Page 1 of 21
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 1996 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ____________ to ____________.
Commission file number 33-28409
SILGAN HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1269834
(State of Incorporation) (I.R.S. Employer Identification Number)
4 Landmark Square
Stamford, Connecticut 06901
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (203) 975-7110
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
As of August 13, 1996, the number of shares outstanding of each of the issuer's
classes of common stock is as follows:
Classes of shares of Number of
common stock outstanding, $0.01 par value shares outstanding
- ----------------------------------------- ------------------
Class A 417,500
Class B 417,500
Class C 50,000
<PAGE>
Page 2 of 21
Part I. Financial Information
Item 1. Financial Statements
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, June 30, Dec. 31,
1996 1995 1995
(unaudited) (unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents ........... $ 1,859 $ 841 $ 2,102
Accounts receivable, net ............ 125,724 74,926 109,929
Inventories ......................... 286,448 164,138 210,471
Prepaid expenses and other current
assets ............................. 5,691 6,185 5,801
---------- ---------- ----------
Total current assets ............ 419,722 246,090 328,303
Property, plant and equipment, net ....... 482,723 255,453 487,301
Goodwill, net ............................ 72,713 29,389 53,562
Other assets ............................. 29,448 21,244 30,880
---------- ---------- ----------
$1,004,606 $ 552,176 $ 900,046
========== ========== ==========
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable .............. $ 90,361 $ 44,826 $ 138,195
Accrued payroll and related costs ... 41,378 25,307 32,805
Accrued interest payable ............ 6,551 1,735 4,358
Accrued expenses and other current
liabilities ........................ 32,801 20,457 43,457
Bank working capital loans .......... 148,550 39,750 7,100
Current portion of long-term debt ... 27,192 19,514 28,140
---------- ---------- ----------
Total current liabilities ....... 346,833 151,589 254,055
Long-term debt ........................... 745,550 525,884 750,873
Deferred income taxes .................... 6,836 6,831 6,836
Other long-term liabilities .............. 75,523 23,750 68,086
Deficiency in stockholders' equity:
Common stock ........................ 12 12 12
Additional paid-in capital .......... 33,606 33,606 33,606
Accumulated deficit ................. (203,754) (189,496) (213,422)
---------- ---------- ----------
Total deficiency in stockholders'
equity .......................... (170,136) (155,878) (179,804)
---------- ---------- ----------
$1,004,606 $ 552,176 $ 900,046
========== ========== ==========
See accompanying notes.
<PAGE>
Page 3 of 21
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Three Months Ended
------------------
June 30, June 30,
1996 1995
Net sales ............................................ $327,062 $201,726
Cost of goods sold ................................... 278,369 171,879
-------- --------
Gross profit .................................... 48,693 29,847
Selling, general and administrative expenses ......... 14,381 7,561
-------- --------
Income from operations .......................... 34,312 22,286
Interest expense and other related
financing costs ............................... 23,288 17,546
-------- --------
Income before income taxes ...................... 11,024 4,740
Income tax provision ................................. 1,500 1,200
-------- --------
Net income ...................................... $ 9,524 $ 3,540
======== ========
See accompanying notes.
<PAGE>
Page 4 of 21
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
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
======== ========
See accompanying notes.
<PAGE>
Page 5 of 21
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(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.
<PAGE>
Page 6 of 21
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1996 and 1995 and for the
three months and 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 December 31, 1995, the results of
operations for the three months and 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.
<PAGE>
Page 7 of 21
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1996 and 1995 and for the
three months and six months then ended is unaudited)
2. Inventories
Inventories consisted of the following (in thousands):
June 30, June 30, Dec. 31,
1996 1995 1995
------- ------- -------
Raw materials and supplies ......... $ 36,776 $ 30,430 $ 46,027
Work-in-process .................... 35,107 19,413 24,869
Finished goods ..................... 205,233 119,629 135,590
Spare parts and other .............. 7,730 -- 6,344
--------- --------- ---------
284,846 169,472 212,830
Adjustment to value inventory
at cost on the LIFO Method ....... 1,602 (5,334) (2,359)
--------- --------- ---------
$ 286,448 $ 164,138 $ 210,471
========= ========= =========
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
<PAGE>
Page 8 of 21
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1996 and 1995 and for the
three months and 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.
