As filed with the Securities and Exchange Commission on September 13, 1996
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SILGAN HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1269834
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
--------------------
4 Landmark Square
Stamford, CT 06901
(203) 975-7110
(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive offices)
-------------------
Harley Rankin, Jr.
4 Landmark Square
Stamford, CT 06901
(203) 975-7110
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies of all communications to:
Frank W. Hogan, III, Esq. Jerry V. Elliott, Esq.
Winthrop, Stimson, Putnam & Roberts Shearman & Sterling
695 East Main Street 599 Lexington Avenue
Stamford, CT 06901 New York, NY 10022
(203) 348-2300 (212) 848-4000
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Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]
If the registrant elects to deliver its latest annual report to
security-holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]_______________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================
Proposed Maximum Amount of
Aggregate Offering Registration
Title of Shares to be Registered Price <F1> Fee
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.01 per share $86,250,000 $29,742
====================================================================================================
<FN>
<F1> Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
</FN>
</TABLE>
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED ______ 1996
[Insert Silgan Trademark]
Shares
Silgan Holdings Inc.
Common Stock
(par value $.01 per share)
--------------------
All of the ___ shares of Common Stock offered hereby are being sold by
the Company. Prior to the Offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price per share will be between $ and $ . For factors to be considered
in determining the initial public offering price, see "Underwriting".
See "Risk Factors" beginning on page 15 for a discussion of certain
considerations relevant to an investment in the Common Stock.
Application will be made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "SLGN".
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
<TABLE>
<CAPTION>
Initial Public Underwriting Proceeds to
Offering Price Discount<F1> Company<F2>
-------------- ------------- -----------
<S> <C> <C> <C>
Per Share................................................... $ $ $
Total<F3>................................................... $ $ $
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<FN>
<F1> The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
<F2> Before deducting estimated expenses of $___ payable by the Company.
<F3> The Company has granted the Underwriters an option for 30 days to
purchase up to an additional ___ shares at the initial public offering
price per share, less the underwriting discount, solely to cover
over-allotments. If such option is exercised in full, the total initial
public offering price, underwriting discount and proceeds to Company will
be $___, $___ and $____, respectively. See "Underwriting".
</FN>
</TABLE>
--------------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York, on or about
, 1996, against payment therefor in immediately available funds.
Goldman, Sachs & Co.
Morgan Stanley & Co.
Incorporated
Salomon Brothers Inc
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The date of this Prospectus is , 1996.
<PAGE>
[Reserved for photographs]
The Company intends to furnish to its stockholders annual reports
containing audited financial statements and quarterly reports containing
unaudited interim financial information for the first three quarters of each
year of the Company.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER- ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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<PAGE>
AVAILABLE INFORMATION
Silgan Holdings Inc. ("Holdings") is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports with the Securities and
Exchange Commission (the "Commission"). Reports filed by Holdings may be
inspected without charge and copied, upon payment of prescribed rates, at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of
such materials may be obtained from the web site that the Commission maintains
at http://www.sec.gov.
Holdings has filed with the Commission a registration statement on Form
S-2 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended. This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information, reference is hereby made to the
Registration Statement.
-------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 33-28409)
pursuant to the Exchange Act are incorporated herein by reference:
1. Holdings' Annual Report on Form 10-K for the fiscal year ended December
31, 1995;
2. Holdings' Annual Report on Form 10-K/A-1 for the fiscal year ended
December 31, 1995;
3. Holdings' Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1996;
4. Holdings' Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1996;
5. Holdings' Current Report on Form 8-K dated August 14, 1995, as amended by
Amendment to Current Report on Form 8-K/A dated October 16, 1995;
6. Holdings' Current Report on Form 8-K dated May 31, 1996; and
7. Holdings' Current Report on Form 8-K dated August 2, 1996.
Holdings will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents which are incorporated herein by reference, other than exhibits to
such information (unless such exhibits are specifically incorporated by
reference into such documents). Requests should be directed to: Silgan Holdings
Inc., 4 Landmark Square, Stamford, CT 06901, Attention: Chief Financial Officer
(Telephone Number (203) 975-7110).
Statements contained in this Prospectus as to the contents of any
contract or document are not necessarily complete, and in each instance
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. Any statement contained in a document all or a
portion of which is incorporated or
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<PAGE>
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified shall not be deemed to constitute a part of
this Prospectus except as so modified, and any statement so superseded shall not
be deemed to constitute part of this Prospectus.
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements of the Company contained elsewhere in this Prospectus, as
well as the information appearing in the documents incorporated by reference
herein. Unless otherwise indicated or unless the context otherwise requires, (i)
the term "Company" means the combined business operations of Holdings and its
subsidiaries, and the term "Silgan" means Silgan Corporation, a Delaware
corporation and a wholly owned subsidiary of Holdings; (ii) all share and per
share data have been adjusted to reflect the ___ to ___ stock split of the
outstanding Common Stock of Holdings effected by Holdings prior to the date of
this Prospectus (the "Stock Split"), as described under "Description of Capital
Stock"; (iii) the information contained in this Prospectus (A) gives effect to
the amendment to Holdings' restated certificate of incorporation to convert the
separate classes of common stock of Holdings into one class of common stock of
Holdings (see "Description of Capital Stock"), (B) assumes the Underwriters'
over-allotment option is not exercised and (C) assumes a public offering price
per share of Common Stock equal to $___ ; and (iv) all net sales, unit sales and
market share data for 1995 give pro forma effect to the acquisition of
substantially all of the assets of the Food Metal and Specialty business ("AN
Can") of American National Can Company ("ANC"). Certain information contained in
this summary and elsewhere in this Prospectus, including information under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and information with respect to the Company's expected operations,
expected financial results, cost savings, plans and strategy for its business
and related financing, are forward-looking statements. For a discussion of
important factors that could cause actual results to differ materially from the
forward-looking statements, see "Risk Factors".
The Company
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 during 1995 of 36% 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's management has successfully
acquired and integrated ten businesses, including most recently AN Can 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). The Company's strategy has
enabled it to rapidly increase its revenues and profits. The Company's net sales
have increased from $678.2 million in 1991 to $1,404.4 million in 1995,
representing a compound annual growth rate of approximately 20%. During this
period, pro forma for the AN Can acquisition, income from operations increased
from $39.3 million in 1991 to $112.2 million in 1995, representing a 30%
compound annual growth rate, while the Company's income from operations as a
percentage of net sales increased from 5.8% to 8.0% over the same period (in
each case without giving effect to a charge of $14.7 million in 1995 to adjust
the carrying value of certain assets).
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<PAGE>
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. Management is highly focused on maintaining a flat,
efficient organizational structure, resulting in low selling, general and
administrative expenses as a percentage of total net sales. The Company believes
that it has achieved a low cost producer position primarily through (i) its low
selling, general and administrative expenses, (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.
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 have enabled and will permit the Company 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 36% in
1995. The Company expects this consolidation trend to continue. 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 $219.6 million in 1995. The plastic container segment
of the consumer goods packaging industry is highly fragmented, and management
intends to capitalize on 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
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<PAGE>
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
intends to expand its specialty business, which generated net sales of $83.6
million in 1995. Specialty products manufactured by the Company include metal
closures for vacuum sealed glass containers, its licensed Omni product, 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 product. 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, 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 $244.5 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
beginning 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, the Offering will provide the Company with
improved financial flexibility to implement its growth strategy.
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<PAGE>
Management
The Company was founded by R. Philip Silver and D. Greg Horrigan, former
members of senior management of the packaging operations of Continental Group
Inc. ("Continental Can Company"), which in 1986 was one of the largest packaging
companies in the world with net sales of approximately $3.5 billion. At
Continental Can Company, Mr. Silver served as President, and Mr. Horrigan served
as Executive Vice President and Operating Officer. The Company's senior members
of management have on average 24 years of experience in the packaging industry.
Mr. Silver, Mr. Horrigan and other members of senior management have a large
ownership interest in the Company. After the Offering, Mr. Silver and Mr.
Horrigan will own ___% of the fully diluted Common Stock and senior management
(including Messrs. Silver and Horrigan) will own ___ % of the fully diluted
Common Stock. The Company's ownership structure and philosophy align
management's interests with those of its shareholders.
Business Segments
The Company conducts its business through two operating companies,
Silgan Containers Corporation ("Containers") and Silgan Plastics Corporation
("Plastics").
Containers. For 1995, Containers had net sales of $1,184.8 million (84% of the
Company's net sales) and pro forma income from operations of $100.5 million (88%
of the Company's pro forma income from operations) (without giving effect to
corporate expense and a charge of $14.7 million in 1995 to adjust the carrying
value of certain assets). Containers manufactures metal containers for
vegetables, fruit, pet food, meat, tomato based products, coffee, soup, seafood
and evaporated milk. The Company estimates that approximately 85% of Containers'
sales in 1996 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 (the "DM Supply Agreement") with Del Monte 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.
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 1995, Containers had net sales of specialty
packaging items of $83.6 million.
Plastics. For 1995, Plastics had net sales of $219.6 million (16% of the
Company's net sales) and income from operations of $13.2 million (12% of the
Company's pro forma income from operations) (without giving effect to corporate
expense and a charge of $14.7 million in 1995 to adjust the carrying value of
certain assets). 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.
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<PAGE>
Recent Developments
Acquisition
On August 23, 1996, the Company reached an agreement in principle with
Curtice Burns Foods, Inc. ("Curtice Burns") to acquire the business and assets
of Finger Lakes, a wholly owned subsidiary of Curtice Burns. Finger Lakes is a
metal food container manufacturer, with facilities in Lyons, New York and Benton
Harbor, Michigan. Finger Lakes currently supplies all of the metal food
container requirements of Curtice Burn's Comstock Michigan Fruit and Brooks
Foods divisions (the "Divisions"), and also sells metal food containers to third
parties. For its fiscal year ended June 29, 1996, Finger Lakes had net sales of
$48.8 million. As part of the transaction, Containers will enter into a ten year
supply agreement with Curtice Burns to supply all of the Divisions' metal food
container requirements. The transaction is scheduled to close in late September
1996, and is subject to definitive documentation and certain other
contingencies. The Company will finance this acquisition through working capital
borrowings under its credit agreement dated as of August 1, 1995 among Silgan
and certain of its subsidiaries, the lenders named therein (the "Banks"),
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 "Silgan Credit Agreement").
Refinancing
The Company has actively refinanced its higher cost indebtedness with
lower cost indebtedness. Since 1995, the Company will have refinanced all of
Holdings' 13-1/4% Senior Discount Debentures due 2002 (the "Discount
Debentures"), with the following: (i) lower cost bank indebtedness, (ii)
proceeds from the sale of Holdings' Exchangeable Preferred Stock Mandatorily
Redeemable 2006 (the "Exchangeable Preferred Stock") and (iii) proceeds from the
Offering. The net result of this refinancing will be approximately $19.6 million
of annual current cash interest savings (excluding noncash interest on
obligations related to the Exchangeable Preferred Stock). Such refinancing will
also permit the Company to deduct accreted interest of approximately $103.0
million on the Discount Debentures from their time of issuance, which will
reduce the Company's tax liability by $25.9 million for 1996 and 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". Holdings also intends to issue Subordinated Debentures due 2006
(the "Exchange Debentures") in exchange for its Exchangeable Preferred Stock.
This will allow the Company to deduct substantially all of the cash payments of
interest on the Exchange Debentures.
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The Offering
Common Stock offered by the Company........... shares
Common Stock to be outstanding after this
offering (the "Offering")..................... shares(a)
Use of Proceeds............................... The net proceeds from the
Offering will be used to redeem
the remaining Discount
Debentures and to repay a
portion of the amount
outstanding under the Silgan
Credit Agreement. See "Use of
Proceeds".
Proposed Nasdaq Symbol........................ SLGN
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(a) Excludes ___ shares of Common Stock reserved for issuance under the
Silgan Holdings Inc. Stock Option Plan (the "Stock Option Plan"). There
are currently ___ options outstanding under the Stock Option Plan, each
of which entitles the holder thereof to purchase one share of Common
Stock. See "Management--Stock Option Plan". The weighted average
exercise price for all of the options currently outstanding under the
Stock Option Plan is $___ per share.
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<PAGE>
Summary Historical and Pro Forma Financial Information
The following summary historical and pro forma consolidated financial
information of Holdings were derived from, and should be read in conjunction
with, the historical financial statements and pro forma financial information of
Holdings, including the notes thereto, that appear elsewhere in this Prospectus.
The summary unaudited pro forma operating data and other data for the
six months ended June 30, 1996 give effect to (i) the Offering and the use of
the proceeds therefrom, (ii) the use of the proceeds from the sale (the
"Preferred Stock Sale") on July 22, 1996 by Holdings of 50,000 shares of
Exchangeable Preferred Stock to (a) purchase Holdings' Class B Common Stock, par
value $.01 per share (the "Holdings Class B Stock"), held by Mellon Bank N.A.
("Mellon"), as trustee for First Plaza Group Trust ("First Plaza"), and (b)
redeem $12.0 million principal amount of Discount Debentures, (iii) the
incurrence of $125.0 million of additional B term loans in July 1996 and $17.4
million of working capital loans in June 1996 under the Silgan Credit Agreement,
and the use of such proceeds to redeem a portion of the Discount Debentures, and
(iv) the planned exchange of the Exchangeable Preferred Stock for Exchange
Debentures (collectively, the "Refinancing") as if such events had occurred as
of January 1, 1996. The summary unaudited pro forma balance sheet data at June
30, 1996 give effect to the Refinancing (other than events that occurred prior
to such date) as if it had occurred as of such date.
The summary unaudited pro forma operating data and other data for the
fiscal year ended December 31, 1995 give effect to (i) the acquisition of AN
Can, (ii) borrowings under the Silgan Credit Agreement which were used to (a)
finance the acquisition of AN Can, (b) repay in full amounts owing under the
Company's previous credit agreement and Silgan's Senior Secured Floating Rate
Notes due 1997 (the "Secured Notes"), and (c) repurchase $61.7 million principal
amount at maturity of Discount Debentures, and (iii) the Refinancing, as if such
events had occurred as of January 1, 1995.
The unaudited pro forma financial information does not purport to
represent what the Company's financial position or results of operations would
actually have been if such events had in fact occurred as of such dates or at
the beginning of the periods presented, or to project the Company's financial
position or results of operations for any future date or period. The unaudited
pro forma financial data and accompanying notes should be read in conjunction
with the unaudited pro forma condensed statements of operations and the
historical financial information of Holdings, including notes thereto, included
elsewhere in this Prospectus.
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<TABLE>
<CAPTION>
Summary Historical and Pro Forma Financial Information
Year Ended December 31, Six Months Ended June 30,
------------------------------------------------ -----------------------------------
(Unaudited)
Pro Forma Pro Forma
1995(a) 1995(b) 1994(c) 1993(c) 1996(a) 1996(b) 1995(b)
------- ------- ------- ------- ------- ------- -------
(Unaudited)
(Dollars in millions, except per share data)
Operating Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................................ $1,404.4 $1,101.9 $861.4 $645.5 $606.9 $606.9 $405.0
Cost of goods sold....................... 1,234.9 970.5 748.3 571.2 521.7 521.7 346.2
------- ------- ----- ----- ------ ----- -----
Gross profit............................. 169.5 131.4 113.1 74.3 85.2 85.2 58.8
Selling, general and administrative
expenses.............................. 57.4 46.9 38.0 32.5 27.2 27.2 17.7
Reduction in carrying value of assets(d). 14.7 14.7 16.7 -- -- -- --
------- ------- ------ -------- -------- ------- -----
Income from operations(e)................ 97.4 69.8 58.4 41.8 58.0 58.0 41.1
Interest expense and other related
financing costs....................... 78.9 80.7 65.8 54.3 41.2 45.8 34.8
------- ------- ------ ------ ------- ------ ------
Income (loss) before income taxes........ 18.5 (10.9) (7.4) (12.5) 16.8 12.2 6.3
Income tax provision..................... 2.0 5.1 5.6 1.9 1.8 2.5 4.2
-------- -------- ------ ------ ------- ------ ------
Income (loss) before extraordinary
charges and cumulative effect of
changes in accounting principles...... 16.5 (16.0) (13.0) (14.4) 15.0 9.7 2.1
-------- ------- ----- ----- ------ ------ ------
Extraordinary charges relating to early
extinguishment of debt(f)............. -- (5.8) -- (1.3) -- -- --
Cumulative effect of changes in
accounting principles(g).............. -- -- -- (6.3) -- -- --
-------- --------- ------- ------ -------- ------- -----
Net income (loss)(f)..................... $ 16.5 $(21.8) $ (13.0) $(22.0) $ 15.0 $ 9.7 $ 2.1
======= ====== ======= ====== ====== ======= ======
Net income (loss) per common share(h):
Net income (loss) before extraordinary
charges.............................
Extraordinary charges................. --------- --------- --------- ---------
Total............................... $ $ $ $
========= ========= ========= =========
Weighted average number of common and
common equivalent shares outstanding(i)
Selected Segment Data:
Net sales:
Metal container business.............. $1,184.8 $882.3 $657.1 $459.2 $500.3 $500.3 $289.2
Plastic container business............ 219.6 219.6 204.3 186.3 106.6 106.6 115.8
Income from operations:(e)(j)
Metal container business.............. 100.5 72.9 67.0 42.3 49.8 49.8 34.0
Plastic container business............ 13.2 13.2 9.4 0.6 8.9 8.9 7.7
Other Data:
EBDITA(k)................................ $ 173.3 $ 132.4 $114.5 $ 76.1 $ 89.6 $ 89.6 $ 58.8
EBDITA as a percentage of net sales...... 12.3% 12.0% 13.3% 11.8% 14.8% 14.8% 14.5%
Income from operations as a percentage
of net sales(j)....................... 8.0 7.7 8.7 6.5 9.6 9.6 10.1
Capital expenditures..................... $ 54.9 $ 51.9 $ 29.2 $ 42.5 $ 29.0 $ 29.0 $ 19.7
Depreciation and amortization(l)......... 57.9 45.4 37.2 33.8 29.7 29.7 16.9
Number of employees (at end of
period)(m)............................ 5,110 5,110 4,000 3,330 -- -- --
June 30, 1996
-------------
(Unaudited)
Actual Pro
------ Forma(a)
--------
Balance Sheet Data (at end of period):
Total assets............................................................................................... $1,004.6 $1,005.4
Total long-term debt....................................................................................... 745.6 723.3
Deficiency in stockholders' equity......................................................................... (170.1) (140.1)
(footnotes follow)
</TABLE>
-12-
<PAGE>
Notes to Summary Historical and Pro Forma Financial Information
(a) The unaudited pro forma consolidated operating data for the six months
ended June 30, 1996 and the year ended December 31, 1995 assume gross
proceeds from the Offering of $75 million and the use of the net
proceeds as described under "Use of Proceeds". For a detailed
presentation of the unaudited pro forma results of operations of the
Company for the six months ended June 30, 1996 and the year ended
December 31, 1995, see the unaudited pro forma condensed statement of
operations, including the notes thereto, included elsewhere in this
Prospectus.
(b) 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 $13.2 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, 1995 included elsewhere in this Prospectus.
(c) 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. See
Note 3 to the Consolidated Financial Statements for the year ended
December 31, 1995 included elsewhere in this Prospectus.
(d) 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.
(e) Under the terms of the stock option plans of Containers and Plastics,
stock options issued under such plans will be converted to options
under the Stock Option Plan at the time of the Offering. In accordance
with Accounting Principles Board ("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 charge of
$___ million, assuming an initial public offering price of $___ per
share, at the time of the Offering for the excess of fair market value
over grant price of these options less amounts previously accrued. The
unaudited pro forma operating data does not give effect to such charge.
Prior to the Offering, the Company recognized compensation expense for
the change in pro forma book value since the date of grant of these
options, amortized over the vesting period.
(f) The unaudited pro forma consolidated operating data for the six months
ended June 30, 1996 and the year ended December 31, 1995 do not include
an extraordinary charge, net of tax, that the Company expects to incur
in the second half of 1996 of $2.4 million for the write-off of
unamortized deferred financing costs related to the early redemption of
the Discount Debentures. See "Capitalization". In addition, the pro
forma consolidated operating data for the year ended December 31, 1995
does not include the historical extraordinary charge, net of taxes,
incurred as a result of the early extinguishment of amounts owing under
the Company's debt facilities.
(g) 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.
(h) Primary earnings per share are based on the weighted average number of
shares outstanding during the period, as adjusted in all periods for
the Stock Split, and after giving effect to stock options considered to
-13-
<PAGE>
be dilutive common stock equivalents using the treasury stock method.
Primary and fully diluted net income (loss) per share are the same for
each of the periods. Under the terms of the stock option plans of
Containers and Plastics, stock options issued under such plans will be
converted to options under the Stock Option Plan at the time of the
Offering. Such conversion will be made based upon the allocable value
of Containers and Plastics determined in relation to the value of the
Company.
(i) The weighted average number of common and common equivalent shares
outstanding give effect to the Stock Split.
(j) Income from operations excludes charges incurred for the reduction in
carrying value of certain assets for the years ended December 31, 1995
and 1994 as referred to in footnote (d) above.
(k) "EBDITA" 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, depreciation and amortization expense,
expenses relating to postretirement health care costs, the reduction in
carrying value of assets and certain other non-cash charges. EBDITA is
being presented by the Company as a supplement to the discussion of the
Company's operating income and cash flow from operations because the
Company believes that certain persons may find it to be useful in
measuring the Company's performance and ability to service its debt.
EBDITA is not a substitute for operating and cash flow data as
determined in accordance with generally accepted accounting principles
("GAAP").
(l) Depreciation and amortization excludes amortization of debt financing
costs.
(m) 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.
-14-
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should
consider carefully all of the information set forth in this Prospectus and, in
particular, should evaluate the following risks in connection with an investment
in the Common Stock.
High Leverage; Stockholders' Deficiency; Restrictive Covenants
The Company is highly leveraged primarily as a result of the financing
of the acquisitions of its metal and plastic container businesses. See
"Business--Company History" and "Description of Certain Indebtedness". At June
30, 1996, on a pro forma basis after giving effect to the Refinancing (assuming
that the Refinancing occurred as of such date, other than such events that
occurred prior to such date), the Company would have had approximately $892.9
million of total consolidated indebtedness. The Company may incur significant
amounts of additional indebtedness in the future, particularly in connection
with acquisitions. A substantial portion of the Company's cash flow must be used
to service its indebtedness and is therefore not available to be used in its
business. In addition, a substantial portion of the Company's indebtedness bears
interest at floating rates, and therefore a substantial increase in interest
rates could have a material adverse effect on the Company's results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations". Also, as of June 30, 1996, on a pro forma basis after
giving effect to the Refinancing (assuming that the Refinancing occurred as of
such date, other than such events that occurred prior to such date), Holdings'
deficiency in stockholders' equity would have been $140.1 million. The Company
has experienced net losses in every year since its inception, primarily as a
result of interest expense on its indebtedness. See "Capitalization" and
"Selected Historical and Pro Forma Financial Information".
The Company's instruments and agreements governing its indebtedness
contain numerous covenants, including financial and operating covenants, certain
of which are quite restrictive. In particular, certain financial covenants under
the Silgan Credit Agreement become more restrictive over time in anticipation of
scheduled debt amortization and improved operating results. These covenants
affect, and in many respects limit or prohibit, among other things, the ability
of the Company to incur additional indebtedness, create liens, sell assets,
engage in mergers and acquisitions, make certain capital expenditures and pay
dividends. Such covenants could restrict the Company in its pursuit of its
growth strategy. For a description of such covenants, see "Description of
Certain Indebtedness".
Risks Associated with Growth Strategy
Historically, the Company has grown predominantly through acquisitions.
The Company's future growth will depend in large part on additional acquisitions
of consumer goods packaging businesses. There can be no assurance that the
Company will be able to locate or acquire other suitable acquisition candidates
on acceptable terms or that the Company will be able to fund future acquisitions
because of limitations contained in its instruments and agreements governing its
indebtedness or otherwise. See "Description of Certain Indebtedness".
In pursuing its strategy of growth through acquisitions, the Company
will face risks commonly encountered with such a strategy. These risks include
failing to assimilate the operations and personnel of the acquired businesses,
disrupting the Company's ongoing business, dissipating the Company's limited
management resources, and impairing relationships with employees and customers
of the acquired business as a result of changes in ownership and management.
Depending upon the size of the acquisition, it can take up to two to three years
to completely integrate an acquired business into the
-15-
<PAGE>
Company's operations and systems and realize the full benefit of the Company's
strategies. During the early part of this integration period, the operating
results of an acquired business may decrease from results attained prior to the
acquisition. Moreover, additional indebtedness incurred to make acquisitions
could adversely affect the Company's liquidity and financial stability, and the
issuance of Common Stock to effect acquisitions could result in dilution to the
Company's shareholders.
Reliance on Major Customers
The Nestle Supply Agreements and the DM Supply Agreement provide
Containers with a potential market for a substantial portion of its metal
container output during the terms of these agreements. On a pro forma basis
after giving effect to the acquisition of AN Can in 1995, approximately 17% and
11% of the Company's sales in 1995 would have been to Nestle and Del Monte,
respectively. Certain Nestle Supply Agreements expire in August 1997
(representing approximately 6% of the Company's 1995 pro forma sales). Although
the Company intends to make every effort to extend the Nestle Supply Agreements
on reasonable terms and conditions, there can be no assurance that these Nestle
Supply Agreements will be extended. In addition, there can be no assurance that
the extension of any Nestle Supply Agreement will be made with sales prices
equivalent to those currently in effect or otherwise on terms similar to those
currently in effect. Under certain limited circumstances, Nestle and, beginning
in December 1998, Del Monte 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. See
"Business--Sales and Marketing". The Company's results of operations could be
adversely affected if the Nestle Supply Agreements that expire in August 1997
are not extended or if the Company otherwise loses significant unit sales to
Nestle and/or Del Monte as a result of a competitive bid or otherwise. Neither
the Nestle Supply Agreements nor the DM Supply Agreement require the purchase of
minimum amounts, and should Nestle's or Del Monte's demand decrease, the
Company's consolidated sales could decrease.
Dependence on Agricultural Harvest
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 the harvest for processing may
vary from year to year, depending in large part upon the weather conditions in
those regions, and the Company's results of operations could be impacted
accordingly. The Company's results of operations could be materially adversely
affected in a year in which crop yields are substantially lower than normal in
either of the prime agricultural regions of the United States in which the
Company operates. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview--Agricultural Harvest".
Competition
The manufacture and sale of metal and plastic containers is highly
competitive and many of the Company's competitors have substantially greater
financial resources than the Company. See "Business-- Competition".
-16-
<PAGE>
Dependence on Key Personnel
The success of the Company depends to a large extent on a number of key
employees, and the loss of the services provided by them could materially
adversely affect the Company. In particular, the loss of the services provided
by 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, could materially adversely affect the Company.
However, the Company's operations are conducted through Containers and Plastics,
each of which has its own independent management. S&H, Inc. ("S&H"), a company
wholly owned by Messrs. Silver and Horrigan, has agreed to provide certain
general management and administrative services to each of Holdings, Silgan,
Containers and Plastics pursuant to management services agreements. See "Certain
Transactions--Management Agreements".
Significant Stockholders
After completion of the Offering, Messrs. Silver and Horrigan and The
Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II") (collectively, the
"Principal Common Stockholders") will collectively own approximately ___% of the
outstanding Common Stock (approximately ___% if the Underwriters over-allotment
option is exercised in full). Accordingly, if such persons act together they
will be able to control all matters submitted to the stockholders for a vote,
including the election of directors. Under the Stockholders Agreement dated as
of December 21, 1993 among the Principal Common Stockholders, Bankers Trust New
York Corporation ("BTNY") and Holdings (the "Stockholders Agreement"), Messrs.
Silver and Horrigan have agreed to vote their shares of Common Stock for the
election of two directors chosen by MSLEF II, and MSLEF II has agreed to vote
its shares of Common Stock for the election of two directors chosen by Messrs.
