<PAGE>
PURSUANT TO RULE NO. 424(b)(4)
REGISTRATION STATEMENT NO. 333-11989
4,500,000 SHARES
[LOGO OF SILGAN HOLDINGS INC.]
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
---------------
Of the 4,500,000 shares of Common Stock offered hereby, 3,700,000 shares are
being sold by the Company and 800,000 shares are being sold by the Selling
Stockholders. See "Principal and Selling Stockholders". The Company will not
receive any of the proceeds from the sale of the shares being sold by the
Selling Stockholders.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. For factors considered in determining the initial public
offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "SLGN".
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
<TABLE>
<CAPTION>
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS
-------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Per Share.................. $20.00 $1.40 $18.60 $18.60
Total(3)................... $90,000,000 $6,300,000 $68,820,000 $14,880,000
</TABLE>
- --------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deducting estimated expenses of $1,000,000 payable by the Company.
(3) The Selling Stockholders have granted the Underwriters an option for 30
days to purchase up to an additional 675,000 shares at the initial public
offering price per share, less the underwriting discount, solely to cover
over-allotments. If such option is exercised in full, the total initial
public offering price, underwriting discount, proceeds to Company and
proceeds to Selling Stockholders will be $103,500,000, $7,245,000,
$68,820,000 and $27,435,000, respectively. See "Underwriting".
---------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York,
on or about February 20, 1997, against payment therefor in immediately
available funds.
GOLDMAN, SACHS & CO.
MORGAN STANLEY & CO.
INCORPORATED
SALOMON BROTHERS INC
---------------
The date of this Prospectus is February 13, 1997.
<PAGE>
[Reserved for photographs]
The Company intends to furnish to its stockholders annual reports containing
audited financial statements and quarterly reports containing unaudited
interim financial information for the first three quarters of each year of the
Company.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the consolidated financial
statements of the Company contained elsewhere in this Prospectus, as well as
the information appearing in the documents incorporated by reference herein.
Unless otherwise indicated or unless the context otherwise requires, (i) the
term "Holdings" means Silgan Holdings Inc., a Delaware corporation, the term
"Company" means the combined business operations of Holdings and its
subsidiaries, and the term "Silgan" means Silgan Corporation, a Delaware
corporation and a wholly owned subsidiary of Holdings; (ii) all share and per
share data have been adjusted to reflect the 17.133145 to 1 stock split of the
outstanding Common Stock of Holdings effected by Holdings in connection with
the Offering (the "Stock Split"), as described under "Description of Capital
Stock"; and (iii) the information contained in this Prospectus (A) gives effect
to the amendment to Holdings' restated certificate of incorporation to convert
the separate classes of common stock of Holdings into one class of common stock
of Holdings (see "Description of Capital Stock") and (B) assumes the
Underwriters' over-allotment option is not exercised. Certain information
contained in this summary and elsewhere in this Prospectus, including
information under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and information with respect to the Company's
expected operations, expected financial results, cost savings, plans and
strategy for its business and related financing, are forward-looking
statements. For a discussion of important factors that could cause actual
results to differ materially from the forward-looking statements, see "Risk
Factors".
THE COMPANY
The Company is a leading North American manufacturer of consumer goods
packaging products that currently produces (i) steel and aluminum containers
for human and pet food, (ii) custom designed plastic containers for personal
care, health, food, pharmaceutical and household chemical products and (iii)
specialty packaging items, including metal caps and closures, plastic bowls and
paper containers used by processors in the food industry. The Company is the
largest manufacturer of metal food containers in North America, with a unit
sale market share for the twelve months ended October 31, 1996 of 35% in the
United States, and is a leading manufacturer of plastic containers in North
America for personal care products. The Company's strategy is to increase
shareholder value by growing its existing businesses and expanding into other
segments by applying its expertise in acquiring, financing, integrating and
efficiently operating consumer goods packaging businesses.
The Company was founded in 1987 by its current Co-Chief Executive Officers.
Since its inception, the Company has acquired and successfully integrated ten
businesses, including the recent acquisitions of substantially all of the
assets of the Food Metal and Specialty business ("AN Can") of American National
Can Company ("ANC") in August 1995 for a purchase price of approximately $362.0
million (including net working capital of approximately $156.0 million) and the
U.S. metal container manufacturing business ("DM Can") of Del Monte Corporation
("Del Monte") in December 1993 for a purchase price of approximately $73.3
million (including net working capital of approximately $21.9 million). In
addition, on October 9, 1996 the Company completed its acquisition of Finger
Lakes Packaging Company, Inc. ("Finger Lakes"), the metal food container
manufacturing subsidiary of Curtice Burns Foods, Inc. ("Curtice Burns"). See
"--Recent Developments". The Company's strategy has enabled it to rapidly
increase its net sales and income from operations. The Company's net sales have
increased from $630.0 million in 1992 to $1,405.7 million in 1996, representing
a compound annual growth rate of approximately 22%. During this period, income
from operations increased from
3
<PAGE>
$42.2 million in 1992 to $123.3 million in 1996, representing a compound annual
growth rate of approximately 31%, while the Company's income from operations as
a percentage of net sales increased 2.1 percentage points from 6.7% to 8.8%
over the same period.
The Company's philosophy, which has contributed to its strong performance
since inception, is based on: (i) a significant equity ownership by management
and an entrepreneurial approach to business, (ii) its low cost producer
position and (iii) its long-term customer relationships. The Company's senior
management has a significant ownership interest in the Company, which fosters
an entrepreneurial management style and places a primary focus on creating
shareholder value. The Company has achieved a low cost producer status through
(i) the maintenance of a flat, efficient organizational structure, resulting in
low selling, general and administrative expenses as a percentage of total net
sales, (ii) purchasing economies, (iii) significant capital investments that
have generated manufacturing and production efficiencies, (iv) plant
consolidations and rationalizations and (v) the proximity of its plants to its
customers. The Company's philosophy has also been to develop long-term customer
relationships by acting in partnership with its customers, providing reliable
quality and service and utilizing its low cost producer position. This
philosophy has resulted in numerous long-term supply contracts, high retention
of customers' business and recognition from its customers, as demonstrated by
many quality and service awards.
GROWTH STRATEGY
The Company intends to enhance its position as a leading supplier of consumer
goods packaging products by aggressively pursuing a strategy designed to
achieve future growth and to increase profitability. The key components of this
strategy are to (i) increase the Company's market share in its current business
lines through acquisitions and internal growth, (ii) expand into complementary
business lines by applying the Company's acquisition and operating expertise to
other areas of the North American consumer goods packaging market and (iii)
improve the profitability of acquired businesses through integration,
rationalization and capital investments to enhance their manufacturing and
production efficiency.
INCREASE MARKET SHARE THROUGH ACQUISITIONS AND INTERNAL GROWTH. The Company
has increased its revenues and market share in the metal container, plastic
container and specialty markets through acquisitions and internal growth. As a
result of this strategy, the Company has diversified its customer base,
geographic presence and product line. Management believes that certain industry
trends exist which will enable the Company to continue to acquire attractive
businesses in its existing markets. For example, during the past ten years, the
metal container market has experienced significant consolidation due to the
desire by food processors to reduce costs and deploy resources to their core
operations. Self-manufacturers are increasingly outsourcing their container
needs by selling their operations to commercial container manufacturing
companies and agreeing to purchase containers from the buyer pursuant to long-
term contracts. The Company's acquisitions of the metal container manufacturing
operations of the Nestle Food Company ("Nestle"), The Dial Corporation and Del
Monte reflect this trend. As a result of its growth strategy, the Company has
more than tripled its overall share of the U.S. metal food container market
from approximately 10% in 1987 to approximately 35% for the twelve months ended
October 31, 1996. The Company expects this consolidation trend to continue as
evidenced by its October 9, 1996 acquisition of Finger Lakes. See "--Recent
Developments". The Company's plastic container business has also increased its
market position primarily through strategic acquisitions, from a sales base of
$88.8 million in 1987 to $216.4 million in 1996. The plastic container segment
of the consumer goods packaging industry is highly fragmented, and management
intends to pursue consolidation opportunities in that segment.
4
<PAGE>
The Company also expects to generate internal growth due to its participation
in certain higher growth segments of the consumer goods packaging market. For
example, due to increasing consumer preference for plastic as a substitute for
glass, the Company is aggressively pursuing opportunities for its custom
designed polyethylene terephthalate ("PET") and high density polyethylene
("HDPE") containers. These opportunities include producing PET containers for
regional bottled water companies, and HDPE and PET containers for products such
as shampoo, mouthwash, salad dressing and liquor. The Company also believes
that there will be opportunities to expand its specialty business, which
generated net sales of $90.7 million in 1996. Specialty products manufactured
by the Company include metal closures for vacuum sealed glass containers, its
licensed Omni plastic container, a plastic, microwaveable bowl with an easy-
open metal end, and paper containers.
EXPAND INTO COMPLEMENTARY BUSINESS LINES THROUGH ACQUISITIONS. Management
believes that it can successfully apply its acquisition and operating expertise
to new segments of the consumer goods packaging industry. For example, with the
AN Can acquisition, the Company expanded its specialty business into metal caps
and closures and its licensed Omni plastic container. Management believes that
certain trends in and characteristics of the North American consumer goods
packaging industry will continue to generate attractive acquisition
opportunities in complementary business lines. The Company is focused on the
North American consumer goods packaging industry, which represents a
significant part of the $95 billion North American packaging market (based on
estimated total sales in 1994). Importantly, the industry is also fragmented,
with numerous segments and multiple participants in each of them. In addition,
many of these segments are experiencing consolidation.
ENHANCE PROFITABILITY OF ACQUIRED COMPANIES. The Company seeks to acquire
businesses at reasonable cash flow multiples and to enhance profitability by
rationalizing plants, by improving manufacturing and production efficiencies
and through purchasing economies. Since 1991, the Company has reduced costs by
closing twelve smaller, higher cost facilities. Since its inception in 1987,
the Company has invested approximately $272.3 million to upgrade acquired
manufacturing facilities, aimed at generating manufacturing and production
efficiencies and achieving a low cost producer position. As a result, the
Company's acquisitions have generally been accretive to earnings and have
produced high returns on assets. The AN Can acquisition illustrates the ability
of the Company to enhance the profitability of acquired businesses. The Company
estimates that it has reduced AN Can's operating costs from its historical 1994
level by at least $21.0 million, through selling and administrative cost
reductions, improved manufacturing and production efficiencies and purchasing
economies. The Company expects to further reduce AN Can's operating costs over
the next few years by an aggregate of approximately $15.0 million
(approximately half of which is expected to be realized in 1997) through the
elimination of transitional administrative costs, the realization of additional
manufacturing and production synergies with its metal container business and
plant rationalizations.
FINANCIAL STRATEGY
The Company's financial strategy has been to use leverage to support its
growth and optimize shareholder returns. The Company's stable and predictable
cash flow, generated largely as a result of its long-term customer
relationships, has supported its financial strategy. Management has
successfully operated its businesses and achieved its growth strategy while
managing the Company's indebtedness. Management intends to apply this strategy
to further expand its business. Additionally, the Offering will provide the
Company with improved financial flexibility to implement its growth strategy.
5
<PAGE>
MANAGEMENT
The Company was founded by R. Philip Silver and D. Greg Horrigan, former
members of senior management of the packaging operations of Continental Group
Inc. ("Continental Can Company"), which in 1986 was one of the largest
packaging companies in the world. At Continental Can Company, Mr. Silver served
as President, and Mr. Horrigan served as Executive Vice President and Operating
Officer. The Company's senior members of management have on average 24 years of
experience in the packaging industry. Mr. Silver, Mr. Horrigan and other
members of senior management have a large ownership interest in the Company.
After the Offering, Messrs. Silver and Horrigan will collectively own 34.6%
(assuming that all outstanding stock options have been exercised in full) of
the fully diluted Common Stock and senior management (including Messrs. Silver
and Horrigan) will collectively own 43.4% (assuming that all outstanding stock
options have been exercised in full) of the fully diluted Common Stock. The
Company's ownership structure and philosophy align management's interests with
those of its shareholders.
BUSINESS SEGMENTS
Holdings is a holding company that conducts its business through two
operating companies, Silgan Containers Corporation ("Containers") and Silgan
Plastics Corporation ("Plastics"), each of which is a wholly owned subsidiary
of Silgan.
CONTAINERS. For 1996, Containers had net sales of $1,189.3 million (85% of
the Company's net sales) and income from operations of $106.1 million (85% of
the Company's income from operations) (without giving effect to corporate
expense). Containers manufactures metal containers for vegetables, fruit, pet
food, meat, tomato based products, coffee, soup, seafood and evaporated milk.
The Company estimates that approximately 80% of Containers' projected sales in
1997 will be pursuant to long-term supply arrangements. Containers also
manufactures certain specialty packaging items, including metal caps and
closures, plastic bowls and paper containers used by processors in the food
industry. For 1996, Containers had net sales of specialty packaging items of
$90.7 million.
PLASTICS. For 1996, Plastics had net sales of $216.4 million (15% of the
Company's net sales) and income from operations of $18.4 million (15% of the
Company's income from operations) (without giving effect to corporate expense).
Plastics emphasizes value-added design, fabrication and decoration of custom
containers in its business. Plastics manufactures custom designed HDPE
containers for health and personal care products, including containers for
shampoos, conditioners, hand creams, lotions, cosmetics and toiletries,
household chemical products, including containers for scouring cleaners,
cleaning agents and lawn and garden chemicals and pharmaceutical products,
including containers for tablets, antacids and eye cleaning solutions. Plastics
also manufactures PET custom designed containers for mouthwash, respiratory and
gastrointestinal products, liquid soap, skin care lotions, salad dressings,
condiments, instant coffee, bottled water and liquor.
6
<PAGE>
RECENT DEVELOPMENTS
ACQUISITION
On October 9, 1996, Containers acquired substantially all of the assets of
Finger Lakes, a metal food container manufacturer with facilities in Lyons, New
York and Benton Harbor, Michigan and a wholly owned subsidiary of Curtice
Burns, for a purchase price of approximately $29.9 million (including net
working capital of approximately $8.0 million). As part of the transaction,
Containers entered into a ten year supply agreement with Curtice Burns to
supply all of the metal food container requirements of Curtice Burns' Comstock
Michigan Fruit and Brooks Foods divisions. For its fiscal year ended June 29,
1996, Finger Lakes had net sales of $48.8 million. The Company financed this
acquisition through working capital borrowings under the Silgan Credit
Agreement (as defined herein).
The Company is continually evaluating and intends to continue to pursue
acquisition opportunities in the North American consumer goods packaging
market. Although the Company has no present agreements or commitments to make
any acquisition, the Company has expressed indications of interest or made
preliminary bids on three acquisition opportunities presented to it, which have
annual sales ranging from approximately $30 million to $250 million. Any such
acquisition may be financed through the incurrence of additional indebtedness.
No assurance can be given that the Company will complete any such acquisition.
See "Risk Factors--Risks Associated with Growth Strategy".
1996 FINANCIAL RESULTS
The Company's net sales for the year ended December 31, 1996 were $1,405.7
million, as compared to net sales of $1,101.9 million for the year ended
December 31, 1995. Net sales for the Company's metal container business for the
year ended December 31, 1996 were $1,189.3 million, an increase of $307.0
million from net sales of $882.3 million for the year ended December 31, 1995.
This increase was principally due to the fact that the Company had twelve
months of sales from AN Can in 1996 as compared to five months of sales in
1995. Net sales of the Company's metal container business for 1996 were also
slightly more than net sales, pro forma for the AN Can acquisition, of $1,184.8
million for 1995. Net sales of the Company's plastic container business for the
year ended December 31, 1996 were $216.4 million, as compared to net sales of
$219.6 million for the year ended December 31, 1995. This decrease was
principally due to the pass through of lower resin costs, offset by an increase
in unit volume.
Benefits realized from the AN Can acquisition and improved operating
performance in 1996 resulted in higher income from operations for the Company
for the year ended December 31, 1996, which was $123.3 million, as compared
with income from operations of $69.8 million and $92.7 million, historical and
pro forma for the AN Can acquisition respectively, for 1995 (in each case after
giving effect to a charge of $14.7 million in 1995 to adjust the carrying value
of certain assets).
The Company's net income applicable to common stockholders for the year ended
December 31, 1996 was $25.4 million. For the year ended December 31, 1995, the
Company incurred a historical net loss of $21.8 million (which included a
charge of $14.7 million to adjust the carrying value of certain assets). The
increase in net income in 1996 principally reflected the aforementioned
benefits realized from the acquisition of AN Can, improved operating
performance and plant consolidations, and the benefits of refinancing a portion
of the Discount Debentures in 1995 and 1996 with lower cost indebtedness. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
7
<PAGE>
REFINANCING
The Company has actively refinanced its higher cost indebtedness with lower
cost indebtedness. Since 1995, the Company will have refinanced all of
Holdings' 13 1/4% Senior Discount Debentures due 2002 (the "Discount
Debentures"), with the following: (i) lower cost bank indebtedness, (ii)
proceeds from the sale of Holdings' Exchangeable Preferred Stock Mandatorily
Redeemable 2006 (the "Exchangeable Preferred Stock") and (iii) proceeds from
the Offering. The net result of this refinancing will be approximately $19.5
million of annual current cash interest savings (excluding non-cash interest on
obligations related to the Exchangeable Preferred Stock). Such refinancing will
also permit the Company to deduct accreted interest of approximately $103.5
million on the Discount Debentures from their time of issuance, which will
reduce the Company's tax liability by an estimated $25.9 million for 1996 and
1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations". Holdings also intends to issue Subordinated Debentures
due 2006 (the "Exchange Debentures") in exchange for its Exchangeable Preferred
Stock. This will allow the Company to deduct substantially all of the cash
payments of interest on the Exchange Debentures.
THE OFFERING
Common Stock offered by the
Company.................... 3,700,000 shares
Common Stock offered by the
Selling Stockholders....... 800,000 shares
Total...................
4,500,000 shares
Common Stock to be
outstanding after this 18,862,833 shares(a)
offering (the
"Offering")................
Use of Proceeds............. The net proceeds from the Offering to the Company
will be used to redeem the remaining Discount
Debentures and to repay a portion of the term
loans under the Silgan Credit Agreement. See "Use
of Proceeds".
Nasdaq Symbol............... SLGN
- --------
(a) Excludes 3,533,414 shares of Common Stock reserved for issuance under the
Silgan Holdings Inc. Stock Option Plan (the "Stock Option Plan"). There are
currently 1,820,100 options outstanding under the Stock Option Plan, each
of which entitles the holder thereof to purchase one share of Common Stock.
See "Management--Stock Option Plan". The weighted average exercise price
for all of the options currently outstanding under the Stock Option Plan is
$2.18 per share.
8
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following summary historical and pro forma financial data of Holdings
were derived from, and should be read in conjunction with, the historical
financial statements and pro forma financial information of Holdings, including
the notes thereto, included elsewhere in this Prospectus.
The summary unaudited pro forma net income per common share data for the year
ended December 31, 1996 give effect to (i) the Offering and the use of the
proceeds therefrom, (ii) the use of the proceeds from the sale (the "Preferred
Stock Sale") on July 22, 1996 by Holdings of 50,000 shares of Exchangeable
Preferred Stock to (a) purchase Holdings' Class B Common Stock, par value $.01
per share (the "Holdings Class B Stock"), held by Mellon Bank N.A. ("Mellon"),
as trustee for First Plaza Group Trust ("First Plaza"), and (b) redeem $12.0
million principal amount of Discount Debentures, (iii) the incurrence of $125.0
million of additional B term loans in July 1996 and $17.4 million of working
capital loans in June 1996 under the Silgan Credit Agreement, and the use of
such proceeds to redeem a portion of the Discount Debentures, and (iv) the
planned exchange of the Exchangeable Preferred Stock for Exchange Debentures
(collectively, the "Refinancing") as if such events had occurred as of January
1, 1996. The summary unaudited pro forma balance sheet data at December 31,
1996 give effect to the Refinancing (other than events that occurred prior to
such date) as if it had occurred as of such date.
The summary unaudited pro forma data do not purport to represent what the
Company's financial position or results of operations would actually have been
if such events had in fact occurred as of such dates or at the beginning of the
periods presented, or to project the Company's financial position or results of
operations for any future date or period. The summary unaudited pro forma data
and accompanying notes should be read in conjunction with the unaudited pro
forma condensed statements of operations and the historical financial
information of Holdings, including the notes thereto, included elsewhere in
this Prospectus.
9
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996(A) 1995(A) 1994(B) 1993(B) 1992
---------- ---------- ---------- ---------- ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales............... $ 1,405.7 $ 1,101.9 $ 861.4 $ 645.5 $ 630.0
Cost of goods sold...... 1,223.6 970.5 748.3 571.2 555.0
---------- ---------- ---------- ---------- ----------
Gross profit............ 182.1 131.4 113.1 74.3 75.0
Selling, general and
administrative
expenses............... 58.8 46.9 38.0 32.5 32.8
Reduction in carrying
value of assets(c)..... -- 14.7 16.7 -- --
---------- ---------- ---------- ---------- ----------
Income from
operations(d).......... 123.3 69.8 58.4 41.8 42.2
Interest expense and
other related financing
costs.................. 89.4 80.7 65.8 54.3 57.0
Minority interest
expense................ -- -- -- -- 2.7
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes........... 33.9 (10.9) (7.4) (12.5) (17.5)
Income tax provision.... 3.3 5.1 5.6 1.9 2.2
---------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary charges
and cumulative effect
of changes in
accounting principles.. 30.6 (16.0) (13.0) (14.4) (19.7)
Extraordinary charges
relating to early
extinguishment of
debt(e)................ (2.2) (5.8) -- (1.3) (23.6)
Cumulative effect of
changes in accounting
principles(f).......... -- -- -- (6.3) --
---------- ---------- ---------- ---------- ----------
Net income (loss) before
preferred stock
dividend requirement... 28.4 (21.8) (13.0) (22.0) (43.3)
Preferred stock dividend
requirement............ (3.0) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss)
applicable to common
stockholders........... $ 25.4 $ (21.8) $ (13.0) $ (22.0) $ (43.3)
========== ========== ========== ========== ==========
Net income (loss) per
common share(g):
Income (loss) before
extraordinary
charges............... $ 1.60 $ (0.77) $ (0.63) $ (0.87) $ (1.21)
Extraordinary charges.. (0.12) (0.29) -- (0.08) (1.44)
Cumulative effect of
accounting changes.... -- -- -- (0.38) --
Preferred stock
dividend requirement.. (0.16) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total................. $ 1.32 $ (1.06) $ (0.63) $ (1.33) $ (2.65)
========== ========== ========== ========== ==========
Pro forma net income per
common
share(d)(e)(g)(h)...... $ 1.80
==========
Weighted average number
of common and
common equivalent
shares outstanding(i).. 19,178,730 20,656,877 20,656,877 16,479,206 16,373,591
SELECTED SEGMENT DATA:
Net sales:
Metal container
business.............. $ 1,189.3 $ 882.3 $ 657.1 $ 459.2 $ 437.4
Plastic container
business.............. 216.4 219.6 204.3 186.3 192.6
Income (loss) from
operations:(j)
Metal container
business.............. 106.1 58.2 59.8 42.3 40.7
Plastic container
business.............. 18.4 13.2 (0.1) 0.6 2.3
OTHER DATA:
Adjusted EBITDA(k)...... $ 186.0 $ 132.4 $ 114.5 $ 76.1 $ 74.0
Adjusted EBITDA as a
percentage of net
sales.................. 13.2% 12.0% 13.3% 11.8% 11.7%
Income from operations
as a percentage of net
sales.................. 8.8 6.3 6.8 6.5 6.7
Capital expenditures.... $ 56.9 $ 51.9 $ 29.2 $ 42.5 $ 23.4
Depreciation and
amortization(l)........ 58.6 45.4 37.2 33.8 31.8
Cash flows provided by
operating activities... 125.2 209.6 47.3 48.1 15.4
Cash flows used for
investing activities... (98.3) (397.1) (27.9) (116.1) (23.0)
Cash flows (used for)
provided by financing
activities............. (27.9) 186.9 (17.0) 65.3 8.6
Number of employees (at
end of period)(m)...... 5,525 5,110 4,000 3,330 3,340
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------
ACTUAL PRO FORMA(H)
------ ------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA (at end of period):
Total assets............................................... $913.5 $912.7
Total long-term debt....................................... 693.8 687.8
Deficiency in stockholders' equity......................... (190.2) (119.3)
</TABLE>
(footnotes follow)
10
<PAGE>
NOTES TO SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(a) On August 1, 1995, the Company acquired AN Can for a purchase price of
$362.0 million (including the purchase from ANC of its St. Louis facility
in May 1996 for $13.1 million). The acquisition was accounted for as a
purchase transaction and the results of operations have been included with
the Company's historical results from the acquisition date. See Note 3 to
the Consolidated Financial Statements for the year ended December 31, 1996
included elsewhere in this Prospectus.
(b) On December 21, 1993, the Company acquired DM Can for a purchase price of
approximately $73.3 million. The acquisition was accounted for as a
purchase transaction and the results of operations have been included with
the Company's historical results from the acquisition date.
(c) Based upon a review of its depreciable assets, the Company determined that
certain adjustments were necessary to properly reflect net realizable
values. In 1995, the metal container business recorded a write-down of
$14.7 million for the excess of carrying value over estimated realizable
value of machinery and equipment at existing facilities which had become
underutilized due to excess capacity. In 1994, charges of $7.2 million and
$9.5 million were recorded by the metal container business and plastic
container business, respectively, to write-down the excess carrying value
over estimated realizable value of various plant facilities held for sale
and for technologically obsolete and inoperable machinery and equipment.
(d) Under the terms of the stock option plans of Containers and Plastics, stock
options issued under such plans will be converted to options under the
Stock Option Plan at the time of the Offering. In accordance with
Accounting Principles Board ("APB") No. 25, options granted under these
plans are considered variable options with a final measurement date at the
time of conversion. The Company will recognize a non-cash charge of
approximately $22.5 million, net of $3.7 million previously accrued, at the
time of the Offering in the Company's first quarter in 1997, for the excess
of fair market value over grant price of these options less amounts
previously accrued. The unaudited pro forma financial data do not give
effect to such non-cash charge. Prior to the Offering, the Company
recognized compensation expense for the change in pro forma book value
since the date of grant of these options, amortized over the vesting
period.
(e) The unaudited pro forma net income per common share data for the year ended
December 31, 1996 does not include the historical extraordinary charge, net
of tax, incurred in 1996 and an extraordinary charge, net of tax, that the
Company expects to incur in the first quarter of 1997 of $0.7 million, in
each case for the write-off of unamortized deferred financing costs related
to the early redemption of the Discount Debentures. See "Capitalization".
(f) During 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 106, "Employers Accounting for Postretirement
Benefits Other than Pensions," SFAS No. 109, "Accounting for Income Taxes"
and SFAS No. 112, "Employers Accounting for Postemployment Benefits". The
Company did not elect to restate prior years' financial statements for any
of these pronouncements.
(g) Actual and pro forma net income (loss) per share are based on the weighted
average number of shares outstanding during the period, as adjusted in all
periods for the Stock Split, and after giving effect to stock options
considered to be dilutive common stock equivalents using the treasury stock
method. Primary and fully diluted net income (loss) per share are the same
for each of the periods. Under the terms of the stock option plans of
Containers and Plastics, stock options issued under such plans will be
converted to options under the Stock Option Plan at the time of the
Offering. Such conversion will be made based upon the allocable value of
Containers and Plastics determined in relation to the value of the Company.
Weighted average number of shares outstanding includes the subsidiary
options which are considered to be issued within 12 months
11
<PAGE>
prior to the Offering at less than the assumed initial public offering
price due to their conversion feature as described in footnote (d) above.
Supplementary net income (loss) per share, assuming the repayment of the
indebtedness as described in "Use of Proceeds" as of January 1, 1996, was
$1.42 for the year ended December 31, 1996.
(h) The unaudited pro forma net income per common share data for the year
ended December 31, 1996 and the unaudited pro forma balance sheet data at
December 31, 1996 give effect to the Offering and the use by the Company
of the net proceeds to be received by it therefrom as described under "Use
of Proceeds". For a detailed presentation of the unaudited pro forma
results of operations of the Company for the year ended December 31, 1996,
see the unaudited pro forma condensed statement of operations, including
the notes thereto, included elsewhere in this Prospectus. See
"Capitalization".
(i) The weighted average number of common and common equivalent shares
outstanding gives effect to the Stock Split.
(j) Income from operations in the selected segment data includes charges
incurred for the reduction in carrying value of certain assets for the
metal containers business of $14.7 million and $7.2 million for the years
ended December 31, 1995 and 1994 and for the plastic containers business
of $9.5 million for the year ended December 31, 1994, as referred to in
footnote (c) above. Income from operations for both the metal container
and plastic container businesses excludes corporate expense.
(k) "Adjusted EBITDA" means consolidated net income before extraordinary
charges, cumulative effect of changes in accounting principles and
preferred stock dividends plus, to the extent reflected in the income
statement for the applicable period, without duplication, consolidated
interest expense, income tax expense and depreciation and amortization
expense, as adjusted to add back expenses relating to postretirement
health care costs (which amounted to $2.6 million, $1.7 million, $0.7
million and $0.5 million for the years ended December 31, 1996, 1995, 1994
and 1993, respectively), the reduction in carrying value of assets (which
were $14.7 million and $16.7 million for the years ended December 31, 1995
and 1994, respectively) and certain other non-cash charges (which included
charges relating to the vesting of benefits under Stock Appreciation
Rights ("SARs") of $0.8 million for each of the years ended December 31,
1996 and 1995 and $1.5 million for the year ended December 31, 1994). The
Company has included information regarding Adjusted EBITDA because
management believes that many investors consider it to be important in
assessing a company's ability to service and incur debt. Accordingly, this
information has been disclosed herein to permit a more complete analysis
of the Company's financial condition. Adjusted EBITDA should not be
considered in isolation or as a substitute for net income or other
consolidated statement of operations or cash flows data prepared in
accordance with generally accepted accounting principles ("GAAP") as a
measure of the profitability or liquidity of the Company. See the
consolidated statements of operations and consolidated statements of cash
flows of Holdings, including the notes thereto, included elsewhere in this
Prospectus. Adjusted EBITDA does not take into account the Company's debt
service requirements and other commitments and, accordingly, is not
necessarily indicative of amounts that may be available for discretionary
uses. Additionally, Adjusted EBITDA is not computed in accordance with
GAAP and may not be comparable to other similarly titled measures of other
companies.
(l) Depreciation and amortization excludes amortization of debt financing
costs.
(m) The number of employees at December 31, 1995 includes approximately 1,400
employees who joined the Company on August 1, 1995 as a result of the
acquisition by Containers of AN Can. The number of employees at December
31, 1993 excludes 650 employees who joined the Company on December 21,
1993 as a result of the acquisition by Containers of DM Can.
12
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
carefully all of the information set forth in this Prospectus and, in
particular, should evaluate the following risks in connection with an
investment in the Common Stock.