<PAGE>
Page 9 of 21
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1996 and 1995 and for the
three months and six months then ended is unaudited)
5. 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. In connection
with the early redemption of the Discount Debentures, it is expected that during
the third quarter of 1996 the Company will incur an extraordinary charge of
approximately $1.7 million, net of tax, for the write-off of unamortized
deferred financing costs.
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 will be used to redeem $12.0 million principal
amount of Discount Debentures on August 26, 1996.
<PAGE>
Page 10 of 21
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations - Three Months
Summary historical results for the Company's two business segments, metal and
plastic containers, for the three months ended June 30, 1996 and 1995 and
summary pro forma results for the Company and AN Can for the three 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 adjustments as if
these events occurred as of the beginning of the period presented. The pro forma
adjustments are based upon available information and upon certain assumptions
that the Company believes are reasonable. 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 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 periods ended June 30,
1996 and 1995.
Three Months Ended June 30
--------------------------
Historical Pro Forma
1996 1995 1995
---- ---- ----
(Dollars in millions)
Net sales:
Metal containers & other $ 273.9 $ 144.5 $ 280.9
Plastic containers ..... 53.2 57.2 57.2
-------- -------- --------
Consolidated ....... $ 327.1 $ 201.7 $ 338.1
======== ======== ========
Operating profit:
Metal containers & other $ 30.2 $ 18.0 $ 33.9
Plastic containers ..... 4.8 3.5 3.5
Corporate .............. (0.7) 0.8 0.8
-------- -------- --------
Consolidated ....... $ 34.3 $ 22.3 $ 38.2
======== ======== ========
<PAGE>
Page 11 of 21
Historical Three Months Ended June 30, 1996 Compared with Historical Three
Months Ended June 30, 1995
Consolidated net sales increased $125.4 million, or 62.2%, to $327.1 million for
the three months ended June 30, 1996, as compared to net sales of $201.7 million
for the same three months in the prior year. This increase resulted primarily
from net sales generated by the former AN Can operations.
Net sales for the metal container business (including net sales of its specialty
business of $19.7 million) were $273.9 million for the three months ended June
30, 1996, an increase of $129.4 million from net sales of $144.5 million for the
same period in 1995. Net sales of metal cans of $254.2 million for the three
months ended June 30, 1996 were $111.8 million greater than net sales of metal
cans of $142.4 million for the same period in 1995. Approximately $105.0 million
of this increase related to sales of metal cans by the former AN Can operations
and the balance related to an increase in sales during the quarter by Silgan's
existing can facilities.
Sales of specialty items included in the metal container segment increased $17.6
million to $19.7 million during the three 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 $53.2 million during the three
months ended June 30, 1996 decreased $4.0 million from net sales of $57.2
million for the same period in 1995. The decline in net sales resulted
principally from the pass through of lower resin costs.
Cost of goods sold as a percentage of consolidated net sales improved 0.1
percentage points to 85.1% ($278.4 million) for the three months ended June 30,
1996, as compared to 85.2% ($171.9 million) for the same period in 1995. The
decrease in cost of goods sold as a percentage of net sales was primarily
attributable to improved operating efficiencies due to can plant consolidations
which occurred late in 1995, synergies realized from the AN Can acquisition, and
improved manufacturing performance of the plastics business, offset, in part, by
increased per unit can manufacturing costs resulting from lower production
volumes at Silgan's existing facilities. Improved inventory management in
conjunction with the additional production capacity provided by the acquisition
of AN Can has enabled the Company to produce its product closer to the time of
sale and, as a result, reduce the amount of finished goods inventory it carries.