Silver and Horrigan. Holdings currently has four directors, but intends to
increase its board of directors after the Offering to six members to include two
additional independent directors. See "Management", "Securities Ownership of
Certain Beneficial Owners and Management" and "Description of Capital Stock".
Shares Eligible for Future Sale
Immediately after consummation of the Offering, the Company will have
outstanding ___ shares of Common Stock. The shares of Common Stock sold pursuant
to the Offering may be resold without restriction by persons other than
"affiliates" of Holdings. The shares of Common Stock directly or indirectly held
by the Principal Common Stockholders and BTNY following the Offering will be
"restricted" securities within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and may not be sold in the absence of
registration under the Securities Act, or an exemption therefrom, including the
exemptions contained in Rule 144 under the Securities Act. The Principal Common
Stockholders and BTNY have agreed, subject to certain exceptions, for a period
of one year from the date of this Prospectus not to register for sale or offer,
sell, contract to sell, or otherwise dispose of any shares of Common Stock
without the prior written consent of Goldman, Sachs & Co. See "Underwriting".
Subject to such agreement and restrictions under the Securities Act, the
Principal Common Stockholders could sell shares of Common Stock owned by them
from time to time in the open market for any reason. Holdings has granted MSLEF
II and Messrs. Silver and Horrigan certain registration rights with respect to
the shares of Common Stock owned by it which have been waived for a period of
one year. Sales of substantial amounts of Common Stock or the availability of
such shares for sale could adversely affect prevailing market prices for the
Common Stock and the Company's ability to issue additional equity securities.
See "Shares Eligible for Future Sale".
-17-
<PAGE>
Anti-Takeover Effects of Provisions of the Stockholders Agreement and
Certificate of Incorporation
Under the Stockholders Agreement, MSLEF II has agreed, through December
21, 1998, to vote its shares of Common Stock against any unsolicited merger or
sale of the Company's business or its assets if Messrs. Silver and Horrigan
oppose such transaction, so long as Messrs. Silver and Horrigan hold at least
90% of the shares of Common Stock held by them in the aggregate at the date of
this Prospectus. See "Description of Capital Stock--Description of the Holdings
Stockholders Agreement".
Certain provisions of Holdings' Certificate of Incorporation may have
the effect of delaying or preventing transactions involving a change of control
of Holdings, including transactions in which stockholders might otherwise
receive a substantial premium for their shares over then current market prices,
and may limit the ability of stockholders to approve transactions that they may
deem to be in their best interests. In particular, under the Certificate of
Incorporation, the Board of Directors is authorized to issue one or more classes
of preferred stock having such designations, rights and preferences as may be
determined by the Board. See "Description of Capital Stock".
Under the Silgan Credit Agreement, the occurrence of a Change of
Control (as defined in the Silgan Credit Agreement) constitutes an event of
default thereunder, permitting, among other things, the acceleration of amounts
owed thereunder. Additionally, upon the occurrence of a Change of Control under
and as defined in the instruments governing the 11-3/4% Notes and the Exchange
Debentures, the holders thereof have the right to require the repurchase of such
indebtedness at a purchase price equal to 101% of the principal amount thereof,
plus accrued interest thereon. See "Description of Certain Indebtedness".
Absence of Prior Public Market
Prior to the Offering, there has been no public market for the Common
Stock. Although application will be made for quotation of the Common Stock on
the Nasdaq National Market, there can be no assurance that an active market for
the Common Stock will be developed or sustained following the Offering or that
investors in the Common Stock will be able to resell their shares of Common
Stock at or above the initial public offering price. The initial public offering
price for the shares of Common Stock will be determined through negotiations
between the Company and the representatives of the Underwriters, and may not be
indicative of the market price of the Common Stock after the Offering.
See "Underwriting".
Dilution
Purchasers of the Common Stock in the Offering will experience
immediate and substantial dilution in net tangible book value per share of
Common Stock from the initial public offering price. In addition, to the extent
outstanding options to purchase Common Stock are exercised, there will be
further dilution. See "Dilution".
-18-
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
$___ million ($___ million if the Underwriters' over-allotment option is
exercised in full), after deducting the underwriting discount and estimated
offering expenses payable by the Company. A portion of the net proceeds of the
Offering (approximately $59.0 million) will be used to redeem the remaining
outstanding Discount Debentures. Accrued interest on such Discount Debentures
will be paid with working capital borrowings under the Silgan Credit Agreement.
The Discount Debentures bear interest at a rate of 13-1/4% per annum and mature
on December 15, 2002. A portion of the net proceeds from the Offering will be
used to prepay approximately $3.5 million principal amount of the B term loans
(together with accrued interest thereon) under the Silgan Credit Agreement,
which amount would have been due on December 31, 1996. Such B term loans had a
weighted average interest rate of 8.6% during the six months ended June 30,
1996. The remaining net proceeds from the Offering will be used to prepay a
portion of the A term loans (together with accrued interest thereon) under the
Silgan Credit Agreement that would have been due on December 31, 1996. Such A
term loans had a weighted average interest rate of 8.2% during the six months
ended June 30, 1996. Pending the redemption of the remaining Discount Debentures
which is expected to occur in ____ , 1996, such portion of the net proceeds that
will be used for such redemption will be used to repay working capital loans
under the Silgan Credit Agreement. See "Description of Certain
Indebtedness--Description of the Silgan Credit Agreement".
DIVIDEND POLICY
Holdings has never declared or paid cash dividends on its Common Stock.
The Company currently anticipates that it will retain all available funds for
use in the operation and expansion of its business and does not anticipate
paying any cash dividends on the Common Stock in the foreseeable future. Any
future determination to pay cash dividends will be at the discretion of
Holdings' Board of Directors and will be dependent upon the Company's results of
operations, financial condition, contractual restrictions and other factors
deemed relevant by Holdings' Board of Directors. The Holdings Guarantee (as
defined in "Description of Certain Indebtedness--Description of the Silgan
Credit Agreement") and the Exchangeable Preferred Stock (and, when issued, the
Exchange Debentures) limit the ability of Holdings to pay dividends, and the
Silgan Credit Agreement and the 11-3/4% Notes limit the ability of Silgan to pay
dividends to Holdings. See "Risk Factors--High Leverage; Stockholders'
Deficiency; Restrictive Covenants" and "Description of Certain Indebtedness".
DILUTION
As of September 30, 1996, the Company had a deficit in net tangible
book value of approximately $___ million or $___ per share of Common Stock. "Net
tangible book value" per share of Common Stock represents the total amount of
tangible assets of the Company, less the total amount of liabilities of the
Company, divided by the number of shares of Common Stock outstanding. Without
taking into account any changes in net tangible book value after September 30,
1996, other than to give effect to (i) the sale by the Company of the ___shares
of Common Stock offered hereby (at an assumed initial public offering price of
$___ per share and after deducting the underwriting discount and offering
expenses) and (ii) the application of a portion of the net proceeds therefrom to
redeem the remaining outstanding Discount Debentures and repay a portion of the
A and B term loans under the Silgan Credit Agreement, the pro forma deficit in
net tangible book value of the Common Stock as of September 30, 1996 would have
been approximately $___ million or $___ per share. This represents an immediate
increase in pro forma net tangible book value of $___ per share of Common Stock
-19-
<PAGE>
to existing stockholders and an immediate dilution in pro forma net tangible
book value of $ ___ per share to new stockholders. "Dilution" per share
represents the difference between the price per share to be paid by the new
stockholders and the pro forma deficit in net tangible book value per share as
of September 30, 1996. The following table illustrates this per share dilution.
Assumed initial public offering price per share...... $
Deficit in net tangible book value per share as of
September 30, 1996................................. $
Increase in net tangible book value per share
attributable to the Offering and the application of
the proceeds therefrom............................. _______
Pro forma deficit in net tangible book value per
share as of September 30, 1996 after giving effect
to the Offering and the application of the proceeds
therefrom.......................................... ________
Dilution per share to new stockholders............... $
========
The following table sets forth, on a pro forma basis as of September
30, 1996, the number of shares of Common Stock purchased from Holdings and the
total consideration and the average price per share paid by the existing
stockholders and to be paid by investors purchasing shares of Common Stock
offered hereby.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
-------------------- --------------------- Average Price
Number Percentage Amount Percentage Per Share
------ ---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... % $ % $
New stockholders............ ------ ------ ------ ------ --------
Total.............. % $ % $
====== ======= ====== ====== ========
</TABLE>
The calculations in the tables set forth above do not reflect an
aggregate of ___ shares of Common Stock reserved for issuance under the Stock
Option Plan. See "Management--Stock Option Plan". The weighted average exercise
price for all of the options currently outstanding under the Stock Option Plan
is $___ per share. See "Management--Executive Compensation". To the extent
outstanding options to purchase Common Stock are exercised, there will be
further dilution.
-20-
<PAGE>
CAPITALIZATION
The following table sets forth (i) the unaudited actual consolidated
capitalization of Holdings as of June 30, 1996, (ii) the unaudited pro forma
consolidated capitalization of Holdings as of June 30, 1996, giving effect to
the Preferred Stock Sale and the use of the proceeds therefrom, and the
incurrence of $125.0 million of additional B term loans in July 1996 and the use
of such proceeds to redeem a portion of the Discount Debentures, and (iii) the
unaudited pro forma consolidated capitalization of Holdings as of June 30, 1996,
as adjusted to give effect to the foregoing and the Offering (assuming gross
proceeds of $75.0 million) and the application of the proceeds therefrom, and
the exchange of all outstanding shares of Exchangeable Preferred Stock for
Exchange Debentures. This table should be read in conjunction with the
historical and pro forma consolidated financial information of Holdings included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
June 30, 1996
---------------------------------------------
(Unaudited)
Pro Forma
Actual Pro Forma As adjusted
------ --------- -----------
(Dollars in thousands)
Long-term debt:
<S> <C> <C> <C>
Term loans................................................ $414,610 $538,347 $538,347(a)
11-3/4% Senior Subordinated Notes due 2002................ 135,000 135,000 135,000
13-1/4% Senior Discount Debentures due 2002............... 195,940 58,951 --
13-1/4% Subordinated Debentures due 2006.................. -- -- 50,000
--------- ---------- ---------
Total long-term debt(b)................................ 745,550 732,298 723,347
Cumulative exchangeable redeemable preferred stock........... -- 50,000 --
Deficiency in stockholders' equity:
Common stock, par value $.01 per share, shares
authorized, issued and outstanding (actual and
pro forma), and shares issued and outstanding
(pro forma as adjusted)(c).............................. 12 9 9
Additional paid-in capital................................ 33,606 16,410 (d)
Accumulated deficit....................................... (203,754) (226,232) (d)(e)
--------- --------- --------
Total deficiency in stockholders' equity................ (170,136) (209,813) (140,128)(f)
--------- --------- --------
Total capitalization................................ $575,414 $572,485 $583,219
======== ======== ========
</TABLE>
- --------------------
(a) Approximately $9.2 million of the net proceeds from the Offering will be
used to prepay a portion of the current portion of the term loans under the
Silgan Credit Agreement. See "Use of Proceeds".
(b) Pursuant to the Silgan Credit Agreement, the lenders thereunder have agreed
to lend to Plastics and Containers up to an aggregate of $225.0 million of
revolving loans, which are reflected as short-term debt on the Company's
balance sheet. As of August 31, 1996, the outstanding principal amount of
revolving loans under the Silgan Credit Agreement was $143.1 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources and Liquidity".
(c) Excludes shares reserved for issuance in connection with outstanding
options to purchase ___ shares of Common Stock. The weighted average
exercise price for all of the options currently outstanding under the Stock
Option Plan is $___ per share.
(d) Under the terms of the stock option plans of Containers and Plastics, stock
options issued under such plans will be converted to options under the
Stock Option Plan at the time of the Offering. In accordance with APB No.
25, options granted under these plans are considered variable options with
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<PAGE>
a final measurement date at the time of conversion. The Company will
recognize a charge to earnings of $___ million (assuming an initial public
offering price of $___ per share) at the time of the Offering for the
excess of fair market value over grant price of these options, less amounts
previously accrued, which will be offset by an increase to paid-in capital.
(e) Includes an extraordinary charge, net of tax, of $2.4 million for the
write-off of unamortized deferred financing costs related to the redemption
of Discount Debentures. Such charge will be incurred in the second half of
1996.
(f) The pro forma decrease in the deficiency in stockholders' equity relates to
the Offering and related transaction fees of $___ million, offset by the
purchase of 250,000 shares of Holdings Class B Stock held by Mellon for
$35.8 million. Additional paid-in capital was reduced by the proceeds from
the original issuance of such Holdings Class B Stock of $15.0 million less
the par value of such shares. The remainder of the payment for the stock
purchase was applied to accumulated deficit.
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<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
Set forth below are selected historical consolidated financial data of
Holdings at June 30, 1996 and 1995 and for the six months then ended, and at
December 31, 1995, 1994, 1993, 1992 and 1991 and for the years then ended. Also
set forth below are unaudited pro forma consolidated financial data of Holdings
at June 30, 1996 and for the six months then ended, and for the fiscal year
ended December 31, 1995.
The selected historical consolidated financial data of Holdings for the
six months ended June 30, 1996 and 1995 is unaudited, but, in the opinion of
management, such information reflects all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the financial data for
the interim periods. The results for the interim periods presented are not
necessarily indicative of the results for the corresponding full years. The
selected historical consolidated financial data of Holdings at December 31, 1995
and 1994 and for each of the three years in the period ended December 31, 1995
(with the exception of employee data) were derived from the historical
consolidated financial statements of Holdings for such periods that were audited
by Ernst & Young LLP, independent auditors, whose report appears elsewhere in
this Prospectus. The selected historical consolidated financial data of Holdings
at December 31, 1993, 1992 and 1991 and for the years ended December 31, 1992
and 1991 were derived from the historical audited consolidated financial
statements of Holdings for such periods.
The selected unaudited pro forma operating data and other data for the
six months ended June 30, 1996 give effect to the Refinancing as if it had
occurred as of January 1, 1996. The selected unaudited pro forma balance sheet
data at June 30, 1996 give effect to the Refinancing (other than events that
occurred prior to such date) as if it had occurred as of such date.
The selected unaudited pro forma operating data and other data for the
fiscal year ended December 31, 1995 give effect to (i) the acquisition of AN
Can, (ii) borrowings under the Silgan Credit Agreement which were used to (a)
finance the acquisition of AN Can, (b) repay in full amounts owing under the
Company's previous credit agreement and the Secured Notes, and (c) repurchase
$61.7 million principal amount at maturity of Discount Debentures and (iii) the
Refinancing, as if such events had occurred as of January 1, 1995.
The unaudited pro forma financial information does not purport to
represent what the Company's financial position or results of operations would
actually have been if such events had in fact occurred as of such dates or at
the beginning of the periods presented, or to project the Company's financial
position or results of operations for any future date or period. The selected
historical and pro forma consolidated financial information of Holdings were
derived from, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the unaudited
pro forma condensed statements of operations and the historical financial
statements and pro forma financial information of Holdings, including the notes
thereto, that appear elsewhere in this Prospectus.
-23-
<PAGE>
<TABLE>
<CAPTION>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
Six Months Ended June 30,
------------------------------------------
(Unaudited)
Pro Forma
1996(a)(b) 1996 1995
---- ------ -----
(Dollars in millions, except per share data)
Operating Data:
<S> <C> <C> <C>
Net sales............................................................ $606.9 $606.9 $405.0
Cost of goods sold................................................... 521.7 521.7 346.2
------ ----- -----
Gross profit......................................................... 85.2 85.2 58.8
Selling, general and administrative expenses......................... 27.2 27.2 17.7
------ ----- -----
Income from operations(c)............................................ 58.0 58.0 41.1
Interest expense and other related financing costs................... 41.2 45.8 34.8
------ ----- -----
Income before income taxes........................................... 16.8 12.2 6.3
Income tax provision................................................. 1.8 2.5 4.2
------ ------ -----
Net income (d)....................................................... $ 15.0 $ 9.7 $ 2.1
====== ====== =====
Net income per common share(e)....................................... $ $ $
======== ====== =====
Weighted average number of common and common
equivalent shares outstanding(f)..................................
Selected Segment Data:
Net sales:
Metal container business.......................................... $ 500.3 $500.3 $289.2
Plastic container business........................................ 106.6 106.6 115.8
Income from operations:(c)
Metal container business.......................................... 49.8 49.8 34.0
Plastic container business........................................ 8.9 8.9 7.7
Other Data:
EBDITA(g)............................................................ $ 89.6 $ 89.6 $ 58.8
EBDITA as a percentage of net sales.................................. 14.8% 14.8% 14.5%
Income from operations as a percentage of net sales.................. 9.6 9.6 10.1
Capital expenditures................................................. $ 29.0 $ 29.0 $ 19.7
Depreciation and amortization(h)..................................... 29.7 29.7 16.9
Balance Sheet Data (at end of period):
Total assets......................................................... $1,005.4 $1,004.6 $552.2
Total long-term debt................................................. 723.3 745.6 525.9
Deficiency in stockholders' equity................................... (140.1) (170.1) (155.9)
(footnotes follow)
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
Year Ended December 31,
--------------------------------------------------------------------------------
Pro Forma
1995(a)(b)(i) 1995(j) 1994(k) 1993(k) 1992 1991(l)
------------- ------- ------- ------- ---- -------
(Unaudited)
(Dollars in millions, except per share data)
Operating Data:
<S> <C> <C> <C> <C> <C> <C>
Net sales.............................. $1,404.4 $1,101.9 $861.4 $645.5 $630.0 $678.2
Cost of goods sold..................... 1,234.9 970.5 748.3 571.2 555.0 605.2
------- ------- ----- ----- ----- -----
Gross profit........................... 169.5 131.4 113.1 74.3 75.0 73.0
Selling, general and administrative
expenses............................ 57.4 46.9 38.0 32.5 32.8 33.7
Reduction in carrying value of assets(m) 14.7 14.7 16.7 -- -- --
-------- ------- ----- ------- ------ ----
Income from operations(c).............. 97.4 69.8 58.4 41.8 42.2 39.3
Interest expense and other related
financing costs..................... 78.9 80.7 65.8 54.3 57.0 56.0
Minority interest expense.............. -- -- -- -- 2.7 3.9
--------- ----------- ------- ------ ----- -----
Income (loss) before income taxes...... 18.5 (10.9) (7.4) (12.5) (17.5) (20.6)
Income tax provision................... 2.0 5.1 5.6 1.9 2.2 --
-------- ---------- ------ ------ ----- -----
Income (loss) before extraordinary
charges and cumulative effect of
changes in accounting principles.... 16.5 (16.0) (13.0) (14.4) (19.7) (20.6)
-------- --------- ----- ----- ------ ------
Extraordinary charges relating to early
extinguishment of debt(d)........... -- (5.8) -- (1.3) (23.6) --
Cumulative effect of changes in
accounting principles(n)............ -- -- -- (6.3) -- --
--------- ----------- ------- ------ ------ ----
Net income (loss)(d)................... $ 16.5 $ (21.8) $ (13.0) $ (22.0) $ (43.3) $ (20.6)
========= ========= ======= ======= ======= =======
Net income (loss) per common share(e):
Net income (loss) before extraordinary
charges...........................
Extraordinary charges...............
Total............................. $ -- $ -- $ -- $ -- $ -- $ --
=========== =========== ========= ======== ========= ========
Weighted average number of common
and common equivalent shares
outstanding(f)......................
Selected Segment Data:
Net sales:
Metal container business............ $1,184.8 $ 882.3 $ 657.1 $ 459.2 $ 437.4 $ 446.1
Plastic container business.......... 219.6 219.6 204.3 186.3 192.6 232.1
Income from operations:(c)(o)
Metal container business............ 100.5 72.9 67.0 42.3 40.7 36.6
Plastic container business.......... 13.2 13.2 9.4 0.6 2.3 3.5
Other Data:
EBDITA(g).............................. $ 173.3 $ 132.4 $114.5 $ 76.1 $ 74.0 $ 72.1
EBDITA as a percentage of net sales.... 12.3% 12.0% 13.3% 11.8% 11.7% 10.6%
Income from operations as a
percentage of net sales(o).......... 8.0 7.7 8.7 6.5 6.7 5.8
Capital expenditures................... $ 54.9 $ 51.9 $ 29.2 $ 42.5 $ 23.4 $ 21.8
Depreciation and amortization(n)....... 57.9 45.4 37.2 33.8 31.8 32.8
Number of employees (at end of
period)(p).......................... 5,110 5,110 4,000 3,330 3,340 3,560
Balance Sheet Data (at end of period):
Total assets........................... -- $900.0 $504.3 $497.6 $389.0 $390.7
Total long-term debt................... -- 750.9 510.8 505.7 383.2 315.5
Redeemable preferred stock of Silgan
(minority interest of Holdings)..... -- -- -- -- -- 27.9
Deficiency in stockholders' equity..... -- (179.8) (158.0) (145.0) (138.0) (94.6)
(footnotes follow)
</TABLE>
-25-
<PAGE>
Notes to Selected Historical and Pro Forma Financial Information
(a) The unaudited pro forma consolidated operating data for the six months
ended June 30, 1996 and the year ended December 31, 1995 assumes gross
proceeds from the Offering of $75 million and the use of the net
proceeds as described under "Use of Proceeds". For a detailed
presentation of the unaudited pro forma results of operations of the
Company for the six months ended June 30, 1996 and the year ended
December 31, 1995, see the unaudited pro forma condensed statement of
operations, including the notes thereto, included elsewhere in this
Prospectus. For purposes of the pro forma financial information for the
year ended December 31, 1995, balance sheet data is not included.
(b) Historical interest expense is reconciled to pro forma interest expense
for the six months ended June 30, 1996 and for the year ended December
31, 1995 as follows:
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, 1996 December 31, 1995
------------- -----------------
(Dollars in millions)
<S> <C> <C>
Historical interest expense............................................ $45.8 $80.7
Increase in interest expense to give effect to AN Can acquisition<F1>.. -- 8.4
Increase in interest expense related to bank borrowings used to fund
Discount Debenture repurchase/redemption<F1>....................... 6.1 16.8
Increase in interest expense related to the exchange of the
Exchangeable Preferred Stock for the Exchange Debentures........... 3.4 6.9
Decrease in interest expense related to the repurchase/redemption of
all of the Discount Debentures..................................... (13.2) (28.7)
Decrease in interest expense due to the repayment of bank debt
from the excess proceeds of the Offering<F1>....................... (.9) (4.3)
Net change in amortization of deferred financing costs................. -- ( .9)
------- ------
Pro forma interest expense............................................. $41.2 $78.9
===== =====
- --------------------
<FN>
<F1> For purpose of the above computations, the assumed interest
rate for borrowings under the Silgan Credit Agreement is based
upon the three month LIBOR of 5.531% per annum as of August
29, 1996 plus a fixed spread of 2-1/2% per annum for the A
term loans and working capital loans and 3% per annum for the
B term loans.
</FN>
</TABLE>
(c) Under the terms of the stock option plans of Containers and Plastics,
stock options issued under such plans will be converted to options
under the Stock Option Plan at the time of the Offering. 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 charge of $___ million,
assuming an initial public offering price of $___ per share, at the
time of the Offering for the excess of fair market value over grant
price of these options, less amounts previously accrued. The unaudited
pro forma operating data does not give effect to such charge. Prior to
the Offering, the Company recognized compensation expense for the
change in pro forma book value since the date of grant of these
options, amortized over the vesting period.
(d) The unaudited pro forma consolidated operating data for the six months
ended June 30, 1996 and for the year ended December 31, 1995 do not
include an extraordinary charge, net of tax, that the Company expects
to incur in the second half of 1996 of $2.4 million for the write-off
of unamortized deferred financing costs related to the early redemption
of the Discount Debentures. See "Capitalization". In addition, the pro
forma consolidated operating data for the year ended December 31, 1995
does not include the historical extraordinary charge, net of taxes,
incurred as a result of the early extinguishment of amounts owing under
the Company's debt facilities.
(e) Primary earnings per share are based on the weighted average number of
shares outstanding during the period, as adjusted in all periods for
the Stock Split, and after giving effect to stock options considered to
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<PAGE>
be dilutive common stock equivalents using the treasury stock method.
Primary and fully diluted net income (loss) per share are the same for
each of the periods. Under the terms of the stock option plans of
Containers and Plastics, stock options issued under such plans will be
converted to options under the Stock Option Plan at the time of the
Offering. Such conversion will be made based upon the allocable value
of Containers and Plastics determined in relation to the value of the
Company.
(f) The weighted average number of common and common equivalent shares
outstanding give effect to the Stock Split.
(g) "EBDITA" 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 (including minority interest expense), income tax expense,
depreciation and amortization expense, expenses relating to
postretirement health care costs, the reduction in carrying value of
assets and certain other non-cash charges. EBDITA is being presented by
the Company as a supplement to the discussion of the Company's
operating income and cash flow from operations because the Company
believes that certain persons may find it to be useful in measuring the
Company's performance and ability to service its debt. EBDITA is not a
substitute for operating and cash flow data as determined in accordance
with GAAP.
(h) Depreciation and amortization excludes amortization of debt financing
costs.
(i) The unaudited pro forma financial information for the year ended
December 31, 1995 includes the historical results of the Company and AN
Can and gives effect to certain pro forma adjustments including
purchase accounting adjustments which are based on appraisals and
valuations, the financing of the acquisition of AN Can by the Company
and the refinancing of certain of the Company's debt obligations and
certain other adjustments, as if these events had occurred as of the
beginning of 1995. During the second quarter of 1996, the purchase
price allocation for the AN Can acquisition was adjusted for
differences between the actual and preliminary valuations for the asset
appraisals and for projected employee benefit costs as well as for a
revision in costs of plant rationalizations, administrative workforce
reductions and other matters, which in aggregate resulted in an
adjustment to increase goodwill by $20.7 million. Pro forma cost of
goods sold includes adjustments for (i) increased depreciation charges
of $2.3 million based upon the fair values of property, plant and
equipment and applying an estimated useful life of 25 years for
buildings and 5 to 11 years for machinery and equipment, (ii) increased
amortization of $0.4 million for the excess of fair value of net assets
acquired over a 40-year period, (iii) increased employee benefits costs
for pension and post-retirement medical of $0.2 million, and (iv)
decreased manufacturing costs of $4.7 million resulting from the
integration of AN Can with the Company's existing can manufacturing
operations. Pro forma selling, general and administrative expenses
include adjustments for (i) increased depreciation charges of $0.1
million and (ii) decreased administrative support costs of $7.6 million
realized as a result of integration of the Company's and AN Can's
sales, administrative and research functions.
(j) 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 $13.2 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, 1995 included elsewhere in this Prospectus.
(k) 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. See
Note 3 to the Consolidated Financial Statements for the year ended
December 31, 1995 included elsewhere in this Prospectus.
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<PAGE>
(l) On November 15, 1991, the Company sold its PET carbonated beverage
bottle business. In 1991, sales from the PET carbonated beverage
business were $33.4 million. See "Business--Company History".
(m) 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.
(n) During 1993, the Company adopted 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.
(o) Income from operations excludes charges incurred for the reduction in
carrying value of certain assets for the years ended December 31, 1995
and 1994 as referred to in footnote (m) above.
(p) 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.
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<PAGE>
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 Prospectus. The following discussion includes certain forward-looking
statements regarding the Company's expected results of operations, cost savings
and future liquidity. For a discussion of important factors that could cause
actual results to differ materially from the forward-looking statements, see
"Risk Factors".
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 during 1995 of 36% 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's management has successfully acquired and integrated ten
businesses, including most recently 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).
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
has begun 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.
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 production 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. The Company anticipates it will fully realize
the benefits of integrating these selling, general and administrative functions
and certain of the manufacturing synergies by late 1996. On the other hand,
benefits which may be realized by rationalization of plant operations will not
begin to occur before 1997. Because AN Can has higher labor costs than the
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<PAGE>
Company's existing metal container business and any benefits realized from plant
rationalizations will not occur until after 1996, the Company expects that the
gross margin for its metal container business in 1996 will decline modestly from
historical rates.