HIGH LEVERAGE; STOCKHOLDERS' DEFICIENCY; RESTRICTIVE COVENANTS; SECURITY
INTERESTS
The Company is highly leveraged primarily as a result of the financing of
the acquisitions of its metal and plastic container businesses. See
"Business--Company History" and "Description of Certain Indebtedness". At
December 31, 1996, on a pro forma basis after giving effect to the Refinancing
(assuming that the Refinancing occurred as of such date, other than such
events that occurred prior to such date), the Company would have had
approximately $745.2 million of total consolidated indebtedness. The Company
may incur significant amounts of additional indebtedness in the future,
particularly in connection with acquisitions. See "Prospectus Summary--Recent
Developments--Acquisition". A substantial portion of the Company's cash flow
must be used to service its indebtedness and is therefore not available to be
used in its business. In addition, a substantial portion of the Company's
indebtedness bears interest at floating rates, and therefore a substantial
increase in interest rates could have a material adverse effect on the
Company's results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations". Also, as of December 31, 1996,
on a pro forma basis after giving effect to the Refinancing (assuming that the
Refinancing occurred as of such date, other than such events that occurred
prior to such date), Holdings' deficiency in stockholders' equity would have
been $119.3 million. Through 1995, the Company has experienced net losses for
each year since its inception, primarily as a result of interest expense on
its indebtedness. However, in 1996 the Company had net income of $25.4
million. See "Prospectus Summary--Recent Developments--1996 Financial
Results", "Capitalization" and "Selected Historical and Pro Forma Financial
Information".
The Company's instruments and agreements governing its indebtedness contain
numerous covenants, including financial and operating covenants, certain of
which are quite restrictive. In particular, certain financial covenants under
the credit agreement dated as of August 1, 1995 among Silgan and certain of
its subsidiaries, the lenders named therein (the "Banks"), Bankers Trust
Company ("Bankers Trust"), as Administrative Agent and Co-Arranger, and Bank
of America Illinois, as Documentation Agent and Co-Arranger, as amended (the
"Silgan Credit Agreement"), become more restrictive over time in anticipation
of scheduled debt amortization and improved operating results. These covenants
affect, and in many respects limit or prohibit, among other things, the
ability of the Company to incur additional indebtedness, create liens, sell
assets, engage in mergers and acquisitions, make certain capital expenditures
and pay dividends. Such covenants could restrict the Company in its pursuit of
its growth strategy. For a description of such covenants, see "Description of
Certain Indebtedness".
The obligations of each of Silgan, Plastics and Containers under the Silgan
Credit Agreement are guaranteed by Holdings and by each other subsidiary of
Holdings. Such obligations and guarantees under the Silgan Credit Agreement
are, and following consummation of the Offering will continue to be, secured
by first priority liens on all of the material assets of the Company and
pledges of the capital stock of all of Holdings' subsidiaries (collectively,
the "Collateral"). If an event of default under the Silgan Credit Agreement
were to occur, the Banks generally would have the right to accelerate and
declare due the Company's indebtedness thereunder. In such case, if the
indebtedness owed by the Company under the Silgan Credit Agreement were not
repaid or restructured, the Banks could proceed to foreclose on the
Collateral. See "Description of Certain Indebtedness".
RISKS ASSOCIATED WITH GROWTH STRATEGY
Historically, the Company has grown predominantly through acquisitions. The
Company's future growth will depend in large part on additional acquisitions
of consumer goods packaging businesses. There can be no assurance that the
Company will be able to locate or acquire other suitable
13
<PAGE>
acquisition candidates on acceptable terms or that the Company will be able to
fund future acquisitions because of limitations contained in its instruments
and agreements governing its indebtedness or otherwise. See "Description of
Certain Indebtedness".
In pursuing its strategy of growth through acquisitions, the Company will
face risks commonly encountered with such a strategy. These risks include
failing to assimilate the operations and personnel of the acquired businesses,
disrupting the Company's ongoing business, dissipating the Company's limited
management resources, and impairing relationships with employees and customers
of the acquired business as a result of changes in ownership and management.
Depending upon the size of the acquisition, it can take up to two to three
years to completely integrate an acquired business into the Company's
operations and systems and realize the full benefit of the Company's
strategies. During the early part of this integration period, the operating
results of an acquired business may decrease from results attained prior to
the acquisition. Moreover, additional indebtedness incurred to make
acquisitions could adversely affect the Company's liquidity and financial
stability, and the issuance of Common Stock to effect acquisitions could
result in dilution to the Company's shareholders.
RELIANCE ON MAJOR CUSTOMERS
Containers has agreements with Nestle (the "Nestle Supply Agreements")
pursuant to which Containers supplies a majority of Nestle's metal container
requirements, and an agreement with Del Monte (the "DM Supply Agreement")
pursuant to which Containers supplies substantially all of Del Monte's metal
container requirements. The Nestle Supply Agreements and the DM Supply
Agreement provide Containers with a potential market for a substantial portion
of its metal container output during the terms of these agreements.
Approximately 17% and 12% of the Company's sales in 1996 were to Nestle and
Del Monte, respectively. The Company has recently agreed with Nestle, subject
to definitive documentation, to extend the term of certain of the Nestle
Supply Agreements through 2004 (representing approximately 10% of the
Company's 1996 sales) in return for certain price concessions by the Company.
The Company believes that these price concessions will not have a material
adverse effect on its results of operations. Under the Company's recent
agreement with Nestle, with respect to the remaining Nestle Supply Agreements
that expire in August 1997 (representing approximately 6% of the Company's
1996 sales), the Company has the right to submit a bid to Nestle, and to match
any bid received by Nestle, for the 1998 supply year with respect to the metal
containers that are the subject of such Nestle Supply Agreements. There can be
no assurance that any such bid by the Company will be made at sales prices
equivalent to those currently in effect or otherwise on terms similar to those
currently in effect. In addition, the Company cannot predict the effect, if
any, on its results of operations of matching or not matching any such bids.
Under certain limited circumstances, Del Monte, beginning in December 1998,
and Nestle, beginning in January 2000 (with respect to all of the metal
containers supplied under the Nestle Supply Agreements that have been extended
through 2004), may receive competitive bids, and Containers has the right to
match any such bids. If Containers matches a competitive bid, it may result in
reduced sales prices with respect to the metal containers that are the subject
of such competitive bid. In the event that Containers chooses not to match a
competitive bid, such metal containers may be purchased from the competitive
bidder at the competitive bid price for the term of the bid. See "Business--
Sales and Marketing". The Company's results of operations could be adversely
affected if the Company loses significant unit sales to Nestle and/or Del
Monte as a result of a competitive bid or otherwise. Neither the Nestle Supply
Agreements nor the DM Supply Agreement require the purchase of minimum
amounts, and should Nestle's or Del Monte's demand decrease, the Company's
consolidated sales could decrease. The loss by the Company of either Nestle or
Del Monte as a customer would have a material adverse effect on the Company's
results of operations.
DEPENDENCE ON AGRICULTURAL HARVEST; SEASONALITY
The Company's metal container business sales are dependent, in part, upon
the vegetable, tomato and fruit harvests in the midwest and western regions of
the United States. The size and quality
14
<PAGE>
of these harvests varies from year to year, depending in large part upon the
weather conditions in those regions, and the Company's results of operations
could be impacted accordingly. The Company's results of operations could be
materially adversely affected in a year in which crop yields are substantially
lower than normal in either of the prime agricultural regions of the United
States in which the Company operates. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview--
Agricultural Harvest and Seasonality".
The Company's business is affected by seasonal variations as a result of the
timing of the harvest. Accordingly, the Company experiences higher unit sales
volume in the second and third quarters and, as a result, the Company has
historically generated a disproportionate amount of its annual income from
operations during these quarters. In 1996, the Company generated substantially
all of its net income in the second and third quarters. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview--Agricultural Harvest and Seasonality" and "--Quarterly Results of
Operations".
IMPACT OF HOLDING COMPANY STRUCTURE
Holdings is a holding company with no business operations of its own.
Holdings' principal asset is all the outstanding capital stock of Silgan. The
operations of Holdings are conducted through Silgan's operating subsidiaries,
Containers and Plastics, each of which is a wholly owned subsidiary of Silgan.
Accordingly, Holdings will be dependent upon the earnings and cash flows of
such operating subsidiaries, and dividends and distributions from Silgan and
such operating subsidiaries, to pay its expenses and meet its obligations and
to pay any cash dividends or distributions on the Common Stock that may be
authorized by the Board of Directors of Holdings. There can be no assurance
that such operating subsidiaries will generate sufficient earnings and cash
flows to pay dividends or distribute funds to Holdings to enable Holdings to
pay its expenses and meet its obligations, or that applicable state law and
contractual restrictions, including negative covenants contained in the
instruments and agreements governing the indebtedness of Silgan and such
operating subsidiaries, will permit such dividends or distributions. Subject
to certain limited exceptions, the terms of the Silgan Credit Agreement
currently restrict Silgan and its operating subsidiaries from paying dividends
or making distributions to Holdings and the terms of Silgan's 11 3/4% Senior
Subordinated Notes due 2002 (the "11 3/4% Notes") currently restrict Silgan
from paying dividends or making distributions to Holdings. See "--High
Leverage; Stockholders' Deficiency; Restrictive Covenants; Security Interests"
and "Description of Certain Indebtedness".
COMPETITION
The manufacture and sale of metal and plastic containers is highly
competitive and many of the Company's competitors have substantially greater
financial resources than the Company. In particular, price competition can be
an important factor and may affect the Company's results of operations. See
"Business--Competition".
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends to a large extent on a number of key
employees, and the loss of the services provided by them could materially
adversely affect the Company. In particular, the loss of the services provided
by R. Philip Silver, the Chairman of the Board and Co-Chief Executive Officer
of Holdings and Silgan, and D. Greg Horrigan, the President and Co-Chief
Executive Officer of Holdings and Silgan, could materially adversely affect
the Company. However, the Company's operations are conducted through
Containers and Plastics, each of which has its own independent management.
S&H, Inc. ("S&H"), a company wholly owned by Messrs. Silver and Horrigan, has
agreed to provide certain general management and administrative services to
each of Holdings, Silgan, Containers and Plastics pursuant to management
services agreements. See "Certain Transactions--Management Agreements".
15
<PAGE>
SIGNIFICANT STOCKHOLDERS
After completion of the Offering, Messrs. Silver and Horrigan and The Morgan
Stanley Leveraged Equity Fund II, L.P. ("MSLEF II") (collectively, the
"Principal Common Stockholders") will collectively own approximately 72.1% of
the outstanding Common Stock (approximately 68.9% if the Underwriters over-
allotment option is exercised in full). Accordingly, if such persons act
together they will be able to control all matters submitted to the
stockholders for a vote, including the election of directors. Under a
stockholders agreement entered into by the Principal Common Stockholders (the
"Principals Stockholders Agreement"), Messrs. Silver and Horrigan agreed to
vote their shares of Common Stock for the election of two directors chosen by
MSLEF II so long as MSLEF II holds at least one-half of the number of shares
of Common Stock held by it immediately prior to the Offering, and MSLEF II
agreed to vote its shares of Common Stock for the election of two directors
chosen by Messrs. Silver and Horrigan so long as they hold in the aggregate at
least one-half of the number of shares of Common Stock held by them on the
date of this Prospectus. Holdings currently has four directors, but intends to
increase its board of directors after the Offering to six members to include
two additional independent directors. Under the Principals Stockholders
Agreement, MSLEF II agreed that, so long as Messrs. Silver and Horrigan hold
in the aggregate at least one-half of the number of shares of Common Stock
held by them on the date of this Prospectus, Messrs. Silver and Horrigan will
nominate the two independent directors, who must then be elected in accordance
with Holdings' Restated Certificate of Incorporation. See "Management",
"Principal and Selling Stockholders" and "Description of Capital Stock".
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after consummation of the Offering, the Company will have
outstanding 18,862,833 shares of Common Stock. The shares of Common Stock sold
pursuant to the Offering may be resold without restriction by persons other
than "affiliates" of Holdings. The shares of Common Stock directly or
indirectly held by the Principal Common Stockholders and Bankers Trust New
York Corporation ("BTNY") following the Offering will be "restricted"
securities within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and may not be sold in the absence of registration under
the Securities Act, or an exemption therefrom, including the exemptions
contained in Rule 144 under the Securities Act. The Principal Common
Stockholders and BTNY have agreed, subject to certain exceptions, for a period
of one year from the date of this Prospectus not to register for sale or
offer, sell, contract to sell, or otherwise dispose of any shares of Common
Stock without the prior written consent of Goldman, Sachs & Co., other than in
the Offering. See "Underwriting". Subject to such agreement and restrictions
under the Securities Act, the Principal Common Stockholders could sell shares
of Common Stock owned by them from time to time in the open market for any
reason. Holdings has granted MSLEF II and Messrs. Silver and Horrigan certain
registration rights with respect to the shares of Common Stock owned by them
which have been waived for a period of one year. Sales of substantial amounts
of Common Stock or the availability of such shares for sale could adversely
affect prevailing market prices for the Common Stock and the Company's ability
to issue additional equity securities. See "Shares Eligible for Future Sale".
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF CERTAIN AGREEMENTS AND THE CERTIFICATE
OF INCORPORATION
Under the Principals Stockholders Agreement, MSLEF II agreed to vote its
shares of Common Stock against any unsolicited merger or sale of the Company's
business or its assets if Messrs. Silver and Horrigan oppose such transaction,
so long as Messrs. Silver and Horrigan hold at least 90% of the shares of
Common Stock held by them in the aggregate on the date of this Prospectus. See
"Description of Capital Stock--Description of Stockholders Agreements".
Certain provisions of Holdings' Restated Certificate of Incorporation may
have the effect of delaying or preventing transactions involving a change of
control of Holdings, including transactions in
16
<PAGE>
which stockholders might otherwise receive a substantial premium for their
shares over then current market prices, and may limit the ability of
stockholders to approve transactions that they may deem to be in their best
interests. In particular, under the Restated Certificate of Incorporation, the
Board of Directors is authorized to issue one or more classes of preferred
stock having such designations, rights and preferences as may be determined by
the Board. Under the Restated Certificate of Incorporation, the Board of
Directors is divided into three classes, and each year, one third of the
directors is elected for a term of three years. In addition, any action taken
by the holders of Common Stock must be taken at a meeting and may not be taken
by consent in writing, and a special meeting of the stockholders may only be
called by the Chairman of the Board or the President of the Company or by a
majority of the Board of Directors of the Company, and may not be called by
the holders of Common Stock. See "Description of Capital Stock".
Under the Silgan Credit Agreement, the occurrence of a Change of Control (as
defined in the Silgan Credit Agreement) constitutes an event of default
thereunder, permitting, among other things, the acceleration of amounts owed
thereunder. Additionally, upon the occurrence of a Change of Control under and
as defined in the instruments governing Silgan's 11 3/4% Notes and the
Exchange Debentures, the holders thereof have the right to require the
repurchase of such indebtedness at a purchase price equal to 101% of the
principal amount thereof, plus accrued interest thereon. See "Description of
Certain Indebtedness".
ABSENCE OF PRIOR PUBLIC MARKET
Prior to the Offering, there has been no public market for the Common Stock.
Although the Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "SLGN", there can be no assurance that an
active market for the Common Stock will be developed or sustained following
the Offering or that investors in the Common Stock will be able to resell
their shares of Common Stock at or above the initial public offering price.
The initial public offering price for the shares of Common Stock will be
determined through negotiations between the Company and the Selling
Stockholders and the representatives of the Underwriters, and may not be
indicative of the market price of the Common Stock after the Offering. See
"Underwriting". Morgan Stanley & Co. Incorporated ("Morgan Stanley") will not
act as a market maker for the Common Stock.
DILUTION
Purchasers of the Common Stock in the Offering will experience immediate and
substantial dilution in net tangible book value per share of Common Stock from
the initial public offering price. In addition, to the extent outstanding
options to purchase Common Stock are exercised, there will be further
dilution. See "Dilution".
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,700,000 shares of
Common Stock offered hereby by the Company are $67.8 million, after deducting
the underwriting discount and estimated offering expenses payable by the
Company. The Company will not receive any of the net proceeds from the sale of
shares by MSLEF II and BTNY (collectively, the "Selling Stockholders").
The net proceeds of the Offering will be used to redeem the remaining
outstanding Discount Debentures (approximately $59.0 million aggregate
principal amount). Accrued interest on such Discount Debentures will be paid
with working capital borrowings under the Silgan Credit Agreement. The
Discount Debentures bear interest at a rate of 13 1/4% per annum and mature on
December 15, 2002. A portion of the net proceeds from the Offering will be
used to prepay approximately $3.5 million principal amount of the B term loans
(together with accrued interest thereon) under the Silgan Credit Agreement,
which amount would have been due on December 31, 1997. Such B term loans had a
weighted average interest rate of 8.7% during the year ended December 31,
1996. The remaining net
17
<PAGE>
proceeds from the Offering will be used to prepay approximately $5.4 million
principal amount of the A term loans (together with accrued interest thereon)
under the Silgan Credit Agreement that would have been due on December 31,
1997. Such A term loans had a weighted average interest rate of 8.2% during
the year ended December 31, 1996. Pending the redemption of the remaining
Discount Debentures which is expected to occur no later than 45 days after the
completion of the Offering, the net proceeds will be used to repay working
capital loans under the Silgan Credit Agreement. Generally, the Company may
borrow, repay and reborrow working capital loans from time to time in
accordance with the Silgan Credit Agreement. The Company financed its recent
acquisition of Finger Lakes through working capital borrowings under the
Silgan Credit Agreement of approximately $29.9 million. See "Description of
Certain Indebtedness--Description of the Silgan Credit Agreement".
DIVIDEND POLICY
Holdings has never declared or paid cash dividends on its Common Stock. The
Company currently anticipates that it will retain all available funds for use
in the operation and expansion of its business and does not anticipate paying
any cash dividends on the Common Stock in the foreseeable future. Any future
determination to pay cash dividends will be at the discretion of Holdings'
Board of Directors and will be dependent upon the Company's results of
operations, financial condition, contractual restrictions and other factors
deemed relevant by Holdings' Board of Directors. The Holdings Guaranty (as
defined in "Description of Certain Indebtedness--Description of the Silgan
Credit Agreement") and the Exchangeable Preferred Stock (and, when issued, the
Exchange Debentures) limit the ability of Holdings to pay dividends, and the
Silgan Credit Agreement and the 11 3/4% Notes limit the ability of Silgan to
pay dividends to Holdings. See "Risk Factors--High Leverage; Stockholders'
Deficiency; Restrictive Covenants; Security Interests", "--Impact of Holding
Company Structure" and "Description of Certain Indebtedness".
18
<PAGE>
DILUTION
As of December 31, 1996, the Company had a deficit in net tangible book
value of approximately $289.7 million or $19.11 per share of Common Stock.
"Net tangible book value" per share of Common Stock represents the total
amount of tangible assets of the Company, less the total amount of liabilities
of the Company, divided by the number of shares of Common Stock outstanding.
Without taking into account any changes in net tangible book value after
December 31, 1996, other than to give effect to (i) the sale by the Company of
the 3,700,000 shares of Common Stock in the Offering (after deducting the
underwriting discount and offering expenses) and (ii) the application of the
net proceeds therefrom to redeem the remaining outstanding Discount Debentures
and to repay a portion of the A and B term loans under the Silgan Credit
Agreement, the pro forma deficit in net tangible book value of the Common
Stock as of December 31, 1996 would have been approximately $221.9 million or
$11.76 per share. This represents an immediate decrease in pro forma deficit
in net tangible book value of $7.35 per share of Common Stock to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$31.76 per share to new stockholders. "Dilution" per share represents the
difference between the price per share to be paid by the new stockholders and
the pro forma deficit in net tangible book value per share as of December 31,
1996. The following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Initial public offering price per share................. $ 20.00
Deficit in net tangible book value per share as of
December 31, 1996...................................... $(19.11)
Decrease in deficit in net tangible book value per share
attributable to the Offering and the application of the
proceeds therefrom..................................... 7.35
-------
Pro forma deficit in net tangible book value per share
as of December 31, 1996 after giving effect to the
Offering and the application of the proceeds
therefrom.............................................. (11.76)
-------
(Dilution) per share to new stockholders................ $(31.76)
=======
</TABLE>
The following table sets forth, on a pro forma basis as of December 31,
1996, the number of shares of Common Stock purchased from Holdings and the
total consideration and the average price per share paid by the existing
stockholders and to be paid by investors purchasing shares of Common Stock
offered hereby.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 15,162,833 80.4% $18,618,000 20.1% $ 1.23
New stockholders........ 3,700,000 19.6 74,000,000 79.9 20.00
---------- ----- ----------- -----
Total................... 18,862,833 100.0% $92,618,000 100.0% $ 4.91
========== ===== =========== =====
</TABLE>
Sales by the Selling Stockholders in the Offering will reduce the number of
shares held by existing stockholders to 14,362,833, or approximately 76.1% of
the total number of shares of Common Stock outstanding after the Offering (or
approximately 72.6% if the Underwriters' over-allotment option is exercised in
full), and will increase the number of shares held by new investors to
4,500,000, or approximately 23.9% of the total number of shares of Common
Stock outstanding after the Offering (or 5,175,000 shares and approximately
27.4% if the Underwriters' over-allotment option is exercised in full).
The calculations in the tables set forth above do not reflect an aggregate
of 3,533,414 shares of Common Stock reserved for issuance under the Stock
Option Plan. There are currently 1,820,100 options outstanding under the Stock
Option Plan, each of which entitles the holder thereof to purchase one share
of Common Stock. See "Management--Stock Option Plan". The weighted average
exercise price for all of the options currently outstanding under the Stock
Option Plan is $2.18 per share. See "Management--Executive Compensation". To
the extent outstanding options to purchase Common Stock are exercised, there
will be further dilution.
19
<PAGE>
CAPITALIZATION
The following table sets forth (i) the audited actual consolidated
capitalization of Holdings as of December 31, 1996, and (ii) the unaudited pro
forma consolidated capitalization of Holdings as of December 31, 1996, giving
effect to the Offering and the application of the proceeds therefrom, and the
exchange of all outstanding shares of Exchangeable Preferred Stock for
Exchange Debentures. This table should be read in conjunction with the
historical and pro forma consolidated financial information of Holdings
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------
ACTUAL PRO FORMA
----------- ------------
(AUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
LONG-TERM DEBT:
Term loans(a)............... $ 499,843 $ 499,843 (b)
11 3/4% Senior Subordinated
Notes due 2002............. 135,000 135,000
13 1/4% Senior Discount
Debentures due 2002........ 58,940 --
13 1/4% Subordinated
Debentures due 2006........ -- 52,998
----------- -----------
Total long-term debt(c)... 693,783 687,841
----------- -----------
Cumulative exchangeable
redeemable preferred stock... 52,998 --
DEFICIENCY IN STOCKHOLDERS'
EQUITY:
Common stock, par value $.01
per share, 100,000,000
shares authorized, 885,000
shares issued and
outstanding (actual),
15,162,833 shares issued
and outstanding (as
adjusted for the Stock
Split), and 18,862,833
shares issued and
outstanding (pro
forma)(d).................. 9 189
Additional paid-in capital.. 18,609 112,479 (e)
Accumulated deficit......... (208,824) (232,005)(e)(f)
----------- -----------
Total deficiency in
stockholders' equity..... (190,206) (119,337)
----------- -----------
Total capitalization.... $ 556,575 $ 568,504
=========== ===========
</TABLE>
- --------
(a) The term loans exclude the current portion of the term loans under the
Silgan Credit Agreement. At December 31, 1996, the current portion of the
term loans was $38.4 million.
(b) Approximately $8.9 million of the net proceeds from the Offering will be
used to prepay a portion of the current portion of the term loans under
the Silgan Credit Agreement. See "Use of Proceeds".
(c) Pursuant to the Silgan Credit Agreement, the lenders thereunder have
agreed to lend to Plastics and Containers up to an aggregate of $225.0
million of revolving loans, which are reflected as short-term debt on the
Company's balance sheet. As of December 31, 1996, the outstanding
principal amount of revolving loans under the Silgan Credit Agreement was
$27.8 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Capital Resources and Liquidity".
(d) Excludes 3,533,414 shares of Common Stock reserved for issuance under the
Stock Option Plan, including shares reserved for issuance in connection
with currently outstanding options to purchase 1,820,100 shares of Common
Stock. The weighted average exercise price for all of the options
currently outstanding under the Stock Option Plan is $2.18 per share.
(e) Under the terms of the stock option plans of Containers and Plastics,
stock options issued under such plans will be converted to options under
the Stock Option Plan at the time of the Offering. In accordance with APB
No. 25, options granted under these plans are considered variable options
with a final measurement date at the time of conversion. The Company will
recognize a non-cash charge to earnings of approximately $22.5 million,
net of $3.7 million previously accrued, at the time of the Offering for
the excess of fair market value over grant price of these options, less
amounts previously accrued, which will be offset by an increase to paid-in
capital.
(f) Includes an extraordinary charge, net of tax, of $0.7 million for the
write-off of unamortized deferred financing costs related to the
redemption of Discount Debentures. Such charge is expected to be incurred
during the first quarter of 1997.
20
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
Set forth below are selected historical consolidated financial data of
Holdings at December 31, 1996, 1995, 1994, 1993 and 1992 and for the years
then ended.
The selected historical consolidated financial data of Holdings at December
31, 1996 and 1995 and for each of the three years in the period ended December
31, 1996 (with the exception of employee data) were derived from the
historical consolidated financial statements of Holdings for such periods that
were audited by Ernst & Young LLP, independent auditors, whose report appears
elsewhere in this Prospectus. The selected historical consolidated financial
data of Holdings at December 31, 1994, 1993 and 1992 and for the years ended
December 31, 1993 and 1992 were derived from the historical audited
consolidated financial statements of Holdings for such periods.
The unaudited pro forma net income per common share data for the year ended
December 31, 1996 give effect to the Refinancing as if it had occurred as of
January 1, 1996. The summary unaudited pro forma balance sheet data at
December 31, 1996 give effect to the Refinancing (other than events that
occurred prior to such date) as if it had occurred as of such date.
The unaudited pro forma data do not purport to represent what the Company's
financial position or results of operations would actually have been if such
events had in fact occurred as of such dates or at the beginning of the
periods presented, or to project the Company's financial position or results
of operations for any future date or period. The selected historical and
unaudited pro forma data of Holdings were derived from, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the unaudited pro forma condensed statements of
operations and the historical financial statements and pro forma financial
information of Holdings, including the notes thereto, included elsewhere in
this Prospectus.
21
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996(A) 1995(A) 1994(B) 1993(B) 1992
---------- ---------- ---------- ---------- ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales............... $ 1,405.7 $ 1,101.9 $ 861.4 $ 645.5 $ 630.0
Cost of goods sold...... 1,223.6 970.5 748.3 571.2 555.0
---------- ---------- ---------- ---------- ----------
Gross profit............ 182.1 131.4 113.1 74.3 75.0
Selling, general and
administrative
expenses............... 58.8 46.9 38.0 32.5 32.8
Reduction in carrying
value of assets(c)..... -- 14.7 16.7 -- --
---------- ---------- ---------- ---------- ----------
Income from
operations(d).......... 123.3 69.8 58.4 41.8 42.2
Interest expense and
other related financing
costs.................. 89.4 80.7 65.8 54.3 57.0
Minority interest
expense................ -- -- -- -- 2.7
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes........... 33.9 (10.9) (7.4) (12.5) (17.5)
Income tax provision.... 3.3 5.1 5.6 1.9 2.2
---------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary charges
and cumulative effect
of changes in
accounting principles.. 30.6 (16.0) (13.0) (14.4) (19.7)
Extraordinary charges
relating to early
extinguishment of
debt(e)................ (2.2) (5.8) -- (1.3) (23.6)
Cumulative effect of
changes in accounting
principles(f).......... -- -- -- (6.3) --
---------- ---------- ---------- ---------- ----------
Net income (loss) before
preferred stock
dividend requirement... 28.4 (21.8) (13.0) (22.0) (43.3)
Preferred stock dividend
requirement............ (3.0) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss)
applicable to common
stockholders........... $ 25.4 $ (21.8) $ (13.0) $ (22.0) $ (43.3)
========== ========== ========== ========== ==========
Net income (loss) per
common share(g):
Income (loss) before
extraordinary
charges............... $ 1.60 $ (0.77) $ (0.63) $ (0.87) $ (1.21)
Extraordinary charges.. (0.12) (0.29) -- (0.08) (1.44)
Cumulative effect of
accounting changes.... -- -- -- (0.38) --
Preferred stock
dividend requirement.. (0.16) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total................. $ 1.32 $ (1.06) $ (0.63) $ (1.33) $ (2.65)
========== ========== ========== ========== ==========
Pro forma net income per
common
share(d)(e)(g)(h)...... $ 1.80
==========
Weighted average number
of common and
common equivalent
shares outstanding(i).. 19,178,730 20,656,877 20,656,877 16,479,206 16,373,591
SELECTED SEGMENT DATA:
Net sales:
Metal container
business.............. $ 1,189.3 $ 882.3 $ 657.1 $ 459.2 $ 437.4
Plastic container
business.............. 216.4 219.6 204.3 186.3 192.6
Income (loss) from
operations:(j)
Metal container
business.............. 106.1 58.2 59.8 42.3 40.7
Plastic container
business.............. 18.4 13.2 (0.1) 0.6 2.3
OTHER DATA:
Adjusted EBITDA(k)...... $ 186.0 $ 132.4 $ 114.5 $ 76.1 $ 74.0
Adjusted EBITDA as a
percentage of net
sales.................. 13.2% 12.0% 13.3% 11.8% 11.7%
Income from operations
as a percentage of net
sales.................. 8.8 6.3 6.8 6.5 6.7
Capital expenditures.... $ 56.9 $ 51.9 $ 29.2 $ 42.5 $ 23.4
Depreciation and
amortization(l)........ 58.6 45.4 37.2 33.8 31.8
Cash flows provided by
operating activities... 125.2 209.6 47.3 48.1 15.4
Cash flows used for
investing activities... (98.3) (397.1) (27.9) (116.1) (23.0)
Cash flows (used for)
provided by financing
activities............. (27.9) 186.9 (17.0) 65.3 8.6
Number of employees (at
end of period)(m)...... 5,525 5,110 4,000 3,330 3,340
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
PRO FORMA
1996(H) 1996 1995 1994 1993 1992
----------- ------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (at end
of period):
Total assets.............. $912.7 $913.5 $900.0 $504.3 $497.6 $389.0
Total long-term debt...... 687.8 693.8 750.9 510.8 505.7 383.2
Deficiency in
stockholders' equity..... (119.3) (190.2) (179.8) (158.0) (145.0) (138.0)
</TABLE>
(footnotes follow)
22
<PAGE>
NOTES TO SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(a) On August 1, 1995, the Company acquired AN Can for a purchase price of
$362.0 million (including the purchase from ANC of its St. Louis facility
in May 1996 for $13.1 million). The acquisition was accounted for as a
purchase transaction and the results of operations have been included with
the Company's historical results from the acquisition date. See Note 3 to
the Consolidated Financial Statements for the year ended December 31, 1996
included elsewhere in this Prospectus.
