<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 4, 1997
SILGAN HOLDINGS INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-28409 06-1269834
- ------------------------- ------------------------- -------------------------
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
4 Landmark Square, Stamford, Connecticut 06901
- --------------------------------------------------------------------------------
(Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (203) 975-7110
<PAGE>
ITEM 5: OTHER EVENTS.
Silgan Holdings Inc. is filing herewith as Exhibit 1 its audited
consolidated financial statements at December 31, 1996 and 1995 and for each
of the three years in the period ended December 31, 1996.
ITEM 7: EXHIBITS.
1. Silgan Holdings Inc. audited Consolidated Financial Statements at December
31, 1996 and 1995 and for the three years in the period ended December 31,
1996.
1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SILGAN HOLDINGS INC.
By: /s/ Harold J. Rodriguez, Jr.
----------------------------------
Harold J. Rodriguez, Jr.
Vice President, Controller and
Assistant Treasurer
Date: February 4, 1997
2
<PAGE>
EXHIBIT 1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................. F-2
Consolidated Balance Sheets at December 31, 1996 and 1995.................. F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1995 and 1994........................................................ F-4
Consolidated Statements of Deficiency in Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994.................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994....................................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Stamford, Connecticut
January 31, 1997
F-2
<PAGE>
SILGAN HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 1,017 $ 2,102
Accounts receivable, less allowances for doubtful ac-
counts of $4,045 and $4,832 for 1996 and 1995,
respectively............................................ 101,436 109,929
Inventories.............................................. 195,981 210,471
Prepaid expenses and other current assets................ 7,403 5,801
-------- --------
Total current assets................................... 305,837 328,303
Property, plant and equipment, net......................... 499,781 487,301
Goodwill, net.............................................. 77,176 53,562
Other assets............................................... 30,752 30,880
-------- --------
$913,546 $900,046
======== ========
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................................... $122,623 $138,195
Accrued payroll and related costs........................ 41,799 32,805
Accrued interest payable................................. 9,522 4,358
Accrued expenses and other current liabilities........... 35,456 43,457
Bank working capital loans............................... 27,800 7,100
Current portion of long-term debt........................ 38,427 28,140
-------- --------
Total current liabilities.............................. 275,627 254,055
Long-term debt............................................. 693,783 750,873
Deferred income taxes...................................... 6,836 6,836
Other long-term liabilities................................ 74,508 68,086
Cumulative exchangeable redeemable preferred stock (90,000
shares authorized, 51,556 shares issued and outstanding).. 52,998 --
Deficiency in stockholders' equity:
Common stock ($0.01 par value per share;
2,167,500 shares authorized, 885,000
and 1,135,000 shares issued and outstanding
in 1996 and 1995, respectively)......................... 9 12
Additional paid-in capital............................... 18,609 33,606
Accumulated deficit...................................... (208,824) (213,422)
-------- --------
Total deficiency in stockholders' equity................... (190,206) (179,804)
-------- --------
$913,546 $900,046
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C>
Net sales................................... $1,405,742 $1,101,905 $861,374
Cost of goods sold.......................... 1,223,684 970,491 748,290
---------- ---------- --------
Gross profit.............................. 182,058 131,414 113,084
Selling, general and administrative
expenses................................... 58,768 46,848 37,997
Reduction in carrying value of assets....... -- 14,745 16,729
---------- ---------- --------
Income from operations.................... 123,290 69,821 58,358
Interest expense and other related financing
costs...................................... 89,353 80,710 65,789
---------- ---------- --------
Income (loss) before income taxes......... 33,937 (10,889) (7,431)
Income tax provision........................ 3,300 5,100 5,600
---------- ---------- --------
Income (loss) before extraordinary
charge................................... 30,637 (15,989) (13,031)
Extraordinary charges relating to early
extinguishment of debt, net of taxes....... (2,222) (5,817) --
---------- ---------- --------
Net income (loss) before preferred stock
dividend requirement..................... 28,415 $ (21,806) $(13,031)
Preferred stock dividend requirement........ (3,006) -- --
---------- ---------- --------
Net income (loss) available to common
stockholders............................. $ 25,409 $ (21,806) $(13,031)
========== ========== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL DEFICIENCY IN
COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT EQUITY
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
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)
Purchase and retirement of 250,000
shares of Class B Common Stock... (3) (14,997) (20,811) (35,811)
Net income........................ -- -- 25,409 25,409
--- ------- --------- ---------
Balance at December 31, 1996...... $ 9 $18,609 $(208,824) $(190,206)
=== ======= ========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) before preferred stock div-
idend requirement........................... $ 28,415 $ (21,806) $ (13,031)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation................................ 54,830 42,217 35,392
Amortization................................ 8,993 8,083 7,075
Accretion of discount on discount deben-
tures...................................... 12,077 28,672 27,477
Reduction in carrying value of assets....... -- 14,745 16,729
Extraordinary charge relating to early ex-
tinguishment of debt....................... 2,222 6,301 --
Changes in assets and liabilities, net of
effect of acquisitions:
Decrease (increase) in accounts receiv-
able...................................... 15,102 (1,011) (21,267)
Decrease (increase) in inventories......... 20,348 10,852 (16,741)
(Decrease) increase in trade accounts pay-
able...................................... (17,145) 43,108 4,478
Net working capital provided by AN Can from
8/1/95 to 12/31/95........................ -- 85,213 --
Other, net increase (decrease)............. 357 (6,745) 7,221
--------- --------- ---------
Total adjustments......................... 96,784 231,435 60,364
--------- --------- ---------
Net cash provided by operating activities... 125,199 209,629 47,333
--------- --------- ---------
Cash flows from investing activities:
Acquisition of businesses.................... (43,043) (348,762) 519
Capital expenditures......................... (56,851) (51,897) (29,184)
Proceeds from sale of assets................. 1,557 3,541 765
--------- --------- ---------
Net cash used in investing activities....... (98,337) (397,118) (27,900)
--------- --------- ---------
Cash flows from financing activities:
Borrowings under working capital loans...... 952,050 669,260 393,250
Repayments under working capital loans...... (931,350) (674,760) (382,850)
Proceeds from issuance of long-term debt.... 125,000 450,000 --
Repayments of long-term debt................ (183,880) (234,506) (20,464)
Proceeds from issuance of cumulative redeem-
able exchangeable preferred stock.......... 50,000 -- --
Repurchase of common stock.................. (35,811) -- --
Debt financing costs........................ (3,956) (19,290) --
Payments to former shareholders of Silgan... -- (3,795) (6,911)
--------- --------- ---------
Net cash (used by) provided for financing
activities................................. (27,947) 186,909 (16,975)
--------- --------- ---------
Net (decrease) increase in cash and cash
equivalents................................... (1,085) (580) 2,458
Cash and cash equivalents at beginning of
year.......................................... 2,102 2,682 224
--------- --------- ---------
Cash and cash equivalents at end of year...... $ 1,017 $ 2,102 $ 2,682
========= ========= =========
Supplementary data:
Interest paid............................... $ 68,390 $45,293 $ 30,718
Income tax (refunds) payments, net.......... (4,836) 8,967 2,588
Preferred stock dividend in lieu of cash
dividend................................... 2,998 -- --
</TABLE>
See accompanying notes.
