Page 1 of 22
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarter Ended September 30, 1996 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange
Act of 1934 for the Period ____________ to ____________.
Commission file number 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 4, 1996, the number of shares outstanding of each of the issuer's
classes of common stock is as follows:
Classes of shares of Number of
common stock outstanding, $0.01 par value shares outstanding
----------------------------------------- ------------------
Class A 1
Class B 1
<PAGE>
Page 2 of 22
Part I. Financial Information
Item 1. Financial Statements
SILGAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Sept. 30, Sept. 30, Dec. 31,
1996 1995 1995
(unaudited) (unaudited) (audited)
----------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents ........... $ 3,071 $ 3,847 $ 2,092
Accounts receivable, net ............ 218,883 262,819 109,929
Inventories ......................... 190,690 196,584 210,471
Prepaid expenses and other
current assets ................... 9,801 21,111 5,731
-------- ---------- --------
Total current assets ............ 422,445 484,361 328,223
Property, plant and equipment, net ....... 479,505 496,392 487,301
Goodwill, net ............................ 52,801 43,966 43,562
Other assets ............................. 38,783 41,007 29,637
-------- ---------- --------
$993,534 $1,065,726 $946,319
======== ========== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Trade accounts payable .............. $ 86,609 $ 96,159 $138,195
Accrued payroll and related costs ... 40,811 35,400 32,805
Accrued interest payable ............ 14,330 10,449 4,358
Other accrued expenses .............. 32,584 38,351 43,062
Bank working capital loans .......... 126,000 184,000 7,100
Current portion of long-term debt ... 28,454 7,250 28,140
-------- ---------- --------
Total current liabilities ....... 328,788 371,609 253,660
Long-term debt ........................... 673,348 577,750 549,610
Deferred income taxes .................... -- 13,017 3,017
Other long-term liabilities .............. 74,943 78,659 69,576
Common stockholder's equity:
Additional paid-in capital .......... 90,135 74,635 73,635
Accumulated deficit ................. (173,680) (49,944) (60,775)
-------- ---------- --------
Total common stockholder's equity (83,545) 24,691 12,860
-------- ---------- --------
$993,534 $1,065,726 $946,319
======== ========== ========
See accompanying notes.
<PAGE>
Page 3 of 22
SILGAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Three Months Ended
------------------
Sept. 30, Sept. 30,
1996 1995
---- ----
Net sales .............................................. $473,563 $406,515
Cost of goods sold ..................................... 414,589 364,832
-------- --------
Gross profit ...................................... 58,974 41,683
Selling, general and administrative expenses ........... 15,129 13,144
-------- --------
Income from operations ............................ 43,845 28,539
Interest expense and other related financing costs ..... 20,081 15,977
-------- --------
Income before income taxes ........................ 23,764 12,562
Income tax provision ................................... 8,350 5,100
-------- --------
Income before extraordinary charge ................ 15,414 7,462
Extraordinary charge relating to early
extinguishment of debt, net of taxes ................ -- 2,967
-------- --------
Net income ........................................ $ 15,414 $ 4,495
======== ========
See accompanying notes.
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Page 4 of 22
SILGAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Nine Months Ended
-----------------
Sept. 30, Sept. 30,
1996 1995
---- ----
Net sales ............................................ $1,080,486 $811,505
Cost of goods sold ................................... 935,813 710,975
---------- --------
Gross profit .................................... 144,673 100,530
Selling, general and administrative expenses ......... 41,970 30,459
---------- --------
Income from operations .......................... 102,703 70,071
Interest expense and other related financing costs ... 52,474 35,068
---------- --------
Income before income taxes ...................... 50,229 35,003
Income tax provision ................................. 19,500 14,400
---------- --------
Income before extraordinary charge .............. 30,729 20,603
Extraordinary charge related to early
extinguishment of debt, net of taxes .............. -- 2,967
---------- --------
Net income ...................................... $ 30,729 $ 17,636
========== ========
See accompanying notes.