(b) On December 21, 1993, the Company acquired DM Can for a purchase price of
approximately $73.3 million. The acquisition was accounted for as a
purchase transaction and the results of operations have been included with
the Company's historical results from the acquisition date.
(c) Based upon a review of its depreciable assets, the Company determined that
certain adjustments were necessary to properly reflect net realizable
values. In 1995, the metal container business recorded a write-down of
$14.7 million for the excess of carrying value over estimated realizable
value of machinery and equipment at existing facilities which had become
underutilized due to excess capacity. In 1994, charges of $7.2 million and
$9.5 million were recorded by the metal container business and plastic
container business, respectively, to write-down the excess carrying value
over estimated realizable value of various plant facilities held for sale
and for technologically obsolete and inoperable machinery and equipment.
(d) Under the terms of the stock option plans of Containers and Plastics,
stock options issued under such plans will be converted to options under
the Stock Option Plan at the time of the Offering. In accordance with APB
No. 25, options granted under these plans are considered variable options
with a final measurement date at the time of conversion. The Company will
recognize a non-cash charge of approximately $22.5 million, net of $3.7
million previously accrued, at the time of the Offering in the Company's
first quarter in 1997, for the excess of fair market value over grant
price of these options less amounts previously accrued. The unaudited pro
forma financial data do not give effect to such non-cash charge. Prior to
the Offering, the Company recognized compensation expense for the change
in pro forma book value since the date of grant of these options,
amortized over the vesting period.
(e) The unaudited pro forma net income per common share data for the year
ended December 31, 1996 does not include the historical extraordinary
charge, net of tax, incurred in 1996 and an extraordinary charge, net of
tax, that the Company expects to incur in the first quarter of 1997 of
$0.7 million, in each case for the write-off of unamortized deferred
financing costs related to the early redemption of the Discount
Debentures. See "Capitalization".
(f) During 1993, the Company adopted SFAS No. 106, "Employers Accounting for
Postretirement Benefits Other than Pensions," SFAS No. 109, "Accounting
for Income Taxes" and SFAS No. 112, "Employers Accounting for
Postemployment Benefits". The Company did not elect to restate prior
years' financial statements for any of these pronouncements.
(g) Actual and pro forma net income (loss) per share are based on the weighted
average number of shares outstanding during the period, as adjusted in all
periods for the Stock Split, and after giving effect to stock options
considered to be dilutive common stock equivalents using the treasury
stock method. Primary and fully diluted net income (loss) per share are
the same for each of the periods. Under the terms of the stock option
plans of Containers and Plastics, stock options issued under such plans
will be converted to options under the Stock Option Plan at the time of
the Offering. Such conversion will be made based upon the allocable value
of Containers and Plastics determined in relation to the value of the
Company. Weighted average number of shares outstanding includes the
subsidiary options which are considered to be issued within 12 months
prior to the Offering at less than the assumed initial public offering
price due to their conversion
23
<PAGE>
feature as described in footnote (d) above. Supplementary net income (loss)
per share, assuming the repayment of the indebtedness as described in "Use
of Proceeds" as of January 1, 1996, was $1.42 for the year ended December
31, 1996.
(h) The unaudited pro forma net income per common share data for the year
ended December 31, 1996 and the unaudited pro forma balance sheet data at
December 31, 1996 give effect to the Offering and the use by the Company
of the net proceeds to be received by it therefrom as described under "Use
of Proceeds". For a detailed presentation of the unaudited pro forma
results of operations of the Company for the year ended December 31, 1996,
see the unaudited pro forma condensed statement of operations, including
the notes thereto, included elsewhere in this Prospectus. See
"Capitalization".
(i) The weighted average number of common and common equivalent shares
outstanding gives effect to the Stock Split.
(j) Income from operations in the selected segment data includes charges
incurred for the reduction in carrying value of certain assets for the
metal containers business of $14.7 million and $7.2 million for the years
ended December 31, 1995 and 1994 and for the plastic containers business
of $9.5 million for the year ended December 31, 1994, as referred to in
footnote (c) above. Income from operations for both the metal container
and plastic container businesses excludes corporate expense.
(k) "Adjusted EBITDA" means consolidated net income before extraordinary
charges, cumulative effect of changes in accounting principles and
preferred stock dividends plus, to the extent reflected in the income
statement for the applicable period, without duplication, consolidated
interest expense, income tax expense and depreciation and amortization
expense, as adjusted to add back expenses relating to postretirement
health care costs (which amounted to $2.6 million, $1.7 million, $0.7
million and $0.5 million for the years ended December 31, 1996, 1995, 1994
and 1993, respectively), the reduction in carrying value of assets (which
were $14.7 million and $16.7 million for the years ended December 31, 1995
and 1994, respectively) and certain other non-cash charges (which included
charges relating to the vesting of benefits under SARs of $0.8 million for
each of the years ended December 31, 1996 and 1995 and $1.5 million for
the year ended December 31, 1994). The Company has included information
regarding Adjusted EBITDA because management believes that many investors
consider it to be important in assessing a company's ability to service
and incur debt. Accordingly, this information has been disclosed herein to
permit a more complete analysis of the Company's financial condition.
Adjusted EBITDA should not be considered in isolation or as a substitute
for net income or other consolidated statement of operations or cash flows
data prepared in accordance with GAAP as a measure of the profitability or
liquidity of the Company. See the consolidated statements of operations
and consolidated statements of cash flows of Holdings, including the notes
thereto, included elsewhere in this Prospectus. Adjusted EBITDA does not
take into account the Company's debt service requirements and other
commitments and, accordingly, is not necessarily indicative of amounts
that may be available for discretionary uses. Additionally, Adjusted
EBITDA is not computed in accordance with GAAP and may not be comparable
to other similarly titled measures of other companies.
(l) Depreciation and amortization excludes amortization of debt financing
costs.
(m) The number of employees at December 31, 1995 includes approximately 1,400
employees who joined the Company on August 1, 1995 as a result of the
acquisition by Containers of AN Can. The number of employees at December
31, 1993 excludes 650 employees who joined the Company on December 21,
1993 as a result of the acquisition by Containers of DM Can.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto included elsewhere in this
Prospectus. The following discussion includes certain forward-looking
statements regarding the Company's expected results of operations, cost
savings and future liquidity. For a discussion of important factors that could
cause actual results to differ materially from the forward-looking statements,
see "Risk Factors".
OVERVIEW
The Company is a leading North American manufacturer of consumer goods
packaging products that currently produces (i) steel and aluminum containers
for human and pet food, (ii) custom designed plastic containers for personal
care, health, food, pharmaceutical and household chemical products and (iii)
specialty packaging items, including metal caps and closures, plastic bowls
and paper containers used by processors in the food industry. The Company is
the largest manufacturer of metal food containers in North America, with a
unit sale market share for the twelve months ended October 31, 1996 of 35% in
the United States, and is a leading manufacturer of plastic containers in
North America for personal care products. The Company has focused on growth
through acquisitions, followed by plant rationalizations and consolidations
and investment in the acquired businesses to gain manufacturing and production
efficiencies and to provide for internal growth. Since its inception, the
Company has acquired and successfully integrated ten businesses, including the
recent acquisitions of AN Can in August 1995 for a purchase price of
approximately $362.0 million (including net working capital of approximately
$156.0 million) and DM Can in December 1993 for a purchase price of
approximately $73.3 million (including net working capital of approximately
$21.9 million). In addition, on October 9, 1996 the Company completed its
acquisition of Finger Lakes, the metal container manufacturing subsidiary of
Curtice Burns. See "Prospectus Summary--Recent Developments". The Company's
future growth will depend in large part on additional acquisitions of consumer
goods packaging businesses.
Holdings is a holding company that conducts its business through two
operating companies, Containers and Plastics, each of which is a wholly owned
subsidiary of Silgan.
COST REDUCTIONS AND INVESTMENTS FOLLOWING ACQUISITIONS
The Company believes that its acquisitions and investments have enabled it
to achieve a low cost position in the metal food container segment. To further
enhance its low cost position, the Company has realized cost reduction
opportunities through plant rationalizations and capital improvements, as well
as from improved production scheduling and line reconfiguration. Since 1991,
Containers has closed eight smaller, higher cost metal container facilities,
including five facilities that were closed in 1995 as a result of the
integration of the manufacturing operations of DM Can. Because most of the
facilities that were closed in 1995 were closed late in the year, the Company
began to realize the benefits from the closing of such facilities in 1996.
From 1991 through 1993, Plastics closed three manufacturing facilities and
consolidated the technical and administrative functions of its plastic
container businesses. An additional facility was closed in 1995. In 1994,
Plastics began to realize the benefits of this consolidation and
rationalization program, as well as from its capital investment program. In
the fourth quarter of 1996, the Company initiated further downsizing and
rationalizations of certain of its facilities. Management expects that these
actions, along with improved production scheduling, will enable the Company to
achieve lower manufacturing costs in 1997 as compared to 1996.
AN CAN ACQUISITION
Management believes that the acquisition of AN Can, which has seventeen
manufacturing facilities, provides the Company with further cost reduction
opportunities, not only through purchasing economies and manufacturing
synergies which it will realize from the combined operations, but also through
the integration of selling, general and administrative operations of AN Can
into the Company's
25
<PAGE>
existing metal container business. In 1996, the Company realized certain of
the manufacturing synergies. In 1997, the Company expects to complete the
integration of the selling, general and administrative functions. The Company
believes that it will realize the full benefits of the integration of the
selling, general and administrative functions in 1998, and that benefits to be
realized by the rationalization of plant operations will begin to occur in
1997.
Although employee termination costs in connection with plant
rationalizations, administrative workforce reductions and other plant exit
costs associated with the acquisition of AN Can have been accrued through
purchase accounting adjustments, the Company incurred in 1995 and in 1996
other non-recurring costs which under current accounting pronouncements will
be charged against operating income. These costs, which include transitional
charges related to the integration of selling and administrative functions, as
well as costs associated with plant rearrangement and clean-up, were $3.2
million in 1995 and were approximately $3.5 million in 1996. The Company
expects that it will eliminate the redundant charges related to the
integration of selling and administrative functions in 1997.
NET SALES
LONG-TERM CONTRACTS. The Company seeks to develop and maintain long-term
relationships with its customers. The Company estimates that approximately 80%
of Containers' projected sales in 1997 will be pursuant to long-term supply
arrangements. Containers' has agreements with Nestle pursuant to which
Containers supplies a majority of Nestle's metal container requirements, and
an agreement with Del Monte pursuant to which Containers supplies
substantially all of Del Monte's U.S. metal container requirements. Revenues
from these two customers represented approximately 29% of net sales by
Containers in 1996. In addition to Nestle and Del Monte, Containers has multi-
year supply arrangements with several other customers, including contracts
which AN Can had with many of its customers. The Company has recently agreed
with Nestle, subject to definitive documentation, to extend the term of
certain of the Nestle Supply Agreements through 2004 (representing
approximately 10% of the Company's 1996 sales) in return for certain price
concessions by the Company. See "Risk Factors--Reliance on Major Customers"
and "Business--Sales and Marketing". The Company believes that these price
concessions will not have a material adverse effect on its results of
operations. Under the Company's recent agreement with Nestle, with respect to
the remaining Nestle Supply Agreements that expire in August 1997
(representing approximately 6% of the Company's 1996 sales), the Company has
the right to submit a bid to Nestle, and to match any bid received by Nestle,
for the 1998 supply year with respect to the metal containers that are the
subject of such Nestle Supply Agreements. There can be no assurance that any
such bid by the Company will be made at sales prices equivalent to those
currently in effect or otherwise on terms similar to those currently in
effect. The loss by the Company of either Nestle or Del Monte as a customer
would have a material adverse effect on the Company's results of operations.
See "Risk Factors--Reliance on Major Customers" and "Business--Sales and
Marketing".
The Company's long-term supply contracts generally provide for pricing
changes in accordance with cost change formulas, thereby significantly
reducing the exposure of the Company's results from operations to the
volatility of raw material costs. In addition, the terms of the Company's
long-term supply contracts limit the Company's ability to increase margins.
AGRICULTURAL HARVEST AND SEASONALITY. The Company's metal container business
sales are dependent, in part, upon the vegetable, tomato and fruit harvests in
the midwest and western regions of the United States. The size and quality of
these harvests varies from year to year, depending in large part upon the
weather conditions in those regions. The fruit and vegetable pack harvest in
1994 was better than the below normal fruit and vegetable pack harvest in
1995, resulting in greater sales to fruit and vegetable pack processing
customers in 1994 as compared to 1995. The 1996 midwest
26
<PAGE>
vegetable harvest was better than in 1995, but, due to cool wet weather during
the 1996 planting season, was less than the harvest in 1994. See "Risk
Factors--Dependence on Agricultural Harvest; Seasonality".
The Company's business is affected by seasonal variations as a result of the
timing of the harvest. Accordingly, the Company experiences higher unit sales
volume in the second and third quarters and, as a result, the Company has
historically generated a disproportionate amount of its annual income from
operations during these quarters. In 1996, the Company generated substantially
all of its net income in the second and third quarters. See "Risk Factors--
Dependence on Agricultural Harvest; Seasonality" and "--Quarterly Results of
Operations".
INTEREST EXPENSE
In order to increase its financial flexibility, during 1995 and 1996 the
Company refinanced portions of its higher cost capital with lower cost
capital. Upon completion of the Refinancing, the Company will have refinanced
all of the Discount Debentures. The net result of these refinancings will be
approximately $19.5 million of annual current cash interest savings (excluding
non-cash interest relating to the Exchange Debentures) and approximately $25.9
million of current cash tax savings (as a result of the deduction by the
Company of the accreted interest of approximately $103.5 million on the
retired Discount Debentures).
The Company's aggregate interest expense and the preferred stock dividend
requirement in 1996 was $92.4 million. On a pro forma basis after giving
effect to the Refinancing, the Company's interest expense for 1996 (including
interest on the Exchange Debentures which, as part of the Refinancing, are
assumed to have been exchanged for the Exchangeable Preferred Stock as of the
beginning of the year) would have been $83.2 million. For 1997, assuming that
the floating rates of interest to be borne by the Company's indebtedness in
1997 are comparable to 1996 rates and without giving effect to incremental
borrowings to finance acquisitions, if any, the Company expects that its
interest expense will decline by approximately $10.0 million as compared to
1996. Since the Company refinanced a substantial amount of the Discount
Debentures in the third quarter of 1996, the Company expects that most of this
reduction in interest expense will occur during the first and second quarters
of 1997 as compared to the same periods in 1996.
As of December 31, 1996, on a pro forma basis after giving effect to the
Refinancing, the Company would have had approximately $745.2 million of
indebtedness outstanding, including $27.8 million of working capital loans.
Historically, the Company's working capital loans are at their lowest amount
at year-end. Because the Company sells metal containers used in vegetable and
fruit processing, the Company must access working capital to build inventory
and then carry accounts receivable for some customers beyond the end of the
summer and fall packing season. Due to these seasonal requirements, the
Company incurs short term indebtedness to finance its working capital
requirements. At its peak in September 1996, approximately $182.5 million of
the working capital revolver under the Silgan Credit Agreement, including
letters of credit, was utilized.
The Company's financial results are sensitive to changes in prevailing
market rates of interest. At December 31, 1996, on a pro forma basis after
giving effect to the Refinancing and including working capital loans of $27.8
million, 47.9% of the Company's indebtedness bore interest at floating rates,
taking into account interest rate swap agreements entered into by the Company
to mitigate the effect of interest rate fluctuations. These agreements have a
notional amount of $200.0 million, including interest rate swap agreements
entered into during the fourth quarter of 1996 with a notional amount of
$100.0 million. Under these agreements, floating rate interest was exchanged
for fixed rates of interest ranging from 5.6% to 6.2% plus the Company's
incremental margin, which currently ranges from 2.5% to 3.0%. Depending upon
market conditions, the Company may enter into additional interest rate swap or
hedge agreements in the future to hedge its exposure to interest rate
volatility.
27
<PAGE>
INCOME TAX CONSIDERATIONS
FEDERAL TAX LIABILITY. Because the Discount Debentures represent "applicable
high yield discount obligations," the tax deduction that would otherwise have
been available to the Company for the accreted interest on the Discount
Debentures during the five years that no cash interest was paid thereon was
not available until the retirement of the Discount Debentures. After giving
effect to the Refinancing, the Company will have redeemed or repurchased all
of the Discount Debentures from 1995 to 1997, providing the Company with an
allowable deduction of approximately $103.5 million for the amount of accreted
interest on such indebtedness, and resulting in no federal tax liability for
the Company in 1996. At December 31, 1996, the Company had a regular net
operating loss carryforward of approximately $164.0 million. This net
operating loss carryforward resulted principally from both the deduction of
the accreted interest on the Discount Debentures refinanced in 1996 and 1995
and significant tax depreciation deductions from the acquisition of AN Can.
Upon completion of the Refinancing, after giving effect to the deduction of
accreted interest on the remaining Discount Debentures, the Company estimates
it will have a regular net operating loss carryforward of approximately $185.0
million. Subject to certain limitations, this net operating loss carryforward
will be available to offset taxable income that the Company expects to
generate in 1997 and in the future until such time as the regular net
operating loss carryforward is fully utilized.
Effective in 1993, however, the Company became subject to alternative
minimum tax ("AMT") for federal income tax purposes. Due to the availability
of an AMT net operating loss carryforward, the Company incurred an AMT
liability at the rate of 2% of AMT taxable income for 1993 through 1995.
Beginning in 1996, the Company would have fully utilized its AMT net operating
loss carryforwards and would have incurred an AMT liability at the statutory
rate of 20% of AMT taxable income if it had not realized the benefit of the
deduction of accreted interest on the retired Discount Debentures. As a result
of this deduction, the Company will have reduced its federal tax liability by
approximately $20.7 million and state tax liability by approximately $5.2
million for 1996 and 1997. Management expects that the Company will fully
utilize the benefit of this deduction in late 1997 or early 1998 at which time
it will then become subject to AMT at the statutory rate.
BOOK ACCOUNTING IMPLICATIONS. SFAS No. 109 of the Financial Accounting
Standards Board ("FASB") requires that a valuation allowance be recorded when
it is more likely than not that some portion or all of the future tax benefits
arising from the deferred tax assets will not be realized. Because the Company
incurred losses from its inception through 1995, SFAS No. 109 required the
Company to record a valuation allowance. Although the Company reported net
income for 1996, it has not yet met the criteria under SFAS No. 109 to release
any of its valuation allowance. The ultimate realization of all or part of the
Company's deferred income tax assets depends on the Company's ability to
generate sufficient taxable income in the future. When preparing future period
interim and annual financial statements, the Company will evaluate its
strategic plans, in light of evolving business conditions, and the valuation
allowance will be adjusted based on such evaluation. The Company expects that
it will meet the realization criteria of SFAS No. 109 in 1997, and that it
will release a portion of its deferred tax asset valuation allowance,
resulting in the recognition of a tax benefit. After the expected release of a
portion of its valuation allowance in 1997, the Company expects to provide for
federal income taxes at the statutory rate.
The Company's income tax rate varied from the U.S. statutory rate in 1996
due to the utilization of net operating loss carryforwards. In 1995 and 1994,
the Company's income tax rate varied from the U.S. statutory rate due to
losses which resulted in temporary differences between book and taxable income
for which recognition of a deferred tax asset was not considered appropriate
at the time. In accordance with SFAS No. 109, the Company has provided a
provision for income taxes based upon
28
<PAGE>
federal, state and foreign taxes currently payable. See Note 14 to the
Company's Consolidated Financial Statements included elsewhere in this
Prospectus.
RESULTS OF OPERATIONS
The following table sets forth certain income statement data for the
Company, expressed as a percentage of net sales, for each of the periods
presented, and should be read in conjunction with the historical and pro forma
financial information and related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C> <C>
OPERATING DATA:
Net sales:
Metal container business................... 84.6% 80.1 % 76.3 %
Plastic container business................. 15.4 19.9 23.7
------ ------ ------
Total.................................... 100.0 100.0 100.0
Cost of goods sold........................... 87.0 88.1 86.9
------ ------ ------
Gross profit................................. 13.0 11.9 13.1
Selling, general and administrative
expenses.................................... 4.2 4.3 4.4
Reduction in carrying value of assets........ -- 1.3 1.9
------ ------ ------
Income from operations....................... 8.8 6.3 6.8
Interest expense and other related financing
costs....................................... 6.4 7.3 7.6
------ ------ ------
Income (loss) before income taxes............ 2.4 (1.0) (0.8)
Income tax provision......................... 0.2 0.5 0.7
------ ------ ------
Income (loss) before extraordinary charges... 2.2 (1.5) (1.5)
Extraordinary charges relating to early
extinguishment of debt...................... (0.2) (0.5) --
------ ------ ------
Net income (loss) before preferred stock
dividend requirement........................ 2.0 (2.0) (1.5)
Preferred stock dividend requirement......... (0.2) -- --
------ ------ ------
Net income (loss) applicable to common
stockholders................................ 1.8% (2.0)% (1.5)%
====== ====== ======
Pro forma net income......................... 2.6%
======
</TABLE>
Summary historical results for the Company's two business segments, metal
and plastic containers, for the calendar years ended December 31, 1996, 1995
and 1994 and summary pro forma results for these business segments for the
calendar year ended December 31, 1995 (after giving effect to the acquisition
of AN Can as of the beginning of such period) are provided below.
The unaudited pro forma financial data includes the historical results of
the Company and AN Can and reflects the effect of purchase accounting
adjustments based on appraisals and valuations, the financing of the
acquisition of AN Can, the refinancing of certain of the Company's debt
obligations, and certain other adjustments, as if these events occurred as of
the beginning of the periods presented. The unaudited pro forma financial data
do not purport to represent what the Company's financial position or results
of operations would actually have been had these transactions in fact occurred
at the beginning of the periods indicated, or to project the Company's
financial position or results of operations for any future date or period. The
unaudited pro forma financial data do not give effect to adjustments for
decreased costs from manufacturing synergies resulting from the integration of
AN Can with Containers' existing can manufacturing operations and benefits the
Company may
29
<PAGE>
realize as a result of its planned rationalization of plant operations. The
pro forma information presented should be read in conjunction with the
historical results of operations of the Company included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
HISTORICAL PRO FORMA
-------------------------- -------------
1996 1995 1994 1995
-------- -------- ------ --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales:
Metal container business........... $1,189.3 $ 882.3 $657.1 $1,184.8
Plastic container business......... 216.4 219.6 204.3 219.6
-------- -------- ------ --------
Consolidated..................... $1,405.7 $1,101.9 $861.4 $1,404.4
======== ======== ====== ========
Income from operations:
Metal container business........... $ 106.1 $ 72.9 $ 67.0 $ 95.7
Plastic container business......... 18.4 13.2 9.4 13.2
Reduction in asset value(1)........ -- (14.7) (16.7) (14.7)
Corporate expense.................. (1.2) (1.6) (1.3) (1.5)
-------- -------- ------ --------
Consolidated..................... $ 123.3 $ 69.8 $ 58.4 $ 92.7
======== ======== ====== ========
</TABLE>
- --------
(1) Included in the historical and pro forma income from operations of the
Company in 1995 are charges incurred for the reduction of the carrying
value of certain underutilized equipment to net realizable value of $14.7
million allocable to the metal container business. Included in the
historical income from operations of the Company in 1994 are charges
incurred for the reduction of the carrying value of certain underutilized
and obsolete equipment to net realizable value of $16.7 million in 1994,
of which $7.2 million was allocable to the metal container business and
$9.5 million to the plastic container business.
HISTORICAL YEAR ENDED DECEMBER 31, 1996 COMPARED WITH HISTORICAL YEAR ENDED
DECEMBER 31, 1995
NET SALES. Consolidated net sales increased $303.8 million, or 27.6%, to
$1.4 billion for the year ended December 31, 1996, as compared to net sales of
$1.1 billion for the same period in 1995. This increase resulted predominantly
from net sales generated by the former AN Can operations.
Net sales for the metal container business (including net sales of its
specialty business of $90.7 million) were $1,189.3 million for the year ended
December 31, 1996, an increase of $307.0 million from net sales of $882.3
million for the same period in 1995. Net sales of metal cans of $1,098.6
million for the year ended December 31, 1996 were $253.1 million greater than
net sales of metal cans of $845.5 million for the same period in 1995. This
increase resulted from the inclusion of a full year of sales generated from
the former AN Can operations, including net sales of approximately $236.0
million during the first seven months of 1996, and increased unit sales due to
a better vegetable pack harvest in 1996 as compared to 1995, offset to a
limited extent by volume losses with certain customers.
Sales of specialty items included in the metal container segment increased
$53.9 million to $90.7 million during the year ended December 31, 1996 as
compared to the same period in 1995, due predominantly to additional sales
generated by the former AN Can operations.
Net sales for the plastic container business of $216.4 million during the
year ended December 31, 1996 decreased $3.2 million from net sales of $219.6
million for the same period in 1995. Despite an increase in unit sales, net
sales of plastic containers declined as a result of the pass through of lower
resin costs.
30
<PAGE>
COST OF GOODS SOLD. Cost of goods sold as a percentage of consolidated net
sales was 87.0% ($1.2 billion) for the year ended December 31, 1996, a
decrease of 1.1 percentage points as compared to 88.1% ($970.5 million) for
the same period in 1995. The decrease in cost of goods sold as a percentage of
net sales was principally attributable to synergies realized from the AN Can
acquisition, improved operating efficiencies due to can plant consolidations
as well as the improved manufacturing performance by the plastic container
business, offset, in part, by the higher cost base of the former AN Can
operations and the realization of higher per unit costs due to the Company's
one-time planned reduction in finished goods inventory. The additional
production capacity provided by AN Can has enabled the Company to produce its
product closer to the time of sale and, as a result, during 1996 the Company
reduced the amount of finished goods that it carries.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of consolidated net sales decreased
0.1 percentage points to 4.2% ($58.8 million) for the year ended December 31,
1996, as compared to 4.3% ($46.9 million) for the year ended December 31,
1995. This decrease in selling, general and administrative expenses as a
percentage of net sales reflects the expected lower administrative expenses
realized as a result of the integration of the administrative functions of AN
Can with the Company, despite the incurrence of certain redundant costs,
estimated to be $3.5 million, associated with the integration of the AN Can
operations. In 1997, the Company expects to eliminate all of these redundant
costs as it completes its integration of the administrative functions of AN
Can with the Company.
INCOME FROM OPERATIONS. Income from operations as a percentage of
consolidated net sales increased 2.5 percentage points to 8.8% ($123.3
million) for the year ended December 31, 1996, as compared with 6.3% ($69.8
million) for the same period in the prior year. Included in income from
operations for 1995 was a charge of $14.7 million for the write-off of certain
underutilized assets. Without giving effect to this charge, income from
operations as a percentage of consolidated net sales would have increased 1.1
percentage points in 1996 as compared to 1995, primarily as a result of the
aforementioned improvement in gross margin.
Income from operations as a percentage of net sales for the metal container
business improved to 8.9% ($106.1 million) for the year ended December 31,
1996, from 8.3% ($72.9 million) (without giving effect to the charge of $14.7
million to adjust the carrying value of certain assets) for the same period in
1995. This increase in income from operations as a percentage of net sales for
the metal container business was principally attributable to synergies
resulting from the acquisition of AN Can, improved operating efficiencies due
to plant consolidations and the benefit of cost reductions provided by the
Company's capital investment program, offset, in part, by the higher cost base
of the AN Can operations and the negative impact of the Company's one-time
planned reduction in the amount of finished goods inventory.
Income from operations as a percentage of net sales for the plastic
container business improved to 8.5% ($18.4 million) for the year ended
December 31, 1996, from 6.0% ($13.2 million) for the same period in 1995. The
improvement in the operating performance of the plastic container business was
principally attributable to increased production volumes as well as the
benefits realized through capital investment and improved production planning
and scheduling efficiencies.
INTEREST EXPENSE. Interest expense increased $8.7 million to $89.4 million
for the year ended December 31, 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 $154.4 million of the
Discount Debentures with lower cost bank borrowings (additional B term loans
of $125.0 million and working capital loans of $17.4 million) and with $12.0
million of the proceeds from the Preferred Stock Sale, and by lower average
bank borrowing rates.
31
<PAGE>
Upon completion of the Refinancing, the Company will have refinanced all of
the Discount Debentures with lower cost borrowings and proceeds from the
Preferred Stock Sale and the Offering. Since a substantial portion of the
Discount Debentures were refinanced in the third quarter of 1996, the Company
expects that its interest expense will decline significantly in the first and
second quarters of 1997 as compared to the same quarters in the prior year.
INCOME TAXES. The provisions for income taxes for the years ended December
31, 1996 and 1995 provide for federal, state and foreign taxes currently
payable. The decrease in the provision for income taxes of $1.8 million for
the year ended December 31, 1996 as compared to the same period in 1995
reflects the benefit of the current cash tax savings realized from the
deduction of accreted interest on the retired Discount Debentures.
NET INCOME. As a result of the items discussed above, net income of $30.6
million (before extraordinary charges of $2.2 million and the preferred stock
dividend requirement of $3.0 million) increased $46.6 million for the year
ended December 31, 1996, as compared to a net loss of $16.0 million (before
extraordinary charges, net of taxes, of $5.8 million) for the year ended
December 31, 1995.
During 1996, the Company incurred an extraordinary charge of $2.2 million
for the write-off of unamortized debt costs associated with the early
redemption of Discount Debentures. In 1995, the Company incurred an
extraordinary charge of $5.8 million, net of taxes, for the write-off of
unamortized debt costs related to the refinancing of its secured debt
facilities to fund the AN Can acquisition, the repurchase of a portion of the
Discount Debentures, and premiums paid on the repurchase of a portion of such
Discount Debentures.
HISTORICAL YEAR ENDED DECEMBER 31, 1996 COMPARED WITH PRO FORMA YEAR ENDED
DECEMBER 31, 1995
NET SALES. Consolidated net sales for the year ended December 31, 1996 of
$1.4 billion were comparable to pro forma consolidated net sales for the same
period in 1995. Increased unit sales of metal containers due to a better
vegetable pack harvest in 1996 as compared to 1995 offset the loss of an AN
Can customer whose product line was acquired by a company that manufactured
its own cans and volume losses with certain other customers. Although the
plastic container business had increased unit volume in 1996, net sales
declined $3.2 million due to the pass through of lower resin costs.
INCOME FROM OPERATIONS. Income from operations as a percentage of
consolidated net sales for the year ended December 31, 1996 increased 1.2
percentage points to 8.8% ($123.3 million), as compared to pro forma income
from operations as a percentage of pro forma consolidated net sales of 7.6%
($107.4 million) (without giving effect to the charge to adjust the carrying
value of certain assets of $14.7 million) for the year ended December 31,
1995. The increase in income from operations for the year ended December 31,
1996 as compared to pro forma income from operations for the same period in
1995 was attributable to more efficient production planning, the realization
of can manufacturing synergies resulting from the acquisition of AN Can, the
benefits realized from plant consolidations and capital investments, and the
improved operating performance of the plastic container business, offset, in
part, by redundant costs associated with the AN Can operations and the
negative impact of the Company's one-time planned reduction of the amount of
finished goods inventory.