F-6
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. BASIS OF PRESENTATION
Silgan Holdings Inc. ("Holdings", together with its wholly-owned
subsidiaries, 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").
The Company, together with Silgan and its wholly-owned operating
subsidiaries Silgan Containers Corporation ("Containers") and Silgan Plastics
Corporation ("Plastics"), is predominantly engaged in the manufacture and sale
of steel and aluminum containers for human and pet food products. The Company
also manufactures custom designed plastic containers used for health and
personal care products and specialty packaging items, including metal caps and
closures, plastic bowls and paper containers used by processors in the food
industry. Principally, all of the Company's businesses are based in the United
States. Foreign subsidiaries are not significant to the consolidated results
of operations or financial position of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All significant
intercompany transactions have been eliminated. Assets and liabilities of the
Company's foreign subsidiary are translated at rates of exchange in effect at
the balance sheet date. Income statement amounts are translated at the average
of monthly exchange rates.
CASH AND CASH EQUIVALENTS
Cash equivalents represent short-term, highly liquid investments having
original maturities of three months or less from the time of purchase. The
carrying values of these assets approximate their fair values. As a result of
the Company's cash management system, checks issued and presented to the banks
for payment may create negative cash balances. Checks outstanding in excess of
related cash balances totaling approximately $49.6 million at December 31,
1996 and $30.0 million at December 31, 1995 are included in trade accounts
payable.
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.
F-7
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
GOODWILL
The Company has classified as goodwill the cost in excess of fair value of
net assets acquired in purchase transactions. Goodwill is stated at cost less
accumulated amortization. Amortization is computed on a straight-line basis
over periods ranging from 20 to 40 years. The Company periodically evaluates
the existence of goodwill impairment to access whether goodwill is fully
recoverable from projected, undiscounted net cash flows of the related
business unit. Impairments would be recognized in operating results if a
permanent reduction in values were to occur.
LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of". Under SFAS No. 121,
impairment losses will be recognized when events or changes in circumstances
indicate that the undiscounted cash flows generated by the assets are less
than the carrying value of such assets. Impairment losses are then measured by
comparing the fair value of assets to their carrying amount. There were no
impairment losses recognized during 1996.
OTHER ASSETS
Other assets consist principally of debt issuance costs which are being
amortized on a straight-line basis over the terms of the related debt
agreements (5 to 10 years). Other intangible assets are amortized over their
expected useful lives using the straight-line method.
INCOME TAXES
The Company accounts for income taxes using the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes". The provision for
income taxes includes federal, state, and foreign income taxes currently
payable and those deferred because of temporary differences between the
financial statement and tax bases of assets and liabilities.
STOCK BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued in
October 1995, effective for the 1996 fiscal year. Under SFAS No. 123,
compensation expense for all stock-based compensation plans would be
recognized based on the fair value of the options at the date of grant using
an option pricing model. As permitted under SFAS No. 123, the Company may
either adopt the new pronouncement or may continue to follow the accounting
method as prescribed under APB No. 25, "Accounting for Stock Issued to
Employees". The Company has chosen to continue to recognize compensation
expense in accordance with APB No. 25.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company's use of derivative financial instruments is limited to interest
rate swap agreements which assist in managing exposure to adverse movement in
interest rates on a portion of its indebtedness. The Company does not utilize
financial instruments for speculative purposes. The difference between amounts
to be paid or received on interest rate swap agreements are recorded as
adjustments to interest expense. The methods and assumptions used to estimate
fair values of these and other debt instruments reflected in the financial
statements are discussed in Note 10.
F-8
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
revenues and expenses, as well as footnote disclosures in the financial
statements. Actual results may differ from those estimates.
PROPOSED INITIAL PUBLIC OFFERING
The financial information does not give effect to the amendment to Holdings'
Restated Certificate of Incorporation, the conversion of Holdings' Class A,
Class B and Class C Common Stock into Common Stock on a one for one basis or
the stock split, all as proposed in connection with Holdings' initial public
offering. For a discussion of the proposed initial public offering, see Note
22.
3. ACQUISITIONS
On October 9, 1996, the Company acquired substantially all of the assets of
Finger Lakes Packaging Company, Inc. ("Finger Lakes"), a metal food container
manufacturer, which had net sales of $48.8 million for its fiscal year ended
June 29, 1996. The purchase price was $29.9 million (including net working
capital of $8.0 million) and was primarily allocated to property, plant, and
equipment, and net working capital acquired based on fair market value as of
the date of acquisition. The excess of the purchase price over the fair value
of the net assets acquired was $5.2 million and has been recorded as goodwill,
which is being amortized on a straight-line basis over 20 years.
On August 1, 1995, Containers acquired from American National Can Company
("ANC") substantially all of the fixed assets and working capital, and assumed
certain specified limited liabilities, of ANC's Food Metal & Specialty
business ("AN Can"), which manufactures, markets and sells metal food
containers and rigid plastic containers for a variety of food products and
metal caps and closures for food and beverage products. The final purchase
price for the assets acquired and the assumption of certain specified
liabilities was $362.0 million (including $13.1 million paid in 1996). The
aggregate purchase price has been allocated to the assets acquired and
liabilities assumed based on their fair values. The purchase price allocation
was adjusted in 1996 for differences between the actual and preliminary
valuations for the asset appraisals and for projected employee benefit costs
as well as for a revision in estimated costs of plant rationalizations,
administrative workforce reductions and various other acquisition liabilities.
The final purchase price allocation resulted in an adjustment to increase
goodwill by $20.7 million. The aggregate excess of the purchase price over the
fair value of the assets acquired and liabilities assumed for AN Can was $45.6
million and has been recorded as goodwill, which is being amortized on a
straight-line basis over 40 years.