<PAGE>
Page 5 of 22
SILGAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
-----------------
Sept. 30, Sept. 30,
1996 1995
---- ----
Cash flows from operating activities:
Net income ............................................. $ 30,729 $ 17,636
Adjustments to reconcile net income to net
cash (used) provided by operating activities:
Depreciation ......................................... 40,009 27,233
Amortization ......................................... 5,884 4,848
Contribution by Parent for federal income
tax provision ..................................... 16,500 6,700
Extraordinary charge relating to early
extinguishment of debt, net of taxes .............. -- 2,967
Changes in assets and liabilities:
(Increase) in accounts receivable ............... (106,461) (55,512)
Decrease in inventories ......................... 21,238 14,472
(Decrease) increase in trade accounts payable ... (51,586) 2,508
Net working capital used by AN Can from
8/1/95 to 9/30/95 ............................ -- (11,195)
Other, net ...................................... (2,872) 10,905
-------- --------
Total adjustments ......................... (77,288) 2,926
-------- --------
Net cash (used) provided by operating activities ... (46,559) 20,562
-------- --------
Cash flows from investing activities:
Acquisition of ANC's Food Metal & Specialty business . (13,121) (347,052)
Capital expenditures ................................. (38,624) (30,414)
Proceeds from sale of assets ......................... 1,521 3,398
-------- --------
Net cash used in investing activities .............. (50,224) (374,068)
-------- --------
Cash flows from financing activities:
Borrowings under working capital loans ............... 710,550 490,410
Repayments under working capital loans ............... (591,650) (333,672)
Proceeds from issuance of long-term debt ............. 125,000 450,000
Repayment of long-term debt .......................... (948) (169,660)
Dividend to Parent ................................... (143,634) (57,596)
Debt issuance costs .................................. (1,556) (21,000)
Payments to former shareholders ...................... -- (3,794)
-------- --------
Net cash provided by financing activities .......... 97,762 354,688
-------- --------
Net increase in cash and cash equivalents ................ 979 1,182
Cash and cash equivalents at beginning of year ........... 2,092 2,665
-------- --------
Cash and cash equivalents at end of period ............... $ 3,071 $ 3,847
======== ========
Supplementary data:
Interest paid ...................................... $ 39,879 $ 23,017
Income taxes paid .................................. 568 8,592
See accompanying notes.
<PAGE>
Page 6 of 22
SILGAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1996 and 1995 and for the
three months and nine months then ended is unaudited)
1. Basis of Presentation
The accompanying condensed unaudited consolidated financial statements of Silgan
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, 1996 and 1995 and December 31, 1995, and the
results of operations for the three and nine months ended September 30, 1996 and
1995, and the statements of cash flows for the nine months ended September 30,
1996 and 1995.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these financial statements
be read in conjunction with Silgan's financial statements and notes included in
its Annual Report on Form 10-K for the year ended December 31, 1995.
Certain reclassifications have been made to prior year's financial statements to
conform with current year presentation. See also Note 5.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" in the first quarter of 1996. Under SFAS No. 121,
impairment losses will be recognized when events or changes in circumstances
indicate that the undiscounted cash flows generated by the assets are less than
the carrying value of such assets. Impairment losses are then measured by
comparing the fair value of assets to their carrying amount. There were no
impairment losses recognized during the first nine months of 1996 as a result of
the adoption of SFAS No. 121.
In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123, "Accounting for Stock-Based Compensation", effective for the 1996
fiscal year. Under SFAS No. 123, compensation expense for all stock-based
compensation plans would be recognized based on the fair value of the options at
the date of grant using an option pricing model. As permitted under SFAS No.
123, the Company may either adopt the new pronouncement or follow the current
accounting methods as prescribed under APB No. 25. The Company continues to
recognize compensation expense in accordance with APB No. 25.
<PAGE>
Page 7 of 22
SILGAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1996 and 1995 and for the
three months and nine months then ended is unaudited)
2. Inventories
Inventories consisted of the following (in thousands):
Sept. 30, Sept. 30, Dec. 31,
1996 1995 1995
---- ---- ----
Raw materials and supplies .......... $ 37,314 $ 39,675 $ 46,027
Work-in-process ..................... 32,792 22,588 24,869
Finished goods ...................... 111,229 132,804 135,590
Spare parts and other ............... 7,663 6,345 6,344
-------- -------- --------
188,998 201,412 212,830
Adjustment to value inventory
at cost on the LIFO Method ....... 1,692 (4,828) (2,359)
-------- -------- --------
$190,690 $196,584 $210,471
======== ======== ========
3. Acquisitions
Set forth below is the Company's summary unaudited pro forma results of
operations for the nine months ended September 30, 1995. The unaudited pro forma
results of operations of the Company for the nine months ended September 30,
1995 include the historical results of the Company and the Food Metal &
Specialty business of American National Can Company ("AN Can") for such period
and give effect to certain pro forma adjustments. The pro forma adjustments made
to the historical results of operations for September 30, 1995 reflect the
effect of purchase accounting adjustments based upon appraisals and valuations,
the financing of the acquisition of AN Can by the Company, the refinancing of
certain of the Company's debt obligations, and certain other adjustments as if
these events had occurred as of the beginning of 1995. The pro forma adjustments
are based upon available information and upon certain assumptions that the
Company believes are reasonable. The pro forma results of operations do not give
effect to adjustments for decreased costs from manufacturing synergies resulting
from the integration of AN Can with Containers' existing can manufacturing
operations and benefits the Company may realize as a result of its planned
rationalization of plant operations. Pro forma adjustments have not been made to
interest expense for the nine months ended September 30, 1995 for the
refinancings described in Note 4 or for the subsequent events discussed in Note
7. The following unaudited pro forma results of operations do not purport to
represent what the Company's results of operations would actually have been had
the transactions in fact occurred on January 1, 1995, or to project the
Company's results of operations for any future period (in thousands):
Pro forma
September 30, 1995
------------------
Net sales ................................ $1,113,982
Income from operations ................... 93,140
Income before income taxes ............... 42,826
Net income ............................... 25,267
<PAGE>
Page 8 of 22
SILGAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1996 and 1995 and for the
three months and nine months then ended is unaudited)
3. Acquisitions (continued)
In connection with the acquisition of AN Can, the Company has finalized its
plant rationalization and integration plans. These plans consist primarily of
the closing or downsizing of certain manufacturing plants and the integration of
the selling, general, and administrative functions of the former AN Can
operations with the Company. The Company estimates that costs related to such
plans include approximately $6.6 million related to plant exit costs, $22.6
million related to employee severance and relocation costs, and $3.5 million
related to administrative workforce reductions. The timing of the plant
rationalizations, among other things, will be dependent on covenants in existing
labor agreements and accordingly these costs will be incurred during the period
from late 1996 through early 1998. Through September 30, 1996, costs of $3.3
million related to administrative workforce reductions and relocation were
incurred.