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 will be incurring in
1996, other non-recurring costs which under current accounting pronouncements
will be charged against operating income. These costs, which include redundant
charges related to the integration of administrative and general functions, as
well as costs associated with plant rearrangement and clean-up, were $3.2
million in 1995 and are expected to be approximately $5.0 million in 1996.
Net Sales
Long-term Contracts. The Company seeks to develop and maintain
long-term relationships with its customers. The Company estimates that
approximately 85% of Containers' sales in 1996 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 28% of net sales by Containers in 1995. In
addition to Nestle and Del Monte, Containers has multi-year supply arrangements
with several other customers, including contracts which AN Can had with many of
its customers. The Company is negotiating the extension of supply arrangements
with many customers, including certain supply arrangements with Nestle that
expire in 1997, representing approximately 6% of the Company's 1995 sales. There
can be no assurance that the Company will be successful in its efforts to
maintain this volume on the same terms and conditions that currently exist. See
"Risk Factors--Reliance on Major Customers".
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. 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
may vary from year to year, depending in large part upon the weather conditions
in those regions. The vegetable harvest in 1994 was better than the below normal
vegetable harvest in 1995, resulting in greater sales to vegetable processing
customers in 1994 as compared to 1995. Similar to 1995, the 1996 midwest
vegetable harvest is expected to be below normal due to cool wet weather during
the planting season. See "Risk Factors--Dependence on Agricultural Harvest".
Although the Company's business is not affected to a substantial degree by
seasonal variations, the Company experiences higher unit sales volume in the
third quarter as a result of the harvest.
Interest Expense
In order to increase its financial flexibility, during 1995 and 1996
the Company refinanced portions of its higher cost capital with lower cost
capital. During this period, the Company refinanced in full the Discount
Debentures with amounts received in connection with the Refinancing. The net
result of these refinancings will be approximately $19.6 million of annual
current cash interest savings (excluding noncash interest relating to the
Exchange Debentures) and approximately $25.9 million of
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<PAGE>
current cash tax savings (as a result of the deduction by the Company of the
accreted interest of approximately $103.0 million on the retired Discount
Debentures).
As of June 30, 1996, pro forma for the Refinancing, the Company will
have $892.9 million of indebtedness outstanding, including $150.4 million of
working capital loans. Because the Company sells metal containers used in
vegetable and fruit processing, 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. Due to these seasonal requirements, the
Company incurs short term indebtedness to finance its working capital
requirements. At its peak in September 1996, approximately $185.0 million of the
working capital revolver under the Silgan Credit Agreement, including letters of
credit, was utilized.
The Company's financial results are sensitive to changes in prevailing
market rates of interest. At June 30, 1996, on a pro forma basis after giving
effect to the Refinancing and including seasonal working capital of $150.4
million, 68.1% of the Company's indebtedness 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. These agreements have a
notional amount of $100 million. Under these agreements, floating rate interest
was exchanged for fixed rates of interest ranging from 8.1% to 8.6%. Depending
upon market conditions, the Company may enter into additional interest rate swap
or hedge agreements in the future to hedge its exposure to interest rate
volatility.
Income Tax Considerations
Federal Tax Liability. Because the Discount Debentures represent
"applicable high yield discount obligations," the tax deduction that would
otherwise have been available to the Company for the accreted interest on the
Discount Debentures during their noncash period was not deductible until the
retirement of the Discount Debentures. After giving effect to the Refinancing,
the Company will have redeemed or repurchased all of the Discount Debentures
during 1995 and 1996 providing the Company with an allowable deduction of
approximately $103.0 million for the amount of accreted interest on such
indebtedness, and resulting in no federal tax liability for the Company in 1996.
Upon completion of the Refinancing, the Company estimates it will have a regular
net operating loss carryforward of approximately $185.0 million, which will have
resulted principally from both the deduction of the accreted interest on the
Discount Debentures and significant tax depreciation deductions from the
acquisition of AN Can. Subject to certain limitations, this net operating loss
carryforward will be available to offset taxable income that the Company expects
to generate in 1997 and in the future until such time as the regular net
operating loss carryforward is fully utilized.
Effective in 1993, however, the Company became subject to alternative
minimum tax ("AMT") for federal income tax purposes. Due to the availability of
AMT net operating loss carryforward, the Company incurred an AMT liability at
the rate of 2% for 1993 through 1995. Beginning in 1996, the Company would have
fully utilized its AMT net operating loss carryforwards and would have incurred
an AMT liability at the statutory rate of 20% if it had not realized the benefit
of the deduction of accreted interest on the retired Discount Debentures. As a
result of this deduction, the Company will have reduced its federal tax
liability by approximately $21.0 million and state tax liability by
approximately $4.9 million for 1996 and 1997. Based upon the Company's current
estimate of its net income, management expects that the Company will have fully
utilized the benefit of this deduction in late 1997 or early 1998 at which time
it will then become subject to AMT at the statutory rate.
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<PAGE>
Book Accounting Implications. Although the Company has historically
reported book losses, it has not been permitted in accordance with SFAS 109 to
record an income tax credit for the benefit of its net operating loss
carryforward, but instead has provided a provision for income taxes based upon
federal, state and foreign taxes currently payable. In accordance with SFAS 109,
the Company will continue to provide for income taxes based upon taxes currently
payable, which are estimated to be approximately $5.0 million annually over 1996
and 1997. During 1997, management expects that it will meet the requirements
under SFAS 109 to record the benefit of its net operating loss carryforward and
as a result will record a net deferred tax asset and offsetting income tax
benefit in that year. Thereafter, the Company expects to provide for income
taxes at the statutory rate.
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<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 historical and pro forma
financial information and related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
---------------------------------------------- ------------------------------
(Unaudited)
Pro Forma Pro Forma
1995 1995 1994 1993 1996 1996 1995
---- ---- ---- ---- ---- ---- ----
(Unaudited)
Operating Data:
Net sales:
<S> <C> <C> <C> <C> <C> <C> <C>
Metal container business....... 84.4% 80.1% 76.3% 71.1% 82.4% 82.4% 71.4%
Plastic container business..... 15.6 19.9 23.7 28.9 17.6 17.6 28.6
------ ----- ------ ------ ------- ------ -----
Total....................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of goods sold................ 87.9 88.1 86.9 88.5 86.0 86.0 85.5
----- ----- ------ ------ ------- ----- -----
Gross profit...................... 12.1 11.9 13.1 11.5 14.0 14.0 14.5
Selling, general and
administrative expenses........ 4.1 4.3 4.4 5.0 4.5 4.5 4.4
Reduction in carrying value
of assets...................... 1.1 1.3 1.9 -- -- -- --
------ ------ ------ ------- ------- ------- -----
Income from operations............ 6.9 6.3 6.8 6.5 9.6 9.6 10.1
Interest expense and other
related financing costs........ 5.6 7.3 7.6 8.4 6.8 7.6 8.6
------- ------ ------ ------ ------ ------ -----
Income (loss) before income
taxes.......................... 1.3 (1.0) (.8) (1.9) 2.8 2.0 1.5
Income tax provision.............. 0.1 0.5 0.7 0.3 0.3 0.4 1.0
------- ------ ------- ------- ------- ------ -----
Income (loss) before
extraordinary charges and
cumulative effect of changes
in accounting principles....... 1.2 (1.5) (1.5) (2.2) 2.5 1.6 0.5
------- ------ ------ ------ ------- ------ -----
Extraordinary charges relating
to early extinguishment of
debt........................... -- (0.5) -- (.2) -- -- --
Cumulative effect of changes
in accounting principles....... -- -- -- (1.0) -- -- --
------- ------- ------- ------ ------- ------ ----
Net income (loss)................. 1.2% (2.0)% (1.5)% (3.4)% 2.5% 1.6% 0.5%
======== ======= ======= ======= ====== ===== =====
Selected Segment Data:
Income from operations shown as
a percentage of segment sales:
Metal container business....... 8.5% 8.3% 10.2% 9.2% 10.0% 10.0% 11.8%
Plastic container business..... 6.0 6.0 4.6 0.3 8.3 8.3 6.6
</TABLE>
Results of Operations--Six Months
Summary unaudited historical results for the Company's two business
segments, metal and plastic containers, for the six months ended June 30, 1996
and 1995 and summary pro forma results for the Company for the six months ended
June 30, 1995 (after giving effect to the acquisition of AN Can as of the
beginning of 1995) are provided below.
The pro forma data includes the historical results of the Company and AN
Can and reflects the effect of purchase accounting adjustments based on
appraisals and valuations, the financing of the acquisition of AN Can, the
refinancing of certain of the Company's debt obligations, and certain other
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<PAGE>
adjustments, as if these events occurred as of the beginning of the period
presented. For a description of such adjustments, see the unaudited pro forma
condensed statements of operations of the Company, including the notes thereto,
included elsewhere in this Prospectus. The unaudited pro forma financial data do
not purport to represent what the Company's financial position or results of
operations would actually have been had these transactions in fact occurred at
the beginning of the period indicated, or to project the Company's financial
position or results of operations for any future date or period. The pro forma
information presented should be read in conjunction with the historical results
of operations of the Company for the quarters ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------------------------------------------
Historical Pro Forma
---------------------------------------------- --------------------
1996 1995 1995
------ ------ -----
(Dollars in millions)
Net sales:
<S> <C> <C> <C>
Metal containers and other................ $500.3 $289.2 $534.2
Plastic containers........................ 106.6 115.8 115.8
------ ----- -----
Consolidated........................... $606.9 $405.0 $650.0
===== ===== =====
Operating profit:
Metal containers and other................ $ 49.8 $ 34.0 $ 58.5
Plastic containers........................ 8.9 7.7 7.7
Corporate expense......................... (0.7) (0.6) (0.6)
----- ----- -----
Consolidated........................... $ 58.0 $ 41.1 $ 65.6
===== ===== =====
</TABLE>
Historical Six Months Ended June 30, 1996 Compared with Historical Six Months
Ended June 30, 1995
Net Sales. Consolidated net sales increased $201.9 million, or 49.9%,
to $606.9 million for the six months ended June 30, 1996, as compared to net
sales of $405.0 million for the same six months in the prior year. This increase
resulted primarily from net sales generated by the former AN Can operations
offset, in part, by lower net sales of metal containers to the Company's
existing customer base and lower net sales of plastic containers.
Net sales for the metal container business (including net sales of its
specialty business of $42.3 million) were $500.3 million for the six months
ended June 30, 1996, an increase of $211.1 million from net sales of $289.2
million for the same period in 1995. Net sales of metal cans of $458.0 million
for the six months ended June 30, 1996 were $172.9 million greater than net
sales of metal cans of $285.1 million for the same period in 1995. This increase
resulted principally from net sales of metal cans generated by the former AN Can
operations of approximately $191.0 million during the first six months of 1996.
Net sales of metal containers to the Company's existing customers declined
during the first six months of 1996 as compared to the first six months of 1995
primarily as a result of lower unit volume. Most of this decline is due to the
fact that in 1996 the Company shifted some of the production and shipment of
fruit and vegetable metal containers from the first half of the year to the
third and fourth quarter to more closely coincide with the fruit and vegetable
harvest.
Sales of specialty items included in the metal container segment
increased $38.3 million to $42.3 million during the six months ended June 30,
1996 as compared to the same period in 1995, due to additional sales generated
in 1996 by the operations acquired from AN Can.
Net sales for the plastic container business of $106.6 million during
the six months ended June 30, 1996 decreased $9.2 million from net sales of
$115.8 million for the same period in 1995. This decline in net sales resulted
principally from the pass through of lower resin costs.
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<PAGE>
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated
net sales was 86.0% ($521.7 million) for the six months ended June 30, 1996, an
increase of 0.5 percentage points as compared to 85.5% ($346.2 million) for the
same period in 1995. The increase in cost of goods sold as a percentage of net
sales was primarily attributable to the higher cost base of the former AN Can
operations and increased per unit manufacturing costs resulting from lower can
production volumes, offset, in part, by improved operating efficiencies due to
can plant consolidations and synergies realized from the AN Can acquisition as
well as improved manufacturing performance by the plastic container business.
Lower can production volumes resulted from a planned permanent reduction in the
amount of finished goods inventory carried by the Company and due to the
scheduled production of cans to more closely coincide with the fruit and
vegetable harvest. As a result, it is expected that production volumes will
increase in the second half of 1996, thereby reducing per unit manufacturing
costs and increasing manufacturing margins for that period as compared to the
same period in the prior year.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales increased 0.1
percentage points to 4.5% ($27.2 million) for the six months ended June 30,
1996, as compared to 4.4% ($17.7 million) for the six months ended June 30,
1995. This increase in selling, general and administrative expenses as a
percentage of net sales principally reflects redundant costs associated with the
AN Can operations. As the Company completes its integration of the
administrative functions of AN Can with the Company in 1996, it expects that
these redundant costs will decline and that its selling, general and
administration costs as a percentage of sales will decrease.
Income from Operations. Income from operations as a percentage of
consolidated net sales was 9.6% ($58.0 million) for the six months ended June
30, 1996, as compared with 10.1% ($41.1 million) for the same period in 1995.
This decline in income from operations as a percentage of consolidated net sales
was primarily attributable to the aforementioned decline in gross margin.
Income from operations as a percentage of net sales for the metal
container business was 10.0% ($49.8 million) for the six months ended June 30,
1996, as compared to 11.8% ($34.0 million) for the same period in the prior
year. This decrease in income from operations as a percentage of net sales for
the metal container business principally resulted from higher per unit
manufacturing costs incurred as a result of lower production volume and lower
margins realized on sales made from former AN Can facilities due to their higher
cost base.
Income from operations as a percentage of net sales for the plastic
container business was 8.3% ($8.9 million) for the six months ended June 30,
1996, as compared to 6.6% ($7.7 million) for the same period in 1995. The
operating performance of the plastic container business improved as a result of
production planning and scheduling efficiencies and benefits realized from
capital investment.
Interest Expense. Interest expense increased $11.0 million to $45.8
million for the six months ended June 30, 1996, principally as a result of
increased borrowings to finance the acquisition of AN Can in August 1995,
offset, in part, by the benefit realized from the redemption of a portion of the
Discount Debentures with proceeds from the borrowing of B term loans under the
Silgan Credit Agreement and by lower average bank borrowing rates. In the third
quarter of 1996, the Company redeemed $125.0 million principal amount of
Discount Debentures with proceeds from the borrowing of B term loans under the
Silgan Credit Agreement, further lowering its average borrowing costs.
Income Taxes. The provisions for income taxes for the six months ended
June 30, 1996 and 1995 provide for federal, state and foreign taxes currently
payable. The decrease in the provision for income taxes of $1.7 million for the
six months ended June 30, 1996 as compared to the same period in
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<PAGE>
the prior year reflects the benefit of the current cash tax savings realized
from the deduction of accreted interest on the retired Discount Debentures.
Net Income. As a result of the items discussed above, net income
increased $7.6 million to $9.7 million for the six months ended June 30, 1996,
as compared to $2.1 million for the six months ended June 30, 1996.
Historical Six Months Ended June 30, 1996 Compared with Pro Forma Six Months
Ended June 30, 1995
Net Sales. Consolidated net sales for the six months ended June 30,
1996 declined $43.1 million as compared to pro forma consolidated net sales for
the same period in the prior year. This decline in net sales resulted primarily
from a decline in sales by the metal container business of $33.9 million, which
was principally attributable to the loss of an AN Can customer whose product
line was acquired by a company with self manufacturing capacity for that
product, the planned production and shipment of vegetable pack cans in the
second half of 1996 instead of during the first half of 1995, and lower unit
sales to a customer who desired two suppliers (Containers and AN Can had
previously been the two suppliers). Net sales of the plastic container business
declined $9.2 million principally due to the pass through of lower resin costs.
Income from Operations. Income from operations as a percentage of
consolidated net sales for the six months ended June 30, 1996 was 9.6% ($58.0
million), as compared to pro forma income from operations as a percentage of pro
forma consolidated net sales of 10.1% ($65.6 million) for the six months ended
June 30, 1995. Management believes that the decrease in income from operations
for the six months ended June 30, 1996 as compared to pro forma income from
operations for the same period in the prior year was attributable to increased
per unit costs realized on lower can production volumes and redundant costs
associated with the AN Can operations, offset, in part, by the realization of
greater than anticipated can manufacturing synergies resulting from the
acquisition of AN Can and improved operating performance of the plastic
container business. Despite a projected below normal vegetable pack in 1996,
management anticipates that the 1996 pack will approximate the 1995 pack and
believes that its operating performance in the second half of 1996 will exceed
its operating performance during the same period in the prior year due to the
scheduled production of vegetable pack cans closer to the fresh pack season.
Results of Operations--Year End
Summary historical results for the Company's two business segments,
metal and plastic containers, for the calendar years ended December 31, 1995,
1994 and 1993 and summary pro forma results for the Company for the calendar
years ended December 31, 1995 and 1994 (after giving effect to the acquisition
of AN Can as of the beginning of such periods) are provided below.
The pro forma data includes the historical results of the Company and
AN Can and reflects the effect of purchase accounting adjustments based on
appraisals and valuations, the financing of the acquisition of AN Can, the
refinancing of certain of the Company's debt obligations, and certain other
adjustments, as if these events occurred as of the beginning of the periods
presented. For a description of such adjustments, see the unaudited pro forma
condensed statements of operations of the Company, including the notes thereto,
included elsewhere in this Prospectus. The unaudited pro forma combined
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
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<PAGE>
pro forma information presented should be read in conjunction with the
historical results of operations of the Company for the years ended December 31,
1995 and 1994.
<TABLE>
<CAPTION>
Year Ended December 31,
Historical Pro Forma
------------------------------------------------ ------------------------------
1995 1994 1993 1995 1994
------ ------ ------ ------ -----
(Dollars in millions)
Net Sales:
<S> <C> <C> <C> <C> <C>
Metal containers and other $ 882.3 $657.1 $459.2 $1,184.8 $1,253.7
Plastic containers 219.6 204.3 186.3 219.6 204.3
------- ----- ----- ------- -------
Consolidated $1,101.9 $861.4 $645.5 $1,404.4 $1,458.0
======== ====== ====== ======== ========
Operating Profit:
Metal containers and other $ 72.9 $ 67.0 $ 42.3 $ 100.5 $ 115.6
Plastic containers 13.2 9.4 0.6 13.2 9.4
Reduction in asset value <F1> (14.7) (16.7) - (14.7) (23.8)
Write-down of goodwill <F2> - - - - (26.7)
Restructuring expense <F3> - - - - (10.1)
Corporate expense (1.6) (1.3) (1.1) (1.6) (1.4)
-------- ------ ------ -------- --------
Consolidated $ 69.8 $ 58.4 $ 41.8 $ 97.4 $ 63.0
========= ====== ====== ========= ========
- --------------------
<FN>
<F1> Included in the historical and pro forma income from operations of the
Company are charges incurred for the reduction of the carrying value of
certain underutilized equipment to net realizable value of $14.7
million in 1995 allocable to the metal container business, and 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.
Additionally, pro forma income from operations for 1994 includes a
charge of $7.1 million for the write-down of certain technologically
obsolete equipment by AN Can.
<F2> Included in the historical financial information of AN Can as of
December 31, 1994 is a charge of $26.7 million for the write-down of
goodwill.
<F3> Included in the pro forma income from operations for 1994 is a charge
incurred by AN Can of $10.1 million for shut down costs necessary to
realign the assets of the business more closely with the existing
customer base.
</FN>
</TABLE>
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.
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<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 0.1
percentage points to 4.3% ($46.9 million) for the year ended December 31, 1995
as compared to 4.4% ($38.0 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
continue to decline in 1996 and 1997 as 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 6.3% ($69.8 million) for the year ended December 31,
1995, as compared with 6.8% ($58.4 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.
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.
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<PAGE>
Interest Expense. Interest expense, including amortization of debt
financing costs, increased by approximately $14.9 million to $80.7 million for
the year ended December 31, 1995, principally as a result of increased
borrowings to finance the acquisition of AN Can and to fund higher working
capital needs as a result of the increased seasonality of the Company's metal
container business, and higher average interest rates. Accretion of interest on
the Discount Debentures in 1995 approximated the prior year's accretion due to
the repurchase of $61.7 million face amount of Discount Debentures in the third
quarter of 1995.
Income Taxes. The provisions for income taxes for the years ended
December 31, 1995 and 1994 were comprised of federal, state and foreign income
taxes currently payable. The decrease in the provision for income taxes in 1995
reflects a decrease in federal income taxes currently payable due to the
deductibility of accrued interest on the Discount Debentures that were
repurchased in 1995.
Net Income. As a result of the items discussed above, net loss before
the extraordinary charge for the year ended December 31, 1995 was $16.0 million,
as compared to a net loss of $13.0 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 $5.8
million (net of tax of $2.6 million) in 1995.
Pro Forma Year Ended December 31, 1995 Compared with Pro Forma Year Ended
December 31, 1994
Net Sales. Pro forma consolidated net sales for the year ended December
31, 1995 declined $53.6 million as compared to pro forma consolidated net sales
for the prior year. The decrease in net sales was primarily attributable to
lower unit volume resulting from the below normal 1995 vegetable pack and the
loss of an AN Can customer whose product line was acquired by a company with a
self- manufacturing capacity for that product.
Income from Operations. Pro forma income from operations as a
percentage of consolidated net sales (before unusual charges) for the year ended
December 31, 1995 was 8.0% ($112.1 million) as compared to pro forma income from
operations as a percentage of consolidated net sales (before unusual charges)
for the year ended December 31, 1994 of 8.5% ($123.6 million). Management
believes that the decrease in income from operations was primarily attributable
to lower demand in 1995 for vegetable pack containers.
Historical Year Ended December 31, 1994 Compared with Historical Year Ended
December 31, 1993
Net Sales. Consolidated net sales increased $215.9 million, or 33.4%,
to $861.4 million for the year ended December 31, 1994, as compared to $645.5
million for the same period in 1993. Approximately 81% of this increase related
to sales to Del Monte pursuant to the DM Supply Agreement entered into by the
Company on December 21, 1993 to supply substantially all of Del Monte's metal
container requirements for a period of ten years. The remainder of this increase
resulted principally from greater unit sales in both the metal container and
plastic container businesses.
Net sales for the metal container business (including paper containers)
were $657.1 million for the year ended December 31, 1994, an increase of $197.9
million (43.1%) over net sales for the metal container business of $459.2
million for the same period in 1993. Sales of metal containers increased $201.6
million primarily as a result of the DM Supply Agreement, which represented
$174.7 million of this increase, and an increase of $26.9 million in sales to
all other customers. Sales of metal containers
-39-
<PAGE>
increased principally from higher unit volume and reflected continued growth in
sales of pet food containers, as well as greater sales to vegetable pack
customers due to a larger than normal pack in 1994. Sales of specialty items
included in the metal container segment declined $3.7 million to $9.6 million
during 1994.
Net sales for the plastic container business of $204.3 million during
the year ended December 31, 1994 increased $18.0 million, or 9.7%, over net
sales of plastic containers of $186.3 million for the same period in 1993. The
increase in net sales of plastic containers was attributable to increased unit
sales to new and existing customers, particularly PET customers, and to a lesser
extent, higher average sales prices due to the pass through of increased resin
costs.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated
net sales was 86.9% ($748.3 million) for the year ended December 31, 1994, a
decrease of 1.6 percentage points as compared to 88.5% of consolidated net sales
($571.2 million) for the same period in 1993. The decrease in cost of goods sold
as a percentage of consolidated net sales principally resulted from synergistic
benefits resulting from the acquisition of DM Can, lower per unit manufacturing
costs realized on higher sales and production volumes and improved manufacturing
efficiencies in the plastic container business resulting from larger cost
reduction and productivity investments in 1993.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales declined 0.6
percentage points to 4.4% of consolidated net sales ($38.0 million) for the year
ended December 31, 1994, as compared to 5.0% ($32.5 million) for the same period
in 1993. The decrease as a percentage of consolidated net sales resulted
principally from a modest increase in selling, general and administrative
functions relative to the increased sales associated with the acquisition of DM
Can, offset in part by an increase of $1.3 million in benefits accrued under
stock appreciation rights ("SARs").
Income from Operations. Income from operations as a percentage of
consolidated net sales increased 0.3 percentage points to 6.8% ($58.4 million)
for the year ended December 31, 1994, compared with 6.5% ($41.8 million) for the
same period in 1993. During 1994 the Company incurred a charge of $16.7 million
to write-down certain properties held for sale to their net realizable value and
to reduce the carrying value of certain technologically obsolete and inoperable
equipment. Without giving effect to this nonrecurring charge, income from
operations in 1994 would have been 8.7% ($75.1 million), an increase of 2.2
percentage points as compared to 1993, and was principally attributable to the
aforementioned improvement in gross margin.
Income from operations as a percentage of net sales for the metal
container business (without giving effect to the $7.2 million charge to
write-down the carrying value of certain assets) increased 1.0% to 10.2% ($67.0
million) during 1994 as compared to 1993, principally due to operating synergies
realized from the acquisition of DM Can and lower per unit manufacturing costs
incurred as a result of higher production volumes in 1994. Income from
operations as a percentage of net sales attributable to the plastic container
business (without giving effect to the $9.5 million charge to write-down the
carrying value of certain assets) in 1994 was 4.6% ($9.4 million), as compared
to 0.3% ($0.6 million) in 1993. The improved operating performance of the
plastic container business resulted from production efficiencies realized as a
result of rationalizations and capital investment made in prior periods, and
lower unit manufacturing costs.
Interest Expense. Interest expense, including amortization of debt
financing costs, increased by approximately $11.5 million to $65.8 million for
the year ended December 31, 1994. This increase resulted from the incurrence of
additional bank borrowings to finance the acquisition of DM Can, higher
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<PAGE>
average bank borrowing rates, higher accretion of interest on the Discount
Debentures and increased charges for the amortization of debt financing costs.
Income Taxes. The provisions for income taxes for the years ended
December 31, 1994 and 1993 were comprised of federal, state and foreign income
taxes currently payable. The increase in the provision for income taxes in 1994
reflects an increase in federal income taxes currently payable. During 1994, the
Company fully utilized its alternative minimum tax net operating loss carryovers
and, therefore, was subject to tax at the rate of 20% on its alternative minimum
taxable income.
Net Income. As a result of the items discussed above, the net loss for
the year ended December 31, 1994 was $13.0 million, $1.4 million less than the
loss before extraordinary charges and cumulative effect of changes in accounting
principles for the year ended December 31, 1993 of $14.4 million.
In conjunction with the acquisition of DM Can in 1993, the Company
incurred an extraordinary charge of $1.3 million for the early extinguishment of
debt. Also, during 1993 the Company adopted SFAS No. 106, SFAS No. 109 and SFAS
No. 112. The cumulative effect of these accounting changes, for years prior to
1993, was to decrease net income by $6.3 million. As a result of these charges,
the net loss for 1993 was $22.0 million.
Capital Resources and Liquidity
The Company's liquidity requirements arise primarily from its
obligations under the indebtedness incurred in connection with its acquisitions
and the refinancing of such indebtedness, capital investment in new and existing
equipment and the funding of the Company's seasonal working capital needs.
Historically, the Company has met these liquidity requirements through cash flow
generated from operating activities and working capital borrowings.
On July 22, 1996, the Company completed the Preferred Stock Sale. With
net proceeds of $47.8 million from the Preferred Stock Sale, the Company
purchased the Holdings Class B Stock held by Mellon for $35.8 million and, on
August 26, 1996, redeemed $12.0 million principal amount of Discount Debentures.
