SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________________ 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 No.)
4 Landmark Square, Stamford, Connecticut 06901
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 975-7110
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
None of the registrant's voting stock was held by non-affiliates as of February
28, 1997.
As of February 28, 1997, the number of shares outstanding of each of the
registrant's classes of common stock is as follows:
Classes of shares of common stock Number of shares
outstanding, $0.01 par value outstanding
- --------------------------------- ----------------
Class A 1
Class B 1
Class C 0
Documents Incorporated by Reference: None
<PAGE>
TABLE OF CONTENTS
Page
----
PART I..................................................................... 1
Item 1. Business................................................. 1
Item 2. Properties............................................... 12
Item 3. Legal Proceedings........................................ 13
Item 4. Submission of Matters to a Vote of Security Holders...... 14
PART II.................................................................... 15
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................... 15
Item 6. Selected Financial Data.................................. 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 19
Item 8. Financial Statements and Supplementary Data.............. 31
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 31
PART III................................................................... 32
Item 10. Directors and Executive Officers of the Registrant....... 32
Item 11. Executive Compensation................................... 35
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................. 40
Item 13. Certain Relationships and Related Transactions........... 44
PART IV.................................................................... 47
Item 14. Exhibits, Financial Statements, Schedules, and Reports
on Form 8-K............................................ 47
-i-
<PAGE>
PART I
Item 1. Business
General
Silgan Corporation ("Silgan", and together with its direct and indirect
owned subsidiaries, the "Company"), is a leading North American manufacturer of
consumer goods packaging products that currently produces (i) steel and aluminum
containers for human and pet food, (ii) custom designed plastic containers for
personal care, health, food, pharmaceutical and household chemical products and
(iii) specialty packaging items, including metal caps and closures, plastic
bowls and paper containers used by processors in the food industry. The Company
is the largest manufacturer of metal food containers in North America, with a
unit sale market share for the twelve months ended October 31, 1996 of 35% in
the United States, and is a leading manufacturer of plastic containers in North
America for personal care products. The Company's strategy is to increase
shareholder value by growing its existing businesses and expanding into other
segments by applying its expertise in acquiring, financing, integrating and
efficiently operating consumer goods packaging businesses.
The Company was founded in 1987 by its current Co-Chief Executive
Officers. Since its inception, the Company has acquired and successfully
integrated ten businesses, including the recent acquisitions of substantially
all of the assets of the Food Metal and Specialty business ("AN Can") of
American National Can Company ("ANC") in August 1995 for a purchase price of
approximately $362.0 million (including net working capital of approximately
$156.0 million) and the U.S. metal container manufacturing business ("DM Can")
of Del Monte Corporation ("Del Monte") in December 1993 for a purchase price of
approximately $73.3 million (including net working capital of approximately
$21.9 million). In addition, on October 9, 1996 the Company completed its
acquisition of Finger Lakes Packaging Company, Inc. ("Finger Lakes"), the metal
food container manufacturing subsidiary of Curtice Burns Foods, Inc. ("Curtice
Burns"). See "--Company History" and "--Recent Developments". The Company's
strategy has enabled it to rapidly increase its net sales and income from
operations. The Company's net sales have increased from $630.0 million in 1992
to $1,405.7 million in 1996, representing a compound annual growth rate of
approximately 22%. During this period, income from operations increased from
$42.8 million in 1992 to $124.7 million in 1996, representing a compound annual
growth rate of approximately 31%, while the Company's income from operations as
a percentage of net sales increased 2.1 percentage points from 6.8% to 8.9% over
the same period.
The Company's philosophy, which has contributed to its strong
performance since inception, is based on: (i) a significant equity ownership by
management and an entrepreneurial approach to business, (ii) its low cost
producer position and (iii) its long-term customer relationships. The Company's
senior management has a significant ownership interest in the Company, which
fosters an entrepreneurial management style and places a primary focus on
creating shareholder value. The Company has achieved a low cost producer status
through (i) the maintenance of a flat, efficient organizational structure,
resulting in low selling, general and administrative expenses as a percentage of
total net sales, (ii) purchasing economies, (iii) significant capital
investments that have generated manufacturing and production efficiencies, (iv)
plant consolidations and rationalizations and (v) the proximity of its plants to
its customers. The Company's philosophy has also been to develop long-term
customer relationships by acting in partnership with its customers, providing
reliable quality and service and utilizing its low cost producer position. This
philosophy has resulted in numerous long-term supply contracts, high retention
of customers' business and recognition from its customers, as demonstrated by
many quality and service awards.
-1-
<PAGE>
Growth Strategy
The Company intends to enhance its position as a leading supplier of
consumer goods packaging products by aggressively pursuing a strategy designed
to achieve future growth and to increase profitability. The key components of
this strategy are to (i) increase the Company's market share in its current
business lines through acquisitions and internal growth, (ii) expand into
complementary business lines by applying the Company's acquisition and operating
expertise to other areas of the North American consumer goods packaging market
and (iii) improve the profitability of acquired businesses through integration,
rationalization and capital investments to enhance their manufacturing and
production efficiency.
Increase Market Share Through Acquisitions and Internal Growth. The
Company has increased its revenues and market share in the metal container,
plastic container and specialty markets through acquisitions and internal
growth. As a result of this strategy, the Company has diversified its customer
base, geographic presence and product line. Management believes that certain
industry trends exist which will enable the Company to continue to acquire
attractive businesses in its existing markets. For example, during the past ten
years, the metal container market has experienced significant consolidation due
to the desire by food processors to reduce costs and deploy resources to their
core operations. Self-manufacturers are increasingly outsourcing their container
needs by selling their operations to commercial container manufacturing
companies and agreeing to purchase containers from the buyer pursuant to
long-term contracts. The Company's acquisitions of the metal container
manufacturing operations of the Nestle Food Company ("Nestle"), The Dial
Corporation and Del Monte reflect this trend. As a result of its growth
strategy, the Company has more than tripled its overall share of the U.S. metal
food container market from approximately 10% in 1987 to approximately 35% for
the twelve months ended October 31, 1996. The Company expects this consolidation
trend to continue as evidenced by its October 9, 1996 acquisition of Finger
Lakes. See "--Recent Developments". The Company's plastic container business has
also increased its market position primarily through strategic acquisitions,
from a sales base of $88.8 million in 1987 to $216.4 million in 1996. The
plastic container segment of the consumer goods packaging industry is highly
fragmented, and management intends to pursue consolidation opportunities in that
segment.
The Company also expects to generate internal growth due to its
participation in certain higher growth segments of the consumer goods packaging
market. For example, due to increasing consumer preference for plastic as a
substitute for glass, the Company is aggressively pursuing opportunities for its
custom designed polyethylene terephthalate ("PET") and high density polyethylene
("HDPE") containers. These opportunities include producing PET containers for
regional bottled water companies, and HDPE and PET containers for products such
as shampoo, mouthwash, salad dressing and liquor. The Company also believes that
there will be opportunities to expand its specialty business, which generated
net sales of $90.7 million in 1996. Specialty products manufactured by the
Company include metal closures for vacuum sealed glass containers, its licensed
Omni plastic container, a plastic, microwaveable bowl with an easy-open metal
end, and paper containers.
Expand into Complementary Business Lines Through Acquisitions.
Management believes that it can successfully apply its acquisition and operating
expertise to new segments of the consumer goods packaging industry. For example,
with the AN Can acquisition, the Company expanded its specialty business into
metal caps and closures and its licensed Omni plastic container. Management
believes that certain trends in and characteristics of the North American
consumer goods packaging industry will continue to generate attractive
acquisition opportunities in complementary business lines. The Company is
focused on the North American consumer goods packaging industry, which
represents a significant part of the $95 billion North American packaging market
(based on estimated total sales in 1994). Importantly,
-2-
<PAGE>
the industry is also fragmented, with numerous segments and multiple
participants in each of them. In addition, many of these segments are
experiencing consolidation.
Enhance Profitability of Acquired Companies. The Company seeks to
acquire businesses at reasonable cash flow multiples and to enhance
profitability by rationalizing plants, by improving manufacturing and production
efficiencies and through purchasing economies. Since 1991, the Company has
reduced costs by closing twelve smaller, higher cost facilities. Since its
inception in 1987, the Company has invested approximately $272.3 million to
upgrade acquired manufacturing facilities, aimed at generating manufacturing and
production efficiencies and achieving a low cost producer position. As a result,
the Company's acquisitions have generally been accretive to earnings and have
produced high returns on assets. The AN Can acquisition illustrates the ability
of the Company to enhance the profitability of acquired businesses. The Company
estimates that it has reduced AN Can's operating costs from its historical 1994
level by at least $21.0 million, through selling and administrative cost
reductions, improved manufacturing and production efficiencies and purchasing
economies. The Company expects to further reduce AN Can's operating costs over
the next few years by an aggregate of approximately $15.0 million (approximately
half of which is expected to be realized in 1997) through the elimination of
transitional administrative costs, the realization of additional manufacturing
and production synergies with its metal container business and plant
rationalizations.
Financial Strategy
The Company's financial strategy has been to use leverage to support
its growth and optimize shareholder returns. The Company's stable and
predictable cash flow, generated largely as a result of its long-term customer
relationships, has supported its financial strategy. Management has successfully
operated its businesses and achieved its growth strategy while managing the
Company's indebtedness. Management intends to apply this strategy to further
expand its business. Additionally, on February 20, 1997, Silgan Holdings Inc.
("Holdings"), the parent company of Silgan, completed an initial public offering
(the "Offering") of 5,175,000 shares of common stock, par value $.01 per share
(the "Holdings Common Stock"), providing Holdings with improved financial
flexibility to implement the Company's growth strategy.
Business Segments
Silgan is a holding company that conducts its business through two
wholly owned operating companies, Silgan Containers Corporation ("Containers")
and Silgan Plastics Corporation ("Plastics").
Containers. For 1996, Containers had net sales of $1,189.3 million (85%
of the Company's net sales) and income from operations of $106.8 million (85% of
the Company's income from operations) (without giving effect to corporate
expense). Containers has realized compound annual unit sales growth in excess of
24% since 1992, despite the relative maturity of the U.S. food can industry.
Containers is engaged in the manufacture and sale of steel and aluminum
containers that are used primarily by processors and packagers for human and pet
food. Containers manufactures metal containers for vegetables, fruit, pet food,
meat, tomato based products, coffee, soup, seafood and evaporated milk. The
Company estimates that approximately 80% of Containers' projected sales in 1997
will be pursuant to long-term supply arrangements. Containers has agreements
with Nestle (the "Nestle Supply Agreements") pursuant to which Containers
supplies a majority of Nestle's metal container requirements, and an agreement
with Del Monte (the "DM Supply Agreement") pursuant to which Containers supplies
substantially all of Del Monte's metal container requirements. In addition to
Nestle and Del Monte, Containers has multi-year supply arrangements with several
other major food processors.
-3-
<PAGE>
Containers also manufactures certain specialty packaging items,
including metal caps and closures, plastic bowls and paper containers used by
processors in the food industry. For 1996, Containers had net sales of specialty
packaging items of $90.7 million.
Plastics. For 1996, Plastics had net sales of $216.4 million (15% of
the Company's net sales) and income from operations of $18.4 million (15% of the
Company's income from operations) (without giving effect to corporate expense).
Plastics is aggressively pursuing opportunities in custom designed PET and HDPE
containers. Plastics emphasizes value-added design, fabrication and decoration
of custom containers in its business. Plastics manufactures custom designed HDPE
containers for health and personal care products, including containers for
shampoos, conditioners, hand creams, lotions, cosmetics and toiletries,
household chemical products, including containers for scouring cleaners,
cleaning agents and lawn and garden chemicals and pharmaceutical products,
including containers for tablets, antacids and eye cleaning solutions. Plastics
also manufactures PET custom designed containers for mouthwash, respiratory and
gastrointestinal products, liquid soap, skin care lotions, salad dressings,
condiments, instant coffee, bottled water and liquor. While many of Plastics'
larger competitors that manufacture extrusion blow-molded plastic containers
employ technology oriented to large bottles and long production runs, Plastics
has focused on mid-sized, extrusion blow-molded plastic containers requiring
special decoration and shorter production runs. Because these products are
characterized by short product life and a demand for creative packaging, the
containers manufactured for these products generally have more sophisticated
designs and decorations.
Manufacturing and Production
As is the practice in the industry, most of the Company's can and
plastic container customers provide it with quarterly or annual estimates of
products and quantities pursuant to which periodic commitments are given. Such
estimates enable the Company to effectively manage production and control
working capital requirements. Containers estimates that approximately 80% of its
projected 1997 sales will be pursuant to multi-year contracts. Plastics has
purchase orders or contracts for containers with the majority of its customers.
In general, these purchase orders and contracts are for containers made from
proprietary molds and are for a duration of 2 to 5 years. Both Containers and
Plastics schedule their production to meet their customers' requirements.
Because the production time for the Company's products is short, the backlog of
customer orders in relation to sales is not significant.
Metal Container Business
The Company's manufacturing operations include cutting, coating,
lithographing, fabricating, assembling and packaging finished cans. Three basic
processes are used to produce cans. The traditional three-piece method requires
three pieces of flat metal to form a cylindrical body with a welded side seam, a
bottom and a top. High integrity of the side seam is assured by the use of
sophisticated electronic weld monitors and organic coatings that are thermally
cured by induction and convection processes. The other two methods of producing
cans start by forming a shallow cup that is then formed into the desired height
using either the draw and iron process or the draw and redraw process. Using the
draw and redraw process, the Company manufactures steel and aluminum two-piece
cans, the height of which does not exceed the diameter. For cans the height of
which is greater than the diameter, the Company manufactures steel two-piece
cans by using a drawing and ironing process. Quality and stackability of such
cans are comparable to that of the shallow two-piece cans described above. Can
bodies and ends are manufactured from thin, high-strength aluminum alloys and
steels by utilizing proprietary tool and die designs and selected can making
equipment.
-4-
<PAGE>
Plastic Container Business
The Company utilizes two basic processes to produce plastic bottles. In
the extrusion blow molding process, pellets of plastic resin are heated and
extruded into a tube of plastic. A two-piece metal mold is then closed around
the plastic tube and high pressure air is blown into it causing a bottle to form
in the mold's shape. In the injection blow molding process, pellets of plastic
resin are heated and injected into a mold, forming a plastic preform. The
plastic preform is then blown into a bottle-shaped metal mold, creating a
plastic bottle.
The Company believes that its proprietary equipment for the production
of HDPE containers is particularly well-suited for the use of post-consumer
recycled ("PCR") resins because of the relatively low capital costs required to
convert its equipment to utilize multi-layer container construction.
The Company's decorating methods for its plastic products include (1)
in-mold labeling which applies a paper or plastic film label to the bottle
during the blowing process and (2) post-mold decoration. Post-mold decoration
includes (i) silk screen decoration which enables the applications of images in
multiple colors to the bottle, (ii) pressure sensitive decoration which uses a
plastic film or paper label with an adhesive, (iii) heat transfer decoration
which uses a plastic coated label applied by heat, and (iv) hot stamping
decoration which transfers images from a die using metallic foils. The Company
has state-of-the-art decorating equipment, including, management believes, one
of the largest sophisticated decorating facilities in the country.
Raw Materials
The Company does not believe that it is materially dependent upon any
single supplier for any of its raw materials and, based upon the existing
arrangements with suppliers, its current and anticipated requirements and market
conditions, the Company believes that it has made adequate provisions for
acquiring raw materials. Although increases in the prices of raw materials have
generally been passed along to the Company's customers in accordance with the
Company's long-term supply arrangements and otherwise, any inability to do so in
the future could have a significant impact on the Company's operating margins.
Metal Container Business
The Company uses tin plated and chromium plated steel, aluminum, copper
wire, organic coatings, lining compound and inks in the manufacture and
decoration of its metal can products. The Company's material requirements are
supplied through purchase orders with suppliers with whom the Company, through
its predecessors, has long-term relationships. If its suppliers fail to deliver
under their arrangements, the Company will be forced to purchase raw materials
on the open market, and no assurances can be given that it would be able to make
such purchases at comparable prices or terms. The Company believes that it will
be able to purchase sufficient quantities of steel and aluminum can sheet for
the foreseeable future.
Plastic Container Business
The raw materials used by the Company for the manufacture of plastic
containers are primarily resins in pellet form such as recycled PET, HDPE-PCR
and virgin HDPE and PET and, to a lesser extent, low density polyethylene,
extrudable polyethylene terephthalate, polyethylene terephthalate glycol,
polypropylene, polyvinyl chloride and medium density polyethylene. The Company's
resin requirements are acquired through multi-year arrangements for specific
quantities of resins with several major suppliers
-5-
<PAGE>
of resins. The price the Company pays for resin raw materials is not fixed and
is subject to market pricing. The Company believes that it will be able to
purchase sufficient quantities of resins for the foreseeable future.
Sales and Marketing
The Company's philosophy has been to develop long-term customer
relationships by acting in partnership with its customers, providing reliable
quality and service and utilizing its low cost producer position. The Company
markets its products in most areas of North America primarily by a direct sales
force and for its plastic container business, to a lesser extent, through a
network of distributors. Because of the high cost of transporting empty
containers, the Company generally sells to customers within a 300 mile radius of
its manufacturing plants. See also "--Competition".
In 1996, 1995 and 1994, approximately 17%, 21% and 26%, respectively,
of the Company's sales were to Nestle, and approximately 12%, 15% and 21%,
respectively, of the Company's sales were to Del Monte. No other customer
accounted for more than 10% of the Company's total sales during such years.
Metal Container Business
The Company is the largest manufacturer of metal food can containers in
North America, with a unit sale market share for the twelve months ended October
31, 1996 of approximately 35% in the United States. Containers has entered into
multi-year supply arrangements with many of its customers, including Nestle and
Del Monte. The Company estimates that approximately 80% of its projected metal
container sales in 1997 will be pursuant to such arrangements.
In 1987, the Company, through Containers, and Nestle entered into nine
Nestle Supply Agreements pursuant to which Containers has agreed to supply
Nestle with, and Nestle has agreed to purchase from Containers, substantially
all of the can requirements of the former Carnation operations of Nestle for a
period of ten years, subject to certain conditions. In 1996, sales of metal cans
by the Company to Nestle were $240.6 million.
The Nestle Supply Agreements provide for certain prices and specify
that such prices will be increased or decreased based upon cost change formulas
set forth therein. The Nestle Supply Agreements contain provisions that require
Containers to maintain certain levels of product quality, service and delivery
in order to retain the Nestle business. In the event of a breach of a particular
Nestle Supply Agreement, Nestle may terminate such Nestle Supply Agreement but
the other Nestle Supply Agreements would remain in effect.
The Company has recently agreed with Nestle, subject to definitive
documentation, to extend the term of certain of the Nestle Supply Agreements
through 2004 (representing approximately 10% of the Company's estimated 1996
sales) in return for certain price concessions by the Company. The Company
believes that these price concessions will not have a material adverse effect on
its results of operations. Under certain limited circumstances, Nestle,
beginning in January 2000 (with respect to all of the containers supplied under
the Nestle Supply Agreements that have been extended through 2004), may receive
competitive bids, and Containers has the right to match any such bids. If
Containers matches a competitive bid, it may result in reduced sales prices with
respect to the metal containers that are the subject of such competitive bid. In
the event that Containers chooses not to match a competitive bid, such metal
containers may be purchased from the competitive bidder at the competitive bid
price for the term of the bid.
-6-
<PAGE>
Under the Company's recent agreement with Nestle, with respect to the
remaining Nestle Supply Agreements that expire in August 1997 (representing
approximately 6% of the Company's estimated 1996 sales), the Company has the
right to submit a bid to Nestle, and to match any bid received by Nestle, for
the 1998 supply year with respect to the metal containers that are the subject
of such Nestle Supply Agreements. There can be no assurance that any such bid by
the Company will be made at sales prices equivalent to those currently in effect
or otherwise on terms similar to those currently in effect. In addition, the
Company cannot predict the effect, if any, on its results of operations of
matching or not matching any such bids.
On December 21, 1993, Containers and Del Monte entered into the DM
Supply Agreement. Under the DM Supply Agreement, Del Monte has agreed to
purchase from Containers, and Containers has agreed to sell to Del Monte,
substantially all of Del Monte's annual requirements for metal containers to be
used for the packaging of food and beverages in the United States, subject to
certain limited exceptions. In 1996, sales of metal containers by the Company to
Del Monte were $168.0 million.
The DM Supply Agreement provides for certain prices for all metal
containers supplied by Containers to Del Monte thereunder and specifies that
such prices will be increased or decreased based upon specified cost change
formulas.
Under the DM Supply Agreement, beginning in December 1998, Del Monte
may, under certain circumstances, receive proposals with terms more favorable
than those under the DM Supply Agreement from independent commercial can
manufacturers for the supply of containers of a type and quality similar to the
metal containers that Containers furnishes to Del Monte, which proposals shall
be for the remainder of the term of the DM Supply Agreement and for 100% of the
annual volume of containers at one or more of Del Monte's canneries. Containers
has the right to retain the business subject to the terms and conditions of such
competitive proposal.
The sale of metal containers to vegetable and fruit processors is
seasonal and monthly revenues increase during the months of June through
October. As is common in the packaging industry, the Company must build
inventory and then carry accounts receivable for some seasonal customers beyond
the end of the season. The acquisition of AN Can increased the Company's
seasonal metal container business. Consistent with industry practice, such
customers may return unused containers. Historically, such returns have been
minimal.
Plastic Container Business
The Company is one of the leading manufacturers of custom designed HDPE
and PET containers sold in North America. The Company markets its plastic
containers in most areas of North America through a direct sales force and
through a large network of distributors. Management believes that the Company is
a leading manufacturer of plastic containers in North America for personal care
products. More than 70% of the Company's plastic containers are sold for health
and personal care products, such as hair care, oral care, pharmaceutical and
other health care applications. The Company's largest customers in these product
segments include the Helene Curtis and Chesebrough-Ponds USA divisions of
Unilever United States, Inc., Procter & Gamble Co., Avon Products, Inc., Andrew
Jergens Inc., The Dial Corporation, Warner-Lambert Company and Pfizer Inc. The
Company also manufactures plastic containers for food and beverage products,
such as salad dressings, condiments, instant coffee and bottled water and
liquor. Customers in these product segments include Procter & Gamble Co., Kraft
Foods Inc. and General Mills, Inc.
-7-
<PAGE>
As part of its marketing strategy, the Company has arrangements to sell
some of its plastic products to distributors, which in turn sell such products
primarily to regional customers. Plastic containers sold to distributors are
manufactured by using generic molds with decoration, color and neck finishes
added to meet the distributors' individual requirements. The distributors'
warehouses and their sales personnel enable the Company to market and inventory
a wide range of such products to a variety of customers.
Plastics has written purchase orders or contracts for containers with
the majority of its customers. In general, these purchase orders and contracts
are for containers made from proprietary molds and are for a duration of 2 to 5
years.
Competition
The packaging industry is highly competitive. The Company competes in
this industry with other packaging manufacturers as well as fillers, food
processors and packers who manufacture containers for their own use and for sale
to others. The Company attempts to compete effectively through the quality of
its products, competitive pricing and its ability to meet customer requirements
for delivery, performance and technical assistance. The Company also pursues
market niches such as the manufacture of easy-open ends and special feature
cans, which may differentiate the Company's products from its competitors'
products.
Because of the high cost of transporting empty containers, the Company
generally sells to customers within a 300 mile radius of its manufacturing
plants. Strategically located existing plants give the Company an advantage over
competitors from other areas, and the Company would be disadvantaged by the loss
or relocation of a major customer. As of December 31, 1996, the Company operated
48 manufacturing facilities, geographically dispersed throughout the United
States and Canada, that serve the distribution needs of its customers.
Metal Container Business
Of the commercial metal can manufacturers, Crown Cork and Seal Company,
Inc. and Ball Corporation are the Company's most significant national
competitors. As an alternative to purchasing cans from commercial can
manufacturers, customers have the ability to invest in equipment to
self-manufacture their cans. However, some self-manufacturers have sold or
closed can manufacturing operations and entered into long-term supply agreements
with the new owners or with commercial can manufacturers.
Although metal containers face continued competition from plastic,
paper and composite containers, management believes that metal containers are
superior to plastic and paper containers in applications where the contents are
processed at high temperatures, where the contents are packaged in large or
institutional quantities (14 to 64 oz.) or where long-term storage of the
product is desirable. Such applications include canned vegetables, fruits, meats
and pet foods. These sectors are the principal areas for which the Company
manufactures its products.
Plastic Container Business
Plastics competes with a number of large national producers of health,
personal care, food, beverage, pharmaceutical and household chemical plastic
container products, including Owens-Brockway Plastics Products, a division of
Owens-Illinois, Inc., Constar Plastics Inc., a subsidiary of Crown Cork and Seal
Company, Inc., Johnson Controls Inc., Continental Plastics Inc. and Plastipak
Packaging Inc. In order to compete effectively in the constantly changing market
for plastic bottles, the Company must
-8-
<PAGE>
remain current with, and to some extent anticipate innovations in, resin
composition and applications and changes in the technology for the manufacturing
of plastic bottles.