<PAGE>
Page 12 of 21
Selling, general and administrative expenses as a percentage of consolidated net
sales increased 0.6 percentage points to 4.4% ($14.4 million) for the three
months ended June 30, 1996, as compared to 3.8% ($7.6 million) for the three
months ended June 30, 1995. Selling, general and administrative expenses for the
three months ended June 30, 1995 included the reversal of a corporate charge of
$1.0 million for legal costs associated with the AN Can acquisition. Such costs
were capitalized at the time the purchase contract for AN Can was executed in
the second quarter of 1995. Excluding the benefit of this adjustment, selling,
general, and administrative expense as a percentage of sales remained relatively
constant with the prior year. During the quarter, the Company continued to incur
redundant administrative costs associated with the integration of AN Can. 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 as a percentage of consolidated net sales was 10.5%
($34.3 million) for the three months ended June 30, 1996, as compared with 11.0%
($22.3 million) for the same period in 1995. Excluding the effect of the
reversal of the corporate charge in 1995, income from operations as a percentage
of consolidated net sales for the three months ended June 30, 1996 remained
relatively constant with the same period in the prior year.
Income from operations as a percentage of net sales for the metal container
business was 11.0% ($30.2 million) for the three months ended June 30, 1996, as
compared to 12.5% ($18.0 million) for the same period in the prior year. The
decrease in income from operations as a percentage of net sales for the metal
container business was principally attributable to a decline in gross margin as
a result of higher per unit manufacturing costs incurred on lower production
volume at the Company's existing manufacturing facilities due to the planned
reduction in finished goods inventory, lower margins realized on sales made from
former AN Can facilities due to their higher cost base, and costs associated
with the integration of the administrative functions of AN Can with the Company.
Income from operations as a percentage of net sales for the plastic container
business was 9.0% ($4.8 million) for the three months ended June 30, 1996, as
compared to 6.1% ($3.5 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. Included in income from operations for the plastic container
business is a charge of $0.5 million incurred in the second quarter for
unreimbursed expenses resulting from flood damage at one of its facilities.
<PAGE>
Page 13 of 21
Interest expense increased $5.7 million to $23.3 million for the three 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 Silgan's lower cost bank facility as well as by lower average bank
borrowing rates.
The provision for income taxes for the three months ended June 30, 1996 and 1995
provide for federal, state and foreign taxes currently payable and reflects the
benefit of the deduction for the accreted interest on the retired Discount
Debentures.
As a result of the items discussed above, net income increased $6.0 million to
$9.5 million for the three months ended June 30, 1996, as compared to $3.5
million for the three months ended June 30, 1995.
Results of Operations - Pro Forma
Historical Three Months Ended June 30, 1996 Compared with Pro Forma Three Months
Ended June 30, 1995
Consolidated net sales for the three months ended June 30, 1996 declined $11.0
million as compared to pro forma consolidated net sales for the same period in
the prior year. The decrease in net sales was principally attributable to the
loss of an AN Can customer whose product line was acquired by another company
which had self manufacturing capacity for that product, lower unit sales to a
customer who desired two suppliers (Silgan and AN Can had previously been the
two suppliers), slightly lower sales of vegetable pack cans due to the scheduled
production and shipment of cans closer to the pack season and lower sales of
plastic containers due to the pass through of lower resin costs, offset, in
part, by an increase in unit sales to non-vegetable pack customers.
Income from operations as a percentage of consolidated net sales for the three
months ended June 30, 1996 was 10.5% ($34.3 million) as compared to pro forma
income from operations as a percentage of pro forma consolidated net sales of
11.3% ($38.2 million) for the three months ended June 30, 1995. Management
believes that the decrease in income from operations for the three 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
integration of AN Can, 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.
<PAGE>
Page 14 of 21
Results of Operations - Six Months
Summary 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 and AN Can 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 adjustments as if
these events occurred as of the beginning of the period presented. The pro forma
adjustments are based upon available information and upon certain assumptions
that the Company believes are reasonable. 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 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 periods ended June 30,
1996 and 1995.