HISTORICAL YEAR ENDED DECEMBER 31, 1995 COMPARED WITH HISTORICAL YEAR ENDED
DECEMBER 31, 1994
NET SALES. Consolidated net sales increased $240.5 million, or 27.9%, to
$1.1 billion for the year ended December 31, 1995, as compared to net sales of
$861.4 million for the same period in 1994.
32
<PAGE>
This increase resulted from net sales of $264.3 million generated by AN Can
since its acquisition in August 1995 and a $15.3 million increase in sales of
plastic containers offset, in part, by a decline in sales of metal containers
to Silgan's existing customer base of $39.1 million.
Net sales for the metal container business (including its specialty
business) were $882.3 million for the year ended December 31, 1995, an
increase of $225.2 million from net sales of $657.1 million for the same
period in 1994. Excluding net sales of metal cans of $236.0 million generated
by AN Can since its acquisition, net sales of metal cans to the Company's
customers were $609.5 million during the year ended December 31, 1995, as
compared to $647.5 million for the same period in 1994. Net sales to the
Company's customers in 1995 decreased principally due to lower unit volume
resulting from the below normal 1995 vegetable pack offset, in part, by
slightly higher sales prices due to the pass through of raw material cost
increases.
Sales of specialty items included in the metal container segment increased
$27.2 million to $36.8 million during the year ended December 31, 1995 as
compared to the same period in 1994, due to the acquisition of AN Can which
generated sales of $28.3 million of specialty items since its acquisition.
Net sales for the plastic container business of $219.6 million during the
year ended December 31, 1995 increased $15.3 million over net sales of $204.3
million for the same period in 1994. This increase was attributable to
increased unit sales for new customer products and to higher average sales
prices due to the pass through of higher average resin costs.
COST OF GOODS SOLD. Cost of goods sold as a percentage of consolidated net
sales was 88.1% ($970.5 million) for the year ended December 31, 1995, an
increase of 1.2 percentage points as compared to 86.9% ($748.3 million) for
the same period in 1994. The increase in cost of goods sold as a percentage of
net sales principally resulted from increased per unit manufacturing costs
resulting from reduced can production volumes, lower margins realized on
certain products due to competitive market conditions and lower margins on
sales made by AN Can, offset, in part, by improved manufacturing operating
efficiencies due to plant consolidations and lower depreciation expense due to
a change in the estimated useful life of certain equipment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of consolidated net sales declined 0.1
percentage points to 4.3% ($46.9 million) for the year ended December 31, 1995
as compared to 4.4% ($38.0 million) for the year ended December 31, 1994. The
decrease in selling, general and administrative expenses as a percentage of
net sales resulted from the Company's continued control of these expenses in
respect of the Company's existing business, offset partially by a temporarily
higher level of expenses incurred during the integration of AN Can. The
Company expects that its selling, general and administration costs as a
percentage of sales will decline in 1997 after it completes the integration of
the administrative functions of its metal container business.
INCOME FROM OPERATIONS. Income from operations as a percentage of
consolidated net sales was 6.3% ($69.8 million) for the year ended December
31, 1995, as compared with 6.8% ($58.4 million) for the same period in 1994.
Included in income from operations were charges for the write-off of certain
underutilized assets of $14.7 million and $16.7 million in 1995 and 1994,
respectively. Without giving effect to these charges, income from operations
as a percentage of consolidated net sales would have declined 1.0% in 1995,
primarily as a result of the aforementioned decline in gross margin.
Income from operations as a percentage of net sales for the metal container
business (without giving effect to charges of $14.7 million and $7.2 million
in 1995 and 1994, respectively, to adjust the carrying value of certain
assets) was 8.3% ($72.9 million) for the year ended December 31, 1995, as
compared to 10.2% ($67.0 million) for the same period in the prior year. The
decrease in income from
33
<PAGE>
operations as a percentage of net sales principally resulted from higher per
unit manufacturing costs realized on lower production volume, lower margins
realized on certain products due to competitive market conditions,
inefficiencies caused by work stoppages at two of the Company's California
facilities, and lower margins realized on sales made by AN Can, offset, in
part, by operating efficiencies due to plant consolidations.
Income from operations as a percentage of net sales attributable to the
plastic container business (without giving effect to the charge of $9.5
million in 1994 to adjust the carrying value of certain assets) was 6.0%
($13.2 million) for the year ended December 31, 1995, as compared to 4.6%
($9.4 million) for the same period in 1994. The operating performance of the
plastic container business improved as a result of production planning and
scheduling efficiencies and benefits realized from capital investment, offset,
in part, by increased unit production costs incurred as a result of an
inventory reduction program.
INTEREST EXPENSE. Interest expense, including amortization of debt financing
costs, increased by approximately $14.9 million to $80.7 million for the year
ended December 31, 1995, principally as a result of increased borrowings to
finance the acquisition of AN Can and to fund higher working capital needs as
a result of the increased seasonality of the Company's metal container
business, and higher average interest rates. Accretion of interest on the
Discount Debentures in 1995 approximated the prior year's accretion due to the
repurchase of $61.7 million principal amount at maturity of Discount
Debentures in the third quarter of 1995.
INCOME TAXES. The provisions for income taxes for the years ended December
31, 1995 and 1994 were comprised of federal, state and foreign income taxes
currently payable. The decrease in the provision for income taxes in 1995
reflects a decrease in federal income taxes currently payable due to the
deductibility of accrued interest on the Discount Debentures that were
repurchased in 1995.
NET INCOME. As a result of the items discussed above, net loss before the
extraordinary charge for the year ended December 31, 1995 was $16.0 million,
as compared to a net loss of $13.0 million for the year ended December 31,
1994.
As a result of the early extinguishment of amounts owed under its secured
debt facilities, the Company incurred an extraordinary charge of $5.8 million
(net of tax of $2.6 million) in 1995.
QUARTERLY RESULTS OF OPERATIONS
The Company's business is affected by seasonal variations as a result of the
timing of the harvest. Accordingly, the Company experiences higher unit sales
volume in the second and third quarters and, as a result, the Company has
historically generated a disproportionate amount of its annual income from
operations during these quarters. See "Risk Factors--Dependence on
Agricultural Harvest; Seasonality".
34
<PAGE>
The following table presents certain of the Company's unaudited consolidated
quarterly financial data for the years 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996
-----------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales....................................... $279.9 $327.1 $473.6 $325.1
Gross profit.................................... 36.5 48.7 58.8 38.1
Income from operations.......................... 23.7 34.3 43.6 21.7
Interest expense................................ 22.6 23.3 22.4 21.1
Income before extraordinary charges and pre-
ferred
stock dividend requirements.................... 0.1 9.5 20.7 0.3
Net income (loss) available to common stockhold-
ers............................................ 0.1 9.5 17.3 (1.5)
<CAPTION>
1995
-----------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales....................................... $203.3 $201.7 $406.5 $290.4
Gross profit.................................... 29.0 29.8 41.7 30.9
Income from operations.......................... 18.8 22.3 28.3 0.4
Interest expense................................ 17.3 17.5 22.9 23.0
Income (loss) before extraordinary charges and
preferred
stock dividend requirements.................... (1.4) 3.5 3.7 (21.8)
Net income (loss) available to common stockhold-
ers............................................ (1.4) 3.5 (2.1) (21.8)
<CAPTION>
1994
-----------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales....................................... $186.2 $201.0 $286.0 $188.2
Gross profit.................................... 22.7 28.3 36.4 25.7
Income from operations.......................... 14.0 18.7 27.2 (1.5)
Interest expense................................ 15.6 16.3 16.8 17.1
Income (loss) before extraordinary charges and
preferred
stock dividend requirements.................... (2.2) 1.5 9.0 (21.3)
Net income (loss) available to common stockhold-
ers............................................ (2.2) 1.5 9.0 (21.3)
</TABLE>
The Company's income from operations includes charges for the write-down of
the carrying value of certain underutilized and obsolete equipment to net
realizable value of $14.7 million and $16.7 million in the fourth quarters of
1995 and 1994, respectively. Net income (loss) includes extraordinary charges
for debt refinancing costs of $2.2 million incurred in the third quarter of
1996 and $5.8 million, net of taxes, incurred in the third quarter of 1995.
CAPITAL RESOURCES AND LIQUIDITY
The Company's liquidity requirements arise primarily from its obligations
under the indebtedness incurred in connection with its acquisitions and the
refinancing of such indebtedness, capital investment in new and existing
equipment and the funding of the Company's seasonal working capital needs.
Historically, the Company has met these liquidity requirements through cash
flow generated from operating activities and working capital borrowings.
On July 22, 1996, the Company completed the Preferred Stock Sale. With net
proceeds of $47.8 million from the Preferred Stock Sale, the Company purchased
the Holdings Class B Stock held by Mellon for $35.8 million pursuant to its
right to purchase such stock for such amount under the Amended and Restated
Organization Agreement dated as of December 21, 1993 among the Company and its
stockholders and, on August 26, 1996, redeemed $12.0 million principal amount
of Discount Debentures.
35
<PAGE>
On August 1, 1995, Silgan, Containers and Plastics entered into the Silgan
Credit Agreement (which originally provided Silgan with $225.0 million of A
term loans and $225.0 million of B term loans and provided Containers and
Plastics with a commitment of $225.0 million for working capital loans) to
finance the acquisition by Containers of AN Can, to refinance and repay in
full all amounts owing under the Company's previous credit agreement and under
Silgan's Senior Secured Floating Rate Notes due 1997. With borrowings of
$200.0 million under the Silgan Credit Agreement (as amended in May 1996 to
include an additional $125.0 million of B term loans), Holdings repurchased
and redeemed an aggregate of $204.1 million principal amount at maturity of
Discount Debentures.
The Silgan Credit Agreement also provided the Company with improved
financial flexibility by (i) enabling Silgan to transfer funds to Holdings for
payment by Holdings of cash dividends on the Exchangeable Preferred Stock (or,
if issued, cash interest on the Exchange Debentures), (ii) extending the
maturity of the Company's secured debt facilities until December 31, 2000,
(iii) lowering the interest rate spread on its floating rate borrowings by
1/2%, as well as providing for further interest rate reductions in the event
the Company attains certain financial targets, and (iv) lowering the Company's
average cost of indebtedness by permitting Holdings to repurchase or redeem
Discount Debentures.
Upon completion of the Refinancing, the Company will have retired all of the
Discount Debentures. By refinancing all of the Discount Debentures with
borrowings under the Silgan Credit Agreement and proceeds from the Preferred
Stock Sale and from the Offering, the Company will have lowered its average
cost of indebtedness, will realize approximately $19.5 million of annual
current cash interest savings (excluding non-cash interest on the Exchange
Debentures), and will realize approximately $25.9 million of current cash tax
savings as a result of the deduction by the Company of the accreted interest
on the retired Discount Debentures. In addition, as a result of the Company's
net operating loss carryforwards, the Company did not have any federal tax
liability in 1996, and expects to incur minimal federal tax liability in 1997.
For several years thereafter, the Company expects to incur federal tax
liability at the alternative minimum tax rates then in effect. See "--
Overview--Income Tax Considerations".
During 1996, cash generated from operations of $125.2 million, borrowings of
$125.0 million of B term loans under the Silgan Credit Agreement, net proceeds
of $47.8 million from the Preferred Stock Sale, net borrowings of working
capital loans under the Silgan Credit Agreement of $20.7 million, proceeds of
$1.6 million from the sale of assets and $1.1 million of cash balances were
used to fund capital expenditures of $56.9 million, the purchase of Finger
Lakes for $29.9 million and the purchase of ANC's St. Louis facility for $13.1
million, the redemption of $154.4 million of Discount Debentures, the
repayment of $29.5 million of term loans under the Silgan Credit Agreement,
the payment of $1.8 million of financing costs associated with the borrowing
of additional B term loans under the Silgan Credit Agreement, and the purchase
of Holdings Class B Stock held by Mellon for $35.8 million.
The Company's Adjusted EBITDA for the year ended December 31, 1996 in
comparison to 1995 increased by $53.6 million to $186.0 million. The increase
in Adjusted EBITDA resulted primarily from increased cash earnings generated
by both the metal container business (including earnings from the AN Can
operations) and the plastic container business. Although the Adjusted EBITDA
of the Company was higher in 1996 as compared to 1995 and the Company reduced
the amount of finished goods inventory in 1996, cash flow from operations in
1996 would have remained constant with 1995 (assuming AN Can had been acquired
at December 31, 1995 rather than at its seasonal peak). The Company incurred
greater cash interest expense in 1996 due to the refinancings of Discount
Debentures (for which no cash interest was required through June 15, 1996)
with bank borrowings, and in 1995 the Company adopted similar year-end vendor
payment terms to those of AN Can.
During 1995, cash generated from operations of $209.6 million (including
cash of $112.0 million generated by AN Can during the five month period from
its acquisition on August 1, 1995), proceeds of $3.5 million realized from the
sale of assets and a decrease of $0.6 million in cash balances were
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<PAGE>
used to repay $142.8 million of working capital borrowings used to fund the
acquisition of AN Can, fund capital expenditures of $51.9 million, repay $9.7
million of term loans and $5.5 million of working capital loans, and make
payments to former shareholders of $3.8 million in full settlement of
outstanding litigation. The Company's Adjusted EBITDA for the year ended
December 31, 1995 as compared to 1994 increased by $17.9 million to $132.4
million. The increase in Adjusted EBITDA reflected the generation of
additional cash flow from AN Can since its acquisition on August 1, 1995,
partially offset by a decline in the cash earnings of the Company's existing
business principally as a result of lower unit volume due to the below normal
1995 vegetable pack.
For the year ended December 31, 1995, the operating cash flow of the Company
increased significantly from the prior year due to the generation of cash by
AN Can since its acquisition on August 1, 1995 and the adoption by Silgan of
similar year-end vendor payment terms to those of AN Can. At December 31,
1995, the trade receivable balance of AN Can was $44.2 million ($90.2 million
on August 1, 1995), the inventory balance was $98.9 million ($137.9 million on
August 1, 1995), and the trade payables balance was $58.2 million ($64.2
million on August 1, 1995).
Because the Company sells metal containers used in fruit and vegetable pack
processing, its sales are seasonal. As a result, a significant portion of the
Company's revenues are generated in the first nine months of the year. As is
common in the packaging industry, the Company must access working capital to
build inventory and then carry accounts receivable for some customers beyond
the end of the summer and fall packing season. Seasonal accounts are generally
settled by year end. The acquisition of AN Can increased the Company's
seasonal metal containers business. The Company's average outstanding trade
receivables increased in 1996 as compared to 1995 due to the acquisition of AN
Can which had more seasonal sales than the Company. As a result the Company
increased the amount of working capital loans available to it under its credit
facility to $225.0 million. Due to the Company's seasonal requirements, the
Company expects to incur short term indebtedness to finance its working
capital requirements. Approximately $182.5 million of the working capital
revolver under the Silgan Credit Agreement, including letters of credit, was
utilized at its peak in September 1996.
As of December 31, 1996, the outstanding principal amount of working capital
loans was $27.8 million and, subject to a borrowing base limitation and taking
into account outstanding letters of credit, the unused portion of working
capital commitments at such date was $190.0 million.
In addition to its operating cash needs, the Company believes its cash
requirements over the next several years consist primarily of (i) annual
capital expenditures of $50.0 to $60.0 million, (ii) scheduled principal
amortization payments of term loans under the Silgan Credit Agreement (after
giving effect to the use of a portion of the net proceeds from the Offering to
prepay $8.9 million of bank terms loans) of $29.6 million, $53.4 million,
$53.4 million, $126.1 million and $155.9 million over the next five years,
respectively, (iii) expenditures of approximately $30.0 million over the next
three years associated with plant rationalizations, employee severance and
administrative workforce reductions, other plant exit costs and employee
relocation costs of AN Can, (iv) the Company's interest requirements,
including interest on working capital loans, the principal amount of which
will vary depending upon seasonal requirements, the bank term loans, most of
which bear fluctuating rates of interest, and the 11 3/4% Notes, and (v)
payments of approximately $5.0 million (based on the Company's current
estimate of its 1997 net income) for federal and state tax liabilities in
1997. Beginning in 1998, the Company expects to incur federal tax liability at
the alternative minimum tax rates then in effect. See "--Overview--Income Tax
Considerations".
Management believes that cash generated by operations and funds from working
capital borrowings under the Silgan Credit Agreement will be sufficient to
meet the Company's expected operating needs, planned capital expenditures,
debt service and tax obligations for the foreseeable future.
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<PAGE>
The Silgan Credit Agreement, the indenture with respect to the 11 3/4% Notes
(the "11 3/4% Notes Indenture"), the Exchangeable Preferred Stock and, when
issued, the Exchange Debentures each contain restrictive covenants that, among
other things, limit the Company's ability to incur debt, sell assets and
engage in certain transactions. Management does not expect these limitations
to have a material effect on the Company's business or results of operations.
The Company is in compliance with all financial and operating covenants
contained in such financing agreements and believes that it will continue to
be in compliance during 1997 with all such covenants.
EFFECT OF INFLATION AND INTEREST RATE FLUCTUATIONS
Historically, inflation has not had a material effect on the Company, other
than to increase its cost of borrowing. In general, the Company has been able
to increase the sales prices of its products to reflect any increases in the
prices of raw materials. See "--Overview--Net Sales--Long-term Contracts".
Because the Company has indebtedness which bears interest at floating rates,
the Company's financial results will be sensitive to changes in prevailing
market rates of interest. As of December 31, 1996, on a pro forma basis after
giving effect to the Refinancing and including working capital loans of $27.8
million, the Company had $745.2 million of indebtedness outstanding, of which
$357.2 million bore interest at floating rates, taking into account interest
rate swap agreements entered into by the Company to mitigate the effect of
interest rate fluctuations. Under these agreements, floating rate interest was
exchanged for fixed rates of interest ranging from 5.6% to 6.2% plus the
Company's incremental margin, which currently ranges from 2.5% to 3.0%. The
notional principal amounts of these agreements totaled $200.0 million,
including interest rate swap agreements entered into during the fourth quarter
of 1996 with a notional amount of $100.0 million, and mature in the year 1999.
Depending upon market conditions, the Company may enter into additional
interest rate swap or hedge agreements (with counterparties that, in the
Company's judgment, have sufficient creditworthiness) to hedge its exposure
against interest rate volatility.
NEW ACCOUNTING PRONOUNCEMENTS
LONG-LIVED ASSET IMPAIRMENT
The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of," in the first
quarter of 1996. Under SFAS No. 121, impairment losses will be recognized when
events or changes in circumstances indicate that the undiscounted cash flows
generated by assets are less than the carrying value of such assets.
Impairment losses are then measured by comparing the fair value of assets to
their carrying amount. There were no impairment losses recognized during 1996
as a result of the adoption of SFAS No. 121. See Note 2 to the Consolidated
Financial Statements of the Company included elsewhere in this Prospectus.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", effective for the 1996 fiscal year. Under SFAS No. 123,
compensation expense for all stock-based compensation plans would be
recognized based on the fair value of the options at the date of grant using
an option pricing model. As permitted under SFAS No. 123, the Company may
either adopt the new pronouncement or follow the current accounting methods as
prescribed under APB No. 25. The Company has not elected to adopt SFAS No. 123
and continues to recognize compensation expense in accordance with APB No. 25.
In addition, the Company is required to include in its 1996 year end financial
statements pro forma information regarding compensation expense recognizable
under SFAS No. 123. See Note 17 to the Consolidated Financial Statements of
the Company included elsewhere in this Prospectus.
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<PAGE>
BUSINESS
GENERAL
The Company is a leading North American manufacturer of consumer goods
packaging products that currently produces (i) steel and aluminum containers
for human and pet food, (ii) custom designed plastic containers for personal
care, health, food, pharmaceutical and household chemical products and (iii)
specialty packaging items, including metal caps and closures, plastic bowls
and paper containers used by processors in the food industry. The Company is
the largest manufacturer of metal food containers in North America, with a
unit sale market share for the twelve months ended October 31, 1996 of 35% in
the United States, and is a leading manufacturer of plastic containers in
North America for personal care products. The Company's strategy is to
increase shareholder value by growing its existing businesses and expanding
into other segments by applying its expertise in acquiring, financing,
integrating and efficiently operating consumer goods packaging businesses.
The Company was founded in 1987 by its current Co-Chief Executive Officers.
Since its inception, the Company has acquired and successfully integrated ten
businesses, including the recent acquisitions of AN Can in August 1995 for a
purchase price of approximately $362.0 million (including net working capital
of approximately $156.0 million) and DM Can in December 1993 for a purchase
price of approximately $73.3 million (including net working capital of
approximately $21.9 million). In addition, on October 9, 1996 the Company
completed its acquisition of Finger Lakes, the metal food container
manufacturing subsidiary of Curtice Burns. See "Prospectus Summary--Recent
Developments". The Company's strategy has enabled it to rapidly increase its
net sales and income from operations. The Company's net sales have increased
from $630.0 million in 1992 to $1,405.7 million in 1996, representing a
compound annual growth rate of approximately 22%. During this period, income
from operations increased from $42.2 million in 1992 to $123.3 million in
1996, representing a compound annual growth rate of approximately 31%, while
the Company's income from operations as a percentage of net sales increased
2.1 percentage points from 6.7% to 8.8% over the same period.
The Company's philosophy, which has contributed to its strong performance
since inception, is based on: (i) a significant equity ownership by management
and an entrepreneurial approach to business, (ii) its low cost producer
position and (iii) its long-term customer relationships. The Company's senior
management has a significant ownership interest in the Company, which fosters
an entrepreneurial management style and places a primary focus on creating
shareholder value. The Company has achieved a low cost producer status through
(i) the maintenance of a flat, efficient organizational structure, resulting
in low selling, general and administrative expenses as a percentage of total
net sales, (ii) purchasing economies, (iii) significant capital investments
that have generated manufacturing and production efficiencies, (iv) plant
consolidations and rationalizations and (v) the proximity of its plants to its
customers. The Company's philosophy has also been to develop long-term
customer relationships by acting in partnership with its customers, providing
reliable quality and service and utilizing its low cost producer position.
This philosophy has resulted in numerous long-term supply contracts, high
retention of customers' business and recognition from its customers, as
demonstrated by many quality and service awards.
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<PAGE>
COMPANY HISTORY
Holdings is a Delaware corporation organized in April 1989, that, in June
1989, through a merger acquired all of the outstanding common stock of Silgan.
Holdings' principal asset is all of the outstanding capital stock of Silgan.
Prior to June 30, 1989, Holdings did not engage in any business. Silgan is a
Delaware corporation formed in August 1987 as a holding company to acquire
interests in various packaging manufacturers.
Since its inception in 1987, the Company has completed the following
acquisitions:
<TABLE>
<CAPTION>
ACQUIRED BUSINESS YEAR PRODUCTS
----------------- ---- --------
<S> <C> <C>
Metal Container Manufacturing division 1987
of Nestle Metal food containers
Monsanto Company's plastic container 1987
business Plastic containers
Fort Madison Can Company of The Dial 1988 Metal food containers
Corporation
Seaboard Carton Division of Nestle 1988 Paper containers
Aim Packaging, Inc. 1989 Plastic containers
Fortune Plastics Inc. 1989 Plastic containers
Express Plastic Containers Limited 1989 Plastic containers
Amoco Container Company 1989 Plastic containers
Del Monte's U.S. can manufacturing 1993
operations Metal food containers
Food Metal and Specialty business of 1995 Metal food containers, metal caps
ANC and closures and Omni plastic
containers
Finger Lakes, a subsidiary of Curtice 1996
Burns Metal food containers
</TABLE>
The principal executive offices of Holdings are located at 4 Landmark
Square, Stamford, Connecticut 06901, telephone number (203) 975-7110.
GROWTH STRATEGY
The Company intends to enhance its position as a leading supplier of
consumer goods packaging products by aggressively pursuing a strategy designed
to achieve future growth and to increase profitability. The key components of
this strategy are to (i) increase the Company's market share in its current
business lines through acquisitions and internal growth, (ii) expand into
complementary business lines by applying the Company's acquisition and
operating expertise to other areas of the North American consumer goods
packaging market and (iii) improve the profitability of acquired businesses
through integration, rationalization and capital investments to enhance their
manufacturing and production efficiency.
INCREASE MARKET SHARE THROUGH ACQUISITIONS AND INTERNAL GROWTH
The Company has increased its revenues and market share in the metal
container, plastic container and specialty markets through acquisitions and
internal growth. As a result of this strategy, the Company has diversified its
customer base, geographic presence and product line. Management believes that
certain industry trends exist which will enable the Company to continue to
acquire attractive businesses in its existing markets. For example, during the
past ten years, the metal container market has experienced significant
consolidation due to the desire by food processors to reduce costs and deploy
resources to their core operations. Self-manufacturers are increasingly
outsourcing their container needs by selling their operations to commercial
container manufacturing companies and agreeing to purchase containers from the
buyer pursuant to long-term contracts. The Company's acquisitions of the metal
container manufacturing operations of Nestle, The Dial
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Corporation and Del Monte reflect this trend. As a result of its growth
strategy, the Company has more than tripled its overall share of the U.S.
metal food container market from approximately 10% in 1987 to approximately
35% for the twelve months ended October 31, 1996. The Company expects this
consolidation trend to continue, as evidenced by its October 9, 1996
acquisition of Finger Lakes. See "Prospectus Summary--Recent Developments".
The Company's plastic container business has also increased its market
position primarily through strategic acquisitions, from a sales base of $88.8
million in 1987 to $216.4 million in 1996. The plastic container segment of
the consumer goods packaging industry is highly fragmented, and management
intends to pursue consolidation opportunities in that segment.
The Company also expects to generate internal growth due to its
participation in certain higher growth segments of the consumer goods
packaging market. For example, due to increasing consumer preference for
plastic as a substitute for glass, the Company is aggressively pursuing
opportunities for its custom designed PET and HDPE containers. These
opportunities include producing PET containers for regional bottled water
companies, and HDPE and PET containers for products such as shampoo,
mouthwash, salad dressing and liquor. The Company also believes that there
will be opportunities to expand its specialty business, which generated net
sales of $90.7 million in 1996. Specialty products manufactured by the Company
include metal closures for vacuum sealed glass containers, its licensed Omni
plastic container, a plastic, microwaveable bowl with an easy-open metal end,
and paper containers.
EXPAND INTO COMPLEMENTARY BUSINESS LINES THROUGH ACQUISITIONS
Management believes that it can successfully apply its acquisition and
operating expertise to new segments of the consumer goods packaging industry.
For example, with the AN Can acquisition, the Company expanded its specialty
business into metal caps and closures and its licensed Omni plastic container.
Management believes that certain trends in and characteristics of the North
American consumer goods packaging industry will continue to generate
attractive acquisition opportunities in complementary business lines. The
Company is focused on the North American consumer goods packaging industry,
which represents a significant part of the $95 billion North American
packaging market (based on estimated total sales in 1994). Importantly, the
industry is also fragmented, with numerous segments and multiple participants
in each of them. In addition, many of these segments are experiencing
consolidation.
ENHANCE PROFITABILITY OF ACQUIRED COMPANIES
The Company seeks to acquire businesses at reasonable cash flow multiples
and to enhance profitability by rationalizing plants, by improving
manufacturing and production efficiencies and through purchasing economies.
The Company rationalizes plants by closing or downsizing certain plants and by
consolidating production capacity within other plants. Since 1991, the Company
has reduced costs by closing twelve smaller, higher cost facilities. Since its
inception in 1987, the Company has invested approximately $272.3 million to
upgrade acquired manufacturing facilities, aimed at generating manufacturing
and production efficiencies and achieving a low cost producer position. As a
result, the Company's acquisitions have generally been accretive to earnings
and have produced high returns on assets. The AN Can acquisition illustrates
the ability of the Company to enhance the profitability of acquired
businesses. The Company estimates that it has reduced AN Can's operating costs
from its historical 1994 level by at least $21.0 million, through selling and
administrative cost reductions, improved manufacturing and production
efficiencies and purchasing economies. The Company expects to further reduce
AN Can's operating costs over the next few years by an aggregate of
approximately $15.0 million (approximately half of which is expected to be
realized in 1997) through the elimination of transitional administrative
costs, the realization of additional manufacturing and production synergies
with its metal container business and plant rationalizations.
BUSINESS SEGMENTS
The Company operates through two operating companies, Containers and
Plastics.
41
<PAGE>
CONTAINERS
For 1996, Containers had net sales of $1,189.3 million (85% of the Company's
net sales) and income from operations of $106.1 million (85% of the Company's
income from operations) (without giving effect to corporate expense).
Containers has realized compound annual unit sales growth in excess of 24%
since 1992, despite the relative maturity of the U.S. food can industry.
Containers is engaged in the manufacture and sale of steel and aluminum
containers that are used primarily by processors and packagers for human and
pet food. Containers manufactures metal containers for vegetables, fruit, pet
food, meat, tomato based products, coffee, soup, seafood and evaporated milk.
The Company estimates that approximately 80% of Containers' projected sales in
1997 will be pursuant to long-term supply arrangements. Containers has the
Nestle Supply Agreements with Nestle pursuant to which Containers supplies a
majority of Nestle's metal container requirements, and the DM Supply Agreement
with Del Monte pursuant to which Containers supplies substantially all of Del
Monte's metal container requirements. In addition to Nestle and Del Monte,
Containers has multi-year supply arrangements with several other major food
processors.
Containers also manufactures certain specialty packaging items, including
metal caps and closures, plastic bowls and paper containers used by processors
in the food industry. For 1996, Containers had net sales of specialty
packaging items of $90.7 million.
PLASTICS
For 1996, Plastics had net sales of $216.4 million (15% of the Company's net
sales) and income from operations of $18.4 million (15% of the Company's
income from operations) (without giving effect to corporate expense). Plastics
is aggressively pursuing opportunities in custom designed PET and HDPE
containers. Plastics emphasizes value-added design, fabrication and decoration
of custom containers in its business. Plastics manufactures custom designed
HDPE containers for health and personal care products, including containers
for shampoos, conditioners, hand creams, lotions, cosmetics and toiletries,
household chemical products, including containers for scouring cleaners,
cleaning agents and lawn and garden chemicals and pharmaceutical products,
including containers for tablets, antacids and eye cleaning solutions.
Plastics also manufactures PET custom designed containers for mouthwash,
respiratory and gastrointestinal products, liquid soap, skin care lotions,
salad dressings, condiments, instant coffee, bottled water and liquor. While
many of Plastics' larger competitors that manufacture extrusion blow-molded
plastic containers employ technology oriented to large bottles and long
production runs, Plastics has focused on mid-sized, extrusion blow-molded
plastic containers requiring special decoration and shorter production runs.
Because these products are characterized by short product life and a demand
for creative packaging, the containers manufactured for these products
generally have more sophisticated designs and decorations.