On August 1, 1995, Silgan, Containers and Plastics entered into the
Silgan Credit Agreement (which originally provided Silgan with $225 million of A
term loans and $225 million of B term loans and provided Containers and Plastics
with a commitment of $225 million for working capital loans) to finance the
acquisition by Containers of AN Can, to refinance and repay in full all amounts
owing under the Company's previous credit agreement (the "Silgan 1993 Credit
Agreement") and under the Secured Notes. With borrowings of $200 million under
the Silgan Credit Agreement (as amended in May 1996 to include an additional
$125 million of B term loans), Holdings repurchased and redeemed an aggregate of
$204.1 million principal amount of Discount Debentures.
The Silgan Credit Agreement provides the Company with improved
financial flexibility by (i) enabling Silgan to transfer funds to Holdings for
payment by Holdings of cash dividends (or cash interest) on the Exchangeable
Preferred Stock (or, if issued, the Exchange Debentures), (ii) extending the
maturity of the Company's secured debt facilities until December 31, 2000, (iii)
lowering the interest rate spread on its floating rate borrowings by 1/2%, as
well as providing for further interest rate reductions in the event the Company
attains certain financial targets, and (iv) lowering the Company's average cost
of indebtedness by permitting Holdings to repurchase or redeem Discount
Debentures.
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Upon completion of the Refinancing, the Company will have retired all
of the Discount Debentures. By refinancing all of the Discount Debentures with
borrowings under the Silgan Credit Agreement and proceeds from the Preferred
Stock Sale and from the Offering, the Company will have lowered its average cost
of indebtedness, will realize approximately $19.6 million of annual current cash
interest savings (excluding noncash interest on the Exchange Debentures), and
will realize approximately $25.9 million of current cash tax savings as a result
of the deduction by the Company of the accreted interest on the retired Discount
Debentures. In addition, as a result of the Company's net operating loss
carryforwards, the Company does not expect to have any federal tax liability in
1996, and expects to incur minimal federal tax liability in 1997 and federal tax
liability in the next few years thereafter at the alternative minimum tax rates
then in effect. See "--Overview".
For the first six months of 1996, net borrowings of working capital
loans of $141.5 million, proceeds of $1.5 million from the sale of assets and a
decrease in cash balances of $0.2 million were used to fund cash used by
operations of $82.7 million for the Company's seasonal working capital needs,
capital expenditures of $42.1 million (including the purchase of ANC's St. Louis
facility for $13.2 million), the redemption of $17.4 million of Discount
Debentures, and the repayment of $0.9 million of term loans under the Silgan
Credit Agreement. The Company's EBDITA for the six months ended June 30, 1996 in
comparison to the same period in 1995 increased by $30.8 million to $89.6
million. The increase in EBDITA principally reflected the generation of
additional cash flow from the former AN Can operations.
For the six months ended June 30, 1996, the operating cash flow of the
Company declined from the same period in the prior year primarily as a result of
the increased working capital needed, mainly for inventory, to support the
former AN Can operations. Although management has undertaken a program to carry
less finished goods inventory by scheduling some of its production closer to the
vegetable pack season, it is still necessary to build a significant portion of
its inventory prior to the vegetable pack season. The decline in trade accounts
payable from year end results from traditional year end payment terms.
Management believes that the average working capital needs of the
combined operations of the Company and AN Can for 1996 as compared to the pro
forma combined operations in the prior year will decline predominately as a
result of carrying a lower amount of finished goods inventory due to scheduling
production closer to the summer seasonal peak and a change in vendor payment
terms.
During 1995, cash generated from operations of $209.6 million
(including cash of $112.0 million generated by AN Can since 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. The Company's EBDITA for
the year ended December 31, 1995 as compared to 1994 increased by $17.9 million
to $132.4 million. The increase in EBDITA 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
Silgan 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
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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 vegetable and fruit
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, and 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 $185.0 million of the working capital revolver under the Silgan
Credit Agreement, including letters of credit, was utilized at its peak in
September 1996.
As of August 31, 1996, the outstanding principal amount of working
capital loans was $143.1 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 $74.5 million.
In addition to its operating cash needs, the Company's cash
requirements over the next several years consist primarily of (i) annual capital
expenditures of $45.0 to $55.0 million, (ii) scheduled principal amortization
payments of term loans under the Silgan Credit Agreement of $28.5 million, $38.5
million, $53.4 million, $53.4 million and $126.1 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 $3.0 million for state tax liabilities in 1996 and approximately
$5.0 million (based on the Company's current estimate of its 1997 net income)
for federal and state tax liabilities in 1997.
Management believes that cash generated by operations and funds from
working capital borrowings under the Silgan 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 Silgan Credit Agreement, the indenture with respect to the 11-3/4%
Notes (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 1996 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".
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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 June 30, 1996, on a pro forma basis
after giving effect to the Refinancing and including seasonal working capital of
$150.4 million, the Company had $892.9 million of indebtedness outstanding, of
which $607.9 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 8.1% to 8.6%. The
notional principal amounts of these agreements totaled $100 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 the first six months
of 1996 as a result of the adoption of SFAS No. 121. See Note 5 to the
Consolidated Financial Statements of the Company included elsewhere in this
Prospectus.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 123, "Accounting for Stock-Based Compensation", effective for
the 1996 fiscal year. Under SFAS No. 123, compensation expense for all
stock-based compensation plans would be recognized based on the fair value of
the options at the date of grant using an option pricing model. As permitted
under SFAS No. 123, the Company may either adopt the new pronouncement or follow
the current accounting methods as prescribed under APB No. 25. The Company has
not elected to adopt SFAS No. 123 and continues to recognize compensation
expense in accordance with APB No. 25. In addition, the Company will be required
to include in its 1996 year end financial statements pro forma information
regarding compensation expense recognizable under SFAS No. 123. See Note 15 to
the Consolidated Financial Statements of the Company included elsewhere in this
Prospectus.
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BUSINESS
General
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 during 1995 of 36% 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's management has successfully
acquired and integrated ten businesses, including most recently 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). The Company's strategy has enabled it to rapidly
increase its revenues and profits. The Company's net sales have increased from
$678.2 million in 1991 to $1,404.4 million in 1995, representing a compound
annual growth rate of approximately 20%. During this period, pro forma for the
AN Can acquisition, income from operations increased from $39.3 million in 1991
to $112.2 million in 1995, representing a 30% compound annual growth rate, while
the Company's income from operations as a percentage of net sales increased from
5.8% to 8.0% over the same period (in each case without giving effect to a
charge of $14.7 million in 1995 to adjust the carrying value of certain assets).
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. Management is highly focused on maintaining a flat,
efficient organizational structure, resulting in low selling, general and
administrative expenses as a percentage of total net sales. The Company believes
that it has achieved a low cost producer position primarily through (i) its low
selling, general and administrative expenses, (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.
Company History
Holdings is a Delaware corporation organized in April 1989, that, in
June 1989, through a merger acquired all of the outstanding common stock of
Silgan. Holdings' principal asset is all of the outstanding capital stock of
Silgan. Prior to June 30, 1989, Holdings did not engage in any business. Silgan
is a
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Delaware corporation formed in August 1987 as a holding company to acquire
interests in various packaging manufacturers.
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 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
product
See "--Business Segments".
The principal executive offices of Holdings are located at 4 Landmark
Square, Stamford, Connecticut 06901, telephone number (203) 975-7110.
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 have enabled and will permit the Company 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 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 36% in 1995. The Company expects this
consolidation trend to continue. See "Prospectus Summary--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 $219.6 million in 1995. The plastic container
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segment of the consumer goods packaging industry is highly fragmented, and
management intends to capitalize on 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 PET and 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 intends to expand its specialty business, which generated net sales of
$83.6 million in 1995. Specialty products manufactured by the Company include
metal closures for vacuum sealed glass containers, its licensed Omni product, 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 product. 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, 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
$244.5 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 beginning 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.
Business Segments
The Company operates through two operating companies, Containers and
Plastics.
Containers
For 1995, Containers had net sales of $1,184.8 million (84% of the
Company's net sales) and pro forma income from operations of $100.5 million (88%
of the Company's pro forma income from operations) (without giving effect to
corporate expense and a charge of $14.7 million in 1995 to adjust
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the carrying value of certain assets). Containers has realized compound annual
unit sales growth in excess of 16% since 1987, 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 85% of Containers'
sales in 1996 will be pursuant to long-term supply arrangements. Containers has
the Nestle Supply Agreements with Nestle pursuant to which Containers supplies a
majority of Nestle's metal container requirements, and the DM Supply Agreement
with Del Monte 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.
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 1995, Containers had net sales of specialty
packaging items of $83.6 million.
Plastics
For 1995, Plastics had net sales of $219.6 million (16% of the
Company's net sales) and income from operations of $13.2 million (12% of the
Company's pro forma income from operations) (without giving effect to corporate
expense and a charge of $14.7 million in 1995 to adjust the carrying value of
certain assets). 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. At December 31, 1995, Containers had approximately
85% of its projected 1996 sales under 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.
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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.
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, the inability to do so
in the future could have a significant impact on the Company's operating
margins.
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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 would 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 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" below.
In 1995, 1994 and 1993, approximately 21%, 26% and 34%, respectively,
of the Company's actual sales were to Nestle and in 1995 and 1994 approximately
15% and 21%, respectively, of the Company's actual sales were to Del Monte. On a
pro forma basis after giving effect to the acquisition of AN Can, in 1995
approximately 17% and 11% of the Company's sales would have been to Nestle and
Del Monte, respectively. 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 during 1995 of 36% 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 85% of its metal container sales in 1996 will be pursuant to such
arrangements.
In 1987, the Company, through Containers, and Nestle entered into the
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
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period of ten years, subject to certain conditions. In 1995, sales of metal cans
by the Company to Nestle were $236.0 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.
In 1993, the term of certain of the Nestle Supply Agreements
(representing approximately 70% of the Company's 1995 unit sales to Nestle) was
extended through 2001. Under these Nestle Supply Agreements, Nestle has the
right to receive competitive bids under narrowly limited circumstances, and
Containers has the right to match any such bids. In the event that Containers
chooses not to match a competitive bid, Nestle may purchase cans from the
competitive bidder at the competitive bid price for the term of the bid. The
Company cannot predict the effect, if any, of such bids upon its financial
condition or results of operations. The Company is currently engaged in
discussions with Nestle regarding the extension beyond 2001 of the term for the
can requirements under these Nestle Supply Agreements in return for certain
price concessions by the Company. On a pro forma basis after giving effect to
the acquisition of AN Can, such can requirements would have represented
approximately 11% of the Company's 1995 sales.
The term of the other Nestle Supply Agreements expires in August 1997.
The Company has also commenced discussions with Nestle with respect to the
continuation beyond 1997 of these Nestle Supply Agreements, which would have
represented approximately 6% of the Company's sales in 1995 on a pro forma basis
after giving effect to the acquisition of AN Can. Although the Company intends
to make every effort to extend these Nestle Supply Agreements on reasonable
terms and conditions, there can be no assurance that these Nestle Supply
Agreements will be extended or that they will be extended on terms favorable to
the Company.
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 1995, sales of metal containers by the Company to
Del Monte were $159.4 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
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<PAGE>
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 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.
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 August 31, 1996, the Company operated
46 manufacturing facilities, geographically dispersed throughout the United
States and Canada, that serve the distribution needs of its customers.
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<PAGE>
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 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, 1995, the Company employed approximately 940
salaried and 4,170 hourly employees on a full-time basis, including
approximately 1,400 employees who joined the Company on August 1, 1995 as a
result of the acquisition of AN Can. Approximately 63% of the Company's hourly
plant employees are represented by a variety of unions.
The Company's labor contracts expire at various times between 1996 and
2008. Contracts covering approximately 7% of the Company's hourly employees
presently expire during the remainder of 1996. 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
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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 could exceed $100,000. See "--Legal Proceedings" below.
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 DM Can,
Del Monte has agreed to indemnify the Company for a period of three years for
substantially all of the costs attributable to any noncompliance by DM Can with
any environmental law prior to the closing, including all of the costs
attributable to the past waste disposal practices of DM Can. 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.
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.
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Properties
Holdings' and Silgan's 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
the Company.
The Company owns and leases properties for use in the ordinary course
of business. Such properties consist primarily of 31 metal container
manufacturing facilities, 11 plastic container manufacturing facilities and 4
specialty packaging manufacturing facilities. Nineteen of these facilities are
owned and 27 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 August 31, 1996 for its metal container business:
Approximate Building Area
Location (square feet)
-------- -----------------------
City of Industry, CA.................... 50,000 (leased)
Kingsburgh, 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)
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
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
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<PAGE>
Below is a list of the Company's operating facilities, including
attached warehouses, as of August 31, 1996 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.
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.
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 in a range of $2,000,000 to
$3,000,000. Since cleanup is ongoing, a more precise estimate is unavailable at
this time. However, based on the estimate, the Company believes that Containers'
apportioned share of liability will range from approximately $135,000 to
$200,000.
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.
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<PAGE>
MANAGEMENT
Directors and Executive Officers
Holdings and Silgan
The following table sets forth certain information (ages as of
September 30, 1996) concerning the directors and executive officers of Holdings
and Silgan. All directors serve terms of one year or until the election of their
respective successors.
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.......... 56 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
Containers
The following table sets forth certain information (ages as of
September 30, 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
Dennis Nerstad............. 58 Vice President - Product Services
Joseph A. Heaney........... 43 Vice President - Finance
Plastics
The following table sets forth certain information (ages as of
September 30, 1996) concerning the Directors and 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
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
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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, Randall's Food Markets, Inc. and Waterford Crystal Ltd., and
Chairman of Waterford Wedgewood 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.
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 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
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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 1990 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.
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.
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Ms. Jones has been Vice President - Finance and Chief Financial Officer
of Plastics since December 1994 and Assistant Secretary of Plastics since
November 1995. 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 Arthur Young & Company.
Board of Directors
Holdings presently has a Board of Directors consisting of four members.
Holdings intends to elect an additional two persons to serve as independent
directors of Holdings following the completion of the Offering. Directors are
elected annually and hold office until the next annual meeting of stockholders
and until their successors are duly elected and qualified. Four of the directors
will be elected pursuant to the Stockholders Agreement. Officers are elected by
the Board of Directors and serve at the discretion of the Board of Directors.
See "Description of Capital Stock--Description of the Holdings Stockholders
Agreement".
The Board of Directors has an Audit Committee, which is presently
composed of Messrs. Silver and Niehaus. After the Offering, the Board of
Directors will reconstitute its Audit Committee to consist of two Directors who
are neither officers nor employees of Holdings. The Audit Committee has the
responsibility of reviewing and supervising the financial controls of Holdings.
The Audit Committee's responsibilities include (i) making recommendations to the
Board of Directors with respect to its financial statements and the appointment
of independent auditors, (ii) reviewing significant audit and accounting
policies and practices of Holdings, (iii) meeting with the Company's independent
public accountants concerning, among other things, the scope of audits and
reports and (iv) reviewing the performance of overall accounting and financial
controls of Holdings.
The Board of Directors expects to establish a Compensation Committee
and an Executive Committee. The Compensation Committee will consist of at least
two Directors who are "outside directors" within the meaning of Section 162(m)
of the Code. The Compensation Committee will have the responsibility of
reviewing the performance of the executive officers of Holdings and recommending
to the Board of Directors annual salary and bonus amounts for all officers of
the Company.
Compensation of Directors
It is anticipated that directors who do not receive compensation as
officers or employees of the Company or any of its affiliates will be paid an
annual retainer fee of $ for their service on the Board of Directors, and a fee
of $ for each meeting of the Board of Directors or any committee thereof that
they attend, plus reasonable out-of-pocket expenses.
Executive Compensation
The following table sets forth information concerning the annual and
long term compensation for services rendered in all capacities to the Company
during the fiscal years ended December 31, 1995, 1994 and 1993 of those persons
who at December 31, 1995 were (i) the Chief Executive Officer of Holdings and
(ii) the other four most highly compensated executive officers of Holdings and
its subsidiaries. Prior to the Offering, no director of Holdings or its
subsidiaries received any compensation for serving as a director of Holdings or
its subsidiaries. See "Certain Transactions--Management Agreements".
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<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation
----------------------------------------- ------------
Awards
------
Other Securities
Annual Underlying Stock All Other
Name and Principal Position Year Salary(a)(b) Bonus(a)(c) Compensation Options/SARs(d) Compensation(e)
- --------------------------- ---- ------------ ----------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
R. Philip Silver 1995 $1,830,000 - - - -
(Chairman of the Board and 1994 1,684,135 - - - -
Co-Chief Executive Officer of 1993 1,608,799 - - - -
Holdings and Silgan and Chairman
of the Board of Plastics)
D. Greg Horrigan 1995 1,830,000 - - - -
(President and Co-Chief 1994 1,684,135 - - - -
Executive Officer of Holdings 1993 1,608,799 - - - -
and Silgan and Chairman of
the Board of Containers)
Harley Rankin, Jr. 1995 408,978 - - - -
(Executive Vice President, 1994 384,930 - - -
Chief Financial Officer and 1993 347,598 - - - -
Treasurer of Holdings and
Silgan)
James D. Beam 1995 361,200 - - - $66,394
(President of Containers) 1994 350,000 $169,092 - - 94,175
1993 239,949 65,277 - - 24,883
Russell F. Gervais 1995 226,000 59,000 - - 5,085
(President of Plastics) 1994 216,804 83,300 - -
1993 210,000 - - - -
</TABLE>
- --------------------
(a) The compensation of Messrs. Horrigan, Silver, Rankin and Rodriguez
reflects amounts as earned and was paid by S&H. Such persons received
no direct compensation from Holdings, Silgan or their respective
subsidiaries. See "Certain 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 Common Stock under the Stock
Option Plan, and gives effect to the Stock Split. Such options are
exercisable ratably over a five-year period which began on January 1,
1995.
(e) In the case of Mr. Beam, includes for 1995 and 1994 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.
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<PAGE>
<TABLE>
<CAPTION>
OPTION VALUES AT DECEMBER 31, 1995
----------------------------------
Value of Unexercised
Number of Securities Underlying in-the-Money
Unexercised Options at Options at
Name December 31, 1995 December 31, 1995(a)
---- ----------------- --------------------
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
R. Philip Silver........... -- -- -- --
D. Greg Horrigan........... -- -- -- --
Harley Rankin, Jr. (b)..... $ --
James D. Beam (b).......... -- --
Russell F. Gervais (b)..... -- --
</TABLE>
- -------------------
(a) The fair market value at December 31, 1995 was estimated to be $ per
share.
(b) Options are for shares of Common Stock and give effect to the Stock
Split.
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 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 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 Common Stock. As of , 1996, the number of
shares for which options may be granted under the Stock Option Plan may not
exceed ___ shares.
Options are exercisable over such period as determined by the Stock
Option Committee, but 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
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<PAGE>
of options, full payment for the shares covered thereby shall be made in cash or
shares of Common Stock already owned or a combination of cash and shares of
Common Stock.
Concurrent with the Offering, all outstanding stock options issued
under stock option plans of Containers and Plastics will be converted to stock
options under Holdings' Stock Option Plan in accordance with the terms of such
plans. At such time, the containers' and Plastics' stock option plans will
terminate. As a result, the only stock options that will be outstanding after
the Offering will be stock options under the Holdings' Stock Option Plan.
As of _____ , 1996, options to purchase ___ shares of Common Stock were
outstanding under the Stock Option Plan at exercise prices ranging from $___ to
$___ 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 merger in which
Holdings acquired Silgan 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.
Federal Income Tax Consequences of Stock Option Plan
The following discussion sets forth a brief summary of the U.S. federal
income tax aspects of options granted under the Stock Option Plan based on tax
laws in effect on the date hereof. This summary is not intended to be
exhaustive, and does not describe a number of special tax rules that could apply
in certain circumstances (i.e., alternative minimum tax). State, local and
foreign income tax consequences are not discussed, and may vary from locality to
locality. Participants in the Stock Option Plan are urged to consult their own
tax advisors with respect to the consequences of their participation in the
Stock Option Plan.
Stock Options
The grant of incentive stock options or non-qualified stock options
will not result in taxable income for the optionee at the time the option is
granted and Holdings will not be entitled to a deduction at that time.
Non-Qualified Stock Options
In general, an optionee will be subject to tax for the year of exercise
of a non-qualified stock option on the amount of ordinary income equal to the
difference between the purchase price and the fair market value of the Common
Stock received at the time of such exercise. Holdings will be entitled to a
deduction in a corresponding amount. Income tax withholding requirements apply
upon exercise. The optionee's tax basis in the Common Stock acquired on exercise
will be equal to the exercise price plus the amount of ordinary income subject
to tax upon such exercise. Upon subsequent disposition of the Common Stock, the
holder will realize capital gain or loss, long-term or short-term, depending
upon the length of time the holder held the Common Stock received upon the
option exercise.
Incentive Stock Options
In general, the exercise of an incentive stock option will not result
in income for the optionee if the optionee (i) does not dispose of the Common
Stock within two years after the date of grant or one year after the acquisition
of the Common Stock upon exercise and (ii) is an employee of Holdings or a
subsidiary of Holdings from the date of the option grant until three months
before the exercise date.
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<PAGE>
If these requirements are met, the tax basis of the Common Stock upon later
disposition will be the exercise price. Any gain will be taxed to the holder as
long-term capital gain and Holdings will not be entitled to a deduction. The
excess of the fair market value on the exercise date over the exercise price is
an item of tax preference, potentially subject to the alternative minimum tax.
If an optionee disposes of the Common Stock acquired upon exercise
prior to the expiration of either of the holding periods described in clause (i)
in the immediately preceding paragraph, the optionee will recognize ordinary
income and Holdings will be entitled to a corresponding deduction equal to the
lesser of (a) the fair market value of the Common Stock on the exercise date
minus the exercise price or (b) the amount realized on disposition minus the
exercise price. Any gain in excess of the amount of the ordinary income portion
will be taxable as long-term or short-term capital gain, depending upon the
length of time the Common Stock was held after exercise.
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
-----------------------------
Final Average Years of Service
-------------------------------------------------------------------------------------------------------
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).
As of December 31, 1995, James D. Beam, the only eligible executive
officer named in the Summary Compensation Table, had eight 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;
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<PAGE>
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.
<TABLE>
<CAPTION>
Plastics Pension Plan Table
---------------------------
Final Average Years of Service
-------------------------------------------------------------------------------------------------------
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, 1995, Russell F. Gervais, the only eligible
executive officer named in the Summary Compensation Table, had six 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 the Registration Statement, of
which this Prospectus is a part.
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<PAGE>
Compensation Committee Interlocks and Insider Participation
Holdings did not have a Compensation Committee during 1995. The
compensation of Messrs. Silver, Horrigan, Rankin and Rodriguez was paid by S&H,
which was paid by the Company for providing certain management services to the
Company pursuant to the Management Agreements (as defined in "Certain
Transactions--Management Agreements"). See "Certain Transactions--Management
Agreements". The compensation of all other executive officers of the Company was
determined by the senior management of the Company.
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<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Prior to completion of the Offering, all of the issued and outstanding
Common Stock of Holdings was owned by the Principal Common Stockholders and
BTNY. Upon completion of the Offering, the Principal Common Stockholders will
own ___ shares of Common Stock, or approximately ___% of the issued and
outstanding shares of Common Stock (approximately ____% if the over-allotment
option granted to the Underwriters is exercised in full).
Messrs. Silver and Horrigan have agreed to vote their shares of Common
Stock for the election of two directors chosen by MSLEF II, and MSLEF II has
agreed to vote its shares of Common Stock for the election of two directors
chosen by Messrs. Silver and Horrigan. Holdings currently has four directors,
but intends to increase its board of directors after the Offering to six members
to include two additional independent directors. See "Certain Transactions" and
"Description of Capital Stock--Description of the Holdings Stockholders
Agreement".
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<PAGE>
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock prior to the Offering after giving
effect to the Stock Split and after the Offering as adjusted to reflect the sale
of the shares of Common Stock offered hereby, (i) by each person who is known by
Holdings to own beneficially more than 5% of the Common Stock, (ii) by each
current director of Holdings and each named executive officer and (iii) by all
executive officers and directors as a group.
Each of the persons named in the table has sole voting and investment
power with respect to the securities beneficially owned.
<TABLE>
<CAPTION>
Before the Offering After the Offering<F1>
---------------------------------- -----------------------------------
Number of Shares Percentage of Number of Shares Percentage of
of Common Stock Common Stock of Common Stock Common Stock
Beneficially Beneficially Beneficially Beneficially
Owned Owned<F2> Owned Owned<F2>
<S> <C> <C> <C> <C>
R. Philip Silver <F3>.............. % %
D. Greg Horrigan <F3>.............. % %
Robert H. Niehaus <F4>............. --- --- --- ---
Leigh J. Abramson <F4>............. --- --- --- ---
Harley Rankin, Jr. <F5>............ % %
James D. Beam <F6>................. % %
Russell F. Gervais <F7>............ % %
The Morgan Stanley Leveraged
Equity Fund II, L.P. <F8>...... % %
All officers and directors
as a group..................... % %
- --------------
<FN>
<F1> Assumes no purchase of shares in the Offering and no exercise of the
Underwriters' over-allotment option.
<F2> An asterisk denotes beneficial ownership of 1% or less of the Common Stock.
<F3> 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. The
address for such person is 4 Landmark Square, Stamford, CT 06901.
<F4> 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.
<F5> Reflects shares that may be acquired through the exercise of vested stock
options granted pursuant to the Stock Option Plan. The address for such
person is 4 Landmark Square, Stamford, CT 06901.
<F6> Reflects shares that may be acquired through the exercise of vested stock
options granted pursuant to the Stock Option Plan. The address for such
person is 21800 Oxnard Street, Woodland Hills, CA 91367.
<F7> Reflects shares that may be acquired through the exercise of vested stock
options granted pursuant to the Stock Option Plan. The address for such
person is 14515 N. Outer Forty, Chesterfield, MO 63017.
<F8> The address for The Morgan Stanley Leveraged Equity Fund II, L.P., is 1221
Avenue of the Americas, New York, NY 10020.
</FN>
</TABLE>
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<PAGE>
CERTAIN 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 existing management services agreement, as amended, with S&H. Pursuant to
the Management Agreements, S&H provides Holdings, Silgan, Containers and
Plastics and their respective subsidiaries with general management and
administrative services (the "Services"). The Management Agreements provide 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
$77.5 million for the calendar year 1995 and increases by $6.0 million for each
year thereafter. The Maximum Amount is $95.758 million for the calendar year
1995, $98.101 million for the calendar year 1996, $100.504 million for the
calendar year 1997, $102.964 million for the calendar year 1998 and $105.488
million for the calendar year 1999. The Management Agreements provide that upon
receipt by Silgan of a notice from Bankers Trust that certain events of default
under the Silgan 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.
The Management Agreements continue in effect until the earliest of: (i)
June 30, 1999; (ii) at the option of each of the respective companies, the
failure or refusal of S&H to perform its obligations under the Management
Agreements, if such failure continues unremedied for more than 60 days after
written notice of its existence shall have been given; (iii) at the option of
MSLEF II (a) if S&H or Holdings is declared insolvent or bankrupt or a voluntary
bankruptcy petition is filed by either of them, (b) upon the occurrence of any
of the following events with respect to S&H or Holdings 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
Holdings 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; and (iv) the occurrence of a
Change of Control (as defined in the Restated Certificate of Incorporation of
Holdings).
Additionally, the Management Agreements provide 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 are credited against amounts paid to
S&H under the other Management Agreements. Under the terms of the Management
Agreements, Holdings, Silgan, Containers and Plastics have agreed, subject to
certain exceptions, to indemnify S&H and its affiliates, officers, directors,
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<PAGE>
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 provide that S&H may select a
consultant, subcontractor or agent to provide the Services. S&H has retained
Morgan Stanley to render financial advisory services to S&H. In connection with
such retention, S&H has agreed to pay Morgan Stanley a fee equal to 9.1% of the
fees paid to S&H under the Management Agreements.