The Finger Lakes and AN Can acquisitions were accounted for using the
purchase method of accounting and accordingly, the results of operations for
Finger Lakes and AN Can have been included in the consolidated financial
statements of the Company from the dates of acquisition.
Set forth below are the Company's summary unaudited pro forma results of
operations for the year ended December 31, 1995, giving effect to the
acquisition of AN Can. The summary unaudited pro forma results of operations
include the historical results of the Company and AN Can and reflect the
effect of purchase accounting adjustments based on appraisals and valuations,
the financing of the acquisition of AN Can by the Company, the refinancing of
the Company's related debt obligations, and
F-9
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
certain other adjustments as if these events occurred as of the beginning of
1995. Pro forma results of operations for Finger Lakes have not been presented
for 1996 or included in the 1995 summary unaudited pro forma results of
operations since the impact of such acquisition was not significant.
The pro forma results of operations do not give effect to adjustments for
decreased costs from manufacturing synergies resulting from the integration of
AN Can with the Company's existing can manufacturing operations and benefits
the Company may realize as a result of its planned rationalization of plant
operations. Pro forma adjustments have not been made to interest expense for
the year ended December 31, 1995 for the portion of Holdings' 13 1/4% Senior
Discount Debentures due 2002 ("Discount Debentures") redeemed in 1996 as
described in Note 8 or for the subsequent events discussed in Note 22.
The pro forma information does not purport to represent what the Company's
results of operations actually would have been if the operations were combined
as of January 1, 1995, or to project the Company's results of operations for
any future period:
<TABLE>
<CAPTION>
1995
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Net sales.......................................... $1,404,382
Income from operations............................. 92,749(1)
Income before income taxes......................... 4,064
Net loss........................................... (2,736)
</TABLE>
- --------
(1) Included in pro forma income from operations for the year ended December
31, 1995 is a charge of $14.7 million to adjust the carrying value of
certain underutilized machinery and equipment at Silgan facilities
(existing prior to the AN Can acquisition) to net realizable value.
4. INVENTORIES
The components of inventories at December 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Raw materials........................................ $ 40,280 $ 46,027
Work-in-process...................................... 27,861 24,869
Finished goods....................................... 116,498 135,590
Spare parts and other................................ 7,771 6,344
-------- --------
192,410 212,830
Adjustment to value inventory at cost on the LIFO
method.............................................. 3,571 (2,359)
-------- --------
$195,981 $210,471
======== ========
</TABLE>
The amount of inventory recorded on the first-in first-out method at
December 31, 1996 and 1995 was $19.8 million and $17.6 million, respectively.
F-10
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Land............................................... $ 6,425 $ 6,355
Buildings and improvements......................... 79,923 68,860
Machinery and equipment............................ 621,232 584,526
Construction in progress........................... 49,771 33,764
--------- ---------
757,351 693,505
Accumulated depreciation and amortization.......... (257,570) (206,204)
--------- ---------
Property, plant and equipment, net................. $ 499,781 $ 487,301
========= =========
</TABLE>
For the years ended December 31, 1996, 1995, and 1994, depreciation expense
was $54.8 million, $42.2 million and $35.4 million, respectively. The total
amount of repairs and maintenance expense was $32.0 million in 1996, $26.9
million in 1995 and $19.9 million in 1994.
In 1995 and 1994, based on a review of depreciable assets, the Company
determined that certain adjustments were necessary to properly reflect net
fixed asset realizable values. In 1995, the Company recorded a write-down of
$14.7 million for the excess of carrying value over estimated realizable value
of machinery and equipment at existing facilities which had become
underutilized due to excess capacity. In 1994, charges of $16.7 million were
recorded which included $2.6 million to write-down the excess carrying value
over estimated realizable value of various plant facilities held for sale and
$14.1 million for technologically obsolete and inoperable machinery and
equipment.
6. GOODWILL
Goodwill amortization charged to operations was $2.3 million in 1996; $1.3
million in 1995; and $1.2 million in 1994. Accumulated amortization of
goodwill at December 31, 1996, 1995, and 1994 was $7.7 million; $5.0 million;
and $3.7 million, respectively.
7. OTHER ASSETS
Other assets at December 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Debt issuance costs............................ $ 30,515 $ 30,148
Other.......................................... 8,576 8,027
----------- -----------
39,091 38,175
Less: accumulated amortization................. (8,339) (7,295)
----------- -----------
$ 30,752 $ 30,880
=========== ===========
</TABLE>
During 1996, the Company wrote off $2.2 million of unamortized debt issuance
costs, with no tax benefit, and capitalized $4.0 million of new debt issuance
costs in connection with the refinancing of Discount Debentures. As part of
the acquisition of AN Can and the related refinancing of its secured debt
facilities and Discount Debentures in 1995, the Company wrote off $6.3 million
of unamortized debt issuance costs and capitalized $19.3 million of new debt
issuance costs. Amortization expense
F-11
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
relating to debt issuance for the years ended December 31, 1996, 1995, and
1994 was $4.5 million, $4.9 million, and $5.3 million, respectively.
8. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
The Company has a revolving credit facility which it uses to finance its
seasonal liquidity needs. As of December 31, 1996 and 1995, the Company had
$27.8 million and $7.1 million, respectively, of loans outstanding under the
revolving credit facility ("Working Capital Loans").
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Bank A Term Loans...................................... $194,554 $220,000
Bank B Term Loans...................................... 343,716 222,750
11 3/4% Senior Subordinated Notes due June 15, 2002.... 135,000 135,000
13 1/4% Senior Subordinated Debentures due
December 15, 2002..................................... 58,940 201,263
-------- --------
732,210 779,013
Less: Amounts due within one year...................... 38,427 28,140
-------- --------
$693,783 $750,873
======== ========
</TABLE>
The aggregate annual maturities of long-term debt at December 31, 1996 are
as follows (in thousands):
<TABLE>
<S> <C>
1997..................................... $ 38,427
1998..................................... 53,393
1999..................................... 53,393
2000..................................... 126,112
2001..................................... 155,880
2002 and thereafter...................... 305,005
--------
$732,210
========
</TABLE>
REFINANCINGS
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 Silgan's
Senior Secured Notes (the "Secured Notes"), and to repurchase up to $75.0
million of Discount Debentures.
