Page 1 of 13
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 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 May 1, 1997, 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 13
Part I. Financial Information
Item 1. Financial Statements
SILGAN CORPORATION
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 .................. $ 5,844 $ 5,980 $ 947
Accounts receivable, net ................... 104,730 98,177 101,436
Inventories ................................ 248,679 254,092 195,981
Prepaid expenses and other current assets .. 10,812 10,911 7,329
-------- -------- --------
Total current assets ..................... 370,065 369,160 305,693
Property, plant and equipment, net ........... 496,197 491,177 499,781
Goodwill, net ................................ 57,697 43,204 57,885
Other assets ................................. 33,212 28,194 37,010
-------- -------- --------
$957,171 $931,735 $900,369
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable ..................... $106,212 $113,674 $122,623
Accrued payroll and related costs .......... 43,009 40,613 41,649
Accrued interest payable ................... 12,105 8,340 9,175
Accrued expenses and other current
liabilities .............................. 32,621 38,506 34,614
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 ................ 311,894 288,475 274,288
Long-term debt ............................... 634,843 549,610 634,843
Deferred income taxes ........................ -- 3,017 --
Other long-term liabilities .................. 74,364 70,696 75,997
Stockholder's equity (deficit):
Common stock ($0.01 par value per share;
3,000 shares authorized, 2 shares issued) -- -- --
Additional paid-in capital ................. 121,501 75,935 91,235
Accumulated deficit ........................ (185,431) (55,998) (175,994)
-------- -------- --------
Total stockholder's equity (deficit) ..... (63,930) 19,937 (84,759)
-------- -------- --------
$957,171 $931,735 $900,369
======== ======== ========
See accompanying notes.
<PAGE>
Page 3 of 13
SILGAN CORPORATION
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 ................................... 256,583 242,207
--------- --------
Gross profit .................................... 42,844 37,653
Selling, general and administrative expenses ......... 13,835 13,553
Non-cash stock option charge ......................... 22,731 200
--------- --------
Income from operations .......................... 6,278 23,900
Interest expense and other related financing costs ... 18,024 15,823
--------- --------
Income (loss) before income taxes ............... (11,746) 8,077
Income tax provision (benefit) ....................... (4,500) 3,300
--------- --------
Net income (loss) ............................... $ (7,246) $ 4,777
========= ========
See accompanying notes.
<PAGE>
Page 4 of 13
SILGAN CORPORATION
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 ......................................... $ (7,246) $ 4,777
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation ................................... 13,714 14,589
Amortization ................................... 1,503 1,836
Contribution by Parent for federal income
tax provision (benefit) ..................... (3,900) 2,300
Non-cash stock option charge ................... 22,731 200
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ... (3,227) 11,713
(Increase) in inventories .................... (52,987) (43,621)
(Decrease) in trade accounts payable ......... (16,411) (24,521)
Other, net ................................... 2,566 1,576
--------- ---------
Total adjustments ........................ (36,011) (35,928)
--------- ---------
Net cash used by operating activities .......... (43,257) (31,151)
--------- ---------
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)
Repayment of long-term debt ........................ (8,880) (948)
Contribution by Parent ............................. 8,880 --
Dividend to Parent ................................. (2,191) --
--------- ---------
Net cash provided by financing activities ...... 58,409 52,102
--------- ---------
Net increase in cash and cash equivalents ............ 4,897 3,888
Cash and cash equivalents at beginning of year ....... 947 2,092
--------- ---------
Cash and cash equivalents at end of period ........... $ 5,844 $ 5,980
========= =========
Supplementary cash data:
Interest paid ...................................... $ 14,062 $ 10,864
Income taxes paid (refund) ......................... (56) 214
See accompanying notes.
<PAGE>
Page 5 of 13
SILGAN CORPORATION
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
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, the
accompanying financial statements contain all adjustments (consisting solely of
a normal recurring nature) necessary to present fairly Silgan's financial
position as of March 31, 1997 and 1996 and December 31, 1996, and Silgan's
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 Silgan's 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 by Parent
On February 20, 1997, Silgan Holdings Inc. ("Holdings"), the parent compay of
Silgan, completed an initial public offering ("Offering") of 5,175,000 shares of
common stock, par value $.01 per share (the "Common Stock"). Holdings used net
proceeds received from the Offering to redeem its remaining outstanding 13 1/4%
Senior Discount Debentures due 2002 ("Holdings' Discount Debentures") and
advanced funds to Silgan for the repayment of approximately $8.9 million of bank
term loans.
