SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to _________________
Commission file number 000-22117
SILGAN HOLDINGS INC.
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(Exact name of registrant as specified in its charter)
Delaware 06-1269834
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(State of Incorporation) (I.R.S. Employer Identification No.)
4 Landmark Square, Stamford, Connecticut 06901
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 975-7110
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 27, 1998, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $462,588,501.
As of February 27, 1998, the number of shares outstanding of the registrant's
common stock, par value $0.01 per share, was 18,874,834.
Documents Incorporated by Reference:
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Stockholders to be held on June 2, 1998 are incorporated by reference in Part
III of this Annual Report on Form 10-K.
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TABLE OF CONTENTS
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Page
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PART I......................................................................................1
Item 1. Business.....................................................................1
Item 2. Properties..................................................................11
Item 3. Legal Proceedings...........................................................13
Item 4. Submission of Matters to a Vote of Security Holders.........................13
PART II....................................................................................14
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.......14
Item 6. Selected Financial Data.....................................................14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................18
Item 8. Financial Statements and Supplementary Data.................................31
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure..................................................................32
PART III...................................................................................32
Item 10. Directors and Executive Officers of the Registrant..........................35
Item 11. Executive Compensation......................................................35
Item 12. Security Ownership of Certain Beneficial Owners and Management..............35
Item 13. Certain Relationships and Related Transactions..............................35
PART IV....................................................................................36
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K..........36
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PART I
Item 1. Business
General
Silgan Holdings Inc. ("Holdings", together with its direct and indirect
owned subsidiaries, the "Company") is a leading North American manufacturer of
consumer goods packaging products that currently produces (i) steel and aluminum
containers for human and pet food, (ii) custom designed plastic containers for
personal care, health, food, pharmaceutical and household chemical products and
(iii) specialty packaging items, including metal caps and closures, aluminum
roll-on closures, plastic bowls and paper containers used by processors in the
food and beverage industry. The Company is the largest manufacturer of metal
food containers in North America, with a unit sale market share for the year
ended December 31, 1997 of 36% in the United States, a leading manufacturer of
plastic containers in North America for personal care products and a major
supplier of metal closures for food and beverage 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 Co-Chief Executive Officers.
Since its inception, the Company has acquired fourteen businesses, including the
acquisitions 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). Since October 1996, the Company has acquired (i) the assets of
Winn Packaging Co. ("Winn"), a manufacturer of decorated rigid plastic
containers; (ii) the North American aluminum roll-on closure business ("Roll-on
Closures") of Alcoa Closure Systems International, Inc. ("Alcoa"); (iii) the
North American plastic container business ("Rexam Plastics") of Rexam plc and
Rexam Plastics Inc. (collectively, "Rexam"); and (iv) the assets of Finger Lakes
Packaging Company, Inc. ("Finger Lakes"), the metal food container manufacturing
subsidiary of Curtice Burns Foods, Inc. ("Curtice Burns"). See "--Company
History" and "--Recent Developments." Additionally, the Company recently
announced that it has reached an agreement in principle to acquire the metal
container manufacturing assets of Campbell Soup Company ("Campbell") and, as
part of that transaction, to supply metal containers to Campbell pursuant to a
long-term supply agreement. 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 $645.5
million in 1993 to $1,511.4 million in 1997, representing a compound annual
growth rate of approximately 24%. During this period, income from operations
increased from $41.8 million in 1993 to $147.1 million in 1997 (excluding the
effect of the $22.5 million non-cash stock option charge resulting from the
Company's initial public offering (the "IPO") in February 1997 of its Common
Stock (the "Common Stock")), representing a compound annual growth rate of
approximately 37%, while the Company's income from operations as a percentage of
net sales (excluding the effect of such non-cash stock option charge) increased
3.2 percentage points from 6.5% to 9.7% 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,
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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 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 customers, as demonstrated by its
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
eleven years, the metal container market has experienced significant
consolidation due to the desire by food processors to reduce costs and focus
resources on their core operations. The Company's acquisitions of the metal
container manufacturing operations of Nestle Food Company ("Nestle"), The Dial
Corporation ("Dial"), Del Monte and Curtice Burns reflect this trend. This trend
has continued as evidenced by the Company's recent agreement in principle to
acquire the metal container manufacturing assets of Campbell. See "--Recent
Developments." As a result of its growth strategy, the Company has more than
tripled its overall share of the U.S. metal food container market from
approximately 10% in 1987 to approximately 36% in 1997. The Company's plastic
container business has also increased its market position from a sales base of
$88.8 million in 1987 to $263.3 million in 1997 primarily through strategic
acquisitions. The plastic container segment of the consumer goods packaging
industry is highly fragmented, and management intends to pursue consolidation
opportunities in that segment, as evidenced by its recent acquisitions of Winn
and Rexam Plastics.
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 $113.6 million in 1997. Specialty products manufactured by the
Company include metal closures for vacuum sealed glass containers; aluminum
roll-on closures; 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
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expertise to new segments of the consumer goods packaging industry. For example,
with the Roll-on Closures and AN Can acquisitions, the Company expanded its
specialty business into aluminum roll-on closures, 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. Importantly, the industry is fragmented, with numerous segments
and multiple participants in the various segments. 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 through productivity and cost reduction opportunities. The
additional sales and production capacity provided through acquisitions have
enabled the Company to rationalize plant operations and decrease overhead costs
through plant closings and downsizings. In addition, the Company's acquisitions
have enabled it to realize manufacturing efficiencies as a result of optimizing
production scheduling and minimizing product transportation costs. The Company
has also benefited from the economies of its increased purchasing volume and
from the elimination of redundant selling and administrative functions, as well
as from the investment of capital to upgrade the acquired facilities. In
addition to the benefits realized through the integration of acquired
businesses, the Company has improved the operating performance of its existing
plant facilities by making capital investments for productivity improvements and
manufacturing cost reductions.
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 and generally recession resistant business, supports its financial
strategy. Management has successfully operated its businesses and achieved its
growth strategy while managing the Company's indebtedness. Management intends to
continue to apply this financial strategy in its business. Additionally, the
Company's IPO in February 1997 provides it with improved financial flexibility
to implement its growth strategy.
As the Company's revenues and operating income have increased and the
Company's financial position has improved, the Company has pursued a refinancing
strategy to further improve its cash flow and its operating and financial
flexibility by refinancing its higher cost indebtedness with lower cost
indebtedness and equity and by extending the maturity of its indebtedness. As
part of this refinancing strategy, the Company refinanced all of its 13-1/4%
Senior Discount Debentures due 2002 ($275.0 million principal amount) (the
"Discount Debentures") and its 11-3/4% Senior Subordinated Notes due 2002
($135.0 million principal amount) (the "11-3/4% Notes") with (i) proceeds
received from the IPO, (ii) proceeds received by the Company from the issuance
and sale of $300 million principal amount of its 9% Senior Subordinated
Debentures due 2009 (the "9% Debentures"), (iii) a portion of the proceeds
received by the Company from the issuance and sale by the Company (the
"Preferred Stock Sale") of its Exchangeable Preferred Stock Mandatorily
Redeemable 2006 (the "Exchangeable Preferred Stock") (which the Company
subsequently exchanged for $56.2 million principal amount of its 13-1/4%
Subordinated Debentures due 2006 (the "Exchange Debentures"), thereby allowing
the Company to deduct interest paid thereon), and (iv) lower cost bank
indebtedness.
In July 1997, the Company completed the refinancing of approximately
$600 million of existing bank indebtedness by entering into a new U.S. senior
secured credit facility. This credit facility provided the Company with a total
senior secured credit facility of $1.0 billion, which included $450.0 million of
term loans (the "Term Loans") and a revolving loan commitment of $550.0 million
(the "Revolving Loan Facility" or the "Revolving Loans"). The Revolving Loans
are available to the Company for its working capital and general corporate
purposes (including acquisitions). The Company anticipates that up to $150
million of the Revolving Loan Facility will be used in 1998 for seasonal working
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capital needs. The balance of the Revolving Loan Facility is available to the
Company to pursue its growth strategy or for other permitted purposes. The
Company financed the acquisition of Winn in January 1998 through the Revolving
Loan Facility, and the Company intends to finance the acquisition of Campbell's
can manufacturing assets through the Revolving Loan Facility. The new U.S.
senior secured credit facility also (i) lowered the interest rates on the
Company's senior secured borrowings by approximately 150 basis points, (ii)
extended the maturities of the Company's senior secured borrowings by 3-4 years,
and (iii) changed certain covenants to further improve the Company's operating
and financial flexibility, including changes to provide more flexibility to
engage in mergers and acquisitions, make capital expenditures, incur
indebtedness, pay dividends, repurchase stock and refinance existing
indebtedness. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Capital Resources and Liquidity."
As a result of the refinancings described above, the Company's interest
expense for 1997 was reduced by 9.7%, or $8.7 million, to $80.7 million as
compared to $89.4 million for 1996. The Company estimates that interest expense
for 1997 would have been approximately $75.8 million, or $13.6 million less than
interest expense for 1996, if all such refinancings had occurred at the
beginning of 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Benefits of Debt Refinancings."
Business Segments
Holdings is a holding company that conducts its business through two
operating companies, Silgan Containers Corporation ("Containers") and Silgan
Plastics Corporation ("Plastics"). See Note 18 to the Company's Consolidated
Financial Statements for the year ended December 31, 1997 included elsewhere in
this Annual Report on Form 10-K.
Containers. For 1997, Containers had net sales of $1,248.1 million (83%
of the Company's net sales) and income from operations of $120.4 million (81% of
the Company's income from operations) (without giving effect to the non-cash
stock option charge incurred in connection with the IPO and to corporate
expense). Containers has realized compound annual unit sales growth in excess of
23% since 1993, 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 77% of Containers' projected sales in 1998
will be pursuant to long-term supply arrangements. Containers has agreements
with Nestle (the "Nestle Supply Agreements") pursuant to which Containers
supplies a majority of Nestle's metal container requirements, and an agreement
with Del Monte (the "DM Supply Agreement") pursuant to which Containers supplies
substantially all of Del Monte's metal container requirements. In addition to
Nestle and Del Monte, Containers has multi-year supply arrangements with several
other major food processors. See "--Sales and Marketing."
Containers also manufactures certain specialty packaging items,
including metal caps and closures, aluminum roll-on closures, plastic bowls and
paper containers, used by processors in the food and beverage industry. For
1997, Containers had net sales of specialty packaging items of $113.6 million.
Plastics. For 1997, Plastics had net sales of $263.3 million (17% of
the Company's net sales) and income from operations of $28.5 million (19% of the
Company's income from operations) (without giving effect to the non-cash stock
option charge incurred in connection with the IPO and 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
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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 manufacture extrusion blow-molded plastic containers that
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 metal 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. 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 consumer orders in relation
to its sales is not significant.
Metal Container Business
The Company's manufacturing operations include cutting, coating,
lithographing, fabricating, assembling and packaging finished cans. Three basic
processes are used to produce cans. The traditional three-piece method requires
three pieces of flat metal to form a cylindrical body with a welded side seam, a
bottom and a top. High integrity of the side seam is assured by the use of
sophisticated electronic weld monitors and organic coatings that are thermally
cured by induction and convection processes. The other two methods of producing
cans start by forming a shallow cup that is then formed into the desired height
using either the draw and iron process or the draw and redraw process. Using the
draw and redraw process, the Company manufactures steel and aluminum two-piece
cans, the height of which does not exceed the diameter. For cans the height of
which is greater than the diameter, the Company manufactures steel two-piece
cans by using a drawing and ironing process. Quality and stackability of such
cans are comparable to that of the shallow two-piece cans described above. Can
bodies and ends are manufactured from thin, high-strength aluminum alloys and
steels by utilizing proprietary tool and die designs and selected can making
equipment.
Plastic Container Business
The Company utilized 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
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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,
several 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 results of
operations.
Metal Container Business
The Company uses tin plated and chromium plated steel, aluminum, copper
wire, organic coatings, lining compound and inks in the manufacture and
decoration of its metal can products. The Company's material requirements are
supplied through purchase orders with suppliers with whom the Company, through
its predecessors, has long-term relationships. If its suppliers fail to deliver
under their arrangements, the Company will be forced to purchase raw materials
on the open market, and no assurances can be given that it would be able to make
such purchases at comparable prices or terms. The Company believes that it will
be able to purchase sufficient quantities of steel and aluminum can sheet for
the foreseeable future.
Plastic Container Business
The raw materials used by the Company for the manufacture of plastic
containers are primarily resins in pellet form such a 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 that 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, in part, through a network of
distributors. Because of the high cost of transporting empty containers, the
Company generally sells to customers within a 300 mile radius of its
manufacturing plants. See also "--Competition."
In 1997, 1996 and 1995, approximately 17%, 17% and 21%, respectively,
of the Company's sales were to Nestle, and approximately 11%, 12% and 15%,
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.
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Metal Container Business
The Company is the largest manufacturer of metal food containers in
North America, with a unit sale market share in 1997 of approximately 36% in the
United States. Containers has entered into multi-year supply arrangements with
many of its customers, including Nestle and Del Monte. The Company estimates
that approximately 77% of its projected metal container sales in 1998 will be
pursuant to such arrangements. To retain its multi-year supply arrangements,
historically the Company has agreed to price concessions in exchange for term
extensions or other modifications to existing contracts. Generally, the Company
has entered into such an agreement with a customer prior to the date that such
customer can receive competitive proposals under its multi-year supply
arrangement. These price concessions have not had a material adverse effect on
the Company's results of operations. There can be no assurance, however, that
future price concessions, if any, will not have a material adverse effect on the
Company's results of operations.
Since its inception in 1987, Containers has supplied Nestle
with substantially all of the metal container requirements of the former
Carnation operations of Nestle pursuant to the Nestle Supply Agreements. In
1997, sales of metal containers by the Company to Nestle were $252.6 million.
Effective November 1996, the terms of three of the Nestle Supply
Agreements (representing approximately 10% of the Company's 1997 sales) were
extended through 2004 in return for certain price concessions. These price
concessions did not have a material adverse effect on the Company's results of
operations. These 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. These agreements contain provisions that require
Containers to maintain certain levels of product quality, service and delivery
in order to retain the business. In the event of a breach of any such agreement,
Nestle may terminate such Nestle Supply Agreement but the other Nestle Supply
Agreements would remain in effect. Under certain limited circumstances,
beginning in January 2000 Nestle may receive competitive bids for the metal
containers supplied by Containers under these agreements, 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. Until a
competitive bid is received, the Company cannot predict the effect, if any, on
its results of operations of matching or not matching any such bids.
The terms of the remaining six Nestle Supply Agreements (representing
approximately 6% of the Company's 1997 sales) expired in 1997. Except for
one-third of such sales (approximately 2% of the Company's 1997 sales) which are
now being supplied to Del Monte pursuant to the DM Supply Agreement as a result
of the acquisition by Del Monte of certain assets of Nestle, the Company is
continuing to supply such metal containers to Nestle for the 1998 supply year.
There can be no assurance, however, that the Company will continue to supply
such metal containers to Nestle in any future period. However, the Company
believes that the loss of any such volume would not have a material adverse
effect on the Company's results of operations.
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, for a
period of ten years 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 1997, sales of metal
containers by the Company to Del Monte were $166.8 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
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formulas. Under the DM Supply Agreement, beginning in December 1998 Del Monte
may, under certain circumstances, receive proposals 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
must 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. There can be no assurance that any such
proposal will be made at sales prices equivalent to those currently in effect or
otherwise on terms similar to those currently in effect. The Company cannot
accurately predict the effect, if any, on its results of operations of matching
or not matching any such 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. Consistent with industry practice, such customers may
return unused containers. Historically, such returns have been minimal.
Plastic Container Business
The Company is one of the leading manufacturers of custom designed HDPE
and PET containers sold in North America. The Company markets its plastic
containers in most areas of North America through a direct sales force and
through a large network of distributors. Management believes that the Company is
a leading manufacturer of plastic containers in North America for personal care
products. More than 70% of the Company's plastic containers are sold for health
and personal care products, such as hair care, oral care, pharmaceutical and
other health care applications. The Company's largest customers in these product
segments include the Helene Curtis and Chesebrough-Ponds USA divisions of
Unilever United States, Inc., Procter & Gamble Co., Warner-Lambert Company, Avon
Products, Inc. and Bristol-Myers Squibb Co. The Company also manufactures
plastic containers for food and beverage products, such as salad dressings,
condiments, and bottled water and liquor. Customers in these product segments
include Procter & Gamble Co., Kraft Foods Inc., The Torbitt & Castleman Company
and General Mills, Inc.
As part of its marketing strategy, the Company has arrangements to sell
some of its plastic products to distributors, who 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 the supply of
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.
-8-
<PAGE>
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 could be disadvantaged by the
relocation of a major customer. As of February 28, 1998, the Company operated 54
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 container manufacturers, Crown Cork and Seal
Company, Inc. and Ball Corporation are the Company's most significant national
competitors. As an alternative to purchasing containers from commercial can
manufacturers, customers have the ability to invest in equipment to
self-manufacture their containers.
Although metal containers face continued competition from plastic,
paper, glass 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. Management also believes that metal containers are more
desirable generally than glass containers because metal containers are more
durable and less costly to transport.
Plastic Container Business
Plastics competes with a number of large national producers of health,
personal care, food, beverage, pharmaceutical and household chemical plastic
container products, including Owens-Brockway Plastics Products, a division of
Owens-Illinois, Inc., Constar Plastics Inc., a subsidiary of Crown Cork and Seal
Company, Inc., Schmalbach-Lubeca AG, 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, 1997, the Company employed approximately 1,195
salaried and 4,180 hourly employees on a full-time basis. Approximately 60% of
the Company's hourly plant employees are represented by a variety of unions.
The Company's labor contracts expire at various times between 1998 and
2008. Contracts covering approximately 14% of the Company's hourly employees
presently expire during 1998. The Company expects no significant changes in its
relations with these unions. Management believes that its relationship with its
employees is good.
-9-
<PAGE>
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.
The Company is also 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 regulatory 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
The Company's research, product development and product engineering
efforts relating to its metal containers business are conducted at its new
research facility in Oconomowoc, Wisconsin.
The Company's research, product development and product engineering
efforts with respect to its plastic containers business are performed by its
manufacturing and engineering personnel located at its Norcross, Georgia
facility. In addition to its research and development staff, the Company
participates in arrangements with three non-U.S. plastic container manufacturers
that allow for an exchange of technology among these manufacturers. Pursuant to
these arrangements, the Company licenses its blow molding technology to such
manufacturers.
Company History
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 Corporation. Silgan Corporation was a Delaware corporation formed in
August 1987 as a holding company to acquire interests in various packaging
manufacturers. In June 1997, Silgan Corporation was merged with and into
Holdings, with Holdings being the surviving corporation. Holdings' principal
assets are all of the outstanding capital stock of Containers and Plastics.
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<PAGE>
Since its inception in 1987, the Company has completed the following
acquisitions:
Acquired Business Year Products
----------------- ---- --------
Metal Container Manufacturing division of Nestle 1987 Metal food containers
Monsanto Company's plastic container business 1987 Plastic containers
Fort Madison Can Company of Dial 1988 Metal food containers
Seaboard Carton Division of Nestle 1988 Paper containers
Aim Packaging, Inc. 1989 Plastic containers
Fortune Plastics Inc. 1989 Plastic containers
Express Plastic Containers Limited 1989 Plastic containers
Amoco Container Company 1989 Plastic containers
Del Monte's U.S. can manufacturing operations 1993 Metal food containers
Food Metal and Specialty business of ANC 1995 Metal food containers,
metal caps and closures
and Omni plastic
containers
Finger Lakes, a subsidiary of Curtice Burns 1996 Metal food containers
Alcoa's North American aluminum roll-on closure 1997 Aluminum roll-on
business closures
Rexam's North American plastic container business 1997 Plastic containers and
closures
Winn Packaging Co. 1998 Plastic containers
Recent Developments
On February 18, 1998, the Company announced that it had reached an
agreement in principle with Campbell for the purchase of Campbell's can
manufacturing assets located in Campbell's facilities in Maxton, North Carolina;
Napoleon, Ohio; Paris, Texas; and Sacramento, California. The purchase price
payable by the Company for the assets is estimated to be approximately $125
million, and will be determined at the closing of the transaction. The Company
expects to finance this acquisition with Revolving Loans under its U.S. credit
agreement. As part of the transaction, the Company and Campbell will enter into
a long-term supply agreement for the supply by the Company to Campbell of
substantially all of Campbell's metal container requirements. Annual sales to
Campbell under the supply agreement are expected to be in excess of $200
million. The transaction is subject to negotiation and execution of definitive
documentation and other customary terms and conditions.