Employees
As of December 31, 1996, the Company employed approximately 1,080
salaried and 4,445 hourly employees on a full-time basis. Approximately 64% of
the Company's hourly plant employees are represented by a variety of unions.
The Company's labor contracts expire at various times between 1997 and
2008. Contracts covering approximately 13% of the Company's hourly employees
presently expire during 1997. The Company expects no significant changes in its
relations with these unions. Management believes that its relationship with its
employees is good.
Regulation
The Company is subject to federal, state and local environmental laws
and regulations. In general, these laws and regulations limit the discharge of
pollutants into the air and water and establish standards for the treatment,
storage, and disposal of solid and hazardous waste. The Company believes that
all of its facilities are either in compliance in all material respects with all
presently applicable environmental laws and regulations or are operating in
accordance with appropriate variances, delayed compliance orders or similar
arrangements.
In addition to costs associated with regulatory compliance, the Company
may be held liable for alleged environmental damage associated with the past
disposal of hazardous substances. Generators of hazardous substances disposed of
at sites at which environmental problems are alleged to exist, as well as the
owners of those sites and certain other classes of persons, are subject to
claims under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 ("CERCLA") regardless of fault or the legality of the
original disposal. Liability under CERCLA and under many similar state statutes
is joint and several, and, therefore, any responsible party may be held liable
for the entire cleanup cost at a particular site. Other state statutes may
impose proportionate rather than joint and several liability. The federal
Environmental Protection Agency or a state agency may also issue orders
requiring responsible parties to undertake removal or remedial actions at
certain sites. Pursuant to the agreement relating to the acquisition in 1987 of
the can operations of Nestle ("Nestle Can"), the Company has assumed liability
for the past waste disposal practices of Nestle Can. In 1989, the Company
received notice that it is one of many potentially responsible parties (or
similarly designated parties) for cleanup of hazardous waste at a site to which
it (or its predecessor Nestle Can) is alleged to have shipped such waste and at
which the Company's share of cleanup costs exceeded $100,000. See "Legal
Proceedings".
Pursuant to the agreement relating to the acquisition in 1987 from
Monsanto Company ("Monsanto") of substantially all of the business and related
fixed assets and inventory of Monsanto's plastic containers business ("Monsanto
Plastic Containers"), Monsanto has agreed to indemnify the Company for
substantially all of the costs attributable to the past waste disposal practices
of Monsanto Plastic Containers. In connection with the acquisition of AN Can,
subject to certain limitations, ANC has agreed to indemnify the Company for a
period of three years for the costs attributable to any noncompliance by AN Can
with any environmental law prior to the closing, including costs attributable to
the past waste disposal practices of AN Can.
The Company is subject to the Occupational Safety and Health Act and
other laws regulating noise exposure levels and other safety and health concerns
in the production areas of its plants.
-9-
<PAGE>
Management does not believe that any of the matters described above
individually or in the aggregate will have a material effect on the Company's
capital expenditures, earnings, financial position or competitive position.
Research and Product Development
Metal Container Business
The Company's research, product development and product engineering
efforts relating to its metal containers are currently conducted at its research
centers at Oconomowoc, Wisconsin and Neenah, Wisconsin. The Company is building
a state-of-the-art research facility in Oconomowoc, Wisconsin in order to
consolidate its two main research centers into one facility.
Plastic Container Business
The Company's research, product development and product engineering
efforts with respect to its plastic containers are currently performed by its
manufacturing and engineering personnel located at its Norcross, Georgia
facility. In addition to its own research and development staff, the Company
participates in arrangements with three non-U.S. plastic container manufacturers
that allow for an exchange of technology among these manufacturers. Pursuant to
these arrangements, the Company licenses its blow molding technology to such
manufacturers.
Company History
Silgan is a Delaware corporation formed in August 1987 as a holding
company to acquire interests in various packaging manufacturers. Prior to 1987,
Silgan did not engage in any business. In June 1989, through certain mergers
(the "1989 Mergers"), Silgan became a wholly owned subsidiary of Holdings, a
Delaware corporation whose principal asset is all of the outstanding common
stock of Silgan.
Since its inception in 1987, the Company has completed the following
acquisitions:
Acquired Business Year Products
- ------------------------------------------------ ---- --------
Metal Container Manufacturing division of Nestle 1987 Metal food containers
Monsanto Company's plastic container business 1987 Plastic containers
Fort Madison Can Company of The Dial Corporation 1988 Metal food containers
Seaboard Carton Division of Nestle 1988 Paper containers
Aim Packaging, Inc. 1989 Plastic containers
Fortune Plastics Inc. 1989 Plastic containers
Express Plastic Containers Limited 1989 Plastic containers
Amoco Container Company 1989 Plastic containers
Del Monte's U.S. can manufacturing operations 1993 Metal food containers
Food Metal and Specialty business of ANC 1995 Metal food containers,
metal caps and
closures and Omni
plastic containers
Finger Lakes, a subsidiary of Curtice Burns 1996 Metal food containers
-10-
<PAGE>
Recent Developments
Initial Public Offering
On February 20, 1997, Holdings completed the Offering. In the Offering,
Holdings sold to the underwriters 3,700,000 previously unissued shares of
Holdings Common Stock at an initial public offering price of $20.00 per share
for aggregate net proceeds to Holdings of $68,820,000 (after deducting the
underwriting discount but before deducting estimated expenses of $1,000,000
payable by Holdings in connection with the Offering). Holdings used a portion of
the net proceeds received by it from the Offering to make an advance to Silgan
that Silgan used to prepay on February 20, 1997 approximately $5.4 million and
$3.5 million principal amount of A term loans and B term loans, respectively,
under the Credit Agreement (as defined herein). Holdings used the remaining net
proceeds received by it from the Offering to redeem on March 26, 1997 all of its
remaining outstanding 13-1/4% Senior Discount Debentures due 2002 (the "Discount
Debentures") (approximately $59.0 million aggregate principal amount).
At the advice of the managing underwriters for the Offering, the number
of shares of Holdings Common Stock sold in the Offering was increased from
3,700,000 shares (the number of shares originally contemplated to be sold in the
Offering) to 5,175,000 shares (including the underwriters over-allotment). The
managing underwriters for the Offering also advised that the additional shares
of Holdings Common Stock to be included in the Offering be sold by The Morgan
Stanley Leveraged Equity Fund II, L.P. ("MSLEF II") and Bankers Trust New York
Corporation ("BTNY"), existing stockholders of Holdings prior to the Offering.
Accordingly, in the Offering, MSLEF II and BTNY sold to the underwriters
1,317,246 and 157,754 previously issued and outstanding shares of Holdings
Common Stock owned by them, respectively (including 602,807 and 72,193 shares of
Holdings Common Stock, respectively, which were sold as a result of the
underwriters exercise of their over-allotment option in full), or approximately
18% of the shares of Holdings Common Stock owned by each of them. Holdings did
not receive any of the proceeds from the sale of the shares of Holdings Common
Stock by MSLEF II or BTNY.
Neither of Holdings' two other existing stockholders prior to the
Offering, Messrs. R. Philip Silver, the Chairman of the Board and Co-Chief
Executive Officer of Holdings and Silgan, and D. Greg Horrigan, the President
and Co-Chief Executive Officer of Holdings and Silgan, sold any shares of
Holdings Common Stock in the Offering. See "Securities Ownership of Certain
Beneficial Owners and Management".
Acquisition
On October 9, 1996, Containers acquired substantially all of the assets
of Finger Lakes, a metal food container manufacturer with facilities in Lyons,
New York and Benton Harbor, Michigan and a wholly owned subsidiary of Curtice
Burns, for a purchase price of approximately $29.9 million (including net
working capital of approximately $8.0 million). As part of the transaction,
Containers 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 the Credit Agreement.
-11-
<PAGE>
Item 2. Properties
Silgan's and Holdings' principal executive offices are located at 4
Landmark Square, Stamford, Connecticut 06901. The administrative headquarters
and principal places of business for Containers and Plastics are located at
21800 Oxnard Street, Woodland Hills, California 91367 and 14515 N. Outer Forty,
Chesterfield, Missouri 63017, respectively. All of these offices are leased by
Holdings or the Company.
The Company owns and leases properties for use in the ordinary course
of business. Such properties consist primarily of 33 metal container
manufacturing facilities, 11 plastic container manufacturing facilities and 4
specialty packaging manufacturing facilities. Twenty of these facilities are
owned and 28 are leased by the Company. The leases expire at various times
through 2020. Some of these leases provide renewal options.
Below is a list of the Company's operating facilities, including
attached warehouses, as of February 28, 1997 for its metal container business:
Approximate Building Area
Location (square feet)
- -------- -------------------------
City of Industry, CA.............................. 50,000 (leased)
Kingsburg, CA..................................... 37,783 (leased)
Modesto, CA....................................... 35,585 (leased)
Modesto, CA....................................... 128,000 (leased)
Modesto, CA....................................... 150,000 (leased)
Riverbank, CA..................................... 167,000
San Leandro, CA................................... 200,000 (leased)
Stockton, CA...................................... 243,500
Norwalk, CT....................................... 14,359 (leased)
Broadview, IL..................................... 85,000
Hoopeston, IL..................................... 323,000
Rochelle, IL...................................... 175,000
Waukegan, IL...................................... 40,000 (leased)
Woodstock, IL..................................... 160,000 (leased)
Evansville, IN.................................... 188,000
Hammond, IN....................................... 160,000 (leased)
Laporte, IN....................................... 144,000 (leased)
Fort Madison, IA.................................. 66,000
Ft. Dodge, IA..................................... 49,500 (leased)
Benton Harbor, MI................................. 20,246 (leased)
Savage, MN........................................ 160,000
St. Paul, MN...................................... 470,000
West Point, MS.................................... 25,000 (leased)
Mt. Vernon, MO.................................... 100,000
Northtown, MO..................................... 112,000 (leased)
St. Joseph, MO.................................... 173,725
St. Louis, MO..................................... 174,000 (leased)
Edison, NJ........................................ 280,000
Lyons, NY......................................... 145,000
Crystal City, TX.................................. 26,045 (leased)
Toppenish, WA..................................... 98,000
Vancouver, WA..................................... 127,000 (leased)
Menomonee Falls, WI............................... 116,000
Menomonie, WI..................................... 60,000 (leased)
Oconomowoc, WI.................................... 105,200
Plover, WI........................................ 58,000 (leased)
Waupun, WI........................................ 212,000
-12-
<PAGE>
Below is a list of the Company's operating facilities, including
attached warehouses, as of February 28, 1997 for its plastic container business:
Approximate Building Area
Location (square feet)
- -------- -------------------------
Anaheim, CA...................................... 127,000 (leased)
Deep River, CT................................... 140,000
Monroe, GA....................................... 117,000
Norcross, GA..................................... 59,000 (leased)
Ligonier, IN..................................... 477,000 (284,000 leased)
Seymour, IN...................................... 406,000
Franklin, KY..................................... 122,000 (leased)
Port Clinton, OH................................. 336,000 (leased)
Langhorne, PA.................................... 156,000 (leased)
Mississauga, Ontario............................. 80,000 (leased)
Mississauga, Ontario............................. 60,000 (leased)
The Company owns and leases certain other warehouse facilities that are
detached from its manufacturing facilities. All of the Company's facilities are
subject to liens in favor of the banks party to the Credit Agreement.
The Company believes that its plants, warehouses and other facilities
are in good operating condition, adequately maintained, and suitable to meet its
present needs and future plans. The Company believes that it has sufficient
capacity to satisfy the demand for its products in the foreseeable future. To
the extent that the Company needs additional capacity, management believes that
the Company can convert certain facilities to continuous operation or make the
appropriate capital expenditures to increase capacity.
Item 3. Legal Proceedings
On October 17, 1989, the State of California, on behalf of the
California Department of Health Services ("DHS"), filed a suit in the United
States District Court for the Northern District of California against the owners
and operators of a recycling facility operated by Summer del Caribe, Inc., Dale
Summer and Lynn Rodich. The complaint also named 16 can manufacturing companies,
including Containers, that had sent amounts of solder dross to the facility for
recycling as "Potentially Responsible Parties" ("PRPs") under the Federal
Superfund statute. Containers is one of the 15 defendant can companies which
agreed to participate as a group in response to the DHS suit (the "PRP Group").
In the PRP Group agreement, Containers agreed with the other can company
defendants that its apportioned share of cleanup costs would be 6.72% of the
total cost of cleanup. The PRP Group has undertaken a feasibility study for the
purpose of developing, designing and implementing a final remedy for the site.
The feasibility study was approved by the California Department of Toxic
Substances Control ("DTSC") in June 1994. On March 14, 1995, the court approved
a settlement agreement and consent decree which ordered the PRP Group to submit
a draft Remedial Action Plan to the DTSC for approval, which the PRP Group
submitted to the DTSC on September 5, 1995. On September 13, 1995, the DTSC
notified the PRP Group by letter that the Remedial Action Plan had been adopted
for the Summer del Caribe site. According to the Remedial Action Plan, the
overall cost of site cleanup is estimated to be $3,000,000. Site cleanup is near
completion. However, monitoring at the site will be required for approximately
one year, the expenses for which represent a small portion of the total expense
of cleanup. The PRP Group
-13-
<PAGE>
has assessed approximately $201,264 as Containers' share of the cleanup cost,
which amount has been paid. The Company believes that significant additional
expenditures on its behalf are unlikely.
Other than the action mentioned above, there are no other material
pending legal proceedings to which the Company is a party or to which any of its
properties are subject.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
-14-
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Silgan's common stock is not publicly traded on any market or exchange.
All of the outstanding common stock of Silgan is held by Holdings. Other than
(i) distributions to Holdings in 1996 and 1995 in an aggregate amount of $205.1
million (which were used by Holdings to purchase and redeem $204.1 million
aggregate principal amount of Discount Debentures and pay accrued interest on
the Discount Debentures) and (ii) distributions to Holdings of $3.8 million in
1995 to enable Holdings to make payments to former shareholders of Silgan in
connection with the 1989 Mergers, Silgan has not paid any dividends on its
common stock or made any distributions to Holdings during Silgan's two most
recently completed fiscal years. Silgan also made a distribution of $2.2 million
to Holdings on March 26, 1997 to enable Holdings to pay accrued interest on the
Discount Debentures redeemed on such date.
Under certain limited circumstances, Silgan is permitted under the
Credit Agreement and the indenture (the "11-3/4% Notes Indenture") relating to
Silgan's 11-3/4% Senior Subordinated Notes due 2002 (the "11-3/4% Notes") to pay
dividends on its common stock and to make distributions to Holdings. However,
Silgan does not intend to pay any dividends on its common stock or make any
distributions to Holdings in the foreseeable future, except for distributions
made to Holdings to enable Holdings to pay its consolidated federal and state
tax obligations. Additionally, under certain circumstances, Silgan may make
advances or loans to Holdings as permitted under the Credit Agreement and the
11-3/4% Notes Indenture.
Item 6. Selected Financial Data.
Set forth below are selected historical consolidated financial data of
Silgan at December 31, 1996, 1995, 1994, 1993 and 1992 and for the years then
ended.
The selected historical consolidated financial data at December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996 (with the exception of employee data) were derived from the historical
consolidated financial statements of Silgan for such periods that were audited
by Ernst & Young LLP, independent auditors, whose report appears elsewhere in
this Annual Report on Form 10-K. The selected historical consolidated financial
data at December 31, 1994, 1993 and 1992 and for the years ended December 31,
1993 and 1992 were derived from the historical audited consolidated financial
statements for such periods.
The selected historical data were derived from, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements, including
the notes thereto, included elsewhere in this Annual Report on Form 10-K.
-15-
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Year Ended December 31,
-----------------------
1996(a) 1995(a) 1994(b) 1993(b) 1992
------- ------- ------- ------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales....................................... $1,405,742 $1,101,905 $861,374 $645,468 $630,039
Cost of goods sold.............................. 1,222,976 970,491 748,290 571,174 554,972
--------- --------- ------- ------- -------
Gross profit.................................... 182,766 131,414 113,084 74,294 75,067
Selling, general and administrative
expenses.................................... 58,056 45,734 37,160 31,821 32,274
Reduction in carrying value of assets (c)....... -- 14,745 16,729 -- --
--------- --------- ------- ------- -------
Income from operations.......................... 124,710 70,935 59,195 42,473 42,793
Interest expense and other related
financing costs............................. 71,491 52,462 36,142 27,928 26,916
--------- --------- ------- ------- -------
Income before income taxes...................... 53,219 18,473 23,053 14,545 15,877
Income tax provision............................ 20,900 8,700 11,000 6,300 2,200
--------- --------- ------- ------- -------
Income before extraordinary charges and
cumulative effect of changes in accounting
principles.................................. 32,319 9,773 12,053 8,245 13,677
Extraordinary charges relating to early
extinguishment of debt...................... -- (2,967) -- (841) (9,075)
Cumulative effect of changes in accounting
principles, net of taxes (d)................ -- -- -- (9,951) --
--------- --------- ------- ------- -------
Net income (loss)............................... 32,319 6,806 12,053 (2,547) 4,602
Preferred stock dividend requirements........... -- -- -- -- 2,745
--------- --------- ------- ------- -------
Net income (loss) applicable to
common stockholder.......................... $ 32,319 $ 6,806 $ 12,053 $ (2,547) $ 1,857
========= ========= ======= ======= =======
Selected Segment Data:
Net sales:
Metal container business.................... $1,189,370 $ 882,345 $657,065 $459,149 $437,443
Plastic container business.................. 216,372 219,560 204,309 186,319 192,596
Income (loss) from operations: (e)
Metal container business.................... 106,861 58,111 59,770 42,267 40,722
Plastic container business.................. 18,362 13,240 (32) 575 2,336
Other Data:
Adjusted EBDITA (f)............................. $ 186,753 $ 133,141 $115,326 $ 76,769 $ 74,547
Adjusted EBDITA as a percentage of
net sales................................... 13.3% 12.1% 13.4% 11.9% 11.8%
Income from operations as a percentage
of net sales................................ 8.9 6.4 6.9 6.6 6.8
Capital expenditures............................ $ 56,851 $ 51,897 $ 29,184 $ 42,480 $ 23,447
Depreciation and amortization (g)............... 58,631 45,388 37,187 33,818 31,754
Cash flows provided by operating activities..... 130,066 209,636 47,335 48,331 34,360
Cash flows used for investing activities........ (98,337) (397,118) (27,900) (116,083) (23,018)
Cash flows (used for) provided by financing
activities.................................. (32,874) 186,909 (16,975) 65,285 (9,074)
Number of employees (at end of period) (h)...... 5,525 5,110 4,000 3,330 3,340
Balance Sheet Data (at end of period):
Total assets.................................... $ 900,369 $ 888,723 $500,148 $492,064 $382,154
Total long-term debt............................ 634,843 549,610 282,568 305,000 206,681
Common stockholder's equity (deficit)........... (84,759) 12,860 63,345 52,803 32,775
(footnotes follow)
</TABLE>
-16-
<PAGE>
Notes to Selected Financial Data
(a) On August 1, 1995, the Company acquired AN Can for a purchase price of
$362.0 million (including the purchase from ANC of its St. Louis facility
in May 1996 for $13.1 million). The acquisition was accounted for as a
purchase transaction and the results of operations have been included with
the Company's historical results from the acquisition date. See Note 3 to
the Consolidated Financial Statements for the year ended December 31, 1996
included elsewhere in this Annual Report on Form 10-K.
(b) On December 21, 1993, the Company acquired DM Can for a purchase price of
approximately $73.3 million. The acquisition was accounted for as a
purchase transaction and the results of operations have been included with
the Company's historical results from the acquisition date.
(c) Based upon a review of its depreciable assets, the Company determined that
certain adjustments were necessary to properly reflect net realizable
values. In 1995, the metal container business recorded a write-down of
$14.7 million for the excess of carrying value over estimated realizable
value of machinery and equipment at existing facilities which had become
underutilized due to excess capacity. In 1994, charges of $7.2 million and
$9.5 million were recorded by the metal container business and plastic
container business, respectively, to write-down the excess carrying value
over estimated realizable value of various plant facilities held for sale
and for technologically obsolete and inoperable machinery and equipment.
(d) During 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 106, "Employers Accounting for Postretirement
Benefits Other than Pensions," SFAS No. 109, "Accounting for Income Taxes"
and SFAS No. 112, "Employers Accounting for Postemployment Benefits". The
Company did not elect to restate prior years' financial statements for any
of these pronouncements.
(e) Income (loss) from operations in the selected segment data includes charges
incurred for the reduction in carrying value of certain assets for the
metal containers business of $14.7 million and $7.2 million for the years
ended December 31, 1995 and 1994 and for the plastic containers business of
$9.5 million for the year ended December 31, 1994, as referred to in
footnote (c) above. Income from operations for both the metal container and
plastic container businesses excludes corporate expense.
(f) "Adjusted EBITDA" means consolidated net income before extraordinary
charges, cumulative effect of changes in accounting principles and
preferred stock dividends plus, to the extent reflected in the income
statement for the applicable period, without duplication, consolidated
interest expense, income tax expense and depreciation and amortization
expense, as adjusted to add back expenses relating to postretirement health
care costs (which amounted to $2.6 million, $1.7 million, $0.7 million and
$0.5 million for the years ended December 31, 1996, 1995, 1994 and 1993,
respectively), the reduction in carrying value of assets (which were $14.7
million and $16.7 million for the years ended December 31, 1995 and 1994,
respectively) and certain other non-cash charges (which included charges
relating to the vesting of benefits under Stock Appreciation Rights
("SARs") of $0.8 million, $0.4 million and $1.5 million for the years ended
December 31, 1996, 1995 and 1994, respectively). The Company has included
information regarding Adjusted EBITDA because management believes that many
investors consider it to be important in assessing a company's ability to
service and incur debt. Accordingly, this information has been disclosed
herein to permit a more complete analysis of the Company's financial
condition. Adjusted EBITDA should not be considered in isolation or as a
substitute for net income or other consolidated statement of operations or
cash flows data prepared in accordance with Generally Accepted Accounting
Principles ("GAAP") as a measure of the profitability or liquidity of the
Company. See the consolidated statements of operations and consolidated
statements of cash flows of Silgan, including the notes thereto, included
elsewhere in this Annual Report on Form 10-K. Adjusted EBITDA does not take
into account the Company's debt service requirements and other commitments
and, accordingly, is not necessarily indicative of amounts that may be
available for discretionary uses. Additionally, Adjusted EBITDA is not
computed in accordance with GAAP and may not be comparable to other
similarly titled measures of other companies.
(g) Depreciation and amortization excludes amortization of debt financing
costs.
-17-
<PAGE>
(h) The number of employees at December 31, 1995 includes approximately 1,400
employees who joined the Company on August 1, 1995 as a result of the
acquisition by Containers of AN Can. The number of employees at December
31, 1993 excludes 650 employees who joined the Company on December 21, 1993
as a result of the acquisition by Containers of DM Can.
-18-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto included elsewhere in
this Annual Report on Form 10-K. Certain information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Annual Report on Form 10-K regarding the Company's expected
operations, financial results, cost savings, future liquidity, plans and
strategy for its business and related financing and general financial condition
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 Annual Report on Form 10-K and in Silgan's other
filings with the Securities and Exchange Commission. The Company's actual
operations, financial results, cost savings, future liquidity, plans and
strategy for its business and related financing and general financial condition
may differ from such forward looking statements.
Overview
The Company is a leading North American manufacturer of consumer goods
packaging products that currently produces (i) steel and aluminum containers for
human and pet food, (ii) custom designed plastic containers for personal care,
health, food, pharmaceutical and household chemical products and (iii) specialty
packaging items, including metal caps and closures, plastic bowls and paper
containers used by processors in the food industry. The Company is the largest
manufacturer of metal food containers in North America, with a unit sale market
share for the twelve months ended October 31, 1996 of 35% in the United States,
and is a leading manufacturer of plastic containers in North America for
personal care products. The Company has focused on growth through acquisitions,
followed by plant rationalizations and consolidations and investment in the
acquired businesses to gain manufacturing and production efficiencies and to
provide for internal growth. Since its inception, the Company has acquired and
successfully integrated ten businesses, including the recent acquisitions of AN
Can in August 1995 for a purchase price of approximately $362.0 million
(including net working capital of approximately $156.0 million) and DM Can in
December 1993 for a purchase price of approximately $73.3 million (including net
working capital of approximately $21.9 million). In addition, on October 9, 1996
the Company completed its acquisition of Finger Lakes, the metal container
manufacturing subsidiary of Curtice Burns. See "Business--Recent Developments".
The Company's future growth will depend in large part on additional acquisitions
of consumer goods packaging businesses.
The Company is continually evaluating and intends to continue to pursue
acquisition opportunities in the North American consumer goods packaging market.