The Credit Agreement, as entered into during 1995, provided the Company with
(i) $225.0 million of A Term Loans, (ii) $225.0 million of B Term Loans and
(iii) Working Capital Loans of up to $225.0 million. The Company used proceeds
from the Credit Agreement to acquire AN Can for $348.9 million (excluding
$13.1 million paid in 1996), repay $117.1 million of term loans under the
previous credit agreement, repay in full $50.0 million of Secured Notes,
repurchase $61.7 million principal amount at maturity of Discount Debentures
for $57.6 million, and incur debt issuance costs of $19.3 million. As a result
of the early redemption of the Secured Notes and a portion of the Discount
Debentures in 1995, the Company incurred an extraordinary charge of $5.8
million, net of taxes, for the write-off of unamortized deferred financing
costs of $6.4 million and premiums of $2.0 million paid on the redemption of
the Discount Debentures.
F-12
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
In 1996, the Credit Agreement was amended to provide the Company with
additional B Term Loans of $125.0 million. With borrowings of $17.4 million of
Working Capital Loans, $12.0 million representing a portion of the proceeds
from the issuance of Holdings' 13 1/4% Cumulative Exchangeable Redeemable
Preferred Stock ("Preferred Stock"), and the additional B Term Loans, the
Company redeemed $154.4 million principal amount of Discount Debentures at
par. As a result of the early redemption of a portion of the Discount
Debentures in 1996, the Company incurred an extraordinary charge of $2.2
million for the write-off of unamortized deferred financing costs.
BANK CREDIT AGREEMENT
The A Term Loans mature on December 31, 2000, and the B Term Loans mature on
March 15, 2002. Principal repayments of $25.4 million and $5.0 million on the
A Term Loans and $4.0 million and $2.3 million on the B Term Loans were made
in 1996 and 1995, respectively. Principal is to be repaid on each of the A and
B Term Loans in installments in accordance with the Credit Agreement until
maturity.
As provided in the Credit Agreement, the Company is required to repay the
term loans (ratably allocated between the A Term Loans and the B Term Loans)
in an amount equal to 80% of the net sale proceeds from certain asset sales
and up to 100% of the net equity proceeds from certain sales of equity.
Effective for the year ended December 31, 1996 and each year thereafter during
the term of the Credit Agreement, the Company is required to prepay the term
loans (ratably allocated between the A Term Loans and the B Term Loans) in an
amount equal to 50% of the Company's excess cash flow. Amounts repaid under
the term loans cannot be reborrowed.
The Credit Agreement provides Containers and Plastics, together, a revolving
credit facility of up to $225.0 million for working capital needs. Borrowings
available under the revolving credit facility were $190.0 million at December
31, 1996, after taking into account outstanding Working Capital Loans of $27.8
million and outstanding letters of credit of $7.2 million. The Company may
utilize up to a maximum of $20.0 million in letters of credit as long as the
aggregate amount of borrowings of Working Capital Loans and letters of credit
do not exceed the amount of the commitment under the revolving credit
facility. The aggregate amount of Working Capital Loans and letters of credit
which may be outstanding at any time is also limited to the aggregate of 85%
of eligible accounts receivable and 50% of eligible inventory. Working Capital
Loans may be borrowed, repaid, and reborrowed over the life of the Credit
Agreement until final maturity on December 31, 2000.
The borrowings under the Credit Agreement may be designated by the
respective borrowers as Base Rate or Eurodollar Rate borrowings. The Base Rate
is the higher of (i) 1/2 of 1% in excess of Adjusted Certificate of Deposit
Rate, or (ii) Bankers Trust Company's prime lending rate. Base Rate borrowings
bear interest at the Base Rate plus a margin of 1.50% in the case of A Term
Loans and Working Capital Loans; and a margin of 2.0% in the case of B Term
Loans. Eurodollar Rate borrowings bear interest at the Eurodollar Rate plus a
margin of 2.50% in the case of A Term Loans and Working Capital Loans; and a
margin of 3.0% in the case of B Term Loans. In accordance with the Credit
Agreement, if the Company meets certain financial tests, the interest rate
margin on Base Rate and Eurodollar Rate borrowings may be reduced from the
existing margin. As of December 31, 1996, the interest rate for Base Rate
borrowings was 9.75% and the interest rate for Eurodollar Rate borrowings
ranged between 8.0% and 8.63%.
For 1996, 1995 and 1994, respectively, the average amount of borrowings of
Working Capital Loans was $104.1 million, $67.6 million and $14.4 million; the
weighted average annual interest rate
F-13
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
paid on such borrowings was 8.4%, 8.9%, and 8.4%; and the highest amount of
such borrowings was $175.1 million, $188.1 million, and $46.0 million. The
Credit Agreement provides for the payment of a commitment fee of 0.5% per
annum on the daily average unused portion of commitments available under the
working capital revolving credit facility as well as a 2.75% per annum fee on
outstanding letters of credit.
The indebtedness under the Credit Agreement is guaranteed by Holdings and
each of Silgan, Containers and Plastics and secured by a security interest in
substantially all of the real and personal property of Silgan, Containers and
Plastics. The stock of 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.
11 3/4% SENIOR SUBORDINATED NOTES
The Company's 11 3/4% Senior Subordinated Notes (the "11 3/4% Notes"), which
mature on June 15, 2002, represent unsecured general obligations of Silgan,
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 Silgan. 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:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PERCENTAGE
---- ----------
<S> <C>
1997................................... 105.8750%
1998................................... 102.9375%
1999 and thereafter.................... 100.0000%
</TABLE>
The 11 3/4% Notes Indenture contains covenants which are comparable to or
less restrictive than those under the terms of the 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 was amortized through June 15, 1996 with a yield to maturity of 13
1/4%. From and after June 15, 1996, interest on the Discount Debentures
accrues on the principal amount thereof at the rate of 13 1/4% and is 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 Company redeemed $154.4
million principal amount of its Discount Debentures in 1996 and repurchased
$61.7 million principal amount at maturity of its Discount Debentures for
$57.6 million in 1995.
F-14
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
The Discount Debenture Indenture contains covenants which are comparable to
or less restrictive than those under the Credit Agreement and the 11 3/4%
Notes.
9. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company has entered into interest rate swap agreements with various
banks to manage its exposure to interest rate fluctuations. The agreements are
with major financial institutions which are expected to fully perform under
the terms thereof. The interest rate swap agreements effectively convert
interest rate exposure from variable rates to fixed rates of interest without
the exchange of the underlying principal amounts. A portion of the Company's
term debt instruments carries a variable rate of interest based on the London
interbank offered rate ("LIBOR") plus a margin currently ranging from 2.5% to
3.0%. The interest rate swap agreements require the Company to pay fixed rates
of interest ranging from 5.6% to 6.2% plus the aforementioned margin. Notional
principal amounts of these agreements total $200.0 million and these
agreements mature in the year 1999. The notional amounts are used to measure
the interest to be paid or received and do not represent the amount of
exposure to credit loss. Net payments of $0.3 million under these agreements
were made in 1996 and recorded as an adjustment to interest expense.