On January 1, 1998, Plastics acquired substantially all of the assets
of Winn, a private manufacturer and marketer of rigid plastic containers serving
the personal care, automotive and household chemical markets with estimated
sales of approximately $23 million in 1997. As part of the transaction, Plastics
leased Winn's facility in Fairfield, Ohio. Plastics financed this acquisition
through Revolving Loans under the U.S. credit agreement.
Item 2. Properties
Holdings' principal executive offices are located at 4 Landmark Square,
Stamford, Connecticut 06901. The administrative headquarters and principal
places of business for Containers and Plastics are located at 21800 Oxnard
Street, Woodland Hills, California 91367 and 14515 N. Outer Forty, Chesterfield,
Missouri 63017, respectively. All of these offices are leased by the Company.
-11-
<PAGE>
The Company owns and leases properties for use in the ordinary course
of business. Such properties consist primarily of 33 metal container and 5
specialty packaging manufacturing facilities and 16 plastic container
manufacturing facilities. Twenty-three of these facilities are owned and 31 are
leased by the Company. The leases expire at various time through 2020. Some of
these leases provide renewal options.
Below is a list of the Company's operating facilities, including
attached warehouses, as of February 28, 1998 for its metal container business:
Approximate Building Area
Location (square feet)
- -------- -------------
Tarrant, AL ....................................... 89,000 (leased)
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)
Richmond, IN ...................................... 462,000
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
Mt. Vernon, MO .................................... 100,000
Northtown, MO ..................................... 112,000 (leased)
St. Joseph, MO .................................... 173,725
St. Louis, MO ..................................... 174,000 (leased)
Edison, NJ ........................................ 260,000
Lyons, NY ......................................... 149,687
Crystal City, TX .................................. 26,045 (leased)
Toppenish, WA ..................................... 105,000
Vancouver, WA ..................................... 127,000 (leased)
Menomonee Falls, WI ............................... 116,000
Menomonie, WI ..................................... 60,000 (leased)
Oconomowoc, WI .................................... 105,200
Plover, WI ........................................ 88,000 (leased)
Waupun, WI ........................................ 212,000
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<PAGE>
Below is a list of the Company's operating facilities, including
attached warehouses, as of February 28, 1998 for its plastic container business:
Approximate Building Area
Location (square feet)
- -------- -------------
Anaheim, CA ....................................... 127,000 (leased)
Deep River, CT .................................... 140,000
Monroe, GA ........................................ 139,600
Norcross, GA ...................................... 59,000 (leased)
Flora, IL ......................................... 56,400
Ligonier, IN ...................................... 469,000 (276,000 leased)
Seymour, IN ....................................... 406,000
Franklin, KY ...................................... 122,000 (leased)
Fairfield, OH ..................................... 185,350 (leased)
Port Clinton, OH .................................. 257,400 (leased)
Langhorne, PA ..................................... 156,000 (leased)
Mississauga, Ontario .............................. 75,000 (leased)
Mississauga, Ontario .............................. 62,630 (leased)
Scarborough, Ontario .............................. 117,000
Lachine, Quebec ................................... 113,313 (leased)
Lachine, Quebec ................................... 77,820 (leased)
The Company owns and leases certain other warehouse facilities that are
detached from its manufacturing facilities. All of the Company's U.S. facilities
are subject to liens in favor of the banks under the U.S. credit agreement, and
all of the Company's Canadian facilities are subject to liens in favor of the
banks under the Company's Canadian credit agreement.
The Company believes that its plants, warehouses and other facilities
are in good operating condition, adequately maintained, and suitable to meet its
present needs and future plans. The Company believes that it has sufficient
capacity to satisfy the demand for its products in the foreseeable future. To
the extent that the Company needs additional capacity, management believes that
the Company can convert certain facilities to continuous operation or make the
appropriate capital expenditures to increase capacity.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Company is
a party or to which any of its properties are subject.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Common Stock has been quoted on the Nasdaq National Market System
since February 14, 1997 (Nasdaq Symbol: SLGN). As of February 27, 1998, there
were approximately 94 holders of record of the Common Stock. The Company 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
its Common Stock in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of the Company's Board of Directors and will
be dependent upon the Company's results of operations, financial condition,
contractual restrictions and other factors deemed relevant by the Company's
Board of Directors. The Company's U.S. credit agreement, the 9% Debentures and
the Exchange Debentures allow the Company to pay dividends up to specified
limits. The following table sets forth the high and low bid information per
share of the Common Stock as quoted by the Nasdaq National Market System during
each of the four quarters of 1997.
High Low
---- ---
First Quarter $ 26.25 $ 21.875
Second Quarter 39.625 24.75
Third Quarter 41.50 36.375
Fourth Quarter 40.25 28.50
Item 6. Selected Financial Data
Set forth below are selected historical consolidated financial data of
the Company at December 31, 1997, 1996, 1995, 1994 and 1993 and for the years
then ended.
The selected historical consolidated financial data of the Company at
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997 (with the exception of employee data) were derived from the
historical consolidated financial statements of the Company for such periods
that were audited by Ernst & Young LLP, independent auditors, whose report
appears elsewhere in this Annual Report on Form 10-K. The selected historical
consolidated financial data of the Company at December 31, 1995, 1994, and 1993
and for the years ended December 31, 1994 and 1993 were derived from the
historical audited consolidated financial statements of the Company for such
periods.
The selected historical consolidated financial data of the Company
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical financial
statements of the Company, including the notes thereto, included elsewhere in
this Annual Report on Form 10-K.
-14-
<PAGE>
Selected Financial Data
<TABLE>
Year Ended December 31,
-----------------------
1997 1996(a) 1995(a) 1994(b) 1993(b)
------ ------- ------- ------- -------
(Dollars in millions, except per share data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales ........................................... $ 1,511.4 $ 1,405.7 $ 1,101.9 $ 861.4 $ 645.5
Cost of goods sold .................................. 1,303.5 1,221.9 970.5 748.3 571.2
-------- -------- ------- ------- ------
Gross profit ........................................ 207.9 183.8 131.4 113.1 74.3
Selling, general and administrative expenses ........ 60.8 60.5 46.9 38.0 32.5
Non-cash stock option charge (c) .................... 22.5 -- -- -- --
Reduction in carrying value of assets (d) ........... -- -- 14.7 16.7 --
--------- --------- -------- ------- ------
Income from operations .............................. 124.6 123.3 69.8 58.4 41.8
Interest expense and other related financing costs... 80.7 89.4 80.7 65.8 54.3
--------- --------- -------- ------- ------
Income (loss) before income taxes ................... 43.9 33.9 (10.9) (7.4) (12.5)
Income tax (benefit) provision (e)................... (6.7) 3.3 5.1 5.6 1.9
--------- --------- --------- ------- ------
Income (loss) before extraordinary charges and
cumulative effect of changes in accounting
principles.......................................... 50.6 30.6 (16.0) (13.0) (14.4)
Extraordinary charges relating to early
extinguishment of debt.............................. 16.4 2.2 5.8 -- 1.3
Cumulative effect of changes in accounting
principles (f) ..................................... -- -- -- -- 6.3
--------- --------- --------- ------- ------
Net income (loss) before preferred stock dividend
requirement ........................................ 34.2 28.4 (21.8) (13.0) (22.0)
Preferred stock dividend requirement 3.2 3.0 -- -- --
--------- --------- --------- ------- ------
Net income (loss) applicable to common shareholders.. $ 31.0 $ 25.4 $ (21.8) $ (13.0) $ (22.0)
======= ======= ======= ======= =======
Basic earnings per common share: (g)..................
Income (loss) before extraordinary charges ......... $ 2.75 $ 1.75 $ (0.82) $ (0.67) $ (0.94)
Extraordinary charges .............................. (0.89) (0.13) (0.30) -- (0.09)
Cumulative effect of changes in accounting
principles ...................................... -- -- -- -- (0.41)
Preferred stock dividend requirement............... (0.18) (0.17) -- -- --
--------- --------- ------- ------- ------
Net income (loss) per common share .............. $ 1.68 $ 1.45 $ (1.12) $ (0.67) $ (1.44)
========= ======== ======== ======== =======
Diluted earnings per common share: (g)
Income (loss) before extraordinary charges ....... $ 2.56 $ 1.65 $ (0.82) $ (0.67) $ (0.94)
Extraordinary charges ............................ (0.83) (0.12) (0.30) -- (0.09)
Cumulative effect of changes in accounting
principles...................................... -- -- -- -- (0.41)
Preferred stock dividend requirement.............. (0.16) (0.16) -- -- --
--------- --------- ------- ------- ------
Net income (loss) per diluted common share ....... $ 1.57 $ 1.37 $ (1.12) $ (0.67) $ (1.44)
========= ========= ========= ========= =======
Selected Segment Data:
Net sales:
Metal container business ......................... $ 1,248.1 $ 1,189.3 $ 882.3 $ 657.1 $ 459.2
Plastic container business ....................... 263.3 216.4 219.6 204.3 186.3
Income (loss) from operations (h):
Metal container business ......................... 120.4 106.1 58.2 59.8 42.3
Plastic container business ....................... 28.5 18.4 13.2 (0.1) 0.6
Other Data:
Adjusted EBITDA (i) ................................. $ 213.9 $ 186.0 $ 132.4 $ 114.5 $ 76.1
Capital expenditures ................................ 62.2 56.9 51.9 29.2 42.5
Depreciation and amortization (j) ................... 63.4 59.3 45.4 37.2 33.8
Cash flows provided by operating activities ......... 117.9 125.2 209.6 47.3 48.1
Cash flow used for investing activities ............. (100.5) (98.3) (397.1) (27.9) (116.1)
Cash flows provided by (used for) financing
activities ......................................... 35.3 (27.9) 186.9 (17.0) 65.3
Number of employees (at end of period) (k) .......... 5,375 5,525 5,110 4,000 3,330
Balance Sheet Data (at end of period):
Total assets ........................................ $ 1,050.6 $ 913.5 $ 900.0 $ 504.3 $ 497.6
Total debt .......................................... 805.3 760.0 786.1 545.3 527.9
Redeemable preferred stock .......................... -- 53.0 -- -- --
Deficiency in stockholders' equity .................. (67.3) (191.0) (180.6) (158.9) (145.6)
(footnotes follow)
</TABLE>
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<PAGE>
Notes to Selected Financial Data
(a) On August 1, 1995, the Company acquired AN Can for a purchase price of
$362.0 million (including the purchase from ANC of its St. Louis facility
in May 1996 for $13.1 million). The acquisition was accounted for as a
purchase transaction and the results of operations have been included with
the Company's historical results from the acquisition date. See Note 2 to
the Consolidated Financial Statements for the year ended December 31, 1997
included elsewhere in this Annual Report on Form 10-K.
(b) On December 21, 1993, the Company acquired DM Can for a purchase price of
approximately $73.3 million. The acquisition was accounted for as a
purchase transaction and the results of operations have been included with
the Company's historical results from the acquisition date.
(c) In connection with the IPO, the Company recognized a non-cash charge of
$22.5 million at the time of the IPO in 1997 for the excess of fair market
value over the grant price of certain stock options, less $3.7 million
previously accrued. See Note 13 to the Consolidated Financial Statements
for the year ended December 31, 1997 included elsewhere in this Annual
Report on Form 10-K.
(d) Based upon a review of its depreciable assets, the Company determined that
certain adjustments were necessary to properly reflect net realizable
values. In 1995, the metal container business recorded a write-down of
$14.7 million for the excess of carrying value over estimated realizable
value of machinery and equipment at existing facilities which had become
underutilized due to excess capacity. In 1994, charges of $7.2 million and
$9.5 million were recorded by the metal container business and plastic
container business, respectively, to write-down the excess carrying value
over estimated realizable value of various plant facilities held for sale
and for technologically obsolete and inoperable machinery and equipment.
(e) During 1997, the Company determined that a portion of the future tax
benefits arising from its net operating loss carryforward would be realized
in future years due to the Company's continued improvement in earnings and
increased probability of future taxable income. Accordingly, in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 109, the
Company recognized an income tax benefit for its recoverable net operating
loss carryforward. See Note 11 to the Consolidated Financial Statements for
the year ended December 31, 1997 included elsewhere in this Annual Report
on Form 10-K.
(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) All earnings per share amounts for all periods presented have been restated
and conform to the requirements of SFAS No. 128. See Notes 1 and 16 to the
Consolidated Financial Statements for the year ended December 31, 1997
included elsewhere in this Annual Report on Form 10-K.
(h) Income (loss) from operations in the selected segment data includes charges
incurred for the reduction in carrying value of certain assets for the
metal containers business of $14.7 million and $7.2 million for the years
ended December 31, 1995 and 1994 and for the plastic containers business of
$9.5 million for the year ended December 31, 1994, as referred to in
footnote (d) above. Income (loss) from operations excludes the non-cash
stock option charge of $22.5 million incurred as a result of the IPO, as
referred to in footnote (c) above. Income from operations for both the
metal container and plastic container businesses excludes corporate
expense.
(i) "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 $3.4 million, $2.6 million, $1.7 million,
$0.7 million and $0.5 million for the years ended December 31, 1997, 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 a charge of $22.5 million incurred in 1997 in
connection with the IPO as referred to in footnote (c) above and 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
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<PAGE>
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 the Company, including the
notes thereto, included elsewhere in this Annual Report on Form 10-K.
Adjusted EBITDA does not take into account the Company's debt service
requirements and other commitments and, accordingly, is not necessarily
indicative of amounts that may be available for discretionary uses.
Additionally, Adjusted EBITDA is not computed in accordance with GAAP and
may not be comparable to other similarly titled measures of other
companies.
(j) Depreciation and amortization excluded amortization of debt financing costs.
(k) 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.
-17-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis is intended to assist in an
understanding of the Company's consolidated financial condition and results of
operations for the three-year period ended December 31, 1997. The Company's
consolidated financial statements and the notes thereto included elsewhere in
this Annual Report on Form 10-K contain detailed information that should be
referred to in conjunction with the following discussion and analysis.
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, aluminum roll-on closures,
plastic bowls and paper containers used by processors in the food and beverage
industry. The Company is the largest manufacturer of metal food containers in
North America, with a unit sale market share for the year ended December 31,
1997 of 36% in the United States, a leading manufacturer of plastic containers
in North America for personal care products and a major supplier of metal
closures for food and beverage products.
Revenue Growth
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 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 eleven years, the metal container market has experienced
significant consolidation due to the desire by food processors to reduce costs
and focus resources on their core operations. The Company's acquisitions of the
metal container manufacturing operations of Nestle, Dial, Del Monte and Finger
Lakes reflect this trend. This consolidation trend has continued as evidenced by
the Company's recent agreement in principle to acquire the metal container
manufacturing assets of Campbell. See "Business--Recent Developments."
The Company's plastic container business has also increased its market
position from a sales base of $88.8 million in 1987 to $263.3 million in 1997
through strategic acquisitions and, to a lesser extent, through internal growth.
The plastic container segment of the consumer goods packaging industry is highly
fragmented, and management intends to pursue consolidation opportunities in that
segment, as evidenced by its recent acquisitions of Winn and Rexam Plastics.
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 Roll-on Closures and AN Can acquisitions, the Company
expanded its specialty business into aluminum roll-on closures, 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. Importantly, the industry is
fragmented, with numerous segments and multiple participants in the various
segments. Many of these segments are experiencing consolidation.
-18-
<PAGE>
Operating Performance
The Company seeks to acquire businesses at reasonable cash flow
multiples and to enhance profitability through productivity and cost reduction
opportunities. The additional sales and production capacity provided through
acquisitions have enabled the Company to rationalize plant operations and
decrease overhead costs through plant closings and downsizings. In addition, the
Company's acquisitions have enabled it to realize manufacturing efficiencies as
a result of optimizing production scheduling and minimizing product
transportation costs. The Company has also benefited from the economies of its
increased purchasing volume and from the elimination of redundant selling and
administrative functions, as well as from the investment of capital to upgrade
the acquired facilities. In addition to the benefits realized through the
integration of acquired businesses, the Company has improved the operating
performance of its existing plant facilities through the investment of capital
for productivity improvements and manufacturing cost reductions.
Since 1995, the Company's operating margins (excluding the effect of
the non-cash stock option charge incurred in 1997 in connection with the IPO)
have increased 3.4 percentage points to 9.7% in 1997. In order to maintain
operating margins at this level, management believes it will be necessary to
realize further cost reduction opportunities to offset continued competitive
pricing pressure in the industry.
Containers has entered into multi-year supply arrangements with many of
its customers, including Nestle and Del Monte. The Company estimates that
approximately 77% of its projected metal container sales in 1998 will be
pursuant to such arrangements. Although these multi-year supply arrangements
generally provide for the pass through of material and labor cost changes
thereby significantly reducing the exposure of the Company's results of
operations to the volatility of these costs, these arrangements limit the
Company's ability to increase margins. To retain its multi-year supply
arrangements, historically the Company has agreed to price concessions in
exchange for term extensions or other modifications to existing contracts.
Generally, the Company has entered into such an agreement with a customer prior
to the date that such customer can receive competitive proposals under its
multi-year supply arrangement. These price concessions have not had a material
adverse effect on the Company's results of operations. There can be no
assurance, however, that future price concessions, if any, will not have a
material adverse effect on the Company's results of operations. Beginning in
December 1998, under the DM Supply Agreement, which represented approximately
11% of the Company's net sales in 1997, Del Monte may receive proposals from
other independent commercial can manufacturers for the supply of all containers
for the remainder of the term of the DM Supply Agreement that Containers
currently furnishes to Del Monte at one of Del Monte's canneries, and Containers
has the right to match any such proposals. There can be no assurance that any
such proposal 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 accurately predict the effect, if any, on its results of
operations of matching or not matching any such proposals.
The Company's metal container business sales and, to a lesser extent,
operating income 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
1996 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
1996 as compared to 1995. The 1997 vegetable pack was better than in 1995, but
due to reduced planting acreage was less than the 1996 vegetable pack. Because
of the seasonality of the harvests, the Company experiences higher unit sales
volume in the second and third quarters of its fiscal year and, as a result, has
historically generated a disproportionate amount of its annual income from
operations during these quarters.
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<PAGE>
Benefits of Debt Refinancings
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 and generally recession resistant business, supports its financial
strategy.
As the Company's revenues and operating income have increased and the
Company's financial position has improved, the Company has pursued a refinancing
strategy to further improve its cash flow and its operating and financial
flexibility. As part of this strategy, over the past three years the Company has
refinanced substantially all of its higher cost indebtedness with lower cost
indebtedness and equity. During that period, the Company has refinanced all of
its Discount Debentures, 11-3/4% Notes and higher cost bank debt with proceeds
from the IPO, the 9% Debentures, the Exchange Debentures and lower cost bank
debt. See "Business--General--Financial Strategy."
In addition to reducing the Company's borrowing costs and extending the
maturities of its debt, the new debt facilities improved the Company's
flexibility to engage in mergers and acquisitions, make capital expenditures,
incur additional indebtedness, pay dividends, repurchase stock and refinance
existing indebtedness. Furthermore, the Company's secured credit facilities
provide it with a Revolving Loan Facility of $550.0 million, of which the
Company anticipates up to $150.0 million will be used in 1998 for its seasonal
working capital needs. The balance of the Revolving Loan Facility is available
to the Company to pursue its growth strategy or for other permitted purposes.
The Company financed the acquisition of Winn through the Revolving Loan
Facility, and the Company intends to finance the acquisition of Campbell's can
manufacturing assets through the Revolving Loan Facility.
As a result of the refinancings, the Company's interest expense for
1997 was reduced by 9.7%, or $8.7 million, to $80.7 million as compared to $89.4
million for 1996. The Company estimates that interest expense for 1997 would
have been approximately $75.8 million, or $13.6 million less than interest
expense for 1996, if all such refinancings had occurred at the beginning of
1997. Excluding the effect of interest expense on additional borrowings used to
finance acquisitions, the Company's interest expense for 1998 is expected to be
less than its interest expense in 1997 due to the benefits of such refinancings.
Further, the Company's financial results are sensitive to changes in prevailing
market rates of interest. After taking into account interest rate swap
arrangements that the Company has entered into to mitigate the effect of
interest rate fluctuations, at December 31, 1997 the Company had $249.0 million
of indebtedness which bore interest at floating rates. In addition, revolving
loans outstanding under the Company's secured credit facilities will bear
interest at floating rates.