During 1996, the purchase price allocation for the AN Can acquisition was
adjusted for differences between the actual and preliminary valuations for the
asset appraisals and for projected employee benefit costs as well as for a
revision in estimated costs of plant rationalizations, administrative workforce
reductions and other various matters. The final purchase price allocation
resulted in an adjustment to increase goodwill by $10.7 million.
4. Long Term Debt
On May 31, 1996, the Company amended its Credit Agreement to, among other
things, provide for the borrowing by the Company of an additional $125.0 million
of B term loans. On July 3, 1996, Silgan borrowed the additional B term loans
and, as permitted under the Credit Agreement, used the proceeds therefrom to
fund the redemption by Silgan Holdings Inc. ("Holdings") of $125.0 million
principal amount of Holdings' 13 1/4% Senior Discount Debentures due 2002
("Holdings Discount Debentures").
As a result of the additional borrowing, the aggregate annual maturities of
long-term debt of the Company are as follows (in thousands):
1996...................... $ 28,454
1997...................... 38,433
1998...................... 53,401
1999...................... 53,401
2000...................... 126,130
2001 and thereafter....... 401,983
--------
$701,802
========
<PAGE>
Page 9 of 22
SILGAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1996 and 1995 and for the
three months and nine months then ended is unaudited)
5. Dividend to Parent
During 1996, the Company dividended to Holdings $143.6 million with proceeds
from the additional B term loans and the borrowing of working capital loans,
which were used to fund the redemption by Holdings of $142.4 million principal
amount of Holdings Discount Debentures and pay accrued interest thereon.
As a result of the distributions made to Holdings in 1996, Silgan has
reclassified its advance of $57.6 million made to Holdings in 1995 as a
dividend.
6. Issuance of Preferred Stock by Parent
On July 22, 1996, Holdings issued 50,000 shares of 13 1/4% Exchangeable
Preferred Stock ("Holdings Preferred Stock"), mandatorily redeemable in 2006, at
$1,000 per share which represents the liquidation preference of Holdings
Preferred Stock. Net proceeds of $47.8 million from this issuance were used by
Holdings to purchase its Class B Common Stock held by Mellon Bank N.A., as
trustee for First Plaza Group Trust, for $35.8 million and to redeem $12.0
million principal amount of Holdings Discount Debentures.
The Holdings Preferred Stock holders are entitled to receive cumulative
dividends at 13 1/4% per annum, which are payable quarterly in cash or, on or
prior to July 15, 2000 at the sole option of Holdings, in additional shares of
Holdings Preferred Stock. After July 15, 2000, dividends may be paid only in
cash. The dividend payable on October 15, 1996 was paid in additional shares of
Holdings Preferred Stock.
The Holdings Preferred Stock is exchangeable into Holdings' Subordinated
Debentures due 2006 ("Holdings Exchange Debentures"), in whole but not in part,
at the option of Holdings, subject to certain conditions. The Holdings Exchange
Debentures will bear interest at the dividend rate in effect with respect to the
Holdings Preferred Stock. Interest on the Holdings Exchange Debentures will be
payable semi-annually and, on or prior to July 15, 2000, Holdings may pay such
interest by issuing additional Holdings Exchange Debentures. If by July 22, 1997
the Holdings Preferred Stock has not been exchanged for Holdings Exchange
Debentures, the dividend rate on the Holdings Preferred Stock will increase by
0.5% per annum to 13 3/4% per annum until such exchange occurs.