Although the Company has no present binding agreements or commitments to make
any acquisition, the Company has expressed indications of interest or made
preliminary bids on three acquisition opportunities presented to it, which have
annual sales ranging from approximately $30 million to $250 million. Any such
acquisition may be financed through the incurrence of additional indebtedness.
The Company has recently received the necessary consents to amend the Credit
Agreement to enable it to incur up to an additional $50.0 million of B term
loans thereunder to finance certain of such acquisitions. No assurance can be
given that the Company will complete any such acquisition.
-19-
<PAGE>
Silgan is a holding company that conducts its business through two
wholly owned operating companies, Containers and Plastics.
Cost Reductions and Investments Following Acquisitions
The Company believes that its acquisitions and investments have enabled
it to achieve a low cost position in the metal food container segment. To
further enhance its low cost position, the Company has realized cost reduction
opportunities through plant rationalizations and capital improvements, as well
as from improved production scheduling and line reconfiguration. Since 1991,
Containers has closed eight smaller, higher cost metal container facilities,
including five facilities that were closed in 1995 as a result of the
integration of the manufacturing operations of DM Can. Because most of the
facilities that were closed in 1995 were closed late in the year, the Company
began to realize the benefits from the closing of such facilities in 1996. From
1991 through 1993, Plastics closed three manufacturing facilities and
consolidated the technical and administrative functions of its plastic container
businesses. An additional facility was closed in 1995. In 1994, Plastics began
to realize the benefits of this consolidation and rationalization program, as
well as from its capital investment program. In the fourth quarter of 1996, the
Company initiated further downsizing and rationalizations of certain of its
facilities. Management expects that these actions, along with improved
production scheduling, will enable the Company to achieve lower manufacturing
costs in 1997 as compared to 1996.
AN Can Acquisition
Management believes that the acquisition of AN Can, which has seventeen
manufacturing facilities, provides the Company with further cost reduction
opportunities, not only through purchasing economies and manufacturing synergies
which it will realize from the combined operations, but also through the
integration of selling, general and administrative operations of AN Can into the
Company's existing metal container business. In 1996, the Company realized
certain of the manufacturing synergies. In 1997, the Company expects to complete
the integration of the selling, general and administrative functions. The
Company believes that it will realize the full benefits of the integration of
the selling, general and administrative functions in 1998, and that benefits to
be realized by the rationalization of plant operations will begin to occur in
1997.
Although employee termination costs in connection with plant
rationalizations, administrative workforce reductions and other plant exit costs
associated with the acquisition of AN Can have been accrued through purchase
accounting adjustments, the Company incurred in 1995 and in 1996 other
non-recurring costs which under current accounting pronouncements will be
charged against operating income. These costs, which include transitional
charges related to the integration of selling and administrative functions, as
well as costs associated with plant rearrangement and clean-up, were $3.2
million in 1995 and were approximately $3.5 million in 1996. The Company expects
that it will eliminate the redundant charges related to the integration of
selling and administrative functions in 1997.
Net Sales
Long-term Contracts. The Company seeks to develop and maintain
long-term relationships with its customers. The Company estimates that
approximately 80% of Containers' projected sales in 1997 will be pursuant to
long-term supply arrangements. Containers' has agreements with Nestle pursuant
to which Containers supplies a majority of Nestle's metal container
requirements, and an agreement with Del Monte pursuant to which Containers
supplies substantially all of Del Monte's U.S. metal container requirements.
Revenues from these two customers represented approximately 29% of net sales by
Containers in 1996. In addition to Nestle and Del Monte, Containers has
multi-year supply arrangements
-20-
<PAGE>
with several other customers, including contracts which AN Can had with many of
its customers. The Company has recently agreed with Nestle, subject to
definitive documentation, to extend the term of certain of the Nestle Supply
Agreements through 2004 (representing approximately 10% of the Company's 1996
sales) in return for certain price concessions by the Company. See
"Business--Sales and Marketing". The Company believes that these price
concessions will not have a material adverse effect on its results of
operations. Under the Company's recent agreement with Nestle, with respect to
the remaining Nestle Supply Agreements that expire in August 1997 (representing
approximately 6% of the Company's 1996 sales), the Company has the right to
submit a bid to Nestle, and to match any bid received by Nestle, for the 1998
supply year with respect to the metal containers that are the subject of such
Nestle Supply Agreements. There can be no assurance that any such bid by the
Company will be made at sales prices equivalent to those currently in effect or
otherwise on terms similar to those currently in effect. The loss by the Company
of either Nestle or Del Monte as a customer would have a material adverse effect
on the Company's results of operations. See "Business--Sales and Marketing".
The Company's long-term supply contracts generally provide for pricing
changes in accordance with cost change formulas, thereby significantly reducing
the exposure of the Company's results from operations to the volatility of raw
material costs. In addition, the terms of the Company's long-term supply
contracts limit the Company's ability to increase margins.
Agricultural Harvest and Seasonality. The Company's metal container
business sales are dependent, in part, upon the vegetable, tomato and fruit
harvests in the midwest and western regions of the United States. The size and
quality of these harvests varies from year to year, depending in large part upon
the weather conditions in those regions. The fruit and vegetable pack harvest in
1994 was better than the below normal fruit and vegetable pack harvest in 1995,
resulting in greater sales to fruit and vegetable pack processing customers in
1994 as compared to 1995. The 1996 midwest vegetable harvest was better than in
1995, but, due to cool wet weather during the 1996 planting season, was less
than the harvest in 1994.
The Company's business is affected by seasonal variations as a result
of the timing of the harvest. Accordingly, the Company experiences higher unit
sales volume in the second and third quarters and, as a result, the Company has
historically generated a disproportionate amount of its annual income from
operations during these quarters. In 1996, the Company generated substantially
all of its net income in the second and third quarters.
Charges Relating to Stock Options
Concurrent with the Offering, all outstanding stock options issued
under the stock option plans of Containers and Plastics were converted to stock
options under the Silgan Holdings Inc. Fourth Amended and Restated 1989 Stock
Option Plan (the "Stock Option Plan"). See "Executive Compensation--Stock Option
Plan". In accordance with Accounting Principles Board ("APB") No. 25, options
granted under such plans are considered variable options with a final
measurement date at the time of conversion. The Company recognized a non-cash
charge of approximately $22.9 million, net of $3.3 million previously accrued,
at the time of the Offering in the Company's first quarter in 1997, for the
excess of fair market value over grant price of these options less amounts
previously accrued.
-21-
<PAGE>
Results of Operations
The following table sets forth certain income statement data for the
Company, expressed as a percentage of net sales, for each of the periods
presented, and should be read in conjunction with the consolidated financial
statements of the Company and related notes thereto included elsewhere in this
Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Operating Data:
Net sales:
Metal container business......................................... 84.6% 80.1% 76.3%
Plastic container business....................................... 15.4 19.9 23.7
----- ----- -----
Total.......................................................... 100.0 100.0 100.0
Cost of goods sold................................................. 87.0 88.1 86.9
----- ----- -----
Gross profit....................................................... 13.0 11.9 13.1
Selling, general and administrative expenses....................... 4.1 4.1 4.3
Reduction in carrying value of assets.............................. -- 1.3 1.9
----- ----- -----
Income from operations............................................. 8.9 6.5 6.9
Interest expense and other related financing costs................. 5.1 4.8 4.2
----- ----- -----
Income before income taxes......................................... 3.8 1.7 2.7
Income tax provision............................................... 1.5 0.8 1.3
----- ----- -----
Income before extraordinary charges................................ 2.3 0.9 1.4
Extraordinary charges relating to early extinguishment of debt..... -- (0.3) --
----- ----- -----
Net income......................................................... 2.3% 0.6% 1.4%
===== ===== =====
</TABLE>
Summary historical results for the Company's two business segments,
metal and plastic containers, for the calendar years ended December 31, 1996,
1995 and 1994 and summary pro forma results for these business segments for the
calendar year ended December 31, 1995 (after giving effect to the acquisition of
AN Can as of the beginning of such period) are provided below.
The unaudited pro forma financial 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 periods 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 periods indicated, or to project the Company's financial position or results
of operations for any future date or period. The unaudited pro forma financial
data 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. The pro forma information presented
should be read in conjunction with the historical results of operations of the
Company included elsewhere in this Annual Report on Form 10-K.
-22-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
Historical Pro Forma
----------------------------------------------- -------------
1996 1995 1994 1995
-------------- -------------- -------------- --------------
(Dollars in millions)
<S> <C> <C> <C> <C>
Net sales:
Metal container business.............................. $1,189.3 $ 882.3 $ 657.1 $1,184.8
Plastic container business............................ 216.4 219.6 204.3 219.6
------- ------- ------ -------
Consolidated.......................................... $1,405.7 $1,101.9 $ 861.4 $1,404.4
======= ======= ====== =======
Income from operations:
Metal container business.............................. $ 106.8 $ 72.9 $ 67.0 $ 95.7
Plastic container business............................ 18.4 13.2 9.4 13.2
Reduction in asset value<F1>.......................... -- (14.7) (16.7) (14.7)
Corporate expense..................................... (0.5) (0.5) (0.5) (0.2)
------- ------- ------ -------
Consolidated.................................... $ 124.7 $ 70.9 $ 59.2 $ 94.0
======= ======= ====== =======
- -------------------
<FN>
<F1> Included in the historical and pro forma income from operations of the
Company in 1995 are charges incurred for the reduction of the carrying
value of certain underutilized equipment to net realizable value of $14.7
million allocable to the metal container business. Included in the
historical income from operations of the Company in 1994 are charges
incurred for the reduction of the carrying value of certain underutilized
and obsolete equipment to net realizable value of $16.7 million in 1994, of
which $7.2 million was allocable to the metal container business and $9.5
million to the plastic container business.
</FN>
</TABLE>
Historical Year Ended December 31, 1996 Compared with Historical Year Ended
December 31, 1995
Net Sales. Consolidated net sales increased $303.8 million, or 27.6%,
to $1.4 billion for the year ended December 31, 1996, as compared to net sales
of $1.1 billion for the same period in 1995. This increase resulted
predominantly from net sales generated by the former AN Can operations.
Net sales for the metal container business (including net sales of its
specialty business of $90.7 million) were $1,189.3 million for the year ended
December 31, 1996, an increase of $307.0 million from net sales of $882.3
million for the same period in 1995. Net sales of metal cans of $1,098.6 million
for the year ended December 31, 1996 were $253.1 million greater than net sales
of metal cans of $845.5 million for the same period in 1995. This increase
resulted from the inclusion of a full year of sales generated from the former AN
Can operations, including net sales of approximately $236.0 million 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 $53.9 million to $90.7 million during the year ended December 31, 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 $216.4 million during
the year ended December 31, 1996 decreased $3.2 million from net sales of $219.6
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 87.0% ($1.2 billion) for the year ended December 31, 1996, a
decrease of 1.1 percentage points as compared
-23-
<PAGE>
to 88.1% ($970.5 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 remained at
4.1% ($58.1 million and $45.7 million) for the years ended December 31, 1996 and
1995. The increase in selling, general, and administrative expenses in 1996
resulted from the acquisition of AN Can. The Company incurred estimated
redundant costs of $3.5 million associated with the integration of the AN Can
operations. In 1997, the Company expects to eliminate all of these redundant
costs as it completes its integration of the administrative functions of AN Can
with the Company.
Income from Operations. Income from operations as a percentage of
consolidated net sales increased 2.4 percentage points to 8.9% ($124.7 million)
for the year ended December 31, 1996, as compared with 6.5% ($70.9 million) for
the same period in the prior year. Included in income from operations for 1995
was a charge of $14.7 million for the write-off of certain underutilized assets.
Without giving effect to this charge, income from operations as a percentage of
consolidated net sales would have increased 1.1 percentage points in 1996 as
compared to 1995, as a result of the aforementioned improvement in gross margin.
Income from operations as a percentage of net sales for the metal
container business improved to 9.0% ($106.8 million) for the year ended December
31, 1996, from 8.3% ($72.9 million) (without giving effect to the charge of
$14.7 million to adjust the carrying value of certain assets) for the same
period in 1995. 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 8.5% ($18.4 million) for the year ended December
31, 1996, from 6.0% ($13.2 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 $19.0 million to $71.5
million for the year ended December 31, 1996, principally as a result of
increased borrowings to fund the redemption of a portion of Holdings' Discount
Debentures and to finance the acquisition of AN Can in August 1995, offset, in
part, by lower average bank borrowing rates.
Income Taxes. The provisions for income taxes for the years ended
December 31, 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".
-24-
<PAGE>
Net Income. As a result of the items discussed above, net income of
$32.3 million increased $22.5 million for the year ended December 31, 1996, as
compared to net income of $9.8 million (before extraordinary charges, net of
taxes, of $3.0 million) for the year ended December 31, 1995.
In 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.
Historical Year Ended December 31, 1996 Compared with Pro Forma Year Ended
December 31, 1995
Net Sales. Consolidated net sales for the year ended December 31, 1996
of $1.4 billion were comparable to pro forma consolidated net sales for the same
period in 1995. Increased unit sales of metal containers due to a better
vegetable pack harvest in 1996 as compared to 1995 offset the loss of an AN Can
customer whose product line was acquired by a company that manufactured its own
cans and volume losses with certain other customers. Although the plastic
container business had increased unit volume in 1996, net sales declined $3.2
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 year ended December 31, 1996 increased 1.2
percentage points to 8.9% ($124.7 million), as compared to pro forma income from
operations as a percentage of pro forma consolidated net sales of 7.7% ($108.7
million) (without giving effect to the charge to adjust the carrying value of
certain assets of $14.7 million) for the year ended December 31, 1995. The
increase in income from operations for the year ended December 31, 1996 as
compared to pro forma income from operations for the same period in 1995 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.
Historical Year Ended December 31, 1995 Compared with Historical Year Ended
December 31, 1994
Net Sales. Consolidated net sales increased $240.5 million, or 27.9%,
to $1.1 billion for the year ended December 31, 1995, as compared to net sales
of $861.4 million for the same period in 1994. This increase resulted from net
sales of $264.3 million generated by AN Can since its acquisition in August 1995
and a $15.3 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
$39.1 million.
Net sales for the metal container business (including its specialty
business) were $882.3 million for the year ended December 31, 1995, an increase
of $225.2 million from net sales of $657.1 million for the same period in 1994.
Excluding net sales of metal cans of $236.0 million generated by AN Can since
its acquisition, net sales of metal cans to the Company's customers were $609.5
million during the year ended December 31, 1995, as compared to $647.5 million
for the same period in 1994. Net sales to the Company's customers in 1995
decreased principally due to lower unit volume resulting from the below normal
1995 vegetable pack offset, in part, by slightly higher sales prices due to the
pass through of raw material cost increases.
-25-
<PAGE>
Sales of specialty items included in the metal container segment
increased $27.2 million to $36.8 million during the year ended December 31, 1995
as compared to the same period in 1994, due to the acquisition of AN Can which
generated sales of $28.3 million of specialty items since its acquisition.
Net sales for the plastic container business of $219.6 million during
the year ended December 31, 1995 increased $15.3 million over net sales of
$204.3 million for the same period in 1994. This increase was attributable to
increased unit sales for new customer products and to higher average sales
prices due to the pass through of higher average resin costs.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated
net sales was 88.1% ($970.5 million) for the year ended December 31, 1995, an
increase of 1.2 percentage points as compared to 86.9% ($748.3 million) for the
same period in 1994. The increase in cost of goods sold as a percentage of net
sales principally resulted from increased per unit manufacturing costs resulting
from reduced can production volumes, lower margins realized on certain products
due to competitive market conditions and lower margins on sales made by AN Can,
offset, in part, by improved manufacturing operating efficiencies due to plant
consolidations and lower depreciation expense due to a change in the estimated
useful life of certain equipment.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales declined 0.2
percentage points to 4.1% ($45.7 million) for the year ended December 31, 1995
as compared to 4.3% ($37.2 million) for the year ended December 31, 1994. The
decrease in selling, general and administrative expenses as a percentage of net
sales resulted from the Company's continued control of these expenses in respect
of the Company's existing business, offset partially by a temporarily higher
level of expenses incurred during the integration of AN Can. The Company expects
that its selling, general and administration costs as a percentage of sales will
decline in 1997 after it completes the integration of the administrative
functions of its metal container business.
Income from Operations. Income from operations as a percentage of
consolidated net sales was 6.4% ($70.9 million) for the year ended December 31,
1995, as compared with 6.9% ($59.2 million) for the same period in 1994.
Included in income from operations were charges for the write-off of certain
underutilized assets of $14.7 million and $16.7 million in 1995 and 1994,
respectively. Without giving effect to these charges, income from operations as
a percentage of consolidated net sales would have declined 1.0% in 1995,
primarily as a result of the aforementioned decline in gross margin.
Income from operations as a percentage of net sales for the metal
container business (without giving effect to charges of $14.7 million and $7.2
million in 1995 and 1994, respectively, to adjust the carrying value of certain
assets) was 8.3% ($72.9 million) for the year ended December 31, 1995, as
compared to 10.2% ($67.0 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 on lower production
volume, lower margins realized on certain products due to competitive market
conditions, inefficiencies caused by work stoppages at two of the Company's
California facilities, and lower margins realized on sales made by AN Can,
offset, in part, by operating efficiencies due to plant consolidations.
Income from operations as a percentage of net sales attributable to the
plastic container business (without giving effect to the charge of $9.5 million
in 1994 to adjust the carrying value of certain assets) was 6.0% ($13.2 million)
for the year ended December 31, 1995, as compared to 4.6% ($9.4 million) for the
same period in 1994. The operating performance of the plastic container business
improved as a result of production planning and scheduling efficiencies and
benefits realized from capital investment, offset, in part, by increased unit
production costs incurred as a result of an inventory reduction program.
-26-
<PAGE>
Interest Expense. Interest expense increased $16.3 million to $52.5
million for the year ended December 31, 1995, principally as a result of
increased borrowings to finance the acquisition of AN Can, to advance $57.6
million to Holdings to fund the redemption by Holdings of a portion of the
Discount Debentures and to fund higher working capital needs as a result of the
increased seasonality of the Company's metal container business, and as a result
of higher average interest rates.
Income Taxes. The provisions for income taxes for the years ended
December 31, 1995 and 1994 provide for federal, state and foreign taxes as if
Silgan was a separate taxpayer in accordance with SFAS No. 109, "Accounting for
Income Taxes".
Net Income. As a result of the items discussed above, income before the
extraordinary charge for the year ended December 31, 1995 was $9.8 million, as
compared to $12.1 million for the year ended December 31, 1994.
As a result of the early extinguishment of amounts owed under its
secured debt facilities, the Company incurred an extraordinary charge of $3.0
million (net of tax of $2.1 million) in 1995.
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.
In August 1995, Silgan, Containers and Plastics entered into the credit
agreement with the lenders named therein, Bankers Trust Company ("Bankers
Trust"), as Administrative Agent and Co-Arranger, and Bank of America Illinois,
as Documentation Agent and Co-Arranger (as amended, the "Credit Agreement")
(which originally provided Silgan with $225.0 million of A term loans and $225.0
million of B term loans and provided Containers and Plastics with a commitment
of $225.0 million for working capital loans) to finance the acquisition by
Containers of AN Can and to refinance and repay in full all amounts owing under
the Company's previous credit agreement and under Silgan's Senior Secured
Floating Rate Notes due 1997. The Credit Agreement was amended in May 1996 to,
among other things, provide Silgan with an additional $125.0 million of B term
loans to fund the redemption by Holdings of a portion of the Discount
Debentures. The Credit Agreement also provided the Company with improved
financial flexibility by (i) extending the maturity of the Company's secured
debt facilities until December 31, 2000, (ii) 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, (iii) lowering Holdings' average cost of indebtedness by permitting
Silgan to distribute to Holdings $205.1 million of borrowings under the Credit
Agreement, which amounts were used to purchase and redeem $204.1 million
principal amount of Discount Debentures and pay accrued interest on the Discount
Debentures, and (iv) enabling Silgan to transfer funds to Holdings for the
payment by Holdings of cash dividends on its Exchangeable Preferred Stock
Mandatorily Redeemable 2006 (the "Exchangeable Preferred Stock") (or cash
interest on Holdings' Subordinated Debentures due 2006 (the "Exchange
Debentures")).
During 1996, cash generated from operations of $130.1 million,
borrowings of $125.0 million of B term loans under the Credit Agreement, net
borrowings of working capital loans under the Credit Agreement of $20.7 million,
proceeds of $1.6 million from the sale of assets and $1.1 million of cash
balances were used to fund capital expenditures of $56.9 million, the purchase
of Finger Lakes for $29.9
-27-
<PAGE>
million and the purchase of ANC's St. Louis facility for $13.1 million,
distributions to Holdings of $147.5 million (which amount was used by Holdings
to redeem Discount Debentures and pay accrued interest on the Discount
Debentures), the repayment of $29.5 million of term loans under the Credit
Agreement, and the payment of $1.6 million of financing costs associated with
the borrowing of additional B term loans under the Credit Agreement.
The Company's Adjusted EBITDA for the year ended December 31, 1996 in
comparison to 1995 increased by $53.6 million to $186.8 million. The increase in
Adjusted EBITDA resulted primarily from increased cash earnings generated by
both the metal container business (including earnings from the AN Can
operations) and the plastic container business. Although the Adjusted EBITDA of
the Company was higher in 1996 as compared to 1995 and the Company reduced the
amount of finished goods inventory in 1996, cash flow from operations in 1996
would have remained constant with 1995 (assuming AN Can had been acquired at
December 31, 1995 rather than at its seasonal peak). The Company incurred
greater cash interest expense in 1996 due to additional borrowings used to fund
the redemption by Holdings of a portion of the Discount Debentures, and in 1995
the Company adopted similar year-end vendor payment terms to those of AN Can.
During 1995, cash generated from operations of $209.6 million
(including cash of $112.0 million generated by AN Can during the five month
period from its acquisition on August 1, 1995), proceeds of $3.5 million
realized from the sale of assets and a decrease of $0.6 million in cash balances
were used to repay $142.8 million of working capital borrowings used to fund the
acquisition of AN Can, fund capital expenditures of $51.9 million, repay $9.7
million of term loans and $5.5 million of working capital loans, and make
payments to former shareholders of $3.8 million in full settlement of
outstanding litigation (which was charged against equity). The Company's
Adjusted EBITDA for the year ended December 31, 1995 as compared to 1994
increased by $17.8 million to $133.1 million. The increase in Adjusted EBITDA
reflected the generation of additional cash flow from AN Can since its
acquisition on August 1, 1995, partially offset by a decline in the cash
earnings of the Company's existing business principally as a result of lower
unit volume due to the below normal 1995 vegetable pack.
For the year ended December 31, 1995, the operating cash flow of the
Company increased significantly from the prior year due to the generation of
cash by AN Can since its acquisition on August 1, 1995 and the adoption by the
Company of similar year-end vendor payment terms to those of AN Can. At December
31, 1995, the trade receivable balance of AN Can was $44.2 million ($90.2
million on August 1, 1995), the inventory balance was $98.9 million ($137.9
million on August 1, 1995), and the trade payables balance was $58.2 million
($64.2 million on August 1, 1995).
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 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. The acquisition of AN Can increased the Company's seasonal
metal containers business. The Company's average outstanding trade receivables
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 Credit
Agreement, including letters of credit, was utilized at its peak in September
1996.
-28-
<PAGE>
As of December 31, 1996, the outstanding principal amount of working
capital loans was $27.8 million and, 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 $190.0 million.
In addition to its operating cash needs, the Company believes its cash
requirements over the next several years consist primarily of (i) annual capital
expenditures of $50.0 to $60.0 million, (ii) scheduled principal amortization
payments of term loans under the Credit Agreement (after giving effect to the
use of a portion of the net proceeds from the Offering to prepay $8.9 million of
bank terms loans) of $29.6 million, $53.4 million, $53.4 million, $126.1 million
and $155.9 million over the next five years, respectively, (iii) expenditures of
approximately $30.0 million over the next three years associated with plant
rationalizations, employee severance and administrative workforce reductions,
other plant exit costs and employee relocation costs of AN Can, (iv) the
Company's interest requirements, including interest on working capital loans,
the principal amount of which will vary depending upon seasonal requirements,
the bank term loans, most of which bear fluctuating rates of interest, and the
11-3/4% Notes, and (v) payments of approximately $5.0 million (based on the
Company's current estimate of its 1997 net income) for federal and state tax
liabilities in 1997. Beginning in 1998, the Company expects to incur federal tax
liability at the alternative minimum tax rates then in effect.