In connection with these refinancings, the Company incurred
extraordinary charges during the years ended December 31, 1997, 1996 and 1995
for the write-off of unamortized debt financing costs and premiums paid upon the
early redemption of debt, net of tax, of $16.4 million, $2.2 million and $5.8
million, respectively. Additionally, as a result of the IPO, the Company
incurred a non-cash stock option charge of $22.5 million in 1997 for the excess
of the fair market value at the time of the IPO over the grant price of certain
stock options.
Income Tax Considerations
Historically, the Company has incurred minimal income tax liability due
to its net operating loss position. At December 31, 1997, the Company had net
tax operating loss carryforwards of approximately $181.0 million which were
available to offset future taxable income. However, beginning in 1998 the
Company expects to become subject to alternative minimum tax at the statutory
rate of 20%, and as a result its current tax liability will increase.
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<PAGE>
For financial accounting purposes the Company determined in 1997 that
it was more likely than not that the future tax benefits arising from its net
operating loss carryforwards would be realized in future years due to the
Company's continued improvement in earnings and probability of future taxable
income. As a result, the Company released its deferred tax asset valuation
allowance and recognized an income tax benefit in 1997. Consequently, the
Company's effective tax rate for 1997 was significantly less than what it will
be in future periods. For 1998, the Company expects to provide for income taxes
at an effective rate of approximately 38%. For years prior to 1997, the
Company's provision for income taxes was based upon federal, state and foreign
taxes currently payable.
Results of Operations
The following table sets forth certain income statement data for the
Company, expressed as a percentage of net sales, for each of the periods
presented, and should be read in conjunction with the consolidated financial
statements of the Company and related notes thereto included elsewhere in this
Annual Report on Form 10-K.
<TABLE>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating Data:
Net sales:
Metal container & specialty business ....................... 82.6% 84.6% 80.1%
Plastic container business ................................. 17.4 15.4 19.9
----- ----- -----
Total ................................................... 100.0 100.0 100.0
Cost of goods sold ........................................... 86.2 86.9 88.1
----- ----- -----
Gross Profit ................................................. 13.8 13.1 11.9
Selling, general and administrative expenses ................. 4.0 4.3 4.3
Non-cash stock option charge ................................. 1.5 -- --
Reduction in carrying value of assets ........................ -- -- 1.3
----- ----- -----
Income from operations ....................................... 8.3 8.8 6.3
Interest expense and other related financing costs ........... 5.4 6.4 7.3
----- ----- -----
Income (loss) before income taxes ............................ 2.9 2.4 (1.0)
Income tax (benefit) provision ............................... (0.5) 0.2 0.5
----- ----- -----
Income (loss) before extraordinary charges ................... 3.4 2.2 (1.5)
Extraordinary charges relating to early extinguishment of debt (1.1) (0.2) (0.5)
----- ----- -----
Net income (loss) before preferred stock dividend requirement 2.3 2.0 (2.0)
Preferred stock dividend requirement ......................... (0.2) (0.2) --
----- ----- -----
Net income (loss) applicable to common stockholders ......... 2.1% 1.8% (2.0)%
===== ===== =====
</TABLE>
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<PAGE>
Summary historical results for the Company's two business segments,
metal and plastic containers, for the calendar years ended December 31, 1997,
1996, and 1995 are provided below.
Year Ended December 31,
----------------------------
1997 1996 1995
---- ---- ----
(Dollars in millions)
Net sales:
Metal container & specialty business ..... $ 1,248.1 $ 1,189.3 $ 882.3
Plastic container business ............... 263.3 216.4 219.6
-------- -------- --------
Consolidated .......................... $ 1,511.4 $ 1,405.7 $ 1,101.9
======== ======== ========
Income from operations:
Metal container & specialty business ..... $ 120.4 $ 106.1 $ 72.9
Plastic container business ............... 28.5 18.4 13.2
Non-cash stock option charge(1) .......... (22.5) -- --
Reduction in asset value(2) .............. -- -- (14.7)
Corporate expense ........................ (1.8) (1.2) (1.6)
------- ------- -------
Consolidated .......................... $ 124.6 $ 123.3 $ 69.8
======= ======= =======
(1) In connection with the IPO, the Company recognized a non-cash charge of
$22.5 million for the excess of the fair market value over the grant price
of stock options converted from stock option plans of Holdings'
subsidiaries to the Holdings' Stock Option Plan at the time of the IPO. See
Note 13 to the Company's Consolidated Financial Statements for the year
ended December 31, 1997 included elsewhere in this Annual Report on Form
10-K.
(2) 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. See Note 4 to the
Company's Consolidated Financial Statements for the year ended December 31,
1997 included elsewhere in this Annual Report on Form 10-K.
Historical Year Ended December 31, 1997 Compared with Historical Year Ended
December 31, 1996
Net Sales. Consolidated net sales increased $105.7 million, or 7.5%, to
$1,511.4 million for the year ended December 31, 1997, as compared to net sales
of $1,405.7 million for the same period in 1996. This increase resulted
primarily from additional sales generated by the recently acquired businesses.
Net sales for the metal container business (including net sales of its
specialty business of $113.6 million) were $1,248.1 million for the year ended
December 31, 1997, an increase of $58.8 million, or 4.9%, from net sales of
$1,189.3 million for the same period in 1996. Net sales of metal cans of
$1,134.5 million for the year ended December 31, 1997 were $35.9 million greater
than net sales of metal cans of $1,098.6 million for the same period in 1996.
This increase resulted principally from sales generated through the acquisition
of Finger Lakes, which was acquired by the Company in October 1996.
Sales of specialty items included in the metal container segment
increased $22.9 million, or 25.2%, to $113.6 million during the year ended
December 31, 1997, as compared to $90.7 million for the same period in 1996.
This increase resulted from additional revenues generated by Roll-on Closures
which was acquired in April 1997, and was partially offset by lower unit sales
to existing specialty customers.
Net sales for the plastic container business of $263.3 million during
the year ended December 31, 1997 increased $46.9 million, or 21.7%, from net
sales of $216.4 million for the same period in 1996. The increase in net sales
was attributable to incremental sales generated by the Rexam acquisition and
significantly higher volume from the existing business.
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<PAGE>
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated
net sales was 86.2% ($1,303.5 million) for the year ended December 31, 1997, an
improvement of 0.7 percentage points as compared to 86.9% ($1,221.9 million) for
the same period in 1996. The improvement in the gross profit margin was
principally attributable to improved operating efficiencies achieved as a result
of benefits realized from the consolidation and integration of the AN Can
facilities, higher production volumes of the plastic container business and
capital investment, partially offset by the impact of competitive pricing
pressure on both the metal container and the specialty businesses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales decreased 0.3
percentage points to 4.0% ($60.8 million) for the year ended December 31, 1997,
as compared to 4.3% ($60.5 million) for the year ended December 31, 1996. This
decrease in selling, general and administrative expenses as a percentage of net
sales principally related to increased revenues generated from the recent
acquisitions without a commensurate increase in selling, general and
administrative cost and the expected lower administrative expenses realized as a
result of the completion of the integration of the administrative functions of
AN Can with the Company.
Income from Operations. Before consideration of the non-cash stock
option charge incurred in connection with the IPO, income from operations as a
percentage of consolidated net sales for the year ended December 31, 1997
improved 0.9 percentage points to 9.7% ($147.1 million), as compared to 8.8%
($123.3 million) for 1996. Including the non-cash stock option charge of $22.5
million, income from operations as a percentage of consolidated net sales was
8.3% ($124.6 million) for 1997.
At the time of the IPO in February 1997, stock options issued under the
stock option plans of Holdings' subsidiaries were converted to stock options of
Holdings. In accordance with generally accepted accounting principles, the
Company recorded a charge of $22.5 million for the excess of the fair market
value of the stock options issued under the subsidiary stock option plans over
the grant price of the options. The Company will not recognize any future
charges for these stock options.
Income from operations as a percentage of net sales for the metal
container business improved 0.7 percentage points to 9.6% ($120.4 million) for
the year ended December 31, 1997, as compared to 8.9% ($106.1 million) for the
same period in 1996. The increase in income from operations as a percentage of
net sales for the metal container business principally resulted from improved
operating efficiencies realized from plant consolidations, the benefit of cost
reductions provided by the Company's capital investment program and a normalized
production schedule in 1997 as compared to the negative impact of a planned
inventory reduction in 1996, offset in part by the impact of competitive pricing
pressure on both the metal container and specialty businesses.
Income from operations as a percentage of net sales for the plastic
container business improved 2.3 percentage points to 10.8% ($28.5 million) for
the year ended December 31, 1997, as compared to 8.5% ($18.4 million) for the
same period in 1996. The improvement in the operating performance of the plastic
container business was principally attributable to both increased sales and
production volumes which resulted in lower per unit manufacturing costs and
continued manufacturing efficiencies due to capital investment benefits.
Interest Expense. Interest expense decreased $8.7 million to $80.7
million for the year ended December 31, 1997, as compared to $89.4 million in
1996. Since 1996, the Company has refinanced principally all of its indebtedness
with lower cost indebtedness and equity. The decline in interest expense
reflects the benefits of these refinancings, offset in part by additional
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<PAGE>
borrowing costs incurred to finance the purchases of Finger Lakes, Roll-on
Closures and Rexam Plastics. Because a substantial portion of the refinancings
occurred in the summer of 1997, the Company expects that its interest expense
for the first and second quarters of 1998 will be less than the interest expense
it incurred in the same periods in 1997.
Income Taxes. During 1997, the Company determined that it was more
likely than not that future tax benefits arising from its net operating loss
carryforwards would be realized in future years due to the Company's continued
improvement in earnings and the probability of future taxable income. As a
result, in accordance with SFAS No. 109, the Company released its valuation
allowance and recognized an income tax benefit of $27.4 million.
The net income tax benefit recorded for the year ended December 31,
1997 of $6.7 million reflects the benefit realized through the release of the
valuation allowance, partially offset by a provision for income taxes recorded
at an effective tax rate of 38%. Prior to 1997, the Company had not met the
criteria of SFAS No. 109 to release the valuation allowance and recorded its
provision for income taxes based upon federal, state and foreign taxes currently
payable.
Net Income and Earnings per Share. As a result of the matters discussed
above, net income for the year ended December 31, 1997 was $50.6 million (before
extraordinary charges of $16.4 million and the preferred stock dividend
requirement of $3.2 million), an increase of $20.0 million over net income for
the year ended December 31, 1996 of $30.6 million (before extraordinary charges
of $2.2 million and the preferred stock dividend requirement of $3.0 million).
Earnings per share (diluted) before extraordinary charges and preferred
stock dividend requirements for 1997 were $2.56, as compared with $1.65 for
1996. See "--New Accounting Pronouncements." The Company estimates that 1997
earnings before the preferred stock dividend requirement would have been $41.2
million, or $2.09 per share (diluted), as compared to $21.0 million, or $1.13
per share (diluted), for 1996, if unusual items for the non-cash stock option
charge and the extraordinary charges incurred in connection with the refinancing
of the Company's debt obligations had been excluded from earnings and if the
provision for income taxes had been calculated assuming an effective rate of
38%.
During 1997, the Company incurred an extraordinary charge of $16.4
million, net of tax, or $0.83 per share (diluted), for the write-off of
unamortized debt costs and premiums paid associated with the early redemption of
Discount Debentures and the 11-3/4% Notes and the refinancing of the Company's
U.S. senior secured credit facility. In 1996, the Company incurred an
extraordinary charge of $2.2 million, net of tax, or $0.12 per share (diluted),
for the write-off of unamortized deferred financing costs.
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 $1,405.7 million for the year ended December 31, 1996, as compared to net
sales of $1,101.9 million 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.
-24-
<PAGE>
Sales of specialty items included in the metal container segment
increased $53.9 million to $90.7 million during the year ended December 31, 1996
as compared to the same period in 1995, due predominantly to additional sales
generated by the former AN Can operations.
Net sales for the plastic container business of $216.4 million during
the year ended December 31, 1996 decreased $3.2 million from net sales of $219.6
million for the same period in 1995. Despite an increase in unit sales, net
sales of plastic containers declined as a result of the pass through of lower
resin costs.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated
net sales was 86.9% ($1,221.9 million) for the year ended December 31, 1996, an
improvement of 1.2 percentage points as compared to 88.1% ($970.5 million) for
the same period in 1995. The improvement in gross profit margin was principally
attributable to synergies realized from the AN Can acquisition, improved
operating efficiencies due to can plant consolidations as well as the improved
manufacturing performance by the plastic container business, offset, in part, by
the higher cost base of the former AN Can operations and the realization of
higher per unit costs due to the Company's one-time planned reduction in
finished goods inventory. The additional production capacity provided by AN Can
has enabled the Company to produce its product closer to the time of sale and,
as a result, during 1996 the Company reduced the amount of finished goods that
it carries.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales remained
constant for the years ended December 31, 1996 and December 31, 1995 at 4.3%
($60.5 million and $46.9 million, respectively). Despite the incurrence of
certain redundant costs, estimated to be $3.5 million, associated with the
integration of the AN Can operations, selling, general and administrative
expenses as a percentage of net sales remained constant with the prior year.
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 profit margins.
Income from operations as a percentage of net sales for the metal
container business improved 0.6 percentage points to 8.9% ($106.1 million) for
the year ended December 31, 1996, as compared with 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 2.5 percentage points to 8.5% ($18.4 million) for
the year ended December 31, 1996, as compared with 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.
-25-
<PAGE>
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 revolving loans of $17.4 million under the previous
credit agreement) and with $12.0 million of the proceeds from the Preferred
Stock Sale, and by lower average bank borrowing rates.
Income Taxes. The provisions for income taxes for the years ended
December 31, 1996 and 1995 provide for federal, state and foreign taxes
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 and Earnings per Share. 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. Earnings per share (diluted) before extraordinary
charges and preferred stock dividend requirements for 1996 were $1.65, as
compared with a loss of $0.82 for 1995. See "--New Accounting Pronouncements."
During 1996, the Company incurred an extraordinary charge of $2.2
million, net of taxes, or $0.12 per share (diluted), 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, or $0.30 per share (diluted), 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.
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 revolving loan borrowings.
Since August 1995, the Company has pursued a refinancing strategy to
further improve its cash flow and operating and financial flexibility by
refinancing its higher cost indebtedness with lower cost indebtedness and
equity. As part of that strategy, the Company refinanced all of its Discount
Debentures and 11-3/4% Notes and its higher cost bank facility with (i) proceeds
received from the IPO, (ii) proceeds received by the Company from the issuance
and sale of $300 million principal amount of its 9% Debentures, (iii) a portion
of the proceeds received by the Company from the issuance and sale of the
Exchangeable Preferred Stock, which the Company subsequently exchanged for $56.2
million principal amount of its Exchange Debentures, and (iv) a lower cost bank
facility.
In July 1997, the Company completed the refinancing of approximately
$600 million of existing bank term and revolving loans by entering into a new
U.S. senior secured credit facility. This credit facility provided the Company
with a total senior secured credit facility of $1.0 billion, which included
$450.0 million of Term Loans and a Revolving Loan Facility of $550.0 million.
The Revolving Loans are available to the Company for its working capital and
general corporate purposes (including acquisitions). The new U.S. senior secured
credit facility (i) lowered the interest rates on the Company's senior secured
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<PAGE>
borrowings by approximately 150 basis points, (ii) extended the maturities of
the Company's A Term Loans and Revolving Loans thereunder to December 31, 2003
and B Term Loans thereunder to June 30, 2005, and (iii) changed certain
covenants to further improve the Company's operating and financial flexibility,
including changes to provide more flexibility to engage in mergers and
acquisitions, make capital expenditures, incur indebtedness, pay dividends,
repurchase stock, and refinance existing indebtedness.
Since the refinancing of the U.S. senior secured credit facility, the
interest rate for the Company's A Term Loans and Revolving Loans has been LIBOR
plus 1.0% or Bankers Trust's prime lending rate, and 50 basis points higher for
the Company's B Term Loans. These interest rates are reset quarterly based upon
the Company's Leverage Ratio, as defined in the Company's U.S. senior secured
credit facility.
In December 1997, the Company's Canadian subsidiaries entered into a
new secured credit facility to provide the Company with more financing
flexibility and reduce the Company's foreign currency exposure. The Canadian
credit facility provided such subsidiaries with approximately $18.5 million of
term loans and up to approximately $4.5 million of revolving loans. The term
loan proceeds were used to prepay $14.3 million and $4.2 million of Term Loans
under the U.S. senior secured credit facility in December 1997 and January 1998,
respectively. Additionally, as a result of the Canadian credit facility, the
Revolving Loan Facility under the U.S. senior secured credit facility was
reduced by $4.5 million, the amount of the revolving loan commitment under the
Canadian credit facility, from $550.0 million to $545.5 million. Interest rates
for borrowings under the Canadian credit facility are generally comparable to
interest rates under the U.S. senior secured credit facility.
During 1997, in implementing its refinancing strategy, the Company used
proceeds of $67.2 million from the IPO, proceeds of $300.0 million from the
issuance of the 9% Debentures, along with borrowings of $75.0 million under the
previous credit agreement, $450.0 million of Term Loans under the new U.S.
senior secured credit facility and $14.3 million of borrowings under the
Canadian credit facility to repay $59.0 million principal amount of the Discount
Debentures, refinance $613.3 million of term loans under the previous credit
agreement, redeem the 11-3/4% Notes for $142.9 million ($135.0 million principal
amount), repay $14.3 million of Term Loans under the U.S. senior secured credit
facility, and pay fees and expenses related to such refinancings of $13.0
million.
For the year ended December 31, 1997, the Company used excess proceeds
of $64.0 million realized from the refinancings referred to above and cash
provided by operations of $117.9 million to repay $1.0 million principal amount
of B Term Loans and $27.8 million of Revolving Loans, make capital expenditures
of $57.6 million (net of asset sales), fund the acquisitions of Roll-on Closures
and Rexam Plastics for $42.8 million, and increase its cash balance by $52.7
million.
During 1996, cash generated from operations of $125.2 million,
borrowings of $125.0 million of B term loans under the previous credit
agreement, net proceeds of $47.8 million from the Preferred Stock Sale, net
borrowings of working capital loans under the previous 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 previous
credit agreement, the payment of $1.8 million of financing costs associated with
the borrowing of additional B term loans under the previous credit agreement,
and the purchase for $35.8 million of Holdings' Class B common stock held by
Mellon Bank N.A., as trustee for First Plaza Group Trust.
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<PAGE>
During 1995, cash generated from operations of $209.6 million
(including cash of $112.0 million generated by AN Can during the five month
period from its acquisition on August 1, 1995), proceeds of $3.5 million
realized from the sale of assets and a decrease of $0.6 million in cash balances
were used to repay $142.8 million of working capital borrowings used to fund the
acquisition of AN Can, fund capital expenditures of $51.9 million, repay $9.7
million of term loans and $5.5 million of working capital loans, and make
payments to former shareholders of $3.8 million in full settlement of
outstanding litigation.
Because the Company sells metal containers used in fruit and vegetable
pack processing, its sales are seasonal. As is common in the 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. Due to the
Company's seasonal requirements, the Company incurs short term indebtedness to
finance its working capital requirements.
For 1998, the Company estimates it will utilize approximately $150.0
million of its Revolving Loan Facility for seasonal working capital needs.
Amounts available under the Revolving Loan Facility in excess of such seasonal
working capital needs are available to the Company to pursue its growth strategy
and for other permitted purposes. The Company financed the acquisition of Winn
in January 1998 through the Revolving Loan Facility, and intends to finance the
acquisition of Campbell's can manufacturing assets through the Revolving Loan
Facility. See "Business--Recent Developments." Revolving Loan borrowings will be
due and payable on December 31, 2003. As of December 31, 1997, there were no
Revolving Loans outstanding, and, after taking into account outstanding letters
of credit, the unused portion of the Revolving Loan Facility at such date was
$538.1 million.
In addition to its operating cash needs, the Company believes its cash
requirements over the next several years (without taking into account the effect
of future acquisitions) will consist primarily of (i) annual capital
expenditures of $60 to $70 million, (ii) annual principal amortization payments
of bank term loans under its senior secured credit facilities beginning in 1998
of approximately $20.2 million (which includes $4.2 million that was repaid in
January 1998 and $14.2 million that will be repaid no later than April 30,
1998), $33.5 million, $38.7 million, $44.0 million and $59.7 million, (iii)
expected expenditures of $30 to $35 million over the next few years associated
with plant rationalizations, employee severance and administrative workforce
reductions, other plant exit costs and employee relocation costs relating to AN
Can, (iv) the Company's interest requirements, including interest on revolving
loans under its senior secured credit facilities (the principal amount of which
will vary depending upon seasonal requirements and acquisitions) and bank term
loans under the senior secured credit facilities, most of which bear fluctuating
rates of interest, the 9% Debentures and the Exchange Debentures (for which the
Company intends to make future interest payments in cash), and (v) payments of
approximately $17.0 million for federal and state tax liabilities in 1998, which
will increase annually thereafter.