<PAGE>
Page 10 of 22
SILGAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1996 and 1995 and for the
three months and nine months then ended is unaudited)
7. Subsequent Events
1996 Acquisition
- ----------------
On October 9, 1996, the Company acquired substantially all of the assets of
Finger Lakes Packaging Company, Inc. ("Finger Lakes"), a metal food container
manufacturer and a wholly-owned subsidiary of Curtice Burns Foods, Inc.
("Curtice Burns") for approximately $29.9 million. As part of the transaction,
the Company entered into a ten-year supply agreement with Curtice Burns to
supply all of the metal food container requirements of Curtice Burns' Comstock
Michigan Fruit and Brooks Foods divisions. For its fiscal year ended June 29,
1996, Finger Lakes had net sales of $48.8 million. The Company financed this
acquisition through working capital borrowings under its Credit Agreement.
1996 Public Offering by Holdings
- --------------------------------
In September 1996, Holdings filed a registration statement on Form S-2 for an
initial public offering ("IPO") of Holdings' common stock. In the event that the
proposed IPO occurs, Holdings expects to use the net proceeds received to redeem
the remaining outstanding amount of Holdings Discount Debentures (approximately
$59.0 million). Upon the closing of the IPO, the Company will recognize a
non-cash charge of approximately $16.1 million for the excess of fair market
value over the grant price of the variable stock options under the Containers
and Plastics option plans which convert to Holdings options.
<PAGE>
Page 11 of 22
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTHS
Summary unaudited historical results for the Company's two business segments,
metal and plastic containers, for the three months ended September 30, 1996 and
1995 and summary pro forma results for the Company's two business segments for
the three months ended September 30, 1995 (after giving effect to the
acquisition of AN Can as of the beginning of 1995) are provided below.
The pro forma data includes the historical results of the Company and AN Can and
reflects the effect of purchase accounting adjustments based on appraisals and
valuations, the financing of the acquisition of AN Can, the refinancing of
certain of the Company's debt obligations, and certain other adjustments, as if
these events occurred as of the beginning of the period presented. The unaudited
pro forma financial data do not purport to represent what the Company's
financial position or results of operations would actually have been had these
transactions in fact occurred at the beginning of the period indicated, or to
project the Company's financial position or results of operations for any future
date or period. The pro forma financial data do not give effect to adjustments
for decreased costs from manufacturing synergies resulting from the integration
of AN Can with the Company's existing can manufacturing operations and benefits
the Company may realize as a result of its planned rationalization of plant
operations. The pro forma information presented should be read in conjunction
with the historical results of operations of the Company for the periods ended
September 30, 1996 and 1995.
Three Months Ended September 30,
--------------------------------
Historical Pro Forma
1996 1995 1995
---- ---- ----
(In millions)
Net sales:
Metal containers and other ............. $417.6 $353.8 $411.3
Plastic containers ..................... 56.0 52.7 52.7
------ ------ ------
Consolidated ....................... $473.6 $406.5 $464.0
====== ====== ======
Operating profit:
Metal containers and other ............. $ 39.7 $ 26.7 $ 29.2
Plastic containers ..................... 4.2 2.0 2.0
Corporate expense ...................... (0.1) (0.2) (0.2)
------ ------ ------
Consolidated ....................... $ 43.8 $ 28.5 $ 31.0
====== ====== ======
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Page 12 of 22
Historical Three Months Ended September 30, 1996 Compared with Historical Three
Months ended September 30, 1995
Net Sales. Consolidated net sales increased $67.1 million, or 16.5%, to $473.6
million for the three months ended September 30, 1996, as compared to net sales
of $406.5 million for the same three months in the prior year. For the three
months ended September 30, 1996 as compared to the same period in 1995, the
Company had higher net sales of metal containers to existing customers, higher
net sales of plastic containers and realized the benefit of an additional month
of sales in 1996 from the former AN Can operations. AN Can was acquired on
August 1, 1995, and therefore the Company's historical 1995 results did not
include its financial results before that date.
Net sales for the metal container business (including net sales of its specialty
business of $23.9 million) were $417.6 million for the three months ended
September 30, 1996, an increase of $63.8 million from net sales of $353.8
million for the same period in 1995. Net sales of metal cans of $393.7 million
for the three months ended September 30, 1996 were $54.8 million greater than
net sales of metal cans of $338.9 million for the same period in 1995. This
increase resulted from net sales of metal cans generated by the former AN Can
operations during July 1996 of $52.1 million, an increase in unit sales of metal
containers in the third quarter of 1996 due to a better vegetable pack harvest
in 1996 as compared to 1995, and the planned shift of production and shipment of
some fruit and vegetable pack metal containers from the first half of the year
to the third and fourth quarters to more closely coincide production with the
fruit and vegetable pack harvest, offset to a limited extent by volume losses
with certain customers.