Silgan is a wholly owned subsidiary of Holdings, a holding company with
no significant assets or operations other than its investment in Silgan. As a
result, Holdings' ability to satisfy its obligations (including its obligations
under its indebtedness) may depend upon its receipt of funds paid by dividend or
distribution or loaned, advanced or transferred by Silgan to Holdings. Since
1995, the Company has borrowed an aggregate amount of $205.1 million under the
Credit Agreement, which borrowings were used to fund Holdings' purchase and
redemption of $204.1 principal amount of Discount Debentures and to pay accrued
interest on the Discount Debentures. On March 26, 1997, Holdings redeemed the
remaining Discount Debentures with proceeds from the Offering. Accordingly, the
Company's liquidity will no longer be affected by the Discount Debentures.
After the redemption of the remaining Discount Debentures, Holdings'
principal liabilities are its obligations in connection with the Exchangeable
Preferred Stock (which Holdings expects will be exchanged prior to July 22, 1997
for the Exchange Debentures), and its guaranty under the Credit Agreement.
Because the Exchangeable Preferred Stock does not require dividends to be paid
in cash until October 2000 and the Exchange Debentures do not require interest
to be paid in cash until January 15, 2001, the Company's liquidity is not
expected to be affected by Holdings' liabilities until such time. Beginning
October 15, 2000, Holdings will be required to make quarterly cash dividend
payments on the Exchangeable Preferred Stock of approximately $2.8 million, or
beginning January 15, 2001, Holdings will be required to make semi-annual cash
interest payments on the Exchange Debentures of approximately $5.6 million.
Although the Credit Agreement permits Silgan to dividend, distribute, loan or
advance funds to Holdings to allow Holdings to make cash payments of dividends
in respect of the Exchangeable Preferred Stock or interest in respect of the
Exchange Debentures, the 11-3/4% Notes Indenture presently would not permit
Silgan to do so. The ability of Silgan to transfer funds to Holdings to enable
Holdings to pay cash dividends on the Exchangeable Preferred Stock or cash
interest on the Exchange Debentures when required will depend upon the future
performance of the Company and may depend upon the ability of Silgan to
refinance the 11-3/4% Notes. There can be no assurance that Silgan will be able
to refinance the 11-3/4% Notes or that Silgan will be permitted to transfer
funds to Holdings to enable Holdings to pay cash dividends on the Exchangeable
Preferred Stock or cash interest on the Exchange Debentures when required.
Management believes that the cash dividend or cash interest obligations of
Holdings with respect to the Exchangeable Preferred Stock or Exchange Debentures
will be met by Silgan through cash generated by operations or borrowings or by
Holdings through refinancings of its existing indebtedness or additional debt or
equity financings.
-29-
<PAGE>
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, debt
service and tax obligations for the foreseeable future. The Company is also
continually evaluating and pursuing acquisition opportunities in the North
American consumer goods packaging market. The Company may need to incur
additional indebtedness to finance any such acquisition and to fund any
resulting increased operating needs. Depending upon market conditions, the
Company may also consider refinancing certain of its outstanding indebtedness
through other debt financings. Such financings for acquisitions and debt
refinancings will have to be effected in compliance with Holdings' and the
Company's agreements in respect of their indebtedness then outstanding. There
can be no assurance that the Company will be able to effect any such financing
for an acquisition or any such debt refinancing.
The Credit Agreement, the 11-3/4% Notes Indenture, the Exchangeable
Preferred Stock and, when issued, the Exchange Debentures each contain
restrictive covenants that, among other things, limit the Company's ability to
incur debt, sell assets and engage in certain transactions. Management does not
expect these limitations to have a material effect on the Company's business or
results of operations. The Company is in compliance with all financial and
operating covenants contained in such financing agreements and believes that it
will continue to be in compliance during 1997 with all such covenants.
Effect of Inflation and Interest Rate Fluctuations
Historically, inflation has not had a material effect on the Company,
other than to increase its cost of borrowing. In general, the Company has been
able to increase the sales prices of its products to reflect any increases in
the prices of raw materials. See "--Overview--Net Sales--Long-term Contracts".
Because the Company has indebtedness which bears interest at floating
rates, the Company's financial results will be sensitive to changes in
prevailing market rates of interest. As of December 31, 1996, including working
capital loans of $27.8 million, the Company had $701.1 million of indebtedness
outstanding, of which $366.1 million bore interest at floating rates, taking
into account interest rate swap agreements entered into by the Company to
mitigate the effect of interest rate fluctuations. Under these agreements,
floating rate interest was exchanged for fixed rates of interest ranging from
5.6% to 6.2% plus the Company's incremental margin, which currently ranges from
2.5% to 3.0%. The notional principal amounts of these agreements totaled $200.0
million, including interest rate swap agreements entered into during the fourth
quarter of 1996 with a notional amount of $100.0 million, and mature in the year
1999. Depending upon market conditions, the Company may enter into additional
interest rate swap or hedge agreements (with counterparties that, in the
Company's judgment, have sufficient creditworthiness) to hedge its exposure
against interest rate volatility.
New Accounting Pronouncements
Long-Lived Asset Impairment
The Company adopted 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 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 1996. See Note 2 to
the Consolidated Financial Statements of the Company included elsewhere in this
Annual Report on Form 10-K.
-30-
<PAGE>
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board 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 has not elected
to adopt SFAS No. 123 and continues to recognize compensation expense in
accordance with APB No. 25. In addition, the Company is required to include in
its 1996 year end financial statements pro forma information regarding
compensation expense recognizable under SFAS No. 123. See Note 16 to the
Consolidated Financial Statements of the Company included elsewhere in this
Annual Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data.
See Item 14 below for a listing of financial statements and schedules
included therein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
-31-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors and Executive Officers of Silgan and Holdings
The following table sets forth certain information (ages as of December
31, 1996) concerning the directors and executive officers of Silgan and
Holdings.
Name Age Position
- ---- --- --------
R. Philip Silver........... 54 Chairman of the Board, Co-Chief Executive
Officer and Director
D. Greg Horrigan........... 53 President, Co-Chief Executive Officer and
Director
Robert H. Niehaus.......... 41 Director
Leigh J. Abramson.......... 28 Director
Harley Rankin, Jr.......... 57 Executive Vice President, Chief Financial
Officer and Treasurer
Harold J. Rodriguez, Jr.... 41 Vice President, Controller and Assistant
Treasurer
Glenn A. Paulson........... 53 Vice President
Executive Officers of Containers
The following table sets forth certain information (ages as of December
31, 1996) concerning the executive officers of Containers.
Name Age Position
- ---- --- --------
James D. Beam.............. 53 President
Gerald T. Wojdon........... 60 Vice President--Operations and Assistant
Secretary
Gary M. Hughes............. 54 Vice President--Sales & Marketing
H. Dennis Nerstad.......... 59 Vice President--Production Services
Joseph A. Heaney........... 43 Vice President--Finance
Executive Officers of Plastics
The following table sets forth certain information (ages as of December
31, 1996) concerning the executive officers of Plastics.
Name Age Position
- ---- --- --------
Russell F. Gervais......... 53 President
Howard H. Cole............. 51 Vice President and Assistant Secretary
Charles Minarik............ 59 Vice President--Operations and Commercial
Development
Alan H. Koblin............. 44 Vice President--Sales & Marketing
Colleen J. Jones........... 36 Vice President--Finance, Chief Financial
Officer and Assistant Secretary
-32-
<PAGE>
Mr. Silver has been Chairman of the Board and Co-Chief Executive
Officer of Holdings and Silgan since March 1994. Mr. Silver is one of the
founders of the Company and was formerly President of Holdings and Silgan. Mr.
Silver has been a Director of Holdings and Silgan since their inception in April
1989 and August 1987, respectively. Mr. Silver has been a Director of Containers
since its inception in August 1987 and Vice President of Containers since May
1995. Mr. Silver has been a Director of Plastics since its inception in August
1987 and Chairman of the Board of Plastics since March 1994. Prior to founding
the Company in 1987, Mr. Silver was a consultant to the packaging industry. Mr.
Silver was President of Continental Can Company from June 1983 to August 1986.
From September 1989 through August 1993, Mr. Silver held various positions with
Sweetheart Holdings Inc. and Sweetheart Cup Company, Inc., including Chairman of
the Board and Director. Mr. Silver is a Director of Johnstown America
Corporation.
Mr. Horrigan has been President and Co-Chief Executive Officer of
Holdings and Silgan since March 1994. Mr. Horrigan is one of the founders of the
Company and was formerly Chairman of the Board of Holdings and Silgan. Mr.
Horrigan has been a Director of Holdings and Silgan since their inception in
April 1989 and August 1987, respectively. Mr. Horrigan has been Chairman of the
Board of Containers and a Director of Containers and Plastics since their
inception in August 1987. Mr. Horrigan was Executive Vice President and
Operating Officer of Continental Can Company from 1984 to 1987. From September
1989 through August 1993, Mr. Horrigan held various positions with Sweetheart
Holdings Inc. and Sweetheart Cup Company, Inc., including Chairman of the Board
and Director.
Mr. Niehaus has been a Director of Holdings since its inception in
April 1989 and a Director of Silgan, Containers and Plastics since their
inception in August 1987. Mr. Niehaus joined Morgan Stanley & Co. Incorporated
("Morgan Stanley") in 1982 and has been a Managing Director of Morgan Stanley
since 1990. Mr. Niehaus has been a Vice Chairman and a Director of Morgan
Stanley Leveraged Equity Fund II, Inc. ("MSLEF II, Inc.") since January 1990 and
a Vice Chairman and a Director of the managing general partner of the general
partner of Morgan Stanley Capital Partners III, L.P. ("MSCP III") since January
1994. Mr. Niehaus is also a Director of American Italian Pasta Company, Fort
Howard Corporation and Waterford Crystal Ltd., and Chairman of Waterford
Wedgwood UK plc.
Mr. Abramson has been a Director of Holdings, Silgan, Containers and
Plastics since September 1996. He has been an Associate of Morgan Stanley since
1994 and a Vice President of MSLEF II, Inc. and of the managing general partner
of the general partner of MSCP III since 1995. Mr. Abramson has been with Morgan
Stanley since 1990, first in the Corporate Finance Division and, since 1992, in
the Merchant Banking Division. Mr. Abramson is also a Director of PageMart
Wireless, Inc., PageMart, Inc. and Jefferson Smurfit Corporation.
Mr. Rankin has been Executive Vice President and Chief Financial
Officer of Holdings since its inception in April 1989 and Treasurer of Holdings
since January 1992. Mr. Rankin has been Executive Vice President and Chief
Financial Officer of Silgan since January 1989 and Treasurer of Silgan since
January 1992. Mr. Rankin has been Vice President of Containers and Plastics
since January 1989 and was Treasurer of Plastics from January 1994 to December
1994. Prior to joining the Company, Mr. Rankin was Senior Vice President and
Chief Financial Officer of Armtek Corporation. Mr. Rankin was Vice President and
Chief Financial Officer of Continental Can Company from November 1984 to August
1986. From September 1989 to August 1993, Mr. Rankin was Vice President, Chief
Financial Officer and Treasurer of Sweetheart Holdings Inc. and Vice President
of Sweetheart Cup Company, Inc.
Mr. Rodriguez has been Vice President of Holdings and Silgan since
March 1994 and Controller and Assistant Treasurer of Holdings and Silgan since
March 1990. Prior to March 1990, Mr. Rodriguez
-33-
<PAGE>
was Assistant Controller and Assistant Treasurer of Holdings and Silgan from
April 1989 and October 1987, respectively. Mr. Rodriguez has been Vice President
of Containers and Plastics since March 1994. From September 1989 to August 1993,
Mr. Rodriguez was Controller, Assistant Secretary and Assistant Treasurer of
Sweetheart Holdings Inc. and Assistant Secretary and Assistant Treasurer of
Sweetheart Cup Company, Inc. From 1978 to 1987, Mr. Rodriguez was employed by
Ernst & Young LLP, last serving as Senior Manager specializing in taxation.
Mr. Paulson has been Vice President of Holdings and Silgan since
January 1996. Mr. Paulson was employed by Containers to manage the transition of
AN Can from August 1995 to December 1995. From January 1989 to July 1995, Mr.
Paulson was employed by ANC, last serving as Senior Vice President and General
Manager, Food Metal and Specialty, North America. Prior to his employment with
ANC, Mr. Paulson was President of the beverage packaging operations of
Continental Can Company.
Mr. Beam has been President of Containers since July 1990. From
September 1987 to July 1990, Mr. Beam was Vice President--Marketing & Sales of
Containers. Mr. Beam was Vice President and General Manager of Continental Can
Company, Western Food Can Division, from March 1986 to September 1987.
Mr. Wojdon has been Vice President--Operations and Assistant Secretary
of Containers since September 1987. From August 1982 to August 1987, Mr. Wojdon
was General Manager of Manufacturing of the Can Division of the Carnation
Company.
Mr. Hughes has been Vice President--Sales & Marketing of Containers
since July 1990. From February 1988 to July 1990, Mr. Hughes was Vice President,
Sales and Marketing of the Beverage Division of Continental Can Company. Prior
to February 1988, Mr. Hughes was employed by Continental Can Company in various
regional sales positions.
Mr. Nerstad has been a Vice President of Containers since December
1993. From August 1989 to December 1993, Mr. Nerstad was Vice
President--Distribution and Container Manufacturing of Del Monte and was
Director of Container Manufacturing of Del Monte from November 1983 to July
1989. Prior to 1983, Mr. Nerstad was employed by Del Monte in various regional
and plant positions.
Mr. Heaney has been Vice President--Finance of Containers since October
1995. From September 1990 to October 1995, Mr. Heaney was Controller, Food Metal
and Specialty Division of ANC. From August 1977 to August 1990, Mr. Heaney was
employed by ANC and American Can Company in various divisional, regional and
plant finance/accounting positions.
Mr. Gervais has been President of Plastics since December 1992. From
September 1989 to December 1992, Mr. Gervais was Vice President--Sales &
Marketing of Plastics. From March 1984 to September 1989, Mr. Gervais was
President and Chief Executive Officer of Aim Packaging, Inc.
Mr. Cole has been Vice President and Assistant Secretary of Plastics
since September 1987. From April 1986 to September 1987, Mr. Cole was Manager of
Personnel of the Monsanto Engineered Products Division of Monsanto.
Mr. Minarik has been Vice President--Operations and Commercial
Development of Plastics since May 1993. From February 1991 to August 1992, Mr.
Minarik was President of Wheaton Industries Plastics Group. Mr. Minarik was Vice
President--Marketing of Constar International, Inc. from March 1983 to February
1991.
-34-
<PAGE>
Mr. Koblin has been Vice President--Sales & Marketing of Plastics since
1994. From 1992 to 1994, Mr. Koblin was Director of Sales & Marketing of
Plastics. From 1990 to 1992, Mr. Koblin was Vice President of Churchill
Industries.
Ms. Jones has been Vice President--Finance and Chief Financial Officer
of Plastics since December 1994 and Assistant Secretary of Plastics since
November 1993. From October 1993 to December 1994, Ms. Jones was Corporate
Controller of Plastics and from July 1989 to October 1993, she was
Manager--Finance of Plastics. From July 1982 to July 1989, Ms. Jones was an
Audit Manager for Ernst & Young LLP.
Item 11. Executive Compensation.
The following table sets forth information concerning the annual and
long term compensation for services rendered in all capacities to Holdings and
the Company during the fiscal years ended December 31, 1996, 1995 and 1994 of
those persons who at December 31, 1996 were (i) the Chief Executive Officer of
Silgan and (ii) the other four most highly compensated executive officers of
Silgan and its subsidiaries. No director of Silgan or its subsidiaries received
any compensation for serving as a director of Silgan or its subsidiaries. See
"Certain Relationships and Related Transactions--Management Agreements".
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation
------------------------------------ ----------------
Awards
----------------
Securities
Underlying Stock All Other
Name and Principal Position Year Salary(a)(b) Bonus(a)(c) Options/SARs(d) Compensation(e)
- --------------------------- ---- ------------ ----------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
R. Philip Silver...................
(Chairman of the Board and
Co-Chief Executive Officer
of Silgan and Chairman of
the Board of Plastics) 1996 $1,875,000 -- -- --
1995 1,830,000 -- -- --
1994 1,684,135 -- -- --
D. Greg Horrigan...................
(President and Co-Chief
Executive Officer of Silgan
and Chairman of the Board
of Containers) 1996 1,875,000 -- -- --
1995 1,830,000 -- -- --
1994 1,684,135 -- -- --
Harley Rankin, Jr. ................
(Executive Vice President, Chief
Financial Officer and Treasurer
of Silgan) 1996 425,007 -- -- --
1995 408,978 -- -- --
1994 384,930 -- 102,798 --
James D. Beam......................
(President of Containers) 1996 372,600 $112,339 -- $73,805
1995 361,200 -- -- 66,394
1994 350,000 169,092 -- 94,175
Russell F. Gervais.................
(President of Plastics) 1996 234,000 111,400 -- 7,020
1995 226,000 59,000 -- 5,085
1994 216,804 83,300 134,462 --
</TABLE>
-35-
<PAGE>
- -------------------
(a) The compensation of Messrs. Horrigan, Silver, Rankin and Rodriguez reflects
amounts as earned and was paid by S&H, Inc. ("S&H"). Such persons received
no direct compensation from Holdings, Silgan or their respective
subsidiaries. See "Certain Relationships and Related
Transactions--Management Agreements".
(b) The salaries of Messrs. Beam and Gervais were paid by Containers and
Plastics, respectively.
(c) Bonuses of Messrs. Beam and Gervais were earned by them in such year and
paid in the following year, pursuant to the Silgan Containers Corporation
Performance Incentive Plan and the Silgan Plastics Corporation Incentive
Plan, respectively. Under such plans, executive officers and other key
employees of Containers and Plastics may be awarded cash bonuses provided
that such company achieves certain assigned financial targets.
(d) Reflects options to purchase shares of Holdings Common Stock under the
Stock Option Plan, and gives effect to the 17.133145 to 1 stock split of
the outstanding Holdings Common Stock effected in connection with the
Offering (the "Stock Split"). Such options are exercisable ratably over a
five-year period which began on January 1, 1995. Mr. Gervais' options were
calculated to give effect to the conversion at the time of the Offering of
his options under Plastics' stock option plan to options under the Stock
Option Plan.
(e) In the case of Mr. Beam, includes amounts contributed under the Silgan
Containers Corporation Supplemental Executive Retirement Plan (the
"Supplemental Plan") and used to pay premiums for split-dollar life
insurance for Mr. Beam maintained in conjunction with the Supplemental Plan
and includes amounts contributed by Containers under the Silgan Containers
Corporation Deferred Incentive Savings Plan. In the case of Mr. Gervais,
includes amounts allocated to Mr. Gervais under the Silgan Plastics
Corporation Contributory Retirement Plan.
The following table provides certain information with respect to
options to purchase Holdings Common Stock held by the five executive officers
named in the Summary Compensation Table. Prior to the completion of the
Offering, Messrs. Beam and Gervais held options to purchase common stock of
Containers and Plastics, respectively, under stock option plans of such
subsidiaries. Upon the completion of the Offering, such options were converted
to options under the Stock Option Plan in accordance with the terms of such
subsidiary stock option plans.
<TABLE>
<CAPTION>
OPTION VALUES AT DECEMBER 31, 1996
Number of Securities Value of Unexercised
Underlying in-the-Money
Unexercised Options at Options at
December 31, 1996 December 31, 1996(a)
------------------------------------ -------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
-------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
R. Philip Silver............................ -- -- -- --
D. Greg Horrigan............................ -- -- -- --
Harley Rankin, Jr.(b)....................... 233,012 41,118 $ 4,091,680 $ 676,661
James D. Beam(b)(c)......................... 584,609 -- 10,597,041 --
Russell F. Gervais(b)(c).................... 80,678 53,784 1,568,200 1,045,441
</TABLE>
(a) For the purposes of this table, the fair market value per share of Holdings
Common Stock at December 31, 1996 was estimated to be the initial public
offering price of $20.00 per share.
(b) Options are for shares of Holdings Common Stock and give effect to the
Stock Split.
(c) Each of Messrs. Beam's and Gervais' options were calculated to give effect
to the conversion at the time of the Offering of such person's options
under Containers' and Plastics' stock option plans, respectively, to
options under the Stock Option Plan. See "--Stock Option Plan".
-36-
<PAGE>
Stock Option Plan
The Board of Directors and stockholders of Holdings approved the
establishment of the Stock Option Plan. Under the Stock Option Plan, as an
additional means of attracting and retaining officers and key personnel,
Holdings may grant options to purchase shares of Holdings Common Stock to
participants. Options granted may be either non-qualified stock options or
"incentive stock options".
The Board of Directors of Holdings, through a committee (the "Stock
Option Committee"), administers the Stock Option Plan and has the power to,
among other things, choose participants and fix the type of grant and all the
terms and conditions thereof, including number of shares covered by a grant and
the exercise price. Only officers (including executive officers) and other key
employees of Holdings and the Company are eligible to participate in the Stock
Option Plan. The stock issuable under the Stock Option Plan includes shares of
Holdings' authorized and unissued or reacquired Holdings Common Stock. The
number of shares for which options may be granted under the Stock Option Plan
may not exceed 3,533,417 shares.
Options are exercisable over such period as determined by the Stock
Option Committee, and generally, except as otherwise determined by the Stock
Option Committee, no option may remain exercisable more than ten years from the
grant date, subject to earlier termination as provided in the Stock Option Plan.
Options become exercisable no earlier than one year from the date of grant and
in such installments as specified in the option agreement therefor.
All options granted under the Stock Option Plan must be evidenced by an
option agreement between Holdings and the option recipient embodying all the
terms and conditions of the option grant, provided that (i) incentive stock
options granted must comply with Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), (ii) no option shall be transferable or
assignable other than by will or the laws of descent and distribution and,
during the lifetime of the recipient, such option shall be exercisable only by
the recipient, (iii) all options must expire upon or remain exercisable for a
limited time after termination of employment, all as specified in the Stock
Option Plan, and (iv) upon exercise of options, full payment for the shares
covered thereby shall be made in cash or shares of Holdings Common Stock already
owned or a combination of cash and shares of Holdings Common Stock.
Concurrent with the Offering, all outstanding stock options issued
under the stock option plans of Containers and Plastics were converted to stock
options under the Stock Option Plan in accordance with the terms of such plans,
and Containers' and Plastics' stock option plans terminated. As a result, the
only stock options outstanding since the completion of the Offering are stock
options under the Stock Option Plan.
As of the date of this Annual Report on Form 10-K, options to purchase
1,890,103 shares of Holdings Common Stock were outstanding under the Stock
Option Plan at exercise prices ranging from $0.56 to $22.13 per share. With
respect to certain outstanding options, Holdings has an obligation to pay to the
optionees an amount per option as specified in the applicable option agreement
(determined in connection with the 1989 Mergers with respect to the issuance of
options under the Stock Option Plan in exchange for options under a predecessor
plan) upon exercise of such options. An aggregate amount of $943,589 would be
payable by Holdings to such optionees upon the exercise of such outstanding
options.
-37-
<PAGE>
Pension Plans
The Company has established pension plans (the "Pension Plans")
covering substantially all of the salaried employees of Containers and Plastics,
respectively, including the executive officers (the "Containers Pension Plan"
and the "Plastics Pension Plan," respectively). The Pension Plans are defined
benefit plans intended to be qualified pension plans under Section 401(a) of the
Code, under which pension costs are determined annually on an actuarial basis
with contributions made accordingly.
The following table illustrates the estimated annual normal retirement
benefits that are payable under the Containers Pension Plan. Such benefit levels
assume retirement at age 65, the years of service shown, continued existence of
the Containers Pension Plan without substantial change and payment in the form
of a single life annuity.
<TABLE>
<CAPTION>
Containers Pension Plan Table
Years of Service
Final Average -----------------------------------------------------------------------------
Earnings 10 15 20 25 30 35
------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $7,130 $10,640 $14,260 $17,830 $21,390 $24,960
75,000 11,510 17,260 23,010 28,760 34,520 40,270
100,000 15,880 23,820 31,760 39,700 47,640 55,580
125,000 20,260 30,380 40,510 50,640 60,770 70,890
150,000 24,630 36,950 49,260 61,580 73,890 86,210
175,000 29,010 43,510 58,010 72,510 87,020 101,520
200,000 33,380 50,070 66,760 83,450 100,140 116,830
225,000 37,760 56,630 75,510 94,390 113,270 132,140
</TABLE>
Benefits under the Containers Pension Plan are based on the
participant's average base pay (the "Salary" column in the Summary Compensation
Table) over the final three years of employment. The amount of average base pay
taken into account for any year is limited by Section 401(a)(17) of the Code,
which imposes a cap of $150,000 (to be indexed for inflation) on compensation
taken into account for 1994 and later years (the limit for 1993 was $235,840).
Benefits under the Containers Pension Plan accrued prior to July 1,
1994 may be offset by a social security amount (the plan provides benefits based
on the greater of three formulas; prior to July 1, 1994, one of such formulas
provided for a social security offset). Each of the benefit estimates in the
above table is based on the formula that produces the greatest benefit for
individuals with the stated earnings and years of service.