Management believes that cash generated by operations and funds from
the revolving loans available under the Company's secured credit facilities will
be sufficient to meet the Company's expected operating needs, planned capital
expenditures, debt service and tax obligations for the foreseeable future. The
Company is also continually evaluating and pursuing acquisition opportunities in
the consumer goods packaging market, and will likely incur additional
indebtedness, including indebtedness under its Revolving Loan Facility, to
finance any such acquisition. See "Business--Recent Developments."
The Company's secured credit facilities and the indentures with respect
to the 9% Debentures and the Exchange Debentures 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 1998 with all such covenants.
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<PAGE>
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 "Business--Sales and Marketing" and
"--Operating Performance."
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, 1997, the Company had
$805.3 million of indebtedness outstanding, of which $249.0 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 based on the three month LIBOR rate, which rate ranges
from 5.6% to 6.2%. The notional principal amounts of these agreements totaled
$200.0 million and mature in 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
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 128, "Earnings Per Share". SFAS No. 128 specifies the
computation, presentation, and disclosure requirements for earnings per share
information and is designed to improve the earnings per share information
provided in the financial statements by simplifying the existing computation.
SFAS No. 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes the dilutive effect of stock options.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for all periods
presented have been restated and conform to the requirements of SFAS No. 128.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. SFAS No. 131 establishes standards for disclosures
of segment information about products and services, geographic areas, major
customers and certain interim disclosures of segment information which is not
required by accounting standards currently used by the Company. These statements
are required to be adopted in 1998. The Company does not anticipate that either
SFAS No. 130 or SFAS No. 131 will have a material impact on the Company's
consolidated financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits". SFAS No. 132 revises
financial statement disclosure requirements concerning pension and other
postretirement benefit plans. As required, the Company will adopt SFAS No. 132
in 1998.
Year 2000 Issues
Year 2000 issues result from the inability of some computer programs or
computerized equipment to accurately calculate, store or use a date subsequent
to December 31, 1999. The erroneous date can be interpreted in a number of
different ways; typically the year 2000 is interpreted as the year 1900. This
could result in a system failure or miscalculations causing disruptions of
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<PAGE>
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar operations as required by
normal business.
The Company has recently completed an assessment of its core financial
and operational software systems to ensure compliance with Year 2000 issues.
Further assessment of other less critical software systems and various types of
equipment is continuing and should be completed by late 1998. The Company
believes that the potential impact, if any, of these systems not being Year 2000
compliant will at most require employees to manually complete otherwise
automated tasks or calculations, and it should not materially impact the
Company's production or sales activities.
The Company has initiated formal communication with its significant
suppliers and customers to determine the extent to which the Company is
vulnerable to those third parties' failure to correct their own Year 2000
issues. There can be no guarantee, however, that the systems of other companies
on which the Company's systems rely will be timely converted, or that a failure
to convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
The Company has and will utilize both internal and external resources
to complete tasks and perform testing necessary to address Year 2000 issues. The
Company plans to complete its Year 2000 project no later than June 30, 1999. The
Company does not expect that costs relating to the assessment and remediation of
Year 2000 issues to exceed $2.0 million.
Forward Looking Statements
Statements included in "Management's Discussion and Analysis of Results
of Operations and Financial Condition" and elsewhere in this Annual Report on
Form 10-K which are not historical facts are "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and the Securities Exchange Act of 1934, as amended. These
forward-looking statements are made based upon management's expectations and
beliefs concerning future events impacting the Company and therefore involve a
number of uncertainties and risks. As a result, the actual results of operations
or financial condition of the Company could differ materially from those
expressed or implied in these forward-looking statements. Important factors that
could cause the actual results of operations or financial condition of the
Company to differ from those expressed or implied in these forward-looking
statements include, but are not necessarily limited to, the ability of the
Company to locate or acquire suitable acquisition candidates on acceptable
terms; the Company's ability to assimilate the operations of its acquired
businesses into its existing operations; the Company's ability to generate free
cash flow to invest in its business and service its indebtedness; limitations
and restrictions contained in the Company's instruments and agreements governing
its indebtedness; the ability of the Company to retain sales with its major
customers; the size and quality of the vegetable, tomato and fruit harvests in
the midwest and west regions of the United States; changes in the pricing and
availability to the Company of raw materials or the Company's ability generally
to pass raw material price increases through to its customers; changes in
consumer preferences for different packaging products; competitive pressures,
including new product developments or changes in competitors' pricing for
products; changes in governmental regulations or enforcement practices; changes
in general economic conditions, such as fluctuations in interest rates; changes
in labor relations and costs; and other factors described elsewhere in this
Annual Report on Form 10-K or in the Company's other filings with the Securities
and Exchange Commission.
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<PAGE>
Item 8. Financial Statements and Supplementary Data.
See Item 14 below for a listing of financial statements and schedules
included therein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
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<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this Item is set forth in the Company's Proxy
Statement for its Annual Meeting of Stockholders to be held on June 2, 1998 in
the sections entitled "Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance", and is incorporated herein by reference.
Executive Officers of Holdings
The following table sets forth certain information (ages as of December
31, 1997) concerning the executive officers of Holdings.
Name Age Position
- ---- --- --------
R. Philip Silver................ 55 Chairman of the Board and Co-Chief
Executive Officer
D. Greg Horrigan................ 54 President and Co-Chief Executive Officer
Harley Rankin, Jr............... 58 Executive Vice President, Chief Financial
Officer and Treasurer
Frank W. Hogan, III............. 37 Vice President, General Counsel and
Secretary
Glenn A. Paulson................ 54 Vice President--Corporate Development
Harold J. Rodriguez, Jr......... 42 Vice President, Controller and Assistant
Treasurer
Executive Officers of Containers
The following table sets forth certain information (ages as of December 31,
1997) concerning the executive officers of Containers.
Name Age Position
- ---- --- --------
James D. Beam................... 54 President
Gary M. Hughes.................. 55 Executive Vice President
Gerald T. Wojdon................ 61 Executive Vice President
Joseph A. Heaney................ 44 Vice President--Finance
H. Dennis Nerstad............... 60 Vice President--Production Services
Ward B. Thompson................ 49 Vice President--Sales and Marketing
John Wilbert.................... 39 Vice President--Operations
Executive Officers of Plastics
The following table sets forth certain information (ages as of December 31,
1997) concerning the executive officers of Plastics.
Name Age Position
- ---- --- --------
Russell F. Gervais.............. 54 President
Howard H. Cole.................. 52 Vice President
Colleen J. Jones................ 37 Vice President--Finance
Alan H. Koblin.................. 45 Vice President--Sales & Marketing
Charles Minarik................. 60 Vice President--Operations and
Commercial Development
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<PAGE>
Mr. Silver has been Chairman of the Board and Co-Chief Executive Officer of
Holdings since March 1994. Mr. Silver is one of the founders of the Company and
was formerly President of Holdings. Mr. Silver has been a Director of Holdings
since its inception. Mr. Silver has been a Director of Containers since its
inception in August 1987 and Vice President of Containers since May 1995. Mr.
Silver has been a Director of Plastics since its inception in August 1987 and
Chairman of the Board of Plastics since March 1994. Prior to founding the
Company in 1987, Mr. Silver was a consultant to the packaging industry. Mr.
Silver was President of Continental Can Company from June 1983 to August 1986.
From September 1989 through August 1993, Mr. Silver held various positions with
Sweetheart Holdings Inc. and Sweetheart Cup Company, Inc., including Chairman of
the Board and Director. Mr. Silver is a Director of Johnstown America
Corporation.
Mr. Horrigan has been President and Co-Chief Executive Officer of Holdings
since March 1994. Mr. Horrigan is one of the founders of the Company and was
formerly Chairman of the Board of Holdings. Mr. Horrigan has been a Director of
Holdings since its inception. 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. Rankin has been Executive Vice President and Chief Financial Officer of
Holdings since its inception and Treasurer of Holdings 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. Hogan has been Vice President, General Counsel and Secretary of
Holdings since June 1997. Mr. Hogan has also been Vice President, General
Counsel and Secretary of Containers and Plastics since June 1997. From September
1995 until June 1997, Mr. Hogan was a partner at the law firm of Winthrop,
Stimson, Putnam & Roberts. From April 1988 to September 1995, Mr. Hogan was an
associate at such firm.
Mr. Paulson has been Vice President--Corporate Development of Holdings
since January 1996. Mr. Paulson was employed by Containers to manage the
transition of AN Can from August 1995 to December 1995. From January 1989 to
July 1995, Mr. Paulson was employed by ANC, last serving as Senior Vice
President and General Manager, Food Metal and Specialty, North America. Prior to
his employment with ANC, Mr. Paulson was President of the beverage packaging
operations of Continental Can Company.
Mr. Rodriguez has been Vice President of Holdings since March 1994 and
Controller and Assistant Treasurer of Holdings since March 1990. Prior to March
1990, Mr. Rodriguez was Assistant Controller and Assistant Treasurer of Holdings
since its inception. 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.
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<PAGE>
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. Hughes has been Executive Vice President of Containers since January
1998. Previously, Mr. Hughes was 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
sales positions.
Mr. Wojdon has been Executive Vice President of Containers since January
1998. Previously, Mr. Wojdon was Vice President--Operations 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. 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. 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. Thompson has been Vice President--Sales & Marketing of Containers
since March 1998. Previously, Mr. Thompson was employed by Rexam plc in various
officer positions, including most recently as Vice President, Business
Development (coated films and paper sector); President (Metallising); and Vice
President, General Manager (Metal Americas).
Mr. Wilbert has been Vice President--Operations of Containers since January
1998. From October 1992 to January 1998, Mr. Wilbert was Area Manager of
Operations of Containers.
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 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 Company.
Ms. Jones has been Vice President--Finance 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.
Mr. Koblin has been Vice President--Sales & Marketing of Plastics since
1994. From 1992 to 1994, Mr. Koblin was Director of Sales & Marketing of
Plastics. From 1990 to 1992, Mr. Koblin was Vice President of Churchill
Industries.
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<PAGE>
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.
Item 11. Executive Compensation.
The information required by this Item is set forth in the Company's Proxy
Statement for its Annual Meeting of Stockholders to be held on June 2, 1998 in
the sections entitled "Executive Compensation", "Election of Directors --
Compensation of Directors" and "Compensation Committee Interlocks and Insider
Participation", and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is set forth in the Company's Proxy
Statement for its Annual Meeting of Stockholders to be held on June 2, 1998 in
the section entitled "Security Ownership of Certain Beneficial Owners and
Management", and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item is set forth in the Company's Proxy
Statement for its Annual Meeting of Stockholders to be held on June 2, 1998 in
the section entitled "Certain Relationships and Related Transactions", and is
incorporated herein by reference.
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PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K.
(a)
Financial Statements:
<TABLE>
<S> <C>
Report of Independent Auditors ............................................................................ F-1
Consolidated Balance Sheets at December 31, 1997 and 1996 ................................................. F-2
Consolidated Statements of Operations of the years ended December 31, 1997, 1996
and 1995 ............................................................................................. F-3
Consolidated Statements of Deficiency in Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995 ..................................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996
and 1995 ............................................................................................. F-5
Notes to Consolidated Financial Statements ................................................................ F-7
</TABLE>
Schedules:
<TABLE>
<S> <C>
II. Schedules of Valuation and Qualifying Accounts for the years ended
December 31, 1997, 1996 and 1995 ..................................................... [F-38]
</TABLE>
All other financial statements and schedules not listed have been omitted
because they are not applicable, or not required, or because the required
information is included in the consolidated financial statements or notes
thereto.
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<PAGE>
Exhibits:
Exhibit
Number Description
- ------ -----------
3.1 Restated Certificate of Incorporation of Holdings (incorporated
by reference to Exhibit 3.1 filed with Holdings' Annual Report
on Form 10-K for the year ended December 31, 1996, Commission
File No. 000-22117).
3.2 Amended and Restated By-laws of Holdings (incorporated by
reference to Exhibit 3.2 filed with Holdings' Annual Report on
Form 10-K for the year ended December 31, 1996, Commission File
No. 000-22117).
4.1 Indenture, dated as of July 22, 1996, between Holdings and
State Street Bank & Trust Company (as successor to Fleet
National Bank) as Trustee, with respect to the Exchange
Debentures (incorporated by reference to Exhibit 4.10 filed
with Holdings' Amendment No. 2 to Registration Statement on
Form S-4, dated October 31, 1996, Registration Statement No.
33-9979).
4.2 Form of Holdings' Subordinated Debentures due 2006
(incorporated by reference to Exhibit 4.11 filed with Holdings'
Amendment No. 2 to Registration Statement on Form S-4, dated
October 31, 1996, Registration Statement No. 33-9979).
4.3 Indenture, dated as of June 9, 1997, between Holdings (as
successor to Silgan Corporation) and The First National Bank of
Chicago, as trustee, with respect to the 9% Debentures
(incorporated by reference to Exhibit 4.1 filed with Holdings'
Current Report on Form 8-K, dated June 9, 1997, Commission File
No. 000-22117).
4.4 First Supplemental Indenture, dated as of June 24, 1997 among
Holdings, Silgan Corporation and The First National Bank of
Chicago, as trustee, to the Indenture, dated as of June 9,
1997, between Holdings (as successor to Silgan Corporation) and
The First National Bank of Chicago, as trustee, with respect to
the 9% Debentures (incorporated by reference to Exhibit 4.2
filed with Holdings' Registration Statement on Form S-4, dated
July 8, 1997, Registration Statement No. 333-30881).
4.5 Form of Holdings' 9% Senior Subordinated Debentures due 2009
(incorporated by reference to Exhibit 4.10 filed with Holdings'
Registration Statement on Form S-4, dated July 8, 1997,
Registration Statement No. 333-30881).
10.1 Supply Agreement between Containers and Nestle for Hanford,
California effective August 31, 1987 (incorporated by reference
to Exhibit 10(xi) filed with Silgan Corporation's Registration
Statement on Form S-1, dated January 11, 1988, Registration
Statement No. 33-18719) (Portions of this Exhibit are subject
to confidential treatment pursuant to order of the Commission).
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<PAGE>
10.2 Amendment to Supply Agreement for Hanford, California, dated
July 1, 1990 (incorporated by reference to Exhibit 10.31 filed
with Holdings' Registration Statement on Form S-1, dated March
18, 1992, Registration Statement No. 33-46499) (Portions of
this Exhibit are subject to confidential treatment pursuant to
order of the Commission).
10.3 Supply Agreement between Containers and Nestle for Riverbank,
California effective August 31, 1987 (incorporated by reference
to Exhibit 10(xii) filed with Silgan Corporation's Registration
Statement on Form S-1, dated January 11, 1988, Registration
Statement No. 33-18719) (Portions of this Exhibit are subject
to confidential treatment pursuant to order of the Commission).
10.4 Supply Agreement between Containers and Nestle for Morton,
Illinois, effective August 31, 1987 (incorporated by reference
to Exhibit 10(vii) filed with Silgan Corporation's Registration
Statement on Form S-1, dated January 11, 1988, Registration
Statement No. 33-18719) (Portions of this Exhibit are subject
to confidential treatment pursuant to order of the Commission).
10.5 Amendment to Supply Agreement for Morton, Illinois, dated July
1, 1990 (incorporated by reference to Exhibit 10.36 filed with
Holdings' Registration Statement on Form S-1, dated March 18,
1992, Registration Statement No., 33-46499) (Portions of this
Exhibit are subject to confidential treatment pursuant to order
of the Commission).
10.6 Supply Agreement between Containers and Nestle for Ft. Dodge,
Iowa, effective August 31, 1987 (incorporated by reference to
Exhibit 10(xiv) filed with Silgan Corporation's Registration
Statement on Form S-1, dated January 11, 1988, Registration
Statement No. 33-18719) (Portions of this Exhibit are subject
to confidential treatment pursuant to order of the Commission).
10.7 Amendment to Supply Agreement for Ft. Dodge, Iowa, dated March
1, 1990 (incorporated by reference to Exhibit 10.38 filed with
Holdings' Registration Statement on Form S-1, dated March 18,
1992, Registration Statement No. 33-46499) (Portions of this
Exhibit are subject to confidential treatment pursuant to order
of the Commission).
10.8 Supply Agreement between Containers and Nestle for St. Joseph,
Missouri, effective August 31, 1987 (incorporated be reference
to Exhibit 10(xvii) filed with Silgan Corporation's
Registration Statement on Form S-1, dated January 11, 1988,
Registration Statement No. 33-18719) (Portions of this Exhibit
are subject to confidential treatment pursuant to order of the
Commission).
10.9 Amendment to Supply Agreement for St. Joseph, Missouri, dated
March 1, 1990 (incorporated by reference to Exhibit 10.42 filed
with Holdings' Registration Statement on Form S-1, dated March
18, 1992, Registration Statement No. 33-46499) (Portions of
this Exhibit are subject to confidential treatment pursuant to
order of the Commission).
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<PAGE>
10.10 Supply Agreement between Containers and Nestle for Trenton,
Missouri, effective August 31, 1987 (incorporated by reference
to Exhibit 10(xviii) filed with Silgan Corporation's
Registration Statement on Form S-1, dated January 11, 1988,
Registration Statement No. 33-18719) (Portions of this Exhibit
are subject to confidential treatment pursuant to order of the
Commission).
10.11 Amendment to Supply Agreement for Trenton, Missouri, dated
March 12, 1990 (incorporated by reference to Exhibit 10.44
filed with Holdings' Registration Statement on Form S-1, dated
March 18, 1992, Registration Statement No. 33-46499) (Portions
of this Exhibit are subject to confidential treatment pursuant
to order of the Commission).
10.12 Supply Agreement between Containers and Nestle for Moses Lake,
Washington, effective August 31, 1987 (incorporated by
reference to Exhibit 10(xxii) filed with Silgan Corporation's
Registration Statement on Form S-1, dated January 11, 1988,
Registration Statement No. 33-18719) (Portions of this Exhibit
are subject to confidential treatment pursuant to order of the
Commission).
10.13 Amendment to Supply Agreement for Moses Lake, Washington, dated
March 1, 1990 (incorporated by reference to Exhibit 10.51 filed
with Holdings' Registration Statement on Form S-1, dated March
18, 1992, Registration Statement No. 33-46499) (Portions of
this Exhibit are subject to confidential treatment pursuant to
order of the Commission).
10.14 Supply Agreement between Containers and Nestle for Jefferson,
Wisconsin, effective August 31, 1987 (incorporated by reference
to Exhibit 10(xxiii) filed with Silgan Corporation's
Registration Statement on Form S-1, dated January 11, 1988,
Registration Statement No. 33-18719) (Portions of this Exhibit
are subject to confidential treatment pursuant to order of the
Commission).
10.15 Amendment to Supply Agreement for Jefferson, Wisconsin, dated
March 1, 1990 (incorporated by reference to Exhibit 10.53 filed
with Holdings' Registration Statement on Form S-1, dated March
18, 1992, Registration Statement No. 33-46499) (Portions of
this Exhibit are subject to confidential treatment pursuant to
order of the Commission).
10.16 Amendment to Supply Agreements, dated November 17, 1989 for Ft.
Dodge, Iowa; Hillsboro, Oregon; Jefferson, Wisconsin; St.
Joseph, Missouri; and Trenton, Missouri (incorporated by
reference to Exhibit 10.49 filed with Silgan Corporation's
Annual Report on Form 10-K, for the year ended December 31,
1989, Commission File No. 33-18719) (Portions of this Exhibit
are subject to confidential treatment pursuant to order of the
Commission).
+10.17 Employment Agreement, dated as of September 14, 1987, between
James Beam and Canaco Corporation (Containers) (incorporated by
reference to Exhibit 10(vi) filed with Silgan Corporation's
Registration Statement on Form S-1, dated January 11, 1988,
Registration Statement No. 33-18719).
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<PAGE>
+10.18 Employment Agreement, dated as of September 1, 1989, between
Silgan, InnoPak Plastics Corporation (Plastics), Russell F.
Gervais and Aim Packaging, Inc. (incorporated by reference to
Exhibit 5 filed with Silgan Corporation's Report on Form 8-K,
dated March 15, 1989, Commission File No. 33-18719).
+10.19 InnoPak Plastics Corporation (Plastics) Pension Plan for
Salaried Employees (incorporated by reference to Exhibit 10.32
filed with Silgan Corporation's Annual Report on Form 10-K for
the year ended December 31, 1988, Commission File No.