For the years ended December 31, 1995, 1994 and 1993, pursuant to the
arrangements described above, S&H earned aggregate fees, including reimbursable
expenses and fees payable to Morgan Stanley, of $5.4 million, $5.0 million and
$4.4 million, respectively, from Holdings, Silgan, Containers and Plastics, and
during 1995, 1994 and 1993 Morgan Stanley earned fees of $409,000, $383,000 and
$337,000, 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 Silgan 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. See "Securities
Ownership of Certain Beneficial Owners and Management" 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 "Description of Capital
Stock--Description of the Holdings Stockholders Agreement".
G. William Sisley, Secretary of Holdings and Silgan, is a partner in
the law firm of Winthrop, Stimson, Putnam & Roberts. Winthrop, Stimson, Putnam &
Roberts provides legal services to Holdings, Silgan and their subsidiaries.
DESCRIPTION OF CAPITAL STOCK
General
The Company is incorporated under the laws of the State of Delaware.
Immediately prior to the closing of the Offering, Holdings will amend its
Certificate of Incorporation to change its authorized capital stock to ___
shares of Common Stock, par value $.01 per share (the "Common Stock"), and ____
shares of preferred stock, par value $.01 per share. Prior to the issuance of
shares of Common Stock in the Offering, there are ___ shares of Common Stock
issued and outstanding, of which ___ are beneficially owned by the Principal
Common Stockholders. Such number of outstanding shares reflects the Stock Split.
Upon consummation of the Offering, shares of Common Stock will be issued and
outstanding (assuming that the Underwriters' over-allotment option will not be
exercised). There are 50,000 shares of Exchangeable Preferred Stock issued and
outstanding, of which none are owned by the Principal Common Stockholders. All
outstanding shares of capital stock are, and the shares issued in the Offering
will be, fully paid and nonassessable.
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<PAGE>
Common Stock
Each outstanding share of 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
Common Stock can elect all of the directors then standing for election. See
"--Description of the Holdings Stockholders Agreement". Holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available therefor.
See "Dividend Policy". In the event of any liquidation, dissolution or
winding-up of the affairs of the Company, holders of Common Stock will be
entitled to share ratably in the assets of the Company remaining after provision
for payment of liabilities to creditors and obligations to holders of preferred
stock. Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights and are not liable for further calls or assessments.
Preferred Stock
General
The Company's Board of Directors, without stockholder authorization, is
authorized to issue up to ___ 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 Common Stock.
Currently, 50,000 shares of Exchangeable Preferred Stock are issued and
outstanding. However, after the Offering, Holdings intends to exchange its
outstanding Exchangeable Preferred Stock for the Exchange Debentures. See
"Description of Certain Indebtedness--Description of the Exchange Debentures".
The Company 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.
Terms of Outstanding Preferred Stock
The following is a summary of the terms of the Exchangeable Preferred
Stock.
The Exchangeable Preferred Stock has a liquidation preference of $1,000
per share and ranks senior to all outstanding capital stock of Holdings.
Holdings is required to redeem the Exchangeable Preferred Stock at its
liquidation preference of $1,000 per share, plus accrued and unpaid dividends,
on July 15, 2006.
Dividends on the Exchangeable Preferred Stock are cumulative from the
date of issuance at 13-1/4% per annum on the liquidation preference thereof, and
are payable quarterly in cash or, on or prior to July 15, 2000 at the sole
option of Holdings, in additional shares of Exchangeable Preferred Stock, on
January 15, April 15, July 15 and October 15, commencing October 15, 1996. The
Exchangeable Preferred Stock is generally exchangeable into Exchange Debentures
at any time at the option of Holdings, in whole but not in part. If by July 22,
1997 the Exchangeable Preferred Stock has not been exchanged for the Exchange
Debentures, the dividend rate on the Exchangeable Preferred Stock will increase
by 0.5% per annum to 13-3/4% per annum of the liquidation preference thereof
until such exchange occurs. The Company currently plans to exchange the
Exchangeable Preferred Stock for the Exchange Debentures after completion of the
Offering. For a summary of the terms of the Exchange Debentures, see
"Description of Certain Indebtedness--Description of the Exchange Debentures".
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<PAGE>
On or after July 15, 2000, the Exchangeable Preferred Stock is
redeemable, at the option of Holdings, in whole or in part, at the rate of
109.938% (declining ratably to 100% by July 15, 2003) of the liquidation
preference thereof, plus accrued and unpaid dividends to the redemption date. In
addition, at any time, or from time to time, on or prior to July 15, 2000,
Holdings may, at its option, redeem all (but not less than all) of the
outstanding shares of Exchangeable Preferred Stock at a redemption price equal
to 110% of the liquidation preference thereof, plus accrued and unpaid dividends
to the redemption date, with the proceeds of one or more sales of common stock
of Holdings. Upon a Change of Control (as defined in the Certificate of
Designation), Holdings is required to make an offer to purchase all shares of
Exchangeable Preferred Stock at a purchase price equal to 101% of their
liquidation preference, plus accrued and unpaid dividends to the date of
purchase.
Holders of the Exchangeable Preferred Stock have no voting rights
except as provided by law and as provided in the Certificate of Incorporation or
in the Certificate of Designation relating to the Exchangeable Preferred Stock
(the "Certificate of Designation"). In the event that dividends are not paid for
four consecutive quarters or upon certain other events as described in the
Certificate of Designation (including failure to comply with covenants under the
Certificate of Designation and failure to pay the mandatory redemption price on
the Exchangeable Preferred Stock when due), then the number of directors
constituting Holdings' Board of Directors will be adjusted to permit the holders
of the majority of the then outstanding Exchangeable Preferred Stock, voting
separately as a class, to elect the number of directors that is equal to the
greater of (i) one and (ii) the whole number obtained (rounding down to the
nearest whole number) by (a) multiplying 1/6 by the number of directors then in
office and (b) adding one.
The Certificate of Designation contains certain covenants which, among
other things, restricts the ability of Holdings and its subsidiaries to incur
additional indebtedness and issue preferred stock; pay dividends or make
distributions in respect of their capital stock; purchase, redeem or otherwise
acquire for value shares of capital stock; make investments in any affiliate or
unrestricted subsidiary; enter into transactions with shareholders or
affiliates; create restrictions on the ability of Holdings' subsidiaries to make
certain payments; issue or sell stock of Holdings' subsidiaries; engage in sales
of assets; and engage in mergers or consolidations.
Description of the Holdings Stockholders Agreement
Holdings, MSLEF II, BTNY, and Messrs. Silver and Horrigan are parties
to the Stockholders Agreement which provides for certain rights and obligations
among such stockholders and between such stockholders and Holdings. The
operative provisions of the Stockholders Agreement take effect upon the
completion of the Offering. The following is a summary of the material
provisions of the Stockholders Agreement, which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
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 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 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 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 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
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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 Stock then owned by MSLEF
II to the partners of MSLEF II (a "MSLEF Distribution"). Notwithstanding the
foregoing, MSLEF II may pledge its shares of Holdings' Common Stock to a lender
or lenders reasonably acceptable to Holdings to secure a loan or loans to MSLEF
II. In the event of any proposed foreclosure of such pledge, such shares will be
subject to certain rights of first refusal of the Group set forth in the
Stockholders Agreement.
The Stockholders Agreement provides that until December 21, 1998, for
so long as MSLEF II and its affiliates (excluding the limited partners of MSLEF
II who may acquire shares of Holdings' Common Stock from MSLEF II in a MSLEF
Distribution) shall hold at least one-half of the number of shares of Holdings'
Common Stock held by MSLEF II on the date of the Prospectus, the parties and
their Restricted Voting Transferees (as defined in the Stockholders Agreement)
shall use their best efforts (including to vote any shares of Holdings' Common
Stock owned or controlled by such person or otherwise) 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 (i) 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, until December 21, 1998, for so long as the Group shall
hold at least one-half of the number of shares of Holdings' Common Stock held by
it in the aggregate on the date of the Prospectus, the parties and their
Restricted Voting Transferees shall use their best efforts (including to vote
any shares of Holdings' Common Stock owned or controlled by such person or
otherwise) to cause the nomination and election of two individuals nominated by
the "holders of a majority of the shares of Common Stock held by the Group" (as
such phrase is defined in the Stockholders Agreement) 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, shall be a person reasonably acceptable to MSLEF II, so long as
MSLEF II and its affiliates (other than any affiliate which is not an Investment
Entity and excluding the limited partners of MSLEF II who may acquire shares of
Holdings' Common Stock from MSLEF II in a MSLEF Distribution) shall hold at
least one-half of the number of shares of Holdings' Common Stock held by MSLEF
II at the date of the Prospectus.
The Stockholders Agreement further provides that until December 21,
1998, MSLEF II and its Restricted Voting Transferees shall vote all shares of
Holdings' Common Stock held by them against any unsolicited merger, or sale of
Holdings' business or its assets, if such transaction is opposed by the
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holders of a majority of the shares of 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 the Prospectus.
The foregoing provisions of the 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
Common Stock in any proposed acquisition of the Company.
Section 203 of the Delaware General Corporation Law
Section 203 ("Section 203") of the General Corporation Law of the State
of Delaware (the "DGCL") provides, in general, that a stockholder acquiring more
than 15% of the outstanding voting stock of a corporation subject to Section 203
(an "Interested Stockholder") but less than 85% of such stock may not engage in
certain Business Combinations (as defined in Section 203) with the corporation
for a period of three years subsequent to the date on which the stockholder
became an Interested Stockholder unless (i) prior to such date the corporation's
board of directors approved either the Business Combination or the transaction
in which the stockholder became an Interested Stockholder or (ii) the Business
Combination is approved by the corporation's board of directors and authorized
by a vote of at least 66-2/3% of the outstanding voting stock of the corporation
not owned by the Interested Stockholder. The Certificate of Incorporation does
not presently exclude the Company from the restrictions imposed by Section 203.
Limitations on Directors' Liability
The Certificate of Incorporation contains a provision which eliminates
the personal liability of a director to Holdings and its stockholders for
certain breaches of his or her fiduciary duty of care as a director. This
provision does not, however, eliminate or limit the personal liability of a
director (i) for any breach of such director's duty of loyalty to Holdings or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Delaware
statutory provisions making directors personally liable, under a negligence
standard, for unlawful dividends or unlawful stock repurchases or redemptions,
or (iv) for any transaction from which the director derived an improper personal
benefit. This provision offers persons who serve on the Board of Directors of
Holdings protection against awards of monetary damages resulting from breaches
of their duty of care (except as indicated above), including grossly negligent
business decisions made in connection with takeover proposals for Holdings. As a
result of this provision, the ability of Holdings or a stockholder thereof to
successfully prosecute an action against a director for a breach of his duty of
care has been limited. However, the provision does not affect the availability
of equitable remedies such as an injunction or recision based upon a director's
breach of his duty of care. The Commission has taken the position that the
provision will have no effect on claims arising under the federal securities
laws.
In addition, the Certificate of Incorporation and By-Laws provide
mandatory indemnification rights, subject to limited exceptions, to any person
who was or is party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding by reason of the fact that such
person is or was a director or officer of Holdings, or is or was serving at the
request of Holdings as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
Such indemnification rights include reimbursement for expenses incurred by such
person in advance of the final disposition of such proceeding in accordance with
the applicable provisions of the DGCL.
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Transfer Agent and Registrar
is the transfer agent and registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after consummation of the Offering, Holdings will have
outstanding ___ shares of Common Stock, assuming no exercise of the
over-allotment option granted to the Underwriters. Of these shares, the
___shares of Common Stock sold in the Offering (or ___ shares if the
over-allotment option is exercised in full) will be freely tradeable without
restrictions or further registration under the Securities Act, unless such
shares are purchased by "affiliates" of the Company (as that term is defined
under the Securities Act). The ___ shares of Common Stock owned by the Principal
Common Stockholders and BTNY are "restricted securities" as defined in Rule 144
under the Securities Act, and may not be sold in the absence of registration
under the Securities Act other than pursuant to Rule 144 under the Securities
Act or another exemption from registration under the Securities Act.
In general, under Rule 144, as currently in effect, (i) a person (or
persons whose shares are required to be aggregated) who has beneficially owned
shares of Common Stock as to which at least two years have elapsed since such
shares were sold by Holdings or by an affiliate of Holdings in a transaction or
chain of transactions not involving a public offering ("restricted securities")
or (ii) an affiliate of Holdings who holds shares of Common Stock that are not
restricted securities may, without regard to the holding period, sell, within
any three-month period, a number of such shares that does not exceed the greater
of 1% of Holdings' Common Stock then outstanding (___ shares after completion of
the Offering) or the average weekly trading volume in the Common Stock during
the four calendar weeks preceding the date on which notice of such sale required
under Rule 144 was filed. Sales under Rule 144 are also subject to certain
provisions relating to the manner and notice of sale and availability of current
public information about Holdings. Affiliates of Holdings must comply with the
requirements of Rule 144, including the two-year holding period requirement, to
sell shares of Common Stock that are restricted securities. Furthermore, if a
period of at least three years has elapsed from the date restricted securities
were acquired from Holdings or an affiliate of Holdings, a holder of such
restricted securities who is not an affiliate of Holdings at the time of the
sale and has not been an affiliate of Holdings at any time during the three
months prior to such sale would be entitled to sell such shares without regard
to the volume limitation and other conditions described above.
All shares of Common Stock owned by each of the Principal Common
Stockholders and BTNY will immediately after consummation of the Offering be
eligible (subject to the one year lock-up arrangement described below) for sale
in the public market pursuant to, and in accordance with the volume, manner of
sale and other conditions of, Rule 144 described above. The Stockholders
Agreement provides for restrictions on transfers of Common Stock by the
Principal Common Stockholders other than sales pursuant to Rule 144 or public
offerings. Holdings has granted MSLEF II and Messrs. Silver and Horrigan certain
registration rights with respect to the shares of Common Stock owned by them.
See "Risk Factors--Shares Eligible for Future Sale" and "Description of Capital
Stock--Description of the Holdings Stockholders Agreement".
Holdings and each of the Principal Common Stockholders and BTNY have
agreed that, subject to certain exceptions, they will not offer, sell or
otherwise dispose of any shares of Common Stock, other than in the Offering, or
any security convertible into or exchangeable or exercisable for shares of
Common Stock without the prior written consent of Goldman, Sachs & Co. on behalf
of the Underwriters for a period of one year after the date of this Prospectus.
See "Underwriting".
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Holdings intends to register under the Securities Act the shares of
Common Stock issuable upon the exercise of options granted pursuant to the Stock
Option Plan. See "Management--Executive Compensation".
Prior to the Offering, there has been no public market for the Common
Stock. Sales of substantial amounts of Common Stock or the availability of such
shares for sale could adversely affect prevailing market prices of the Common
Stock and the ability of the Company to issue additional equity securities. See
"Risk Factors--Shares Eligible for Future Sale".
DESCRIPTION OF CERTAIN INDEBTEDNESS
Description of the Silgan Credit Agreement
Pursuant to the Silgan Credit Agreement, the Banks loaned to Silgan (i)
$225 million of term loans designated as "A Term Loans" and (ii) $350 million of
term loans designated as "B Term Loans" (together with the A Term Loans, the
"Term Loans"), and agreed to lend to Containers or Plastics up to an aggregate
of $225 million of revolving loans (the "Revolving Loans"). As of August 31,
1996, the outstanding principal amounts of A Term Loans, B Term Loans and
Revolving Loans under the Silgan Credit Agreement were $219.5 million, $347.3
million and $143.1 million, respectively. The A Term Loans mature on December
31, 2000 and are payable in varying increasing installments from December 31,
1996 through December 31, 2000. The B Term Loans mature on March 15, 2002 and
are payable in varying installments from December 31, 1996 through March 15,
2002. The Revolving Loans mature and are payable in full on December 31, 2000.
To secure the obligations of Silgan, Containers and Plastics (the
"Borrowers") under the Silgan Credit Agreement: (i) Silgan pledged to the Banks
all of the capital stock of Containers and Plastics held by Silgan; (ii)
Plastics pledged to the Banks 65% of the capital stock of 827599 Ontario Inc.
("Canadian Holdco") held by Plastics; (iii) Containers pledged to the Banks all
of the capital stock of SCCW Can Corporation ("SCCW Can"), a California
corporation and a wholly owned subsidiary of Containers, held by Containers;
(iv) Containers pledged to the Banks all of the capital stock of
California-Washington Can Corporation ("C-W Can"), a California corporation and
a wholly owned subsidiary of Containers, held by Containers; (iv) Silgan,
Containers, Plastics, C-W Can and SCCW Can each granted to the Banks security
interests in substantially all of their respective real and personal property;
and (v) Holdings pledged to the Banks all of the capital stock of Silgan held by
Holdings. In addition, each of Holdings, Silgan, Containers, Plastics, C-W Can
and SCCW Can have guaranteed the obligations of the Borrowers under the Silgan
Credit Agreement.
Each of the Term Loans and each of the Revolving Loans, at the
respective Borrower's election, consists of loans designated as Eurodollar rate
loans or as Base Rate (as defined in the Silgan Credit Agreement) loans. Subject
to certain conditions, each of the Term Loans and each of the Revolving Loans
can be converted from a Base Rate loan into a Eurodollar rate loan and vice
versa. Interest on Term Loans maintained as Base Rate loans accrues at floating
rates of 1.5% less the then applicable Interest Reduction Discount (as defined
in the Silgan Credit Agreement) (in the case of A Term Loans) and 2% (in the
case of B Term Loans) over the Base Rate. Interest on Term Loans maintained as
Eurodollar rate loans accrues at floating rates of 2.5% less the then applicable
Interest Reduction Discount (in the case of A Term Loans) and 3% (in the case of
B Term Loans) over a formula rate (the "Eurodollar Rate") determined with
reference to the rate offered by Bankers Trust for dollar deposits in the New
York interbank Eurodollar market. Interest on Revolving Loans maintained as (i)
Base Rate loans accrues at floating rates of 1.5%, less the then applicable
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Interest Reduction Discount, plus the Base Rate or (ii) Eurodollar Rate loans
accrues at floating rates of 2.5%, less the then applicable Interest Reduction
Discount, plus the Eurodollar Rate.
Under the Silgan Credit Agreement, Silgan is required to repay the
Terms Loans in an amount equal to (i) 50% of Silgan's Excess Cash Flow (as
defined in the Silgan Credit Agreement) in any fiscal year during the Silgan
Credit Agreement, (ii) 80% of the net sale proceeds received from certain asset
sales (increasing to 100% of such net sale proceeds under certain circumstances
as described in the Silgan Credit Agreement), and (iii) 100% of the net equity
proceeds received from certain sales of equity (subject to certain exceptions
permitting the use of such proceeds to repay certain indebtedness (including the
Discount Debentures), decreasing to 50% of net equity proceeds received after
the occurrence of certain events as described in the Silgan Credit Agreement.
The financial covenants contained in the Silgan Credit Agreement
include the requirement to maintain a ratio of Consolidated Current Assets to
Consolidated Current Liabilities (each as defined in the Silgan Credit
Agreement), a ratio of EBITDA to Interest Expense (each as defined in the Silgan
Credit Agreement) which becomes more restrictive over time and a Leverage Ratio
(as defined in the Silgan Credit Agreement) which also becomes more restrictive
over time.
The Silgan Credit Agreement restricts or limits each of the Borrowers'
and their respective subsidiaries' abilities, among other things: (i) to create
certain liens; (ii) to consolidate, merge or sell its assets and, subject to
certain exceptions, to purchase assets; (iii) to pay dividends on, or repurchase
shares of, its capital stock, except for, among other things, dividends in
amounts to allow Holdings to pay cash dividends on the Exchangeable Preferred
Stock (or interest on the Exchange Debentures) as provided in the Silgan Credit
Agreement and dividends from Containers and Plastics to Silgan as long as they
remain wholly owned subsidiaries of Silgan; (iv) to lease real and personal
property; (v) to create additional indebtedness, except for, among other things,
unsecured subordinated indebtedness of Silgan used to refinance 11-3/4% Notes;
(vi) to make certain advances, investments and loans, except for, among other
things, certain limited acquisitions and investments as provided in the Silgan
Credit Agreement; (vii) to enter into transactions with affiliates; (viii) to
make certain capital expenditures, except for, among other things, capital
expenditures which do not exceed in the aggregate for the Borrowers $65 million
(plus amounts permitted and not utilized in the prior year) for each calendar
year; (ix) except as otherwise permitted under the Silgan Credit Agreement, to
make any voluntary payments, prepayments, acquire for value, redeem or exchange,
among other things, any 11-3/4% Notes, any of the Exchangeable Preferred Stock
or Exchange Debentures or to make certain amendments to the 11-3/4% Notes, the
Borrowers' or their respective subsidiaries' respective certificates of
incorporation and by-laws, or to certain other agreements; (x) with certain
exceptions, to have any additional subsidiaries; and (xi) to engage in any
business other than the packaging business.
The Silgan Credit Agreement requires that Silgan own not less than 90%
of the outstanding common stock of Containers and Plastics and 100% of all other
outstanding capital stock of Containers and Plastics.
The ability of Holdings to take certain actions is restricted or
limited pursuant to the terms of the Second Amended and Restated Holdings
Guaranty dated as of August 1, 1995 made by Holdings (the "Holdings Guaranty").
The Holdings Guaranty restricts or limits Holdings' ability to, among other
things: (i) create certain liens, (ii) incur additional indebtedness, except
that, among other things, Holdings may exchange the Exchangeable Preferred Stock
for the Exchange Debentures on or after the earlier of the third anniversary of
the issuance of the Exchangeable Preferred Stock or the consummation by Holdings
of a registered public offering of its common stock in an amount equal to or
greater than the principal amount of the Exchange Debentures and Holdings may
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incur unsecured subordinated Indebtedness (as defined in the Silgan Credit
Agreement) the proceeds of which are used to refinance, redeem or repay the
Exchange Debentures or any Refinancing Indebtedness (as defined in the Silgan
Credit Agreement) of Holdings, (iii) consolidate, merge or sell its assets and
purchase or lease assets, except that Holdings may merge with Silgan to the
extent that such merger is permitted under the Silgan Credit Agreement, (iv) pay
cash dividends, except that, among other things, Holdings may pay cash dividends
on the Exchangeable Preferred Stock to the extent that Silgan is permitted to
pay cash dividends or make advances to Holdings under the Silgan Credit
Agreement for such purpose and dividends to the holders of its common stock in
amounts and at the times as provided in the Silgan Credit Agreement after the
consummation of a registered public equity offering by Holdings, (v) repurchase
any of its capital stock, (vi) make loans or advances, except that, among other
things, Holdings may make advances to Silgan as permitted under the Silgan
Credit Agreement, and (vii) engage in any business other than holding Silgan's
common stock and certain other limited matters permitted by the Holding
Guaranty.
Events of default under the Silgan Credit Agreement include, with
respect to each of the Borrowers, as the case may be, among others: (i) the
failure to pay any principal on the Term Loans or the Revolving Loans, the
failure to reimburse drawings under any letters of credit when due or the
failure to pay within two business days after the date such payment is due
interest on the Term Loans, the Revolving Loans or any unpaid drawings under any
letter of credit or any fees or other amounts owing under the Silgan Credit
Agreement; (ii) subject to certain limited exceptions, any failure to pay
amounts due under certain other agreements or any defaults that result in or
permit the acceleration of certain other indebtedness; (iii) subject to certain
limited exceptions, the breach of any covenants, representations or warranties
contained in the Silgan Credit Agreement or any related document; (iv) certain
events of bankruptcy, insolvency or dissolution; (v) the occurrence of certain
judgments, writs of attachment or similar process against any of the Borrowers
or any of their respective subsidiaries; (vi) the occurrence of certain Employee
Retirement Income Security Act related liabilities; (vii) a default under or
invalidity of the guarantees (including an event of default under the Holdings
Guaranty) or of the security interests granted to the Banks pursuant to the
Silgan Credit Agreement; (viii) the failure of Holdings to own 100% of the
capital stock of Silgan; (ix) a Change of Control (as defined in the Silgan
Credit Agreement) shall occur; and (x) the requirement that Silgan repurchase
any 11-3/4% Note or that Holdings repurchase any Exchange Debenture, in any case
as a result of a Change of Control (as defined in the agreements and indentures
relating thereto).
Description of the 11-3/4% Notes
Silgan sold the 11-3/4% Notes ($135 million principal amount) in a
public offering on June 29, 1992. The 11-3/4% Notes bear interest at a rate of
11-3/4% per annum. The 11-3/4% Notes are redeemable at any time on and after
June 15, 1997 at the option of Silgan, in whole or in part, at 105.875% of their
principal amount plus accrued interest, declining to 100% of their principal
amount plus accrued interest on or after June 15, 1999. In the event of a Change
of Control (as defined in the 11-3/4% Notes Indenture), each holder of the
11-3/4% Notes may require Silgan to repurchase its 11-3/4% Notes at 101% of the
principal amount plus accrued interest. The 11-3/4% Notes Indenture contains
certain covenants that, among other things, direct the application of the
proceeds from certain asset sales, limit the ability of Silgan and its
subsidiaries to incur indebtedness, make certain payments with respect to their
capital stock, make prepayments of certain indebtedness, make loans or
investments to entities other than Restricted Subsidiaries (as defined in the
11-3/4% Notes Indenture), enter into transactions with affiliates, engage in
mergers or consolidations, and, with respect to Silgan's subsidiaries, issue
stock. Generally, these covenants are no more restrictive than the covenants
contained in the Silgan Credit Agreement.
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Description of the Exchange Debentures
Upon completion of the Offering and the redemption of the remaining
Discount Debentures (which is expected to occur no later than 45 days after the
completion of the Offering), Holdings intends to exchange all of the outstanding
Exchangeable Preferred Stock for Exchange Debentures. As a result, Holdings will
realize tax benefits resulting from the deductibility of interest paid on the
Exchange Debentures. The aggregate principal amount of the Exchange Debentures
will be equal to the aggregate liquidation preference of, and accrued but unpaid
dividends on, the Exchangeable Preferred Stock outstanding on the date that the
Exchangeable Preferred Stock is exchanged for the Exchange Debentures (the
"Exchange Date"). The Exchange Debentures will mature on July 15, 2006. Each
Exchange Debenture will bear interest at the dividend rate in effect with
respect to the Exchangeable Preferred Stock on the date the Exchange Debentures
are issued from the Exchange Date or from the most recent interest payment date
to which interest has been paid or provided for. Interest will be payable on
January 15 and July 15 of each year, commencing with the first of such dates to
occur after the Exchange Date. On or prior to July 15, 2000, Holdings will be
permitted to pay interest on the Exchange Debentures by issuing additional
Exchange Debentures.
On or after July 15, 2000, the Exchange Debentures will be redeemable,
at the option of Holdings, in whole or in part, at the rate of 109.938% of the
principal amount thereof plus accrued interest, declining ratably to 100% by
July 15, 2003. In addition, at any time, or from time to time, on or prior to
July 15, 2000, Holdings will be able, at its option, to redeem all (but not less
than all) outstanding Exchange Debentures at a redemption price equal to 110% of
the principal amount thereof plus accrued interest, with the proceeds of one or
more sales of common stock of Holdings. Upon a Change of Control (as defined in
the Indenture with respect to the Exchange Debentures (the "Exchange Debenture
Indenture")), Holdings will be required to make an offer to purchase all of the
Exchange Debentures at a purchase price equal to 101% of their principal amount
on the date of purchase, plus accrued and unpaid interest to the date of
purchase.
The Exchange Debenture Indenture will contain certain covenants that,
among other things, will direct the application of the proceeds from certain
asset sales, limit the ability of Holdings and its subsidiaries to incur
indebtedness, make certain payments with respect to their capital stock, make
prepayments of certain indebtedness, make loans or investments to entities other
than Restricted Subsidiaries (as such term will be defined in the Exchange
Debenture Indenture), enter into transactions with affiliates, engage in mergers
or consolidations, and, with respect to Holdings' subsidiaries, issue stock.