In connection with the Offering, the Company recognized a non-cash, pre-tax
charge of $22.7 million, for the excess of fair market value over the grant
price of stock options converted from stock option plans of the Company's
subsidiaries 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.
<PAGE>
Page 6 of 13
SILGAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 1997 and 1996 and for the
three months then ended is unaudited)
3. 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
======== ======== ========
4. 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>
Page 7 of 13
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 conditions,
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 conditions, 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 ... $ 22.4 20.0
Plastic containers ............... 6.8 4.2
Non-cash stock option charge ..... (22.7) (0.2)
Corporate expense ................ (0.2) (0.1)
------ ------
Consolidated ................. $ 6.3 $ 23.9
====== ======
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>
Page 8 of 13
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% ($256.6 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 4.6% ($13.8 million) for the three months ended March 31,
1997, as compared to 4.8% ($13.6 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% ($6.3 million) for the three months ended March 31, 1997, as
compared with 8.5% ($23.9 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 $22.7 million. Excluding this charge, income
from operations for the three months ended March 31, 1997 would have increased
1.2 percentage points to 9.7% ($29.0 million), primarily as a result of the
aforementioned gross margin improvement.
<PAGE>
Page 9 of 13
In conjunction with the Offering, stock options issued under the stock option
plans of the Company's subsidiaries were converted to Holdings' stock options.
In accordance with generally accepted accounting principles, the Company
recorded a charge of $22.7 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% ($22.4 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 as a percentage of net sales,
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 increased $2.2 million to $18.0 million for
the three months ended March 31, 1997 principally as a result of increased
borrowings to fund the redemption of a portion of Holdings' Discount Debentures
and to finance the purchase of Finger Lakes and as a result of higher average
bank borrowing rates.
Income Taxes. The provision for income taxes for the three months ended March
31, 1997 and 1996 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."
Net Income (loss). As a result of the items discussed above, the Company had a
net loss of $7.2 million for the three months ended March 31, 1997, as compared
to net income of $4.8 million for the three months ended March 31, 1996.
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.
<PAGE>
Page 10 of 13
For the first three months of 1997, net borrowings of working capital loans
under the Company's Credit Agreement of $60.6 million were used to fund cash
used by operations of $43.2 million for the Company's seasonal working capital
needs, capital expenditures of $10.3 million, a dividend to Holdings of $2.2
million to enable Holdings to pay accrued interest on the Holdings' Discount
Debentures, and an increase in cash balances of $4.9 million. In addition, in
conjunction with the Offering, Holdings contributed $8.8 million to Silgan,
which Silgan used to prepay bank term loans.
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 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 and its subsidiaries' agreements in respect of
their indebtedness then outstanding. There can be no assurance that the Company
will be able to effect any such acquisition or any such financing.
<PAGE>
Page 11 of 13
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.
Effective June 15, 1997, the Company's 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>
Page 12 of 13
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 13 of 13
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: May 13, 1997 /s/Harley Rankin, Jr.
- -------------------- ---------------------
Harley Rankin, Jr.
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
Dated: May 13, 1997 /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 three months ended March 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,844
<SECURITIES> 0
<RECEIVABLES> 104,730
<ALLOWANCES> 0
<INVENTORY> 248,679
<CURRENT-ASSETS> 370,065
<PP&E> 496,197
<DEPRECIATION> 0
<TOTAL-ASSETS> 957,171
<CURRENT-LIABILITIES> 311,894
<BONDS> 634,843
0
0
<COMMON> 0
<OTHER-SE> (63,930)
<TOTAL-LIABILITY-AND-EQUITY> 957,171
<SALES> 299,427
<TOTAL-REVENUES> 299,427
<CGS> 256,583
<TOTAL-COSTS> 256,583
<OTHER-EXPENSES> 22,731
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,024
<INCOME-PRETAX> (11,746)
<INCOME-TAX> (4,500)
<INCOME-CONTINUING> (7,246)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,246)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