As of December 31, 1996, James D. Beam, the only eligible executive
officer named in the Summary Compensation Table, had nine years of credited
service under the Containers Pension Plan. Mr. Beam also participates in the
Supplemental Plan, which is designed to make up for benefits not payable under
the Containers Pension Plan due to Code limitations. Mr. Beam's benefits under
the Supplemental Plan are funded through a split-dollar life insurance policy;
income attributable to this life insurance policy is included in the "All Other
Compensation" column of the Summary Compensation Table.
The following table illustrates the estimated annual normal retirement
benefits that are payable under the Plastics Pension Plan. Such benefit levels
assume retirement age at 65, the years of service shown, continued existence of
the Plastics Pension Plan without substantial change and payment in the form of
a single life annuity.
-38-
<PAGE>
<TABLE>
<CAPTION>
Plastics Pension Plan Table
Years of Service
Final Average -----------------------------------------------------------------------------
Earnings 10 15 20 25 30 35
------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $7,000 $10,550 $14,000 $17,500 $21,000 $24,500
75,000 10,500 15,750 21,000 26,250 31,500 36,750
100,000 14,000 21,000 28,000 35,000 42,000 49,000
125,000 17,500 26,250 35,000 43,750 52,500 61,250
150,000 21,000 31,500 42,000 52,500 63,000 73,950
175,000 24,500 36,750 49,000 61,250 73,950 87,075
200,000 28,000 42,000 56,000 70,200 85,200 100,200
225,000 31,500 47,250 63,000 79,575 96,450 113,325
</TABLE>
Benefits under the Plastics Pension Plan are based on the participant's
average total cash compensation (the "Salary" and "Bonus" columns in the Summary
Compensation Table) over the final 36 months of employment or over the highest
three of the final five calendar years of employment, whichever produces the
greater average compensation. In computing this average, compensation for any
year cannot exceed 125% of base pay. Compensation used in determining benefits
is also limited by Section 401(a)(17) of the Code, which imposes the limits
indicated above.
Benefits under the Plastics Pension Plan may be offset by a social
security amount (the plan provides benefits based on the greater of three
formulas, only one of which provides for a social security offset). Each of the
benefit estimates in the above table is based on the formula that produces the
greatest benefit for individuals with the stated earnings and years of service.
As of December 31, 1996, Russell F. Gervais, the only eligible
executive officer named in the Summary Compensation Table, had seven years of
credited service under the Plastics Pension Plan.
Certain Employment Agreements
Certain executive officers and other key employees of Containers and
Plastics (including Messrs. Beam and Gervais) have executed employment
agreements. The initial term of each such employment agreement is generally
three years from its effective date and is automatically extended for successive
one year periods unless terminated pursuant to the terms of such agreement.
Generally, these employment agreements provide for, among other things, a
minimum severance benefit equal to the employee's base salary and benefits for,
in most cases, a period of one year following termination (or the remainder of
the term of the agreement, if longer) (i) if the employee is terminated by his
employer for any reason other than disability or for cause as specified in the
agreement or (ii) if the employee voluntarily terminates employment due to a
demotion and, in some cases, significant relocation, all as specified in the
agreement.
The foregoing summaries of the various benefit plans and agreements of
the Company are qualified by reference to such plans and agreements, copies of
certain of which have been filed as exhibits to this Annual Report on Form 10-K.
-39-
<PAGE>
Compensation Committee Interlocks and Insider Participation
Silgan did not have a Compensation Committee during 1996. The
compensation of Messrs. Silver, Horrigan, Rankin and Rodriguez was paid by S&H,
which was paid by Holdings and the Company for providing certain management
services to Holdings and the Company pursuant to the Management Agreements (as
defined in "Certain Relationships and Related Transactions--Management
Agreements"). See "Certain Relationships and Related Transactions--Management
Agreements". The compensation of all other executive officers of Holdings and
the Company was determined by the senior management of Holdings and the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Certain Beneficial Owners of Silgan's Capital Stock
All of the outstanding shares of common stock of Silgan, consisting of
one share of Class A Common Stock, par value $.01 per share (the "Class A
Stock"), and one share of Class B Common Stock, par value $.01 per share (the
"Class B Stock"), are owned by Holdings. Holdings' address is 4 Landmark Square,
Stamford, CT 06901.
Certain Beneficial Owners of Holdings' Capital Stock
The following table sets forth, as of February 28, 1997, certain
information with respect to the beneficial ownership by certain persons of
outstanding shares of capital stock of Holdings. Except as otherwise described
below, each of the persons named in the table has sole voting and investment
power with respect to the securities beneficially owned.
<TABLE>
<CAPTION>
Number of Shares of Percentage Ownership of
Holdings Common Stock Owned Holdings Common Stock<F1>
--------------------------- -------------------------
<S> <C> <C>
R. Philip Silver <F2>..................... 3,576,545 18.96%
D. Greg Horrigan <F2>..................... 3,576,545 18.96%
Robert H. Niehaus <F3>.................... -- --
Leigh J. Abramson <F3>.................... -- --
Harley Rankin, Jr. <F4>................... 233,012 1.22%
James D. Beam <F5>........................ 584,809 3.01%
Russell F. Gervais <F6>................... 80,728 *
The Morgan Stanley Leveraged Equity
Fund II, L.P. <F7>...................... 5,835,842 30.94%
All officers and directors as a group..... 8,735,191 42.73%
- -------------------
<FN>
<F1> An asterisk denotes beneficial ownership of 1% or less of the Holdings
Common Stock.
<F2> Director of Holdings, Silgan, Containers and Plastics. Messrs. Silver and
Horrigan are parties to a voting agreement pursuant to which they have
agreed to use their best efforts to vote their shares as a block. In
addition, Messrs. Silver and Horrigan share voting and investment power
with respect to one (1) share of Holdings Common Stock, which share of
Holdings Common Stock is owned by S&H. The address for such person is 4
Landmark Square, Stamford, CT 06901.
<F3> Director of Holdings, Silgan, Containers and Plastics. The address for such
person is c/o Morgan Stanley & Co. Incorporated, 1221 Avenue of the
Americas, New York, NY 10020.
<F4> Reflects shares that may be acquired through the exercise of vested stock
options granted pursuant to the Stock Option Plan. See "Executive
Compensation--Stock Option Plan". The address for such person is 4 Landmark
Square, Stamford, CT 06901.
-40-
<PAGE>
<F5> Reflects shares that may be acquired through the exercise of vested stock
options granted pursuant to the Stock Option Plan. See "Executive
Compensation--Stock Option Plan". The address for such person is 21800
Oxnard Street, Woodland Hills, CA 91367.
<F6> Reflects shares that may be acquired through the exercise of vested stock
options granted pursuant to the Stock Option Plan. See "Executive
Compensation--Stock Option Plan". The address for such person is 14515 N.
Outer Forty, Chesterfield, MO 63017.
<F7> The address for The Morgan Stanley Leveraged Equity Fund II, L.P., is 1221
Avenue of the Americas, New York, NY 10020.
</FN>
</TABLE>
See "--Description of Holdings Capital Stock" and "--Description of
Stockholders Agreements" for additional information about the capital stock of
Holdings, the holders thereof and certain arrangements among them.
Description of Common Stock of Silgan
Under Silgan's Restated Certificate of Incorporation, Silgan has
authority to issue 1,000 shares of Class A Stock, 1,000 shares of Class B Stock
and 1,000 shares of Class C Common Stock, par value $.01 per share (the "Class C
Stock"). Silgan currently has one share of Class A Stock and one share of Class
B Stock outstanding, which shares were issued to Holdings on June 30, 1989 in
conjunction with the effectiveness of the 1989 Mergers. No shares of Class C
Stock are currently outstanding.
Description of Holdings Capital Stock
General
Holdings is incorporated under the laws of the State of Delaware. Under
its Certificate of Incorporation, Holdings has authority to issue 100,000,000
shares of Holdings Common Stock, par value $.01 per share, and 10,000,000 shares
of preferred stock, par value $.01 per share. As of February 28, 1997,
18,862,834 shares of Holdings Common Stock were issued and outstanding,
12,988,931 of which are beneficially owned by Messrs. Silver and Horrigan and
MSLEF. There are 53,258 shares of Exchangeable Preferred Stock issued and
outstanding. All outstanding shares of capital stock are fully paid and
nonassessable.
Common Stock
Each outstanding share of Holdings Common Stock entitles the holder
thereof to one vote on all matters submitted to a vote of stockholders,
including the election of directors. There is no cumulative voting in the
election of directors; consequently, the holders of a majority of the
outstanding shares of Holdings Common Stock can elect all of the directors then
standing for election. See "--Description of Stockholders Agreements". Holders
of Holdings Common Stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by Holdings' Board of Directors out of
funds legally available therefor. In the event of any liquidation, dissolution
or winding-up of the affairs of Holdings, holders of Holdings Common Stock will
be entitled to share ratably in the assets of Holdings remaining after provision
for payment of liabilities to creditors and obligations to holders of preferred
stock. Holders of Holdings Common Stock have no preemptive, subscription,
redemption or conversion rights and are not liable for further calls or
assessments. In addition, any action taken by the holders of Holdings Common
Stock must be taken at a meeting and may not be taken by consent in writing, and
a special meeting of the stockholders may only be called by the Chairman of the
Board or the President of Holdings or by a majority of the Board of Directors of
Holdings, and may not be called by the holders of Holdings Common Stock.
-41-
<PAGE>
Preferred Stock
Holdings' Board of Directors, without stockholder authorization, is
authorized to issue up to 10,000,000 shares of preferred stock in one or more
series and to fix the preferences, rights and privileges thereof, including any
dividend rights, conversion rights, voting rights, redemption rights and terms
of any sinking fund provisions, liquidation preferences, the number of shares
constituting a series and the designation of such series. The Board may, without
stockholder approval, issue preferred stock with voting and other rights that
could adversely affect the voting power of the holders of Holdings Common Stock.
Currently, 53,258 shares of Exchangeable Preferred Stock are issued and
outstanding. However, prior to July 22, 1997, Holdings intends to exchange its
outstanding Exchangeable Preferred Stock for the Exchange Debentures. Holdings
has no present plans to issue any additional shares of preferred stock other
than shares that may be issued to pay dividend obligations on the Exchangeable
Preferred Stock.
Description of Stockholders Agreements
Holdings, MSLEF II, BTNY and Messrs. Silver and Horrigan are parties to
the Stockholders Agreement dated as of December 21, 1993 (as amended, the
"Stockholders Agreement") which provides for certain rights and obligations
among such stockholders and between such stockholders and Holdings. The
following is a summary of the material provisions of the Stockholders Agreement,
which is filed as an exhibit to this Annual Report on Form 10-K.
The Stockholders Agreement provides that for a period of eight years
after the Offering, MSLEF II shall have the right to demand two separate
registrations of its shares of Holdings Common Stock; provided, however, that
such demand right will terminate at such time as MSLEF II, together with its
affiliates, owns less than five percent of the issued and outstanding shares of
Holdings Common Stock. If, at any time or from time to time for a period of
eight years after the Offering, Holdings shall determine to register additional
shares of Holdings Common Stock (other than in connection with certain
non-underwritten offerings), Holdings will offer each of MSLEF II, BTNY and
Messrs. Silver and Horrigan the opportunity to register shares of Holdings
Common Stock it holds in a "piggyback registration".
The Stockholders Agreement prohibits the transfer prior to June 30,
1999 by MSLEF II or by Messrs. Silver or Horrigan of Holdings' Common Stock
without the prior written consent of the others, except for (i) transfers made
in connection with a public offering or a Rule 144 Open Market Transaction (as
defined in the Stockholders Agreement), (ii) transfers made to an affiliate,
which, in the case of a transfer by MSLEF II to an affiliate, must be an
Investment Entity (defined generally to be any person who is primarily engaged
in the business of investing in securities of other companies and not taking an
active role in the management or operations of such companies), (iii) certain
transfers by MSLEF II to an Investment Entity or, in the event of certain
defaults under the Management Agreement between S&H and Holdings, to a third
party, in each case that comply with certain rights of first refusal granted to
the Group (the "Group" is defined generally to mean, collectively, Messrs.
Silver and Horrigan and their respective affiliates and certain related family
transferees and estates, with Mr. Silver and his affiliates and certain related
family transferees and estates being deemed to be collectively one member of the
Group, and Mr. Horrigan and his affiliates and certain related family
transferees and estates being deemed to be collectively another member of the
Group) set forth in the Stockholders Agreement, (iv) certain transfers by either
member of the Group to a third party that comply with certain rights of first
refusal granted to the other member of the Group and MSLEF II set forth in the
Stockholders Agreement, and (v) in the case of MSLEF II, a distribution of all
or substantially all of the shares of Holdings' Common
-42-
<PAGE>
Stock then owned by MSLEF II to the partners of MSLEF II (a "MSLEF
Distribution"). Notwithstanding the foregoing, each of Messrs. Silver and
Horrigan and MSLEF II may pledge his or its shares of Holdings' Common Stock to
a lender or lenders reasonably acceptable to Holdings to secure a loan or loans
to him or it. In the event of any proposed foreclosure of such pledge, such
shares will be subject to certain rights of first refusal set forth in the
Stockholders Agreement.
Concurrent with the Offering, MSLEF II and Messrs. Silver and Horrigan
entered into the Stockholders Agreement dated February 14, 1997 (the "Principals
Stockholders Agreement"). The Principals Stockholders Agreement provides that
(i) for so long as MSLEF II and its affiliates (excluding the non-affiliated
limited partners of MSLEF II who acquire shares of Holdings Common Stock from
MSLEF II in a MSLEF Distribution) hold at least one-half of the number of shares
of Holdings Common Stock held by MSLEF II immediately prior to the Offering,
each of Messrs. Silver and Horrigan will use his best efforts (including to vote
any shares of Holdings Common Stock owned or controlled by him) to cause the
nomination and election of two members of the Board of Directors of Holdings to
be chosen by MSLEF II; provided, however, that each such nominee shall be either
(a) an employee of Morgan Stanley whose primary responsibility is managing
investments for MSLEF II (or a successor or related partnership) or (b) a person
reasonably acceptable to the Group not engaged in (as a director, officer,
employee, agent or consultant or as a holder of more than five percent of the
equity securities of) a business competitive with that of Holdings, and (ii)
from and after the time that MSLEF II and its affiliates (excluding the
non-affiliated limited partners of MSLEF II who acquire shares of Holdings
Common Stock from MSLEF II in a MSLEF Distribution) hold less than one-half of
the number of shares of Holdings Common Stock held by MSLEF II immediately prior
to the Offering and until such time that MSLEF II and its affiliates (excluding
the non-affiliated limited partners of MSLEF II who acquire shares of Holdings
Common Stock from MSLEF II in a MSLEF Distribution) hold less than five percent
(5%) of the outstanding Holdings Common Stock beneficially owned, each of
Messrs. Silver and Horrigan will use his best efforts (including to vote any
shares of Holdings Common Stock owned or controlled by him) to cause the
nomination and election of one member of the Board of Directors of Holdings to
be chosen by MSLEF II; provided, however, that such nominee shall be (i) either
an employee of Morgan Stanley whose primary responsibility is managing
investments for MSLEF II (or a successor or related partnership) or (ii) a
person reasonably acceptable to the Group not engaged in (as a director,
officer, employee, agent or consultant or as a holder of more than five percent
of the equity securities of) a business competitive with that of Holdings.
In addition, the Principals Stockholders Agreement provides that (i)
for so long as the Group holds at least one-half of the number of shares of
Holdings Common Stock held by it in the aggregate on the date of this Annual
Report on Form 10-K, MSLEF II will use its best efforts (including to vote any
shares of Holdings Common Stock owned or controlled by it) to cause the
nomination and election of two individuals nominated by the holders of a
majority of the shares of Holdings Common Stock held by the Group as members of
the Board of Directors of Holdings; provided, however, that at least one of such
nominees shall be Mr. Silver or Mr. Horrigan and the other person, if not Mr.
Silver or Mr. Horrigan, will be a person reasonably acceptable to MSLEF II, so
long as MSLEF II and its affiliates (excluding the non-affiliated limited
partners of MSLEF II who may acquire shares of Holdings Common Stock from MSLEF
II in a MSLEF Distribution) hold at least one-half of the number of shares of
Holdings Common Stock held by MSLEF II immediately prior to the Offering, (ii)
from and after the time that the Group holds less than one-half of the number of
shares of Holdings Common Stock held by it in the aggregate on the date hereof
and until such time that the Group holds less than five percent (5%) of the
outstanding Holdings Common Stock beneficially owned, MSLEF II will use its best
efforts (including to vote any shares of Holdings Common Stock owned or
controlled by it) to cause the nomination and election of one individual
nominated by the holders of a majority of the shares of Holdings Common Stock
held by the Group as a member of the Board of Directors of Holdings;
-43-
<PAGE>
provided, however, that such nominee shall be Silver or Horrigan or, if not
Silver or Horrigan, a person reasonably acceptable to MSLEF II, so long as MSLEF
II and its affiliates (excluding the non-affiliated limited partners of MSLEF II
who acquire shares of Holdings Common Stock from MSLEF II in a MSLEF
Distribution) hold at least one-half of the number of shares of Holdings Common
Stock held by MSLEF II immediately prior to the Offering, and (iii) so long as
the Group holds at least one-half of the number of shares of Holdings Common
Stock held by it in the aggregate on the date of this Annual Report on form
10-K, the Group will have the right to nominate for election all directors of
Holdings other than the directors referred to above in this paragraph and in the
preceding paragraph, and upon such nomination by the Group such nominees will
stand for election to Holdings' Board of Directors in accordance with Holdings'
Restated Certificate of Incorporation, and MSLEF II will vote all shares of
Holdings Common Stock owned or controlled by it and its affiliates against any
director standing for election for Holdings' Board of Directors that has not
been nominated by the Group, other than the directors referred to above in this
paragraph and in the preceding paragraph.
The Principals Stockholders Agreement further provides that MSLEF II
will vote all shares of Holdings Common Stock held by it against any unsolicited
merger, or sale of Holdings' business or assets, if such transaction is opposed
by the holders of a majority of the shares of Holdings Common Stock held by the
Group, unless as of the applicable record date for such vote, the Group holds
less than ninety percent of the number of shares of Holdings Common Stock held
by it in the aggregate at the date of this Annual Report on Form 10-K.
The foregoing provisions of the Principals Stockholders Agreement could
have the effect of delaying, deferring or preventing a change of control of the
Company and preventing the stockholders from receiving a premium for their
shares of Holdings Common Stock in any proposed acquisition of the Company.
Item 13. Certain Relationships and Related Transactions.
Management Agreements
Holdings, Silgan, Containers and Plastics each entered into an amended
and restated management services agreement dated as of December 21, 1993
(collectively, the "Management Agreements") with S&H to replace in its entirety
its then existing management services agreement, as amended, with S&H. Pursuant
to the Management Agreements, S&H provided Holdings, Silgan, Containers and
Plastics and their respective subsidiaries with general management and
administrative services (the "Services"). The Management Agreements provided for
payments to S&H (i) on a monthly basis, of $5,000 plus an amount equal to 2.475%
of consolidated earnings before depreciation, interest and taxes of Holdings and
its subsidiaries ("Holdings EBDIT"), for such calendar month until Holdings
EBDIT for the calendar year shall have reached an amount set forth in the
Management Agreements for such calendar year (the "Scheduled Amount") and 1.65%
of Holdings EBDIT for such calendar month to the extent that Holdings EBDIT for
the calendar year shall have exceeded the Scheduled Amount but shall not have
been greater than an amount (the "Maximum Amount") set forth in the Management
Agreements and (ii) on a quarterly basis, of an amount equal to 2.475% of
Holdings EBDIT for such calendar quarter until Holdings EBDIT for the calendar
year shall have reached the Scheduled Amount and 1.65% of Holdings EBDIT for
such calendar quarter to the extent that Holdings EBDIT for the calendar year
shall have exceeded the Scheduled Amount but shall not have been greater than
the Maximum Amount (the "Quarterly Management Fee"). The Scheduled Amount was
$83.5 million for the calendar year 1996, and the Maximum Amount was $98.101
million for the calendar year 1996. The Management Agreements provided that upon
receipt by Silgan of a notice from Bankers Trust that certain events of
-44-
<PAGE>
default under the Credit Agreement have occurred, the Quarterly Management Fee
shall continue to accrue, but shall not be paid to S&H until the fulfillment of
certain conditions, as set forth in the Management Agreements.
Additionally, the Management Agreements provided that Holdings, Silgan,
Containers, Plastics and their respective subsidiaries shall reimburse S&H, on a
monthly basis, for all out-of-pocket expenses paid by S&H in providing the
Services, including fees and expenses to consultants, subcontractors and other
third parties, in connection with such Services. All fees and expenses paid to
S&H under each of the Management Agreements were credited against amounts paid
to S&H under the other Management Agreements. Under the terms of the Management
Agreements, Holdings, Silgan, Containers and Plastics had agreed, subject to
certain exceptions, to indemnify S&H and its affiliates, officers, directors,
employees, subcontractors, consultants or controlling persons against any
losses, damages, costs and expenses they may sustain arising in connection with
the Management Agreements.
The Management Agreements also provided that S&H may select a
consultant, subcontractor or agent to provide the Services. S&H retained Morgan
Stanley to render financial advisory services to S&H. In connection with such
retention, S&H agreed to pay Morgan Stanley a fee equal to 9.1% of the fees paid
to S&H under the Management Agreements.
Concurrent with the Offering, each of Holdings, Silgan, Containers and
Plastics entered into an amended and restated management services agreement
(collectively, the "New Management Agreements") with S&H to replace in their
entirety the Management Agreements. The New Management Agreements contain
substantially the same terms as the Management Agreements, except that after the
initial term of the New Management Agreements (which continues until June 30,
1999), the New Management Agreements will be automatically renewed for
successive one-year terms unless either party gives written notice at least 180
days prior to the end of the then current term of its election not to renew. The
independent directors of Holdings will determine on behalf of the companies
whether to give such written notice not to renew. The New Management Agreements
may be terminated (i) at the option of each of the respective companies upon the
failure or refusal of S&H to perform its obligations under the New Management
Agreements, if such failure or refusal continues unremedied for more than 60
days after written notice of its existence shall have been given; (ii) at the
option of S&H upon the failure or refusal of any of the respective companies to
perform its obligations under the New Management Agreements, if such failure or
refusal continues unremedied for more than 60 days after written notice of its
existence shall have been given; (iii) at the option of S&H or the respective
companies (a) if S&H or one of the companies is declared insolvent or bankrupt
or a voluntary bankruptcy petition is filed by any of them, (b) upon the
occurrence of any of the following events with respect to S&H or one of the
companies if not cured, dismissed or stayed within 45 days: the filing of an
involuntary petition in bankruptcy, the appointment of a trustee or receiver or
the institution of a proceeding seeking a reorganization, arrangement,
liquidation or dissolution, (c) if S&H or one of the companies voluntarily seeks
a reorganization or arrangement or makes an assignment for the benefit of
creditors or (d) upon the death or permanent disability of both of Messrs.
Silver and Horrigan; (iv) upon at least 180 days prior written notice at the
option of each of the respective companies for any reason; (v) upon at least 180
days prior written notice at the option of S&H for any reason other than Cause
or a Change of Control (each as defined in the New Management Agreements); (vi)
at the option of S&H after a Change of Control; (vii) at the option of the
respective companies in the event of criminal conduct or gross negligence by S&H
in the performance of the Services; or (viii) at the option of S&H or the
respective companies upon the termination of any of the New Management
Agreements for Cause (as defined therein). The New Management Agreements
prohibit S&H from competing with the Company during the term thereof and, only
if S&H terminates the New Management Agreements pursuant to clause (v) above,
for a period of one year after such termination. The New Management Agreements
provide that, in the event that they
-45-
<PAGE>
are terminated pursuant to clause (iv) above, each of the respective companies
will be required to pay to S&H the present value of the amount of the payments
that would have been payable to S&H thereunder through the end of the initial
term or renewed term, as the case may be, thereof. In addition, under the New
Management Agreements the Scheduled Amount is $89.5 million, $95.5 million and
$101.5 million for the calendar years 1997, 1998 and 1999, respectively, and the
Maximum Amount is $100.504 million, $102.964 million and $105.488 million for
the calendar years 1997, 1998 and 1999, respectively. For the calendar year
2000, the Scheduled Amount and the Maximum Amount is $108.653 million, and for
each calendar year thereafter the Scheduled Amount and Maximum Amount increases
by 3% from that of the previous year.
The Company believes that it is difficult to determine whether the
Management Agreements were, and whether the New Management Agreements are, on
terms no less favorable than those available from unaffiliated parties because
of the personal nature of the services provided thereunder and the expertise and
skills of the individuals providing such services. The Company believes that
arrangements under the Management Agreements were, and that the arrangements
under the New Management Agreements are, fair to both parties.