Generally, these covenants will be no more restrictive than the covenants
contained in the Silgan Credit Agreement.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for
Holdings by Winthrop, Stimson, Putnam & Roberts, Financial Centre, 695 East Main
Street, Stamford, Connecticut 06904-6760. G. William Sisley, a partner in
Winthrop, Stimson, Putnam & Roberts, is Secretary of Holdings and Silgan.
Winthrop, Stimson from time to time represents certain of the Underwriters in
connection with certain legal matters unrelated to its representation of
Holdings. Certain legal matters are being passed upon for the Underwriters by
Shearman & Sterling, New York, New York. Shearman & Sterling has performed, and
will continue to perform, legal services for MSLEF II, Morgan Stanley and
companies controlled by MSLEF II and Morgan Stanley.
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EXPERTS
The consolidated financial statements of Silgan Holdings Inc. at
December 31, 1995 and 1994, and for each of the three years in the period ended
December 31, 1995 appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein and in the Registration Statement, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The financial statements of American National Can Company's Food Metal
& Specialty Division as of December 31, 1994 and 1993, and for each of the three
years in the period ended December 31, 1994, incorporated by reference in this
Prospectus and Registration Statement have been so incorporated in reliance on
the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors ........................................ F-2
Consolidated Balance Sheets at December 31, 1995 and 1994 ............. F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 ............................. F-4
Consolidated Statements of Deficiency in Stockholders' Equity
for the years ended December 31, 1995, 1994 and 1993 ......... F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993 ....................... F-6
Notes to Consolidated Financial Statements ............................ F-8
Condensed Consolidated Balance Sheets (Unaudited) at
June 30, 1996 and 1995 ....................................... F-37
Condensed Consolidated Statements of Operations (Unaudited)
for the six months ended June 30, 1996 and 1995 .............. F-38
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the six months ended June 30, 1996 and 1995 .............. F-39
Notes to Condensed Consolidated Financial Statements (Unaudited) ...... F-40
Unaudited Pro Forma Condensed Statements of Operations for
the six months ended June 30, 1996 and for the year
ended December 31, 1995 ...................................... F-44
Notes to Unaudited Pro Forma Condensed Statements of Operations ....... F-48
F-1
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Silgan Holdings Inc.
We have audited the accompanying consolidated balance sheets of Silgan
Holdings Inc. as of December 31, 1995 and 1994, and the related consolidated
statements of operations, deficiency in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements 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 Holdings Inc. at December 31, 1995 and 1994, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Notes 2 and 12 to the consolidated financial
statements, in 1993 the Company changed its method of accounting for income
taxes, postemployment benefits and postretirement benefits other than pensions.
Ernst & Young LLP
Stamford, Connecticut
March 8, 1996, except for Note 20,
as to which date is ------------, 1996
The foregoing report is in the form that will be signed upon the
recapitalization described in Note 20 to the consolidated financial statements.
/s/ Ernst & Young LLP
Stamford, Connecticut
September 12, 1996
F-2
<PAGE>
SILGAN HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(Dollars in thousands)
1995 1994
---- ----
Assets
Current assets:
Cash and cash equivalents ......................... $ 2,102 $ 2,682
Accounts receivable, less allowances for
doubtful accounts of $4,832 and $1,557 for
1995 and 1994, respectively ...................... 109,929 64,700
Inventories ....................................... 210,471 122,429
Prepaid expenses and other current assets ......... 5,801 8,044
-------- --------
Total current assets .......................... 328,303 197,855
Property, plant and equipment, net ..................... 487,301 251,810
Goodwill, net .......................................... 53,562 30,009
Other assets ........................................... 30,880 24,618
-------- --------
$900,046 $504,292
======== ========
Liabilities and deficiency in stockholders' equity
Current liabilities:
Trade accounts payable ............................ $138,195 $ 36,845
Accrued payroll and related costs ................. 32,805 26,019
Accrued interest payable .......................... 4,358 1,713
Other accrued expenses ............................ 43,457 21,976
Bank working capital loans ........................ 7,100 12,600
Current portion of long-term debt ................. 28,140 21,968
-------- --------
Total current liabilities ..................... 254,055 121,121
Long-term debt ......................................... 750,873 510,763
Deferred income taxes .................................. 6,836 6,836
Other long-term liabilities ............................ 68,086 23,570
Deficiency in stockholders' equity:
Common stock ($0.01 par value per share;
2,167,500 shares authorized, 1,135,000
shares issued and outstanding) .................. 12 12
Additional paid-in capital ........................ 33,606 33,606
Accumulated deficit ............................... (213,422) (191,616)
-------- --------
Total deficiency in stockholders' equity ...... (179,804) (157,998)
-------- --------
$900,046 $504,292
======== ========
See accompanying notes
F-3
<PAGE>
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands except per share data)
1995 1994 1993
---- ---- ----
Net sales .................................. $1,101,905 $861,374 $645,468
Cost of goods sold ......................... 970,491 748,290 571,174
---------- -------- --------
Gross profit .......................... 131,414 113,084 74,294
Selling, general and administrative expenses 46,848 37,997 32,495
Reduction in carrying value of assets ...... 14,745 16,729 --
---------- -------- --------
Income from operations ................ 69,821 58,358 41,799
Interest expense and other related
financing costs ....................... 80,710 65,789 54,265
---------- -------- --------
Loss before income taxes .............. (10,889) (7,431) (12,466)
Income tax provision ....................... 5,100 5,600 1,900
---------- -------- --------
Loss before extraordinary charges and
cumulative effect of changes in
accounting principles ............... (15,989) (13,031) (14,366)
Extraordinary charges relating to early
extinguishment of debt ................ (5,817) -- (1,341)
Cumulative effect of changes in accounting
principles ............................ -- -- (6,276)
---------- -------- --------
Net loss .............................. $ (21,806) $(13,031) $(21,983)
========== ======== ========
Net loss per common share:
Loss before extraordinary charges
and cumulative effect of accounting
changes ............................... (14.09) (11.48) (16.12)
Extraordinary charges (5.12) - (1.51)
Cumulative effect of accounting
changes................................ - - (7.04)
---------- -------- ---------
Net loss............................... (19.21) (11.48) (24.67)
========== ======== ========
See accompanying notes.
F-4
<PAGE>
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS'
EQUITY For the years ended December 31, 1995,
1994 and 1993
(Dollars in thousands)
Total
Additional deficiency in
Common paid-in Accumulated stockholders'
stock capital deficit equity
------ ---------- ----------- -------------
Balance at December 31, 1992 ... $ 9 $18,609 $(156,602) $(137,984)
Issuance of 250,000 shares of
Class B Common Stock ......... 3 14,997 -- 15,000
Net loss ....................... -- -- (21,983) (21,983)
---- ------- --------- ---------
Balance at December 31, 1993 ... 12 33,606 (178,585) (144,967)
Net loss ....................... -- -- (13,031) (13,031)
---- ------- --------- ---------
Balance at December 31, 1994 ... 12 33,606 (191,616) (157,998)
Net loss ....................... -- -- (21,806) (21,806)
---- ------- --------- ---------
Balance at December 31, 1995 ... $ 12 $33,606 $(213,422) $(179,804)
==== ======= ========= =========
See accompanying notes.
F-5
<PAGE>
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net loss ................................ $(21,806) $(13,031) $(21,983)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation ........................ 42,217 35,392 31,607
Amortization ........................ 8,083 7,075 5,488
Accretion of discount on discount
debentures .................... 28,672 27,477 24,167
Reduction in carrying value of assets 14,745 16,729 --
Extraordinary charges relating
to early extinguishment of debt 6,301 -- 1,341
Cumulative effect of changes in
accounting principles ......... -- -- 6,276
Changes in assets and liabilities,
net of effect of acquisitions:
(Increase) decrease in accounts
receivable .................... (1,011) (21,267) 707
Decrease (increase) in inventories 10,852 (16,741) (4,316)
Increase in trade accounts payable 43,108 4,478 3,757
Working capital provided by AN Can
since acquisition date ........ 85,213 -- --
Other, net (decrease) increase .... (6,745) 7,221 1,091
-------- -------- --------
Total adjustments .......................... 231,435 60,364 70,118
-------- -------- --------
Net cash provided by operating
activities ........................... 209,629 47,333 48,135
-------- -------- --------
Cash flows from investing activities:
Acquisition of ANC's Food Metal &
Specialty business ................ (348,762) -- --
Acquisition of Del Monte Can
manufacturing assets .............. -- 519 (73,865)
Capital expenditures .................. (51,897) (29,184) (42,480)
Proceeds from sale of assets .......... 3,541 765 262
-------- -------- --------
Net cash used in investing activities ... $(397,118) $(27,900) $(116,083)
--------- -------- ---------
Continued on following page.
F-6
<PAGE>
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
1995 1994 1993
---- ---- ----
Cash flows from financing activities:
Borrowings under working capital loans .. $669,260 $393,250 $328,050
Repayments under working capital loans .. (674,760) (382,850) (366,250)
Proceeds from issuance of long-term debt. 450,000 -- 140,000
Proceeds from issuance of common stock .. -- -- 15,000
Repayments of long-term debt ............ (234,506) (20,464) (42,580)
Debt financing costs .................... (19,290) -- (8,935)
Payments to former shareholders of
Silgan ................................ (3,795) (6,911) --
-------- -------- --------
Net cash provided (used) by financing
activities ............................ 186,909 (16,975) 65,285
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents ............................. (580) 2,458 (2,663)
Cash and cash equivalents at beginning
of year ................................. 2,682 224 2,887
-------- -------- --------
Cash and cash equivalents at end of year ... $ 2,102 $ 2,682 $ 224
======== ======== ========
Supplementary data:
Interest paid ......................... $ 45,293 $ 30,718 $ 25,733
Income taxes paid, net of refunds ..... 8,967 2,588 722
See accompanying notes.
F-7
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1. Basis of Presentation
Silgan Holdings Inc. ("Holdings", together with its wholly-owned subsidiary, the
"Company") 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."). Holdings owns all of the outstanding common
stock of Silgan Corporation ("Silgan"). Since 1993, Silgan has made two
significant acquisitions. Silgan acquired the U. S. metal container
manufacturing business of Del Monte Corporation ("Del Monte") in 1993 and it
acquired the Food Metal and Specialty business from American National Can
Company ("ANC") in 1995. Both acquisitions were accounted for using the purchase
method of accounting (see Note 3 - Acquisitions).
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 and also manufactures custom
designed plastic containers used for health and personal care products.
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.
Certain reclassifications have been made to prior year's financial statements to
conform with current year presentation.
F-8
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
2. Summary of Significant Accounting Policies (continued)
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 $30.0 million at December 31, 1995
and $5.4 million at December 31, 1994 are included in trade accounts payable.
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.
F-9
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
2. Summary of Significant Accounting Policies (continued)
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.
Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 109, "Accounting for Income Taxes". Under SFAS No. 109,
the liability method is used to calculate deferred 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. The Company had
previously reported under SFAS No. 96, "Accounting for Income Taxes". There was
no effect for the difference in methods at the date of adoption.
Postemployment Benefits
During 1993, the Company adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits". SFAS No. 112 requires accrual accounting for employee
benefits that are paid between the termination of active employment but prior to
retirement. Such benefits include salary continuation, disability, severance,
and health care. The cumulative effect as of January 1, 1993 of this accounting
change was to decrease net income by $1.3 million. There was no tax effect for
this charge due to the net operating loss position of the Company.
Fair Values of Financial Instruments
The carrying amounts for cash, accounts receivable, accounts payable, and other
accrued liabilities are reflected in the financial statements and reasonably
approximate fair value due to the short maturity of these items. The carrying
value for short and long-term debt also approximates fair value but may vary due
to changing market conditions. Methods and assumptions used to estimate fair
value and the fair value of the Company's debt instruments are disclosed in Note
9.
F-10
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
2. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect 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.
Per Share Data
Per share data is based upon the weighted average number of common and common
equivalent shares outstanding for all periods presented.
3. Acquisitions
During the three years ended December 31, 1995, the Company made two
acquisitions, as discussed below. Both were accounted for using the purchase
method of accounting and the results of operations have been included with the
Company's results from the respective acquisition dates. The excess of the
purchase price over the fair value of net assets acquired was allocated to
goodwill.
Fiscal year 1995 acquisition
On August 1, 1995, Containers acquired from 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
purchase price for the assets acquired and the assumption of certain specified
liabilities, including related transaction costs, was $364.0 million (including
$15.2 million for the operations of ANC's St. Louis, MO facility which the
Company intends to purchase by mid-1996 upon completion of a rationalization
project undertaken at that location).
F-11
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
3. Acquisitions (continued)
Fiscal year 1995 acquisition (continued)
The purchase price was allocated to the tangible and identifiable assets
acquired and liabilities assumed based upon their estimated fair values as
determined from preliminary appraisals and valuations which management believes
are reasonable. The purchase price allocation will be finalized within one year
of the acquisition date. Differences between actual and preliminary valuations
will cause adjustments to the AN Can purchase price allocation as shown below.
Estimated items subject to change include employee benefit costs and termination
costs associated with plant rationalization and administrative workforce
reductions and other plant exit costs. The aggregate purchase price and its
preliminary allocation to the assets and liabilities is as follows for AN Can
(dollars in thousands):
Net working capital acquired $155,967
Property, plant and equipment 240,079
Goodwill .................... 24,832
Other liabilities assumed ... (56,916)
--------
$363,962
========
Set forth below are the Company's summary unaudited pro forma results of
operations for the years ended December 31, 1995 and 1994. The pro forma results
include the historical results of the Company and AN Can and reflect the effect
of purchase accounting adjustments based on preliminary appraisals and
valuations, the financing of the acquisition, the refinancing of the Company's
debt obligations, and certain other adjustments as if these events occurred as
of the beginning of the periods presented. The pro forma data 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 1994, or to project the
Company's results of operations for any future period.
1995 1994
---- ----
(Dollars in thousands)
Net sales ....................... $1,404,382 $1,457,968
Income from operations .......... 97,415(1) 62,893(2)
Income (loss) before income taxes 8,730 (26,629)
Net income (loss) ............... 1,530 (29,329)
Net income (loss) per share...... $ 1.32 $ (25.84)
============ ============
F-12
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
3. Acquisitions (continued)
Fiscal year 1995 acquisition (continued)
(1) Included in pro forma income from operations for the year ended December
31, 1995 is a charge incurred by the Company 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.
(2) Included in pro forma income from operations for the year ended December
31, 1994 are charges incurred by AN Can of $10.1 million for shut down
costs necessary to realign the assets of the business more closely with
the existing customer base, $16.7 million related to Silgan and $7.1
million related to AN Can to adjust the carrying value of certain
technologically obsolete and inoperable equipment to realizable value,
and $26.7 million for the write-down of goodwill by AN Can.
Fiscal year 1993 acquisition
On December 21, 1993, Containers acquired from Del Monte substantially all of
the fixed assets and certain working capital of Del Monte's container
manufacturing business in the United States ("DM Can"). The final purchase price
for the assets acquired and the assumption of certain specified liabilities,
including related transaction costs, was $73.3 million. The detail of the assets
acquired is as follows (dollars in thousands):
Net working capital ......... $21,944
Property, plant and equipment 47,167
Goodwill .................... 13,729
Other liabilities assumed ... (9,494)
-------
$73,346
=======
F-13
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
4. Inventories
The components of inventories at December 31, 1995 and 1994 consist of the
following:
1995 1994
---- ----
(Dollars in thousands)
Raw materials ..................... $ 46,027 $ 38,575
Work-in-process ................... 24,869 19,045
Finished goods .................... 135,590 63,409
Spare parts and other ............. 6,344 1,621
-------- --------
212,830 122,650
Adjustment to value inventory
at cost on the LIFO method ..... (2,359) (221)
-------- --------
$210,471 $122,429
======== ========
The amount of inventory recorded on the first-in first-out method at December
31, 1995 and 1994 was $14.9 million and $6.5 million, respectively.
5. Property, Plant, and Equipment
Property, plant, and equipment consist of the following:
1995 1994
---- ----
(Dollars in thousands)
Land .............................. $ 6,355 $ 3,707
Buildings and improvements ........ 68,860 51,665
Machinery and equipment ........... 584,526 346,061
Construction in progress .......... 33,764 18,124
-------- --------
693,505 419,557
Accumulated depreciation
and amortization ............... (206,204) (167,747)
-------- --------
Property, plant and equipment, net $487,301 $251,810
======== ========
For the years ended December 31, 1995, 1994, and 1993, depreciation expense was
$42.2 million, $35.4 million, and $31.6 million respectively. The total amount
of repairs and maintenance expense was $26.9 million in 1995, $19.9 million in
1994, and $17.1 million in 1993.
F-14
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
5. Property, Plant, and Equipment (continued)
Effective October 1, 1994, the Company extended the estimated useful lives of
certain fixed assets to more properly reflect the true economic lives of the
assets and to better align the Company's depreciable lives with the predominate
practice in the industry. The change had the effect of decreasing depreciation
expense and increasing net income in 1994 by approximately $1.3 million.
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 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 have 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.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" which is
effective for the 1996 fiscal year. As required by this standard, impairment
losses will be recognized when events or changes in circumstances indicate that
the fair value of identified assets is less than the carrying amount. In making
such a determination, the Company will compare the undiscounted cash flows
generated by specified assets to the carrying value of such assets. The Company
will adopt SFAS No. 121 in 1996 and believes the effect of adoption will not be
material.
6. Goodwill
Goodwill amortization charged to operations was $1.3 million in 1995; $1.2
million in 1994; and $0.5 million in 1993. Accumulated amortization of goodwill
at December 31, 1995, 1994, and 1993 was $5.0 million; $3.7 million; and $2.5
million, respectively.
F-15
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
7. Other Assets
Other assets at December 31, 1995 and 1994 consist of the following:
1995 1994
---- ----
(Dollars in thousands)
Debt issuance costs ...................... $30,148 $25,142
Other .................................... 8,027 8,275
------- -------
38,175 33,417
Less: accumulated amortization .......... (7,295) (8,799)
------- -------
$30,880 $24,618
======= =======
During 1995, as part of the acquisition of AN Can and the related refinancing of
its secured debt facilities and its Discount Debentures, the Company wrote off
$6.3 million of unamortized debt issuance costs and capitalized $19.3 million in
new debt issuance costs. Amortization expense relating to debt issuance for the
years ended December 31, 1995, 1994, and 1993 was $4.9 million, $5.3 million,
and $3.3 million, respectively.
8. Short-Term Borrowings and Long-Term Debt
The Company has a working capital revolving credit facility which it uses to
finance its seasonal liquidity needs. As of December 31, 1995 and 1994, the
Company had $7.1 million and $12.6 million of working capital loans outstanding,
respectively.
Long-term debt consists of the following:
1995 1994
---- ----
(Dollars in thousands)
Bank A Term Loans ........................ $220,000 $ 39,845
Bank B Term Loans ........................ 222,750 79,691
Senior Secured Floating Rate Notes due
June 30, 1997 ......................... -- 50,000
11 3/4% Senior Subordinated Notes due
June 15, 2002 ......................... 135,000 135,000
13 1/4% Senior Subordinated Debentures due
December 15, 2002 ..................... 201,263 228,195
-------- --------
779,013 532,731
Less: Amounts due within one year ........ 28,140 21,968
-------- --------
$750,873 $510,763
======== ========
F-16
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
8. Short-Term Borrowings and Long-Term Debt (continued)
The aggregate annual maturities of long-term debt at December 31, 1995 are as
follows (dollars in thousands):
1996 .............. $ 28,140
1997 .............. 37,170
1998 .............. 52,138
1999 .............. 52,138
2000 .............. 102,281
2001 and thereafter 507,146
--------
$779,013
========
1995 Bank Credit Agreement
Effective August 1, 1995, Silgan, 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 Senior Secured
Notes and to repurchase up to $75.0 million of its 13 1/4% Senior Discount
Debentures ("Discount Debentures"). In connection with the refinancing of the
Credit Agreement, the Company incurred a charge of $5.8 million (net of taxes of
$2.6 million) in 1995 for the early extinguishment of amounts owed under
existing secured debt facilities and for the repurchase of a portion of its
Discount Debentures.
The Credit Agreement provided the Company with (i) $225.0 million of A Term
Loans, (ii) $225.0 million of B Term Loans, and (iii) a working capital
revolving credit facility of up to $225.0 million ("Working Capital Loans"). The
Company used proceeds from the Credit Agreement to repay $117.1 million of term
loans under the previous bank credit agreement, repay in full $50.0 million of
its Senior Secured Notes due 1997, acquire AN Can for $348.8 million (excluding
$15.2 million for the St. Louis operations which the Company expects to purchase
by mid-1996), repurchase $57.6 million of its Discount Debentures, and incur
debt issuance costs of $19.3 million. The Company is currently permitted under
the debt facilities to make additional repurchases of its Discount Debentures
prior to June 30, 1996.
F-17
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
8. Short-Term Borrowings and Long-Term Debt (continued)
1995 Bank Credit Agreement (continued)
The A Term Loans mature on December 31, 2000, and the B Term Loans mature on
March 15, 2002. During 1995, principal repayments of $5.0 million were made on
the A Term Loans and $2.3 million on the B Term Loans. Principal is to be repaid
on each term loan in installments in accordance with the Credit Agreement until
maturity.
As defined 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 pre-pay 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 $225.0 million for working capital needs. The commitment
under the Credit Agreement for Working Capital Loans was initially $150.0
million. This initial commitment will increase at the time and by the amount the
Company repurchases its Discount Debentures (up to a maximum commitment of
$225.0 million). As of December 31, 1995, Holdings had repurchased $57.6 million
of Discount Debentures, thereby increasing the commitment under the revolving
credit facility to $207.6 million. After taking into account outstanding letters
of credit of $6.6 million and Working Capital Loans of $7.1 million, the
borrowings available under the revolving credit facility were $193.9 million at
December 31, 1995. In addition to borrowings of Working Capital Loans, the
Company may utilize up to a maximum of $20.0 million in letters of credit as
long as the aggregate amount of borrowings and letters of credit do not exceed
the amount of the commitment. 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.
F-18
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
8. Short-Term Borrowings and Long-Term Debt (continued)
1995 Bank Credit Agreement (continued)
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 1.50%, in the case of A Term Loans and Working
Capital Loans; and 2.0%, in the case of B Term Loans. Eurodollar Rate borrowings
bear interest at the Eurodollar Rate plus 2.50% in the case of A Term Loans and
Working Capital Loans; and 3.0%, in the case of B Term Loans. At December 31,
1995, the interest rate for Base Rate borrowings was 10.0% and the interest rate
for Eurodollar Rate borrowings ranged between 8.1875% and 8.9375%.
For 1995, 1994 and 1993, respectively, the average amount of borrowings of
Working Capital Loans was $67.6 million, $14.4 million and $51.9 million; the
average annual interest rate paid on such borrowings was 8.9%, 8.4%, and 6.0%;
and the highest amount of such borrowings at any month-end was $184.0 million,
$43.9 million, and $80.3 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 the Borrowers and secured by a security interest in substantially all of the
real and personal property of the Borrowers. The stock of Silgan 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.
F-19
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
8. Short-Term Borrowings and Long-Term Debt (continued)
1993 Bank Credit Agreement
Effective December 21, 1993, Silgan, Containers, and Plastics entered into a
credit agreement with a group of banks for $140.0 million in term loans and
$70.0 million in working capital loans to finance in part the acquisition of DM
Can and repay $41.6 million of term loans owed under a previous bank credit
agreement. In addition, Holdings issued and sold 250,000 shares of its Class B
Common Stock for $15.0 million and, in turn, contributed such amount to Silgan.
As a result of the early extinguishment of debt, the Company incurred a net
charge of $1.3 million.
According to the terms of this bank credit agreement, 80% of amounts received
from the sale or disposal of assets was to be used to repay term loans. Prior to
the refinancing and repayment of this bank facility, an additional principal
payment of $2.5 million was made early in 1995 from net proceeds received from
asset sales.
Senior Secured Floating Rate Notes
The Company redeemed its Senior Secured Notes on August 30, 1995 for a premium
of $0.1 million.
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, subordinate in
right of payment to obligations of the Company 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.
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%
F-20
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
8. Short-Term Borrowings and Long-Term Debt (continued)
11 3/4% Senior Subordinated Notes (continued)
The 11 3/4% Notes Indenture contains covenants which are comparable to or less
restrictive than those under the terms of the existing Credit Agreement.
13 1/4% Senior Discount Debentures
The 13 1/4% Senior Discount Debentures, which are due on December 15, 2002,
represent unsecured general obligations of Holdings, subordinate in right of
payment to the obligations of Silgan and its subsidiaries. The original issue
discount is being amortized through June 15, 1996 with a yield to maturity of 13
1/4%. During the year ended December 31, 1995, the Company repurchased $61.7
million face amount of its Discount Debentures for $57.6 million, including a
premium of $2.0 million. The carrying amount at December 31, 1995 of the
Discount Debentures represents the face amount less an unamortized discount of
$12.1 million. From and after June 15, 1996, interest on the Discount Debentures
will accrue on the principal amount at the rate of 13 1/4% and be payable in
cash semiannually. The Discount Debentures are redeemable at any time, at the
option of Holdings, in whole or in part, at 100% of their principal amount plus
accrued interest to the redemption date.
The Discount Debentures Indenture contains covenants which are comparable to or
less restrictive than those under the Credit Agreement and the 11 3/4% Notes.
9. Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
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.
F-21
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
9. Fair Value of Financial Instruments (continued)
Letters of Credit: Fair values of the Company's outstanding letters of credit
are based on current contractual amounts outstanding.
The following table presents the carrying amounts and fair values of the
Company's financial instruments recorded at December 31, 1995 and 1994,
respectively:
1995 1994
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(Dollars in thousands)
Working Capital Facility ........ $ 7,100 $ 7,100 $ 12,600 $ 12,600
Current Portion of long-term debt 28,140 28,140 21,968 21,968
Bank A Term Loans ............... 220,000 220,000 39,845 39,845
Bank B Term Loans ............... 222,750 222,750 79,691 79,691
Senior Secured Floating Rate
Notes due June 30, 1997 ...... -- -- 50,000 50,000
11 3/4% Senior Subordinated
Notes due June 15, 2002 ...... 135,000 144,500 135,000 140,400
13 1/4% Senior Subordinated
Debentures due
December 15, 2002 ............ 201,263 205,873 228,195 235,100
The Company has had limited involvement with derivative financial instruments
and does not use them for trading purposes. During 1995 and 1994, the Company
was not party to any interest rate hedge agreements, nor did it use derivative
instruments to hedge commodity or foreign exchange risks.
Subsequent to December 31, 1995, the Company entered into interest rate swap
agreements in order to manage its exposure to interest rate fluctuations. These
agreements effectively convert interest rate exposure from variable rate to a
fixed rate without the exchange of the underlying principal amounts. The Company
has agreed to pay fixed rates of interest ranging from 8.1% to 8.6% on notional
principal amounts totaling $100.0 million which mature in the year 1999. Net
payments or receipts under these agreements will be recorded as adjustments to
interest expense.
F-22
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
9. Fair Value of Financial Instruments (continued)
Concentration of Credit Risk
The Company derives a significant portion of its revenue from multi-year supply
agreements with many of its customers. Revenues from its two largest customers
accounted for approximately 36.0% of sales in 1995 and 47.3% in 1994. The
receivable balances from these customers collectively represented 28.2% and
34.4% of accounts receivable before allowances at December 31, 1995 and 1994,
respectively. 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. 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 (dollars in thousands):
1996 .............. $13,442
1997 .............. 10,768
1998 .............. 7,973
1999 .............. 5,778
2000 .............. 4,928
2001 and thereafter 7,159
-------
$50,048
=======
Rent expense was approximately $10.8 million in 1995; $9.1 million in 1994; and
$8.0 million in 1993.
F-23
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
11. 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.