MANUFACTURING AND PRODUCTION
As is the practice in the industry, most of the Company's can and plastic
container customers provide it with quarterly or annual estimates of products
and quantities pursuant to which periodic commitments are given. Such
estimates enable the Company to effectively manage production and control
working capital requirements. Containers estimates that approximately 80% of
its projected 1997 sales will be pursuant to multi-year contracts. Plastics
has purchase orders or contracts for containers with the majority of its
customers. In general, these purchase orders and contracts are for containers
made from proprietary molds and are for a duration of 2 to 5 years. Both
Containers and Plastics schedule their production to meet their customers'
requirements. Because the production time for the Company's products is short,
the backlog of customer orders in relation to sales is not significant.
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<PAGE>
METAL CONTAINER BUSINESS
The Company's manufacturing operations include cutting, coating,
lithographing, fabricating, assembling and packaging finished cans. Three
basic processes are used to produce cans. The traditional three-piece method
requires three pieces of flat metal to form a cylindrical body with a welded
side seam, a bottom and a top. High integrity of the side seam is assured by
the use of sophisticated electronic weld monitors and organic coatings that
are thermally cured by induction and convection processes. The other two
methods of producing cans start by forming a shallow cup that is then formed
into the desired height using either the draw and iron process or the draw and
redraw process. Using the draw and redraw process, the Company manufactures
steel and aluminum two-piece cans, the height of which does not exceed the
diameter. For cans the height of which is greater than the diameter, the
Company manufactures steel two-piece cans by using a drawing and ironing
process. Quality and stackability of such cans are comparable to that of the
shallow two-piece cans described above. Can bodies and ends are manufactured
from thin, high-strength aluminum alloys and steels by utilizing proprietary
tool and die designs and selected can making equipment.
PLASTIC CONTAINER BUSINESS
The Company utilizes two basic processes to produce plastic bottles. In the
extrusion blow molding process, pellets of plastic resin are heated and
extruded into a tube of plastic. A two-piece metal mold is then closed around
the plastic tube and high pressure air is blown into it causing a bottle to
form in the mold's shape. In the injection blow molding process, pellets of
plastic resin are heated and injected into a mold, forming a plastic preform.
The plastic preform is then blown into a bottle-shaped metal mold, creating a
plastic bottle.
The Company believes that its proprietary equipment for the production of
HDPE containers is particularly well-suited for the use of post-consumer
recycled ("PCR") resins because of the relatively low capital costs required
to convert its equipment to utilize multi-layer container construction.
The Company's decorating methods for its plastic products include (1) in-
mold labeling which applies a paper or plastic film label to the bottle during
the blowing process and (2) post-mold decoration. Post-mold decoration
includes (i) silk screen decoration which enables the applications of images
in multiple colors to the bottle, (ii) pressure sensitive decoration which
uses a plastic film or paper label with an adhesive, (iii) heat transfer
decoration which uses a plastic coated label applied by heat, and (iv) hot
stamping decoration which transfers images from a die using metallic foils.
The Company has state-of-the-art decorating equipment, including, management
believes, one of the largest sophisticated decorating facilities in the
country.
RAW MATERIALS
The Company does not believe that it is materially dependent upon any single
supplier for any of its raw materials and, based upon the existing
arrangements with suppliers, its current and anticipated requirements and
market conditions, the Company believes that it has made adequate provisions
for acquiring raw materials. Although increases in the prices of raw materials
have generally been passed along to the Company's customers in accordance with
the Company's long-term supply arrangements and otherwise, any inability to do
so in the future could have a significant impact on the Company's operating
margins.
METAL CONTAINER BUSINESS
The Company uses tin plated and chromium plated steel, aluminum, copper
wire, organic coatings, lining compound and inks in the manufacture and
decoration of its metal can products. The Company's material requirements are
supplied through purchase orders with suppliers with whom the Company, through
its predecessors, has long-term relationships. If its suppliers fail to
deliver under
43
<PAGE>
their arrangements, the Company will be forced to purchase raw materials on
the open market, and no assurances can be given that it would be able to make
such purchases at comparable prices or terms. The Company believes that it
will be able to purchase sufficient quantities of steel and aluminum can sheet
for the foreseeable future.
PLASTIC CONTAINER BUSINESS
The raw materials used by the Company for the manufacture of plastic
containers are primarily resins in pellet form such as recycled PET, HDPE-PCR
and virgin HDPE and PET and, to a lesser extent, low density polyethylene,
extrudable polyethylene terephthalate, polyethylene terephthalate glycol,
polypropylene, polyvinyl chloride and medium density polyethylene. The
Company's resin requirements are acquired through multi-year arrangements for
specific quantities of resins with several major suppliers of resins. The
price the Company pays for resin raw materials is not fixed and is subject to
market pricing. The Company believes that it will be able to purchase
sufficient quantities of resins for the foreseeable future.
SALES AND MARKETING
The Company's philosophy has been to develop long-term customer
relationships by acting in partnership with its customers, providing reliable
quality and service and utilizing its low cost producer position. The Company
markets its products in most areas of North America primarily by a direct
sales force and for its plastic container business, to a lesser extent,
through a network of distributors. Because of the high cost of transporting
empty containers, the Company generally sells to customers within a 300 mile
radius of its manufacturing plants. See also "--Competition" below.
In 1996, 1995 and 1994, approximately 17%, 21% and 26%, respectively, of the
Company's sales were to Nestle, and approximately 12%, 15% and 21%,
respectively, of the Company's sales were to Del Monte. No other customer
accounted for more than 10% of the Company's total sales during such years.
METAL CONTAINER BUSINESS
The Company is the largest manufacturer of metal food can containers in
North America, with a unit sale market share for the twelve months ended
October 31, 1996 of approximately 35% in the United States. Containers has
entered into multi-year supply arrangements with many of its customers,
including Nestle and Del Monte. The Company estimates that approximately 80%
of its projected metal container sales in 1997 will be pursuant to such
arrangements.
In 1987, the Company, through Containers, and Nestle entered into nine
Nestle Supply Agreements pursuant to which Containers has agreed to supply
Nestle with, and Nestle has agreed to purchase from Containers, substantially
all of the can requirements of the former Carnation operations of Nestle for a
period of ten years, subject to certain conditions. In 1996, sales of metal
cans by the Company to Nestle were $240.6 million.
The Nestle Supply Agreements provide for certain prices and specify that
such prices will be increased or decreased based upon cost change formulas set
forth therein. The Nestle Supply Agreements contain provisions that require
Containers to maintain certain levels of product quality, service and delivery
in order to retain the Nestle business. In the event of a breach of a
particular Nestle Supply Agreement, Nestle may terminate such Nestle Supply
Agreement but the other Nestle Supply Agreements would remain in effect.
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<PAGE>
The Company has recently agreed with Nestle, subject to definitive
documentation, to extend the term of certain of the Nestle Supply Agreements
through 2004 (representing approximately 10% of the Company's estimated 1996
sales) in return for certain price concessions by the Company. The Company
believes that these price concessions will not have a material adverse effect
on its results of operations. Under certain limited circumstances, Nestle,
beginning in January 2000 (with respect to all of the containers supplied
under the Nestle Supply Agreements that have been extended through 2004), may
receive competitive bids, and Containers has the right to match any such bids.
If Containers matches a competitive bid, it may result in reduced sales prices
with respect to the metal containers that are the subject of such competitive
bid. In the event that Containers chooses not to match a competitive bid, such
metal containers may be purchased from the competitive bidder at the
competitive bid price for the term of the bid.
Under the Company's recent agreement with Nestle, with respect to the
remaining Nestle Supply Agreements that expire in August 1997 (representing
approximately 6% of the Company's estimated 1996 sales), the Company has the
right to submit a bid to Nestle, and to match any bid received by Nestle, for
the 1998 supply year with respect to the metal containers that are the subject
of such Nestle Supply Agreements. There can be no assurance that any such bid
by the Company will be made at sales prices equivalent to those currently in
effect or otherwise on terms similar to those currently in effect. In
addition, the Company cannot predict the effect, if any, on its results of
operations of matching or not matching any such bids.
On December 21, 1993, Containers and Del Monte entered into the DM Supply
Agreement. Under the DM Supply Agreement, Del Monte has agreed to purchase
from Containers, and Containers has agreed to sell to Del Monte, substantially
all of Del Monte's annual requirements for metal containers to be used for the
packaging of food and beverages in the United States, subject to certain
limited exceptions. In 1996, sales of metal containers by the Company to Del
Monte were $168.0 million.
The DM Supply Agreement provides for certain prices for all metal containers
supplied by Containers to Del Monte thereunder and specifies that such prices
will be increased or decreased based upon specified cost change formulas.
Under the DM Supply Agreement, beginning in December 1998, Del Monte may,
under certain circumstances, receive proposals with terms more favorable than
those under the DM Supply Agreement from independent commercial can
manufacturers for the supply of containers of a type and quality similar to
the metal containers that Containers furnishes to Del Monte, which proposals
shall be for the remainder of the term of the DM Supply Agreement and for 100%
of the annual volume of containers at one or more of Del Monte's canneries.
Containers has the right to retain the business subject to the terms and
conditions of such competitive proposal.
The sale of metal containers to vegetable and fruit processors is seasonal
and monthly revenues increase during the months of June through October. As is
common in the packaging industry, the Company must build inventory and then
carry accounts receivable for some seasonal customers beyond the end of the
season. The acquisition of AN Can increased the Company's seasonal metal
container business. Consistent with industry practice, such customers may
return unused containers. Historically, such returns have been minimal.
PLASTIC CONTAINER BUSINESS
The Company is one of the leading manufacturers of custom designed HDPE and
PET containers sold in North America. The Company markets its plastic
containers in most areas of North America through a direct sales force and
through a large network of distributors. Management believes that the Company
is a leading manufacturer of plastic containers in North America for personal
care products. More than 70% of the Company's plastic containers are sold for
health and personal care products, such as hair care, oral care,
pharmaceutical and other health care applications. The Company's largest
45
<PAGE>
customers in these product segments include the Helene Curtis and Chesebrough-
Ponds USA divisions of Unilever United States, Inc., Procter & Gamble Co.,
Avon Products, Inc., Andrew Jergens Inc., The Dial Corporation, Warner-Lambert
Company and Pfizer Inc. The Company also manufactures plastic containers for
food and beverage products, such as salad dressings, condiments, instant
coffee and bottled water and liquor. Customers in these product segments
include Procter & Gamble Co., Kraft Foods Inc. and General Mills, Inc.
As part of its marketing strategy, the Company has arrangements to sell some
of its plastic products to distributors, which in turn sell such products
primarily to regional customers. Plastic containers sold to distributors are
manufactured by using generic molds with decoration, color and neck finishes
added to meet the distributors' individual requirements. The distributors'
warehouses and their sales personnel enable the Company to market and
inventory a wide range of such products to a variety of customers.
Plastics has written purchase orders or contracts for containers with the
majority of its customers. In general, these purchase orders and contracts are
for containers made from proprietary molds and are for a duration of 2 to 5
years.
COMPETITION
The packaging industry is highly competitive. The Company competes in this
industry with other packaging manufacturers as well as fillers, food
processors and packers who manufacture containers for their own use and for
sale to others. The Company attempts to compete effectively through the
quality of its products, competitive pricing and its ability to meet customer
requirements for delivery, performance and technical assistance. The Company
also pursues market niches such as the manufacture of easy-open ends and
special feature cans, which may differentiate the Company's products from its
competitors' products.
Because of the high cost of transporting empty containers, the Company
generally sells to customers within a 300 mile radius of its manufacturing
plants. Strategically located existing plants give the Company an advantage
over competitors from other areas, and the Company would be disadvantaged by
the loss or relocation of a major customer. As of December 31, 1996, the
Company operated 48 manufacturing facilities, geographically dispersed
throughout the United States and Canada, that serve the distribution needs of
its customers.
METAL CONTAINER BUSINESS
Of the commercial metal can manufacturers, Crown Cork and Seal Company, Inc.
and Ball Corporation are the Company's most significant national competitors.
As an alternative to purchasing cans from commercial can manufacturers,
customers have the ability to invest in equipment to self-manufacture their
cans. However, some self-manufacturers have sold or closed can manufacturing
operations and entered into long-term supply agreements with the new owners or
with commercial can manufacturers.
Although metal containers face continued competition from plastic, paper and
composite containers, management believes that metal containers are superior
to plastic and paper containers in applications where the contents are
processed at high temperatures, where the contents are packaged in large or
institutional quantities (14 to 64 oz.) or where long-term storage of the
product is desirable. Such applications include canned vegetables, fruits,
meats and pet foods. These sectors are the principal areas for which the
Company manufactures its products.
PLASTIC CONTAINER BUSINESS
Plastics competes with a number of large national producers of health,
personal care, food, beverage, pharmaceutical and household chemical plastic
container products, including Owens-Brockway Plastics Products, a division of
Owens-Illinois, Inc., Constar Plastics Inc., a subsidiary of
46
<PAGE>
Crown Cork and Seal Company, Inc., Johnson Controls Inc., Continental Plastics
Inc. and Plastipak Packaging Inc. In order to compete effectively in the
constantly changing market for plastic bottles, the Company must remain
current with, and to some extent anticipate innovations in, resin composition
and applications and changes in the technology for the manufacturing of
plastic bottles.
EMPLOYEES
As of December 31, 1996, the Company employed approximately 1,080 salaried
and 4,445 hourly employees on a full-time basis. Approximately 64% of the
Company's hourly plant employees are represented by a variety of unions.
The Company's labor contracts expire at various times between 1997 and 2008.
Contracts covering approximately 15% of the Company's hourly employees
presently expire during 1997. The Company expects no significant changes in
its relations with these unions. Management believes that its relationship
with its employees is good.
REGULATION
The Company is subject to federal, state and local environmental laws and
regulations. In general, these laws and regulations limit the discharge of
pollutants into the air and water and establish standards for the treatment,
storage, and disposal of solid and hazardous waste. The Company believes that
all of its facilities are either in compliance in all material respects with
all presently applicable environmental laws and regulations or are operating
in accordance with appropriate variances, delayed compliance orders or similar
arrangements.
In addition to costs associated with regulatory compliance, the Company may
be held liable for alleged environmental damage associated with the past
disposal of hazardous substances. Generators of hazardous substances disposed
of at sites at which environmental problems are alleged to exist, as well as
the owners of those sites and certain other classes of persons, are subject to
claims under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 ("CERCLA") regardless of fault or the legality of the
original disposal. Liability under CERCLA and under many similar state
statutes is joint and several, and, therefore, any responsible party may be
held liable for the entire cleanup cost at a particular site. Other state
statutes may impose proportionate rather than joint and several liability. The
federal Environmental Protection Agency or a state agency may also issue
orders requiring responsible parties to undertake removal or remedial actions
at certain sites. Pursuant to the agreement relating to the acquisition in
1987 of the can operations of Nestle ("Nestle Can"), the Company has assumed
liability for the past waste disposal practices of Nestle Can. In 1989, the
Company received notice that it is one of many potentially responsible parties
(or similarly designated parties) for cleanup of hazardous waste at a site to
which it (or its predecessor Nestle Can) is alleged to have shipped such waste
and at which the Company's share of cleanup costs could exceed $100,000. See
"--Legal Proceedings" below.
Pursuant to the agreement relating to the acquisition in 1987 from Monsanto
Company ("Monsanto") of substantially all of the business and related fixed
assets and inventory of Monsanto's plastic containers business ("Monsanto
Plastic Containers"), Monsanto has agreed to indemnify the Company for
substantially all of the costs attributable to the past waste disposal
practices of Monsanto Plastic Containers. In connection with the acquisition
of DM Can, Del Monte has agreed to indemnify the Company for a period of three
years for substantially all of the costs attributable to any noncompliance by
DM Can with any environmental law prior to the closing, including all of the
costs attributable to the past waste disposal practices of DM Can. In
connection with the acquisition of AN Can, subject to certain limitations, ANC
has agreed to indemnify the Company for a period of three years for the costs
attributable to any noncompliance by AN Can with any environmental law prior
to the closing, including costs attributable to the past waste disposal
practices of AN Can.
47
<PAGE>
The Company is subject to the Occupational Safety and Health Act and other
laws regulating noise exposure levels and other safety and health concerns in
the production areas of its plants.
Management does not believe that any of the matters described above
individually or in the aggregate will have a material effect on the Company's
capital expenditures, earnings, financial position or competitive position.
RESEARCH AND PRODUCT DEVELOPMENT
METAL CONTAINER BUSINESS
The Company's research, product development and product engineering efforts
relating to its metal containers are currently conducted at its research
centers at Oconomowoc, Wisconsin and Neenah, Wisconsin. The Company is
building a state-of-the-art research facility in Oconomowoc, Wisconsin in
order to consolidate its two main research centers into one facility.
PLASTIC CONTAINER BUSINESS
The Company's research, product development and product engineering efforts
with respect to its plastic containers are currently performed by its
manufacturing and engineering personnel located at its Norcross, Georgia
facility. In addition to its own research and development staff, the Company
participates in arrangements with three non-U.S. plastic container
manufacturers that allow for an exchange of technology among these
manufacturers. Pursuant to these arrangements, the Company licenses its blow
molding technology to such manufacturers.
48
<PAGE>
PROPERTIES
Holdings' and Silgan's principal executive offices are located at 4 Landmark
Square, Stamford, Connecticut 06901. The administrative headquarters and
principal places of business for Containers and Plastics are located at 21800
Oxnard Street, Woodland Hills, California 91367 and 14515 N. Outer Forty,
Chesterfield, Missouri 63017, respectively. All of these offices are leased by
the Company.
The Company owns and leases properties for use in the ordinary course of
business. Such properties consist primarily of 33 metal container
manufacturing facilities, 11 plastic container manufacturing facilities and 4
specialty packaging manufacturing facilities. Twenty of these facilities are
owned and 28 are leased by the Company. The leases expire at various times
through 2020. Some of these leases provide renewal options.
Below is a list of the Company's operating facilities, including attached
warehouses, as of December 31, 1996 for its metal container business:
<TABLE>
<CAPTION>
APPROXIMATE BUILDING AREA
LOCATION (SQUARE FEET)
-------- -------------------------
<S> <C>
City of Industry, CA............................. 50,000 (leased)
Kingsburg, CA.................................... 37,783 (leased)
Modesto, CA...................................... 35,585 (leased)
Modesto, CA...................................... 128,000 (leased)
Modesto, CA...................................... 150,000 (leased)
Riverbank, CA.................................... 167,000
San Leandro, CA.................................. 200,000 (leased)
Stockton, CA..................................... 243,500
Norwalk, CT...................................... 14,359 (leased)
Broadview, IL.................................... 85,000
Hoopeston, IL.................................... 323,000
Rochelle, IL..................................... 175,000
Waukegan, IL..................................... 40,000 (leased)
Woodstock, IL.................................... 160,000 (leased)
Evansville, IN................................... 188,000
Hammond, IN...................................... 160,000 (leased)
Laporte, IN...................................... 144,000 (leased)
Fort Madison, IA................................. 66,000
Ft. Dodge, IA.................................... 49,500 (leased)
Benton Harbor, MI................................ 20,246 (leased)
Savage, MN....................................... 160,000
St. Paul, MN..................................... 470,000
West Point, MS................................... 25,000 (leased)
Mt. Vernon, MO................................... 100,000
Northtown, MO.................................... 112,000 (leased)
St. Joseph, MO................................... 173,725
St. Louis, MO.................................... 174,000 (leased)
Edison, NJ....................................... 280,000
Lyons, NY........................................ 145,000
Crystal City, TX................................. 26,045 (leased)
Toppenish, WA.................................... 98,000
Vancouver, WA.................................... 127,000 (leased)
Menomonee Falls, WI.............................. 116,000
Menomonie, WI.................................... 60,000 (leased)
Oconomowoc, WI................................... 105,200
Plover, WI....................................... 58,000 (leased)
Waupun, WI....................................... 212,000
</TABLE>
49
<PAGE>
Below is a list of the Company's operating facilities, including attached
warehouses, as of December 31, 1996 for its plastic container business:
<TABLE>
<CAPTION>
APPROXIMATE BUILDING AREA
LOCATION (SQUARE FEET)
-------- -------------------------
<S> <C>
Anaheim, CA...................................... 127,000 (leased)
Deep River, CT................................... 140,000
Monroe, GA....................................... 117,000
Norcross, GA..................................... 59,000 (leased)
Ligonier, IN..................................... 477,000 (284,000 leased)
Seymour, IN...................................... 406,000
Franklin, KY..................................... 122,000 (leased)
Port Clinton, OH................................. 336,000 (leased)
Langhorne, PA.................................... 156,000 (leased)
Mississauga, Ontario............................. 80,000 (leased)
Mississauga, Ontario............................. 60,000 (leased)
</TABLE>
The Company owns and leases certain other warehouse facilities that are
detached from its manufacturing facilities. All of the Company's facilities
are subject to liens in favor of the Banks.
The Company believes that its plants, warehouses and other facilities are in
good operating condition, adequately maintained, and suitable to meet its
present needs and future plans. The Company believes that it has sufficient
capacity to satisfy the demand for its products in the foreseeable future. To
the extent that the Company needs additional capacity, management believes
that the Company can convert certain facilities to continuous operation or
make the appropriate capital expenditures to increase capacity.
LEGAL PROCEEDINGS
On October 17, 1989, the State of California, on behalf of the California
Department of Health Services ("DHS"), filed a suit in the United States
District Court for the Northern District of California against the owners and
operators of a recycling facility operated by Summer del Caribe, Inc., Dale
Summer and Lynn Rodich. The complaint also named 16 can manufacturing
companies, including Containers, that had sent amounts of solder dross to the
facility for recycling as "Potentially Responsible Parties" ("PRPs") under the
Federal Superfund statute. Containers is one of the 15 defendant can companies
which agreed to participate as a group in response to the DHS suit (the "PRP
Group"). In the PRP Group agreement, Containers agreed with the other can
company defendants that its apportioned share of cleanup costs would be 6.72%
of the total cost of cleanup. The PRP Group has undertaken a feasibility study
for the purpose of developing, designing and implementing a final remedy for
the site. The feasibility study was approved by the California Department of
Toxic Substances Control ("DTSC") in June 1994. On March 14, 1995, the court
approved a settlement agreement and consent decree which ordered the PRP Group
to submit a draft Remedial Action Plan to the DTSC for approval, which the PRP
Group submitted to the DTSC on September 5, 1995. On September 13, 1995, the
DTSC notified the PRP Group by letter that the Remedial Action Plan had been
adopted for the Summer del Caribe site. According to the Remedial Action Plan,
the overall cost of site cleanup is estimated to be $3,000,000. Site cleanup
is near completion. However, monitoring at the site will be required for
approximately one year, the expenses for which represent a small portion of
the total expense of cleanup. The PRP Group has assessed approximately
$201,264 as Containers' share of the cleanup cost, which amount has been paid.
The Company believes that significant additional expenditures on its behalf
are unlikely.
Other than the action mentioned above, there are no other material pending
legal proceedings to which the Company is a party or to which any of its
properties are subject.
50
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
HOLDINGS AND SILGAN
The following table sets forth certain information (ages as of December 31,
1996) concerning the directors and executive officers of Holdings and Silgan.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
R. Philip Silver................. 54 Chairman of the Board, Co-Chief Executive
Officer and Director
D. Greg Horrigan................. 53 President, Co-Chief Executive Officer and
Director
Robert H. Niehaus................ 41 Director
Leigh J. Abramson................ 28 Director
Harley Rankin, Jr................ 57 Executive Vice President, Chief Financial
Officer and Treasurer
Harold J. Rodriguez, Jr.......... 41 Vice President, Controller and Assistant
Treasurer
Glenn A. Paulson................. 53 Vice President
</TABLE>
CONTAINERS
The following table sets forth certain information (ages as of December 31,
1996) concerning the executive officers of Containers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James D. Beam...................... 53 President
Gerald T. Wojdon................... 60 Vice President--Operations and Assistant
Secretary
Gary M. Hughes..................... 54 Vice President--Sales & Marketing
H. Dennis Nerstad.................. 59 Vice President--Production Services
Joseph A. Heaney................... 43 Vice President--Finance
</TABLE>
PLASTICS
The following table sets forth certain information (ages as of December 31,
1996) concerning the Directors and executive officers of Plastics.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Russell F. Gervais......... 53 President
Howard H. Cole............. 51 Vice President and Assistant Secretary
Charles Minarik............ 59 Vice President--Operations and Commercial
Development
Alan H. Koblin............. 44 Vice President--Sales & Marketing
Colleen J. Jones........... 36 Vice President--Finance, Chief Financial Officer
and Assistant Secretary
</TABLE>
Mr. Silver has been Chairman of the Board and Co-Chief Executive Officer of
Holdings and Silgan since March 1994. Mr. Silver is one of the founders of the
Company and was formerly President of Holdings and Silgan. Mr. Silver has been
a Director of Holdings and Silgan since their inception in April 1989 and
August 1987, respectively. Mr. Silver has been a Director of Containers since
its inception in August 1987 and Vice President of Containers since May 1995.
Mr. Silver has been a Director of Plastics since its inception in August 1987
and Chairman of the Board of Plastics since March 1994. Prior to founding the
Company in 1987, Mr. Silver was a consultant to the packaging industry.
51
<PAGE>
Mr. Silver was President of Continental Can Company from June 1983 to August
1986. From September 1989 through August 1993, Mr. Silver held various
positions with Sweetheart Holdings Inc. and Sweetheart Cup Company, Inc.,
including Chairman of the Board and Director. Mr. Silver is a Director of
Johnstown America Corporation.
Mr. Horrigan has been President and Co-Chief Executive Officer of Holdings
and Silgan since March 1994. Mr. Horrigan is one of the founders of the
Company and was formerly Chairman of the Board of Holdings and Silgan. Mr.
Horrigan has been a Director of Holdings and Silgan since their inception in
April 1989 and August 1987, respectively. Mr. Horrigan has been Chairman of
the Board of Containers and a Director of Containers and Plastics since their
inception in August 1987. Mr. Horrigan was Executive Vice President and
Operating Officer of Continental Can Company from 1984 to 1987. From September
1989 through August 1993, Mr. Horrigan held various positions with Sweetheart
Holdings Inc. and Sweetheart Cup Company, Inc., including Chairman of the
Board and Director.
Mr. Niehaus has been a Director of Holdings since its inception in April
1989 and a Director of Silgan, Containers and Plastics since their inception
in August 1987. Mr. Niehaus joined Morgan Stanley in 1982 and has been a
Managing Director of Morgan Stanley since 1990. Mr. Niehaus has been a Vice
Chairman and a Director of Morgan Stanley Leveraged Equity Fund II, Inc.
("MSLEF II, Inc.") since January 1990 and a Vice Chairman and a Director of
the managing general partner of the general partner of Morgan Stanley Capital
Partners III, L.P. ("MSCP III") since January 1994. Mr. Niehaus is also a
Director of American Italian Pasta Company, Fort Howard Corporation and
Waterford Crystal Ltd., and Chairman of Waterford Wedgewood UK plc.
Mr. Abramson has been a Director of Holdings, Silgan, Containers and
Plastics since September 1996. He has been an Associate of Morgan Stanley
since 1994 and a Vice President of MSLEF II, Inc. and of the managing general
partner of the general partner of MSCP III since 1995. Mr. Abramson has been
with Morgan Stanley since 1990, first in the Corporate Finance Division and,
since 1992, in the Merchant Banking Division. Mr. Abramson is also a Director
of PageMart Wireless, Inc., PageMart, Inc. and Jefferson Smurfit Corporation.
Mr. Rankin has been Executive Vice President and Chief Financial Officer of
Holdings since its inception in April 1989 and Treasurer of Holdings since
January 1992. Mr. Rankin has been Executive Vice President and Chief Financial
Officer of Silgan since January 1989 and Treasurer of Silgan since January
1992. Mr. Rankin has been Vice President of Containers and Plastics since
January 1989 and was Treasurer of Plastics from January 1994 to December 1994.
Prior to joining the Company, Mr. Rankin was Senior Vice President and Chief
Financial Officer of Armtek Corporation. Mr. Rankin was Vice President and
Chief Financial Officer of Continental Can Company from November 1984 to
August 1986. From September 1989 to August 1993, Mr. Rankin was Vice
President, Chief Financial Officer and Treasurer of Sweetheart Holdings Inc.
and Vice President of Sweetheart Cup Company, Inc.
Mr. Rodriguez has been Vice President of Holdings and Silgan since March
1994 and Controller and Assistant Treasurer of Holdings and Silgan since March
1990. Prior to March 1990, Mr. Rodriguez was Assistant Controller and
Assistant Treasurer of Holdings and Silgan from April 1989 and October 1987,
respectively. Mr. Rodriguez has been Vice President of Containers and Plastics
since March 1994. From September 1989 to August 1993, Mr. Rodriguez was
Controller, Assistant Secretary and Assistant Treasurer of Sweetheart Holdings
Inc. and Assistant Secretary and Assistant Treasurer of Sweetheart Cup
Company, Inc. From 1978 to 1987, Mr. Rodriguez was employed by Ernst & Young
LLP, last serving as Senior Manager specializing in taxation.
Mr. Paulson has been Vice President of Holdings and Silgan since January
1996. Mr. Paulson was employed by Containers to manage the transition of AN
Can from August 1995 to December 1995. From January 1989 to July 1995, Mr.
Paulson was employed by ANC, last serving as Senior
52
<PAGE>
Vice President and General Manager, Food Metal and Specialty, North America.
Prior to his employment with ANC, Mr. Paulson was President of the beverage
packaging operations of Continental Can Company.
Mr. Beam has been President of Containers since July 1990. From September
1987 to July 1990, Mr. Beam was Vice President--Marketing & Sales of
Containers. Mr. Beam was Vice President and General Manager of Continental Can
Company, Western Food Can Division, from March 1986 to September 1987.
Mr. Wojdon has been Vice President--Operations and Assistant Secretary of
Containers since September 1987. From August 1982 to August 1987, Mr. Wojdon
was General Manager of Manufacturing of the Can Division of the Carnation
Company.
Mr. Hughes has been Vice President--Sales & Marketing of Containers since
July 1990. From February 1988 to July 1990, Mr. Hughes was Vice President,
Sales and Marketing of the Beverage Division of Continental Can Company. Prior
to February 1988, Mr. Hughes was employed by Continental Can Company in
various regional sales positions.
Mr. Nerstad has been a Vice President of Containers since December 1993.
From August 1989 to December 1993, Mr. Nerstad was Vice President--
Distribution and Container Manufacturing of Del Monte and was Director of
Container Manufacturing of Del Monte from November 1983 to July 1989. Prior to
1983, Mr. Nerstad was employed by Del Monte in various regional and plant
positions.
Mr. Heaney has been Vice President--Finance of Containers since October
1995. From September 1990 to October 1995, Mr. Heaney was Controller, Food
Metal and Specialty Division of ANC. From August 1977 to August 1990, Mr.
Heaney was employed by ANC and American Can Company in various divisional,
regional and plant finance/accounting positions.
Mr. Gervais has been President of Plastics since December 1992. From
September 1989 to December 1992, Mr. Gervais was Vice President--Sales &
Marketing of Plastics. From March 1984 to September 1989, Mr. Gervais was
President and Chief Executive Officer of Aim Packaging, Inc.