CONCENTRATION OF CREDIT RISK
The Company derives a significant portion of its revenue from multi-year
supply agreements with many of its customers. Aggregate revenues from its two
largest customers accounted for approximately 29.1% of its net sales in 1996
and 36.0% of its net sales in 1995. The receivable balances from these
customers collectively represented 20.3% and 28.2% of the Company's accounts
receivable before allowances at December 31, 1996 and 1995, respectively. As
is common in the packaging industry, the Company provides extended payment
terms for some of its customers due to the seasonality of the vegetable and
fruit pack business. Exposure to losses is dependent on each customer's
financial position. The Company performs ongoing credit evaluations of its
customer's financial condition and its receivables are not collateralized. The
Company maintains an allowance for doubtful accounts which management believes
is adequate to cover potential credit losses based on customer credit
evaluations, collection history, and other information.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Working Capital Facility............... $ 27,800 $ 27,800 $ 7,100 $ 7,100
Bank A Term Loans...................... 194,554 194,554 220,000 220,000
Bank B Term Loans...................... 343,716 343,716 222,750 222,750
11 3/4% Senior Subordinated Notes due
June 15, 2002......................... 135,000 144,500 135,000 144,500
13 1/4% Senior Subordinated Debentures
due December 15, 2002................. 58,940 59,235 201,263 205,873
Cumulative Exchangeable Redeemable Pre-
ferred Stock.......................... 52,998 58,671 -- --
Interest Rate Swap Agreements.......... -- 504 -- --
</TABLE>
F-15
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
Methods and assumptions used in estimating fair values are as follows:
Cash and cash equivalents: The carrying amount reported in the balance sheet
for cash and cash equivalents approximates fair value due to the short
duration of those investments.
Short and long-term debt: The carrying amounts of the Company's borrowings
under its working capital loans and variable-rate borrowings approximate their
fair value. The fair values of fixed-rate borrowings are based on quoted
market prices.
Convertible exchangeable preferred stock: The fair value of the preferred
stock is estimated based on quoted market prices.
Interest rate swap agreements: Fair values of interest rate swap agreements
reflect the estimated amounts that the Company would receive to terminate the
contracts at the reporting date based on quoted market prices.
11. COMMITMENTS
The Company has a number of noncancelable operating leases for office and
plant facilities, equipment and automobiles that expire at various dates
through 2020. Certain operating leases have renewal options. Minimum future
rental payments under these leases are (dollars in thousands):
<TABLE>
<S> <C>
1997................................. $13,779
1998................................. 10,615
1999................................. 8,181
2000................................. 6,257
2001................................. 4,431
2002 and thereafter.................. 9,213
-------
$52,476
=======
</TABLE>
Rent expense was approximately $13.9 million in 1996; $10.8 million in 1995;
and $9.1 million in 1994.
12. RETIREMENT PLANS
The Company sponsors pension and defined contribution plans which cover
substantially all employees, other than union employees covered by multi-
employer defined benefit pension plans under collective bargaining agreements.
Pension benefits are provided based on either a career average, final pay or
years of service formula. With respect to certain hourly employees, pension
benefits are provided for based on stated amounts for each year of service. It
is the Company's policy to fund accrued pension and defined contribution costs
in compliance with ERISA requirements. Assets of the plans consist primarily
of equity and bond funds.
F-16
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
The following table sets forth the funded status of the Company's retirement
plans as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
PLANS IN WHICH PLANS IN WHICH
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS
---------------- ----------------
1996 1995 1996 1995
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit ob-
ligations:
Vested benefit obligations........... $14,009 $12,135 $33,558 $31,465
Non-vested benefit obligations....... 383 547 4,718 3,158
------- ------- ------- -------
Accumulated benefit obligations........ 14,392 12,682 38,276 34,623
Additional benefits due to future
salary levels.......................... 6,255 5,667 6,526 7,132
------- ------- ------- -------
Projected benefit obligations.......... 20,647 18,349 44,802 41,755
Plan assets at fair value.............. 15,055 12,988 31,265 23,535
------- ------- ------- -------
Projected benefit obligation in excess
of plan assets....................... 5,592 5,361 13,537 18,220
Unrecognized actuarial gain (loss)..... 110 (165) 3,476 1,237
Unrecognized prior service costs....... (565) (615) (2,052) (2,128)
Additional minimum liability........... -- -- 1,124 1,990
------- ------- ------- -------
Accrued pension liability recognized in
the balance sheet..................... $ 5,137 $ 4,581 $16,085 $19,319
======= ======= ======= =======
</TABLE>
For certain pension plans with accumulated benefits in excess of plan assets
at December 31, 1996 and December 31, 1995, the balance sheet reflects an
additional minimum pension liability and related intangible asset of $1.1
million and $2.0 million, respectively.
The components of net periodic pension costs for defined benefit plans are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost.................................... $ 5,229 $ 3,067 $ 2,947
Interest cost................................... 4,452 3,887 3,334
Actual loss (return) on assets.................. (3,946) (7,284) 539
Net amortization and deferrals.................. 650 5,008 (2,698)
------- ------- -------
Net periodic pension cost....................... $ 6,385 $ 4,678 $ 4,122
======= ======= =======
</TABLE>
The Company participates in several multi-employer pension plans which
provide defined benefits to certain of its union employees. The composition of
total pension cost for 1996, 1995, and 1994 in the Company's Consolidated
Statements of Operations is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net periodic pension cost.......................... $ 6,385 $4,678 $4,122
Settlement and curtailment losses, net............. 48 418 --
Contributions to multi-employer union plans........ 3,813 2,708 2,700
------- ------ ------
Total pension costs................................ $10,246 $7,804 $6,822
======= ====== ======
</TABLE>
F-17
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
The assumptions used in determining the actuarial present value of plan
benefit obligations as of December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate........................................... 7.5% 7.5% 8.5%
Weighted average rate of compensation increase.......... 4.0% 4.0% 4.5%
Expected long-term rate of return on plan assets........ 9.0% 8.5% 8.5%
</TABLE>
The Company also sponsors defined contribution pension and profit sharing
plans covering substantially all employees. Company contributions to these
plans are based upon employee contributions and operating profitability.