Six Months Ended June 30
------------------------
Historical Pro Forma
1996 1995 1995
---- ---- ----
(Dollars in millions)
Net sales:
Metal containers & other $ 500.3 $ 289.2 $ 534.2
Plastic containers ..... 106.7 115.8 115.8
-------- -------- --------
Consolidated ....... $ 607.0 $ 405.0 $ 650.0
======== ======== ========
Operating profit:
Metal containers & other $ 49.8 $ 34.0 $ 58.5
Plastic containers ..... 8.9 7.7 7.7
Corporate .............. (0.7) (0.6) (0.6)
-------- -------- --------
Consolidated ....... $ 58.0 $ 41.1 $ 65.6
======== ======== ========
Historical Six Months Ended June 30, 1996 Compared with Historical Six Months
Ended June 30, 1995
Consolidated net sales increased $202.0 million, or 49.9%, to $607.0 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 Silgan's existing customer base and lower net
sales of plastic containers.
<PAGE>
Page 15 of 21
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 Silgan'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 the decline relates to the expected
production and shipment of vegetable pack cans during the fresh pack season in
the third and fourth quarter of 1996 as compared to the first and second quarter
of 1995. Similar to 1995, the 1996 Midwest vegetable pack is expected to be
below normal due to cool wet weather during the planting season.
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 $106.7 million during the six
months ended June 30, 1996 decreased $9.1 million from net sales of $115.8
million for the same period in 1995. The decline in net sales resulted
principally from the pass through of lower resin costs.
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% ($346.1 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 reduction in the amount of finished goods
inventory carried by the Company due to the scheduled production of cans closer
to the pack season. 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.
<PAGE>
Page 16 of 21
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. The increase in selling, general and administrative
expenses as a percentage of net sales principally reflects redundant costs
associated with the integration of AN Can with the Company. 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 as a percentage of consolidated net sales was 9.6% ($58.0
million) for the six months ended June 30, 1996, as compared with 10.2% ($41.1
million) for the same period in 1995. The 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. The
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 increased $11.1 million to $45.9 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 Silgan's lower cost bank facility and by lower average bank
borrowing rates. In the third quarter of 1996, the Company redeemed $125.0
million principal amount Discount Debentures with proceeds from it lower cost
bank facility, further lowering its average borrowing costs.
<PAGE>
Page 17 of 21
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 the prior year reflects the benefit of
the current cash tax savings realized from the deduction of accreted interest on
the retired Discount Debentures.
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, 1995.
Results of Operations - Pro Forma
Historical Six Months Ended June 30, 1996 Compared with Pro Forma Six Months
Ended June 30, 1995
Consolidated net sales for the six months ended June 30, 1996 declined $43.0
million as compared to pro forma consolidated net sales for the same period in
the prior year. The decline in net sales of the metal container business of
$33.9 million 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 as compared to the first half of 1995, and lower unit
sales to a customer who desired two suppliers (Silgan and AN Can had previously
been the two suppliers). Net sales of the plastic container business declined
$9.1 million principally due to the pass through of lower resin costs.
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
integration of AN Can with the Company, 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 pack season.
<PAGE>
Page 18 of 21
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.
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 planned purchase of American
National Can Company's St. Louis facility for $13.1 million), the redemption of
$17.4 million of Discount Debentures, and the repayment of $0.9 million of term
loans under Silgan's Credit Agreement. The Company's earnings before
depreciation, interest, taxes and amortization ("EBDITA") for the six months
ended June 30, 1996 increased by $30.7 million to $89.5 million in comparison to
the same period in 1995. The increase in EBDITA principally reflected the
generation of additional cash earnings 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, it is still necessary to build a significant portion of its
inventory prior to the vegetable pack. The decline in trade accounts payable
from year end results from traditional year end payment terms.
Because the Company sells metal containers used in vegetable and fruit
processing, its sales are seasonal. As is common in the packaging industry, the
Company must access working capital to build inventory and then carry accounts
receivable for some customers beyond the end of the summer and fall packing
season. Seasonal accounts are generally settled by year end. The acquisition of
AN Can increased Silgan'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 $175.0 million of the Company's
working capital revolver, including letters of credit, were utilized at its peak
in July 1996.