Mr. Cole has been Vice President and Assistant Secretary of Plastics since
September 1987. From April 1986 to September 1987, Mr. Cole was Manager of
Personnel of the Monsanto Engineered Products Division of Monsanto.
Mr. Minarik has been Vice President--Operations and Commercial Development
of Plastics since May 1993. From February 1991 to August 1992, Mr. Minarik was
President of Wheaton Industries Plastics Group. Mr. Minarik was Vice
President--Marketing of Constar International, Inc. from March 1983 to
February 1991.
Mr. Koblin has been Vice President--Sales & Marketing of Plastics since
1994. From 1992 to 1994, Mr. Koblin was Director of Sales & Marketing of
Plastics. From 1990 to 1992, Mr. Koblin was Vice President of Churchill
Industries.
Ms. Jones has been Vice President--Finance and Chief Financial Officer of
Plastics since December 1994 and Assistant Secretary of Plastics since
November 1993. From October 1993 to December 1994, Ms. Jones was Corporate
Controller of Plastics and from July 1989 to October 1993, she was Manager--
Finance of Plastics. From July 1982 to July 1989, Ms. Jones was an Audit
Manager for Ernst & Young LLP.
53
<PAGE>
BOARD OF DIRECTORS
Holdings presently has a Board of Directors consisting of four members.
Holdings intends to elect an additional two persons to serve as independent
directors of Holdings following the completion of the Offering. Prior to the
Offering, the Board of Directors will be divided into three classes
(designated Class I, Class II and Class III). Initially, Class I will consist
of Mr. Silver and Mr. Abramson, Class II will consist of Mr. Horrigan and Mr.
Niehaus, and the two Class III directorships will remain vacant until the
Board of Directors elects two independent persons to serve as Class III
directors following the completion of the Offering. The Class I, Class II and
Class III directors will serve until the annual stockholder meetings of
Holdings to be held in 1998, 1999 and 2000, respectively, and until their
successors are duly elected and qualified. At each annual stockholders'
meeting, directors nominated to the class of directors whose term is expiring
at that annual meeting will be elected for a term of three years, and the
remaining directors will continue in office until their respective terms
expire and until their successors are duly elected and qualified. Accordingly,
at each annual meeting two of the Company's six directors will be elected, and
each director will be required to stand for election once every three years.
The four directors that are not independent will be elected pursuant to the
Principals Stockholders Agreement. Under the Principals Stockholders
Agreement, MSLEF II agreed that, so long as Messrs. Silver and Horrigan hold
in the aggregate at least one-half of the number of shares of Common Stock
held by them on the date of this Prospectus, Messrs. Silver and Horrigan will
nominate the two independent directors, who must then be elected in accordance
with Holdings' Restated Certificate of Incorporation. Officers are elected by
the Board of Directors and serve at the discretion of the Board of Directors.
See "Description of Capital Stock--Description of Stockholders Agreements".
The Board of Directors has an Audit Committee, which is presently composed
of Messrs. Silver and Niehaus. After the Offering, the Board of Directors will
reconstitute its Audit Committee to consist of two Directors who are neither
officers nor employees of Holdings. The Audit Committee has the responsibility
of reviewing and supervising the financial controls of Holdings. The Audit
Committee's responsibilities include (i) making recommendations to the Board
of Directors with respect to its financial statements and the appointment of
independent auditors, (ii) reviewing significant audit and accounting policies
and practices of Holdings, (iii) meeting with the Company's independent public
accountants concerning, among other things, the scope of audits and reports
and (iv) reviewing the performance of overall accounting and financial
controls of Holdings.
The Board of Directors expects to establish a Compensation Committee and an
Executive Committee. The Compensation Committee will consist of at least two
Directors who are "outside directors" within the meaning of Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"). The Compensation
Committee will have the responsibility of reviewing the performance of the
executive officers of Holdings and recommending to the Board of Directors
annual salary and bonus amounts for all officers of the Company.
COMPENSATION OF DIRECTORS
It is anticipated that directors who do not receive compensation as officers
or employees of the Company or any of its affiliates will be paid an annual
retainer fee of $20,000 for their service on the Board of Directors, and a fee
of $2,000 for each meeting of the Board of Directors or any committee thereof
that they attend, plus reasonable out-of-pocket expenses.
54
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and long
term compensation for services rendered in all capacities to the Company
during the fiscal years ended December 31, 1996, 1995 and 1994 of those
persons who at December 31, 1996 were (i) the Chief Executive Officer of
Holdings and (ii) the other four most highly compensated executive officers of
Holdings and its subsidiaries. Prior to the Offering, no director of Holdings
or its subsidiaries received any compensation for serving as a director of
Holdings or its subsidiaries. See "Certain Transactions--Management
Agreements".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- ----------------
AWARDS
----------------
OTHER SECURITIES
ANNUAL UNDERLYING STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(A)(B) BONUS(A)(C) COMPENSATION OPTIONS/SARS(D) COMPENSATION(E)
- --------------------------- ---- ------------ ----------- ------------ ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
R. Philip Silver......... 1996 $1,875,000 -- -- -- --
(Chairman of the Board
and 1995 1,830,000 -- -- -- --
Co-Chief Executive
Officer of 1994 1,684,135 -- -- -- --
Holdings and Silgan and
Chairman of the Board of
Plastics)
D. Greg Horrigan......... 1996 1,875,000 -- -- -- --
(President and Co-Chief 1995 1,830,000 -- -- -- --
Executive Officer of
Holdings 1994 1,684,135 -- -- -- --
and Silgan and Chairman
of the Board of
Containers)
Harley Rankin, Jr. ...... 1996 425,007 -- -- -- --
(Executive Vice
President, 1995 408,978 -- -- -- --
Chief Financial Officer
and 1994 384,930 -- -- 102,798 --
and Treasurer of
Holdings and Silgan)
James D. Beam............ 1996 372,600 $112,339 -- -- $73,805
(President of
Containers) 1995 361,200 -- -- -- 66,394
1994 350,000 169,092 -- -- 94,175
Russell F. Gervais....... 1996 234,000 111,400 -- -- 7,020
(President of Plastics) 1995 226,000 59,000 -- -- 5,085
1994 216,804 83,300 -- 134,462 --
</TABLE>
- --------
(a) The compensation of Messrs. Horrigan, Silver, Rankin and Rodriguez
reflects amounts as earned and was paid by S&H. Such persons received no
direct compensation from Holdings, Silgan or their respective
subsidiaries. See "Certain Transactions--Management Agreements".
(b) The salaries of Messrs. Beam and Gervais were paid by Containers and
Plastics, respectively.
(c) Bonuses of Messrs. Beam and Gervais were earned by them in such year and
paid in the following year, pursuant to the Silgan Containers Corporation
Performance Incentive Plan and the Silgan Plastics Corporation Incentive
Plan, respectively. Under such plans, executive officers and other key
employees of Containers and Plastics may be awarded cash bonuses provided
that such company achieves certain assigned financial targets.
(d) Reflects options to purchase shares of Common Stock under the Stock Option
Plan, and gives effect to the Stock Split. Such options are exercisable
ratably over a five-year period which began on January 1, 1995. Mr.
Gervais' options have been calculated in accordance with Plastics' stock
option plan to give effect to the conversion thereof to options under the
Stock Option Plan.
(e) In the case of Mr. Beam, includes amounts contributed under the Silgan
Containers Corporation Supplemental Executive Retirement Plan (the
"Supplemental Plan") and used to pay premiums for split-dollar life
insurance for Mr. Beam maintained in conjunction with the Supplemental
Plan and includes amounts contributed by Containers under the Silgan
Containers Corporation Deferred Incentive Savings Plan. In the case of Mr.
Gervais, includes amounts allocated to Mr. Gervais under the Silgan
Plastics Corporation Contributory Retirement Plan.
55
<PAGE>
OPTION VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996(A)
----------------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ---------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
R. Philip Silver........ -- -- -- --
D. Greg Horrigan........ -- -- -- --
Harley Rankin, Jr.(b)... 233,010 41,119 $ 4,091,643 $ 676,681
James D. Beam(b)(c)..... 584,608 -- 10,597,026 --
Russell F.
Gervais(b)(c).......... 80,677 53,785 1,568,184 1,045,456
</TABLE>
- --------
(a) For the purposes of this table, the fair market value per share of Common
Stock at December 31, 1996 was estimated to be the initial public offering
price of $20.00 per share.
(b) Options are for shares of Common Stock and give effect to the Stock Split.
(c) Messrs. Beam's and Gervais' options have been calculated in accordance
with Containers' and Plastics' stock option plans, respectively, to give
effect to the conversion thereof to options under the Stock Option Plan.
STOCK OPTION PLAN
The Board of Directors and stockholders of Holdings approved the
establishment of the Stock Option Plan. Under the Stock Option Plan, as an
additional means of attracting and retaining officers and key personnel,
Holdings may grant options to purchase shares of Common Stock to participants.
Options granted may be either non-qualified stock options or "incentive stock
options".
The Board of Directors of Holdings, through a committee (the "Stock Option
Committee"), administers the Stock Option Plan and has the power to, among
other things, choose participants and fix the type of grant and all the terms
and conditions thereof, including number of shares covered by a grant and the
exercise price. Only officers (including executive officers) and other key
employees of the Company are eligible to participate in the Stock Option Plan.
The stock issuable under the Stock Option Plan includes shares of Holdings'
authorized and unissued or reacquired Common Stock. The number of shares for
which options may be granted under the Stock Option Plan may not exceed
3,533,414 shares.
Options are exercisable over such period as determined by the Stock Option
Committee, and generally, except as otherwise determined by the Stock Option
Committee, no option may remain exercisable more than ten years from the grant
date, subject to earlier termination as provided in the Stock Option Plan.
Options become exercisable no earlier than one year from the date of grant and
in such installments as specified in the option agreement therefor.
All options granted under the Stock Option Plan must be evidenced by an
option agreement between Holdings and the option recipient embodying all the
terms and conditions of the option grant, provided that (i) incentive stock
options granted must comply with Section 422 of the Code, (ii) no option shall
be transferable or assignable other than by will or the laws of descent and
distribution and, during the lifetime of the recipient, such option shall be
exercisable only by the recipient, (iii) all options must expire upon or
remain exercisable for a limited time after termination of employment, all as
specified in the Stock Option Plan, and (iv) upon exercise of options, full
payment for the shares covered thereby shall be made in cash or shares of
Common Stock already owned or a combination of cash and shares of Common
Stock.
Concurrent with the Offering, all outstanding stock options issued under
stock option plans of Containers and Plastics will be converted to stock
options under Holdings' Stock Option Plan in accordance with the terms of such
plans. Additionally, the holders of stock options under the
56
<PAGE>
Containers' and Plastics' stock option plans have waived certain registration
rights thereunder. At the time of the Offering, the Containers' and Plastics'
stock option plans will terminate. As a result, the only stock options that
will be outstanding after the Offering will be stock options under the
Holdings' Stock Option Plan.
As of the date of this Prospectus, options to purchase 1,820,100 shares of
Common Stock were outstanding under the Stock Option Plan at exercise prices
ranging from $0.56 to $4.43 per share. With respect to certain outstanding
options, Holdings has an obligation to pay to the optionees an amount per
option as specified in the applicable option agreement (determined in
connection with the merger in which Holdings acquired Silgan with respect to
the issuance of options under the Stock Option Plan in exchange for options
under a predecessor plan) upon exercise of such options. An aggregate amount
of $943,589 would be payable by Holdings to such optionees upon the exercise
of such outstanding options.
FEDERAL INCOME TAX CONSEQUENCES OF STOCK OPTION PLAN
The following discussion sets forth a brief summary of the U.S. federal
income tax aspects of options granted under the Stock Option Plan based on tax
laws in effect on the date hereof. This summary is not intended to be
exhaustive, and does not describe a number of special tax rules that could
apply in certain circumstances (i.e., alternative minimum tax). State, local
and foreign income tax consequences are not discussed, and may vary from
locality to locality. Participants in the Stock Option Plan are urged to
consult their own tax advisors with respect to the consequences of their
participation in the Stock Option Plan.
STOCK OPTIONS
The grant of incentive stock options or non-qualified stock options will not
result in taxable income for the optionee at the time the option is granted
and Holdings will not be entitled to a deduction at that time.
NON-QUALIFIED STOCK OPTIONS
In general, an optionee will be subject to tax for the year of exercise of a
non-qualified stock option on the amount of ordinary income equal to the
difference between the purchase price and the fair market value of the Common
Stock received at the time of such exercise. Holdings will be entitled to a
deduction in a corresponding amount. Income tax withholding requirements apply
upon exercise. The optionee's tax basis in the Common Stock acquired on
exercise will be equal to the exercise price plus the amount of ordinary
income subject to tax upon such exercise. Upon subsequent disposition of the
Common Stock, the holder will realize capital gain or loss, long-term or
short-term, depending upon the length of time the holder held the Common Stock
received upon the option exercise.
INCENTIVE STOCK OPTIONS
In general, the exercise of an incentive stock option will not result in
income for the optionee if the optionee (i) does not dispose of the Common
Stock within two years after the date of grant or one year after the
acquisition of the Common Stock upon exercise and (ii) is an employee of
Holdings or a subsidiary of Holdings from the date of the option grant until
three months before the exercise date. If these requirements are met, the tax
basis of the Common Stock upon later disposition will be the exercise price.
Any gain will be taxed to the holder as long-term capital gain and Holdings
will not be entitled to a deduction. The excess of the fair market value on
the exercise date over the exercise price is an item of tax preference,
potentially subject to the alternative minimum tax.
If an optionee disposes of the Common Stock acquired upon exercise prior to
the expiration of either of the holding periods described in clause (i) in the
immediately preceding paragraph, the optionee will recognize ordinary income
and Holdings will be entitled to a corresponding deduction equal to the lesser
of (a) the fair market value of the Common Stock on the exercise date minus
the exercise price or (b) the amount realized on disposition minus the
exercise price. Any gain in excess of the amount of the ordinary income
portion will be taxable as long-term or short-term capital gain, depending
upon the length of time the Common Stock was held after exercise.
57
<PAGE>
PENSION PLANS
The Company has established pension plans (the "Pension Plans") covering
substantially all of the salaried employees of Containers and Plastics,
respectively, including the executive officers (the "Containers Pension Plan"
and the "Plastics Pension Plan," respectively). The Pension Plans are defined
benefit plans intended to be qualified pension plans under Section 401(a) of
the Code, under which pension costs are determined annually on an actuarial
basis with contributions made accordingly.
The following table illustrates the estimated annual normal retirement
benefits that are payable under the Containers Pension Plan. Such benefit
levels assume retirement at age 65, the years of service shown, continued
existence of the Containers Pension Plan without substantial change and
payment in the form of a single life annuity.
CONTAINERS PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE -----------------------------------------------------------------------
EARNINGS 10 15 20 25 30 35
- ------------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $ 7,130 $10,640 $14,260 $17,830 $ 21,390 $ 24,960
75,000 11,510 17,260 23,010 28,760 34,520 40,270
100,000 15,880 23,820 31,760 39,700 47,640 55,580
125,000 20,260 30,380 40,510 50,640 60,770 70,890
150,000 24,630 36,950 49,260 61,580 73,890 86,210
175,000 29,010 43,510 58,010 72,510 87,020 101,520
200,000 33,380 50,070 66,760 83,450 100,140 116,830
225,000 37,760 56,630 75,510 94,390 113,270 132,140
</TABLE>
Benefits under the Containers Pension Plan are based on the participant's
average base pay (the "Salary" column in the Summary Compensation Table) over
the final three years of employment. The amount of average base pay taken into
account for any year is limited by Section 401(a)(17) of the Code, which
imposes a cap of $150,000 (to be indexed for inflation) on compensation taken
into account for 1994 and later years (the limit for 1993 was $235,840).
As of December 31, 1996, James D. Beam, the only eligible executive officer
named in the Summary Compensation Table, had nine years of credited service
under the Containers Pension Plan. Mr. Beam also participates in the
Supplemental Plan, which is designed to make up for benefits not payable under
the Containers Pension Plan due to Code limitations. Mr. Beam's benefits under
the Supplemental Plan are funded through a split-dollar life insurance policy;
income attributable to this life insurance policy is included in the "All
Other Compensation" column of the Summary Compensation Table.
The following table illustrates the estimated annual normal retirement
benefits that are payable under the Plastics Pension Plan. Such benefit levels
assume retirement age at 65, the years of service shown, continued existence
of the Plastics Pension Plan without substantial change and payment in the
form of a single life annuity.
PLASTICS PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE --------------------------------------------------------------------
EARNINGS 10 15 20 25 30 35
- ------------- ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $7,000 $10,550 $14,000 $17,500 $21,000 $24,500
75,000 10,500 15,750 21,000 26,250 31,500 36,750
100,000 14,000 21,000 28,000 35,000 42,000 49,000
125,000 17,500 26,250 35,000 43,750 52,500 61,250
150,000 21,000 31,500 42,000 52,500 63,000 73,950
175,000 24,500 36,750 49,000 61,250 73,950 87,075
200,000 28,000 42,000 56,000 70,200 85,200 100,200
225,000 31,500 47,250 63,000 79,575 96,450 113,325
</TABLE>
58
<PAGE>
Benefits under the Plastics Pension Plan are based on the participant's
average total cash compensation (the "Salary" and "Bonus" columns in the
Summary Compensation Table) over the final 36 months of employment or over the
highest three of the final five calendar years of employment, whichever
produces the greater average compensation. In computing this average,
compensation for any year cannot exceed 125% of base pay. Compensation used in
determining benefits is also limited by Section 401(a)(17) of the Code, which
imposes the limits indicated above.
Benefits under the Plastics Pension Plan may be offset by a social security
amount (the plan provides benefits based on the greater of three formulas,
only one of which provides for a social security offset). Each of the benefit
estimates in the above table is based on the formula that produces the
greatest benefit for individuals with the stated earnings and years of
service.
As of December 31, 1996, Russell F. Gervais, the only eligible executive
officer named in the Summary Compensation Table, had seven years of credited
service under the Plastics Pension Plan.
CERTAIN EMPLOYMENT AGREEMENTS
Certain executive officers and other key employees of Containers and
Plastics (including Messrs. Beam and Gervais) have executed employment
agreements. The initial term of each such employment agreement is generally
three years from its effective date and is automatically extended for
successive one year periods unless terminated pursuant to the terms of such
agreement. Generally, these employment agreements provide for, among other
things, a minimum severance benefit equal to the employee's base salary and
benefits for, in most cases, a period of one year following termination (or
the remainder of the term of the agreement, if longer) (i) if the employee is
terminated by his employer for any reason other than disability or for cause
as specified in the agreement or (ii) if the employee voluntarily terminates
employment due to a demotion and, in some cases, significant relocation, all
as specified in the agreement.
The foregoing summaries of the various benefit plans and agreements of the
Company are qualified by reference to such plans and agreements, copies of
certain of which have been filed as exhibits to the Registration Statement (as
defined herein) of which this Prospectus is a part.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Holdings did not have a Compensation Committee during 1996. The compensation
of Messrs. Silver, Horrigan, Rankin and Rodriguez was paid by S&H, which was
paid by the Company for providing certain management services to the Company
pursuant to the Management Agreements (as defined in "Certain Transactions--
Management Agreements"). See "Certain Transactions--Management Agreements".
The compensation of all other executive officers of the Company was determined
by the senior management of the Company.
PRINCIPAL AND SELLING STOCKHOLDERS
Prior to completion of the Offering, all of the issued and outstanding
Common Stock of Holdings was owned by the Principal Common Stockholders and
BTNY. Upon completion of the Offering, the Principal Common Stockholders will
own 13,591,737 shares of Common Stock (12,988,930 shares if the over-allotment
option granted to the Underwriters is exercised in full), or approximately
72.1% of the issued and outstanding shares of Common Stock (approximately
68.9% if the over-allotment option granted to the Underwriters is exercised in
full).
Under the Principals Stockholders Agreement, Messrs. Silver and Horrigan
agreed to vote their shares of Common Stock for the election of two directors
chosen by MSLEF II so long as MSLEF II holds at least one-half of the number
of shares of Common Stock held by it immediately prior to the Offering, and
MSLEF II agreed to vote its shares of Common Stock for the election of two
directors
59
<PAGE>
chosen by Messrs. Silver and Horrigan so long as they hold in the aggregate at
least one-half of the number of shares of Common Stock held by them on the
date of this Prospectus. Holdings currently has four directors, but intends to
increase its board of directors after the Offering to six members to include
two additional independent directors. See "Certain Transactions", "Description
of Capital Stock--Description of Stockholders Agreements" and "Underwriting"
for further discussion of the foregoing and for a discussion of other
transactions between the Selling Stockholders and the Company during the last
three years.
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock prior to the Offering after giving effect to the
Stock Split and after the Offering as adjusted to reflect the sale of the
shares of Common Stock offered hereby, (i) by each person who is known by
Holdings to own beneficially more than 5% of the Common Stock, (ii) by each
current director of Holdings and each named executive officer, (iii) by all
executive officers and directors as a group and (iv) by each of the Selling
Stockholders.
Each of the persons named in the table has sole voting and investment power
with respect to the securities beneficially owned.
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING(1)
------------------------------ ------------------------------
NUMBER OF SHARES PERCENTAGE OF NUMBER OF SHARES PERCENTAGE OF
OF COMMON STOCK COMMON STOCK OF COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY SHARES TO BE BENEFICIALLY BENEFICIALLY
OWNED OWNED(2) OFFERED(3) OWNED OWNED(2)
---------------- ------------- ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C>
R. Philip Silver(4)..... 3,576,544 23.59% -- 3,576,544 18.96%
D. Greg Horrigan(4)..... 3,576,544 23.59% -- 3,576,544 18.96%
Robert H. Niehaus(5).... -- -- -- -- --
Leigh J. Abramson(5).... -- -- -- -- --
Harley Rankin, Jr.(6)... 233,010 1.51% -- 233,010 1.22%
James D. Beam(7)........ 584,608 3.71% -- 584,608 3.01%
Russell F. Gervais(8)... 80,677 * % -- 80,677 * %
The Morgan Stanley
Leveraged Equity Fund
II, L.P.(9)............ 7,153,088 47.18% 714,439 6,438,649 34.13%
Bankers Trust New York
Corporation(10)........ 856,657 5.6% 85,561 771,096 4.1%
All officers and
directors as a group... 8,732,034 52.16% -- 8,732,034 42.72%
</TABLE>
- --------
(1) Assumes no purchase of shares in the Offering and no exercise of the
Underwriters' over-allotment option.
(2) An asterisk denotes beneficial ownership of 1% or less of the Common
Stock.
(3) If the Underwriters over-allotment option is exercised in full, the
number of shares to be offered by MSLEF II and BTNY will be 1,317,246 and
157,754, respectively.
(4) Director of Holdings, Silgan, Containers and Plastics. Messrs. Silver and
Horrigan are parties to a voting agreement pursuant to which they have
agreed to use their best efforts to vote their shares as a block. The
address for such person is 4 Landmark Square, Stamford, CT 06901.
(5) Director of Holdings, Silgan, Containers and Plastics. The address for
such person is c/o Morgan Stanley & Co. Incorporated, 1221 Avenue of the
Americas, New York, NY 10020.
(6) Reflects shares that may be acquired through the exercise of vested stock
options granted pursuant to the Stock Option Plan. The address for such
person is 4 Landmark Square, Stamford, CT 06901.
(7) Reflects shares that may be acquired through the exercise of vested stock
options granted pursuant to the Stock Option Plan. The address for such
person is 21800 Oxnard Street, Woodland Hills, CA 91367.
(8) Reflects shares that may be acquired through the exercise of vested stock
options granted pursuant to the Stock Option Plan. The address for such
person is 14515 N. Outer Forty, Chesterfield, MO 63017.
(9) The address for The Morgan Stanley Leveraged Equity Fund II, L.P., is
1221 Avenue of the Americas, New York, NY 10020.
(10) The address for Bankers Trust New York Corporation is 130 Liberty Street,
New York, NY 10006.
60
<PAGE>
CERTAIN TRANSACTIONS
MANAGEMENT AGREEMENTS
Holdings, Silgan, Containers and Plastics each entered into an amended and
restated management services agreement dated as of December 21, 1993
(collectively, the "Management Agreements") with S&H to replace in its
entirety its then existing management services agreement, as amended, with
S&H. Pursuant to the Management Agreements, S&H provides Holdings, Silgan,
Containers and Plastics and their respective subsidiaries with general
management and administrative services (the "Services"). The Management
Agreements provide for payments to S&H (i) on a monthly basis, of $5,000 plus
an amount equal to 2.475% of consolidated earnings before depreciation,
interest and taxes of Holdings and its subsidiaries ("Holdings EBDIT"), for
such calendar month until Holdings EBDIT for the calendar year shall have
reached an amount set forth in the Management Agreements for such calendar
year (the "Scheduled Amount") and 1.65% of Holdings EBDIT for such calendar
month to the extent that Holdings EBDIT for the calendar year shall have
exceeded the Scheduled Amount but shall not have been greater than an amount
(the "Maximum Amount") set forth in the Management Agreements and (ii) on a
quarterly basis, of an amount equal to 2.475% of Holdings EBDIT for such
calendar quarter until Holdings EBDIT for the calendar year shall have reached
the Scheduled Amount and 1.65% of Holdings EBDIT for such calendar quarter to
the extent that Holdings EBDIT for the calendar year shall have exceeded the
Scheduled Amount but shall not have been greater than the Maximum Amount (the
"Quarterly Management Fee"). The Scheduled Amount was $83.5 million for the
calendar year 1996, and the Maximum Amount was $98.101 million for the
calendar year 1996. The Scheduled Amount is $89.5 million for the calendar
year 1997, and the Maximum Amount is $100.504 million for the calendar year
1997. The Management Agreements provide that upon receipt by Silgan of a
notice from Bankers Trust that certain events of default under the Silgan
Credit Agreement have occurred, the Quarterly Management Fee shall continue to
accrue, but shall not be paid to S&H until the fulfillment of certain
conditions, as set forth in the Management Agreements.
Additionally, the Management Agreements provide that Holdings, Silgan,
Containers, Plastics and their respective subsidiaries shall reimburse S&H, on
a monthly basis, for all out-of-pocket expenses paid by S&H in providing the
Services, including fees and expenses to consultants, subcontractors and other
third parties, in connection with such Services. All fees and expenses paid to
S&H under each of the Management Agreements are credited against amounts paid
to S&H under the other Management Agreements. Under the terms of the
Management Agreements, Holdings, Silgan, Containers and Plastics have agreed,
subject to certain exceptions, to indemnify S&H and its affiliates, officers,
directors, employees, subcontractors, consultants or controlling persons
against any losses, damages, costs and expenses they may sustain arising in
connection with the Management Agreements.
The Management Agreements also provide that S&H may select a consultant,
subcontractor or agent to provide the Services. S&H has retained Morgan
Stanley to render financial advisory services to S&H. In connection with such
retention, S&H has agreed to pay Morgan Stanley a fee equal to 9.1% of the
fees paid to S&H under the Management Agreements.
Concurrent with the Offering, each of Holdings, Silgan, Containers and
Plastics will enter into an amended and restated management services agreement
(collectively, the "New Management Agreements") with S&H to replace in their
entirety the Management Agreements. The New Management Agreements will contain
substantially the same terms as the Management Agreements, except that after
the initial term of the New Management Agreements (which will continue until
June 30, 1999), the New Management Agreements will be automatically renewed
for successive one-year terms unless either party gives written notice at
least 180 days prior to the end of the then current term of its election not
to renew. The independent directors of Holdings will determine on behalf of
the companies whether to give such written notice not to renew. The New
Management Agreements may be terminated (i) at the option of each of the
respective companies upon the failure or refusal of S&H
61
<PAGE>
to perform its obligations under the New Management Agreements, if such
failure or refusal continues unremedied for more than 60 days after written
notice of its existence shall have been given; (ii) at the option of S&H upon
the failure or refusal of any of the respective companies to perform its
obligations under the New Management Agreements, if such failure or refusal
continues unremedied for more than 60 days after written notice of its
existence shall have been given; (iii) at the option of S&H or the respective
companies (a) if S&H or one of the companies is declared insolvent or bankrupt
or a voluntary bankruptcy petition is filed by any of them, (b) upon the
occurrence of any of the following events with respect to S&H or one of the
companies if not cured, dismissed or stayed within 45 days: the filing of an
involuntary petition in bankruptcy, the appointment of a trustee or receiver
or the institution of a proceeding seeking a reorganization, arrangement,
liquidation or dissolution, (c) if S&H or one of the companies voluntarily
seeks a reorganization or arrangement or makes an assignment for the benefit
of creditors or (d) upon the death or permanent disability of both of Messrs.
Silver and Horrigan; (iv) upon at least 180 days prior written notice at the
option of each of the respective companies for any reason; (v) upon at least
180 days prior written notice at the option of S&H for any reason other than
Cause or a Change of Control (each as defined in the New Management
Agreements); (vi) at the option of S&H after a Change of Control; (vii) at the
option of the respective companies in the event of criminal conduct or gross
negligence by S&H in the performance of the Services; or (viii) at the option
of S&H or the respective companies upon the termination of any of the New
Management Agreements for Cause (as defined therein). The New Management
Agreements will prohibit S&H from competing with the Company during the term
thereof and, only if S&H terminates the New Management Agreements pursuant to
clause (v) above, for a period of one year after such termination. The New
Management Agreements will provide that, in the event that they are terminated
pursuant to clause (iv) above, each of the respective companies will be
required to pay to S&H the present value of the amount of the payments that
would have been payable to S&H thereunder through the end of the initial term
or renewed term, as the case may be, thereof. In addition, under the New
Management Agreements the Scheduled Amount will be $89.5 million, $95.5
million and $101.5 million for the calendar years 1997, 1998 and 1999,
respectively, and the Maximum Amount will be $100.504 million, $102.964
million and $105.488 million for the calendar years 1997, 1998 and 1999,
respectively. For the calendar year 2000, the Scheduled Amount and the Maximum
Amount will be $108.653 million, and for each calendar year thereafter the
Scheduled Amount and Maximum Amount will increase by 3% from that of the
previous year.
The Company believes that it is difficult to determine whether the
Management Agreements and the New Management Agreements are on terms no less
favorable than those available from unaffiliated parties because of the
personal nature of the services provided thereunder and the expertise and
skills of the individuals providing such services. The Company believes that
arrangements under the Management Agreements and the New Management Agreements
are fair to both parties.
For the years ended December 31, 1996, 1995 and 1994, under the Management
Agreements, S&H earned aggregate fees, including reimbursable expenses and
fees payable to Morgan Stanley, of $5.3 million, $5.4 million and $5.0
million, respectively, from Holdings, Silgan, Containers and Plastics, and
during 1996, 1995 and 1994 Morgan Stanley earned fees of $425,000, $409,000
and $383,000, respectively.