For the years ended December 31, 1996, 1995 and 1994, under the
Management Agreements, S&H earned aggregate fees, including reimbursable
expenses and fees payable to Morgan Stanley, of $5.3 million, $5.4 million and
$5.0 million, respectively, from Holdings, Silgan, Containers and Plastics, and
during 1996, 1995 and 1994 Morgan Stanley earned fees of $425,000, $409,000 and
$383,000, respectively.
Other
In connection with the refinancings of the Company's bank credit
agreement in 1995 and 1993, the banks thereunder (including Bankers Trust)
received certain fees amounting to $17.2 million and $8.1 million in 1995 and
1993, respectively. In connection with a recent amendment to the Credit
Agreement in May 1996, the banks thereunder (including Bankers Trust) received
certain fees amounting to $1.6 million. In connection with the Preferred Stock
Sale, Morgan Stanley, which acted as the placement agent in connection
therewith, received certain fees amounting to $1.8 million. Morgan Stanley acted
as one of the several underwriters in connection with the Offering and received
fees of approximately $1.2 million in connection therewith. See "Security
Ownership of Certain Beneficial Owners and Management--Certain Beneficial Owners
of Holdings' Capital Stock" for a description of the ownership by MSLEF II, an
affiliate of Morgan Stanley, of certain securities of Holdings.
Messrs. Silver and Horrigan, BTNY, MSLEF II and Holdings are parties to
the Stockholders Agreement, which provides for certain rights and obligations
among them and between them and Holdings. See "Security Ownership of Certain
Beneficial Owners and Management--Description of Stockholders Agreements".
In the event that the Company enters into any future transactions with
any of its affiliates, the Company expects to enter into any such transactions
on terms no less favorable than those available from unaffiliated parties.
-46-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K.
(a)
Financial Statements:
Report of Independent Auditors........................................... F-1
Consolidated Balance Sheets at December 31, 1996 and 1995................ F-2
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994.................................. F-3
Consolidated Statements of Common Stockholder's Equity (Deficit) for
the years ended December 31, 1996, 1995 and 1994.................. F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994.................................. F-5
Notes to Consolidated Financial Statements............................... F-7
Schedules:
I. Condensed Financial Information of Silgan Corporation:
Condensed Balance Sheets at December 31, 1996 and 1995........ F-31
Condensed Statements of Operations for the years ended
December 31, 1996, 1995 and 1994........................... F-32
Condensed Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994........................... F-33
II. Schedules of Valuation and Qualifying Accounts for the years
ended December 31, 1996, 1995 and 1994........................ F-34
All other financial statements and schedules not listed have been omitted
because they are not applicable, or not required, or because the required
information is included in the consolidated financial statements or notes
thereto.
-47-
<PAGE>
Exhibits:
Exhibit
Number Description
- ------- -----------
3.1 Restated Certificate of Incorporation of Silgan, as amended
(incorporated by reference to Exhibit 3.1 filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993, Commission File No. 1-11200).
3.2 By-laws of Silgan (incorporated by reference to Exhibit 3(ii)
filed with the Company's Registration Statement on Form S-1,
dated January 11, 1988, Registration Statement No.
33-18719).
3.3 Restated Certificate of Incorporation of Holdings
(incorporated by reference to Exhibit 3.1 filed with Holdings'
Annual Report on Form 10-K for the year ended December 31,
1996, Commission File No. 000-22117).
3.4 Amended and Restated By-laws of Holdings (incorporated by
reference to Exhibit 3.2 filed with Holdings' Annual Report on
Form 10-K for the year ended December 31, 1996, Commission
File No. 000-22117).
4.1 Indenture dated as of June 29, 1992, between Silgan and Fleet
National Bank, as Trustee, with respect to the 11-3/4% Notes
(incorporated by reference to Exhibit 1 filed with Silgan's
Current Report on Form 8-K dated July 15, 1992, Commission
File No. 33- 46499).
4.2 Indenture, dated as of June 29, 1992, between Holdings and
Fleet National Bank, as trustee, with respect to the Discount
Debentures (incorporated by reference to Exhibit 1 filed with
Holdings' Current Report on Form 8-K dated July 15, 1992,
Commission File No. 33-47632).
4.3 Silgan Holdings Inc. Certificate of Designation of the Powers,
Preferences and Relative, Participating, Optional and Other
Special Rights of 13-1/4% Cumulative Exchangeable Redeemable
Preferred Stock and Qualifications, Limitations and
Restrictions Thereof (incorporated by reference to Exhibit 3
filed with Holdings' Current Report on Form 8-K dated August
2, 1996, Commission File No. 33-28409).
4.4 Form of Silgan's 11-3/4% Senior Subordinated Notes due 2002
(incorporated by reference to Exhibit 4.5 filed with Holdings'
Annual Report on Form 10-K for the year ended December 31,
1992, Commission File No. 33-28409).
4.5 Form of Holdings' 13-1/4% Senior Discount Debentures Due 2002
(incorporated by reference to Exhibit 4.4 filed with Holdings'
Annual Report on Form 10-K for the year ended December 31,
1992, Commission File No. 33-28409).
4.6 Registration Rights Agreement, dated July 22, 1996, between
Holdings and Morgan Stanley (incorporated by reference to
Exhibit 5 filed with Holdings' Current Report on Form 8-K
dated August 2, 1996, Commission File No. 33-28409).
-48-
<PAGE>
Exhibit
Number Description
- ------- -----------
4.7 Form of Holdings' 13-1/4% Cumulative Exchangeable Redeemable
Preferred Stock Certificate (incorporated by reference to
Amendment No. 1 to Holdings' Registration Statement on Form
S-4, dated September 9, 1996, Commission File No. 333-9979).
4.8 Indenture, dated as of July 22, 1996, between Holdings and
Fleet National Bank, as Trustee, with respect to the Exchange
Debentures (incorporated by reference to Exhibit 4.10 filed
with Holdings' Amendment No. 2 to Registration Statement on
Form S-4, dated October 31, 1996, Registration Statement No.
33-9979).
4.9 Form of Holdings' Subordinated Debentures due 2006
(incorporated by reference to Exhibit 4.11 filed with
Holdings' Amendment No. 2 to Registration Statement on Form
S-4, dated October 31, 1996, Registration Statement No.
33-9979).
10.1 Supply Agreement between Containers and Nestle for Hanford,
California effective August 31, 1987 (incorporated by
reference to Exhibit 10(xi) filed with Silgan's Registration
Statement on Form S-1, dated January 11, 1988, Registration
Statement No. 33-18719) (Portions of this Exhibit are subject
to confidential treatment pursuant to order of the
Commission).
10.2 Amendment to Supply Agreement for Hanford, California, dated
July 1, 1990 (incorporated by reference to Exhibit 10.31 filed
with Silgan's Registration Statement on Form S-1, dated March
18, 1992, Registration Statement No. 33-46499) (Portions of
this Exhibit are subject to confidential treatment pursuant to
order of the Commission).
10.3 Supply Agreement between Containers and Nestle for Riverbank,
California effective August 31, 1987 (incorporated by
reference to Exhibit 10(xii) filed with Silgan's Registration
Statement on Form S-1, dated January 11, 1988, Registration
Statement No. 33-18719) (Portions of this Exhibit are subject
to confidential treatment pursuant to order of the
Commission).
10.4 Supply Agreement between Containers and Nestle for Morton,
Illinois, effective August 31, 1987 (incorporated by reference
to Exhibit 10(vii) filed with Silgan's Registration Statement
on Form S-1, dated January 11, 1988, Registration Statement
No. 33-18719) (Portions of this Exhibit are subject to
confidential treatment pursuant to order of the Commission).
10.5 Amendment to Supply Agreement for Morton, Illinois, dated July
1, 1990 (incorporated by reference to Exhibit 10.36 filed with
Silgan's Registration Statement on Form S-1, dated March 18,
1992, Registration Statement No. 33-46499) (Portions of this
Exhibit are subject to confidential treatment pursuant to
order of the Commission).
10.6 Supply Agreement between Containers and Nestle for Ft. Dodge,
Iowa, effective August 31, 1987 (incorporated by reference to
Exhibit 10(xiv) filed with Silgan's Registration Statement on
Form S-1, dated January 11, 1988, Registration Statement No.
33-18719) (Portions of this Exhibit are subject to
confidential treatment pursuant to order of the Commission).
-49-
<PAGE>
Exhibit
Number Description
- ------- ------------
10.7 Amendment to Supply Agreement for Ft. Dodge, Iowa, dated March
1, 1990 (incorporated by reference to Exhibit 10.38 filed with
Silgan's Registration statement on Form S-1, dated March 18,
1992, Registration Statement No. 33-46499) (Portions of this
Exhibit are subject to confidential treatment pursuant to
order of the Commission).
10.8 Supply Agreement between Containers and Nestle for St. Joseph,
Missouri, effective August 31, 1987 (incorporated by reference
to Exhibit 10(xvii) filed with Silgan's Registration Statement
on Form S-1, dated January 11, 1988, Registration Statement
No. 33-18719) (Portions of this Exhibit are subject to
confidential treatment pursuant to order of the Commission).
10.9 Amendment to Supply Agreement for St. Joseph, Missouri, dated
March 1, 1990 (incorporated by reference to Exhibit 10.42
filed with Silgan's Registration Statement on Form S-1, dated
March 18, 1992, Registration Statement No. 33-46499) (Portions
of this Exhibit are subject to confidential treatment pursuant
to order of the Commission).
10.10 Supply Agreement between Containers and Nestle for Trenton,
Missouri, effective August 31, 1987 (incorporated by reference
to Exhibit 10(xviii) filed with Silgan's Registration
Statement on Form S-1, dated January 11, 1988, Registration
Statement No. 33-18719) (Portions of this Exhibit are subject
to confidential treatment pursuant to order of the
Commission).
10.11 Amendment to Supply Agreement for Trenton, Missouri, dated
March 1, 1990 (incorporated by reference to Exhibit 10.44
filed with Silgan's Registration Statement on Form S-1, dated
March 18, 1992, Registration Statement No. 33-46499) (Portions
of this Exhibit are subject to confidential treatment pursuant
to order of the Commission).
10.12 Supply Agreement between Containers and Nestle for Moses Lake,
Washington, effective August 31, 1987 (incorporated by
reference to Exhibit 10(xxii) filed with Silgan's Registration
Statement on Form S-1, dated January 11, 1988, Registration
Statement No. 33-18719) (Portions of this Exhibit are subject
to confidential treatment pursuant to order of the
Commission).
10.13 Amendment to Supply Agreement for Moses Lake, Washington,
dated March 1, 1990 (incorporated by reference to Exhibit
10.51 filed with Silgan's Registration Statement on Form S-1,
dated March 18, 1992, Registration Statement No. 33-46499)
(Portions of this Exhibit are subject to confidential
treatment pursuant to order of the Commission).
10.14 Supply Agreement between Containers and Nestle for Jefferson,
Wisconsin, effective August 31, 1987 (incorporated by
reference to Exhibit 10(xxiii) filed with Silgan's
Registration Statement on Form S-1, dated January 11, 1988,
Registration Statement No. 33-18719) (Portions of this Exhibit
are subject to confidential treatment pursuant to order of the
Commission).
10.15 Amendment to Supply Agreement for Jefferson, Wisconsin, dated
March 1, 1990 (incorporated by reference to Exhibit 10.53
filed with Silgan's Registration Statement on
-50-
<PAGE>
Exhibit
Number Description
- ------- -----------
Form S-1, dated March 18, 1992, Registration Statement No.
33-46499) (Portions of this Exhibit are subject to
confidential treatment pursuant to order of the Commission).
10.16 Amendment to Supply Agreements, dated November 17, 1989 for
Ft. Dodge, Iowa; Hillsboro, Oregon; Jefferson, Wisconsin; St.
Joseph, Missouri; and Trenton, Missouri (incorporated by
reference to Exhibit 10.49 filed with Silgan's Annual Report
on Form 10-K for the year ended December 31, 1989, Commission
File No. 33-18719) (Portions of this Exhibit are subject to
confidential treatment pursuant to order of the Commission).
#10.17 Employment Agreement, dated as of September 14, 1987, between
James Beam and Canaco Corporation (Containers) (incorporated
by reference to Exhibit 10(vi) filed with Silgan's
Registration Statement on Form S-1, dated January 11, 1988,
Registration
Statement No. 33-18719).
#10.18 Employment Agreement, dated as of September 1, 1989, between
Silgan, InnoPak Plastics Corporation (Plastics), Russell F.
Gervais and Aim Packaging, Inc. (incorporated by reference to
Exhibit 5 filed with Silgan's Report on Form 8-K, dated March
15, 1989).
#10.19 InnoPak Plastics Corporation (Plastics) Pension Plan for
Salaried Employees (incorporated by reference to Exhibit 10.32
filed with Silgan's Annual Report on Form 10-K for the year
ended December 31, 1988, Commission File No. 33-18719).
#10.20 Containers Pension Plan for Salaried Employees (incorporated
by reference to Exhibit 10.34 filed with Silgan's Annual
Report on Form 10-K for the year ended December 31, 1988,
Commission File No. 33-18719).
#10.21 Silgan Holdings Inc. Fourth Amended and Restated 1989 Stock
Option Plan (incorporated by reference to Exhibit 10.21 filed
with Holdings' Annual Report on Form 10-K for the year ended
December 31, 1996, Commission File No. 000-22117).
#10.22 Form of Holdings Nonstatutory Stock Option Agreement
(incorporated by reference to Exhibit 10.22 filed with
Holdings' Annual Report on Form 10-K for the year ended
December 31, 1996, Commission File No. 000-22117).
10.23 Stockholders Agreement, dated as of December 21, 1993, among
R. Philip Silver, D. Greg Horrigan, MSLEF II, BTNY, First
Plaza and Holdings (incorporated by reference to Exhibit 3
filed with Holdings' Current Report on Form 8-K, dated March
25, 1994, Commission File No. 33-28409).
#10.24 Amended and Restated Management Services Agreement, dated as
of February 14, 1997, between S&H and Holdings (incorporated
by reference to Exhibit 10.24 filed with Holdings' Annual
Report on Form 10-K for the year ended December 31, 1996,
Commission File No. 000-22117).
-51-
<PAGE>
Exhibit
Number Description
- ------- -----------
#10.25 Amended and Restated Management Services Agreement, dated as
of February 14, 1997, between S&H and Silgan (incorporated by
reference to Exhibit 10.25 filed with Holdings' Annual Report
on Form 10-K for the year ended December 31, 1996, Commission
File No. 000-22117).
#10.26 Amended and Restated Management Services Agreement, dated as
of February 14, 1997, between S&H and Containers (incorporated
by reference to Exhibit 10.26 filed with Holdings' Annual
Report on Form 10-K for the year ended December 31, 1996,
Commission File No. 000-22117).
#10.27 Amended and Restated Management Services Agreement, dated as
of February 14, 1997, between S&H and Plastics (incorporated
by reference to Exhibit 10.27 filed with Holdings' Annual
Report on Form 10-K for the year ended December 31, 1996,
Commission File No. 000-22117).
10.28 Purchase Agreement, dated as of September 3, 1993, between
Containers and Del Monte (incorporated by reference to Exhibit
1 filed with Holdings' Current Report on Form 8- K, dated
January 5, 1994, Commission File No. 33-28409).
10.29 Amendment to Purchase Agreement, dated as of December 10,
1993, between Containers and Del Monte (incorporated by
reference to Exhibit 2 filed with Holdings' Current Report on
Form 8-K, dated January 5, 1994, Commission File No.
33-28409).
10.30 Supply Agreement, dated as of September 3, 1993, between
Containers and Del Monte (incorporated by reference to Exhibit
10.118 filed with Silgan's Annual Report on Form 10-K for the
year ended December 31, 1993, Commission File No. 1-11200).
(Portions of this Exhibit are subject to an application for
confidential treatment filed with the Commission.)
10.31 Amendment to Supply Agreement, dated as of December 21, 1993,
between Containers and Del Monte (incorporated by reference to
Exhibit 10.119 filed with Silgan's Annual Report on Form 10-K
for the year ended December 31, 1993, Commission File No. 1-
11200). (Portions of this Exhibit are subject to an
application for confidential treatment filed with the
Commission.)
10.32 Credit Agreement, dated as of August 1, 1995, among Silgan,
Containers, Plastics, the lenders from time to time party
thereto, Bankers Trust, as Administrative Agent and as a
Co-Arranger, and Bank of America Illinois, as Documentation
Agent and as a Co-Arranger (incorporated by reference to
Exhibit 2 filed with Holdings' Current Report on Form 8-K,
dated August 14, 1995, Commission File No. 33-28409).
10.33 Amended and Restated Holdings Guaranty, dated as of August 1,
1995, made by Holdings (incorporated by reference to Exhibit 4
filed with Holdings' Current Report on Form 8-K, dated August
14, 1995, Commission File No. 33-28409).
-52-
<PAGE>
Exhibit
Number Description
- ------- -----------
10.34 Amended and Restated Borrowers Guaranty, dated as of August 1,
1995, made by Silgan, Containers, Plastics,
California-Washington Can Corporation and SCCW Can Corporation
(incorporated by reference to Exhibit 3 filed with Holdings'
Current Report on Form 8-K, dated August 14, 1995, Commission
File No. 33-28409).
10.35 Amended and Restated Security Agreement dated as of June 18,
1992, among Plastics, Containers and Bankers Trust
(incorporated by reference to Exhibit 8 filed with Silgan's
Current Report on Form 8-K dated July 15, 1992, Commission
File No. 33-46499).
10.36 Amended and Restated Pledge Agreement dated as of June 18,
1992, made by Holdings (incorporated by reference to Exhibit 7
filed with Silgan's Current Report on Form 8-K dated July 15,
1992, Commission File No. 33-46499).
10.37 Amended and Restated Pledge Agreement dated as of June 18,
1992, made by Silgan (incorporated by reference to Exhibit 5
filed with Silgan's Current Report on Form 8-K dated July 15,
1992, Commission File No. 33-46499).
10.38 Amended and Restated Pledge Agreement dated as of June 18,
1992, made by Containers and Plastics (incorporated by
reference to Exhibit 6 filed with Silgan's Current Report on
Form 8-K dated July 15, 1992, Commission File No. 33-46499).
10.39 Asset Purchase Agreement, dated as of June 2, 1995, between
ANC and Containers (incorporated by reference to Exhibit 1
filed with Holdings' Current Report on Form 8- K, dated August
14, 1995, Commission File No. 33-28409).
10.40 Underwriting Agreement, dated as of February 13, 1997, among
Holdings, Silgan, Containers, Plastics, MSLEF II, BTNY and the
underwriters listed on Schedule I thereto (incorporated by
reference to Exhibit 10.40 filed with Holdings' Annual Report
on Form 10-K for the year ended December 31, 1996, Commission
File No. 000-22117).
10.41 Placement Agreement between Holdings and Morgan Stanley, dated
July 17, 1996 (incorporated by reference to Exhibit 6 filed
with Holdings' Current Report on Form 8-K dated August 2,
1996, Commission File No. 33-28409).
10.42 Amendment to Stockholders Agreement, dated as of February 14,
1997, among R. Philip Silver, D. Greg Horrigan, MSLEF II, BTNY
and Holdings (incorporated by reference to Exhibit 10.42 filed
with Holdings' Annual Report on Form 10-K for the year ended
December 31, 1996, Commission File No. 000-22117).
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 filed with Silgan's Annual Report on Form 10-K for
the year ended December 31, 1995, Commission File No.
1-11200).
*27 Financial Data Schedule.
-53-
<PAGE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of 1996.
- --------------------
* Filed herewith
# Indicates a management contract or compensatory plan or arrangement in
accordance with Section (a)3. of Item 14 of Form 10-K.
-54-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SILGAN CORPORATION
Date: March 27, 1997 By /s/ R. Philip Silver
_________________________
R. Philip Silver
Chairman of the Board and Co-Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
Chairman of the Board and
/s/ R. Philip Silver Co-Chief Executive Officer
________________________ (Principal Executive Officer) March 27, 1997
(R. Philip Silver)
/s/ D. Greg Horrigan President, Co-Chief Executive
________________________ Officer and Director March 27, 1997
(D. Greg Horrigan)
/s/ Robert H. Niehaus
________________________ Director March 27, 1997
(Robert H. Niehaus)
/s/ Leigh J. Abramson
________________________ Director March 27, 1997
(Leigh J. Abramson)
Executive Vice President, Chief
/s/ Harley Rankin, Jr. Financial Officer and Treasurer
________________________ (Principal Financial Officer) March 27, 1997
(Harley Rankin, Jr.)
Vice President, Controller and
/s/ Harold J. Rodriguez, Jr. Assistant Treasurer
________________________ (Principal Accounting Officer) March 27, 1997
(Harold J. Rodriguez, Jr.)
-55-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Silgan Corporation
We have audited the accompanying consolidated balance sheets of Silgan
Corporation as of December 31, 1996 and 1995, and the related consolidated
statements of operations, common stockholder's equity (deficit) and cash flows
for each of the three years in the period ended December 31, 1996. Our audits
also included the financial statement schedules listed in the index at Item
14(a) of the Company's Annual Report on Form 10-K for the year ended December
31, 1996. These financial statements and schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Silgan Corporation at December 31, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Stamford, Connecticut
January 31, 1997, except for Note 21,
as to which date is February 20, 1997
F-1
<PAGE>
SILGAN CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(Dollars in thousands)
1996 1995
---- ----
Assets
Current assets:
Cash and cash equivalents ........................ $ 947 $ 2,092
Accounts receivable, less allowances for
doubtful accounts of $4,045 and $4,843 for
1996 and 1995, respectively ..................... 101,436 109,929
Inventories ...................................... 195,981 210,471
Prepaid expenses and other current assets ........ 7,329 5,731
-------- --------
Total current assets ......................... 305,693 328,223
Property, plant and equipment, net ................. 499,781 487,301
Goodwill, net ...................................... 57,885 43,562
Other assets ....................................... 37,010 29,637
-------- --------
$900,369 $888,723
======== ========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Trade accounts payable ........................... $122,623 $138,195
Accrued payroll and related costs ................ 41,649 32,805
Accrued interest payable ......................... 9,175 4,358
Accrued expenses and other current liabilities ... 34,614 43,062
Bank working capital loans ....................... 27,800 7,100
Current portion of long-term debt ................ 38,427 28,140
-------- --------
Total current liabilities .................... 274,288 253,660
Long-term debt ..................................... 634,843 549,610
Deferred income taxes .............................. -- 3,017
Other long-term liabilities ........................ 75,997 69,576
Stockholder's Equity:
Common stock ($0.01 par value per share;
3,000 shares authorized, 2 shares issued) ...... -- --
Additional paid-in capital ....................... 91,235 73,635
Accumulated Deficit .............................. (175,994) (60,775)
-------- --------
Total stockholder's equity (deficit) ......... (84,759) 12,860
-------- --------
$900,369 $888,723
======== ========
See accompanying notes.
F-2
<PAGE>
SILGAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
1996 1995 1994
---- ---- ----
Net sales .................................. $1,405,742 $1,101,905 $861,374
Cost of goods sold ......................... 1,222,976 970,491 748,290
---------- ---------- --------
Gross profit .......................... 182,766 131,414 113,084
Selling, general and administrative expenses 58,056 45,734 37,160
Reduction in carrying value of assets ...... -- 14,745 16,729
---------- ---------- --------
Income from operations ................ 124,710 70,935 59,195
Interest expense and other related
financing costs .......................... 71,491 52,462 36,142
---------- ---------- --------
Income before income taxes ............ 53,219 18,473 23,053
Income tax provision ....................... 20,900 8,700 11,000
---------- ---------- --------
Income before extraordinary charges ... 32,319 9,773 12,053
Extraordinary charges relating to early
extinguishment of debt, net of taxes ..... -- (2,967) --
---------- ---------- --------
Net income ............................ $ 32,319 $ 6,806 $ 12,053
========== ========== ========
See accompanying notes.
F-3
<PAGE>
SILGAN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
For the years ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
Total
Additional Accum- stockholder's
Common paid-in ulated equity
stock capital Deficit (deficit)
----- ------- ------- ---------
Balance at December 31, 1993 ...... $ -- $64,135 $ (11,332) $ 52,803
Tax benefit realized from Parent .. -- 5,400 -- 5,400
Payments to former shareholders ... -- -- (6,911) (6,911)
Net income ........................ -- -- 12,053 12,053
------ ------- --------- ---------
Balance at December 31, 1994 ...... -- 69,535 (6,190) 63,345
Tax benefit realized from Parent .. -- 4,100 -- 4,100
Distribution to Parent ............ -- -- (57,596) (57,596)
Payments to former shareholders ... -- -- (3,795) (3,795)
Net income ........................ -- -- 6,806 6,806
------ ------- --------- ---------
Balance at December 31, 1995 ...... -- 73,635 (60,775) 12,860
Tax benefit realized from Parent .. -- 17,600 -- 17,600
Distribution to Parent ............ -- -- (147,538) (147,538)
Net income ........................ -- -- 32,319 32,319
------ ------- --------- ---------
Balance at December 31, 1996 ...... $ -- $91,235 $(175,994) $ (84,759)
====== ======= ========= =========
See accompanying notes.