Sales of specialty items included in the metal container segment increased $9.0
million to $23.9 million during the three months ended September 30, 1996 as
compared to the same period in 1995, due to both increased unit sales and
additional sales generated during July 1996 by the former AN Can operations. As
mentioned above, the historical results of the Company did not include AN Can's
financial results until August 1995.
Net sales for the plastic container business of $56.0 million during the three
months ended September 30, 1996 increased $3.3 million from net sales of $52.7
million for the same period in 1995. This increase in net sales resulted from
higher unit sales, offset, in part, by the pass through of lower resin costs.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 87.5% ($414.6 million) for the three months ended September 30, 1996, a
decrease of 2.2 percentage points as compared to 89.7% ($364.8 million) for the
same period in 1995. The decrease in cost of goods sold as a percentage of net
sales was primarily attributable to lower per unit manufacturing costs resulting
from significantly higher can production volumes, the benefit of synergies
realized through the acquisition of AN Can, lower indirect costs due to plant
consolidations, and improved manufacturing performance by the plastic container
business. Higher can production volumes during this quarter resulted from the
scheduled production of cans later in the year to more closely coincide
production with the fruit and vegetable pack harvest.
<PAGE>
Page 13 of 22
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales remained at
3.2% ($15.1 million and $13.1 million) for the three months ended September 30,
1996 and 1995. Selling, general and administrative expenses included an
additional month of expenses by the former AN Can operations in the third
quarter of 1996 as compared to the third quarter of 1995.
Income from Operations. Income from operations as a percentage of consolidated
net sales was 9.3% ($43.8 million) for the three months ended September 30,
1996, as compared with 7.0% ($28.5 million) for the same period in the prior
year. The increase in income from operations as a percentage of consolidated net
sales was primarily attributable to the aforementioned improvement in gross
margins.
Income from operations as a percentage of net sales for the metal container
business improved to 9.5% ($39.7 million) for the three months ended September
30, 1996, from 7.5% ($26.7 million) for the same period in the prior year. This
increase in income from operations as a percentage of net sales for the metal
container business resulted from both lower per unit costs realized as a result
of higher production volumes from the planned shift of production of fruit and
vegetable pack cans closer to the harvest and increased customer demand due to a
better vegetable pack harvest in 1996 as compared to 1995, as well as the
benefit of manufacturing synergies realized from the acquisition of AN Can.
Income from operations as a percentage of net sales for the plastic container
business improved to 7.5% ($4.2 million) for the three months ended September
30, 1996, as compared to 3.8% ($2.0 million) for the same period in 1995. The
improved operating performance of the plastic container business was
attributable to increased production volume due to higher unit sales which
resulted in improved productivity.
Interest Expense. Interest expense increased $4.1 million to $20.1 million for
the three months ended September 30, 1996 principally as a result of increased
borrowings to fund the redemption of a portion of the Holdings Discount
Debentures, offset, in part, by lower average bank borrowing rates.
Additionally, since AN Can was not acquired until August 1, 1995, interest
expense for the three months ended September 30, 1995 did not include any
interest expense relating to the AN Can operations for the month of July.
<PAGE>
Page 14 of 22
Income Taxes. The provisions for income taxes for the three months ended
September 30, 1996 and 1995 provide for federal, state and foreign taxes as if
the Company were a separate taxpayer in accordance with SFAS No. 109.
"Accounting for Income Taxes".
Net Income. As a result of the items discussed above, net income of $15.4
million increased $7.9 million for the three months ended September 30, 1996, as
compared to net income of $7.5 million before the extraordinary charge of $3.0
million for the three months ended September 30, 1996.
In the third quarter of 1995, the Company incurred an extraordinary charge of
$3.0 million, net of taxes, for the write-off of unamortized debt costs related
to the refinancing of its secured debt facilities in connection with the
acquisition of AN Can.
Historical Three Months Ended September 30, 1996 Compared with Pro Forma Three
Months Ended September 30, 1995
Net Sales. Consolidated net sales for the three months ended September 30, 1996
increased $9.6 million as compared to pro forma consolidated net sales for the
same period in the prior year. This increase in net sales resulted from greater
unit sales by both the metal and plastic container segments. The increase in net
sales by the metal container business of $6.3 million was principally
attributable to the planned shift of production and shipment of fruit and
vegetable pack cans to the second half of 1996 instead of during the first half
of 1995, and increased unit sales due to a better vegetable pack harvest in 1996
as compared to 1995, offset to a limited extent by volume losses with certain
customers. As mentioned above, the increase in net sales of the plastic
containers business resulted from higher unit sales.