OTHER
In connection with the refinancings of the Company's bank credit agreement
in 1995 and 1993, the banks thereunder (including Bankers Trust) received
certain fees amounting to $17.2 million and $8.1 million in 1995 and 1993,
respectively. In connection with a recent amendment to the Silgan Credit
Agreement in May 1996, the banks thereunder (including Bankers Trust) received
certain fees amounting to $1.6 million. In connection with the Preferred Stock
Sale, Morgan Stanley, which acted as the placement agent in connection
therewith, received certain fees amounting to $1.8 million. See
62
<PAGE>
"Principal and Selling Stockholders" for a description of the ownership by
MSLEF II, an affiliate of Morgan Stanley, of certain securities of Holdings.
Morgan Stanley, an affiliate of MSLEF II, is one of the several Underwriters
and will receive fees in connection with the Offering. See "Underwriting".
Messrs. Silver and Horrigan, BTNY, MSLEF II and Holdings are parties to the
Stockholders Agreement, which provides for certain rights and obligations
among them and between them and Holdings. See "Description of Capital Stock--
Description of Stockholders Agreements".
G. William Sisley, Secretary of Holdings and Silgan, is a partner in the law
firm of Winthrop, Stimson, Putnam & Roberts. Winthrop, Stimson, Putnam &
Roberts provides legal services to Holdings, Silgan and their subsidiaries.
In the event that the Company enters into any future transactions with any
of its affiliates, the Company expects to enter into any such transactions on
terms no less favorable than those available from unaffiliated parties.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is incorporated under the laws of the State of Delaware.
Immediately prior to the closing of the Offering, Holdings will amend its
Certificate of Incorporation to change its authorized capital stock to
100,000,000 shares of Common Stock, par value $.01 per share (the "Common
Stock"), and 10,000,000 shares of preferred stock, par value $.01 per share.
Prior to the sale of shares of Common Stock in the Offering, there are
15,162,833 shares of Common Stock issued and outstanding, 14,306,176 of which
are beneficially owned by the Principal Common Stockholders. Such number of
outstanding shares reflects the Stock Split. Upon consummation of the
Offering, 18,862,833 shares of Common Stock will be issued and outstanding.
There are 53,258 shares of Exchangeable Preferred Stock issued and
outstanding, of which none are owned by the Principal Common Stockholders. All
outstanding shares of capital stock are, and the shares issued in the Offering
will be, fully paid and nonassessable.
COMMON STOCK
Each outstanding share of Common Stock entitles the holder thereof to one
vote on all matters submitted to a vote of stockholders, including the
election of directors. There is no cumulative voting in the election of
directors; consequently, the holders of a majority of the outstanding shares
of Common Stock can elect all of the directors then standing for election. See
"--Description of Stockholders Agreements". Holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available
therefor. See "Dividend Policy". In the event of any liquidation, dissolution
or winding-up of the affairs of the Company, holders of Common Stock will be
entitled to share ratably in the assets of the Company remaining after
provision for payment of liabilities to creditors and obligations to holders
of preferred stock. Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights and are not liable for further calls or
assessments. In addition, any action taken by the holders of Common Stock must
be taken at a meeting and may not be taken by consent in writing, and a
special meeting of the stockholders may only be called by the Chairman of the
Board or the President of the Company or by a majority of the Board of
Directors of the Company, and may not be called by the holders of Common
Stock.
PREFERRED STOCK
GENERAL
The Company's Board of Directors, without stockholder authorization, is
authorized to issue up to 10,000,000 shares of preferred stock in one or more
series and to fix the preferences, rights and privileges thereof, including
any dividend rights, conversion rights, voting rights, redemption rights and
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terms of any sinking fund provisions, liquidation preferences, the number of
shares constituting a series and the designation of such series. The Board
may, without stockholder approval, issue preferred stock with voting and other
rights that could adversely affect the voting power of the holders of Common
Stock. Currently, 53,258 shares of Exchangeable Preferred Stock are issued and
outstanding. However, after the Offering, Holdings intends to exchange its
outstanding Exchangeable Preferred Stock for the Exchange Debentures. See
"Description of Certain Indebtedness--Description of the Exchange Debentures".
The Company has no present plans to issue any additional shares of preferred
stock other than shares that may be issued to pay dividend obligations on the
Exchangeable Preferred Stock.
TERMS OF OUTSTANDING PREFERRED STOCK
The following is a summary of the terms of the Exchangeable Preferred Stock.
The Exchangeable Preferred Stock has a liquidation preference of $1,000 per
share and ranks senior to all outstanding capital stock of Holdings. Holdings
is required to redeem the Exchangeable Preferred Stock at its liquidation
preference of $1,000 per share, plus accrued and unpaid dividends, on July 15,
2006.
Dividends on the Exchangeable Preferred Stock are cumulative from the date
of issuance at 13 1/4% per annum on the liquidation preference thereof, and
are payable quarterly in cash or, on or prior to July 15, 2000 at the sole
option of Holdings, in additional shares of Exchangeable Preferred Stock, on
January 15, April 15, July 15 and October 15, commencing October 15, 1996. The
Exchangeable Preferred Stock is generally exchangeable into Exchange
Debentures at any time at the option of Holdings, in whole but not in part. If
by July 22, 1997 the Exchangeable Preferred Stock has not been exchanged for
the Exchange Debentures, the dividend rate on the Exchangeable Preferred Stock
will increase by 0.5% per annum to 13 3/4% per annum of the liquidation
preference thereof until such exchange occurs. The Company currently plans to
exchange the Exchangeable Preferred Stock for the Exchange Debentures after
completion of the Offering. For a summary of the terms of the Exchange
Debentures, see "Description of Certain Indebtedness--Description of the
Exchange Debentures".
On or after July 15, 2000, the Exchangeable Preferred Stock is redeemable,
at the option of Holdings, in whole or in part, at the rate of 109.938%
(declining ratably to 100% by July 15, 2003) of the liquidation preference
thereof, plus accrued and unpaid dividends to the redemption date. In
addition, at any time, or from time to time, on or prior to July 15, 2000,
Holdings may, at its option, redeem all (but not less than all) of the
outstanding shares of Exchangeable Preferred Stock at a redemption price equal
to 110% of the liquidation preference thereof, plus accrued and unpaid
dividends to the redemption date, with the proceeds of one or more sales of
common stock of Holdings. Upon a Change of Control (as defined in the
Certificate of Designation), Holdings is required to make an offer to purchase
all shares of Exchangeable Preferred Stock at a purchase price equal to 101%
of their liquidation preference, plus accrued and unpaid dividends to the date
of purchase.
Holders of the Exchangeable Preferred Stock have no voting rights except as
provided by law and as provided in Holdings' Restated Certificate of
Incorporation or in the Certificate of Designation relating to the
Exchangeable Preferred Stock (the "Certificate of Designation"). In the event
that dividends are not paid for four consecutive quarters or upon certain
other events as described in the Certificate of Designation (including failure
to comply with covenants under the Certificate of Designation and failure to
pay the mandatory redemption price on the Exchangeable Preferred Stock when
due), then the number of directors constituting Holdings' Board of Directors
will be adjusted to permit the holders of the majority of the then outstanding
Exchangeable Preferred Stock, voting separately as a class, to elect the
number of directors that is equal to the greater of (i) one and (ii) the whole
number obtained (rounding down to the nearest whole number) by (a) multiplying
1/6 by the number of directors then in office and (b) adding one.
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The Certificate of Designation contains certain covenants which, among other
things, restricts the ability of Holdings and its subsidiaries to incur
additional indebtedness and issue preferred stock; pay dividends or make
distributions in respect of their capital stock; purchase, redeem or otherwise
acquire for value shares of capital stock; make investments in any affiliate
or unrestricted subsidiary; enter into transactions with shareholders or
affiliates; create restrictions on the ability of Holdings' subsidiaries to
make certain payments; issue or sell stock of Holdings' subsidiaries; engage
in sales of assets; and engage in mergers or consolidations.
DESCRIPTION OF STOCKHOLDERS AGREEMENTS
Holdings, MSLEF II, BTNY and Messrs. Silver and Horrigan are parties to the
Stockholders Agreement dated as of December 21, 1993 (as amended, the
"Stockholders Agreement") which provides for certain rights and obligations
among such stockholders and between such stockholders and Holdings. The
operative provisions of the Stockholders Agreement take effect upon the
completion of the Offering. The following is a summary of the material
provisions of the Stockholders Agreement, which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
The Stockholders Agreement provides that for a period of eight years after
the Offering, MSLEF II shall have the right to demand two separate
registrations of its shares of Common Stock; provided, however, that such
demand right will terminate at such time as MSLEF II, together with its
affiliates, owns less than five percent of the issued and outstanding shares
of Common Stock. If, at any time or from time to time for a period of eight
years after the Offering, Holdings shall determine to register additional
shares of Common Stock (other than in connection with certain non-underwritten
offerings), Holdings will offer each of MSLEF II, BTNY and Messrs. Silver and
Horrigan the opportunity to register shares of Common Stock it holds in a
"piggyback registration".
The Stockholders Agreement prohibits the transfer prior to June 30, 1999 by
MSLEF II or by Messrs. Silver or Horrigan of Holdings' Common Stock without
the prior written consent of the others, except for (i) transfers made in
connection with a public offering or a Rule 144 Open Market Transaction (as
defined in the Stockholders Agreement), (ii) transfers made to an affiliate,
which, in the case of a transfer by MSLEF II to an affiliate, must be an
Investment Entity (defined generally to be any person who is primarily engaged
in the business of investing in securities of other companies and not taking
an active role in the management or operations of such companies), (iii)
certain transfers by MSLEF II to an Investment Entity or, in the event of
certain defaults under the Management Agreement between S&H and Holdings, to a
third party, in each case that comply with certain rights of first refusal
granted to the Group (the "Group" is defined generally to mean, collectively,
Messrs. Silver and Horrigan and their respective affiliates and certain
related family transferees and estates, with Mr. Silver and his affiliates and
certain related family transferees and estates being deemed to be collectively
one member of the Group, and Mr. Horrigan and his affiliates and certain
related family transferees and estates being deemed to be collectively another
member of the Group) set forth in the Stockholders Agreement, (iv) certain
transfers by either member of the Group to a third party that comply with
certain rights of first refusal granted to the other member of the Group and
MSLEF II set forth in the Stockholders Agreement, and (v) in the case of MSLEF
II, a distribution of all or substantially all of the shares of Holdings'
Common Stock then owned by MSLEF II to the partners of MSLEF II (a "MSLEF
Distribution"). Notwithstanding the foregoing, each of Messrs. Silver and
Horrigan and MSLEF II may pledge his or its shares of Holdings' Common Stock
to a lender or lenders reasonably acceptable to Holdings to secure a loan or
loans to him or it. In the event of any proposed foreclosure of such pledge,
such shares will be subject to certain rights of first refusal set forth in
the Stockholders Agreement.
Concurrent with the Offering, MSLEF II and Messrs. Silver and Horrigan
entered into the Principals Stockholders Agreement. The Principals
Stockholders Agreement provides that (i) for so long as MSLEF II and its
affiliates (excluding the non-affiliated limited partners of MSLEF II who
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acquire shares of Common Stock from MSLEF II in a MSLEF Distribution) hold at
least one-half of the number of shares of Common Stock held by MSLEF II
immediately prior to the Offering, each of Messrs. Silver and Horrigan will
use his best efforts (including to vote any shares of Common Stock owned or
controlled by him) to cause the nomination and election of two members of the
Board of Directors of Holdings to be chosen by MSLEF II; provided, however,
that each such nominee shall be either (a) an employee of Morgan Stanley whose
primary responsibility is managing investments for MSLEF II (or a successor or
related partnership) or (b) a person reasonably acceptable to the Group not
engaged in (as a director, officer, employee, agent or consultant or as a
holder of more than five percent of the equity securities of) a business
competitive with that of Holdings, and (ii) from and after the time that MSLEF
II and its affiliates (excluding the non-affiliated limited partners of MSLEF
II who acquire shares of Common Stock from MSLEF II in a MSLEF Distribution)
hold less than one-half of the number of shares of Common Stock held by MSLEF
II immediately prior to the Offering and until such time that MSLEF II and its
affiliates (excluding the non-affiliated limited partners of MSLEF II who
acquire shares of Common Stock from MSLEF II in a MSLEF Distribution) hold
less than five percent (5%) of the outstanding Common Stock beneficially
owned, each of Messrs. Silver and Horrigan will use his best efforts
(including to vote any shares of Common Stock owned or controlled by him) to
cause the nomination and election of one member of the Board of Directors of
Holdings to be chosen by MSLEF II; provided, however, that such nominee shall
be (i) either an employee of Morgan Stanley whose primary responsibility is
managing investments for MSLEF II (or a successor or related partnership) or
(ii) a person reasonably acceptable to the Group not engaged in (as a
director, officer, employee, agent or consultant or as a holder of more than
five percent of the equity securities of) a business competitive with that of
Holdings.
In addition, the Principals Stockholders Agreement provides that (i) for so
long as the Group holds at least one-half of the number of shares of Common
Stock held by it in the aggregate on the date of this Prospectus, MSLEF II
will use its best efforts (including to vote any shares of Common Stock owned
or controlled by it) to cause the nomination and election of two individuals
nominated by the holders of a majority of the shares of Common Stock held by
the Group as members of the Board of Directors of Holdings; provided, however,
that at least one of such nominees shall be Mr. Silver or Mr. Horrigan and the
other person, if not Mr. Silver or Mr. Horrigan, will be a person reasonably
acceptable to MSLEF II, so long as MSLEF II and its affiliates (excluding the
non-affiliated limited partners of MSLEF II who may acquire shares of Common
Stock from MSLEF II in a MSLEF Distribution) hold at least one-half of the
number of shares of Common Stock held by MSLEF II immediately prior to the
Offering, (ii) from and after the time that the Group holds less than one-half
of the number of shares of Common Stock held by it in the aggregate on the
date hereof and until such time that the Group holds less than five percent
(5%) of the outstanding Common Stock beneficially owned, MSLEF II will use its
best efforts (including to vote any shares of Common Stock owned or controlled
by it) to cause the nomination and election of one individual nominated by the
holders of a majority of the shares of Common Stock held by the Group as a
member of the Board of Directors of Holdings; provided, however, that such
nominee shall be Silver or Horrigan or, if not Silver or Horrigan, a person
reasonably acceptable to MSLEF II, so long as MSLEF II and its affiliates
(excluding the non-affiliated limited partners of MSLEF II who acquire shares
of Common Stock from MSLEF II in a MSLEF Distribution) hold at least one-half
of the number of shares of Common Stock held by MSLEF II immediately prior to
the Offering, and (iii) so long as the Group holds at least one-half of the
number of shares of Common Stock held by it in the aggregate on the date of
this Prospectus, the Group will have the right to nominate for election all
directors of Holdings other than the directors referred to above in this
paragraph and in the preceding paragraph, and upon such nomination by the
Group such nominees will stand for election to Holdings' Board of Directors in
accordance with Holdings' Restated Certificate of Incorporation, and MSLEF II
will vote all shares of Common Stock owned or controlled by it and its
affiliates against any director standing for election for Holdings' Board of
Directors that has not been nominated by the Group, other than the directors
referred to above in this paragraph and in the preceding paragraph.
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The Principals Stockholders Agreement further provides that MSLEF II will
vote all shares of Common Stock held by it against any unsolicited merger, or
sale of Holdings' business or assets, if such transaction is opposed by the
holders of a majority of the shares of Common Stock held by the Group, unless
as of the applicable record date for such vote, the Group holds less than
ninety percent of the number of shares of Common Stock held by it in the
aggregate at the date of this Prospectus.
The foregoing provisions of the Principals Stockholders Agreement could have
the effect of delaying, deferring or preventing a change of control of the
Company and preventing the stockholders from receiving a premium for their
shares of Common Stock in any proposed acquisition of the Company.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 ("Section 203") of the General Corporation Law of the State of
Delaware (the "DGCL") provides, in general, that a stockholder acquiring more
than 15% of the outstanding voting stock of a corporation subject to Section
203 (an "Interested Stockholder") but less than 85% of such stock may not
engage in certain Business Combinations (as defined in Section 203) with the
corporation for a period of three years subsequent to the date on which the
stockholder became an Interested Stockholder unless (i) prior to such date the
corporation's board of directors approved either the Business Combination or
the transaction in which the stockholder became an Interested Stockholder or
(ii) the Business Combination is approved by the corporation's board of
directors and authorized by a vote of at least 66 2/3% of the outstanding
voting stock of the corporation not owned by the Interested Stockholder.
LIMITATIONS ON DIRECTORS' LIABILITY
Holdings' Restated Certificate of Incorporation contains a provision which
eliminates the personal liability of a director to Holdings and its
stockholders for certain breaches of his or her fiduciary duty of care as a
director. This provision does not, however, eliminate or limit the personal
liability of a director (i) for any breach of such director's duty of loyalty
to Holdings or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Delaware statutory provisions making directors personally liable, under
a negligence standard, for unlawful dividends or unlawful stock repurchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. This provision offers persons who serve on the
Board of Directors of Holdings protection against awards of monetary damages
resulting from breaches of their duty of care (except as indicated above),
including grossly negligent business decisions made in connection with
takeover proposals for Holdings. As a result of this provision, the ability of
Holdings or a stockholder thereof to successfully prosecute an action against
a director for a breach of his duty of care has been limited. However, the
provision does not affect the availability of equitable remedies such as an
injunction or recision based upon a director's breach of his duty of care. The
Commission has taken the position that the provision will have no effect on
claims arising under the federal securities laws.
In addition, the Restated Certificate of Incorporation and By-Laws provide
mandatory indemnification rights, subject to limited exceptions, to any person
who was or is party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding by reason of the fact that
such person is or was a director or officer of Holdings, or is or was serving
at the request of Holdings as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
Such indemnification rights include reimbursement for expenses incurred by
such person in advance of the final disposition of such proceeding in
accordance with the applicable provisions of the DGCL.
TRANSFER AGENT AND REGISTRAR
The Bank of New York is the transfer agent and registrar for the Common
Stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Immediately after consummation of the Offering, Holdings will have
outstanding 18,862,833 shares of Common Stock. Of these shares, the 4,500,000
shares of Common Stock sold in the Offering (or 5,175,000 shares if the over-
allotment option is exercised in full) will be freely tradeable without
restrictions or further registration under the Securities Act, unless such
shares are purchased by "affiliates" of the Company (as that term is defined
under the Securities Act). The 14,362,833 shares of Common Stock owned by the
Principal Common Stockholders and BTNY (13,687,833 shares, if the over-
allotment option is exercised in full) are "restricted securities" as defined
in Rule 144 under the Securities Act, and may not be sold in the absence of
registration under the Securities Act other than pursuant to Rule 144 under
the Securities Act or another exemption from registration under the Securities
Act.
In general, under Rule 144, as currently in effect, (i) a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares
of Common Stock as to which at least two years have elapsed since such shares
were sold by Holdings or by an affiliate of Holdings in a transaction or chain
of transactions not involving a public offering ("restricted securities") or
(ii) an affiliate of Holdings who holds shares of Common Stock that are not
restricted securities may, without regard to the holding period, sell, within
any three-month period, a number of such shares that does not exceed the
greater of 1% of Holdings' Common Stock then outstanding (188,628 shares after
completion of the Offering) or the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the date on which notice of
such sale required under Rule 144 was filed. Sales under Rule 144 are also
subject to certain provisions relating to the manner and notice of sale and
availability of current public information about Holdings. Affiliates of
Holdings must comply with the requirements of Rule 144, including the two-year
holding period requirement, to sell shares of Common Stock that are restricted
securities. Furthermore, if a period of at least three years has elapsed from
the date restricted securities were acquired from Holdings or an affiliate of
Holdings, a holder of such restricted securities who is not an affiliate of
Holdings at the time of the sale and has not been an affiliate of Holdings at
any time during the three months prior to such sale would be entitled to sell
such shares without regard to the volume limitation and other conditions
described above.
All shares of Common Stock owned by each of the Principal Common
Stockholders and BTNY will immediately after consummation of the Offering be
eligible (subject to the one year lock-up arrangement described below) for
sale in the public market pursuant to, and in accordance with the volume,
manner of sale and other conditions of, Rule 144 described above. The
Stockholders Agreement provides for restrictions on transfers of Common Stock
by the Principal Common Stockholders other than sales pursuant to Rule 144 or
public offerings. Holdings has granted MSLEF II and Messrs. Silver and
Horrigan certain registration rights with respect to the shares of Common
Stock owned by them. See "Risk Factors--Shares Eligible for Future Sale" and
"Description of Capital Stock--Description of Stockholders Agreements".
Holdings and each of the Principal Common Stockholders and BTNY have agreed
that, subject to certain exceptions, they will not offer, sell or otherwise
dispose of any shares of Common Stock, other than in the Offering, or any
security convertible into or exchangeable or exercisable for shares of Common
Stock without the prior written consent of Goldman, Sachs & Co. on behalf of
the Underwriters for a period of one year after the date of this Prospectus.
See "Underwriting".
Holdings intends to register under the Securities Act the shares of Common
Stock issuable upon the exercise of options granted pursuant to the Stock
Option Plan. See "Management--Executive Compensation".
Prior to the Offering, there has been no public market for the Common Stock.
Sales of substantial amounts of Common Stock or the availability of such
shares for sale could adversely affect prevailing market prices of the Common
Stock and the ability of the Company to issue additional equity securities.
See "Risk Factors--Shares Eligible for Future Sale".
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DESCRIPTION OF CERTAIN INDEBTEDNESS
DESCRIPTION OF THE SILGAN CREDIT AGREEMENT
Pursuant to the Silgan Credit Agreement, the Banks loaned to Silgan (i) $225
million of term loans designated as "A Term Loans" and (ii) $350 million of
term loans designated as "B Term Loans" (together with the A Term Loans, the
"Term Loans"), and agreed to lend to Containers or Plastics up to an aggregate
of $225 million of revolving loans (the "Revolving Loans"). As of December 31,
1996, the outstanding principal amounts of A Term Loans, B Term Loans and
Revolving Loans under the Silgan Credit Agreement were $194.6 million, 343.7
million and $27.8 million, respectively. The A Term Loans mature on December
31, 2000 and are payable in varying increasing installments from December 31,
1996 through December 31, 2000. The B Term Loans mature on March 15, 2002 and
are payable in varying installments from December 31, 1996 through March 15,
2002. The Revolving Loans mature and are payable in full on December 31, 2000.
To secure the obligations of Silgan, Containers and Plastics (the
"Borrowers") under the Silgan Credit Agreement: (i) Silgan pledged to the
Banks all of the capital stock of Containers and Plastics held by Silgan; (ii)
Plastics pledged to the Banks 65% of the capital stock of 827599 Ontario Inc.
("Canadian Holdco") held by Plastics; (iii) Containers pledged to the Banks
all of the capital stock of SCCW Can Corporation ("SCCW Can"), a California
corporation and a wholly owned subsidiary of Containers, held by Containers;
(iv) Containers pledged to the Banks all of the capital stock of California-
Washington Can Corporation ("C-W Can"), a California corporation and a wholly
owned subsidiary of Containers, held by Containers; (v) Silgan, Containers,
Plastics, C-W Can and SCCW Can each granted to the Banks security interests in
substantially all of their respective real and personal property; and (vi)
Holdings pledged to the Banks all of the capital stock of Silgan held by
Holdings. In addition, each of Holdings, Silgan, Containers, Plastics, C-W Can
and SCCW Can have guaranteed the obligations of the Borrowers under the Silgan
Credit Agreement.
Each of the Term Loans and each of the Revolving Loans, at the respective
Borrower's election, consists of loans designated as Eurodollar rate loans or
as Base Rate (as defined in the Silgan Credit Agreement) loans. Subject to
certain conditions, each of the Term Loans and each of the Revolving Loans can
be converted from a Base Rate loan into a Eurodollar rate loan and vice versa.
Interest on Term Loans maintained as Base Rate loans accrues at floating rates
of 1.5% less the then applicable Interest Reduction Discount (as defined in
the Silgan Credit Agreement) (in the case of A Term Loans) and 2% (in the case
of B Term Loans) over the Base Rate. Interest on Term Loans maintained as
Eurodollar rate loans accrues at floating rates of 2.5% less the then
applicable Interest Reduction Discount (in the case of A Term Loans) and 3%
(in the case of B Term Loans) over a formula rate (the "Eurodollar Rate")
determined with reference to the rate offered by Bankers Trust for dollar
deposits in the New York interbank Eurodollar market. Interest on Revolving
Loans maintained as (i) Base Rate loans accrues at floating rates of 1.5%,
less the then applicable Interest Reduction Discount, plus the Base Rate or
(ii) Eurodollar Rate loans accrues at floating rates of 2.5%, less the then
applicable Interest Reduction Discount, plus the Eurodollar Rate.
Under the Silgan Credit Agreement, Silgan is required to repay the Terms
Loans in an amount equal to (i) 50% of Silgan's Excess Cash Flow (as defined
in the Silgan Credit Agreement) in any fiscal year during the Silgan Credit
Agreement, (ii) 80% of the net sale proceeds received from certain asset sales
(increasing to 100% of such net sale proceeds under certain circumstances as
described in the Silgan Credit Agreement), and (iii) 100% of the net equity
proceeds received from certain sales of equity (subject to certain exceptions
permitting the use of such proceeds to repay certain indebtedness (including
the Discount Debentures), decreasing to 50% of net equity proceeds received
after the occurrence of certain events as described in the Silgan Credit
Agreement.
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The financial covenants contained in the Silgan Credit Agreement include the
requirement to maintain a ratio of Consolidated Current Assets to Consolidated
Current Liabilities (each as defined in the Silgan Credit Agreement), a ratio
of EBITDA to Interest Expense (each as defined in the Silgan Credit Agreement)
which becomes more restrictive over time and a Leverage Ratio (as defined in
the Silgan Credit Agreement) which also becomes more restrictive over time.
The Silgan Credit Agreement restricts or limits each of the Borrowers' and
their respective subsidiaries' abilities, among other things: (i) to create
certain liens; (ii) subject to certain exceptions, to consolidate, merge or
sell its assets and to purchase assets; (iii) to pay dividends on, or
repurchase shares of, its capital stock, except for, among other things,
dividends in amounts to allow Holdings to pay cash dividends on the
Exchangeable Preferred Stock (or interest on the Exchange Debentures) as
provided in the Silgan Credit Agreement and dividends from Containers and
Plastics to Silgan as long as they remain wholly owned subsidiaries of Silgan;
(iv) to lease real and personal property; (v) to create additional
indebtedness, except for, among other things, unsecured subordinated
indebtedness of Silgan used to refinance 11 3/4% Notes; (vi) to make certain
advances, investments and loans, except for, among other things, certain
limited acquisitions and investments as provided in the Silgan Credit
Agreement; (vii) to enter into transactions with affiliates; (viii) to make
certain capital expenditures, except for, among other things, capital
expenditures which do not exceed in the aggregate for the Borrowers $65
million (plus amounts permitted and not utilized in the prior year) for each
calendar year; (ix) except as otherwise permitted under the Silgan Credit
Agreement, to make any voluntary payments, prepayments, acquire for value,
redeem or exchange, among other things, any 11 3/4% Notes, any of the
Exchangeable Preferred Stock or Exchange Debentures or to make certain
amendments to the 11 3/4% Notes, the Borrowers' or their respective
subsidiaries' respective certificates of incorporation and by-laws, or to
certain other agreements; (x) with certain exceptions, to have any additional
subsidiaries; and (xi) to engage in any business other than the packaging
business.
The Silgan Credit Agreement requires that Silgan own not less than 90% of
the outstanding common stock of Containers and Plastics and 100% of all other
outstanding capital stock of Containers and Plastics.
The ability of Holdings to take certain actions is restricted or limited
pursuant to the terms of the Second Amended and Restated Holdings Guaranty
dated as of August 1, 1995 made by Holdings (the "Holdings Guaranty"). The
Holdings Guaranty restricts or limits Holdings' ability to, among other
things: (i) create certain liens; (ii) incur additional indebtedness, except
that, among other things, Holdings may exchange the Exchangeable Preferred
Stock for the Exchange Debentures on or after the earlier of the third
anniversary of the issuance of the Exchangeable Preferred Stock or the
consummation by Holdings of a registered public offering of its common stock
in an amount equal to or greater than the principal amount of the Exchange
Debentures and Holdings may incur unsecured subordinated Indebtedness (as
defined in the Silgan Credit Agreement) the proceeds of which are used to
refinance, redeem or repay the Exchange Debentures or any Refinancing
Indebtedness (as defined in the Silgan Credit Agreement) of Holdings; (iii)
consolidate, merge or sell its assets and purchase or lease assets, except
that Holdings may merge with Silgan to the extent that such merger is
permitted under the Silgan Credit Agreement; (iv) pay cash dividends, except
that, among other things, Holdings may pay cash dividends on the Exchangeable
Preferred Stock to the extent that Silgan is permitted to pay cash dividends
or make advances to Holdings under the Silgan Credit Agreement for such
purpose and dividends to the holders of its common stock in amounts and at the
times as provided in the Silgan Credit Agreement after the consummation of a
registered public equity offering by Holdings; (v) repurchase any of its
capital stock; (vi) make loans or advances, except that, among other things;
Holdings may make advances to Silgan as permitted under the Silgan Credit
Agreement; and (vii) engage in any business other than holding Silgan's common
stock and certain other limited matters permitted by the Holding Guaranty.
70
<PAGE>
Events of default under the Silgan Credit Agreement include, with respect to
each of the Borrowers, as the case may be, among others: (i) the failure to
pay any principal on the Term Loans or the Revolving Loans, the failure to
reimburse drawings under any letters of credit when due or the failure to pay
within two business days after the date such payment is due interest on the
Term Loans, the Revolving Loans or any unpaid drawings under any letter of
credit or any fees or other amounts owing under the Silgan Credit Agreement;
(ii) subject to certain limited exceptions, any failure to pay amounts due
under certain other agreements or any defaults that result in or permit the
acceleration of certain other indebtedness; (iii) subject to certain limited
exceptions, the breach of any covenants, representations or warranties
contained in the Silgan Credit Agreement or any related document; (iv) certain
events of bankruptcy, insolvency or dissolution; (v) the occurrence of certain
judgments, writs of attachment or similar process against any of the Borrowers
or any of their respective subsidiaries; (vi) the occurrence of certain
Employee Retirement Income Security Act related liabilities; (vii) a default
under or invalidity of the guarantees (including an event of default under the
Holdings Guaranty) or of the security interests granted to the Banks pursuant
to the Silgan Credit Agreement; (viii) the failure of Holdings to own 100% of
the capital stock of Silgan; (ix) a Change of Control (as defined in the
Silgan Credit Agreement) shall occur; and (x) the requirement that Silgan
repurchase any 11 3/4% Note or that Holdings repurchase any Exchange
Debenture, in any case as a result of a Change of Control (as defined in the
agreements and indentures relating thereto).