33-18719).
+10.20 Containers Pension Plan for Salaried Employees (incorporated by
reference to Exhibit 10.34 filed with Silgan Corporation's
Annual Report on Form 10-K for the year ended December 31,
1988, Commission File No. 33-18719).
+10.21 Silgan Holdings Inc. Fourth Amended and Restated 1989 Stock Option
Plan (incorporated by reference to Exhibit 10.21 filed with
Holdings' Annual Report on Form 10-K for the year ended December
31, 1996, Commission File No. 000-22117).
+10.22 Form of Holdings Nonstatutory Stock Option Agreement
(incorporated by reference to Exhibit 10.22 filed with
Holdings' Annual Report on Form 10-K for the year ended
December 31, 1996, Commission File No. 000-22117).
10.23 Stockholders Agreement, dated as of December 21, 1993, among R.
Philip Silver, D. Greg Horrigan, MSLEF II, BTNY, First Plaza
and Holdings (incorporated by reference to Exhibit 3 filed with
Holdings' Current Report on Form 8-K, dated March 25, 1994,
Commission File No. 33-28409).
+10.24 Amended and Restated Management Services Agreement, dated as of
February 14, 1997, between S&H and Holdings (incorporated by
reference to Exhibit 10.25 filed with Holdings' Annual Report
on Form 10-K for the year ended December 31, 1996, Commission
File No. 000-22117).
+10.25 Amended and Restated Management Services Agreement, dated as of
February 14, 1997, between S&H and Containers (incorporated by
reference to Exhibit 10.26 filed with Holdings' Annual Report
on Form 10-K for the year ended December 31, 1996, Commission
File No. 000-22117).
+10.26 Amended and Restated Management Services Agreement, dated as of
February 14, 1997, between S&H and Plastics (incorporated by
reference to Exhibit 10.27 filed with Holdings' Annual Report
on Form 10-K for the year ended December 31, 1996, Commission
File No. 000-22117).
10.27 Purchase Agreement, dated as of September 3, 1993, between
Containers and Del Monte (incorporated by reference to Exhibit
1 filed with Holdings' Current Report on Form 8-K, dated
January 5, 1994, Commission File No. 33-28409).
-40-
<PAGE>
10.28 Amendment to Purchase Agreement, dated as of December 10, 1993,
between Containers and Del Monte (incorporated by reference to
Exhibit 2 filed with Holdings' Current Report on Form 8-K,
dated January 5, 1994, Commission File No. 33-28409).
10.29 Supply Agreement, dated as of September 3, 1993, between
Containers and Del Monte (incorporated by reference to Exhibit
10.118 filed with Silgan Corporation's Annual Report on Form
10-K for the year ended December 31, 1993, Commission File No.
1-11200). (Portions of this Exhibit are subject to an
application for confidential treatment filed with the
Commission.)
10.30 Amendment to Supply Agreement, dated as of December 21, 1993,
between Containers and Del Monte (incorporated by reference to
Exhibit 10.119 filed with Silgan Corporation's Annual Report on
Form 10-K for the year ended December 31, 1993, Commission File
No. 1-11200). (Portions of this Exhibit are subject to an
application for confidential treatment filed with the
Commission.)
10.31 Credit Agreement, dated as of July 29, 1997, among Holdings,
Containers, Plastics, certain other subsidiaries of any of
them, various banks, Bankers Trust Company, as Administrative
Agent and as a Co-Arranger, Bank of America National Trust &
Savings Association, as Syndication Agent and as a Co-Arranger,
Goldman Sachs Credit Partners L.P., as Co-Documentation Agent
and as a Co-Arranger, and Morgan Stanley Senior Funding, Inc.,
as Co-Documentation Agent and as a Co-Arranger (incorporated by
reference to Exhibit 99.1 filed with Holdings' Current Report
on Form 8-K, dated August 8, 1997, Commission File No.
000-22117).
10.32 Security Agreement, dated as of July 29, 1997, among Holdings,
Containers, Plastics, certain other subsidiaries of any of them
and Bankers Trust Company, as Collateral Agent (incorporated by
reference to Exhibit 99.2 filed with Holdings' Current Report
on Form 8-K, dated August 8, 1997, Commission File No.
000-22117).
10.33 Pledge Agreement dated as of July 29, 1997, made by Holdings,
Containers, Plastics and Silgan Containers Manufacturing
Corporation (as successor to California-Washington Can
Corporation and SCCW Can Corporation), as Pledgors, in favor of
Bankers Trust Company, as Collateral Agent and as Pledgee
(incorporated by reference to Exhibit 99.3 filed with Holdings'
Current Report on Form 8-K, dated August 8, 1997, Commission
File No. 000-22117).
10.34 Borrowers/Subsidiaries Guaranty, dated as of July 29, 1997,
made by Holdings, Containers, Plastics and Silgan Containers
Manufacturing Corporation (as successor to
California-Washington Can Corporation and SCCW Can Corporation)
(incorporated by reference to Exhibit 99.4 filed with Holdings'
Current Report on Form 8-K, dated August 8, 1997, Commission
File No. 000-22117).
10.35 Asset Purchase Agreement, dated as of June 2, 1995, between ANC
and Containers (incorporated by reference to Exhibit 1 filed
with Holdings' Current Report on Form 8-K dated August 14,
1995, Commission File No. 33-28409).
-41-
<PAGE>
10.36 Underwriting Agreement, dated as of February 13, 1997, among
Holdings, Silgan, Containers, Plastics, MSLEF II, BTNY and the
underwriters listed on Schedule I thereto (incorporated by
reference to Exhibit 10.40 filed with Holdings' Annual Report
on Form 10-K for the fiscal year ended December 31, 1996,
Commission File No. 000-22117).
10.37 Placement Agreement between Holdings and Morgan Stanley, dated
July 17, 1996 (incorporated by reference to Exhibit 6 filed
with Holdings' Current Report on Form 8-K dated August 2, 1996,
Commission File No. 33-28409).
10.38 Amendment to Stockholders Agreement, dated as of February 14,
1997, among R. Philip Silver, D. Greg Horrigan, MSLEF II, BTNY
and Holdings (incorporated by reference to Exhibit 10.42 filed
with Holdings' Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, Commission File No. 000-22117).
*21 Subsidiaries of the Registrant.
*23 Consent of Ernst & Young
*27.1 Financial Data Schedule for the fiscal year ended December 31,
1997.
*27.2 Restated Financial Data Schedule for the nine months ended
September 30, 1997.
*27.3 Restated Financial Data Schedule for the six months ended
June 30, 1997.
*27.4 Restated Financial Data Schedule for the three months ended
March 31, 1997.
*27.5 Restated Financial Data Schedule for the fiscal year ended
December 31, 1996.
*27.6 Restated Financial Data Schedule for the nine months ended
September 30, 1996.
*27.7 Restated Financial Data Schedule for the six months ended
June 30, 1996.
*27.8 Restated Financial Data Schedule for the three months ended
March 31, 1996.
*27.9 Restated Financial Data Schedule for the fiscal year ended
December 31, 1995.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of 1997.
- -----------------
*Filed herewith.
+Management contract or compensatory plan or arrangement.
-42-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SILGAN HOLDINGS INC.
Date: March 26, 1998 By /s/ R. Philip Silver
--------------------
R. Philip Silver
Chairman of the Board and
Co-Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
Chairman of the Board and
Co-Chief Executive Officer
/s/ R. Philip Silver (Principal Executive Officer) March 26, 1998
- --------------------
(R. Philip Silver)
President, Co-Chief Executive
/s/ D. Greg Horrigan Officer and Director March 26, 1998
- --------------------
(D. Greg Horrigan)
/s/ Robert H. Niehaus Director March 26, 1998
- --------------------
(Robert H. Niehaus)
/s/ Leigh J. Abramson Director March 26, 1998
- --------------------
(Leigh J. Abramson)
/s/ Thomas M. Begel Director March 26, 1998
- --------------------
(Thomas M. Begel)
/s/ Jeffrey C. Crowe Director March 26, 1998
- --------------------
(Jeffrey C. Crowe)
Executive Vice President, Chief
Financial Officer and Treasurer
/s/ Harley Rankin, Jr. (Principal Financial Officer) March 26, 1998
- ---------------------
(Harley Rankin, Jr.)
Vice President, Controller and
Assistant Treasurer
/s/ Harold J. Rodriguez, Jr. (Principal Accounting Officer) March 26, 1998
- -------------------------
(Harold J. Rodriguez, Jr.)
-43-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Silgan Holdings Inc.
We have audited the accompanying consolidated financial statements and
schedule of Silgan Holdings Inc. as listed in the accompanying index to the
financial statements (Item 14(a)). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule 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 financial statements listed in the accompanying
index to the financial statements (Item 14(a)) present fairly, in all material
respects, the consolidated financial position of Silgan Holdings Inc. at
December 31, 1997 and 1996, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ Ernst & Young LLP
Stamford, Connecticut
January 26, 1998
F-1
<PAGE>
SILGAN HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(Dollars in thousands)
1997 1996
---- ----
Assets
- ------
Current assets:
Cash and cash equivalents ..................... $ 53,718 $ 1,017
Accounts receivable, less allowances for
doubtful accounts of $3,415 and $4,045,
respectively ................................ 125,837 101,436
Inventories ................................... 209,963 195,981
Prepaid expenses and other current assets ..... 9,997 7,403
----------- -----------
Total current assets ...................... 399,515 305,837
Property, plant and equipment, net ................. 531,765 499,781
Goodwill, net ...................................... 66,895 77,176
Deferred tax asset ................................. 32,024 --
Other non-current assets ........................... 20,368 30,752
----------- -----------
$ 1,050,567 $ 913,546
=========== ===========
Liabilities and Deficiency in Stockholders' Equity
- --------------------------------------------------
Current liabilities:
Trade accounts payable ........................ $ 142,281 $ 122,623
Accrued payroll and related costs ............. 40,621 41,799
Accrued interest payable ...................... 10,939 9,522
Accrued expenses and other current liabilities 20,871 35,456
Current portion of long-term debt ............. 20,218 38,427
----------- -----------
Total current liabilities ................. 234,930 247,827
Long-term debt ..................................... 785,036 721,583
Other long-term liabilities ........................ 97,849 82,118
Cumulative exchangeable redeemable
preferred stock (10,000,000 shares authorized,
51,556 issued and outstanding in 1996) ........... -- 52,998
Deficiency in stockholders' equity:
Common stock ($0.01 par value per share;
100,000,000 shares authorized, 18,862,834
and 15,162,833 shares issued and outstanding,
respectively) ............................... 189 152
Additional paid-in capital .................... 110,935 18,466
Foreign currency translation adjustment ....... (508) (774)
Accumulated deficit ........................... (177,864) (208,824)
----------- -----------
Total deficiency in stockholders' equity .. (67,248) (190,980)
----------- -----------
$ 1,050,567 $ 913,546
=========== ===========
See accompanying notes.
F-2
<PAGE>
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1997, 1996 and 1995
(Dollars in thousands, except per share data)
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
---- ---- ----
Net sales ..................................... $ 1,511,370 $ 1,405,742 $ 1,101,905
Cost of goods sold ............................ 1,303,463 1,221,941 970,491
----------- ----------- -----------
Gross profit ............................. 207,907 183,801 131,414
Selling, general and administrative expenses .. 60,826 60,511 46,848
Non-cash stock option charge .................. 22,522 -- --
Reduction in carrying value of assets ......... -- -- 14,745
----------- ----------- -----------
Income from operations ................... 124,559 123,290 69,821
Interest expense and other related
financing costs ............................. 80,693 89,353 80,710
----------- ----------- -----------
Income (loss) before income taxes ........ 43,866 33,937 (10,889)
Income tax (benefit) provision ................ (6,700) 3,300 5,100
----------- ----------- -----------
Income (loss) before extraordinary charges 50,566 30,637 (15,989)
Extraordinary charges relating to early
extinguishment of debt, net of income taxes . 16,382 2,222 5,817
----------- ----------- -----------
Net income (loss) before preferred stock
dividend requirement ................... 34,184 28,415 (21,806)
Preferred stock dividend requirement .......... 3,224 3,006 --
----------- ----------- -----------
Net income (loss) available to
common stockholders .................... $ 30,960 $ 25,409 $ (21,806)
=========== =========== ===========
Basic earnings per common share:
Income (loss) before extraordinary charges $ 2.75 $ 1.75 $ (0.82)
Extraordinary charges .................... (0.89) (0.13) (0.30)
Preferred stock dividend requirement ..... (0.18) (0.17) --
----------- ----------- -----------
Net income (loss) per common share ............ $ 1.68 $ 1.45 $ (1.12)
=========== =========== ===========
Diluted earnings per common share:
Income (loss) before extraordinary charges $ 2.56 $ 1.65 $ (0.82)
Extraordinary charges .................... (0.83) (0.12) (0.30)
Preferred stock dividend requirement ..... (0.16) (0.16) --
----------- ----------- -----------
Net income (loss) per diluted common share .... $ 1.57 $ 1.37 $ (1.12)
=========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY
For the years ended December 31, 1997, 1996 and 1995
(Dollars and shares in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Common Stock Foreign Total
------------ Additional currency deficiency in
Par paid-in translation Accumulated stockholders'
Shares Value capital adjustment deficit equity
------ ----- ------- ---------- ------- ------
Balance at January 1, 1995 . 19,446 $ 195 $ 33,423 $(852) $(191,616) $(158,850)
Net loss ................... -- -- -- -- (21,806) (21,806)
Foreign currency translation -- -- -- 94 -- 94
------- ----- --------- ----- --------- ---------
Balance at December 31, 1995 19,446 195 33,423 (758) (213,422) (180,562)
Net income ................. -- -- -- -- 25,409 25,409
Foreign currency translation -- -- -- (16) -- (16)
Purchase and retirement of
4,283 shares of class B
common stock ............. (4,283) (43) (14,957) -- (20,811) (35,811)
------- ----- --------- ----- --------- ---------
Balance at December 31, 1996 15,163 152 18,466 (774) (208,824) (190,980)
Net income ................. -- -- -- -- 30,960 30,960
Foreign currency translation -- -- -- 266 -- 266
Issuance of common stock ... 3,700 37 67,183 -- -- 67,220
Conversion of subsidiary
stock options to options
of parent company ........ -- -- 25,286 -- -- 25,286
----- ----- -------- ----- --------- ---------
Balance at December 31, 1997 18,863 $ 189 $ 110,935 $(508) $(177,864) $ (67,248)
======= ===== ========= ===== ========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income (loss) before preferred stock
dividend requirement ........................ $ 34,184 $ 28,415 $ (21,806)
Adjustments to reconcile net income (loss)
before preferred stock dividend requirement
to net cash provided by operating activities:
Depreciation .............................. 60,964 54,830 42,217
Amortization .............................. 5,522 8,993 8,083
Accretion of discount on discount
debentures .............................. -- 12,077 28,672
Non-cash stock option charge .............. 22,522 -- --
Reduction in carrying value of assets ..... -- -- 14,745
Deferred income tax (benefit) ............. (8,100) -- --
Extraordinary charges relating to early
extinguishment of debt .................. 16,382 2,222 5,817
Changes in assets and liabilities, net
of effect of acquisitions:
(Increase) decrease in accounts
receivable ........................ (19,034) 15,102 (1,011)
(Increase) decrease in inventories ... (5,093) 20,348 10,852
Increase (decrease) in trade
accounts payable .................. 16,188 (17,145) 43,108
Net working capital provided by AN
Can from 8/1/95 to 12/31/95 ........ -- -- 85,213
Other, net (decrease) increase ....... (5,675) 357 (6,261)
--------- --------- ---------
Total adjustments ................ 83,676 96,784 231,435
--------- --------- ---------
Net cash provided by operating
activities .............................. 117,860 125,199 209,629
--------- --------- ---------
Cash flows from investing activities:
Acquisition of businesses ..................... (42,775) (43,043) (348,762)
Capital expenditures .......................... (62,233) (56,851) (51,897)
Proceeds from asset sales ..................... 4,553 1,557 3,541
-------- ------- --------
Net cash used in investing activities (100,455) (98,337) (397,118)
-------- ------- --------
</TABLE>
Continued on following page.
F-5
<PAGE>
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the years ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
---- ---- ----
Cash flows from financing activities:
Borrowings under revolving loans ........... 1,118,950 952,050 669,260
Repayments under revolving loans ........... (1,146,750) (931,350) (674,760)
Proceeds from issuance of common stock ..... 67,220 -- --
Proceeds from issuance of long-term debt ... 839,334 125,000 450,000
Repayments and redemptions of
long-term debt ........................... (830,427) (183,880) (234,506)
Proceeds from issuance of cumulative
exchangeable redeemable preferred stock .. -- 50,000 --
Repurchase of common stock ................. -- (35,811) --
Debt financing costs incurred .............. (13,031) (3,956) (19,290)
Payments to former shareholders ............ -- -- (3,795)
----------- --------- ---------
Net cash provided by (used in) financing
activities ........................... 35,296 (27,947) 186,909
----------- --------- ---------
Net increase (decrease) in cash and
cash equivalents .............................. 52,701 (1,085) (580)
Cash and cash equivalents at
beginning of year ............................. 1,017 2,102 2,682
----------- --------- ---------
Cash and cash equivalents at
end of year ................................... $ 53,718 $ 1,017 $ 2,102
=========== ========= =========
Supplementary data:
Interest paid............................... $ 76,385 $ 68,390 $ 45,293
Income tax (refunds) payments, net ......... 1,733 (4,836) 8,967
Preferred stock dividend in lieu of
cash dividend ............................ 3,208 2,998 --
</TABLE>
See accompanying notes.
F-6
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
1. Summary of Significant Accounting Policies
Nature of Business. Silgan Holdings Inc. ("Holdings", together with its
wholly-owned subsidiaries, the "Company") is a company principally owned by
Holdings' management, The Morgan Stanley Leveraged Equity Fund II, L. P. ("MSLEF
II"), an affiliate of Morgan Stanley & Co. Incorporated ("MS & Co."), and public
shareholders. The Company 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.
Principles of Consolidation. The consolidated financial statements include the
accounts of Holdings and its subsidiaries, all of which are wholly-owned. All
significant intercompany transactions have been eliminated.
In June 1997, Silgan Corporation, a wholly-owned subsidiary of Holdings, was
merged into Holdings (the "Merger"). As a result, all of the indebtedness and
other obligations of Silgan Corporation have become indebtedness and obligations
of Holdings. Since Holdings' consolidated financial information included the
consolidated financial information of Silgan Corporation, the Merger had no
effect on the consolidated financial results of Holdings.
Foreign Currency Translation. The functional currency for the Company's foreign
operations is the Canadian dollar. Balance sheet accounts of the Company's
foreign affiliates are translated at exchange rates in effect at the balance
sheet date, while revenue and expense accounts are translated at average rates
prevailing during the year. Translation adjustments are reported as a component
of stockholders' equity. Foreign subsidiaries are not significant to the
consolidated results of operations or financial position of the Company.
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 amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
F-7
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
1. Summary of Significant Accounting Policies (continued)
Cash and cash equivalents. Cash equivalents represent short-term, highly liquid
investments which are readily convertible to cash and have maturities of three
months or less at 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 $78.9 million at December 31, 1997 and $49.6 million at December
31, 1996 are included in trade accounts payable.
Inventories. Inventories are valued at the lower of cost or market (net
realizable value) and the cost is principally determined on the last-in,
first-out basis (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 the estimated useful lives of depreciable assets.
The principal estimated useful lives are 35 years for buildings and range
between 3 to 18 years for machinery and equipment. Leasehold improvements are
amortized over the shorter of the life of the related asset or the life of the
lease.
Goodwill. The Company has classified as goodwill the cost in excess of fair
value of net assets acquired in purchase transactions. Goodwill is stated at
cost less accumulated amortization. Amortization is computed on a straight-line
basis principally over 40 years. The Company periodically evaluates the
existence of goodwill impairment to assess 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
value was to occur. Goodwill amortization charged to operations was $2.5 million
in 1997, $2.3 million in 1996, and $1.3 million in 1995. Accumulated
amortization of goodwill at December 31, 1997 and 1996 was $9.4 million and $7.7
million, respectively.
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 (6 to 12 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 Statement of Financial Accounting Standards ("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.
F-8
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
1. Summary of Significant Accounting Policies (continued)
Stock Based Compensation. The Company has elected to follow Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees" and related interpretations, in accounting for its employee stock
options. Under APB No. 25, no compensation expense is recognized when the
exercise price of employee stock options equals the market price of the
underlying stock on the date of grant.
