with
borrowings under the Credit Agreement, which amounts are to be used by
Holdings to repurchase a portion of the 13-1/4% Debentures. Silgan will
fund such advances to Holdings through borrowings of working capital loans
under the Credit Agreement. The commitment under the Credit Agreement for
working capital loans was initially $150.0 million, and increases at the<PAGE>
Page 17 of 20
CAPITAL RESOURCES AND LIQUIDITY (continued)
time and by the amount of any such advances made by Silgan (up to a maximum
commitment of $225.0 million). During the third quarter, Silgan advanced
$57.6 million to Holdings for the repurchase by Holdings of a portion of
its outstanding 13-1/4% Debentures, thereby increasing the commitment under
the revolving credit facility to $207.6 million. The Company intends to
fund further advances to Holdings of up to $17.4 million through borrowings
of working capital loans to enable Holdings to make additional repurchases
of its 13-1/4% Debentures prior to June 30, 1996.
For the first nine months of 1995, exclusive of amounts paid for the
purchase of the Business (including acquired working capital), cash
generated from operations of $20.6 million, net borrowings of $28.7
million of working capital loans, and proceeds of $3.4 million realized
from the sale of assets were used to fund capital expenditures of $30.4
million, repay $2.6 million of term loans, make payments to former
shareholders of $3.8 million in full settlement of outstanding litigation
(which has been charged against equity), and increase cash balances by
$1.2 million. Additionally, in conjunction with the acquisition of the
Business, ANC agreed to provide transitional administrative services to
Containers for a period of up to one year. Under this agreement, ANC
collects and disburses cash for the acquired Business. Semi-monthly
transfers are made by the Company to ANC to repay excess disbursements or
by ANC to the Company to refund excess collections, as the case may be.
At September 30, 1995, ANC owed the Company $14.7 million.
The Company's earnings before depreciation, interest, taxes and
amortization ("EBITDA") for the nine months ended September 30, 1995
increased by $10.4 million over the same period in the prior year to $100.0
million. The increase in EBITDA reflected the generation of additional
cash earnings of the acquired Business since its acquisition on August 1,
1995, offset by a slight decline in cash earnings of the Company's existing
business principally due to the below normal 1995 vegetable and fruit pack.
Because the Company sells metal containers used in vegetable and fruit
processing, its sales are seasonal. As is common in the packaging
industry, the Company must access working capital to build inventory and
then carry accounts receivable for some customers beyond the end of the
summer and fall packing season. Seasonal accounts are generally settled by
year end. Due to this seasonality, as well as the acquisition of the
Business, the components of working capital increased significantly in the
nine months ended September 30, 1995. For Silgan's base business, trade
receivables and inventories increased $13.5 million and $7.0 million,
respectively, while trade payables declined $11.1 million at September 30,
1995 as compared to September 30, 1994. The remainder of the change in
these working capital components at September 30, 1995 as compared to
September 30, 1994 related to the acquired Business. At September 30, 1995<PAGE>
Page 18 of 20
CAPITAL RESOURCES AND LIQUIDITY (continued)
the trade receivable balance of the acquired Business was $149.8 million
($90.2 million on the acquisition date), the inventory balance was $88.6
million ($137.9 million on the acquisition date), and the trade payable
balance was $56.8 million ($64.2 million on the acquisition date.) The
Company expects that at year-end the net working capital of the acquired
Business will approximate $65.0 to $70.0 million.
The acquisition of ANC's Food Metal & Specialty business increased the
Company's seasonal metal containers business and as a result the Company
increased the amount of working capital loans available to it under its
credit facility to $225.0 million (subject to the limitation as discussed
above). On September 30, 1995, the outstanding principal amount of working
capital loans, which represented the Company's seasonal peak, was $184.0
million. Subject to a borrowing base limitation and taking into account
outstanding letters of credit, the unused portion of working capital
commitments at such date was $18.2 million. The Company anticipates that
cash generated from operations during the fourth quarter will be used to
reduce its outstanding working capital loan balance to near zero by
December 31, 1995.
In addition to its operating needs, the Company's cash requirements over
the next several years consist primarily of (i) annual capital expenditures
of $50.0 to $60.0 million, (ii) principal amortization payments of term
loans under the Credit Agreement of $7.3 million, $27.3 million, $37.3
million, $52.3 million and $52.3 million over the next five years,
respectively, (iii) expenditures of approximately $30.0 million over the
next two years associated with plant rationalizations and administrative
workforce reductions, other plant exit costs and employee relocation costs
of the acquired Business, (iv) the Company's interest requirements
(including interest on working capital loans, the principal amount of which
will vary depending upon seasonal requirements, and the term loans, all of
which bear fluctuating rates of interest, and the 11-3/4% Notes), (v)
dividends and/or advances to Holdings to fund semi-annual cash interest
payments of up to $14.1 million (which amount may be reduced depending upon
the actual amount of 13-1/4% Debentures repurchased by Holdings) on the 13-
1/4% Debentures commencing in December 1996, and (vi) payments of
approximately $13.0 million for federal and state tax liabilities in 1996
(assuming the redemption of the remainder of the 13-1/4% Debentures at
maturity) and increasing annually thereafter.
Management believes that cash generated by operations and funds from
working capital borrowings under the Credit Agreement will be sufficient to
meet the Company's expected operating needs, planned capital expenditures
and debt service requirements for the foreseeable future.<PAGE>
Page 19 of 20
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
27 Financial Data Schedule.
(b) Reports on Form 8-K
On August 2, 1995, Silgan Corporation filed a Current Report on Form 8-K
regarding its press release for its new credit agreement.
On August 14, 1995, Silgan Corporation filed a Current Report on Form 8-K
regarding the acquisition of the Food Metal & Specialty business of
American National Can Company, and its new credit agreement.
On September 27, 1995, Silgan Corporation filed a Current Report on Form
8-K regarding the resolution of the shareholder appraisal proceedings with
respect to the June 30, 1989 merger.
On October 16, 1995, Silgan Corporation filed a Form 8-K/A amending its
Current Report on Form 8-K filed August 14, 1995 to append thereto certain
financial statements of the Business and certain pro forma financial
information of Silgan Corporation.<PAGE>
Page 20 of 20
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 CORPORATION
Dated: November 13, 1995 /s/Harley Rankin, Jr.
Harley Rankin, Jr.
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
Dated: November 13, 1995 /s/Harold J. Rodriguez, Jr.
Harold J. Rodriguez, Jr.
Vice President and Controller
(Chief Accounting Officer)<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Silgan
Corporation's Form 10-Q for the quarter ended September 30, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 3,847
<SECURITIES> 0
<RECEIVABLES> 268,469
<ALLOWANCES> 0
<INVENTORY> 196,584
<CURRENT-ASSETS> 490,011
<PP&E> 690,591
<DEPRECIATION> 194,199
<TOTAL-ASSETS> 1,128,972
<CURRENT-LIABILITIES> 377,259
<BONDS> 577,750
<COMMON> 0
0
0
<OTHER-SE> 82,287
<TOTAL-LIABILITY-AND-EQUITY> 1,128,972
<SALES> 811,505
<TOTAL-REVENUES> 811,505
<CGS> 710,975
<TOTAL-COSTS> 710,975
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,068
<INCOME-PRETAX> 35,003
<INCOME-TAX> 14,400
<INCOME-CONTINUING> 20,603
<DISCONTINUED> 0
<EXTRAORDINARY> 2,967
<CHANGES> 0
<NET-INCOME> 17,636
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