Income from Operations. Income from operations as a percentage of consolidated
net sales for the three months ended September 30, 1996 was 9.3% ($43.8
million), as compared to pro forma income from operations as a percentage of pro
forma consolidated net sales of 6.7% ($31.0 million) for the three months ended
September 30, 1995. The increase in income from operations for the three months
ended September 30, 1996 as compared to pro forma income from operations for the
same period in the prior year was attributable to lower per unit costs realized
on scheduled higher can production volumes, the realization of can manufacturing
synergies resulting from the acquisition of AN Can, and improved operating
performance of the plastic container business, offset, in part, by the
incurrence of redundant administrative costs associated with the AN Can
operations.
<PAGE>
Page 15 of 22
RESULTS OF OPERATIONS - NINE MONTHS
Summary unaudited historical results for the Company's two business segments,
metal and plastic containers, for the nine months ended September 30, 1996 and
1995 and summary pro forma results for the Company's two business segments for
the nine months ended September 30, 1995 (after giving effect to the acquisition
of AN Can as of the beginning of 1995) are provided below.
The pro forma data includes the historical results of the Company and AN Can and
reflects the effect of purchase accounting adjustments based on final appraisals
and valuations, the financing of the acquisition of AN Can, the refinancing of
certain of the Company's debt obligations, and certain other adjustments, as if
these events occurred as of the beginning of the period presented. The unaudited
pro forma financial data do not purport to represent what the Company's
financial position or results of operations would actually have been had these
transactions in fact occurred at the beginning of the period indicated, or to
project the Company's financial position or results of operations for any future
date or period. The pro forma financial data do not give effect to adjustments
for decreased costs from manufacturing synergies resulting from the integration
of AN Can with the Company's existing can manufacturing operations and benefits
the Company may realize as a result of its planned rationalization of plant
operations. The pro forma information presented should be read in conjunction
with the historical results of operations of the Company for the periods ended
September 30, 1996 and 1995.
Nine Months Ended September 30,
-------------------------------
Historical Pro Forma
1996 1995 1995
---- ---- ----
(In millions)
Net sales:
Metal containers and other ............ $ 917.8 $642.9 $ 945.4
Plastic containers .................... 162.7 168.6 168.6
-------- ------ --------
Consolidated ...................... $1,080.5 $811.5 $1,114.0
======== ====== ========
Operating profit:
Metal containers and other ............ $ 90.0 $ 60.6 $ 83.6
Plastic containers .................... 13.1 9.8 9.8
Corporate expense ..................... (0.4) (0.3) (0.3)
-------- ------ --------
Consolidated ...................... $ 102.7 $ 70.1 $ 93.1
======== ====== ========
Historical Nine Months Ended September 30, 1996 Compared with Historical Nine
Months Ended September 30, 1995
Net Sales. Consolidated net sales increased $269.0 million, or 33.1%, to
$1,080.5 million for the nine months ended September 30, 1996, as compared to
net sales of $811.5 million for the same nine months in the prior year. This
increase resulted predominantly from net sales generated by the former AN Can
operations.
<PAGE>
Page 16 of 22
Net sales for the metal container business (including net sales of its specialty
business of $66.2 million) were $917.8 million for the nine months ended
September 30, 1996, an increase of $274.9 million from net sales of $642.9
million for the same period in 1995. Net sales of metal cans of $851.6 million
for the nine months ended September 30, 1996 were $227.7 million greater than
net sales of metal cans of $623.9 million for the same period in 1995. This
increase resulted from net sales of approximately $236.0 million generated from
the former AN Can operations during the first seven months of 1996 and increased
unit sales due to a better vegetable pack harvest in 1996 as compared to 1995,
offset to a limited extent by volume losses with certain customers.
Sales of specialty items included in the metal container segment increased $47.2
million to $66.2 million during the nine months ended September 30, 1996 as
compared to the same period in 1995, due predominantly to additional sales
generated by the former AN Can operations.
Net sales for the plastic container business of $162.7 million during the nine
months ended September 30, 1996 decreased $5.9 million from net sales of $168.6
million for the same period in 1995. Despite an increase in unit sales, net
sales of plastic containers declined as a result of the pass through of lower
resin costs.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 86.6% ($935.8 million) for the nine months ended September 30, 1996, a
decrease of 1.0 percentage points as compared to 87.6% ($711.0 million) for the
same period in 1995. The decrease in cost of goods sold as a percentage of net
sales was principally attributable to synergies realized from the AN Can
acquisition, improved operating efficiencies due to can plant consolidations as
well as the improved manufacturing performance by the plastic container
business, offset, in part, by the higher cost base of the former AN Can
operations and the realization of higher per unit costs due to the Company's
one-time planned reduction in finished goods inventory. The additional
production capacity provided by AN Can has enabled the Company to produce its
product closer to the time of sale and, as a result, during 1996 the Company
reduced the amount of finished goods that it carries.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales increased 0.1
percentage points to 3.9% ($42.0 million) for the nine months ended September
30, 1996, as compared to 3.8% ($30.5 million) for the nine months ended
September 30, 1995. This increase in selling, general and administrative
expenses as a percentage of net sales principally reflects redundant costs,
estimated to be $4.0 million, associated with the integration of the AN Can
operations. Beginning in 1997, redundant costs are expected to decline as the
Company completes its integration of the administrative functions of AN Can with
the Company.