Contributions charged to income for these plans were $4.5 million in 1996;
$1.7 million in 1995; and $2.5 million in 1994. Improved operating performance
in 1996 as compared to 1995 resulted in greater contributions to the Company's
profit sharing plans.
13. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company has defined benefit health care and life insurance plans that
provide postretirement benefits to certain employees. The plans are
contributory, with retiree contributions adjusted annually, and contain cost
sharing features including deductibles and coinsurance. Retiree health
benefits are paid as covered expenses are incurred.
The following table presents the funded status of the postretirement plans
and amounts recognized in the Company's balance sheet as of December 31, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees................ $ 2,691 $ 1,587
Fully eligible active
plan participants...... 5,576 11,647
Other active plan par-
ticipants.............. 18,214 14,770
----------- -----------
Total accumulated
postretirement benefit
obligation............... 26,481 28,004
Unrecognized net loss
(gain)................... 2,993 (2,929)
Unrecognized prior service
costs.................... (275) (298)
----------- -----------
Accrued postretirement
benefit liability........ $ 29,199 $ 24,777
=========== ===========
</TABLE>
Net periodic postretirement benefit cost include the following components:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost.......................................... $ 871 $ 372 $321
Interest cost......................................... 1,766 1,097 412
Net amortization and deferral......................... 25 42 (14)
------ ------ ----
Net periodic postretirement benefit cost.............. $2,662 $1,511 $719
====== ====== ====
</TABLE>
The weighted average discount rate used to determine the accumulated
postretirement benefit obligation as of December 31, 1996 and 1995 was 7.5%.
The net periodic postretirement benefit costs were calculated using a discount
rate of 7.5% in 1996 and discount rates ranging from 7.5% to 8.5% for 1995.
The assumed health care cost trend rates used in measuring the accumulated
postretirement benefit obligation in 1996 ranged from 10% to 9.5% for pre-age
65 retirees and was 9.0% for post-age 65 retirees, declining gradually to an
ultimate rate of 5.5% over the next 12 years.
F-18
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
A 1% increase in the health care cost trend rate assumption would increase
the accumulated postretirement benefit obligation as of December 31, 1996 by
approximately $1.7 million and increase the aggregate of the service and
interest cost components of the net periodic postretirement benefit cost for
1996 by approximately $0.2 million.
14. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal.................................... $ -- $ 500 $ 2,500
State...................................... 3,000 1,900 3,200
Foreign.................................... 300 100 (100)
------- ------- -------
3,300 2,500 5,600
Deferred
Federal.................................... -- -- --
State...................................... -- -- --
Foreign.................................... -- -- --
------- ------- -------
-- -- --
------- ------- -------
$ 3,300 $ 2,500 $ 5,600
======= ======= =======
Income tax expense is included in the financial statements as follows:
<CAPTION>
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income before extraordinary charges.......... $ 3,300 $ 5,100 $ 5,600
Extraordinary charges........................ -- (2,600) --
------- ------- -------
$ 3,300 $ 2,500 $ 5,600
======= ======= =======
The income tax provision varied from that computed by using the U.S.
statutory rate as a result of the following:
<CAPTION>
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income tax benefit at the U.S. Federal
income tax rate............................. $11,100 $(3,811) $(2,601)
State and foreign tax expense, net of Federal
income benefit.............................. 2,145 1,820 2,015
Amortization of goodwill..................... 621 471 576
Change in valuation allowance................ (10,566) 6,620 5,610
------- ------- -------
$ 3,300 $ 5,100 $ 5,600
======= ======= =======
</TABLE>
F-19
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets at December 31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation........................... $ 65,000 $ 53,400
Book over tax basis of assets acquired............... 13,200 16,100
Other................................................ 4,100 3,900
-------- --------
Total deferred tax liabilities..................... 82,300 73,400
Deferred tax assets:
Book reserves not yet deductible for tax purposes.... 59,200 56,300
Deferred interest on high yield obligations.......... 7,700 25,100
Net operating loss carryforwards..................... 57,200 35,600
Other................................................ 500 1,200
-------- --------
Total deferred tax assets.......................... 124,600 118,200
Valuation allowance for deferred tax assets.......... 49,136 51,636
-------- --------
Net deferred tax assets............................ 75,464 66,564
-------- --------
Net deferred tax liabilities........................... $ 6,836 $ 6,836
======== ========
</TABLE>
The Company has a net deferred tax asset position primarily as a result of
its net operating loss carryforwards and net temporary differences. In years
prior to 1996 the Company reported book losses, therefore, under current
accounting principles the full amount of the deferred tax asset has been
offset by a valuation allowance. The valuation allowance will be reduced at
the time it is more likely than not that the Company will generate taxable
income sufficient to realize a portion of the tax benefits associated with the
net operating loss carryforwards and future deductible temporary differences.
The Company believes this will occur in 1997. At the time the valuation
allowance is reduced a portion of the benefit will be recorded as a reduction
to income tax expense and the remainder will be recorded as a reduction to
goodwill.
The valuation allowance decline in 1996 represented the reversal of the
reserve for prior years' operating losses not previously recognized, net of
the additional deferred tax asset recorded as a result of the finalization of
the purchase price allocation for AN Can.
The Company files a consolidated federal income tax return. At December 31,
1996, the Company has net operating loss carryforwards of approximately $164.0
million which are available to offset future consolidated taxable income of
the group and expire from 2001 through 2011. The Company also has $3.9 million
of alternative minimum tax credits which are available indefinitely to reduce
future tax payments for regular federal income tax purposes.
15. ACQUISITION RESERVES
In connection with the acquisition of AN Can, the Company has finalized its
plant rationalization and integration plans. These plans consist primarily of
the closing or downsizing of certain manufacturing plants and the integration
of the selling, general and administrative functions of the former AN Can
operations with the Company. Provisions were established for such planned
costs which include approximately $22.6 million related to employee severance
and relocation costs, $3.5 million related to administrative workforce
reductions, and $23.4 million related to plant exit costs and other
acquisition liabilities. The timing of the plant rationalizations, among other
things, will be
F-20
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
dependent on covenants in existing labor agreements and accordingly these
costs will be incurred during the period through 1998. During 1996 and 1995,
respectively, costs of $6.5 million and $0.9 million were incurred primarily
for relocation and severance in connection with administrative workforce
reductions.
16. CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK
On July 22, 1996, the Company issued 50,000 shares of Preferred Stock,
mandatorily redeemable in 2006, at $1,000 per share which represents the
liquidation preference of the Preferred Stock. The Company used $35.8 million
of these proceeds to purchase 250,000 shares of its Class B Common Stock held
by Mellon Bank, as trustee for First Plaza Group Trust, pursuant to its right
to purchase such stock for such amount under the Organization Agreement. In
aggregate, common stock and additional paid in capital were reduced by $15.0
million, the original issuance amount received for such Class B Common Stock,
and the remainder of the payment was applied to Holdings' accumulated deficit.
The Preferred Stock holders are entitled to receive cumulative dividends of
13 1/4% per annum, which are payable quarterly in cash or, on or prior to July
15, 2000 at the sole option of the Company, in additional shares of Preferred
Stock. After July 15, 2000, dividends may be paid only in cash. During 1996,
dividends of $1.6 million were paid in additional shares of Preferred Stock.
As of December 31, 1996, the Company accrued dividends of $1.4 million, which
it intends to pay in additional shares of Preferred Stock.
The Preferred Stock is exchangeable into Holdings' Subordinated Debentures
due 2006 (the "Exchange Debentures"), in whole but not in part, at any time at
the option of the Company, subject to certain conditions. The Exchange
Debentures will bear interest at the dividend rate in effect with respect to
the Preferred Stock. Interest on the Exchange Debentures will be payable semi-
annually and, on or prior to July 15, 2000, the Company may pay such interest
by issuing additional Exchange Debentures. If by July 22, 1997 the Preferred
Stock has not been exchanged for Exchange Debentures, the dividend rate on the
Preferred Stock will increase by 0.5% per annum to 13 3/4% per annum until
such exchange occurs.
The Company is required to redeem the Preferred Stock or Exchange Debentures
on July 15, 2006, but may elect to redeem the Preferred Stock or Exchange
Debentures, in whole or in part, at any time during the twelve month period
beginning July 15 of each of the years set forth below, at a redemption price
(expressed as a percentage of the liquidation preference of the Preferred
Stock or principal amount of the Exchange Debentures), plus an amount equal to
all the accumulated and unpaid dividends or accrued and unpaid interest.
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2000................................... 109.938%
2001................................... 106.625%
2002................................... 103.313%
2003 and thereafter.................... 100.000%
</TABLE>
In addition, all (but not less than all) of the outstanding Preferred Stock
or Exchange Debentures may be redeemed prior to July 15, 2000 for a redemption
price equal to 110% of the liquidation preference of the Preferred Stock plus
accrued and unpaid dividends, or 110% of the principal amount of the Exchange
Debentures plus accrued and unpaid interest, to the redemption date with the
proceeds of any sale by Holdings of its common stock.
F-21
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
The Preferred Stock will rank senior to all common stock of Holdings and
upon conversion, the Exchange Debentures will be subordinate to the
indebtedness of Holdings. The holders of the Preferred Stock do not have
voting rights except in certain limited circumstances. The Company's Credit
Agreement and various debt indentures restrict the Company's ability to, among
other things, pay dividends, incur additional indebtedness, and purchase or
redeem shares of capital stock.
17. 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.
The SARs extend to the shares covered by the options for the Containers and
Plastics plans and provide for the payment to the holders of the options of an
amount in cash equal to the excess of, in the case of Containers' plans, the
pro forma book value, as defined, of a share of common stock (or in the event
of a public offering or a change of control (as defined in such plan), the
fair market value of a share of common stock) over the exercise price of the
option, with certain adjustments for the portion of vested stock appreciation
rights not paid at the time of the recapitalization in June 1989; or, in the
case of Plastics' plan, in the event of a public offering or a change in
control (as defined in such plan), the fair market value of a share of common
stock over the exercise price of the option.
Prior to a public offering or change in control, should an employee leave
Containers, Containers has the right to repurchase, and the employee has the
right to require Containers to repurchase, the common stock of Containers held
by the employee at the then pro forma book value.
At December 31, 1996, there were outstanding options for 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, $2,122 to $4,933 for the Containers options and $126
to $993 for the Plastics options. The stock options and SARs generally become
exercisable ratably over a five-year period. At December 31, 1996, there were
18,600 options exercisable under the Holdings plan, 846 options/SARs
exercisable under the Containers plan, and 420 options/SARs exercisable under
the Plastics plan. For the year ended December 31, 1994, 9,000 options were
granted under the Holdings plan, 240 options were granted under the Containers
plan, and 900 options were granted under the Plastics plan. For the year ended
December 31, 1995, 300 options were granted under the Plastics plan. There
were no grants in 1996. For the years ended December 31, 1996, 1995, and 1994,
no options were exercised under any of the plans. The Company incurred charges
relating to the vesting of benefits under the stock option plans of $0.8
million in 1996 and 1995, and $1.5 million in 1994.
In the event of a public offering of any of Holdings' capital stock or a
change in control of Holdings, (i) the options granted by Containers and
Plastics pursuant to the plans and (ii) any stock issued by Containers upon
exercise of such options are convertible into either stock options or common
stock of
F-22
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
Holdings, as the case may be. The conversion of such options or shares will be
based upon a valuation of Holdings and an allocation of such value between the
subsidiaries after giving affect to, among other things, that portion of the
outstanding indebtedness of Holdings allocable to each such subsidiary.
For the year ended December 31, 1995, the fair value of the options granted
under the Plastic plan were not significant. Accordingly, the impact on net
income and earnings per share from the issuance of these options would not be
materially different from amounts currently reported and would not require
SFAS No. 123 pro forma disclosure.
18. DEFICIENCY IN STOCKHOLDERS' EQUITY
Deficiency in stockholders' equity includes the following classes of common
stock ($.01 par value):
<TABLE>
<CAPTION>
SHARES ISSUED AND
OUTSTANDING
DECEMBER 31,
SHARES -----------------
CLASS AUTHORIZED 1996 1995
----- ---------- ------- ---------
<S> <C> <C> <C>
A........................................... 500,000 417,500 417,500
B........................................... 667,500 417,500 667,500
C........................................... 1,000,000 50,000 50,000
--------- ------- ---------
2,167,500 885,000 1,135,000
========= ======= =========
</TABLE>
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 Stock does not have voting rights except in certain circumstances.
19. RELATED PARTY TRANSACTIONS
Pursuant to various management services agreements (the "Management
Agreements") entered into between Holdings, Silgan, Containers, Plastics, and
S&H, Inc. ("S&H"), a company wholly-owned by Mr. Silver, the Chairman and Co-
Chief Executive Officer of Holdings and Silgan, and Mr. Horrigan, the
President and Co-Chief Executive Officer of Holdings and Silgan, S&H provides
Holdings, Silgan and its subsidiaries with general management, supervision and
administrative services.