<PAGE>
Page 19 of 21
As of June 30, 1996, the outstanding principal amount of working capital loans
of the Company was $148.6 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 $69.0 million.
On July 3, 1996, Silgan borrowed an additional $125.0 million of B term loans
under its Credit Agreement. As permitted under the Credit Agreement, Silgan used
such proceeds to fund Holdings redemption of $125.0 million principal amount of
Discount Debentures. Additionally, on July 22, 1996, Holdings received net
proceeds of $47.8 million from the issuance of 50,000 shares of its Preferred
Stock. On that date, Holdings purchased its Class B Common Stock held by Mellon
Bank, as trustee for First Plaza Group Trust, for $35.8 million. The balance of
the net proceeds from such issuance will be used to redeem $12.0 million
principal amount of Discount Debentures on August 26, 1996. Upon completion of
that redemption, the Company will have outstanding $59.0 million principal
amount of Discount Debentures. Since 1995, the Company will have redeemed or
repurchased an aggregate of $216.0 million of its Discount Debentures, thereby
reducing by $14.3 million its semi-annual interest payments on such
indebtedness. Silgan intends to make funds available to Holdings to enable it to
pay its semi-annual cash interest obligation ($3.9 million based on $59.0
million principal amount of Discount Debentures outstanding) on the remaining
Discount Debentures, commencing on December 15, 1996.
Dividends on the Preferred Stock are cumulative at 13 1/4% per annum and are
payable quarterly in cash or, on or prior to July 15, 2000 at the option of the
Company, in additional shares of Preferred Stock. The Company expects that it
will make its dividend payments on the Preferred Stock in kind for the
foreseeable future and that its obligations under the Preferred Stock will not
affect its projected liquidity requirements.
Management believes that cash generated by operations and funds from working
capital borrowings under the Credit Agreement will be sufficient to meet the
Company's expected operating needs, planned capital expenditures and debt
service requirements for the foreseeable future.
Presently, the Company is actively considering refinancing the remaining
Discount Debentures with other debt financings and/or equity financings,
including a public offering of equity. Any such financings would depend upon the
market conditions existing at the time and would have to be effected in
compliance with Silgan's and/or Holdings', as the case may be, agreements in
respect of their respective indebtedness.
<PAGE>
Page 20 of 21
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
27 Financial Data Schedule.
(b) Reports on Form 8-K
On May 31, 1996, Silgan Holdings Inc. filed a Current Report on Form 8-K with
respect to an amendment to Silgan Corporation's Credit Agreement that provided
for, among other things, an additional $125.0 million of B term loans, the
proceeds of which were used to redeem Discount Debentures.
<PAGE>
Page 21 of 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned thereunto duly authorized.
SILGAN HOLDINGS INC.
Dated: August 13, 1996 /s/Harley Rankin, Jr.
- ----------------------- ---------------------
Harley Rankin, Jr.
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
Dated: August 13, 1996 /s/Harold J. Rodriguez, Jr.
- ----------------------- ---------------------------
Harold J. Rodriguez, Jr.
Vice President and Controller
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Silgan
Holdings Inc. Form 10-Q for the six months ended June 30, 1996 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,859
<SECURITIES> 0
<RECEIVABLES> 125,724
<ALLOWANCES> 0
<INVENTORY> 286,448
<CURRENT-ASSETS> 419,722
<PP&E> 482,723
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,004,606
<CURRENT-LIABILITIES> 346,833
<BONDS> 745,550
0
0
<COMMON> 12
<OTHER-SE> (170,148)
<TOTAL-LIABILITY-AND-EQUITY> 1,004,606
<SALES> 606,922
<TOTAL-REVENUES> 606,922
<CGS> 521,683
<TOTAL-COSTS> 521,683
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,861
<INCOME-PRETAX> 12,168
<INCOME-TAX> 2,500
<INCOME-CONTINUING> 9,668
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,668
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