<PAGE>
Page 17 of 22
Income from Operations. Income from operations as a percentage of consolidated
net sales increased 0.9 percentage points to 9.5% ($102.7 million) for the nine
months ended September 30, 1996, as compared with 8.6% ($70.1 million) for the
same period in the prior year. This increase in income from operations as a
percentage of consolidated net sales was primarily attributable to the
aforementioned improvement in gross margin.
Income from operations as a percentage of net sales for the metal container
business improved to 9.8% ($90.0 million) for the nine months ended September
30, 1996, from 9.4% ($60.6 million) for the same period in the prior year. This
increase in income from operations as a percentage of net sales for the metal
container business was principally attributable to synergies resulting from the
acquisition of AN Can, improved operating efficiencies due to plant
consolidations and the benefit of cost reductions provided by the Company's
capital investment program, offset, in part, by the higher cost base of the AN
Can operations and the negative impact of the Company's one-time planned
reduction in the amount of finished goods inventory.
Income from operations as a percentage of net sales for the plastic container
business improved to 8.1% ($13.1 million) for the nine months ended September
30, 1996, from 5.8% ($9.8 million) for the same period in 1995. The improvement
in the operating performance of the plastic container business was principally
attributable to increased production volumes as well as the benefits realized
through capital investment and improved production planning and scheduling
efficiencies.
Interest Expense. Interest expense increased $17.4 million to $52.5 million for
the nine months ended September 30, 1996, principally as a result of increased
borrowings to finance the acquisition of AN Can in August 1995 and to fund the
redemption of a portion of the Holdings Discount Debentures, offset, in part, by
the lower average bank borrowing rates.
Income Taxes. The provisions for income taxes for the nine months ended
September 30, 1996 and 1995 provide for federal, state and foreign taxes as if
the Company were a separate taxpayer in accordance with SFAS No. 109,
"Accounting for Income Taxes".
Net Income. As a result of the items discussed above, net income of $30.7
million increased $10.1 million for the nine months ended September 30, 1996, as
compared to net income of $20.6 million (before the extraordinary charge of $3.0
million) for the nine months ended September 30, 1995.
In the third quarter of 1995, the Company incurred an extraordinary charge of
$3.0 million, net of taxes, for the write-off of unamortized debt costs related
to the refinancing of its secured debt facilities to fund the AN Can
acquisition.
<PAGE>
Page 18 of 22
Historical Nine Months Ended September 30, 1996 Compared with Pro Forma Nine
Months Ended September 30, 1995
Net Sales. Consolidated net sales for the nine months ended September 30, 1996
declined $33.5 million as compared to pro forma consolidated net sales for the
same period in the prior year. This decline in net sales resulted primarily from
a decline in sales by the metal container business of $27.6 million, which was
principally attributable to the loss of an AN Can customer whose product line
was acquired by a company that manufactured its own cans and, to a lesser
extent, volume losses with certain other customers, offset, in part, by
increased unit sales due to a better vegetable pack harvest in 1996 as compared
to 1995. Although the plastic container business had increased unit volume in
1996, net sales declined $5.9 million due to the pass through of lower resin
costs.
Income from Operations. Income from operations as a percentage of consolidated
net sales for the nine months ended September 30, 1996 was 9.5% ($102.7
million), as compared to pro forma income from operations as a percentage of pro
forma consolidated net sales of 8.4% ($93.1 million) for the nine months ended
September 30, 1995. The increase in income from operations for the nine months
ended September 30, 1996 as compared to pro forma income from operations for the
same period in the prior year was attributable to more efficient production
planning, the realization of can manufacturing synergies resulting from the
acquisition of AN Can, the benefits realized from plant consolidations and
capital investments, and the improved operating performance of the plastic
container business, offset, in part, by redundant costs associated with the AN
Can operations and the negative impact of the Company's one-time planned
reduction of the amount of finished goods inventory.
CAPITAL RESOURCES AND LIQUIDITY
The Company's liquidity requirements arise primarily from its obligations under
the indebtedness incurred in connection with its acquisitions and the
refinancing of such indebtedness, capital investment in new and existing
equipment and the funding of the Company's seasonal working capital needs.
Historically, the Company has met these liquidity requirements through cash flow
generated from operating activities and working capital borrowings.
During 1996, Silgan borrowed $125.0 million of additional B term loans and $18.6
million of working capital loans under its Credit Agreement which were
dividended to Holdings to allow Holdings to redeem $142.4 million principal
amount of Holdings Discount Debentures and pay accrued interest thereon.