In consideration for its services, S&H receives a fee of 4.95% (of which
0.45% is payable to MS & Co.) of Holdings' consolidated earnings before
depreciation, amortization, interest and taxes ("EBIDTA") until EBIDTA has
reached the Scheduled Amount set forth in the Management Agreements and 3.3%
(of which 0.3% is payable to MS & Co.) after EBIDTA has exceeded the Scheduled
Amount up to the Maximum Amount as set forth in the Management Agreements,
plus reimbursement for all related out-of-pocket expenses. The total amount
incurred under the Management Agreements was $5.3 million in 1996, $5.4
million in 1995, and $5.0 million in 1994, and was allocated, based upon
EBIDTA, as a charge to operating income of each business segment. Included in
accounts payable at December 31, 1996 and 1995, was $0.1 million payable to
S&H. Under the terms of the Management Agreements, the Company has agreed,
subject to certain exceptions, to indemnify S&H and any of its affiliates,
officers, directors, employees, subcontractors, consultants or controlling
persons against any loss or damage they may sustain arising in connection with
the Management Agreements.
F-23
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
In connection with the Credit Agreement and its related amendments entered
into during 1996 and 1995, the banks thereunder (including Bankers Trust
Company) received fees totaling $1.6 million in 1996 and $17.2 million in
1995.
20. 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
tendered payment of $3.8 million to these former holders in 1995. 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.
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.
21. 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:
<TABLE>
<CAPTION>
NET OPER. IDENTIFIABLE DEP.& CAPITAL
SALES PROFIT ASSETS AMORT. EXPEND.
-------- ------ ------------ ------ -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
1996
Metal container &
specialty(1)............... $1,189.3 $106.1 $750.7 $44.7 $39.1
Plastic container.......... 216.4 18.4 158.5 14.6 17.6
-------- ------ ------ ----- -----
Total..................... $1,405.7 $124.5 $909.2 $59.3 $56.7
1995
Metal container &
specialty(1)............... $ 882.3 $ 58.2(2) $736.7 $31.6 $32.5
Plastic container.......... 219.6 13.2 159.4 13.8 19.4
-------- ------ ------ ----- -----
Total..................... $1,101.9 $ 71.4 $896.1 $45.4 $51.9
1994
Metal container &
specialty(1)............... $ 657.1 $ 59.8(3) $335.3 $23.1 $16.9
Plastic container.......... 204.3 (0.1)(3) 162.8 14.1 12.3
-------- ------ ------ ----- -----
Total..................... $ 861.4 $ 59.7 $498.1 $37.2 $29.2
</TABLE>
- --------
(1) Specialty packaging sales include closures, plastic bowls, and paper
containers used by processors and packagers in the food industry and are
not significant enough to be reported as a separate segment.
(2) Includes charge for reduction in carrying value of assets of $14.7 million
for the metal container segment.
(3) Includes charges for reduction in carrying value of assets of $7.2 million
for the metal container segment and $9.5 million for the plastic container
segment, respectively.
F-24
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
Operating profit is reconciled to income before tax as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Operating profit..................................... $124.5 $ 71.4 $ 59.7
Interest expense..................................... 89.4 80.7 65.8
Corporate expense.................................... 1.2 1.5 1.3
------ ------ ------
Income (loss) before income taxes.................. $ 33.9 $(10.8) $ (7.4)
====== ====== ======
Identifiable assets are reconciled to total assets as follows:
<CAPTION>
1996 1995 1994
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Identifiable assets.................................. $909.2 $896.1 $498.1
Corporate assets..................................... 4.3 3.9 6.2
------ ------ ------
Total assets....................................... $913.5 $900.0 $504.3
====== ====== ======
</TABLE>
Metal container and other segment sales to Nestle Food Company accounted for
17.1%, 21.4%, and 25.9% of net sales of the Company during the years ended
December 31, 1996, 1995, and 1994, respectively. Sales to Del Monte
Corporation accounted for 12.0%, 14.5%, and 21.4% of net sales of the Company
during the years ended December 31, 1996, 1995, and 1994, respectively.
22. PROPOSED INITIAL PUBLIC OFFERING (Unaudited)
The Company has filed a registration statement for a proposed initial public
offering ("IPO") of 3,700,000 shares of its Common Stock. In connection with
the IPO, Holdings intends to amend its Restated Certificate of Incorporation
to change its authorized capital stock to 100,000,000 shares of Common Stock,
par value $.01 per share, and 10,000,000 shares of preferred stock, par value
$.01 per share. In addition, immediately prior to the closing of the IPO,
Holdings intends to convert its existing Class A, Class B and Class C Common
Stock to Common Stock on a one for one basis, and thereafter, to effect a
17.133145 to 1 stock split. Holdings intends to use the estimated net proceeds
from the IPO to redeem the remaining Discount Debentures outstanding
(approximately $59.0 million) and to repay a portion of the bank term loans.
Upon completion of the proposed IPO, the Company will recognize a non-cash
charge of approximately $21.1 million (assuming an initial public offering
price of $19.00 per share in the IPO), net of $3.7 million previously accrued,
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 $0.7 million, net of tax, for the write-off of unamortized
deferred financing costs related to the early redemption of the remaining
Discount Debentures.
F-25
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
Presented below are the income (loss) per common share of the Company for
the years ended December 31, 1996, 1995 and 1994 (assuming that the initial
public offering is completed as proposed) based upon the weighted average
number of common and common equivalent shares that would have been outstanding
for all periods presented. Common stock equivalents include options that would
have been outstanding under Holdings' stock option plan upon completion of the
IPO.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Income (loss) per common share:
Income (loss) before extraordinary
charges.................................. $ 1.60 $ (0.77) $ (0.63)
Extraordinary charges..................... (0.11) (0.29) --
Preferred stock dividend requirement...... (0.16) -- --
---------- ---------- ----------
Net income (loss)......................... $ 1.33 $ (1.06) $ (0.63)
========== ========== ==========
Weighted average common shares
outstanding.............................. 17,556,780 19,446,120 19,446,120
Common stock equivalents.................. 1,612,675 1,201,479 1,201,479
---------- ---------- ----------
Shares used to compute income (loss) per
share.................................... 19,169,455 20,647,599 20,647,599
========== ========== ==========
</TABLE>
F-26