Earnings Per Share. In 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings Per Share." SFAS No. 128 replaced the calculation
of primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share excludes
the dilutive effect of stock options. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All earnings per
share amounts for all periods presented have been restated and conform to the
requirements of SFAS No. 128. Additionally, all share and per share data have
been adjusted to reflect a 17.133145 for 1 stock split which occurred in
February 1997 at the time of Holdings' initial public offering (the "Offering"),
see Note 15.
New Accounting Standards. In 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. SFAS No. 131 establishes standards for
disclosures of segment information about products and services, geographic
areas, major customers and certain interim disclosures of segment information
which is not required by accounting standards currently used by the Company.
These statements are required to be adopted in 1998. The Company does not
anticipate that either SFAS No. 130 or SFAS No. 131 will have a material impact
on the Company's consolidated financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". SFAS No. 132 revises financial
statement disclosure requirements concerning pension and other postretirement
benefit plans. As required, the Company will adopt SFAS No. 132 in 1998.
Reclassifications. Certain reclassifications have been made to prior years'
financial statements to conform with the current year's presentation. These
changes did not have a material impact on previously reported results of
operations or stockholders' equity.
F-9
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
2. Acquisitions
In April 1997, Containers acquired the aluminum roll-on closure business of
Alcoa Closure Systems International, Inc. for $17.0 million, which was financed
through bank borrowings. The excess of the aggregate purchase price over the
fair market value of net assets acquired of $1.1 million has been recorded as
goodwill and is being amortized over 40 years.
In April 1997, Plastics acquired the North American plastic container business
of Rexam plc and Rexam Plastics Inc. for $25.6 million, which was financed
through bank borrowings. The excess of the aggregate purchase price over the
fair market value of net assets acquired of $1.6 million has been recorded as
goodwill and is being amortized over 40 years.
In October 1996, Containers acquired substantially all of the assets of Finger
Lakes Packaging Company, Inc. ("Finger Lakes"), a metal food container
manufacturer, for $30.1 million. The purchase price allocation was adjusted in
1997 for differences between the actual and preliminary valuations for asset
appraisals resulting in an adjustment to increase goodwill by $4.5 million. The
excess of the purchase price over the fair value of the net assets acquired of
$9.8 million has been recorded as goodwill, and is being amortized over 20
years.
In August 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") for $362.0 million (including $13.1 million paid in 1996). AN Can
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 aggregate excess of the purchase price over the fair
value of the assets acquired and liabilities assumed of $25.6 million has been
recorded as goodwill, and is being amortized over 40 years.
The aggregate purchase prices have been allocated to the assets acquired and
liabilities assumed based on their fair values on the dates of acquisition as
follows:
1997 1996 1995
---- ---- ----
(Dollars in thousands)
Working capital, net ............... $ 8,561 $ 5,986 $ 158,612
Property, plant & equipment ........ 38,356 14,395 233,764
Deferred tax asset ................. 676 -- 20,000
Goodwill ........................... 2,677 9,755 25,574
Other liabilities .................. (7,709) -- (76,067)
--------- --------- ---------
Purchase price ................ $ 42,561 $ 30,136 $ 361,883
========= ========= =========
F-10
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
2. Acquisitions (continued)
Each of the acquisitions referred to above was accounted for using the purchase
method of accounting, and accordingly the results of operations for each
respective acquisition has been included in the consolidated financial
statements of the Company from the dates of acquisition.
Assuming the acquisitions had taken place as of the first day of each year
presented, consolidated pro forma net sales of the Company would have been $1.53
billion for each of the years 1997 and 1996. Consolidated pro forma net income
and earnings per share, before extraordinary charges, of the Company would not
have been materially different from the historical results of the Company. The
above pro forma information, unaudited, 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, 1997 or January 1, 1996, or to project the Company's
results of operations for any future period.
3. Inventories
The components of inventories at December 31, 1997 and 1996 consist of the
following:
1997 1996
---- ----
(Dollars in thousands)
Raw materials ............... $ 33,706 $ 30,127
Work-in-process ............. 43,529 38,014
Finished goods .............. 121,369 116,498
Spare parts and other ....... 8,382 7,771
-------- --------
206,986 192,410
Adjustment to value inventory
at cost on the LIFO method 2,977 3,571
-------- --------
$209,963 $195,981
======== ========
The amount of inventory recorded on the first-in first-out method at December
31, 1997 and 1996 was $15.4 million and $11.8 million, respectively.
F-11
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
4. Property, Plant and Equipment
Property, plant and equipment at December 31, 1997 and 1996 consist of the
following:
1997 1996
---- ----
(Dollars in thousands)
Land ................................... $ 7,217 $ 6,425
Buildings and improvements ............. 92,467 79,923
Machinery and equipment ................ 706,062 621,232
Construction in progress ............... 37,573 49,771
--------- ---------
843,319 757,351
Accumulated depreciation ............... (311,554) (257,570)
--------- ---------
Property, plant and equipment, net $ 531,765 $ 499,781
========= =========
Under SFAS No. 121, which became effective in 1996, 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 such assets to their carrying amount. There were no impairment losses
recognized during 1997 and 1996.
In 1995, the Company made a review of its depreciable assets and determined that
certain adjustments were necessary to properly reflect net fixed asset
realizable values. As a result of this review, 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.
5. Other Assets
Other assets at December 31, 1997 and 1996 consist of the following:
1997 1996
---- ----
(Dollars in thousands)
Debt issuance costs ........... 14,910 30,515
Other ......................... 6,822 8,576
-------- --------
21,732 39,091
Less: accumulated amortization (1,364) (8,339)
-------- --------
$ 20,368 $ 30,752
======== ========
F-12
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
5. Other Assets (continued)
In connection with the refinancing of principally all of its outstanding
indebtedness in 1997, the Company wrote off unamortized debt financing costs of
$18.2 million and capitalized $13.0 million of new debt issuance costs. During
1996, the Company wrote off $2.2 million of unamortized debt issuance costs and
capitalized $4.0 million of new debt issuance costs in connection with the
refinancing of a portion of its 13 1/4% Senior Discount Debentures due 2002.
Amortization expense relating to debt issuance costs is included in interest
expense and other related financing costs. Debt amortization costs for the years
ended December 31, 1997, 1996, and 1995 were $3.0 million, $4.5 million, and
$4.9 million, respectively.
6. Long-Term Debt
Long-term debt at December 31, 1997 and 1996 consists of the following:
1997 1996
---- ----
(Dollars in thousands)
Bank Debt:
Bank Revolving Loans ........................ $ -- $ 27,800
Bank A Term Loans ........................... 235,714 194,554
Bank B Term Loans ........................... 199,000 343,716
Canadian Bank Facility ...................... 14,334 --
-------- --------
Total bank debt .......................... 449,048 566,070
Subordinated Debt:
9% Senior Subordinated Debentures ........... 300,000 --
11 3/4% Senior Subordinated Notes ........... -- 135,000
13 1/4% Subordinated Debentures ............. 56,206 --
13 1/4% Senior Discount Debentures .......... -- 58,940
-------- --------
Total subordinated debt .................. 356,206 193,940
-------- --------
Total Debt ....................................... 805,254 760,010
Less: Amounts due within one year .......... 20,218 38,427
-------- --------
$785,036 $721,583
======== ========
The aggregate annual maturities of long-term debt at December 31, 1997 are as
follows (dollars in thousands):
1998................ $ 20,218
1999................ 33,471
2000................ 38,724
2001................ 43,977
2002................ 59,736
2003 and thereafter. 609,128
-------
$805,254
========
F-13
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
6. Long-Term Debt (continued)
Bank Credit Agreement
- ---------------------
In July 1997, the Company refinanced the indebtedness outstanding under its
previous bank credit agreement with proceeds from a new $1.0 billion senior
secured credit facility (the "Credit Agreement"). The Credit Agreement initially
provided the Company with (i) $250.0 million of A Term Loans, (ii) $200.0
million of B Term Loans and (iii) up to $550.0 million of Revolving Loans.
The A Term Loans and Revolving Loans mature on December 31, 2003 and the B Term
Loans mature on June 30, 2005. Principal on the A Term Loans and B Term Loans is
required to be repaid in scheduled annual installments. Amounts repaid on the
term loans may not be reborrowed. Revolving Loans may be borrowed, repaid, and
reborrowed over the life of the Credit Agreement until final maturity.
The Credit Agreement provides that the Company is required to prepay the term
loans with proceeds received from the incurrence of indebtedness, except
proceeds used to refinance existing indebtedness; with proceeds received from
certain assets sales; and, under certain circumstances, with 50% of the
Company's excess cash flow. Generally, prepayments are allocated pro rata to the
A Term Loans and B Term Loans and applied first to the scheduled amortization
payments in the year of such prepayments and, to the extent in excess thereof,
pro rata to the remaining installments of the term loans. An excess cash flow
prepayment of $14.2 million will be paid in 1998 and has been included in the
current portion of long term debt as of December 31, 1997.
The Credit Agreement provides Containers and Plastics, together, a commitment
for a revolving credit facility of up to $545.5 million (after giving effect to
the reduction of such facility by $4.5 million for the revolving loan commitment
under the Company's Canadian credit facility) for working capital needs and
other general corporate purposes, including acquisitions. At December 31, 1997,
there were no Revolving Loans outstanding and, after taking into account
outstanding letters of credit of $7.4 million, borrowings available under the
revolving credit facility were $538.1 million. The Company may utilize up to a
maximum of $30.0 million in letters of credit as long as the aggregate amount of
borrowings of Revolving Loans and letters of credit do not exceed the amount of
the commitment under the revolving credit facility. The Credit Agreement
provides for the payment of a commitment fee ranging from 0.15% to 0.375% (0.25%
at December 31, 1997) per annum on the daily average unused portion of
commitments available under the revolving credit facility and at December 31,
1997 a 1.25% per annum fee on outstanding letters of credit.
F-14
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
6. Long-Term Debt (continued)
Bank Credit Agreement (continued)
- --------------------- -----------
The borrowings under the Credit Agreement may be designated as Base Rate or
Eurodollar Rate borrowings. The Base Rate is the higher of (i) 1/2 of 1.0% in
excess of the Adjusted Certificate of Deposit Rate, as defined in the Credit
Agreement, (ii) 1/2 of 1.0% in excess of the Federal Funds Rate, or (iii)
Bankers Trust Company's prime lending rate. Currently, Base Rate borrowings bear
interest at the Base Rate in the case of A Term Loans and Revolving Loans; and
at the Base Rate plus a margin of 0.5% in the case of B Term Loans. Eurodollar
Rate borrowings currently bear interest at the Eurodollar Rate plus a margin of
1.0% in the case of A Term Loans and Revolving Loans; and a margin of 1.5% in
the case of B Term Loans. In accordance with the Credit Agreement, the interest
rate margin on Base Rate and Eurodollar Rate borrowings will be reset quarterly
based upon the Company's Leverage Ratio, as defined in the Credit Agreement. As
of December 31, 1997, the interest rate for Base Rate borrowings was 8.5% and
the interest rate for Eurodollar Rate borrowings ranged between 6.79% and 7.32%.
The Company has 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 notional amount of $200.0 million (for a discussion
of the interest rate swap agreements, see Note 7).
For 1997, 1996 and 1995, respectively, the average amount of borrowings under
the Company's revolving credit facilities was $89.2 million, $104.1 million, and
$67.6 million; the weighted average annual interest rate paid on such borrowings
was 7.8%, 8.4%, and 8.9%; and the highest amount of such borrowings was $182.2
million, $175.1 million, and $188.1 million.
The indebtedness under the Credit Agreement is guaranteed by Holdings and its
U.S. subsidiaries and is secured by a security interest in substantially all of
their real and personal property. The stock of all U.S. subsidiaries of the
Company has been pledged to the lenders under the Credit Agreement.
The Credit Agreement contains various covenants which limit, among other things,
the ability of the Company and its subsidiaries to grant liens, sell assets and
use the proceeds from certain asset sales, make certain payments (including
dividends) on its capital stock, incur indebtedness or provide guarantees, make
loans or investments, enter into transactions with affiliates, make capital
expenditures, engage in any business other than the packaging business, and,
with respect to the Company's subsidiaries, issue stock. In addition, the
Company is required to meet specified financial covenants including Interest
Coverage and Leverage Ratios, each as defined in the Credit Agreement. The
Company is currently in compliance with all covenants under the Credit
Agreement.
F-15
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
6. Long-Term Debt (continued)
Canadian Bank Facility
- ----------------------
In December 1997, the Company, through a wholly-owned Canadian subsidiary,
entered into a Canadian bank facility ("Canadian Bank Facility") with various
Canadian banks. The Canadian Bank Facility provides the Company's Canadian
subsidiaries with (i) Cdn. $26.5 million (U.S. $18.5 million) of term loans and
(ii) up to Cdn. $6.5 million (U.S. $4.5 million) of revolving loans. Principal
on the term loans is required to be repaid in annual installments until maturity
on December 31, 2003.
The revolving loans may be borrowed, repaid, and reborrowed until maturity on
December 31, 2003. At December 31, 1997, there were term loan borrowings
outstanding of Cdn. $20.5 million (U.S. $14.3 million) and in January 1998, the
Company borrowed an additional Cdn. $6.0 million (U.S. $4.2 million) of term
loans. The term loans borrowed under the Canadian Bank Facility were used to
repay a portion of the A Term Loan installment due December 31, 1998 under the
Credit Agreement. There were no revolving borrowings outstanding at December 31,
1997.
Revolving loan and term loan borrowings may be designated as Canadian Prime Rate
or Bankers Acceptance borrowings. Currently, Canadian Prime Rate borrowings bear
interest at the Canadian Prime Rate, as defined in the Canadian Bank Facility.
Bankers Acceptance borrowings bear interest at the rate for bankers acceptances
plus a margin of 1.0%. Similar to the Credit Agreement, the interest rate margin
on both Canadian Prime Rate and Bankers Acceptance borrowings will be reset
quarterly based upon the Company's consolidated Leverage Ratio. As of December
31, 1997, the interest rate for Bankers Acceptance borrowings was 6.25%. There
were no Canadian Prime Rate borrowings outstanding at December 31, 1997.
The indebtedness under the Canadian Bank Facility is guaranteed by Holdings and
its subsidiaries and is secured by a security interest in substantially all of
the real and personal property of the Company's Canadian subsidiaries and all of
the stock of the Company's Canadian subsidiaries. The Canadian Bank Facility
contains covenants which are generally no more restrictive than and are
generally similar to the covenants in the Credit Agreement.
9.0% Senior Subordinated Debentures
- -----------------------------------
In June 1997, the Company issued $300.0 million aggregate principal amount of
9.0% Senior Subordinated Debentures (the "9% Debentures") due June 1, 2009. The
9% Debentures represent general unsecured obligations of the Company,
subordinate in right of payment to obligations of the Company under the Credit
Agreement and the Canadian Bank Facility and effectively subordinate to all
obligations of the subsidiaries of the Company. Interest on the 9% Debentures is
payable semi-annually in cash on the first day of each June and December.
F-16
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
6. Long-Term Debt (continued)
9.0% Senior Subordinated Debentures (continued)
- -----------------------------------
The 9% Debentures are redeemable, at the option of the Company, in whole or in
part, at any time after June 1, 2002 at the following redemption prices
(expressed in percentages of principal amount) plus accrued and unpaid interest
thereon to the redemption date if redeemed during the twelve month period
beginning June 1 of the years set forth below:
Year Redemption Price
---- ----------------
2002................ 104.500%
2003................ 103.375%
2004................ 102.250%
2005................ 101.125%
2006 and thereafter. 100.000%
In addition, at any time on or prior to June 1, 2000, up to 35% of the aggregate
principal amount of the 9% Debentures may be redeemed, at the option of the
Company, with the proceeds of one or more equity offerings by the Company of its
common stock at 109% of their principal amount, plus accrued and unpaid interest
to the redemption date.
Upon the occurrence of a Change of Control (as defined in the Indenture relating
to the 9% Debentures), the Company is required to make an offer to purchase the
9% Debentures at a purchase price equal to 101% of their principal amount, plus
accrued and unpaid interest to the date of purchase.
The Indenture relating to the 9% Debentures contains covenants which are
generally less restrictive than those under the Company's secured debt
agreements.
13-1/4% Subordinated Debentures
- -------------------------------
In June 1997, the Company exchanged its outstanding 13-1/4% Cumulative
Exchangeable Redeemable Preferred Stock ("Preferred Stock") with a par value of
$1,000 per share and a total liquidation value of $56.2 million for a like
principal amount of 13-1/4% Subordinated Debentures due 2006 (the "13-1/4%
Debentures"). The 13-1/4% Debentures are general obligations of the Company,
subordinate in right of payment to all Senior Indebtedness (as defined in the
Indenture relating to the 13-1/4% Debentures), including indebtedness under the
Company's Credit Agreement, the Canadian Bank Facility and the 9% Debentures,
and effectively subordinate to all obligations of the subsidiaries of the
Company.
F-17
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
6. Long-Term Debt (continued)
13-1/4% Subordinated Debentures (continued)
- --------------------------------------------
Interest on the 13-1/4% Debentures is payable semi-annually on each January 15
and July 15 in cash or, on or prior to July 15, 2000, at the option of the
Company, in additional 13-1/4% Debentures in an aggregate principal amount equal
to such interest. From and after July 15, 2000, interest will be payable only in
cash. Interest on the 13-1/4% Debentures due July 15, 1997 was paid in cash.
The 13-1/4% Debentures may be redeemed at any time on or after July 15, 2000, in
whole or in part, at the option of the Company at the following redemption
prices (expressed in percentages of principal amount) plus accrued and unpaid
interest thereon to the redemption date if redeemed during the twelve month
period beginning July 15 in each of the years set forth below:
Year Redemption Price
---- ----------------
2000................ 109.938%
2001................ 106.625%
2002................ 103.313%
2003 and thereafter. 100.000%
In addition, on or prior to July 15, 2000, Holdings may redeem all (but not less
than all) outstanding 13-1/4% Debentures at a redemption price equal to 110% of
their principal amount, plus accrued and unpaid interest to the redemption date,
from proceeds of any sale of its common stock.
Upon the occurrence of a Change of Control (as defined in the Indenture relating
to the 13-1/4% Debentures), the Company is required to make an offer to purchase
all of the 13-1/4% Debentures at a purchase price equal to 101% of their
principal amount, plus accrued and unpaid interest to the date of purchase.
The Indenture relating to the 13-1/4% Debentures contains covenants which are
generally comparable to or less restrictive than those under the Indenture
relating to the 9% Debentures.
F-18
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
6. Long-Term Debt (continued)
Refinancings
- ------------
Since 1995, the Company has refinanced principally all of its outstanding
indebtedness with lower cost indebtedness and equity. The Company's refinancing
activity over the past three years is summarized below.
1997 Refinancing
- ----------------
In February 1997, the Company used net proceeds of $67.2 million from the
Offering of its common stock to prepay $8.9 million of its bank term loans and
to redeem the remaining outstanding 13-1/4% Senior Discount Debentures ("13-1/4%
Discount Debentures") due 2002. The 13-1/4% Discount Debentures represented
unsecured general obligations of Holdings, subordinate in right of payment to
the obligations of its subsidiaries. The original issue discount of the 13-1/4%
Discount Debentures was amortized through June 15, 1996 with a yield to maturity
of 13-1/4%. From and after June 15, 1996, accrued interest on the 13-1/4%
Discount Debentures was payable in cash semiannually. The 13-1/4% Discount
Debentures were 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 $58.9 million, $154.4 million, and $61.7
million principal amount of its 13-1/4% Discount Debentures in 1997, 1996, and
1995, respectively.
In June 1997, the Company used net proceeds of $291.5 million from the issuance
of the 9% Debentures to repay $148.6 million of bank term loans under its
previous credit agreement and, for a total redemption amount of $142.9 million,
to redeem the entire principal amount ($135.0 million) of the 11-3/4% Senior
Subordinated Notes ("11-3/4% Notes") due 2002. The 11-3/4% Notes represented
unsecured general obligations of the Company, subordinate in right of payment to
obligations of the Company under its credit agreement and effectively
subordinate to all the obligations of the Company's subsidiaries. The 11-3/4%
Notes were redeemable, at the option of the Company, in whole or in part, at any
time during the twelve months commencing June 15, 1997 at 105.875% of the
principal amount, plus accrued interest.
In July 1997, the Company used proceeds of $452.6 million from the Credit
Agreement to refinance all term loans outstanding under the previous credit
agreement, including term borrowings of $75.0 million made in April 1997.