F-4
<PAGE>
SILGAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income ................................ $ 32,319 $ 6,806 $ 12,053
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation .......................... 54,830 42,217 35,392
Amortization .......................... 7,848 7,488 6,404
Reduction in carrying value of assets . -- 14,745 16,729
Contribution by Parent for federal
income tax provision ................ 17,600 4,100 5,400
Extraordinary charge relating to early
extinguishment of debt .............. -- 4,943 --
Changes in assets and liabilities, net
of effect of acquisitions:
Decrease (increase) in accounts
receivable .................... 15,102 (1,011) (21,267)
Decrease (increase) in inventories 20,348 10,852 (16,741)
(Decrease) increase in trade
accounts payable .............. (17,145) 43,108 4,478
Net working capital provided by AN
Can from 8/1/95 to 12/31/95 .... -- 85,213 --
Other, net (decrease) increase ... (836) (8,825) 4,887
-------- --------- --------
Total adjustments ............ 97,747 202,830 35,282
-------- --------- --------
Net cash provided by operating
activities .......................... 130,066 209,636 47,335
-------- --------- --------
Cash flows from investing activities:
Acquisition of businesses ................. (43,043) (348,762) 519
Capital expenditures ...................... (56,851) (51,897) (29,184)
Proceeds from sale of assets .............. 1,557 3,541 765
-------- --------- --------
Net cash used in investing activities . $(98,337) $(397,118) $(27,900)
-------- --------- --------
Continued on following page.
F-5
<PAGE>
SILGAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the years ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
1996 1995 1994
---- ---- ----
Cash flows from financing activities:
Borrowings under working capital loans .. $952,050 $669,260 $393,250
Repayments under working capital loans .. (931,350) (674,760) (382,850)
Proceeds from issuance of long-term debt 125,000 450,000 --
Repayments of long-term debt ............ (29,480) (176,910) (20,464)
Distribution to Parent .................. (147,538) (57,596) --
Debt financing costs .................... (1,556) (19,290) --
Payments to former shareholders ......... -- (3,795) (6,911)
-------- -------- --------
Net cash (used) provided by financing
activities ........................ (32,874) 186,909 (16,975)
-------- -------- --------
Net (decrease) increase in cash and
cash equivalents ......................... (1,145) (573) 2,460
Cash and cash equivalents at
beginning of year ........................ 2,092 2,665 205
-------- -------- --------
Cash and cash equivalents at
end of year .............................. $ 947 $ 2,092 $ 2,665
======== ======== ========
Supplementary data:
Interest paid ......................... $ 63,251 $ 45,293 $ 30,718
Income tax (refunds) payments, net .... (4,836) 8,967 2,588
See accompanying notes.
F-6
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
1. Basis of Presentation
Silgan Corporation ("Silgan" or the "Company"), a corporation which was formed
in 1987 to acquire interests in various packaging manufacturers, is a
wholly-owned subsidiary of Silgan Holdings Inc. ("Holdings" or the "Parent").
The Parent is a company controlled by Silgan management and The Morgan Stanley
Leveraged Equity Fund II, L. P. ("MSLEF II"), an affiliate of Morgan Stanley &
Co., Incorporated ("MS & Co.").
The Company, together with its wholly-owned operating subsidiaries Silgan
Containers Corporation ("Containers") and Silgan Plastics Corporation
("Plastics"), is predominantly engaged in the manufacture and sale of steel and
aluminum containers for human and pet food products. The Company also
manufactures custom designed plastic containers used for health and personal
care products, specialty packaging items including metal caps and closures, and
plastic bowls and paper containers used by processors in the food industry.
Principally, all of the Company's businesses are based in the United States.
Foreign subsidiaries are not significant to the consolidated results of
operations or financial position of the Company.
2. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. All significant intercompany
transactions have been eliminated. Assets and liabilities of the Company's
foreign subsidiary are translated at rates of exchange in effect at the balance
sheet date. Income statement amounts are translated at the average of monthly
exchange rates.
Cash and cash equivalents
Cash equivalents represent short-term, highly liquid investments having original
maturities of three months or less from the time of purchase. The carrying
values of these assets approximate their fair values. As a result of the
Company's cash management system, checks issued and presented to the banks for
payment may create negative cash balances. Checks outstanding in excess of
related cash balances totaling approximately $49.6 million at December 31, 1996
and $30.0 million at December 31, 1995 are included in trade accounts payable.
F-7
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
2. Summary of Significant Accounting Policies (continued)
Inventories
Inventories are stated at the lower of cost or market (net realizable value) and
are principally accounted for by the last-in, first-out method (LIFO).
Property, Plant and Equipment
Property, plant and equipment are stated at historical cost less accumulated
depreciation. Major renewals and betterments that extend the life of an asset
are capitalized and repairs and maintenance expenditures are charged to expense
as incurred. Depreciation is computed using the straight-line method over their
estimated useful lives. The principal estimated useful lives are 35 years for
buildings and range between 3 to 18 years for machinery and equipment. Leasehold
improvements are amortized over the shorter of the life of the related asset or
the life of the lease.
Goodwill
The Company has classified as goodwill the cost in excess of fair value of net
assets acquired in purchase transactions. Goodwill is stated at cost less
accumulated amortization. Amortization is computed on a straight-line basis over
periods ranging from 20 to 40 years. The Company periodically evaluates the
existence of goodwill impairment to access whether goodwill is fully recoverable
from projected, undiscounted net cash flows of the related business unit.
Impairments would be recognized in operating results if a permanent reduction in
values were to occur.
Long-Lived Assets
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of". 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 1996.
Other Assets
Other assets consist principally of debt issuance costs which are being
amortized on a straight-line basis over the terms of the related debt agreements
(5 to 10 years). Other intangible assets are amortized over their expected
useful lives using the straight-line method.
F-8
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
2. Summary of Significant Accounting Policies (continued)
Income Taxes
The Company accounts for income taxes using the liability method in accordance
with SFAS No. 109, "Accounting for Income Taxes". The provision for income taxes
includes federal, state, and foreign income taxes currently payable and those
deferred because of temporary differences between the financial statement and
tax bases of assets and liabilities. As provided under SFAS No. 109, the Company
recognizes a deferred tax benefit from the losses of Holdings which is reflected
as a contribution to additional paid-in capital.
Stock Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued in October
1995, 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 may continue to follow the accounting method as prescribed under APB No. 25,
"Accounting for Stock Issued to Employees". The Company has chosen to continue
to recognize compensation expense in accordance with APB No. 25.
Derivative Financial Instruments
The Company's use of derivative financial instruments is limited to interest
rate swap agreements which assist in managing exposure to adverse movement in
interest rates on a portion of its indebtedness. The Company does not utilize
financial instruments for speculative purposes. The difference between amounts
to be paid or received on interest rate swap agreements are recorded as
adjustments to interest expense. The methods and assumptions used to estimate
fair values of these and other debt instruments reflected in the financial
statements are discussed in Note 10.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, revenues and expenses, as
well as footnote disclosures in the financial statements. Actual results may
differ from those estimates.
F-9
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
3. Acquisitions
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, which had net sales of $48.8 for its fiscal year ended June 29,
1996. The purchase price was $29.9 million (including net working capital of
$8.0 million) and was primarily allocated to property, plant, and equipment, and
net working capital acquired based on fair market value as of the date of
acquisition. The excess of the purchase price over the fair value of the net
assets acquired was $5.2 million and has been recorded as goodwill, which is
being amortized on a straight-line basis over 20 years.
On August 1, 1995, 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
("AN Can"), 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 $362.0 million
(including $13.1 million paid in 1996). The aggregate purchase price has been
allocated to the assets acquired and liabilities assumed based on their fair
values. The purchase price allocation was adjusted in 1996 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, the related
recognition of a deferred tax asset, and various other acquisition liabilities.
The final purchase price allocation resulted in an adjustment to increase
goodwill by $10.7 million. The aggregate excess of the purchase price over the
fair value of the assets acquired and liabilities assumed for AN Can was $25.6
million and has been recorded as goodwill, which is being amortized on a
straight-line basis over 40 years.
The Finger Lakes and AN Can acquisitions were accounted for using the purchase
method of accounting and accordingly, the results of operations for Finger Lakes
and AN Can have been included in the consolidated financial statements of the
Company from the dates of acquisition.
Set forth below are the Company's summary unaudited pro forma results of
operations for the year ended December 31, 1995, giving effect to the
acquisition of AN Can. The summary unaudited pro forma results of operations
include the historical results of the Company and AN Can and reflect the effect
of purchase accounting adjustments based on appraisals and valuations, the
financing of the acquisition of AN Can by the Company, the refinancing of the
Company's related debt obligations, and certain other adjustments as if these
events occurred as of the beginning of 1995. Pro forma results of operations for
Finger Lakes have not been presented for 1996 or included in the 1995 summary
unaudited pro forma results of operations since the impact of such acquisition
was not significant.
F-10
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
3. Acquisitions (continued)
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 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 does not purport to represent what the
Company's results of operations actually would have been if the operations were
combined as of January 1, 1995, or to project the Company's results of
operations for any future period:
1995
----
(Dollars in thousands)
Net sales ..................... $ 1,404,382
Income from operations ........ 94,008(1)
Income before income taxes..... 27,666
Net income .................... 15,266
(1) Included in pro forma income from operations for the year ended
December 31, 1995 is a charge of $14.7 million to adjust the carrying
value of certain underutilized machinery and equipment at Silgan
facilities (existing prior to the AN Can acquisition) to net realizable
value.
4. Inventories
The components of inventories at December 31, 1996 and 1995 consist of the
following:
1996 1995
---- ----
(Dollars in thousands)
Raw materials ........................... $ 40,280 $ 46,027
Work-in-process ......................... 27,861 24,869
Finished goods .......................... 116,498 135,590
Spare parts and other ................... 7,771 6,344
-------- --------
192,410 212,830
Adjustment to value inventory
at cost on the LIFO method............ 3,571 (2,359)
-------- --------
$195,981 $210,471
======== ========
The amount of inventory recorded on the first-in first-out method at December
31, 1996 and 1995 was $19.8 million and $17.6 million, respectively.
F-11
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
5. Property, Plant and Equipment
Property, plant and equipment at December 31, 1996 and 1995 consist of the
following:
1996 1995
---- ----
(Dollars in thousands)
Land .................................... $ 6,425 $ 6,355
Buildings and improvements .............. 79,923 68,860
Machinery and equipment ................. 621,232 584,526
Construction in progress ................ 49,771 33,764
-------- --------
757,351 693,505
Accumulated depreciation and amortization (257,570) (206,204)
-------- --------
Property, plant and equipment, net $499,781 $487,301
======== ========
For the years ended December 31, 1996, 1995, and 1994, depreciation expense was
$54.8 million, $42.2 million and $35.4 million, respectively. The total amount
of repairs and maintenance expense was $32.0 million in 1996, $26.9 million in
1995 and $19.9 million in 1994.
In 1995 and 1994, based on a review of depreciable assets, the Company
determined that certain adjustments were necessary to properly reflect net fixed
asset realizable values. In 1995, the Company recorded a write-down of $14.7
million for the excess of carrying value over estimated realizable value of
machinery and equipment at existing facilities which had become underutilized
due to excess capacity. In 1994, charges of $16.7 million were recorded which
included $2.6 million to write-down the excess carrying value over estimated
realizable value of various plant facilities held for sale and $14.1 million for
technologically obsolete and inoperable machinery and equipment.
6. Goodwill
Goodwill amortization charged to operations was $2.0 million in 1996; $1.3
million in 1995; and $1.2 million in 1994. Accumulated amortization of goodwill
at December 31, 1996, 1995, and 1994 was $7.0 million; $5.0 million; and $3.7
million, respectively.
F-12
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
7. Other Assets
Other assets at December 31, 1996 and 1995 consist of the following:
1996 1995
---- ----
(Dollars in thousands)
Debt issuance costs ........... $26,577 $25,021
Deferred tax asset ............ 6,983 --
Other ......................... 11,010 10,202
------- -------
44,570 35,223
Less: accumulated amortization (7,560) (5,586)
------- -------
$37,010 $29,637
======= =======
During 1996, the Company capitalized $1.6 million of new debt issuance costs in
connection with borrowings used to fund the refinancing of Holdings' 13 1/4%
Senior Discount Debentures due 2002 ("Discount Debentures"). As part of the
acquisition of AN Can and the related refinancing of its secured debt facilities
in 1995, the Company wrote off $4.9 million of unamortized debt issuance costs
and capitalized $19.3 million of new debt issuance costs. Amortization expense
relating to debt issuance for the years ended December 31, 1996, 1995, and 1994
was $4.0 million, $4.3 million, and $4.6 million, respectively.
8. Short-Term Borrowings and Long-Term Debt
The Company has a revolving credit facility which it uses to finance its
seasonal liquidity needs. As of December 31, 1996 and 1995, the Company had
$27.8 million and $7.1 million, respectively, of loans outstanding under the
revolving credit facility ("Working Capital Loans").
Long-term debt consists of the following:
1996 1995
---- ----
(Dollars in thousands)
Bank A Term Loans ..................... $194,554 $220,000
Bank B Term Loans ..................... 343,716 222,750
11 3/4% Senior Subordinated Notes due
June 15, 2002 ...................... 135,000 135,000
-------- --------
673,270 577,750
Less: Amounts due within one year ..... 38,427 28,140
-------- --------
$634,843 $549,610
======== ========
F-13
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
8. Short-Term Borrowings and Long-Term Debt (continued)
The aggregate annual maturities of long-term debt at December 31, 1996 are as
follows (in thousands):
1997.................. $ 38,427
1998.................. 53,393
1999.................. 53,393
2000.................. 126,112
2001.................. 155,880
2002 and thereafter... 246,065
--------
$673,270
========
Refinancings
Effective August 1, 1995, the Company, Containers and Plastics entered into a
$675.0 million credit agreement (the "Credit Agreement") with various banks to
finance the acquisition by Containers of AN Can, to refinance and repay in full
all amounts owing under the previous bank credit agreement and the Company's
Senior Secured Notes (the "Secured Notes"), and to make a distribution to
Holdings in an amount not to exceed $75.0 million for the repurchase of a
portion of Holding's Discount Debentures.
The Credit Agreement, as entered into during 1995, provided the Company with (i)
$225.0 million of A Term Loans, (ii) $225.0 million of B Term Loans and (iii)
Working Capital Loans of up to $225.0 million. The Company used proceeds from
the Credit Agreement to acquire AN Can for $348.9 million (excluding $13.1
million paid in 1996), repay $117.1 million of term loans under the previous
credit agreement, repay in full $50.0 million of the Secured Notes, distribute
$57.6 million to Holdings, and incur debt issuance costs of $19.3 million. As a
result of the early redemption of the Secured Notes, the Company incurred an
extraordinary charge of $3.0 million, net of taxes, for the write-off of
unamortized deferred financing costs of $4.9 million and premiums paid on the
redemption of the Secured Notes of $0.2 million.
In 1996, the Credit Agreement was amended to provide the Company with additional
B Term Loans of $125.0 million. During 1996, the additional B term loans and
$17.4 million of Working Capital Loans were distributed to Holdings to enable
Holdings to redeem a portion of its Discount Debentures.
F-14
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
8. Short-Term Borrowings and Long-Term Debt (continued)
Bank Credit Agreement
The A Term Loans mature on December 31, 2000, and the B Term Loans mature on
March 15, 2002. Principal repayments of $25.4 million and $5.0 million on the A
Term Loans and $4.0 million and $2.3 million on the B Term Loans were made in
1996 and 1995, respectively. Principal is to be repaid on each of the A and B
Term Loans in installments in accordance with the Credit Agreement until
maturity.
As provided in the Credit Agreement, the Company is required to repay the term
loans (ratably allocated between the A Term Loans and the B Term Loans) in an
amount equal to 80% of the net sale proceeds from certain asset sales and up to
100% of the net equity proceeds from certain sales of equity. Effective for the
year ended December 31, 1996 and each year thereafter during the term of the
Credit Agreement, the Company is required to prepay the term loans (ratably
allocated between the A Term Loans and the B Term Loans) in an amount equal to
50% of the Company's excess cash flow. Amounts repaid under the term loans
cannot be reborrowed.
The Credit Agreement provides Containers and Plastics, together, a revolving
credit facility of up to $225.0 million for working capital needs. Borrowings
available under the revolving credit facility were $190.0 million at December
31, 1996, after taking into account outstanding Working Capital Loans of $27.8
million and outstanding letters of credit of $7.2 million. The Company may
utilize up to a maximum of $20.0 million in letters of credit as long as the
aggregate amount of borrowings of Working Capital Loans and letters of credit do
not exceed the amount of the commitment under the revolving credit facility. The
aggregate amount of Working Capital Loans and letters of credit which may be
outstanding at any time is also limited to the aggregate of 85% of eligible
accounts receivable and 50% of eligible inventory. Working Capital Loans may be
borrowed, repaid, and reborrowed over the life of the Credit Agreement until
final maturity on December 31, 2000.
The borrowings under the Credit Agreement may be designated by the respective
borrowers as Base Rate or Eurodollar Rate borrowings. The Base Rate is the
higher of (i) 1/2 of 1% in excess of Adjusted Certificate of Deposit Rate, or
(ii) Bankers Trust Company's prime lending rate. Base Rate borrowings bear
interest at the Base Rate plus a margin of 1.50% in the case of A Term Loans and
Working Capital Loans; and a margin of 2.0% in the case of B Term Loans.
Eurodollar Rate borrowings bear interest at the Eurodollar Rate plus a margin of
2.50% in the case of A Term Loans and Working Capital Loans; and a margin of
3.0% in the case of B Term Loans.
F-15
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
8. Short-Term Borrowings and Long-Term Debt (continued)
Bank Credit Agreement (continued)
In accordance with the Credit Agreement, if the Company meets certain financial
tests, the interest rate margin on Base Rate and Eurodollar Rate borrowings may
be reduced from the existing margin. As of December 31, 1996, the interest rate
for Base Rate borrowings was 9.75% and the interest rate for Eurodollar Rate
borrowings ranged between 8.0% and 8.63%. During 1996, the Company entered into
interest rate swap arrangements to convert interest rate exposure from variable
to fixed rates of interest on A Term Loans and B Term Loans in an aggregate
amount of $200.0 million (for a discussion of the interest rate swap agreements,
see Note 9).
For 1996, 1995 and 1994, respectively, the average amount of borrowings of
Working Capital Loans was $104.1 million, $67.6 million and $14.4 million; the
weighted average annual interest rate paid on such borrowings was 8.4%, 8.9%,
and 8.4%; and the highest amount of such borrowings was $175.1 million, $188.1
million, and $46.0 million.
The Credit Agreement provides for the payment of a commitment fee of 0.5% per
annum on the daily average unused portion of commitments available under the
working capital revolving credit facility as well as a 2.75% per annum fee on
outstanding letters of credit.
The indebtedness under the Credit Agreement is guaranteed by Holdings and each
of Silgan, Containers and Plastics and secured by a security interest in
substantially all of the real and personal property of Silgan, Containers and
Plastics. The stock of the Company and the stock of principally all of its
subsidiaries have been pledged to the lenders under the Credit Agreement.
The Credit Agreement contains various covenants which limit or restrict, among
other things, investments, indebtedness, liens, dividends, leases, capital
expenditures, and the use of proceeds from asset sales, as well as requiring the
Company to meet certain specified financial covenants. The Company is currently
in compliance with all covenants under the Credit Agreement.
11 3/4% Senior Subordinated Notes
The Company's 11 3/4% Senior Subordinated Notes (the "11 3/4% Notes"), which
mature on June 15, 2002, represent unsecured general obligations of the Company,
subordinate in right of payment to obligations under the Credit Agreement and
effectively subordinate to all of the obligations of the subsidiaries of the
Company. Interest is payable semi-annually on June 15 and December 15.
F-16
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
8. Short-Term Borrowings and Long-Term Debt (continued)
11 3/4% Senior Subordinated Notes (continued)
The 11 3/4% Notes are redeemable at the option of the Company, in whole or in
part, at any time during the twelve months commencing June 15 of the following
years at the indicated percentages of their principal amount, plus accrued
interest:
Redemption
Year Percentage
---- ----------
1997............... 105.8750%
1998............... 102.9375%
1999 and thereafter 100.0000%
The 11 3/4% Notes Indenture contains covenants which are comparable to or less
restrictive than those under the terms of the Credit Agreement.
9. Financial Instruments and Risk Management
The Company has entered into interest rate swap agreements with various banks to
manage its exposure to interest rate fluctuations. The agreements are with major
financial institutions which are expected to fully perform under the terms
thereof. The interest rate swap agreements effectively convert interest rate
exposure from variable rates to fixed rates of interest without the exchange of
the underlying principal amounts. A portion of the Company's term debt
instruments carries a variable rate of interest based on the London interbank
offered rate ("LIBOR") plus a margin currently ranging from 2.5% to 3.0%. The
interest rate swap agreements require the Company to pay fixed rates of interest
based on LIBOR ranging from 5.6% to 6.2% plus the aforementioned margin.
Notional principal amounts of these agreements total $200.0 million and these
agreements mature in the year 1999. The notional amounts are used to measure the
interest to be paid or received and do not represent the amount of exposure to
credit loss. Net payments of $0.3 million under these agreements made in 1996
were recorded as adjustments to interest expense.
Concentration of Credit Risk
The Company derives a significant portion of its revenue from multi-year supply
agreements with many of its customers. Aggregate revenues from its two largest
customers accounted for approximately 29.1% of its net sales in 1996 and 36.0%
of its net sales in 1995. The receivable balances from these customers
collectively represented 20.3% and 28.2% of the Company's accounts receivable
before allowances at December 31, 1996 and 1995, respectively.
F-17
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
9. Financial Instruments and Risk Management (continued)
Concentration of Credit Risk (continued)
As is common in the packaging industry, the Company provides extended payment
terms for some of its customers due to the seasonality of the vegetable and
fruit pack business. Exposure to losses is dependent on each customer's
financial position. The Company performs ongoing credit evaluations of its
customer's financial condition and its receivables are not collateralized. The
Company maintains an allowance for doubtful accounts which management believes
is adequate to cover potential credit losses based on customer credit
evaluations, collection history, and other information.
10. Fair Value of Financial Instruments
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 1996 and 1995 are as follows:
1996 1995
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(Dollars in thousands)
Working Capital Facility ........... $ 27,800 $ 27,800 $ 7,100 $ 7,100
Bank A Term Loans .................. 194,554 194,554 220,000 220,000
Bank B Term Loans .................. 343,716 343,716 222,750 222,750
11 3/4% Senior Subordinated
Notes due June 15, 2002 .......... 135,000 144,500 135,000 144,500
Interest Rate Swap Agreements ...... -- 504 -- --
Methods and assumptions used in estimating fair values are as follows:
Cash and cash equivalents: The carrying amount reported in the balance sheet for
cash and cash equivalents approximates fair value due to the short duration of
those investments.
Short and long-term debt: The carrying amounts of the Company's borrowings under
its working capital loans and variable-rate borrowings approximate their fair
value. The fair values of fixed-rate borrowings are based on quoted market
prices.
Interest Rate Swap Agreements: Fair values of interest rate swap agreements
reflect the estimated amounts that the Company would receive to terminate the
contracts at the reporting date based on quoted market prices.
F-18
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
11. Commitments
The Company has a number of noncancelable operating leases for office and plant
facilities, equipment and automobiles that expire at various dates through 2020.
Certain operating leases have renewal options. Minimum future rental payments
under these leases are (in thousands):
1997....................... $13,779
1998....................... 10,615
1999....................... 8,181
2000....................... 6,257
2001....................... 4,431
2002 and thereafter........ 9,213
-------
$52,476
=======
Rent expense was approximately $13.9 million in 1996; $10.8 million in 1995; and
$9.1 million in 1994.
12. Retirement Plans
The Company sponsors pension and defined contribution plans which cover
substantially all employees, other than union employees covered by
multi-employer defined benefit pension plans under collective bargaining
agreements. Pension benefits are provided based on either a career average,
final pay or years of service formula. With respect to certain hourly employees,
pension benefits are provided for based on stated amounts for each year of
service. It is the Company's policy to fund accrued pension and defined
contribution costs in compliance with ERISA requirements. Assets of the plans
consist primarily of equity and bond funds.