The following table sets forth the funded status of the Company's retirement
plans as of December 31:
Plans in which Plans in which
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets
--------------- ---------------
1995 1994 1995 1994
---- ---- ---- ----
(Dollars in thousands)
Actuarial present value of
benefit obligations:
Vested benefit obligations .... $12,135 $ 9,182 $31,465 $19,876
Non-vested benefit obligations 547 871 3,158 1,889
------- ------- ------- -------
Accumulated benefit obligations .. 12,682 10,053 34,623 21,765
Additional benefits due to
future salary levels .......... 5,667 5,358 7,132 3,557
------- ------- ------- -------
Projected benefit obligations .... 18,349 15,411 41,755 25,322
Plan assets at fair value ........ 12,988 11,612 23,535 17,249
------- ------- ------- -------
Projected benefit obligation
in excess of plan assets ...... 5,361 3,799 18,220 8,073
Unrecognized actuarial gain (loss) (165) 504 1,237 3,916
Unrecognized prior service costs . (615) (665) (2,128) (2,461)
Additional minimum liability ..... -- -- 1,990 1,677
------- ------- ------- -------
Accrued pension liability
recognized in the balance sheet $ 4,581 $ 3,638 $19,319 $11,205
======= ======= ======= =======
As of the AN Can acquisition date, the Company assumed an accrued pension
liability of $6.8 million related to the active employee population transferred
to the Company from AN Can. Under the terms of the acquisition, ANC retained the
liability for the retired population as of August 1, 1995.
F-24
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
11. Retirement Plans (continued)
For certain pension plans with accumulated benefits in excess of plan assets at
December 31, 1995 and December 31, 1994, the balance sheet reflects an
additional minimum pension liability and related intangible asset of $2.0
million and $1.7 million, respectively,
The components of net periodic pension costs for defined benefit plans are as
follows:
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Service cost .............................. $3,067 $2,947 $1,809
Interest cost ............................. 3,887 3,334 2,144
Actual loss (return) on assets ............ (7,284) 539 (1,784)
Net amortization and deferrals ............ 5,008 (2,698) 317
------ ------ ------
Net periodic pension cost .............. $4,678 $4,122 $2,486
====== ====== ======
During 1995, the Company recognized settlement and curtailment losses of $0.4
million from the termination of participation in certain plans as a result of
plant closings and changes in pension benefit provisions. 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 1995, 1994, and 1993 in the Consolidated Statements of Operations is as
follows:
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Net periodic pension cost ................. $4,678 $4,122 $2,486
Settlement and curtailment losses, net .... 418 -- --
Contributions to multi-employer union plans 2,708 2,700 2,000
------ ------ ------
Total pension costs .................... $7,804 $6,822 $4,486
====== ====== ======
F-25
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
11. Retirement Plans (continued)
The assumptions used in determining the actuarial present value of plan benefit
obligations as of December 31 are as follows:
1995 1994 1993
---- ---- ----
Discount rate .................................. 7.5% 8.5% 7.5%
Weighted average rate of compensation increase . 4.0% 4.5% 4.5%
Expected long-term rate of return on plan assets 8.5% 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 $1.7 million in 1995; $2.5 million in
1994; and $1.5 million in 1993. The decline in defined contributions in 1995 as
compared to 1994 resulted from lower profit-sharing contributions made for
Company employees since target financial objectives were not achieved. This
decrease was partially offset by an increase in the contribution base
attributable to additional employee participation as a result of the acquisition
of AN Can.
12. Postretirement Benefits Other than Pensions
Effective January 1, 1993, the Company changed its method of accounting for
postretirement health care and other insurance benefits to conform to the
provisions of SFAS No. 106 "Employers' Accounting for Post Retirement Benefits
Other Than Pensions", which requires accrual of these benefits over the period
during which active employees become eligible for such benefits. Previously, the
Company recognized the cost of providing such benefits on the pay-as-you-go
basis. The Company elected to immediately recognize a cumulative charge of $5.0
million for this change in accounting principle which represents the accumulated
postretirement benefit obligation existing as of January 1, 1993.
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-26
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
12. 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:
1995 1994
---- ----
(Dollars in thousands)
Accumulated postretirement benefit obligation:
Retirees ...................................... $ 1,587 $ 1,183
Fully eligible active plan participants ....... 11,647 1,521
Other active plan participants ................ 14,770 2,577
-------- -------
Total accumulated postretirement benefit obligation 28,004 5,281
Unrecognized net gain ............................. (2,929) (219)
Unrecognized prior service costs .................. (298) (79)
-------- -------
Accrued postretirement benefit liability .......... $ 24,777 $ 4,983
======== =======
As of the AN Can acquisition date, the Company assumed a postretirement benefit
liability in the amount of $19.6 million for the active population transferred
to the Company from AN Can. Under the terms of the acquisition, ANC retained the
liability for the retired population as of August 1, 1995.
Net periodic postretirement benefit cost include the following components:
1995 1994
---- ----
(Dollars in thousands)
Service cost ...................................... $ 372 $321
Interest cost ..................................... 1,097 412
Net amortization and deferral ..................... 42 (14)
------ ----
Net periodic postretirement benefit cost ........ $1,511 $719
====== ====
The weighted average discount rates used to determine the accumulated
postretirement benefit obligation as of December 31, 1995 and 1994 were 7.5% and
8.5%, respectively. The net periodic postretirement benefit costs were
calculated using a discount rate ranging from 7.5% to 8.5% for 1995 and 8.5% for
1994. The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation ranged from 7.14% to 10.0% in 1995 and was 14%
in 1994, declining to a rate ranging from 5.0% to 6.0% in the year 2003 and
thereafter.
F-27
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
12. Postretirement Benefits Other than Pensions (continued)
A 1% increase in the health care cost trend rate assumption would increase the
accumulated postretirement benefit obligation as of December 31, 1995 by
approximately $3.7 million and increase the aggregate of the service and
interest cost components of the net periodic postretirement benefit cost for
1995 by approximately $0.2 million.
13. Income Taxes
The components of income tax expense are as follows:
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Current
Federal ................ $ 500 $2,500 $ 300
State .................. 1,900 3,200 1,900
Foreign ................ 100 (100) (400)
------ ------ ------
2,500 5,600 1,800
Deferred
Federal ................ -- -- --
State .................. -- -- 100
Foreign ................ -- -- --
------ ------ ------
-- -- 100
------ ------ ------
$2,500 $5,600 $1,900
====== ====== ======
Income tax expense is included in the financial statements as follows:
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Income before extraordinary
charges ................. $5,100 $5,600 $1,900
Extraordinary charges ..... (2,600) -- --
------ ------ ------
$2,500 $5,600 $1,900
====== ====== ======
F-28
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
13. Income Taxes (continued)
The income tax provision varied from that computed by using the U.S. statutory
rate as a result of the following:
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Income tax benefit at the U.S. Federal
income tax rate ................ $(3,811) $(2,601) $(4,363)
State and foreign tax expense net of
Federal income benefit ......... 1,820 2,015 1,235
Amortization of goodwill ........... 471 576 154
Losses with no benefit ............. 6,620 5,610 4,874
------- ------- -------
$ 5,100 $ 5,600 $ 1,900
======= ======= =======
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 are as follows:
1995 1994
---- ----
(Dollars in thousands)
Deferred tax liabilities:
Tax over book depreciation ................ $27,800 $21,900
Book over tax basis of assets acquired .... 41,700 21,400
Other ..................................... 3,900 4,100
------- -------
Total deferred tax liabilities .......... 73,400 47,400
Deferred tax assets:
Book reserves not yet deductible
for tax purposes ........................ 56,300 24,800
Deferred interest on high yield obligations 25,100 21,300
Net operating loss carryforwards .......... 35,600 26,200
Other ..................................... 1,200 4,100
------- -------
Total deferred tax assets ............... 118,200 76,400
Valuation allowance for deferred tax assets 51,636 35,836
------- -------
Net deferred tax assets ................ 66,564 40,564
------- -------
Net deferred tax liabilities ................ $ 6,836 $ 6,836
======= =======
F-29
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
13. Income Taxes (continued)
The Company files a consolidated Federal income tax return. At December 31,
1995, the Company has net operating loss carryforwards of approximately $100.0
million which are available to offset future consolidated taxable income of the
group and expire from 2001 through 2010. The Company had an alternative minimum
tax liability of $0.5 million in 1995 and $1.5 million in 1994. At December 31,
1995, the Company had $3.9 million of alternative minimum tax credits which are
available indefinitely to reduce future tax payments for regular federal income
tax purposes.
14. Acquisition Reserves
In connection with the acquisition of AN Can, the Company plans to improve
operating efficiencies through production and facility consolidation and through
workforce reductions. As part of its preliminary purchase price allocation, the
Company established a reserve for $25.0 million which primarily consists of
$20.5 million for severance and $4.5 million of facility exit costs. The
provision for severance includes employee termination benefits, such as, salary
continuation, pension, and medical. Plant exit costs include planned
expenditures relating to facility shut down, equipment removal, and compliance
with environmental regulations. During the year, $0.9 million of costs were
expended for severance. As of December 31, 1995, $7.1 million remained in other
accrued expenses for costs expected to be paid within one year and $17.0 million
remained in long term liabilities. Management believes that the operating
improvements will not be fully implemented until 1997 and the remaining reserve
balance will be adequate to cover anticipated costs.
15. Stock Option Plans
Holdings, 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, Holdings has reserved 24,000
shares of its Class C Common Stock and 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-30
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
15. 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 in control (as defined), 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 the Plastics plan,
in the event of a public offering or a change in control (as defined), 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 at the then pro
forma book value.
At December 31, 1995, there were outstanding options for 24,000 shares under the
Holdings plan, 936 shares under the Containers plan and 1,200 shares under the
Plastics plan. The exercise prices per share range from $35 to $61 for the
Holdings options, range from $2,122 and $4,933 for the Containers options and
$126 to $943 for the Plastics options. The stock options and SARs generally
become exercisable ratably over a five-year period. At December 31, 1995, there
were 16,800 options exercisable under the Holdings plans, 840 options/SARs
exercisable under the Containers plan and 180 options/SARs exercisable under the
Plastics plan. The Company incurred charges relating to the vesting and payment
of benefits under the stock option plans of $0.8 million in 1995; $1.5 million
in 1994; and $0.2 million in 1993.
In the event of a public offering of any of Holdings' capital stock or a change
in control of Holdings, (i) the options granted by Containers and Plastics
pursuant to the plans and (ii) any stock issued upon exercise of such options
issued by Containers are convertible into either stock options or common stock
of Holdings, as the case may be. The conversion of such options or shares will
be based upon a valuation of Holdings and an allocation of such value among the
subsidiaries after giving affect to, among other things, that portion of the
outstanding indebtedness of Holdings allocable to each such subsidiary.
F-31
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
15. Stock Option Plans (continued)
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", effective for the 1996 fiscal year. Under SFAS No. 123,
compensation expense for all stock-based compensation plans would be recognized
based on the fair value of the options at the date of grant using an option
pricing model. As permitted under SFAS No. 123, the Company may either adopt the
new pronouncement or may continue to follow the current accounting method as
prescribed under APB. Opinion No. 25, "Accounting for Stock Issued to
Employees". The Company does not intend to adopt SFAS No. 123 for expense
recognition purposes in 1996.
16. Deficiency in Stockholders' Equity
Deficiency in stockholders' equity includes the following classes of common
stock ($.01 par value) and preferred stock:
Shares
Shares Issued and Outstanding
Class Authorized December 31, 1995 and 1994
----- ---------- --------------------------
A .............. 500,000 417,500
B .............. 667,500 667,500
C .............. 1,000,000 50,000
--------- ---------
2,167,500 1,135,000
========= =========
Preferred Stock 1,000,000 --
The rights, privileges and powers of the Class A Common Stock and the Class B
Common Stock are identical, with shares of each class being entitled to one vote
on all matters to come before the stockholders of Holdings. The Class C common
stockholders do not have voting rights except in certain circumstances.
F-32
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
17. Related Party Transactions
Pursuant to various management services 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 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
("EBDIT") until EBDIT has reached the Scheduled Amount set forth in the
Management Agreements and 3.3% (of which 0.3% is payable to MS & Co.) after
EBDIT 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. The total amount incurred under the Management Agreements was $5.4
million in 1995, $5.0 million in 1994, and $4.4 million in 1993 and was
allocated, based upon EBDIT, as a charge to operating income of each business
segment. Included in accounts payable at December 31, 1995 and 1994, 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 refinancings and bank credit agreements entered into
during 1995 and 1993, the banks thereunder (including Bankers Trust Company)
received fees totaling $17.2 million in 1995 and $8.1 million in 1993.
18. 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 the Company has
tendered payment of $3.8 million to these former holders. In 1994, prior to the
trial for appraisal, the Company 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 the Company made a payment of $6.9 million, including interest, in
respect of the settlement.
F-33
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
18. Litigation (continued)
With respect to a complaint filed by limited partners of The Morgan Stanley
Leveraged Equity Fund, L.P. against a number of defendants, including Silgan and
Holdings, all claims against Silgan and Holdings related to this action were
dismissed on January 14, 1993. The plaintiff's time to appeal the dismissal of
the claims against Holdings and Silgan expired following the dismissal of the
claims against certain other defendants in June 1995.
Other than the actions mentioned above, 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-34
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
19. 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 (in millions):
Net Oper. Identifiable Dep.& Capital
Sales Profit Assets Amort. Expend.
----- ------ ------ ------ -------
1995
Metal container
& specialty(1) ......... $ 882.3 $72.9(2) $736.7 $31.6 $32.5
Plastic container ........ 219.6 13.2 159.4 13.8 19.4
-------- ----- ------ ----- -----
Consolidated ........... $1,101.9 $86.1 $896.1 $45.4 $51.9
======== ===== ====== ===== =====
1994
Metal container
& specialty(1) ......... $ 657.1 $67.0(3) $335.3 $23.1 $16.9
Plastic container ........ 204.3 9.4(3) 162.8 14.1 12.3
-------- ----- ------ ----- -----
Consolidated ........... $ 861.4 $76.4 $498.1 $37.2 $ 9.2
======== ===== ====== ===== =====
1993
Metal container
& specialty(1) ......... $ 459.2 $42.3 $324.5 $17.3 $25.3
Plastic container ........ 186.3 0.6 165.9 16.5 17.2
-------- ----- ------ ----- -----
Consolidated ........... $ 645.5 $42.9 $490.4 $33.8 $42.5
======== ===== ====== ===== =====
(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) Excludes charge for reduction in carrying value of assets of $14.7 million
for the metal container segment.
(3) Excludes 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-35
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
19. Business Segment Information (continued)
Operating profit is reconciled to income before tax as follows (in millions):
1995 1994 1993
---- ---- ----
Operating profit .................... $ 86.1 $76.4 $ 42.9
Reduction in carrying value of assets 14.7 16.7 --
Interest expense .................... 80.7 65.8 54.3
Corporate ........................... 1.5 1.3 1.1
----- ----- -----
Loss before income taxes ....... $(10.8) $(7.4) $(12.5)
===== ===== ======
Identifiable assets are reconciled to total assets as follows (in millions):
1995 1994 1993
---- ---- ----
Identifiable assets.................. $896.1 $498.1 $490.4
Corporate assets..................... 3.9 6.2 7.2
------ ------ ------
Total assets.................... $900.0 $504.3 $497.6
====== ====== ======
Metal container and other segment sales to Nestle Food Company accounted for
21.4%, 25.9% and 34.1%, of net sales of the Company during the years ended
December 31, 1995, 1994 and 1993, respectively. Similarly, sales to Del Monte
accounted for 14.5% and 21.4% of net sales of the Company during the years ended
December 31, 1995 and 1994, respectively.
20. Subsequent Events
On May 31, 1996, Silgan Corporation ("Silgan"), a wholly-owned subsidiary of the
Company, amended its Credit Agreement to, among other things, provide for the
borrowing of an additional $125.0 million of B term loans. On July 3, 1996,
Silgan borrowed the additional B term loans and as permitted under the Credit
Agreement used the proceeds therefrom to fund the redemption by Holdings of
$125.0 million principal amount of Discount Debentures at par.
On July 22, 1996, the Company issued 50,000 shares of 13 1/4% Exchangeable
Preferred Stock, mandatorily redeemable in 2006 ("Preferred Stock"), for net
proceeds of $47.8 million. The Company used $35.8 million of these proceeds to
purchase its Class B Common Stock held by Mellon Bank, as trustee for First
Plaza Group Trust. During the third quarter, additional paid in capital will be
reduced by $15.0 million, the original issuance amount received for the Class B
Common Stock, and the remainder of the payment will be applied to Holdings'
accumulated deficit. Additionally, the balance of the proceeds received from the
issuance of Preferred Stock was used to redeem $12.0 million principal amount of
Discount Debentures on August 26, 1996.
In connection with the proposed Initial Public Offering (IPO) of the Company's
Common Stock, the Company will amend its Certificate of Incorporation to change
its authorized capital stock to ___ shares of Common Stock, par value $.01 per
share and ___ shares of preferred stock, par value $.01 per share. In addition,
immediately prior to the closing of the IPO, the Company will effect a ___ for 1
stock split. A portion of the estimated proceeds from the IPO will be used to
redeem the Company's remaining Discount Debentures outstanding (approximately
$59.0 million) and to repay a portion of the bank term loans.
Upon the closing of the IPO, the Company will recognize a charge of $___ million
for the excess of the fair market value over the grant price of the variable
stock options under the Containers and Plastics option plans which convert to
Holdings options. In connection with the aforementioned transactions and the
proposed IPO, the Company will recognize an extraordinary charge of
approximately $2.4 million, net of tax, for the write-off of unamortized
deferred financing costs related to the redemption of the Discount Debentures.
In that the stock split ratio and the variable option plan charge will not be
determined until immediately prior to the closing of the IPO, share information
and per share data have not been adjusted. The impact of the conversion of
subsidiary options to Holdings options will reduce the net loss per share
amounts reflected in the financial statements.
F-36
<PAGE>
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
June 30, June 30,
1996 1995
---- ----
Assets
Current assets:
Cash and cash equivalents ..................... $ 1,859 $ 841
Accounts receivable, net ...................... 125,724 74,926
Inventories ................................... 286,448 164,138
Prepaid expenses and other current assets ..... 5,691 6,185
---------- --------
Total current assets ...................... 419,722 246,090
Property, plant and equipment, net ................. 482,723 255,453
Goodwill, net ...................................... 72,713 29,389
Other assets ....................................... 29,448 21,244
---------- --------
$1,004,606 $552,176
========== ========
Liabilities and deficiency in stockholder's equity
Current liabilities:
Trade accounts payable ........................ $ 90,361 $ 44,826
Accrued payroll and related costs ............. 41,378 25,307
Accrued interest payable ...................... 6,551 1,735
Accrued expenses and other current
liabilities ................................ 32,801 20,457
Bank working capital loans .................... 148,550 39,750
Current portion of long-term debt ............. 27,192 19,514
---------- --------
Total current liabilities ................. 346,833 151,589
Long-term debt ..................................... 745,550 525,884
Deferred income taxes .............................. 6,836 6,831
Other long-term liabilities ........................ 75,523 23,750
Deficiency in stockholders' equity:
Common stock .................................. 12 12
Additional paid-in capital .................... 33,606 33,606
Accumulated deficit ........................... (203,754) (189,496)
---------- --------
Total deficiency in stockholders' equity .. (170,136) (155,878)
---------- --------
$1,004,606 $552,176
========== ========
See accompanying notes.
F-37
<PAGE>
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands except per share data)
Six Months Ended
--------------------
June 30, June 30,
1996 1995
---- ----
Net sales ............................................ $606,922 $404,990
Cost of goods sold ................................... 521,683 346,144
-------- --------
Gross profit .................................... 85,239 58,846
Selling, general and administrative expenses ......... 27,210 17,729
-------- --------
Income from operations .......................... 58,029 41,117
Interest expense and other related
financing costs ............................... 45,861 34,797
-------- --------
Income before income taxes ...................... 12,168 6,320
Income tax provision ................................. 2,500 4,200
-------- --------
Net income ...................................... $ 9,668 $ 2,120
======== ========
Net income per share $ 8.34 $ 1.83
======== ========
See accompanying notes.
F-38
<PAGE>
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Six Months Ended
------------------
June 30, June 30,
1996 1995
---- ----
Cash flows from operating activities:
Net income ......................................... $ 9,668 $ 2,120
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation ................................... 27,153 15,993
Amortization ................................... 4,761 3,562
Accretion of discount on discount debentures ... 12,077 15,121
Changes in assets and liabilities:
(Increase) in accounts receivable ............ (13,155) (9,814)
(Increase) in inventories .................... (74,520) (41,709)
(Decrease) increase in trade accounts
payable ................................... (47,834) 7,981
Other, net ................................... (864) (3,390)
--------- ---------
Total adjustments ......................... (92,382) (12,256)
--------- ---------
Net cash used by operating activities .......... (82,714) (10,136)
--------- ---------
Cash flows from investing activities:
Acquisition of St. Louis facility from
American National Can Company ................ (13,121) --
Capital expenditures ............................ (29,031) (19,671)
Proceeds from sale of assets .................... 1,521 3,270
--------- ---------
Net cash used in investing activities ........... (40,631) (16,401)
--------- ---------
Cash flows from financing activities:
Borrowings under working capital loans .......... 489,100 181,410
Repayments under working capital loans .......... (347,650) (154,260)
Repayment of long-term debt ..................... (18,348) (2,454)
--------- ---------
Net cash provided by financing activities ...... 123,102 24,696
--------- ---------
Net decrease in cash and cash equivalents ............ (243) (1,841)
Cash and cash equivalents at beginning of year ....... 2,102 2,682
--------- ---------
Cash and cash equivalents at end of period ........... $ 1,859 $ 841
========= =========
Supplementary data:
Interest paid ................................... $ 29,456 $ 16,943
Income taxes paid ............................... 363 8,055
See accompanying notes.
F-39
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1996 and 1995 and for the
six months then ended is unaudited)
1. Basis of Presentation
The accompanying condensed unaudited consolidated financial statements of Silgan
Holdings Inc. ("Holdings" or the "Company") have been prepared in accordance
with Rule 10-01 of Regulation S-X and, therefore, do not include all information
and footnotes necessary for a fair presentation of financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. All adjustments of a normal recurring nature have been made,
including appropriate estimates for reserves and provisions which are normally
determined or settled at year end. In the opinion of the Company, however, the
accompanying financial statements contain all adjustments (consisting solely of
a normal recurring nature) necessary to present fairly Holdings' financial
position as of June 30, 1996 and 1995 and, the results of operations for the six
months ended June 30, 1996 and 1995, and the statements of cash flows for the
six months ended June 30, 1996 and 1995.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these financial statements
be read in conjunction with the financial statements and notes included in
Holdings' Annual Report on Form 10-K for the year ended December 31, 1995.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" in the first quarter of 1996. Under SFAS No. 121,
impairment losses will be recognized when events or changes in circumstances
indicate that the undiscounted cash flows generated by the assets are less than
the carrying value of such assets. Impairment losses are then measured by
comparing the fair value of assets to their carrying amount. There were no
impairment losses recognized during the first or second quarter of 1996 as a
result of the adoption of SFAS No. 121.
In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123, "Accounting for Stock-Based Compensation", effective for the 1996
fiscal year. Under SFAS No. 123, compensation expense for all stock-based
compensation plans would be recognized based on the fair value of the options at
the date of grant using an option pricing model. As permitted under SFAS No.
123, the Company may either adopt the new pronouncement or follow the current
accounting methods as prescribed under APB No. 25. The Company continues to
recognize compensation expense in accordance with APB No. 25.
F-40
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1996 and 1995 and
for the six months then ended is unaudited)
2. Inventories
Inventories consisted of the following:
June 30, June 30,
1996 1995
---- ----
(Dollars in thousands)
Raw materials and supplies .. $ 36,776 $ 30,430
Work-in-process ............. 35,107 19,413
Finished goods .............. 205,233 119,629
Spare parts and other ....... 7,730 --
-------- --------
284,846 169,472
Adjustment to value inventory
at cost on the LIFO Method 1,602 (5,334)
-------- --------
$286,448 $164,138
======== ========
3. Acquisitions
Set forth below is the Company's summary unaudited pro forma results of
operations for the six months ended June 30, 1995. The unaudited pro forma
results of operations of the Company for the six months ended June 30, 1995
include the historical results of the Company and the Food Metal & Specialty
business of American National Can Company ("AN Can") for such period and give
effect to certain pro forma adjustments. The pro forma adjustments made to the
historical results of operations for June 30, 1995 reflect the effect of
purchase accounting adjustments based upon appraisals and valuations, the
financing of the acquisition of AN Can by the Company, the refinancing of
certain of the Company's debt obligations, and certain other adjustments as if
these events had occurred as of the beginning of 1995. The pro forma adjustments
are based upon available information and upon certain assumptions that the
Company believes are reasonable. The following unaudited pro forma results of
operations do not purport to represent what the Company's results of operations
would actually have been had the transactions in fact occurred on January 1,
1995, or to project the Company's results of operations for any future period
(in thousands):
Pro forma
June 30, 1995
-------------
Net sales ................ $650,042
Income from operations ... 65,488
Income before income taxes 20,414
Net income ............... 13,114
F-41
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1996 and 1995 and
for the six months then ended is unaudited)
3. Acquisitions (continued)
In connection with the acquisition of AN Can, the Company has finalized its
plant rationalization and integration plans. These plans consist primarily of
the closing or downsizing of manufacturing plants and the integration of the
selling, general, and administrative functions of the former AN Can operations
with the Company. The Company estimates that costs related to such plans include
approximately $6.6 million related to plant exit costs, $22.6 million related to
employee severance and relocation costs, and $3.5 million related to
administrative workforce reductions. The timing of the plant rationalizations
will be primarily dependent on covenants in existing labor agreements and
accordingly these costs will be incurred during the period from late 1996
through early 1998. Costs related to administrative workforce reductions and
relocation were incurred principally during the second half of 1995 and the
first half of 1996. Through June 30, 1996, the Company has incurred costs of
$2.5 million for administrative workforce reductions.
During the second quarter of 1996, the purchase price allocation for the AN Can
acquisition was adjusted for differences between the actual and preliminary
valuations for the asset appraisals and for projected employee benefit costs as
well as for a revision in estimated costs of plant rationalizations,
administrative workforce reductions and other various matters, which in
aggregate resulted in an adjustment to increase goodwill by $20.7 million.
4. 13 1/4% Senior Discount Debentures
On June 15, 1996, the Company redeemed $17.4 million principal amount of its 13
1/4% Senior Discount Debentures due 2002 ("Discount Debentures") at par.
5. Subsequent Events
On May 31, 1996, Silgan, a wholly-owned subsidiary of the Company, amended its
Credit Agreement to, among other things, provide for the borrowing of an
additional $125.0 million of B term loans. On July 3, 1996, Silgan borrowed the
additional B term loans and as permitted under the Credit Agreement used the
proceeds therefrom to fund the redemption by Holdings of $125.0 million
principal amount of Discount Debentures at par.
F-42
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1996 and 1995 and
for the six months then ended is unaudited)
5. Subsequent Events (continued)
On July 22, 1996, the Company issued 50,000 shares of 13 1/4% Exchangeable
Preferred Stock, mandatorily redeemable in 2006 ("Preferred Stock"), for net
proceeds of $47.8 million. The Company used $35.8 million of these proceeds to
purchase its Class B Common Stock held by Mellon Bank, as trustee for First
Plaza Group Trust. During the third quarter, additional paid in capital will be
reduced by $15.0 million, the original issuance amount received for the Class B
Common Stock, and the remainder of the payment will be applied to Holdings'
accumulated deficit. Additionally, the balance of the proceeds received from the
issuance of Preferred Stock was used to redeem $12.0 million principal amount of
Discount Debentures on August 26, 1996.