DESCRIPTION OF THE 11 3/4% NOTES
Silgan sold the 11 3/4% Notes ($135 million principal amount) in a public
offering on June 29, 1992. The 11 3/4% Notes bear interest at a rate of 11
3/4% per annum. The 11 3/4% Notes are redeemable at any time on and after June
15, 1997 at the option of Silgan, in whole or in part, at 105.875% of their
principal amount plus accrued interest, declining to 100% of their principal
amount plus accrued interest on or after June 15, 1999. In the event of a
Change of Control (as defined in the 11 3/4% Notes Indenture), each holder of
the 11 3/4% Notes may require Silgan to repurchase its 11 3/4% Notes at 101%
of the principal amount plus accrued interest. The 11 3/4% Notes Indenture
contains certain covenants that, among other things, direct the application of
the proceeds from certain asset sales, limit the ability of Silgan and its
subsidiaries to incur indebtedness, make certain payments with respect to
their capital stock, make prepayments of certain indebtedness, make loans or
investments to entities other than Restricted Subsidiaries (as defined in the
11 3/4% Notes Indenture), enter into transactions with affiliates, engage in
mergers or consolidations, and, with respect to Silgan's subsidiaries, issue
stock. Generally, these covenants are no more restrictive than the covenants
contained in the Silgan Credit Agreement.
DESCRIPTION OF THE EXCHANGE DEBENTURES
Upon completion of the Offering and the redemption of the remaining Discount
Debentures (which is expected to occur no later than 45 days after the
completion of the Offering), Holdings intends to exchange all of the
outstanding Exchangeable Preferred Stock for Exchange Debentures. As a result,
Holdings will realize tax benefits resulting from the deductibility of
interest paid on the Exchange Debentures. The aggregate principal amount of
the Exchange Debentures will be equal to the aggregate liquidation preference
of, and accrued but unpaid dividends on, the Exchangeable Preferred Stock
outstanding on the date that the Exchangeable Preferred Stock is exchanged for
the Exchange Debentures (the "Exchange Date"). The Exchange Debentures will
mature on July 15, 2006. Each Exchange Debenture will bear interest at the
dividend rate in effect with respect to the Exchangeable Preferred Stock on
the date the Exchange Debentures are issued from the Exchange Date or from the
most recent interest payment date to which interest has been paid or provided
for. Interest will be payable on January 15 and July 15 of each year,
commencing with the first of such dates to occur after the Exchange Date. On
or prior to July 15, 2000, Holdings will be permitted to pay interest on the
Exchange Debentures by issuing additional Exchange Debentures.
71
<PAGE>
On or after July 15, 2000, the Exchange Debentures will be redeemable, at
the option of Holdings, in whole or in part, at the rate of 109.938% of the
principal amount thereof plus accrued interest, declining ratably to 100% by
July 15, 2003. In addition, at any time, or from time to time, on or prior to
July 15, 2000, Holdings will be able, at its option, to redeem all (but not
less than all) outstanding Exchange Debentures at a redemption price equal to
110% of the principal amount thereof plus accrued interest, with the proceeds
of one or more sales of common stock of Holdings. Upon a Change of Control (as
defined in the Indenture with respect to the Exchange Debentures (the
"Exchange Debenture Indenture")), Holdings will be required to make an offer
to purchase all of the Exchange Debentures at a purchase price equal to 101%
of their principal amount on the date of purchase, plus accrued and unpaid
interest to the date of purchase.
The Exchange Debenture Indenture will contain certain covenants that, among
other things, will direct the application of the proceeds from certain asset
sales, limit the ability of Holdings and its subsidiaries to incur
indebtedness, make certain payments with respect to their capital stock, make
prepayments of certain indebtedness, make loans or investments to entities
other than Restricted Subsidiaries (as such term will be defined in the
Exchange Debenture Indenture), enter into transactions with affiliates, engage
in mergers or consolidations, and, with respect to Holdings' subsidiaries,
issue stock. Generally, these covenants will be no more restrictive than the
covenants contained in the Silgan Credit Agreement.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon by
Winthrop, Stimson, Putnam & Roberts, Financial Centre, 695 East Main Street,
Stamford, Connecticut 06904-6760. G. William Sisley, a partner in Winthrop,
Stimson, Putnam & Roberts, is Secretary of Holdings and Silgan. Winthrop,
Stimson from time to time represents certain of the Underwriters in connection
with certain legal matters unrelated to its representation of Holdings.
Certain legal matters are being passed upon for the Underwriters by Shearman &
Sterling, New York, New York. Shearman & Sterling has performed, and will
continue to perform, legal services for MSLEF II, Morgan Stanley and companies
controlled by MSLEF II and Morgan Stanley.
EXPERTS
The consolidated financial statements of Silgan Holdings Inc. at December
31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996 appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein and in the Registration Statement,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of American National Can Company's Food Metal &
Specialty Division as of December 31, 1994 and 1993, and for each of the three
years in the period ended December 31, 1994, incorporated by reference in this
Prospectus and Registration Statement have been so incorporated in reliance on
the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
72
<PAGE>
AVAILABLE INFORMATION
Holdings is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports with the Securities and Exchange Commission (the
"Commission"). Reports filed by Holdings may be inspected without charge and
copied, upon payment of prescribed rates, at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such materials
may be obtained from the web site that the Commission maintains at
http://www.sec.gov.
Holdings has filed with the Commission a registration statement on Form S-2
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended. This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby
made to the Registration Statement.
----------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 33-28409)
pursuant to the Exchange Act are incorporated herein by reference:
1. Holdings' Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 (excluding the Financial Statements of Silgan Corporation
included therein);
2. Holdings' Annual Report on Form 10-K/A-1 for the fiscal year ended
December 31, 1995 (excluding the Financial Statements of Silgan Corporation
included therein);
3. Holdings' Annual Report on Form 10-K/A-2 for the fiscal year ended
December 31, 1995;
4. Holdings' Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1996;
5. Holdings' Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1996;
6. Holdings' Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1996;
7. Holdings' Current Report on Form 8-K dated August 14, 1995, as amended
by Amendment to Current Report on Form 8-K/A dated October 16, 1995;
8. Holdings' Current Report on Form 8-K dated May 31, 1996;
9. Holdings' Current Report on Form 8-K dated August 2, 1996;
10. Holdings' Current Report on Form 8-K dated September 16, 1996;
11. Holdings' Current Report on Form 8-K dated January 27, 1997; and
12. Holdings' Current Report on Form 8-K dated February 5, 1997.
Holdings will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents which are incorporated herein by reference, other than exhibits to
such information (unless such exhibits are specifically incorporated by
reference into such documents). Requests should be directed to: Silgan
Holdings Inc., 4 Landmark Square, Stamford, CT 06901, Attention: Chief
Financial Officer (Telephone Number (203) 975-7110).
Statements contained in this Prospectus as to the contents of any contract
or document are not necessarily complete, and in each instance reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. Any statement contained in a document all or a portion of
which is incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified shall not be
deemed to constitute a part of this Prospectus except as so modified, and any
statement so superseded shall not be deemed to constitute part of this
Prospectus.
73
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
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
Unaudited Pro Forma Condensed Statement of Operations for the year ended
December 31, 1996 ....................................................... F-26
Notes to Unaudited Pro Forma Condensed Statement of Operations............ F-28
</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, except for Note 22,
as to which date is February 13, 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 accounts
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
======== ========
</TABLE>
<TABLE>
<S> <C> <C>
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
(10,000,000 shares
authorized, 51,556 shares issued and outstanding)......... 52,998 --
Deficiency in stockholders' equity:
Common stock ($0.01 par value per share;
100,000,000 shares authorized, 15,162,833
and 19,446,120 shares issued and outstanding
in 1996 and 1995, respectively)......................... 152 195
Additional paid-in capital............................... 18,466 33,423
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 EXCEPT PER SHARE DATA)
<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)
========== ========== ==========
Income (loss) per common share:
Income (loss) before extraordinary
charges................................ $ 1.60 $ (0.77) $ (0.63)
Extraordinary charges................... (0.12) (0.29) --
Preferred stock dividend requirement.... (0.16) -- --
---------- ---------- ----------
Net income (loss)....................... $ 1.32 $ (1.06) $ (0.63)
========== ========== ==========
Weighted average number of common and
common equivalent shares outstanding..... 19,178,730 20,656,877 20,656,877
========== ========== ==========
</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 EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
TOTAL
ADDITIONAL DEFICIENCY IN
PAR PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES VALUE CAPITAL DEFICIT EQUITY
---------- ----- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... 1,135,000 $ 12 $33,606 $(178,585) $(144,967)
Adjustment for 17.133145
for 1 stock split...... 18,311,120 183 (183) -- --
---------- ---- ------- --------- ---------
As restated at December
31, 1993 for stock
split.................. 19,446,120 195 33,423 (178,585) (144,967)
Net loss................ -- -- -- (13,031) (13,031)
---------- ---- ------- --------- ---------
Balance at December 31,
1994................... 19,446,120 195 33,423 (191,616) (157,998)
Net loss................ -- -- -- (21,806) (21,806)
---------- ---- ------- --------- ---------
Balance at December 31,
1995................... 19,446,120 195 33,423 (213,422) (179,804)
Purchase and retirement
of 250,000 shares of
Class B Common Stock... (4,283,287) (43) (14,957) (20,811) (35,811)
Net income.............. -- -- -- 25,409 25,409
---------- ---- ------- --------- ---------
Balance at December 31,
1996................... 15,162,833 $152 $18,466 $(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.
PER SHARE INFORMATION
Per share amounts have been computed based upon the weighted average number
of common and common equivalent shares outstanding for all periods presented.
Weighted average shares include options to purchase shares which were issued
within the twelve month period prior to the initial public offering of the
Company at less than the initial public offering price. All share and per
share data have been adjusted to reflect a 17.133145 for 1 stock split which
occurred at the time of the initial public offering. For a discussion of the
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
F-9
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
effect of purchase accounting adjustments based on appraisals and valuations,
the financing of the acquisition of AN Can by the Company, the refinancing of
the Company's related debt obligations, and certain other adjustments as if
these events occurred as of the beginning of 1995. Pro forma results of
operations for Finger Lakes have not been presented for 1996 or included in
the 1995 summary unaudited pro forma results of operations since the impact of
such acquisition was not significant.
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
EXCEPT PER SHARE DATA)
<S> <C>
Net sales.......................................... $1,404,382
Income from operations............................. 92,749(1)
Income before income taxes......................... 4,064
Net loss........................................... (2,736)
Net loss per common share.......................... (0.13)
</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%. During
1996, the Company entered into interest rate swap agreements to convert
interest rate exposure from variable to fixed rates of interest on A Term
Loans and B Term Loans in an aggregate amount of $200.0 million (for a
discussion of the interest rate swap agreements, see Note 9).
F-13
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
For 1996, 1995 and 1994, respectively, the average amount of borrowings of
Working Capital Loans was $104.1 million, $67.6 million and $14.4 million; the
weighted average annual interest rate paid on such borrowings was 8.4%, 8.9%,
and 8.4%; and the highest amount of such borrowings was $175.1 million, $188.1
million, and $46.0 million. The Credit Agreement provides for the payment of a
commitment fee of 0.5% per annum on the daily average unused portion of
commitments available under the working capital revolving credit facility as
well as a 2.75% per annum fee on outstanding letters of credit.
The indebtedness under the Credit Agreement is guaranteed by Holdings and
each of Silgan, Containers and Plastics and secured by a security interest in
substantially all of the real and personal property of Silgan, Containers and
Plastics. The stock of 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 ofthe 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
made in 1996 were recorded as adjustments to interest expense.
CONCENTRATION OF CREDIT RISK
The Company derives a significant portion of its revenue from multi-year
supply agreements with many of its customers. Aggregate revenues from its two
largest customers accounted for approximately 29.1% of its net sales in 1996
and 36.0% of its net sales in 1995. The receivable balances from these
customers collectively represented 20.3% and 28.2% of the Company's accounts
receivable before allowances at December 31, 1996 and 1995, respectively. 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
Preferred 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
======= ======= =======
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:
<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%
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:
<CAPTION>
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Accumulated postretirement benefit obliga-
tion:
Retirees.................................. $ 2,691 $ 1,587
Fully eligible active plan participants... 5,576 11,647
Other active plan participants............ 18,214 14,770
----------- -----------
Total accumulated postretirement benefit
obligation................................. 26,481 28,004
Unrecognized net loss (gain)................ 2,993 (2,929)
Unrecognized prior service costs............ (275) (298)
----------- -----------
Accrued postretirement benefit liability.... $ 29,199 $ 24,777
=========== ===========
Net periodic postretirement benefit cost include the following components:
<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 4,283,286 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 at the option of
the Company 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. Upon the occurrence of a Change of Control (as defined in the
Certificate of Designation relating to the Preferred Stock or the indenture
relating to the Exchange Debentures), the Company is required to make an offer
to
F-21
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
purchase all of the shares of Preferred Stock or all of the Exchange
Debentures at a purchase price equal to 101% of the liquidation preference of
the Preferred Stock, plus accrued and unpaid dividends to the date of
purchase, or 101% of the principal amount of the Exchange Debentures, plus
accrued and unpaid interest to the date of purchase.
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 411,196 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 411,196 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 $2.04
to $3.54 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 318,675 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,
154,197 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 $1.5 million in 1994.
In the event of a public offering of any of Holdings' capital stock or a
change in control of Holdings, (i) the options granted by Containers and
Plastics pursuant to the plans and (ii) any stock issued by
F-22
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
Containers upon exercise of such options are convertible into either stock
options or common stock of
Holdings, as the case may be. The conversion of such options or shares will be
based upon a valuation of Holdings and an allocation of such value between the
subsidiaries after giving affect to, among other things, that portion of the
outstanding indebtedness of Holdings allocable to each such subsidiary.
For the year ended December 31, 1995, the fair value of the options granted
under the Plastic plan were not significant. Accordingly, the impact on net
income and earnings per share from the issuance of these options would not be
materially different from amounts currently reported and would not require
SFAS No. 123 pro forma disclosure.
18. DEFICIENCY IN STOCKHOLDERS' EQUITY
Deficiency in stockholders' equity includes the following classes of common
stock ($.01 par value):
<TABLE>
<CAPTION>
SHARES ISSUED AND
OUTSTANDING
CLASS DECEMBER 31,
----- ---------------------
1996 1995
---------- ----------
<S> <C> <C>
A.................................................. 7,153,088 7,153,088
B.................................................. 7,153,088 11,436,375
C.................................................. 856,657 856,657
---------- ----------
15,162,833 19,446,120
========== ==========
</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.
As discussed in Note 22, in connection with the initial public offering,
Holdings amended its Restated Certificate of Incorporation, converted Class A,
Class B and Class C Common Stock into Common Stock on a one for one basis and
effected a stock split of 17.133145 to 1.
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,
F-23
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
consultants or controlling persons against any loss or damage they may sustain
arising in connection with the Management Agreements.
In connection with the Credit Agreement and its related amendments entered
into during 1996 and 1995, the banks thereunder (including Bankers Trust
Company) received fees totaling $1.6 million in 1996 and $17.2 million in
1995.
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)
====== ====== =====
</TABLE>
Identifiable assets are reconciled to total assets as follows:
<TABLE>
<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
On February 13, 1997, the Company's registration statement for an initial
public offering ("IPO") of 4,500,000 shares of its Common Stock was declared
effective by the Securities and Exchange Commission. In connection with the
IPO, Holdings amended 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, in connection with the IPO the existing Class A, Class B and
Class C Common Stock of Holdings were converted to Common Stock on a one for
one basis, and thereafter, Holdings effected a 17.133145 for 1 stock split.
The net proceeds from the IPO are to be used to redeem Holdings' remaining
Discount Debentures outstanding (approximately $59.0 million) and to repay
approximately $8.9 million of bank term loans. Share information and per share
data have been adjusted to give effect to the amendment to Holdings' Restated
Certificate of Incorporation and the stock split.
In connection with the IPO, the Company will recognize a non-cash charge of
approximately $22.5 million, 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 converted into
Holdings options. In connection with the aforementioned transactions and the
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.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
INTRODUCTORY NOTE
Set forth below is the Company's unaudited pro forma condensed statement of
operations for the year ended December 31, 1996. The unaudited pro forma
results of operations of the Company include the historical results of the
Company for such period and give effect to certain pro forma adjustments.
The unaudited pro forma condensed statement of operations for the year ended
December 31, 1996 gives effect to (i) the sale of $74.0 million of Common
Stock offered by the Company hereby, (ii) the sale of $50.0 million of
Exchangeable Preferred Stock (and the planned exchange of the Exchangeable
Preferred Stock for Exchange Debentures), and (iii) the incurrence of $125.0
million of additional B term loans in July 1996 and $17.4 million of working
capital loans in June 1996 under the Company's Credit Agreement, and the use
of such proceeds to redeem in full the remaining outstanding amount of
Discount Debentures, to purchase the Holdings' Class B Common Stock held by
Mellon Bank N.A. for $35.8 million and to repay $8.9 million of bank term
loans, as if such events had occurred as of January 1, 1996.
The unaudited pro forma financial data do not purport to represent what the
Company's financial position or results of operations would actually have been
had such transactions been completed at the beginning of the period presented,
or to project the Company's financial position or results of operations at any
future date or for any future period. The unaudited pro forma adjustments are
based upon available information and upon certain assumptions that the Company
believes are reasonable. The unaudited pro forma financial data and
accompanying notes should be read in conjunction with the historical financial
information of Holdings, including notes thereto, included elsewhere in this
Prospectus.
F-26
<PAGE>
SILGAN HOLDINGS INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------------------------
DEBT
HISTORICAL RECAPITALIZATION(A) OFFERING(B) PRO FORMA
---------- ------------------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales............... $1,405,742 $ -- $ -- $1,405,742
Cost of goods sold...... 1,223,684 -- -- 1,223,684
---------- ------- ------- ----------
Gross profit.......... 182,058 -- -- 182,058
Selling, general and
administrative
expenses............... 58,768 -- -- 58,768
---------- ------- ------- ----------
Income from
operations........... 123,290 -- -- (c) 123,290
Interest expense and
other related financing
costs(d)(e)............ 89,353 (4,435) (1,713) 83,205
---------- ------- ------- ----------
Income before income
taxes................ 33,937 4,435 1,713 40,085
Income tax
provision(f)........... 3,300 -- -- 3,300
---------- ------- ------- ----------
Net income(g)......... 30,637 4,435 1,713 36,785
Preferred stock dividend
requirement............ 3,006 3,794 (6,800) --
---------- ------- ------- ----------
Net income applicable
to common
stockholders(g)...... $ 27,631 $ 641 $ 8,513 $ 36,785
========== ======= ======= ==========
Net income per common
share(h)............... $ 1.44 $ 1.80
========== ==========
Weighted average number
of common and common
equivalent shares
outstanding............ 19,178,730 20,484,784
</TABLE>
F-27
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(a) Debt recapitalization includes adjustments for (i) the sale of $50.0
million of Exchangeable Preferred Stock and (ii) the incurrence of $125.0
million of additional B term loans and $17.4 million of working capital
loans under the Silgan Credit Agreement, and the use of such proceeds to
redeem a portion of the Discount Debentures and to purchase the Holdings
Class B Stock held by Mellon Bank N.A., as if such events had occurred as
of the beginning of the periods presented.
(b) The Offering includes adjustments for (i) the sale of $74.0 million of
Common Stock offered by the Company hereby and (ii) the planned exchange
of the Exchangeable Preferred Stock for Exchange Debentures. The net
proceeds from the Offering will be used to redeem in full the remaining
outstanding amount of Discount Debentures and to repay a portion of the
bank term loans.
(c) Under the terms of the Containers and Plastics option plans, stock options
issued under such plans will be converted to options under Holdings' Stock
Option Plan at the time of the offering. In accordance with APB No. 25,
options granted under the plans of the operating companies are considered
variable options with a final measurement date at the time of conversion.
The Company will recognize a non-cash charge of approximately $22.5
million for the excess of fair market value over grant price of these
options, less amounts previously accrued, at the time of the Offering.
Prior to the Offering, the Company recognized compensation expense for the
change in pro forma book value, as defined, since the date of grant of
these options, amortized over the vesting period.
(d) Pro forma adjustments made to the historical data for interest expense
consist of the following (in thousands):
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1996(1)
--------------------
<S> <C>
Historical interest expense............................ $ 89,353
Increase in interest expense related to additional bank
borrowings of B term loans and working capital loans
used to fund the redemption of a portion of the
Discount Debentures at current borrowing rates(2)..... 6,193
Increase in interest expense related to the Exchange
Debentures(3)......................................... 6,844
Net increase (decrease) in deferred financing costs
related to amortization of new indebtedness less
retired debt costs.................................... 84
Decrease in interest expense due to the redemption of
the Discount Debentures(4)............................ (17,563)
Decrease in interest expense due to the repayment of
bank term loans from the excess proceeds of the
Offering(5)........................................... (1,706)
--------
Pro forma interest expense............................. $ 83,205
========
</TABLE>
--------
(1) Pro forma interest expense for the year ended December 31, 1996 gives
effect to (i) the sale of $74.0 million of Common Stock offered by the
Company hereby, (ii) the sale of $50.0 million of Exchangeable
Preferred Stock (and the planned exchange of the Exchangeable Preferred
Stock for Exchange Debentures), (iii) the incurrence of $125.0 million
of additional B term loans in July 1996 and $17.4 million of working
capital loans in June 1996 under the Silgan Credit Agreement, and the
use of such proceeds to redeem the remaining outstanding amount of
Discount Debentures, to purchase the Holdings Class B Stock held by
Mellon Bank
F-28
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996
N.A. for $35.8 million and to repay $8.9 million of bank term loans, as
if such events had occurred as of January 1, 1996.
(2) For the computations above, the assumed interest rates for borrowings
under the Silgan Credit Agreement are based upon the three month LIBOR
of 5.563% per annum as of February 5, 1997 plus a fixed spread of 2
1/2% per annum for the A term loans and working capital loans and 3%
per annum for the B term loans.
(3) In conjunction with the Offering, it was assumed that the outstanding
shares of Exchangeable Preferred Stock were exchanged for 13 1/4%
Subordinated Debentures due July 2006.
(4) The adjustment in interest expense related to the Discount Debentures
has been calculated to eliminate the amount of historical interest
incurred.
(5) Pursuant to the Company's Credit Agreement, net equity proceeds in
excess of the amount required to redeem the remaining balance of
Discount Debentures were applied to repay bank term loans.
(e) The unaudited pro forma statement of operations for the year ended
December 31, 1996 assumes that the redemption of the Discount Debentures
occurred as of the beginning of the period presented. Since the redemption
of the Discount Debentures did not actually occur as of the beginning of
the period presented and because the Discount Debentures accrete in value,
the aggregate principal amount used to calculate interest expense for the
pro forma calculations for the year ended December 31, 1996 differs from
the principal amount of Discount Debentures that will be outstanding at
the time of their redemption. Therefore, actual interest expense of the
Company will also differ from the interest expense reflected in the pro
forma statement of operations. Set forth below is a table estimating
annual interest expense based upon the obligations outstanding after the
occurrence of the Offering:
<TABLE>
<CAPTION>
ESTIMATED
ANNUAL
PRINCIPAL INTEREST INTEREST
DEBT OBLIGATION AMOUNT RATE EXPENSE
--------------- ------------- -------- -------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C>
Bank Working Capital Loan(1)(2)........ $110.0 8.06% $ 8.9
Bank A Term Loan(1)(3)................. 189.2 8.06% 15.2
Bank B Term Loan(1)(3)................. 340.2 8.56% 29.1
11 3/4% Subordinated Debentures........ 135.0 11.75% 15.9
Exchange Debentures(4)................. 53.0 13.25% 7.3
-----
$76.4
Amortization of debt financing
costs(5).............................. 4.5
-----
Total interest expense and related
financing costs..................... $80.9
=====
</TABLE>
--------
(1) Assumes borrowing rates set forth in footnote (c)(3) above.
(2) Assumes average amount of working capital loans outstanding during the
year.
(3) Excludes effect of an interest rate swap agreements for $200.0 million
of indebtedness entered into by the Company in 1996 under which
floating rate interest was exchanged for fixed rates of interest in
order to mitigate the effect of interest rate fluctuations.
(4) Interest on the Exchange Debentures is payable semi-annually and, on or
prior to July 15, 2000, the Company may pay such interest by issuing
additional Exchange Debentures. For purposes of the estimated annual
interest expense, the Company has assumed that interest will be paid in
additional Exchange Debentures.
(5) Amortization of debt financing costs assumes average annual balance
outstanding.
F-29
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS--(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(f) The income tax provision is comprised of federal, state and foreign income
taxes currently payable. The income tax provision for the year ended
December 31, 1996 has been adjusted to reflect the federal and state
income tax benefits realized from the deduction of the accreted interest
available to the Company as a result of the redemption of the Discount
Debentures. For 1996, there were no federal taxes currently payable due to
the deduction of the accreted interest on the retired Discount Debentures.
(g) The pro forma condensed statement of operations does not include
historical extraordinary charges of $2.2 million for 1996 for the write-
off of unamortized deferred financing costs related to the early
redemption of Discount Debentures and an extraordinary charge, net of tax,
of $0.7 million expected to be incurred in the first quarter of 1997
related to the redemption of the remaining Discount Debentures.
(h) Actual and pro forma earnings per share are based on the weighted average
number of shares outstanding during the period, as adjusted in all periods
for the Stock Split, and after giving effect to stock options considered
to be dilutive common stock equivalents using the treasury stock method.
Primary and fully diluted net income (loss) per share are the same for
each of the periods.
F-30
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Holdings
and the Selling Stockholders have agreed to sell to each of the Underwriters
named below, and each of such Underwriters, for whom Goldman, Sachs & Co.,
Morgan Stanley & Co. Incorporated and Salomon Brothers Inc are acting as
representatives, has severally agreed to purchase from Holdings and the
Selling Stockholders, the respective number of shares of Common Stock set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
----------- ----------------
<S> <C>
Goldman, Sachs & Co. ..................................... 1,065,817
Morgan Stanley & Co. Incorporated......................... 1,065,815
Salomon Brothers Inc ..................................... 1,065,815
J.C. Bradford & Co. ...................................... 76,621
Credit Suisse First Boston Corporation.................... 127,701
Donaldson, Lufkin & Jenrette Securities Corporation....... 127,701
A.G. Edwards & Sons, Inc. ................................ 127,701
Janney Montgomery Scott Inc. ............................. 76,621
Edward D. Jones & Co., L.P. .............................. 76,621
McDonald & Company Securities, Inc. ...................... 76,621
Lehman Brothers Inc. ..................................... 127,701
Merrill Lynch, Pierce, Fenner & Smith Incorporated........ 127,701
PaineWebber Incorporated.................................. 127,701
Piper Jaffray Inc. ....................................... 76,621
Scott & Stringfellow, Inc. ............................... 76,621
Wheat, First Securities, Inc. ............................ 76,621
---------
Total................................................. 4,500,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
Pursuant to the terms of the Underwriting Agreement, Morgan Stanley & Co.
Incorporated will not receive any underwriting discounts, commissions or fees
related to the purchase, underwriting or sale of shares of Common Stock by
MSLEF II.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $0.84 per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $0.10 per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time
to time be varied by the representatives.
The Selling Stockholders have granted to the Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of 675,000 additional shares of Common Stock solely to cover over-
allotments, if any. If the Underwriters exercise their over-allotment option
(except as described in the second paragraph under the table above), the
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
4,500,000 shares of Common Stock offered.
Holdings, the Principal Common Stockholders and BTNY have agreed that,
during the period beginning from the date of this Prospectus and continuing to
and including the date one year after the
U-1
<PAGE>
date of the Prospectus, they will not offer, sell, contract to sell or
otherwise dispose of any securities of Holdings (other than, in respect of
Holdings, pursuant to employee stock option plans existing, or on the
conversion or exchange of convertible or exchangeable securities outstanding,
on the date of this Prospectus and shares of Common Stock or securities
convertible into such shares issued in connection with acquisitions, if the
holder thereof executes and delivers a lock-up agreement covering a period of
six months after the date of the Prospectus as contemplated by the
Underwriting Agreement) which are substantially similar to the shares of
Common Stock or which are convertible into or exchangeable for securities
which are substantially similar to the shares of Common Stock, without the
prior written consent of Goldman, Sachs & Co., except for the shares of Common
Stock offered in connection with the Offering.
The Underwriters have reserved up to 111,000 shares of Common Stock offered
hereby for sale to certain employees of the Company at the initial public
offering price. The number of shares available to the general public will be
reduced to the extent such employees purchase reserved shares. Any reserved
shares that are not so purchased by such employees will be offered by the
Underwriters to the general public on the same terms as the other shares
offered hereby.
The general partner of MSLEF II is a wholly owned subsidiary of Morgan
Stanley Group Inc. ("MS Group"). Two of the Company's directors are employees
of wholly owned subsidiaries of MS Group. Morgan Stanley & Co. Incorporated
acted as the placement agent for the offering of the Exchangeable Preferred
Stock and received compensation for acting in such capacity. See "Management",
"Certain Transactions" and "Description of Capital Stock--Description of
Stockholders Agreements".
Under Rule 2720 of the National Association of Securities Dealers, Inc. (the
"NASD"), the Company may be deemed an affiliate of Morgan Stanley & Co.
Incorporated. This offering is being conducted in accordance with Rule 2720,
which provides that, among other things, when an NASD member participates in
the underwriting of an affiliate's equity securities, the initial public
offering price can be no higher than that recommended by a "qualified
independent underwriter" meeting certain standards. In accordance with this
requirement, Goldman, Sachs & Co. has served in such role and has recommended
a price in compliance with the requirements of Rule 2720. Goldman, Sachs & Co.
will receive compensation from the Company in the amount of $10,000 for
serving in such role. In connection with the Offering, Goldman, Sachs & Co. in
its role as qualified independent underwriter has performed due diligence
investigations and reviewed and participated in the preparation of this
Prospectus and the Registration Statement of which this Prospectus forms a
part. In addition, the Underwriters may not confirm sales to any discretionary
account without the prior specific written approval of the customer.
Prior to the Offering, there has been no public market for the shares. The
initial public offering price will be negotiated among Holdings, the Selling
Stockholders and the representatives of the Underwriters. Among the factors to
be considered in determining the initial public offering price of the Common
Stock, in addition to prevailing market conditions, will be the Company's
historical performance, estimates of the business potential and earnings
prospects of the Company, an assessment of the Company's management and the
consideration of the above factors in relation to market valuation of
companies in related businesses.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "SLGN".
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
U-2
<PAGE>
[RESERVED FOR MAP SHOWING THE COMPANY'S LOCATIONS]
<PAGE>
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- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 13
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 18
Dilution................................................................. 19
Capitalization........................................................... 20
Selected Historical and Pro Forma
Financial Data.......................................................... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 39
Management............................................................... 51
Principal and Selling Stockholders....................................... 59
Certain Transactions..................................................... 61
Description of Capital Stock............................................. 63
Shares Eligible for Future Sale.......................................... 68
Description of Certain Indebtedness...................................... 69
Legal Matters............................................................ 72
Experts.................................................................. 72
Available Information.................................................... 73
Incorporation of Certain Documents by Reference.......................... 73
Index to Consolidated Financial Statements............................... F-1
Underwriting............................................................. U-1
</TABLE>
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4,500,000 SHARES
[LOGO OF SILGAN HOLDINGS INC.]
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------
PROSPECTUS
------------
GOLDMAN, SACHS & CO.
MORGAN STANLEY & CO.
INCORPORATED
SALOMON BROTHERS INC
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
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