In connection with these refinancings, the Company incurred an extraordinary
charge of $16.4 million, net of tax, for the write-off of unamortized debt
financing costs of $18.2 million and premiums of $7.9 million paid upon the
redemption of the 11-3/4% Notes.
F-19
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
6. Long-Term Debt (continued)
1996 Refinancing
- ----------------
In 1996, the Company used proceeds of $125.0 million of term loans and $17.4
million of revolving loans under its previous credit agreement and $12.0 million
of the proceeds received upon the issuance of the Preferred Stock to redeem
$154.4 principal amount of 13-1/4% Discount Debentures at par. As a result of
the early redemption of a portion of the 13-1/4% Discount Debentures, the
Company incurred an extraordinary charge of $2.2 million, net of taxes, for the
write-off of unamortized deferred financing costs.
1995 Refinancing
- ----------------
In August 1995, the Company entered into its previous credit agreement ($675.0
million) with various banks primarily to finance the acquisition by Containers
of AN Can. The Company used proceeds from this credit facility to acquire AN Can
for $348.9 million (excluding $13.1 million paid in 1996), repay $117.1 million
of bank term loans, repay in full $50.0 million principal amount of the
Company's Senior Secured Notes (the "Secured Notes"), repurchase $61.7 million
principal amount at maturity of 13-1/4% 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 13-1/4% 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 13-1/4% Discount
Debentures.
7. Financial Instruments
The Company's financial instruments recorded on the balance sheet include cash
and cash equivalents, accounts receivable, accounts payable, debt, and preferred
stock. Due to their short-term maturity, the carrying amount of cash and cash
equivalents, accounts receivable, accounts payable, and short-term bank debt
approximates fair market value. The following table summarizes the carrying
amounts and estimated fair values of the Company's remaining financial
instruments at December 31, 1997 and 1996:
1997 1996
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(Dollars in thousands)
Bank debt ......................... $ 449,048 $ 449,048 $ 566,070 $ 566,070
Subordinated debt ................. 356,206 371,575 193,940 203,685
Preferred Stock ................... -- -- 52,998 58,671
Interest rate swap agreements ..... -- (70) -- 504
F-20
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
7. Financial Instruments (continued)
Methods and assumptions used in estimating fair values are as follows:
Bank debt: The carrying amounts of the Company's variable rate borrowings under
its revolving loans and bank term loans approximate their fair values.
Subordinated debt: The fair value of the Company's fixed rate borrowings which
include the 9% Debentures and the 13-1/4% Debentures are estimated based on
quoted market prices.
Preferred Stock: The fair value of the Company's Preferred Stock at December 31,
1996 was based upon quoted market prices.
Interest Rate Swap Agreements: The fair value of the interest rate swap
agreements reflect the estimated amounts that the Company would be required to
pay at December 31, 1997 or receive at December 31, 1996 to terminate the
contracts based on quoted market prices.
Derivative Financial Instruments
- --------------------------------
In 1996, the Company entered into interest rate swap agreements with various
banks to manage its exposure to interest rate fluctuations. The agreements are
with major financial institutions who 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. The interest rate swap agreements
require the Company to pay fixed rates of interest based on three month LIBOR
ranging from 5.6% to 6.2%. Notional principal amounts of these agreements total
$200.0 million and mature in 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. The difference between amounts to be paid or received on interest
rate swap agreements are recorded as adjustments to interest expense. Net
payments of $0.3 million for each of the years ended December 31, 1997 and 1996
were recorded under these agreements.
The Company does not utilize derivative financial instruments for speculative
purposes. Its 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.
F-21
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
7. Financial Instruments (continued)
Concentration of Credit Risk
- ----------------------------
The Company derives a significant portion of its revenue from multi-year supply
agreements with many of its customers. Aggregate revenues from its two largest
customers accounted for approximately 27.7% of its net sales in 1997, 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 21.7% and 18.2% of the
Company's accounts receivable at December 31, 1997 and 1996, 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.
8. 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):
1998................ $ 14,798
1999................ 12,427
2000................ 11,567
2001................ 7,509
2002................ 5,531
2003 and thereafter. 16,860
-------
$ 68,692
=======
Rent expense was approximately $15.1 million in 1997; $13.9 million in 1996; and
$10.8 million in 1995.
F-22
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
9. Retirement Plans
The Company sponsors defined benefit pension and defined contribution plans
which cover substantially all employees, other than union employees covered by
multi-employer defined benefit pension plans under collective bargaining
agreements. Pension benefits are provided based on either a career average,
final pay or years of service formula. With respect to certain hourly employees,
pension benefits are provided for based on stated amounts for each year of
service. It is the Company's policy to fund accrued pension and defined
contribution costs in compliance with ERISA requirements. Assets of the plans
consist primarily of equity and bond funds.
The following table sets forth the funded status of the Company's retirement
plans as of December 31, 1997 and 1996:
<TABLE>
<S> <C> <C>
Plans in which Plans in which
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets
----------------- ---------------
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested benefit obligations ............................ $ 17,901 $ 14,009 $ 45,181 $ 33,558
Non-vested benefit obligations ........................ 598 383 4,696 4,718
-------- -------- -------- --------
Total accumulated benefit obligations ..................... 18,499 14,392 49,877 38,276
Additional benefits due to
future salary increases ................................. 6,522 6,255 6,108 6,526
-------- -------- -------- --------
Projected benefit obligations ............................. 25,021 20,647 55,985 44,802
Plan assets at fair value ................................. 19,313 15,055 43,047 31,265
-------- -------- -------- --------
Projected benefit obligation
in excess of plan assets ................................ 5,708 5,592 12,938 13,537
Unrecognized experience gain .............................. 153 110 5,680 3,476
Unrecognized prior service costs .......................... (515) (565) (3,222) (2,052)
Additional minimum liability .............................. -- -- 1,145 1,124
-------- -------- -------- --------
Accrued pension liability
recognized in the balance sheet ......................... $ 5,346 $ 5,137 $ 16,541 $ 16,085
======== ======== ======== ========
</TABLE>
For certain pension plans with accumulated benefits in excess of plan assets at
December 31, 1997 and December 31, 1996, the balance sheet reflects an
additional minimum pension liability and related intangible asset of $1.1
million in each year, respectively.
F-23
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
9. Retirement Plans (continued)
The components of net periodic pension costs for defined benefit plans are as
follows:
1997 1996 1995
---- ---- ----
(Dollars in thousands)
Service cost ............................... $ 5,705 $ 5,229 $ 3,067
Interest cost .............................. 5,233 4,452 3,887
Actual return on assets .................... (8,794) (3,946) (7,284)
Net amortization and deferrals ............. 4,442 650 5,008
------- ------- -------
Net periodic pension cost .............. $ 6,586 $ 6,385 $ 4,678
======= ======= =======
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 1997, 1996, and 1995 in the Company's Consolidated Statements
of Operations is as follows:
1997 1996 1995
---- ---- ----
(Dollars in thousands)
Net periodic pension cost .................. $ 6,586 $ 6,385 $ 4,678
Settlement and curtailment losses, net ..... 74 48 418
Contributions to multi-employer
union plans .............................. 4,223 3,813 2,708
------- ------- -------
Total pension costs .................... $10,883 $10,246 $ 7,804
======= ======= =======
The assumptions used in determining the actuarial present value of accumulated
benefit obligations as of December 31, 1997, 1996 and 1995 are as follows:
1997 1996 1995
---- ---- ----
Discount rate .............................. 7.25% 7.5% 7.5%
Weighted average rate of compensation
increase ................................. 3.75% 4.0% 4.0%
Expected long-term rate of return on
plan assets .............................. 9.0% 9.0% 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 $2.9 million in 1997; $4.3 million in
1996; and $1.7 million in 1995.
F-24
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
10. Postretirement Benefits Other than Pensions
The Company has unfunded 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, 1997 and
1996:
1997 1996
---- ----
(Dollars in thousands)
Accumulated postretirement benefit obligation:
Retirees ...................................... $ 3,983 $ 3,885
Fully eligible active plan participants ....... 13,411 10,741
Other active plan participants ................ 18,882 12,983
-------- --------
Total accumulated postretirement
benefit obligation .............................. 36,276 27,609
Unrecognized experience net loss ................... 552 1,865
Unrecognized prior service costs ................... (252) (275)
-------- --------
Accrued postretirement benefit liability ........... $ 36,576 $ 29,199
======== ========
Net periodic postretirement benefit cost include the following components:
1997 1996 1995
---- ---- ----
(Dollars in thousands)
Service cost ..................................... $ 942 $ 871 $ 372
Interest cost .................................... 2,347 1,766 1,097
Net amortization and deferral .................... 65 25 42
------ ------ ------
Net periodic postretirement benefit cost ....... $3,354 $2,662 $1,511
====== ====== ======
The weighted average discount rates used to determine the accumulated
postretirement benefit obligation as of December 31, 1997 and 1996 were 7.25%
and 7.50%, respectively. The net periodic postretirement benefit costs were
calculated using a discount rate of 7.5% for each of the years ended December
31, 1997, 1996, and 1995. The assumed health care cost trend rates used in
measuring the accumulated postretirement benefit obligation in 1997 ranged from
9.5% to 9.0% for pre-age 65 retirees and 9.0% to 8.5% for post-age 65 retirees,
declining gradually to an ultimate rate of 5.5% in 2007.
A 1% increase in the assumed health care cost trend rate in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1997 by approximately $3.1 million and increase the aggregate of the service and
interest cost components of the net periodic postretirement benefit cost for
1997 by approximately $0.3 million.
F-25
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
11. Income Taxes
The components of income tax expense (benefit) are as follows:
1997 1996 1995
---- ---- ----
(Dollars in thousands)
Current
Federal .............. $ 100 $ -- $ 500
State ................ 200 3,000 1,900
Foreign .............. 1,100 300 100
-------- -------- --------
1,400 3,300 2,500
Deferred
Federal .............. (16,300) -- --
State ................ (1,600) -- --
Foreign .............. 100 -- --
-------- -------- --------
(17,800) -- --
-------- -------- --------
$(16,400) $ 3,300 $ 2,500
======== ======== ========
Income tax expense (benefit) is included in the financial statements as follows:
1997 1996 1995
---- ---- ----
(Dollars in thousands)
Income before
extraordinary charges ....... $ (6,700) $ 3,300 $ 5,100
Extraordinary charges ......... (9,700) -- (2,600)
-------- -------- --------
$(16,400) $ 3,300 $ 2,500
======== ======== ========
The income tax provision varied from that computed by using the U.S. statutory
rate as a result of the following:
1997 1996 1995
---- ---- ----
(Dollars in thousands)
Income tax expense (benefit) at
the U.S. federal income tax rate .. $ 6,200 $ 11,100 $ (3,811)
State and foreign tax expense,
net of federal income benefit ..... 260 2,145 1,820
Amortization of goodwill ............ 500 621 471
Change in valuation allowance ....... (27,400) (10,566) 6,620
Provision for tax contingencies ..... 4,040 -- --
-------- -------- --------
$(16,400) $ 3,300 $ 5,100
======== ======== ========
F-26
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
11. Income Taxes (continued)
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets at December 31, 1997 and 1996
are as follows:
1997 1996
---- ----
(Dollars in thousands)
Deferred tax liabilities:
Tax over book depreciation ..................... $ 71,800 $ 65,000
Book over tax basis of assets acquired ......... 19,700 13,200
Other .......................................... 6,076 4,100
--------- ---------
Total deferred tax liabilities ............... 97,576 82,300
Deferred tax assets:
Book reserves not yet deductible
for tax purposes ............................. 66,200 59,200
Deferred interest on high yield obligations .... -- 7,700
Net operating loss carryforwards ............... 63,400 57,200
Other .......................................... -- 500
--------- ---------
Total deferred tax assets .................... 129,600 124,600
Valuation allowance for deferred tax assets .... -- (42,300)
--------- ---------
Net deferred tax assets ...................... 129,600 82,300
--------- ---------
Net deferred tax (assets) liabilities ............ $ (32,024) $ --
========= =========
During 1997, the Company determined that it was more likely than not that the
future tax benefits arising from its net operating loss carryforwards would be
realized in future years due to the Company's continued improvement in earnings
and the probability of future taxable income. As a result, in accordance with
SFAS No. 109, the Company recognized an income tax benefit of $27.4 million and
reduced goodwill by $14.9 million by releasing the valuation allowance. In the
years prior to 1997, the Company`s net deferred tax asset position had been
offset by a valuation allowance which arose primarily as a result of its net
operating loss carryforwards and net temporary differences.
The Company files a consolidated federal income tax return. At December 31,
1997, the Company had net operating loss carryforwards of approximately $181.0
million which are available to offset future consolidated taxable income of the
group and expire from 2001 through 2012. 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.
F-27
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
12. Acquisition Reserves
The Company is in the process of implementing its plan to rationalize and
integrate the operations of AN Can. 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, is dependent on
covenants in existing labor agreements and accordingly these costs will
principally be incurred through the year 2000. Since the acquisition of AN Can
in 1995, $6.7 million related to administrative workforce reductions and
employee severance and relocation costs and $6.5 million related to plant exit
costs and other acquisition liabilities have been incurred.
13. Stock Option Plans
The Company has established a stock option plan (the "Plan") for key employees
pursuant to which options to purchase shares of common stock of the Company may
be granted.
The Company also had established similar stock option plans at Containers and
Plastics for their key employees. Concurrent with the Offering in February of
1997, all outstanding stock options issued under the Containers and Plastics
plans were converted to stock options under the Plan in accordance with the
terms of such plans, and the Containers and Plastics stock option plans
terminated.
In connection with the Offering, the Company recognized a non-cash, pre-tax
charge of $22.5 million for the excess of fair market value over the grant price
of stock options converted from Holdings' subsidiaries' stock option plans to
the Plan. Under APB No. 25, options granted under the subsidiary plans were
considered variable options with a final measurement date at the time of
conversion. Paid in capital was credited for $25.3 million which represented the
current year charge and amounts accrued in prior years. In addition, the Company
incurred charges relating to the vesting of benefits under the stock option
plans of $0.8 million in 1996 and 1995.
The Plan authorizes the granting of options for up to 3,533,414 shares of the
Company's common stock, which options can be non-qualified or incentive stock
options. The exercise price of the stock options granted under the Plan is the
fair market value of the Common Stock on the date of such grant. Options that
have been granted generally vest ratably over a five year period beginning one
year after the grant date and have a term of ten years.
F-28
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
13. Stock Option Plans (continued)
The following is a summary of stock option activity for the three year period
ended December 31, 1997:
Number Weighted Average
of Shares Exercise Price
--------- --------------
Options outstanding December 31, 1994 .......... 1,752,873 $ 2.09
Granted ........................................ 67,230 4.43
Exercised ...................................... -- --
Canceled ....................................... -- --
--------
Options outstanding December 31, 1995 .......... 1,820,103 2.18
Granted ........................................ -- --
Exercised ...................................... -- --
Canceled ....................................... -- --
--------
Options outstanding December 31, 1996 .......... 1,820,103 2.18
Granted ........................................ 120,000 26.91
Exercised ...................................... -- --
Canceled ....................................... -- --
--------
Options outstanding December 31, 1997 .......... 1,940,103 $ 3.71
=========
The number of options exercisable was 1,578,952, 1,465,098, and 1,351,242; the
weighted average exercise price was $2.08, $2.03, and $1.97; and, the remaining
contractual life of options outstanding was 3.7 years, 4.3 years, and 5.3 years
at December 31, 1997, 1996, and 1995, respectively. At December 31, 1997, the
exercise price range for options was $0.56 to $36.75.
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock option plan.
Had compensation expense been determined based on the fair value of such awards
at the grant date, consistent with the methods of SFAS No. 123 "Accounting for
Stock-Based Compensation," the Company's total and per share net income would
have been as follows (dollars in thousands, except per share amounts):
1997 1996 1995
---- ---- ----
Net income:
As reported net income (loss) ..... $ 30,960 $ 25,409 $ (21,806)
Pro forma net income (loss) ....... 30,850 25,384 (21,832)
Basic earnings per share:
As reported earnings per share .... 1.68 1.45 (1.12)
Pro forma earnings per share ...... 1.67 1.44 (1.12)
Diluted earnings per share:
As reported earnings per share .... 1.57 1.37 (1.12)
Pro forma earnings per share ...... 1.56 1.36 (1.12)
F-29
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
13. Stock Option Plans (continued)
The weighted average fair value of options granted was $10.51 and $1.87 during
1997 and 1995, respectively. The fair value was estimated using a Black-Scholes
option-pricing model with the following weighted average assumptions for grants
made in 1997 and 1995: risk-free interest rates of 6.1% and 7.8%; expected
volatility of 31.9%; dividend yield of 0%; and expected lives of 5 years. For
purposes of the pro forma disclosures, the estimated fair values of the options
is amortized to expense over the vesting period of the option which is five
years.
14. Cumulative Exchangeable Redeemable Preferred Stock
In July 1996, the Company issued 50,000 shares of Preferred Stock, mandatorily
redeemable in 2006, at $1,000 per share, which amount represented the
liquidation preference of a share of the Preferred Stock. The Company used $35.8
million of the proceeds from the sale of the Preferred Stock to purchase
4,283,286 shares of its Class B Common Stock pursuant to its contractual right
to purchase such stock for such amount. 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 ranked senior to all common stock of Holdings. The holders
of the Preferred Stock did not have voting rights. The Company's credit
agreement and various debt indentures restricted the Company's ability to, among
other things, pay dividends, incur additional indebtedness, and purchase or
redeem shares of capital stock.
The Preferred Stock holders were entitled to receive cumulative dividends of 13
1/4% per annum, which were 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.
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 paid in additional shares of Preferred Stock.
During 1997, the Company accrued dividends of $3.2 million, which it paid in
additional shares of Preferred Stock. In June 1997, all of the outstanding
Preferred Stock ($56.2 million principal amount) was exchanged into Holdings' 13
1/4% Subordinated Debentures due 2006. The Preferred Stock had terms generally
similar to the 13 1/4% Debentures, see Note 6.
F-30
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
15. Deficiency in Stockholders' Equity
In February 1997, the Company completed the Offering and 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, 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 immediately thereafter Holdings effected a
17.133145 to 1 stock split of its outstanding Common Stock.
The Class A and Class B Common Stock outstanding prior to the Offering had
identical rights, privileges and powers, 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 outstanding before the Offering did not have voting
rights except in certain circumstances.
In the Offering, the Company sold to the underwriters 3,700,000 previously
unissued shares of Common Stock at an initial public offering price of $20.00
per share, and received net proceeds of $67.2 million. MSLEF II and Bankers
Trust New York Corporation ("BTNY"), existing stockholders of the Company prior
to the Offering, sold to the underwriters 1,317,246 and 157,754 previously
issued and outstanding shares of Common Stock owned by them, respectively. The
Company did not receive any of the proceeds from the sale of the shares of
Common Stock by MSLEF II or BTNY.
Deficiency in stockholders' equity includes the following classes of common
stock ($.01 par value):
Shares
Issued and Outstanding
December 31,
------------
1997 1996
------ ------
Common Stock ....... 18,862,834 --
Class A Common Stock -- 7,153,088
Class B Common Stock -- 7,153,088
Class C Common Stock -- 856,657
---------- ----------
18,862,834 15,162,833
========== ==========
F-31
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
16. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share (dollars and shares in thousands, except per share amounts):
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Numerator:
Income (loss) before extraordinary charges.. $50,566 $30,637 $(15,989)
Extraordinary charges....................... 16,382 2,222 5,817
Preferred stock dividend requirements....... 3,224 3,006 --
------- ------- -------
Numerator for basic and dilutive
earnings per share - income (loss)
available to common stockholders......... $30,960 $25,409 $(21,806)
======= ======= ========
Denominator:
Denominator for basic earnings per
share - weighted average shares.......... 18,396 17,557 19,446
Effect of dilutive securities:
Employee stock options................... 1,327 1,021 --
------- ------- -------
Denominator for diluted earnings
per share - adjusted weighted-
average shares.......................... 19,723 18,578 19,446
======= ======= =======
Basic earnings per common share:
Income (loss) before extraordinary charges. $2.75 $1.75 $(0.82)
Extraordinary charges...................... (0.89) (0.13) (0.30)
Preferred stock dividend requirement....... (0.18) (0.17) --
----- ----- -------
Net income (loss) per common share......... $1.68 $1.45 $(1.12)
===== ===== ======
Diluted earnings per common share:
Income (loss) before extraordinary charges. $2.56 $1.65 $(0.82)
Extraordinary charges...................... (0.83) (0.12) (0.30)
Preferred stock dividend requirement....... (0.16) (0.16) --
------ ------ -------
Net income (loss) per diluted common share. $1.57 $1.37 $(1.12)
===== ===== ======
</TABLE>
Earnings per share amounts for all periods prior to 1997 have been restated to
conform to SFAS No. 128 and related pronouncements. Employee stock options
outstanding in periods when the Company had a net loss are considered to be
anti-dilutive and, therefore, have not been included in the denominator for such
periods.