F-19
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
12. Retirement Plans (continued)
The following table sets forth the funded status of the Company's retirement
plans as of December 31, 1996 and 1995:
Plans in which Plans in which
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in thousands)
Actuarial present value of
benefit obligations:
Vested benefit obligations ....... $14,009 $12,135 $33,558 $31,465
Non-vested benefit obligations ... 383 547 4,718 3,158
------- ------- ------- -------
Accumulated benefit obligations .... 14,392 12,682 38,276 34,623
Additional benefits due to
future salary levels ............. 6,255 5,667 6,526 7,132
------- ------- ------- -------
Projected benefit obligations ...... 20,647 18,349 44,802 41,755
Plan assets at fair value .......... 15,055 12,988 31,265 23,535
------- ------- ------- -------
Projected benefit obligation
in excess of plan assets ......... 5,592 5,361 13,537 18,220
Unrecognized actuarial gain (loss).. 110 (165) 3,476 1,237
Unrecognized prior service costs ... (565) (615) (2,052) (2,128)
Additional minimum liability ....... -- -- 1,124 1,990
------- ------- ------- -------
Accrued pension liability
recognized in the balance sheet... $ 5,137 $ 4,581 $16,085 $19,319
======= ======= ======= =======
For certain pension plans with accumulated benefits in excess of plan assets at
December 31, 1996 and December 31, 1995, the balance sheet reflects an
additional minimum pension liability and related intangible asset of $1.1
million and $2.0 million, respectively.
The components of net periodic pension costs for defined benefit plans are as
follows:
1996 1995 1994
---- ---- ----
(Dollars in thousands)
Service cost ................................. $5,229 $3,067 $2,947
Interest cost ................................ 4,452 3,887 3,334
Actual (return) loss on assets ............... (3,946) (7,284) 539
Net amortization and deferrals ............... 650 5,008 (2,698)
------ ------ ------
Net periodic pension cost ................ $6,385 $4,678 $4,122
====== ====== ======
F-20
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
12. Retirement Plans (continued)
The Company participates in several multi-employer pension plans which provide
defined benefits to certain of its union employees. The composition of total
pension cost for 1996, 1995, and 1994 in the Company's Consolidated Statements
of Operations is as follows:
1996 1995 1994
---- ---- ----
(Dollars in thousands)
Net periodic pension cost ............ $ 6,385 $4,678 $4,122
Settlement and curtailment losses, net 48 418 --
Contributions to multi-employer
union plans ........................ 3,813 2,708 2,700
------- ------ ------
Total pension costs .............. $10,246 $7,804 $6,822
======= ====== ======
The assumptions used in determining the actuarial present value of plan benefit
obligations as of December 31, 1996, 1995 and 1994 are as follows:
1996 1995 1994
---- ---- ----
Discount rate ........................ 7.5% 7.5% 8.5%
Weighted average rate of
compensation increase .............. 4.0% 4.0% 4.5%
Expected long-term rate of
return on plan assets .............. 9.0% 8.5% 8.5%
The Company also sponsors defined contribution pension and profit sharing plans
covering substantially all employees. Company contributions to these plans are
based upon employee contributions and operating profitability. Contributions
charged to income for these plans were $4.5 million in 1996; $1.7 million in
1995; and $2.5 million in 1994. Improved operating performance in 1996 as
compared to 1995 resulted in greater contributions to the Company's profit
sharing plans.
13. Postretirement Benefits Other than Pensions
The Company has defined benefit health care and life insurance plans that
provide postretirement benefits to certain employees. The plans are
contributory, with retiree contributions adjusted annually, and contain cost
sharing features including deductibles and coinsurance. Retiree health benefits
are paid as covered expenses are incurred.
F-21
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
13. Postretirement Benefits Other than Pensions (continued)
The following table presents the funded status of the postretirement plans and
amounts recognized in the Company's balance sheet as of December 31, 1996 and
1995:
1996 1995
---- ----
(Dollars in thousands)
Accumulated postretirement benefit obligation:
Retirees ................................... $ 2,691 $ 1,587
Fully eligible active plan participants .... 5,576 11,647
Other active plan participants ............. 18,214 14,770
------- -------
Total accumulated postretirement
benefit obligation ......................... 26,481 28,004
Unrecognized net loss (gain) ................. 2,993 (2,929)
Unrecognized prior service costs ............. (275) (298)
------- -------
Accrued postretirement benefit liability ..... $29,199 $24,777
======= =======
Net periodic postretirement benefit cost include the following components:
1996 1995 1994
---- ---- ----
(Dollars in thousands)
Service cost ............................. $ 871 $ 372 $ 321
Interest cost ............................ 1,766 1,097 412
Net amortization and deferral ............ 25 42 (14)
------ ------ -----
Net periodic postretirement benefit cost $2,662 $1,511 $ 719
====== ====== =====
The weighted average discount rate used to determine the accumulated
postretirement benefit obligation as of December 31, 1996 and 1995 was 7.5%. The
net periodic postretirement benefit costs were calculated using a discount rate
of 7.5% in 1996 and discount rates ranging from 7.5% to 8.5% for 1995. The
assumed health care cost trend rates used in measuring the accumulated
postretirement benefit obligation in 1996 ranged from 10% to 9.5% for pre-age 65
retirees and was 9.0% for post-age 65 retirees, declining gradually to an
ultimate rate of 5.5% over the next 12 years.
A 1% increase in the health care cost trend rate assumption would increase the
accumulated postretirement benefit obligation as of December 31, 1996 by
approximately $1.7 million and increase the aggregate of the service and
interest cost components of the net periodic postretirement benefit cost for
1996 by approximately $0.2 million.
F-22
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
14. Income Taxes
The components of income tax expense are as follows:
1996 1995 1994
---- ---- ----
(Dollars in thousands)
Current
Federal ..................... $ -- $ 500 $ 2,500
State ....................... 3,000 1,900 3,200
Foreign ..................... 300 100 (100)
------- ------ -------
3,300 2,500 5,600
Deferred
Federal ..................... 17,600 4,100 5,400
State ....................... -- -- --
Foreign ..................... -- -- --
------- ------ -------
17,600 4,100 5,400
------- ------ -------
$20,900 $6,600 $11,000
======= ====== =======
Income tax expense is included in the financial statements as follows:
1996 1995 1994
---- ---- ----
(Dollars in thousands)
Income before
extraordinary charges ....... $20,900 $8,700 $11,000
Extraordinary charges ......... -- (2,100) --
------- ------ -------
$20,900 $6,600 $11,000
======= ====== =======
The income tax provision varied from that computed by using the U.S. statutory
rate as a result of the following:
1996 1995 1994
---- ---- ----
(Dollars in thousands)
Income tax benefit at the U.S.
federal income tax rate ..... $18,627 $6,466 $ 8,069
State and foreign tax expense,
net of federal income benefit 2,145 1,625 2,015
Amortization of goodwill ...... 687 471 576
Other ......................... (559) 138 340
------- ------ -------
$20,900 $8,700 $11,000
======= ====== =======
F-23
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
14. Income Taxes (continued)
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets at December 31, 1996 and 1995
are as follows:
1996 1995
---- ----
(Dollars in thousands)
Deferred tax liabilities:
Tax over book depreciation ........... $65,000 $53,400
Book over tax basis of assets acquired 13,200 16,100
Other ................................ 4,100 3,900
------- -------
Total deferred tax liabilities ..... 82,300 73,400
Deferred tax assets:
Book reserves not yet deductible
for tax purposes ................... 59,200 56,300
Net operating loss carryforwards ..... 3,800 3,800
Benefit taken for Holdings' losses ... 25,800 10,200
Other ................................ 483 83
------- -------
Total deferred tax assets .......... 89,283 70,383
------- -------
Net deferred tax liabilities (assets) .. $(6,983) $ 3,017
======= =======
The Company files a consolidated federal income tax return with Holdings. In
accordance with the tax allocation agreement, the Company is obligated to
reimburse Holdings for the use of Holdings' losses only to the extent that
Holdings has taxable income on a stand-alone basis. A liability has not been
established to the extent of the use of Holdings' losses since the possibility
of the ultimate payment for these benefits is considered remote. Accordingly,
the use of Holdings' losses has been accounted for as a contribution of capital.
Also, in accordance with the tax allocation agreement, the Company is required
to reimburse Holdings for its allocable share of Holdings' tax liability. The
Company's share of Holdings' federal tax liability, for alternative minimum tax,
aggregated $0.5 million in 1995 and $1.5 million in 1994. Holdings did not have
a federal tax liability in 1996.
F-24
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
14. Income Taxes (continued)
On a consolidated basis, the Company and Holdings have net operating loss
carryforwards at December 31, 1996 of approximately $164.0 million which are
available to offset future consolidated taxable income of the group and expire
from 2001 through 2011. The Company and Holdings, on a consolidated basis at
December 31, 1996, have $3.9 million of alternative minimum tax credits which
are available indefinitely to reduce future tax payments for regular federal
income tax purposes.
At December 31, 1996, the Company, if reporting on a separate company basis,
would have had net operating loss carryforwards for federal income tax purposes
of approximately $8.0 million, which are subject to limitation under the
consolidated return regulations, and expire from 2001 to 2007.
15. Acquisition Reserves
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. Provisions were established for such planned costs
which include approximately $22.6 million related to employee severance and
relocation costs, $3.5 million related to administrative workforce reductions,
and $23.4 million related to plant exit costs and other acquisition liabilities.
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 through 1998. During 1996 and 1995, respectively,
costs of $6.5 million and $0.9 million were incurred primarily for relocation
and severance in connection with administrative workforce reductions.
16. Stock Option Plans
Containers and Plastics have established stock option plans for their key
employees pursuant to which options to purchase shares of common stock of
Holdings and its subsidiaries and stock appreciation rights ("SARs") may be
granted.
Options granted under the plans may be either incentive stock options or
non-qualified stock options. To date, all stock options granted have been
non-qualified stock options. Under the plans, Containers and Plastics have each
reserved 1,200 shares of their common stock for issuance under their respective
plans. Containers has 13,764 shares and Plastics has 13,800 shares of $0.01 par
value common stock currently issued, and all such shares are owned by Silgan.
F-25
<PAGE>
>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
16. Stock Option Plans (continued)
The SARs extend to the shares covered by the options for the Containers and
Plastics plans and provide for the payment to the holders of the options of an
amount in cash equal to the excess of, in the case of Containers' plans, the pro
forma book value, as defined, of a share of common stock (or in the event of a
public offering or a change of control (as defined in such plan), the fair
market value of a share of common stock) over the exercise price of the option,
with certain adjustments for the portion of vested stock appreciation rights not
paid at the time of the recapitalization in June 1989; or, in the case of
Plastics' plan, in the event of a public offering or a change in control (as
defined in such plan), the fair market value of a share of common stock over the
exercise price of the option.
Prior to a public offering or change in control, should an employee leave
Containers, Containers has the right to repurchase, and the employee has the
right to require Containers to repurchase, the common stock of Containers held
by the employee at the then pro forma book value.
At December 31, 1996, there were outstanding options for 936 shares under the
Containers plan and 1,200 shares under the Plastics plan. The exercise prices
per share range from $2,122 to $4,933 for the Containers options and $126 to
$993 for the Plastics options. The stock options and SARs generally become
exercisable ratably over a five-year period. At December 31, 1996, there were
846 options/SARs exercisable under the Containers plan and 420 options/SARs
exercisable under the Plastics plan. For the year ended December 31, 1994, 240
options were granted under the Containers plan and 900 options were granted
under the Plastics plan. For the year ended December 31, 1995, 300 options were
granted under the Plastics plan. There were no grants in 1996. For the years
ended December 31, 1996, 1995, and 1994, no options were exercised under any of
the plans. The Company incurred charges relating to the vesting of benefits
under the stock option plans of $0.8 million in 1996, $0.4 million in 1995 and
$1.5 million in 1994.
In the event of a public offering of any of Holdings' capital stock or a change
in control of Holdings, (i) the options granted by Containers and Plastics
pursuant to the plans and (ii) any stock issued by Containers upon exercise of
such options are convertible into either stock options or common stock of
Holdings, as the case may be. The conversion of such options or shares will be
based upon a valuation of Holdings and an allocation of such value between the
subsidiaries after giving affect to, among other things, that portion of the
outstanding indebtedness of Holdings allocable to each such subsidiary.
F-26
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
16. Stock Option Plans (continued)
For the year ended December 31, 1995, the value of the options granted under the
Plastic plan were not significant. Accordingly, the impact on net income and
earnings per share from the issuance of these options would not be materially
different from amounts currently reported and would not require SFAS No. 123 pro
forma disclosure.
17. Stockholder's Equity
The Company's authorized capital stock consists of 1,000 shares each of Class A,
B and C Common Stock ($.01 par value) and preferred stock. The Company's
outstanding capital stock at December 31, 1996 and 1995 consists of 1 share of
Class A Common Stock and 1 share of Class B Common Stock. Both shares are issued
to Holdings.
During 1996 and 1995, respectively, the Company distributed $147.5 million and
$57.6 million to Holdings from proceeds received through additional bank
borrowings of B Term Loans and Working Capital Loans. Holdings used these funds
to redeem a portion of its Discount Debentures and to pay accrued interest
thereon.
18. Related Party Transactions
Pursuant to various management services agreements (the "Management Agreements")
entered into between Holdings, Silgan, Containers, Plastics, and S&H, Inc.
("S&H"), a company wholly-owned by Mr. Silver, the Chairman and Co-Chief
Executive Officer of Holdings and Silgan, and Mr. Horrigan, the President and
Co-Chief Executive Officer of Holdings and Silgan, S&H provides Holdings, Silgan
and its subsidiaries with general management, supervision and administrative
services.
In consideration for its services, S&H receives a fee of 4.95% (of which 0.45%
is payable to MS & Co.) of Holdings' consolidated earnings before depreciation,
amortization, interest and taxes ("EBIDTA") until EBIDTA has reached the
Scheduled Amount set forth in the Management Agreements and 3.3% (of which 0.3%
is payable to MS & Co.) after EBIDTA has exceeded the Scheduled Amount up to the
Maximum Amount as set forth in the Management Agreements, plus reimbursement for
all related out-of-pocket expenses.
F-27
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
18. Related Party Transactions (continued)
The total amount incurred under the Management Agreements was $5.3 million in
1996, $5.4 million in 1995, and $5.0 million in 1994, and was allocated, based
upon EBIDTA, as a charge to operating income of each business segment. Included
in accounts payable at December 31, 1996 and 1995, was $0.1 million payable to
S&H. Under the terms of the Management Agreements, the Company has agreed,
subject to certain exceptions, to indemnify S&H and any of its affiliates,
officers, directors, employees, subcontractors, consultants or controlling
persons against any loss or damage they may sustain arising in connection with
the Management Agreements.
In connection with the Credit Agreement and its related amendments entered into
during 1996 and 1995, the banks thereunder (including Bankers Trust Company)
received fees totaling $1.6 million in 1996 and $17.2 million in 1995.
19. Litigation
In connection with the acquisition by Holdings of Silgan as of June 30, 1989
(the "Merger"), a decision was rendered in 1995 by the Delaware Court of
Chancery with respect to appraisal proceedings filed by certain former
stockholders of 400,000 shares of stock of Silgan. Pursuant to that decision,
these former holders were awarded $5.94 per share, plus simple interest at a
rate of 9.5%. This award was less than the amount, $6.50 per share, that these
former holders would have received in the Merger. The right of these former
holders to appeal the Chancery Court's decision has expired, and Silgan made a
distribution to Holdings and Holdings tendered payment of $3.8 million to these
former holders in 1995. In 1994, prior to the trial for appraisal, Holdings and
the former holders of an additional 650,000 shares of stock of Silgan agreed to
a settlement in respect of their appraisal rights, and Silgan made a
distribution to Holdings in order to make payment of $6.9 million, including
interest, in respect of the settlement.
There are no other pending legal proceedings to which the Company is a party or
to which any of its properties are subject which would have a material effect on
the Company's financial position.
F-28
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
20. Business Segment Information
The Company is engaged in the packaging industry and operates principally in two
business segments. Both segments operate in North America. There are no
intersegment sales. Presented below is a tabulation of business segment
information for each of the past three years:
Net Oper. Identifiable Dep. & Capital
Sales Profit Assets Amort. Expend.
----- ------ ------ ------ -------
1996 (Dollars in millions)
- ----
Metal container
& specialty(1) ..... $1,189.3 $106.8 $738.4 $44.0 $39.1
Plastic container .... 216.4 18.4 158.5 14.6 17.6
------- ------ ------ ----- -----
Total .............. $1,405.7 $125.2 $896.9 $58.6 $56.7
======== ====== ====== ===== =====
1995
- ----
Metal container
& specialty(1) ..... $ 882.3 $ 58.2 (2) $726.7 $31.6 $32.5
Plastic container .... 219.6 13.2 159.4 13.8 19.4
-------- ------ ------- ----- -----
Total .............. $1,101.9 $ 71.4 $886.1 $45.4 $51.9
======== ====== ====== ===== =====
1994
- ----
Metal container
& specialty(1) ..... $ 657.1 $ 59.8 (3) $335.3 $23.1 $16.9
Plastic container .... 204.3 (0.1)(3) 162.8 14.1 12.3
-------- ------ ------- ----- -----
Total .............. $ 861.4 $ 59.7 $498.1 $37.2 $29.2
======== ====== ====== ===== =====
(1) Specialty packaging sales include closures, plastic bowls, and paper
containers used by processors and packagers in the food industry and are
not significant enough to be reported as a separate segment.
(2) Includes charge for reduction in carrying value of assets of $14.7 million
for the metal container segment.
(3) Includes charges for reduction in carrying value of assets of $7.2
million for the metal container segment and $9.5 million for the plastic
container segment, respectively.
F-29
<PAGE>
SILGAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
20. Business Segment Information (continued)
Operating profit is reconciled to income before tax as follows:
1996 1995 1994
---- ---- ----
(Dollars in millions)
Operating profit ......... $125.2 $71.4 $59.7
Interest expense ......... 71.5 52.5 36.1
Corporate expense ........ 0.5 0.4 0.5
------ ----- -----
Income before
income taxes ........ $ 53.2 $18.5 $23.1
====== ===== =====
Identifiable assets are reconciled to total assets as follows:
1996 1995 1994
---- ---- ----
(Dollars in millions)
Identifiable assets ...... $896.9 $886.1 $498.1
Corporate assets ......... 3.5 2.6 2.0
------ ------ ------
Total assets ........... $900.4 $888.7 $500.1
====== ====== ======
Metal container and other segment sales to Nestle Food Company accounted for
17.1%, 21.4%, and 25.9% of net sales of the Company during the years ended
December 31, 1996, 1995, and 1994, respectively. Sales to Del Monte Corporation
accounted for 12.0%, 14.5%, and 21.4% of net sales of the Company during the
years ended December 31, 1996, 1995, and 1994, respectively.
21. Subsequent Events
On February 20, 1997, an initial public offering (the "IPO") of 5,175,000 shares
of Holdings' Common Stock, par value $.01 per share was completed. Holdings used
net proceeds from the IPO to redeem its remaining Discount Debentures
(approximately $59.0 million) and advanced funds to Silgan for the repayment of
approximately $8.9 million of bank term loans.
Under the terms of the stock option plans of Containers and Plastics, stock
options issued under such plans were converted to Holdings' options at the time
of the IPO. In accordance with APB No. 25, options granted under these plans are
considered variable options with a final measurement date at the time of
conversion. The Company will recognize a non-cash charge of approximately $22.9
million, net of $3.3 million previously accrued, in the first quarter of 1997,
for the excess of the fair market value over the grant price of these options
less amounts previously accrued.
F-30
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF SILGAN CORPORATION
CONDENSED BALANCE SHEETS
December 31, 1996 and 1995
(Dollars in thousands)
1996 1995
---- ----
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 60 $ 29
Notes receivable - subsidiaries .................. 38,427 28,140
Interest receivable - subsidiaries ............... 9,085 4,342
Other current assets ............................. 74 70
-------- --------
Total current assets ........................... 47,646 32,581
Investment in and other amounts due
from subsidiaries ................................ -- 26,181
Notes receivable - subsidiaries .................... 638,915 553,682
Amount receivable from parent ...................... 2,810 2,175
Other assets ....................................... 544 518
-------- --------
$689,915 $615,137
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current portion of term loans .................... $ 38,427 $ 28,140
Accrued interest payable ......................... 9,085 4,342
Accrued expenses ................................. 60 1,457
-------- --------
Total current liabilities .................... 47,572 33,939
Excess of distributions over investment
in subsidiaries ................................. 70,851 --
Long-term debt ..................................... 634,843 549,610
Amounts payable to subsidiaries .................... 17,064 14,890
Other long-term liabilities ........................ 4,344 3,838
Stockholder's equity:
Common stock ..................................... -- --
Additional paid-in capital ....................... 91,235 73,635
Accumulated deficit .............................. (175,994) (60,775)
-------- --------
Total stockholder's equity (deficit) ........... (84,759) 12,860
-------- --------
$689,915 $615,137
======== ========
See Notes to Consolidated Financial Statements for Silgan Corporation
appearing elsewhere herein.
F-31
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF SILGAN CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
For the years ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
1996 1995 1994
---- ---- ----
Net sales .................................. $ -- $ -- $ --
Cost of goods sold ......................... -- -- --
------- ------- -------
Gross profit .......................... -- -- --
Selling, general and administrative
expenses ................................. 513 416 543
------- ------- -------
Loss from operations .................. (513) (416) (543)
Equity in earnings of consolidated
subsidiaries ............................. 32,905 8,731 13,445
Other income (expenses) .................... -- (1,219) (651)
Interest expense and other related
financing costs .......................... (58,857) (41,822) (30,039)
Interest income - subsidiaries ............. 58,784 41,699 29,841
------- ------- -------
Income before income taxes ............ 32,319 6,973 12,053
Income taxes ............................... -- -- --
------- ------- -------
Income before extraordinary charge .... 32,319 6,973 12,053
Extraordinary charge relating to
early extinguishment of debt ............. -- (167) --
------- ------- -------
Net income ............................ $32,319 $ 6,806 $12,053
======= ======= =======
See Notes to Consolidated Financial Statements for Silgan Corporation
appearing elsewhere herein.
F-32
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF SILGAN CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
1996 1995 1994
---- ---- ----
Cash flows from operating activities: ..... $ 31 $ 3,669 $ 7,005
--------- --------- --------
Cash flows from investing activities:
(Increase) decrease in notes
receivable - subsidiaries ............. (95,520) (273,214) 35,462
(Increase) in investment in subsidiaries -- -- (14,998)
Cash distributions received from
subsidiaries .......................... 147,538 57,596 --
--------- --------- --------
Net cash provided (used) by investing
activities .............................. 52,018 (215,618) 20,464
--------- --------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 125,000 450,000 --
Repayments of long-term debt ............ (29,480) (176,786) (20,464)
Payments to former shareholders ......... -- (3,795) (6,911)
Distributions to Parent ................. (147,538) (57,596) --
--------- --------- --------
Net cash (used) provided by financing
activities .............................. (52,018) 211,823 (27,375)
--------- --------- --------
Net increase (decrease) in cash and cash
equivalents ............................. 31 (127) 94
Cash and cash equivalents at the beginning
of year ................................. 29 155 61
--------- --------- --------
Cash and cash equivalents at end of year .. $ 60 $ 29 $ 155
========= ========= ========
See Notes to Consolidated Financial Statements for Silgan Corporation
appearing elsewhere herein.
F-33
<PAGE>
SCHEDULE II
SILGAN CORPORATION
SCHEDULES OF VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
Column A Column B Column C Column D Column E
Additions
---------
Charged
Balance at Charged to to other Balance
beginning costs and accounts Deductions at end of
Description of period expenses describe describe(1) period
- ----------- --------- -------- -------- ----------- ------
For the year ended
December 31, 1994:
Allowance for
doubtful accounts
receivable ............ $1,084 $621 $ 58 $206 $1,557
====== ==== ======= ==== ======
For the year ended
December 31, 1995:
Allowance for
doubtful accounts
receivable ............ $1,557 $295 $ 3,872(2) $881 $4,843
====== ==== ======= ==== ======
For the year ended
December 31, 1996:
Allowance for
doubtful accounts
receivable ............ $4,843 $572 $(1,041)(3) $329 $4,045
====== ==== ======= ==== ======
(1) Uncollectible accounts written off, net of recoveries.
(2) Represents the accounts receivable allowance for doubtful accounts assumed
upon the acquisition of AN Can.
(3) Principally represents the final purchase price allocation for the
acquisition of AN Can.
F-34
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
27 Financial Data Schedule.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Silgan
Corporation's Form 10-K for the year ended December 31, 1996 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 947
<SECURITIES> 0
<RECEIVABLES> 105,481
<ALLOWANCES> 4,045
<INVENTORY> 195,981
<CURRENT-ASSETS> 305,693
<PP&E> 757,351
<DEPRECIATION> 257,570
<TOTAL-ASSETS> 900,369
<CURRENT-LIABILITIES> 274,288
<BONDS> 634,843
0
0
<COMMON> 0
<OTHER-SE> (84,759)
<TOTAL-LIABILITY-AND-EQUITY> 900,369
<SALES> 1,405,742
<TOTAL-REVENUES> 1,405,742
<CGS> 1,222,976
<TOTAL-COSTS> 1,222,976
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,491
<INCOME-PRETAX> 53,219
<INCOME-TAX> 20,900
<INCOME-CONTINUING> 32,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,319
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