In connection with the proposed IPO of the Company's Common Stock, the Company
will amend its Certificate of Incorporation to change its authorized capital
stock to ___ shares of Common Stock, par value $.01 per share and ___ shares of
preferred stock, par value $.01 per share. In addition, immediately prior to the
closing of the IPO, the Company will effect a ___ for 1 stock split. A portion
of the estimated proceeds from the IPO will be used to redeem the Company's
remaining Discount Debentures outstanding (approximately $59.0 million) and to
repay a portion of the bank term loans.
Upon the closing of the IPO, the Company will recognize a charge of $___ million
for the excess of the fair market value over the grant price of the variable
stock options under the Containers and Plastics option plans which convert to
Holdings options. In connection with the aforementioned transactions and the
proposed IPO, the Company will recognize an extraordinary charge of
approximately $2.4 million, net of tax, for the write-off of unamortized
deferred financing costs related to the redemption of the Discount Debentures.
In that the stock split ratio and the variable option plan charge will not be
determined until immediately prior to the closing of the IPO, share information
and per share data have not been adjusted. The impact of the conversion of
subsidiary options to Holdings options will reduce the net income per share
amounts reflected in the financial statements.
F-43
<PAGE>
SILGAN HOLDINGS INC.
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
Introductory Note
Set forth below is the Company's unaudited pro forma condensed statements of
operations for the six months ended June 30, 1996 and the year ended December
31, 1995. The unaudited pro forma results of operations of the Company include
the historical results of the Company for such periods and give effect to
certain pro forma adjustments.
The unaudited pro forma condensed statement of operations for the six months
ended June 30, 1996 gives effect to (i) the sale of $75.0 million of Common
Stock offered hereby, (ii) the sale of $50.0 million of Exchangeable Preferred
Stock (and the planned exchange of the Exchangeable Preferred Stock for Exchange
Debentures), and (iii) the incurrence of $125.0 million of additional B term
loans in July 1996 and $17.4 million of working capital loans in June 1996 under
the Silgan Credit Agreement, and the use of such proceeds to redeem in full the
remaining outstanding amount of Discount Debentures, to purchase the Holdings
Class B Stock held by Mellon for $35.8 million, and to repay $9.2 million of
bank term loans, as if such events had occurred as of January 1, 1996.
The unaudited pro forma condensed statement of operations for the fiscal year
ended December 31, 1995 gives effect to (i) the acquisition of AN Can, (ii)
borrowings under the Silgan Credit Agreement which were used to finance the
acquisition of AN Can, repay in full amounts owing under the Company's previous
credit agreement, and repay the Secured Notes, and (iii) (A) the sale of $75.0
million of Common Stock offered hereby, (B) the sale of $50.0 million of
Exchangeable Preferred Stock (and the planned exchange of the Exchangeable
Preferred Stock for Exchange Debentures), and (C) the incurrence of $125.0
million of additional B term loans and $75.0 million of working capital loans
under the Silgan Credit Agreement, and the use of such proceeds to redeem in
full the outstanding amount of Discount Debentures, to purchase the Holdings
Class B Stock held by Mellon for $35.8 million, and to repay bank term loans, as
if such events had occurred as of January 1, 1995.
In conjunction with the acquisition of AN Can, pro forma adjustments have been
made to reflect manufacturing cost savings resulting from the combination of the
Company's and AN Can's manufacturing operations, as well as reduced selling,
general and administrative expenditures realized as a result of the integration
of sales, administrative and research functions of the Company and AN Can.
Depreciation, goodwill amortization, and interest expense (including debt
amortization) have also been adjusted for the allocated cost of the acquisition
of AN Can and its related financing. As required, the Company has not given pro
forma effect to the anticipated benefits it will realize as a result of the
planned rationalization of its plant operations. The Company will not begin to
realize these benefits until 1997.
F-44
<PAGE>
SILGAN HOLDINGS INC.
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
Introductory Note
(continued)
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 such transactions been completed at the beginning of the periods presented,
or to project the Company's financial position or results of operations at any
future date or for any future period. The unaudited pro forma adjustments are
based upon available information and upon certain assumptions that the Company
believes are reasonable. The unaudited pro forma financial data and accompanying
notes should be read in conjunction with the historical financial information of
Holdings, including notes thereto, included elsewhere in this Prospectus.
F-45
<PAGE>
SILGAN HOLDINGS INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(Dollars in thousands except for per share data)
Pro Forma Adjustments
---------------------
Debt
Recapital-
Historical ization(a) Offering(b) Pro Forma
---------- ---------- ----------- ---------
Net sales ...................... $606,922 $ -- $ -- $606,922
Cost of goods sold ............. 521,683 -- -- 521,683
-------- ------ ------ --------
Gross profit .............. 85,239 -- -- 85,239
Selling, general and
administrative expenses ..... 27,210 -- -- 27,210
-------- ------ ------ --------
Income from operations .... 58,029 -- -- 58,029
Interest expense and other
related financing costs (c)(d) 45,861 (4,066) (598) 41,197
-------- ------ ------ --------
Income before income taxes 12,168 4,066 598 16,832
Income tax provision ........... 2,500 (600)(e) (100)(e) 1,800
-------- ------ ------ --------
Net income (j) ............ 9,668 4,666 698 15,032
-------- ------ ------ --------
Preferred Stock dividend
requirement ................ -- 3,367 (3,367) --
-------- ------ ------ --------
Net income applicable to common
stockholders ................ $ 9,668 $1,299 $4,065 $ 15,032
======== ====== ====== ========
Net income per share (i) $ $
======== ========
F-46
<PAGE>
SILGAN HOLDINGS INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(Dollars in thousands except for per share data)
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments
------------------------ --------------------------------------------------
ANC Food Debt
Silgan Metal & AN Can Recapital-
Holdings Inc. Specialty Acquisition ization(a) Offering(b) Pro Forma
------------- --------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales ................ $ 1,101,905 $302,477 $ -- $ -- $ -- $1,404,382
Cost of goods sold ....... 970,491 266,156 (1,785)(f) -- -- 1,234,862
----------- -------- -------- -------- ------- ----------
Gross profit ........ 131,414 36,321 1,785 -- -- 169,520
Selling, general and
administrative
expenses .............. 46,848 17,982 (7,470)(g) -- -- 57,360
Reduction in asset
carrying value ........ 14,745 -- -- -- -- 14,745
----------- -------- -------- -------- ------- ----------
Income from
operations ....... 69,821 18,339 9,255 -- - (h) 97,415
Interest expense
and other related
financing costs(c) (d) 80,710 7,476 87 (11,509) 2,112 78,876
----------- -------- -------- -------- ------- ----------
Income (loss) before
income taxes .... (10,889) 10,863 9,168 11,509 (2,112) 18,539
Income tax provision ..... 5,100 4,023 (1,923) (5,200)(e) -- 2,000
----------- -------- -------- -------- ------- ----------
Net income (loss) (j) (15,989) 6,840 11,091 16,709 (2,112) 16,539
----------- -------- -------- -------- ------- ----------
Preferred Stock
dividend requirement ... -- -- -- 6,962 (6,962) --
----------- -------- -------- -------- ------- ----------
Net income (loss)
applicable to common
stockholders ........... $ (15,989) $ 6,840 $ 11,091 $ 9,747 $ 4,850 $ 16,539
=========== ======== ======== ======== ======= ==========
Net income (loss)
per share (i) $ $
=========== ==========
</TABLE>
F-47
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(a) Debt recapitalization includes adjustments for (i) the sale of $50.0
million of Exchangeable Preferred Stock and (ii) the incurrence of $125.0
million of B term loans and $75.0 million of working capital loans under
the Silgan Credit Agreement, and the use of such proceeds to redeem a
portion of the Discount Debentures and to purchase the Holdings Class B
Stock held by Mellon, as if such events had occurred as of the beginning
of the periods presented.
(b) The Offering includes adjustments for (i) the sale of $75.0 million of
Common Stock offered hereby and (ii) the planned exchange of the
Exchangeable Preferred Stock for Exchange Debentures. The proceeds from
the Offering will be used to redeem in full the remaining outstanding
amount of Discount Debentures and to repay a portion of the bank term
loans.
F-48
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(c) Pro forma adjustments made to the historical data for interest expense as
of June 30, 1996 and December 31, 1995 consist of the following:
For the six For the
months ended year ended
June 30, 1996(1) December 31, 1995(2)
---------------- -------------------
Historical interest expense .................... $ 45,861 $ 80,710
Increase in interest expense related to
additional bank borrowings used to
finance the acquisition of AN Can at
current borrowing rates(3) ................... -- 8,384
Increase in interest expense related to
additional bank borrowings of B term
loans and working capital loans used
to fund the redemption of a portion of
the Discount Debentures at current
borrowing rates(3) ........................... 6,103 16,832
Increase in interest expense related to
the exchange of the Exchangeable
Preferred Stock for Exchange Debentures(4) ....... 3,313 6,844
Net increase (decrease) in deferred
financing costs related to amortization
of new indebtedness less retired debt costs .. 16 (895)
Decrease in interest expense due to the
redemption of the Discount Debentures(5) ..... (13,231) (28,672)
Decrease in interest expense due to
repayment of bank debt from the excess
proceeds of the Offering(6) .................. (865) (4,327)
-------- --------
Pro forma interest expense ..................... $ 41,197 $ 78,876
======== ========
F-49
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(1) Pro forma interest expense for the six months ended June 30, 1996
gives effect to (i) the sale of $75.0 million of Common Stock
offered hereby, (ii) the sale of $50.0 million of Exchangeable
Preferred Stock (and the planned exchange of the Exchangeable
Preferred Stock for Exchange Debentures), (iii) the incurrence of
$125.0 million of additional B term loans in July 1996 and $17.4
million of working capital loans in June 1996 under the Silgan
Credit Agreement, and the use of such proceeds to redeem the
remaining outstanding amount of Discount Debentures, to purchase
the Holdings Class B Stock held by Mellon for $35.8 million, and
to repay $9.2 million of bank term loans, as if such events had
occurred as of January 1, 1996.
(2) Pro forma interest expense for the year ended December 31, 1995
gives effect to (i) borrowings under the Silgan Credit Agreement
which were used to finance the acquisition of AN Can and repay in
full amounts owing under the Company's previous credit agreement
and the Secured Notes, and (ii) (A) the sale of $75.0 million of
Common Stock offered hereby, (B) the sale of $50.0 million of
Exchangeable Preferred Stock (and the planned exchange of the
Exchangeable Preferred Stock for Exchange Debentures), and (C) the
incurrence of $125.0 million of additional B term loans and $75.0
million of working capital loans under the Silgan Credit
Agreement, and the use of such proceeds to redeem in full the
outstanding amount of Discount Debentures, to purchase the
Holdings Class B Stock held by Mellon for $35.8 million, and to
repay a portion of the bank term loans, as if such events had
occurred as of January 1, 1995.
(3) For the computations above, the assumed interest rates for
borrowings under the Silgan Credit Agreement are based upon the
three month LIBOR of 5.531% per annum as of August 29, 1996 plus a
fixed spread of 2 1/2% per annum for the A term loans and working
capital loans and 3% per annum for the B term loans.
(4) In conjunction with the Offering, it was assumed that the
outstanding shares of Exchangeable Preferred Stock were exchanged
for 13 1/4% Subordinated Debentures due July 2006.
(5) The adjustment in interest expense related to the Discount
Debentures has been calculated to eliminate the amount of
historical interest incurred.
F-50
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(6) Pursuant to the Silgan Credit Agreement, net equity proceeds in
excess of the amount required to redeem the remaining balance of
Discount Debentures were applied to repay term loans.
(d) The unaudited pro forma statement of operations for the six months ended
June 30, 1996 and for the year ended December 31, 1995 assume that the
redemption of the Discount Debentures occurred as of the beginning of the
periods presented. Since the redemption of the Discount Debentures did not
actually occur as of the beginning of the periods presented and because the
Discount Debentures accrete in value, the aggregate principal amount used
to calculate interest expense for the pro forma calculations for the six
months ended June 30, 1996 and the year ended December 31, 1995 differ from
the principal amount of Discount Debentures that will be outstanding at the
time of their redemption. Therefore, actual interest expense of the Company
will also differ from the interest expense reflected in the pro forma
statement of operations. Set forth below is a table estimating annual
interest expense based upon the obligations outstanding after the
occurrence of the Offering:
Estimated
Annual
Principal Interest Interest
Debt obligation Amount Rate Expense
--------------- --------- -------- -----------
(In millions) (In millions)
Bank Working Capital Loan (1)(2) ....... $ 90.0 8.03% $ 7.2
Bank A Term Loan (1)(3) ................ 219.5 8.03% 17.6
Bank B Term Loan (1)(3) ................ 347.3 8.53% 29.6
11 3/4% Subordinated Debentures ........ 135.0 11.75% 15.9
Exchange Debentures(4) ................. 50.0 13.25% 6.8
-----
$77.1
Amortization of debt financing costs (5) 4.5
-----
Total interest expense and related financing costs $81.6
=====
F-51
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(1) Assumes borrowing rates set forth in footnote (c)(3) above.
(2) Assumes average amount of working capital loans outstanding during
the year.
(3) Excludes effect of an interest rate swap agreement for $100.0
million of indebtedness entered into by the Company under which
floating rate interest was exchanged for fixed rates of interest
in order to mitigate the effect of interest rate fluctuations.
(4) Assumes semi-annual compounding.
(5) Amortization of debt financing costs assumes average annual balance
outstanding.
(e) The income tax provision is comprised of federal, state and foreign income
taxes currently payable. The income tax provision for the six months ended
June 30, 1996 and year ended December 31, 1995 has been adjusted to
reflect the federal income tax benefit realized from the deduction of the
accreted interest available to the Company as a result of the redemption
of the Discount Debentures.
(f) Pro forma adjustments to cost of goods sold reflects adjustments for (i)
increased depreciation charges of $2.282 million from historical amounts
based upon the fair values of property, plant and equipment acquired,
applying an estimated useful life of 25 years for buildings and 5 to 11
years for machinery and equipment, (ii) increased charge for amortization
of goodwill of $0.361 million from the historical amount for the excess of
fair value of net assets acquired over a 40-year period, (iii) increased
employee benefits costs for pension and post-retirement medical expense of
$0.239 million to reflect change to Containers' employee benefit plans, and
(iv) decreased manufacturing costs of $4.667 million resulting from the
integration of AN Can with Containers' existing can manufacturing
operations.
F-52
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(g) Pro forma adjustments to selling, general and administrative expenses
reflects adjustments for (i) increased depreciation charges of $0.074
million from historical amounts for the reasons described in footnote (f)
above, (ii) increased employee benefits costs for pension and
post-retirement medical expense of $0.039 million to reflect change to
Containers' employee benefit plans, and (iii) decreased administrative
support costs of $7.583 million realized as a result of the integration of
Containers' and AN Can's sales, administrative and research functions.
(h) Under the terms of the Containers and Plastics option plans, stock options
issued under such plans will be converted to options under Holdings' Stock
Option Plan at the time of a public offering by Holdings. In accordance
with APB No. 25, options granted under the plans of the operating companies
are considered variable options with a final measurement date at the time
of conversion. The Company will recognize a charge of $_____ million
(assuming an initial public offering price of $_____ per share) for the
excess of fair market value over grant price of these options, less amounts
previously accrued, at the time of the Offering. Prior to a public
offering, the Company recognized compensation expense for the change in pro
forma book value since the date of grant of these options, amortized over
the vesting period.
(i) Primary earnings per share are based on the weighted average number of
shares outstanding during the period, as adjusted in all periods for the
Stock Split, and after giving effect to stock options considered to be
dilutive common stock equivalents using the treasury stock method. Primary
and fully diluted net income (loss) per share are the same for each of the
periods.
(j) The pro forma condensed statement of operations does not include
extraordinary charges, net of taxes, of $2.4 million for the write-off of
unamortized deferred financing costs related to the early redemption of
Discount Debentures which will be recorded in the second half of 1996. The
pro forma condensed statement of operations for the year ended December 31,
1995 also does not include the historical extraordinary charge of $5.8
million, net of taxes, incurred as a result of the early extinguishment of
amounts owing under the Company's debt facilities.
F-53
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement,
Holdings has agreed to sell to each of the Underwriters named below, and each of
such Underwriters, for whom Goldman, Sachs & Co., Morgan Stanley & Co.
Incorporated and Salomon Brothers Inc are acting as representatives, has
severally agreed to purchase from Holdings, the respective number of shares of
Common Stock set forth opposite its name below:
Number of Shares
of Common Stock
-----------------
Underwriter
-----------
Goldman, Sachs & Co....................................
Morgan Stanley & Co.
Incorporated........................................
Salomon Brothers Inc...................................
Total.........................................
================
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $___ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $___ per share to certain
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and other selling terms may from time to time be
varied by the representatives.
Holdings has granted to the Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of ___
additional shares of Common Stock solely to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the ____ shares of Common Stock
offered.
Holdings, the Principal Common Stockholders and BTNY have agreed that,
during the period beginning from the date of this Prospectus and continuing to
and including the date one year after the date of the Prospectus, they will not
offer, sell, contract to sell or otherwise dispose of any securities of Holdings
(other than, in respect of Holdings, pursuant to employee stock option plans
existing, or on the conversion or exchange of convertible or exchangeable
securities outstanding, on the date of this Prospectus) which are substantially
similar to the shares of Common Stock or which are convertible into or
exchangeable for securities which are substantially similar to the shares of
Common Stock, without the prior written consent of Goldman, Sachs & Co., except
for the ___ shares of Common Stock offered in connection with the Offering.
The Underwriters have reserved up to ___ shares of Common Stock offered
hereby for sale to certain employees of the Company at the initial public
U-1
<PAGE>
offering price. The number of shares available to the general public will be
reduced to the extent such employees purchase reserved shares. Any reserved
shares that are not so purchased by such employees will be offered by the
Underwriters to the general public on the same terms as the other shares offered
hereby.
The general partner of MSLEF II is a wholly owned subsidiary of Morgan
Stanley Group Inc. ("MS Group"). Two of the Company's directors are employees of
wholly owned subsidiaries of MS Group. Morgan Stanley & Co. Incorporated acted
as the placement agent for the offering of the Exchangeable Preferred Stock and
received compensation for acting in such capacity. See "Management", "Certain
Transactions" and "Description of Capital Stock--Description of the Holdings
Stockholders Agreement".
Under Rule 2720 of the National Association of Securities Dealers, Inc.
(the "NASD"), the Company may be deemed an affiliate of Morgan Stanley & Co.
Incorporated. This offering is being conducted in accordance with Rule 2720,
which provides that, among other things, when an NASD member participates in the
underwriting of an affiliate's equity securities, the initial public offering
price can be no higher than that recommended by a "qualified independent
underwriter" meeting certain standards. In accordance with this requirement,
Goldman, Sachs & Co. has served in such role and has recommended a price in
compliance with the requirements of Rule 2720. Goldman, Sachs & Co. will receive
compensation from the Company in the amount of $10,000 for serving in such role.
In connection with the Offering, Goldman, Sachs & Co. in its role as qualified
independent underwriter has performed due diligence investigations and reviewed
and participated in the preparation of this Prospectus and the Registration
Statement of which this Prospectus forms a part. In addition, the Underwriters
may not confirm sales to any discretionary account without the prior specific
written approval of the customer.
Prior to the Offering, there has been no public market for the shares.
The initial public offering price will be negotiated among Holdings and the
representatives of the Underwriters. Among the factors to be considered in
determining the initial public offering price of the Common Stock, in addition
to prevailing market conditions, will be the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
It is expected that Common Stock will be quoted on the Nasdaq National
Market under the symbol "SLGN".
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
U-2
<PAGE>
[Reserved for map showing the Company's locations]
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy such
securities in any circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to its date.
TABLE OF CONTENTS
Page
----
Available Information............................ 3
Information Incorporated by Reference............ 3
Prospectus Summary............................... 5
Risk Factors..................................... 15
Use of Proceeds.................................. 19
Dividend Policy.................................. 19
Dilution......................................... 19
Capitalization................................... 21
Selected Historical and Pro Forma
Financial Information........................ 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 29
Business......................................... 45
Management....................................... 57
Securities Ownership of Certain
Beneficial Owners and Management............. 67
Certain Transactions............................. 69
Description of Capital Stock..................... 70
Shares Eligible for Future Sale.................. 75
Description of Certain Indebtedness.............. 76
Legal Matters.................................... 79
Experts.......................................... 80
Index to Consolidated Financial
Statements................................... F-1
Underwriting..................................... U-1
Shares
Silgan Holdings Inc.
Common Stock
(par value $.01 per share)
-------------------
[Insert Silgan Trademark]
--------------------
Goldman, Sachs & Co.
Morgan Stanley & Co.
Incorporated
Salomon Brothers Inc
Representatives of the Underwriters
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Set forth below is an estimate of the fees and expenses payable by
Holdings in connection with the distribution of the Common Stock:
Securities and Exchange Commission registration fee.............. $29,742
NASD filing fee.................................................. 9,125
NASDAQ listing fee............................................... *
Legal fees and expenses.......................................... *
Accountants' fees and expenses................................... *
Printing and engraving expenses.................................. *
Blue sky fees and expenses....................................... *
Transfer Agent and Registrar fees and expenses................... *
Miscellaneous.................................................... *
----------
Total............................................................ $ *
==========
____________________
* To be completed by amendment.
Item 15. Indemnification of Directors and Officers.
Section 145 of the DGCL makes provision for the indemnification of
officers and directors in terms sufficiently broad to indemnify officers and
directors of Holdings under certain circumstances from liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. The
Certificate of Incorporation and By-laws of Holdings provide for indemnification
of officers and directors against costs and expenses incurred in
connectionawithsany actiondorwsuitrto which such person is a party to the
fullest extent permitted by the DGCL. The Company has purchased directors' and
officers' liability insurance covering certain liabilities which may be incurred
by the directors and officers of the Company in connection with the performance
of their duties. Certain of Holdings' affiliates also maintain insurance and
provide indemnification substantially similar to the foregoing.
See item 17(a) of this Registration Statement regarding the position of
the Commission on indemnification for liabilities arising under the Securities
Act.
II-1
<PAGE>
Item 16. Exhibits.
(a) Exhibits:
Exhibit
Number Description
- ------- -----------
*1 Form of Underwriting Agreement between Holdings and the Underwriters
4.1 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).
4.2 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).
4.3 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 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).
4.5 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).
4.6 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).
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).
*5 Opinion of Winthrop, Stimson, Putnam & Roberts as to the legality of the
Common Stock.
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).
II-2
<PAGE>
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).
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).
II-3
<PAGE>
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 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
(incorporated by reference to Exhibit 5 filed with Silgan's Report on
Form 8-K, dated March 15, 1989, Commission File No. 33-28409).
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).
II-4
<PAGE>
10.21 Silgan Holdings Inc. Third Amended and Restated 1989 Stock Option Plan
(incorporated by reference to Exhibit 10.84 filed with Holdings' Annual
Report on Form 10-K for the year ended December 31, 1995, Commission
File No. 33-28409).
10.22 Form of Holdings Nonstatutory Restricted Stock Option and Stock
Appreciation Right Agreement (incorporated by reference to Exhibit
10.124 filed with Holdings' Annual Report on Form 10-K for the year
ended December 31, 1992, Commission File No. 33- 28409).
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 December
21, 1993, between S&H and Holdings (incorporated by reference to Exhibit
4 filed with Holdings' Current Report on Form 8-K, dated March 25, 1994,
Commission File No. 33-28409).
10.25 Amended and Restated Management Services Agreement, dated as of December
21, 1993, between S&H and Silgan (incorporated by reference to Exhibit 5
filed with Holdings' Current Report on Form 8-K, dated March 25, 1994,
Commission File No. 33-28409).
10.26 Amended and Restated Management Services Agreement, dated as of December
21, 1993, between S&H and Containers (incorporated by reference to
Exhibit 6 filed with Holdings' Current Report on Form 8-K, dated March
25, 1994, Commission File No. 33-28409).
10.27 Amended and Restated Management Services Agreement, dated as of December
21, 1993, between S&H and Plastics (incorporated by reference to Exhibit
7 filed with Holdings' Current Report on Form 8-K, dated March 25, 1994,
Commission File No. 33-28409).
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.)
II-5
<PAGE>
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).
10.34 Amended and Restated Borrowers Guaranty, dated as of August 1, 1995,
made by Silgan, Containers, Plastics, C-W Can 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 Placement Agreement between Holdings and Morgan Stanley, dated July 17,
1996 (incorporated by reference to Exhibit 6 filed with Holdings's
Current Report on Form 8-K dated August 2, 1996, Commission File No.
33-28409).
*11 Statement of Computation of Earnings per Share for the six months ended
June 30, 1996, for the six months ended June 30, 1996 on a pro forma
basis, for the year ended December 31, 1995 and for the year ended
December 31, 1995 on a pro forma basis.
**23.1 Consent of Ernst & Young LLP.
**23.2 Consent of Price Waterhouse LLP.
*23.3 Consent of Winthrop, Stimson, Putnam & Roberts (included in Exhibit 5).
**24 Power of Attorney (included on signature page).
II-6
<PAGE>
*99 Restated Certificate of Incorporation of Holdings.
- -------------------------
* To be filed by amendment.
** Filed herewith.
II-7
<PAGE>
Item 17. Undertakings.
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Stamford, State of Connecticut, on September 13,
1996.
SILGAN HOLDINGS INC.
By/s/ R. Philip Silver
---------------------
R. Philip Silver
Chairman of the Board and
Co-Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose
signature appears below constitutes and appoints R. Philip Silver, D. Greg
Horrigan and Robert H. Niehaus, and each or any of them, his true and lawful
attorney-in-fact and to act for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting said attorney-in-fact and agent, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or any of them, or their or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ R. Philip Silver Chairman of the Board and
- -------------------- Co-Chief Executive Officer
(R. Philip Silver) (Principal Executive Officer) September 13, 1996
/s/ D. Greg Horrigan President, Co-Chief Executive
- -------------------- Officer and Director September 13, 1996
(D. Greg Horrigan)
<PAGE>
/s/ Robert H. Nieh Director September 13, 1996
- ------------------
(Robert H. Niehaus)
/s/ Leigh J. Abramson Director September 13, 1996
- ---------------------
(Leigh J. Abramson
/s/ Harley Rankin, Jr. Executive Vice President,
- ---------------------- Chief Financial Officer
(Harley Rankin, Jr.) and Treasurer
(Principal Financial Officer) September 13, 1996
/s/ Harold J. Rodriguez, Jr. Vice President, Controller
- --------------------------- and Assistant Treasurer
(Harold J. Rodriguez, Jr.) Assistant Treasurer
(Principal Accounting
Officer) September 13, 1996
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ---------- -------
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Price Waterhouse LLP.
24 Power of Attorney (included on signature page).
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the references to our firm under the captions "Selected Historical
and Pro Forma Financial Information" and "Experts" and to the use of our report
dated March 8, 1996, except for Note 20, as to which date is ____________, 1996,
with respect to the consolidated financial statements of Silgan Holdings Inc.
included in the Registration Statement (Form S-2, No. 333-XXXX) and related
Prospectus of Silgan Holdings Inc. for the registration of _______ shares of its
common stock and to the incorporation by reference therein of our report dated
March 8, 1996 with respect to schedules of Silgan Holdings Inc. included in its
Annual Report (Form 10-K) for the year ended December 31, 1995, filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
Stamford, Connecticut
_____________, 1996
The foregoing consent is in the form that will be signed upon the
recapitalization described in Note 20 to the consolidated financial statements.
/s/ ERNST & YOUNG LLP
---------------------
Stamford, Connecticut
September 12, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-2 of Silgan Holdings
Inc. of our report dated September 14, 1995 relating to the financial statements
of the Food Metal & Specialty Division of American National Can Company, as of
December 31, 1994 and 1993 and for each of the three years in the period ended
December 31, 1994, which appears in the Current Report on Form 8-K/A of Silgan
Holdings Inc. dated October 16, 1995. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
- ------------------------
Chicago, Illinois
September 12, 1996
<PAGE>