F-32
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
16. Earnings Per Share (continued)
Options to purchase 30,000 shares of common stock at $36.75 per share were
outstanding during 1997 but were not included in the computation of diluted
earnings per share because the exercise price for such options was greater than
the average market price of the Common stock and, therefore, the effect would be
anti-dilutive.
In February 1997, the Company issued 3,700,000 shares of Common Stock in the
Offering and the net proceeds of $67.2 million from such issuance were used to
repay debt, see Note 15.
17. Related Party Transactions
Pursuant to various management services agreements (the "Management Agreements")
entered into between each of Holdings, 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 Mr. Horrigan, the President and Co-Chief
Executive Officer of Holdings, S&H provides Holdings 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 $5.4 million in 1997, $5.3 million in 1996, and $5.4
million in 1995, and was allocated, based upon EBIDTA, as a charge to operating
income of each business segment. Included in accounts payable for each of the
years ended December 31, 1997 and 1996 was $0.1 million payable to S&H. Under
the terms of the Management Agreements, the Company has agreed, subject to
certain exceptions, to indemnify S&H and any of its affiliates, officers,
directors, employees, subcontractors, consultants or controlling persons against
any loss or damage they may sustain arising in connection with the Management
Agreements.
In connection with the bank financing entered into during 1997, 1996 and 1995,
the banks thereunder (including Bankers Trust Company) received fees totaling
$2.3 million, $1.6 million and $17.2 million, respectively.
As underwriters for the 9% Debentures Offering in 1997 and the Preferred Stock
Offering in 1996, MS & Co. received as compensation for its services an
aggregate of $9.7 million. In connection with the Offering, the underwriters
(including MS & Co.) received fees totaling $5.2 million.
F-33
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
18. 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>
Net Oper. Identifiable Dep. & Capital
Sales Profit Assets Amort. Expend.
----- ------ ------ ------ -------
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
1997
- ----
Metal container
& specialty(1).... $1,248.1 $120.4 $ 860.1 $45.7 $46.9
Plastic container... 263.3 28.5 189.9 17.7 14.9
-------- ------ -------- ----- -----
Total............ $1,511.4 $148.9 $1,050.0 $63.4 $61.8
======== ====== ======== ===== =====
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
======== ===== ====== ===== =====
</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.
F-34
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
18. Business Segment Information (continued)
Operating profit is reconciled to income (loss) before income taxes as follows:
1997 1996 1995
---- ---- ----
(Dollars in millions)
Operating profit ........... $ 148.9 $ 124.5 $ 71.4
Interest expense ........... 80.7 89.4 80.7
Non-cash stock option charge 22.5 -- --
Corporate expense .......... 1.8 1.2 1.5
------ ----- -----
Income (loss) before
income taxes ....... $ 43.9 $ 33.9 $ (10.8)
====== ===== =====
Identifiable assets are reconciled to total assets as follows:
1997 1996 1995
---- ---- ----
(Dollars in millions)
Identifiable assets $ 1,050.0 $ 909.2 $ 896.1
Corporate assets .. 0.6 4.3 3.9
------- ----- -----
Total assets .... $ 1,050.6 $ 913.5 $ 900.0
======= ===== =====
Identifiable assets are those assets which are utilized by the respective
business segments. Corporate assets are principally cash and other assets which
cannot be directly associated with the operations or activities of a business
segment.
Metal container and specialty sales to Nestle Food Company accounted for 16.7%,
17.1%, and 21.4% of net sales of the Company during the years ended December 31,
1997, 1996, and 1995, respectively. Metal container sales to Del Monte
Corporation accounted for 11.0%, 12.0%, and 14.5% of net sales of the Company
during the years ended December 31, 1997, 1996, and 1995, respectively.
F-35
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
19. Quarterly Results of Operations (Unaudited)
The following table presents the unaudited quarterly results of operations for
the years ended December 31, 1997 and 1996 (in thousands of dollars, except per
share data):
<TABLE>
Mar 31 June 30 Sept 30 Dec 31
------ ------- ------- ------
<S> <C> <C> <C> <C>
1997
- ----
Net sales ............................... $ 299,427 $ 357,584 $ 493,293 $ 361,066
Gross profit ............................ 42,719 56,961 68,973 39,254
Income before extraordinary charges ..... 11,047 14,030 21,826 3,663
Net income .............................. 8,550 4,279 14,468 3,663
Basic earnings per common share:
Income before extraordinary
charges .......................... $ 0.64 $ 0.75 $ 1.16 $ 0.19
Extraordinary charges .............. (0.04) (0.44) (0.39) --
Preferred stock dividend requirement (0.10) (0.08) -- --
---------- ---------- ---------- ----------
Net income per common share ........ $ 0.50 $ 0.23 $ 0.77 $ 0.19
========== ========== ========== ==========
Diluted earnings per common share:
Income before extraordinary charges $ 0.60 $ 0.69 $ 1.08 $ 0.18
Extraordinary charges .............. (0.04) (0.41) (0.36) --
Preferred stock dividend requirement (0.10) (0.07) -- --
---------- ---------- ---------- ----------
Net income per diluted common share $ 0.46 $ 0.21 $ 0.72 $ 0.18
========== ========== ========== ==========
1996
- ----
Net sales ............................... $ 279,860 $327,062 $ 473,563 $325,257
Gross profit ............................ 37,653 48,985 59,040 38,123
Income before extraordinary charges ..... 143 9,524 20,724 246
Net income (loss) ....................... 143 9,524 17,328 (1,586)
Basic earnings per common share:
Income before extraordinary charges $ 0.01 $ 0.49 $ 1.28 $ 0.02
Extraordinary charges .............. -- -- (0.13) (0.01)
Preferred stock dividend requirement -- -- (0.08) (0.11)
----------- ----------- ---------- ----------
Net income (loss) per common share . $ 0.01 $ 0.49 $ 1.07 $ (0.10)
=========== =========== ========== ==========
Diluted earnings per common share:
Income before extraordinary charges $ 0.01 $ 0.47 $ 1.20 $ 0.02
Extraordinary charges .............. -- -- (0.11) (0.01)
Preferred stock dividend requirement -- -- (0.08) (0.11)
----------- ----------- ----------- -----------
Net income (loss) per diluted
common share ..................... $ 0.01 $ 0.47 $ 1.01 $ (0.10)
=========== =========== =========== ===========
</TABLE>
F-36
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
19. Quarterly Results of Operations (continued)
Earnings per common share amounts are computed independently for each quarter
and therefore may not sum to the totals for the year. All periods prior to the
fourth quarter of 1997 have been restated to reflect the adoption of SFAS No.
128.
The results of operations for first quarter of 1997 include a charge of $22.5
million, incurred in connection with the Offering, for the conversion of stock
options from the stock option plans of the Company's subsidiaries to stock
options under the Plan. In addition, during the first quarter the Company
determined that a portion of the future tax benefits arising from its net
operating loss carryforward would be realized and it recognized an income tax
benefit of $23.2 million.
The results of operations for the first, second and third quarters of 1997 and
the third and fourth quarters of 1996 include extraordinary charges, net of tax,
of $0.7 million, $8.3 million, $7.4 million, $2.1 million and $0.1 million,
respectively, for the write-off of unamortized debt financing costs and premiums
paid in connection with the refinancing of the Company's indebtedness.
20. Subsequent Events
In January 1998, Plastics acquired substantially all of the assets of Winn
Packaging Co. ("Winn") for a purchase price of approximately $14.1 million
(including net working capital of approximately $4.0 million). Winn was a
privately held manufacturer and marketer of decorated rigid plastic containers,
serving the personal care, automotive, and household chemical markets. Winn's
estimated sales in 1997 were $23.0 million. The Company financed this
acquisition through Revolving Loan borrowings under the Credit Agreement. The
transaction will be accounted for using the purchase method of accounting.
In February 1998, the Company reached an agreement in principle with Campbell
Soup Company ("Campbell") for the purchase of Campbell's can manufacturing
assets. Although the transaction is subject to negotiation and execution of
definitive documentation and other customary terms and conditions, it is
expected that the purchase price will approximate $125.0 million. As part of the
transaction, the Company and Campbell will enter into a long-term supply
agreement. Annual sales to Campbell under the supply agreement are expected to
be in excess of $200.0 million.
F-37
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
SILGAN HOLDINGS INC.
For the years ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
<TABLE>
Additions
---------
Charged
Balance at Charged to to other Balance
beginning costs and accounts Deductions at end of
Description of period expenses describe describe(1) period
- ----------- --------- -------- -------- ----------- ------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1997:
Allowance for
doubtful accounts
receivable ............. $4,045 $181 $ (297) $514 $3,415
====== ==== ======= ==== ======
For the year ended
December 31, 1996:
Allowance for
doubtful accounts
receivable ............. $4,843 $572 $(1,041)(2) $329 $4,045
====== ==== ======= ==== ======
For the year ended
December 31, 1995:
Allowance for
doubtful accounts
receivable ............. $1,557 $295 $ 3,872(3) $881 $4,843
====== ==== ======= ==== ======
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Principally represents the final purchase price allocation for the
acquisition of AN Can.
(3) Represents the accounts receivable allowance for doubtful accounts assumed
upon the acquisition of AN Can.
F-38
<PAGE>
INDEX TO EXHIBITS
-----------------
<TABLE>
<S> <C>
Exhibit No. Exhibit
- ----------- -------
*21 Subsidiaries of the Registrant.
*23 Consent of Ernst & Young LLP.
*27.1 Financial Data Schedule for the fiscal year ended December 31, 1997.
*27.2 Restated Financial Data Schedule for the nine months ended September 30, 1997.
*27.3 Restated Financial Data Schedule for the six months ended June 30, 1997.
*27.4 Restated Financial Data Schedule for the three months ended March 31, 1997.
*27.5 Restated Financial Data Schedule for the fiscal year ended December 31, 1996.
*27.6 Restated Financial Data Schedule for the nine months ended September 30, 1996.
*27.7 Restated Financial Data Schedule for the six months ended June 30, 1996.
*27.8 Restated Financial Data Schedule for the three months ended March 31, 1996.
*27.9 Restated Financial Data Schedule for the fiscal year ended December 31, 1995.
</TABLE>
<PAGE>
EXHIBIT 21
Subsidiaries of Silgan Holdings Inc.
Silgan Containers Corporation
Silgan Containers Manufacturing Corporation (1)
Silgan Plastics Corporation
827599 Ontario Inc. (Canadian Holdco.) (2)
Silgan Plastics Canada Inc. (3)
828745 Ontario Inc. (NRO, Ltd.)
- ------------------
1. Wholly-owned subsidiary of Silgan Containers Corporation.
2. Wholly-owned subsidiary of Silgan Plastics Corporation.
3. Wholly-owned subsidiary of Canadian Holdco.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-40151) pertaining to the Fourth Amended and Restated 1989 Stock
Option Plan of Silgan Holdings Inc. of our report dated January 26, 1998, with
respect to the consolidated financial statements and schedule of Silgan Holdings
Inc. included in the Annual Report (Form 10-K) for the year ended December 31,
1997.
/S/ ERNST & YOUNG LLP
Stamford, Connecticut
March 25, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Silgan
Holdings Inc. Form 10-K for the year ended December 31, 1997 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 53,718
<SECURITIES> 0
<RECEIVABLES> 129,252
<ALLOWANCES> (3,415)
<INVENTORY> 209,963
<CURRENT-ASSETS> 399,515
<PP&E> 843,319
<DEPRECIATION> (311,554)
<TOTAL-ASSETS> 1,050,567
<CURRENT-LIABILITIES> 234,930
<BONDS> 785,036
0
0
<COMMON> 189
<OTHER-SE> (67,437)
<TOTAL-LIABILITY-AND-EQUITY> 1,050,567
<SALES> 1,511,370
<TOTAL-REVENUES> 1,511,370
<CGS> 1,303,463
<TOTAL-COSTS> 1,303,463
<OTHER-EXPENSES> 22,522
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,693
<INCOME-PRETAX> 43,866
<INCOME-TAX> (6,700)
<INCOME-CONTINUING> 50,566
<DISCONTINUED> 0
<EXTRAORDINARY> (16,382)
<CHANGES> 0
<NET-INCOME> 30,960
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.57
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains restated summary financial information extracted from
Silgan Holdings Inc. Form 10-Q for the nine months ended September 30, 1997 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
RESTATED
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,727
<SECURITIES> 0
<RECEIVABLES> 251,893
<ALLOWANCES> 0
<INVENTORY> 216,859
<CURRENT-ASSETS> 485,026
<PP&E> 522,468
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,134,117
<CURRENT-LIABILITIES> 321,721
<BONDS> 805,206
0
0
<COMMON> 189
<OTHER-SE> (70,592)
<TOTAL-LIABILITY-AND-EQUITY> 1,134,117
<SALES> 1,150,304
<TOTAL-REVENUES> 1,150,304
<CGS> 981,650
<TOTAL-COSTS> 981,650
<OTHER-EXPENSES> 22,522
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,988
<INCOME-PRETAX> 38,923
<INCOME-TAX> (7,980)
<INCOME-CONTINUING> 46,903
<DISCONTINUED> 0
<EXTRAORDINARY> (16,382)
<CHANGES> 0
<NET-INCOME> 27,297
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 1.40
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains restated summary financial information extracted from
Silgan Holdings Inc. Form 10-Q for the six months ended June 30, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
RESTATED
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 11,394
<SECURITIES> 0
<RECEIVABLES> 147,708
<ALLOWANCES> 0
<INVENTORY> 307,826
<CURRENT-ASSETS> 477,278
<PP&E> 525,804
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,132,905
<CURRENT-LIABILITIES> 329,063
<BONDS> 808,799
0
0
<COMMON> 189
<OTHER-SE> (85,060)
<TOTAL-LIABILITY-AND-EQUITY> 1,132,905
<SALES> 657,011
<TOTAL-REVENUES> 657,011
<CGS> 557,330
<TOTAL-COSTS> 557,330
<OTHER-EXPENSES> 22,522
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,104
<INCOME-PRETAX> 6,827
<INCOME-TAX> (18,250)
<INCOME-CONTINUING> 25,077
<DISCONTINUED> 0
<EXTRAORDINARY> (9,024)
<CHANGES> 0
<NET-INCOME> 12,829
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.67
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains restated summary financial information extracted from
Silgan Holdings Inc. Form 10-Q for the three months ended March 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
RESTATED
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,860
<SECURITIES> 0
<RECEIVABLES> 104,730
<ALLOWANCES> 0
<INVENTORY> 248,679
<CURRENT-ASSETS> 370,315
<PP&E> 496,197
<DEPRECIATION> 0
<TOTAL-ASSETS> 989,410
<CURRENT-LIABILITIES> 315,151
<BONDS> 634,843
54,748
0
<COMMON> 189
<OTHER-SE> (89,339)
<TOTAL-LIABILITY-AND-EQUITY> 989,410
<SALES> 299,427
<TOTAL-REVENUES> 299,427
<CGS> 256,708
<TOTAL-COSTS> 256,708
<OTHER-EXPENSES> 22,522
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,965
<INCOME-PRETAX> (13,803)
<INCOME-TAX> (24,850)
<INCOME-CONTINUING> 11,047
<DISCONTINUED> 0
<EXTRAORDINARY> (742)
<CHANGES> 0
<NET-INCOME> 8,550
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.46
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains restated summary financial information extracted from
Silgan Holdings Inc. Form 10-K for the year ended December 31, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
RESTATED
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,017
<SECURITIES> 0
<RECEIVABLES> 105,481
<ALLOWANCES> 4,045
<INVENTORY> 195,981
<CURRENT-ASSETS> 305,837
<PP&E> 757,351
<DEPRECIATION> 257,570
<TOTAL-ASSETS> 913,546
<CURRENT-LIABILITIES> 247,827
<BONDS> 721,583
0
52,998
<COMMON> 152
<OTHER-SE> (191,132)
<TOTAL-LIABILITY-AND-EQUITY> 913,546
<SALES> 1,405,742
<TOTAL-REVENUES> 1,405,742
<CGS> 1,221,941
<TOTAL-COSTS> 1,221,941
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,353
<INCOME-PRETAX> 33,937
<INCOME-TAX> 3,300
<INCOME-CONTINUING> 30,637
<DISCONTINUED> 0
<EXTRAORDINARY> (2,222)
<CHANGES> 0
<NET-INCOME> 25,409
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 1.37
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains restated summary financial information extracted from
Silgan Holdings Inc. Form 10-Q for the nine months ended September 30, 1996 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
RESTATED
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,874
<SECURITIES> 0
<RECEIVABLES> 218,883
<ALLOWANCES> 0
<INVENTORY> 190,690
<CURRENT-ASSETS> 422,248
<PP&E> 479,505
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,006,179
<CURRENT-LIABILITIES> 330,913
<BONDS> 732,288
51,307
0
<COMMON> 152
<OTHER-SE> (188,771)
<TOTAL-LIABILITY-AND-EQUITY> 1,006,179
<SALES> 1,080,486
<TOTAL-REVENUES> 1,080,486
<CGS> 934,807
<TOTAL-COSTS> 934,807
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,286
<INCOME-PRETAX> 33,392
<INCOME-TAX> 3,000
<INCOME-CONTINUING> 30,392
<DISCONTINUED> 0
<EXTRAORDINARY> (2,089)
<CHANGES> 0
<NET-INCOME> 26,996
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.39
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains restated summary financial information extracted from
Silgan Holdings Inc. Form 10-Q for the six months ended June 30, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
RESTATED
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,859
<SECURITIES> 0
<RECEIVABLES> 125,724
<ALLOWANCES> 0
<INVENTORY> 286,448
<CURRENT-ASSETS> 419,722
<PP&E> 482,723
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,004,606
<CURRENT-LIABILITIES> 346,833
<BONDS> 745,550
0
0
<COMMON> 195
<OTHER-SE> (170,331)
<TOTAL-LIABILITY-AND-EQUITY> 1,004,606
<SALES> 606,922
<TOTAL-REVENUES> 606,922
<CGS> 520,284
<TOTAL-COSTS> 520,284
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,861
<INCOME-PRETAX> 12,168
<INCOME-TAX> 2,500
<INCOME-CONTINUING> 9,668
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,668
<EPS-PRIMARY> .50
<EPS-DILUTED> .47
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains restated summary financial information extracted from
Silgan Holdings Inc. Form 10-Q for the three months ended March 31, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
RESTATED
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,991
<SECURITIES> 0
<RECEIVABLES> 98,177
<ALLOWANCES> 0
<INVENTORY> 254,092
<CURRENT-ASSETS> 369,217
<PP&E> 491,177
<DEPRECIATION> 0
<TOTAL-ASSETS> 942,754
<CURRENT-LIABILITIES> 288,872
<BONDS> 757,501
0
0
<COMMON> 195
<OTHER-SE> (179,856)
<TOTAL-LIABILITY-AND-EQUITY> 942,754
<SALES> 279,860
<TOTAL-REVENUES> 279,860
<CGS> 242,207
<TOTAL-COSTS> 242,207
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,573
<INCOME-PRETAX> 1,143
<INCOME-TAX> 1,000
<INCOME-CONTINUING> 143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 143
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains restated summary financial information extracted from
Silgan Holdings Inc. Form 10-K for the year ended December 31, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
RESTATED
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,102
<SECURITIES> 0
<RECEIVABLES> 114,772
<ALLOWANCES> (4,843)
<INVENTORY> 210,471
<CURRENT-ASSETS> 328,303
<PP&E> 693,505
<DEPRECIATION> (206,204)
<TOTAL-ASSETS> 900,046
<CURRENT-LIABILITIES> 254,055
<BONDS> 750,873
0
0
<COMMON> 195
<OTHER-SE> (179,999)
<TOTAL-LIABILITY-AND-EQUITY> 900,046
<SALES> 1,101,905
<TOTAL-REVENUES> 1,101,905
<CGS> 970,491
<TOTAL-COSTS> 970,491
<OTHER-EXPENSES> 14,745
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,710
<INCOME-PRETAX> (10,889)
<INCOME-TAX> 5,100
<INCOME-CONTINUING> (15,989)
<DISCONTINUED> 0
<EXTRAORDINARY> (5,817)
<CHANGES> 0
<NET-INCOME> (21,806)
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12
</TABLE>