<PAGE>
Page 19 of 22
For the first nine months of 1996, net borrowings of working capital loans under
the Company's Credit Agreement of $118.9 million, borrowings of $125.0 million
of additional B term loans under the Company's Credit Agreement and proceeds of
$1.5 million from the sale of assets were used to fund cash used by operations
of $46.6 million for the Company's seasonal working capital needs, capital
expenditures of $38.6 million, the purchase by the Company of ANC's St. Louis
facility for $13.1 million, the dividend to Holdings of $143.6 million for the
redemption of Holdings Discount Debentures, the repayment of $0.9 million of
term loans under the Company's Credit Agreement, the payment of $1.6 million of
financing costs associated with the borrowing of additional B term loans under
the Company's Credit Agreement, and an increase in cash balances of $1.0
million.
The Company's EBITDA for the nine months ended September 30, 1996 in comparison
to the same period in 1995 increased by $48.5 million to $148.5 million. The
increase in EBITDA resulted primarily from the generation of additional cash
flow from the former AN Can operations and, to a lesser extent, from increased
cash earnings by both the metal container business and the plastic container
business.
For the nine months ended September 30, 1996, net cash provided by operating
activities declined from the same period in the prior year primarily as a result
of the increased working capital needed, mainly for trade receivables and trade
payables, to support the former AN Can operations which are more seasonal than
the Company's existing business. Due to the seasonal nature of some of the
Company's business, a significant portion of the Company's cash flow is
generated in the fourth quarter. The Company expects that the change in its
fourth quarter net working capital position will be similar to last year.
Because the Company sells metal containers used in fruit and vegetable pack
processing, its sales are seasonal. As a result, a significant portion of the
Company's revenues are generated in the first nine months of the year. As is
common in the industry, the Company must access working capital to build
inventory and then carry accounts receivable for some customers beyond the end
of the summer and fall packing season. Seasonal accounts are generally settled
by year end. The acquisition of AN Can increased the Company's seasonal metal
containers business. The Company's average outstanding trade receivables have
increased in 1996 as compared to 1995 due to the acquisition of AN Can which had
more seasonal sales than the Company. As a result the Company increased the
amount of working capital loans available to it under its credit facility to
$225.0 million. Due to the Company's seasonal requirements, the Company expects
to incur short term indebtedness to finance its working capital requirements.
Approximately $182.5 million of the working capital revolver under the Company's
Credit Agreement, including letters of credit, was utilized at its peak in
September 1996.
As of September 30, 1996, the outstanding principal amount of working capital
loans was $126.0 million and, subject to a borrowing base limitation and taking
into account outstanding letters of credit, the unused portion of working
capital commitments under the Company's Credit Agreement at such date was $91.6
million.
Management believes that cash generated by operations and funds from working
capital borrowings under the Company's Credit Agreement will be sufficient to
meet the Company's expected operating needs, planned capital expenditures, debt
service and tax obligations for the foreseeable future.
<PAGE>
Page 20 of 22
The Company is in compliance with all financial and operating covenants
contained in the instruments and agreements governing its indebtedness and
believes that it will continue to be in compliance during 1996 with all such
covenants.
Holdings intends to refinance the remaining Holdings Discount Debentures with
net proceeds from an initial public offering of shares of its common stock. Any
remaining net proceeds from the offering would be used to prepay a portion of
the term loans under the Company's Credit Agreement. The offering is dependent
upon market conditions existing at that time.
<PAGE>
Page 21 of 22
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
None.
<PAGE>
Page 22 of 22
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 4, 1996 /s/Harley Rankin, Jr.
- ------------------------ ---------------------
Harley Rankin, Jr.
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
Dated: November 4, 1996 /s/Harold J. Rodriguez, Jr.
- ------------------------ ---------------------------
Harold J. Rodriguez, Jr.
Vice President and Controller
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Silgan
Corporation's Form 10-Q for the nine months ended September 30, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,701
<SECURITIES> 0
<RECEIVABLES> 218,883
<ALLOWANCES> 0
<INVENTORY> 190,690
<CURRENT-ASSETS> 422,445
<PP&E> 479,505
<DEPRECIATION> 0
<TOTAL-ASSETS> 993,534
<CURRENT-LIABILITIES> 328,788
<BONDS> 673,348
0
0
<COMMON> 0
<OTHER-SE> (83,545)
<TOTAL-LIABILITY-AND-EQUITY> 993,534
<SALES> 1,080,486
<TOTAL-REVENUES> 1,080,486
<CGS> 935,813
<TOTAL-COSTS> 935,813
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,474
<INCOME-PRETAX> 50,229
<INCOME-TAX> 19,500
<INCOME-CONTINUING> 30,729
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,729
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
