-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sr02d8ecsbyqlWXbxWZYqYKwyT09cFJGr/YTq2XeDPFUTLvbXEs/T3CEpSgHxwWx Dv3fv462OGLxeeVLlsaN2Q== 0000849869-97-000016.txt : 19971110 0000849869-97-000016.hdr.sgml : 19971110 ACCESSION NUMBER: 0000849869-97-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971107 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILGAN HOLDINGS INC CENTRAL INDEX KEY: 0000849869 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED STRUCTURAL METAL PRODUCTS [3440] IRS NUMBER: 061269834 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22117 FILM NUMBER: 97710319 BUSINESS ADDRESS: STREET 1: 4 LANDMARK SQ CITY: STAMFORD STATE: CT ZIP: 06901 BUSINESS PHONE: 2039757110 10-Q 1 Page 1 of 25 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarter Ended September 30, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange Act of 1934 for the Period ____________ to ____________. Commission file number 000-22117 SILGAN HOLDINGS INC. (Exact name of registrant as specified in its charter) Delaware 06-1269834 (State of Incorporation) (I.R.S. Employer Identification Number) 4 Landmark Square Stamford, Connecticut 06901 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (203) 975-7110 Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] As of November 6, 1997, the number of shares outstanding of the registrant's common stock, $0.01 par value, was 18,862,834. Page 2 of 25 Part I. Financial Information Item 1. Financial Statements SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) Sept. 30, Sept. 30, Dec. 31, 1997 1996 1996 ---- ---- ---- ASSETS (unaudited) (unaudited) (audited) Current assets: Cash and cash equivalents .............. $ 7,727 $ 2,874 $ 1,017 Accounts receivable, net ............... 251,893 218,883 101,436 Inventories ............................ 216,859 190,690 195,981 Prepaid expenses and other current assets ...................... 8,547 9,801 7,403 ----------- ----------- --------- Total current assets ............... 485,026 422,248 305,837 Property, plant and equipment, net ....... 522,468 479,505 499,781 Other non-current assets ................. 126,623 104,426 107,928 ----------- ----------- --------- $ 1,134,117 $ 1,006,179 $ 913,546 =========== =========== ========= LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable ................. $ 57,781 $ 86,609 $ 122,623 Accrued payroll and related costs ...... 41,866 40,811 41,799 Accrued interest payable ............... 15,743 16,543 9,522 Accrued expenses and other current liabilities ......................... 44,681 32,496 35,456 Bank revolving loans ................... 160,650 126,000 27,800 Current portion of long-term debt ...... 1,000 28,454 38,427 ----------- ----------- --------- Total current liabilities .......... 321,721 330,913 275,627 Long-term debt ........................... 805,206 732,288 693,783 Deferred income taxes .................... -- 6,836 6,836 Other long-term liabilities .............. 77,593 73,454 74,508 Cumulative exchangeable redeemable preferred stock ....................... -- 51,307 52,998 Deficiency in stockholders' equity: Common stock ........................... 189 152 152 Additional paid-in capital ............. 110,935 18,466 18,466 Accumulated deficit .................... (181,527) (207,237) (208,824) ----------- ----------- --------- Total deficiency in stockholders' equity ............. (70,403) (188,619) (190,206) ----------- ----------- --------- $ 1,134,117 $ 1,006,179 $ 913,546 =========== =========== ========= See accompanying notes. Page 3 of 25 SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in thousands, except per share amounts) Three Months Ended ------------------ Sept. 30, Sept. 30, 1997 1996 ---- ---- Net sales .............................................. $493,293 $473,563 Cost of goods sold ..................................... 424,320 414,523 -------- -------- Gross profit ...................................... 68,973 59,040 Selling, general and administrative expenses ........... 15,993 15,391 -------- -------- Income from operations ............................ 52,980 43,649 Interest expense and other related financing costs ..... 20,884 22,425 -------- -------- Income before income taxes ........................ 32,096 21,224 Income tax provision ................................... 10,270 500 -------- -------- Income before extraordinary charge ................ 21,826 20,724 Extraordinary charge relating to early extinguishment of debt, net of taxes ................ 7,358 2,089 -------- -------- Net income before preferred stock dividend requirement ........................... 14,468 18,635 Preferred stock dividend requirement ................... -- 1,307 -------- -------- Net income available to common stockholders ....... $ 14,468 $ 17,328 ======== ======== Income per share: Income before extraordinary charge ................ $ 1.06 $ 1.16 Extraordinary charge .............................. (0.36) (0.12) Preferred stock dividend requirement .............. -- (0.07) ------ ------ Net income per common share ................... $ 0.70 $ 0.97 ====== ====== Weighted average number of common and common equivalent shares outstanding (in 000's) ...... 20,613 17,832 See accompanying notes. Page 4 of 25 SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in thousands, except per share amounts) Nine Months Ended ----------------- Sept. 30, Sept. 30, 1997 1996 ---- ---- Net sales .......................................... $ 1,150,304 $1,080,486 Cost of goods sold ................................. 981,650 934,807 ----------- ---------- Gross profit .................................. 168,654 145,679 Selling, general and administrative expenses ....... 45,221 44,001 Non-cash stock option charge ....................... 22,522 -- ----------- ---------- Income from operations ........................ 100,911 101,678 Interest expense and other related financing costs . 61,988 68,286 ----------- ---------- Income before income taxes .................... 38,923 33,392 Income tax provision (benefit) ..................... (7,980) 3,000 ----------- ---------- Income before extraordinary charge ............ 46,903 30,392 Extraordinary charge relating to early extinguishment of debt, net of taxes ............ 16,382 2,089 ----------- ---------- Net income before preferred stock dividend requirement ....................... 30,521 28,303 Preferred stock dividend requirement ............... 3,224 1,307 ----------- ---------- Net income available to common stockholders ... $ 27,297 $ 26,996 =========== ========== Income per share: Income before extraordinary charge ............ $ 2.35 $ 1.52 Extraordinary charge .......................... (0.82) (0.10) Preferred stock dividend requirement .......... (0.16) (0.07) ------ ------ Net income per common share ............... $ 1.37 $ 1.35 ====== ====== Weighted average number of common and common equivalent shares outstanding (in 000's) .. 19,961 19,985 See accompanying notes. Page 5 of 25 SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended ----------------- Sept. 30, Sept. 30, 1997 1996 ---- ---- Cash flows from operating activities: Net income ..................................... $ 30,521 $ 28,303 Adjustments to reconcile net income to net cash used by operating activities: Depreciation ............................... 45,017 40,009 Amortization ............................... 4,557 6,803 Accretion of discount on discount debentures -- 12,077 Extraordinary charge relating to early extinguishment of debt, net of taxes .... 16,382 2,089 Non-cash stock option charge ............... 22,522 -- Changes in assets and liabilities: (Increase) in accounts receivable ..... (145,299) (106,461) (Increase) decrease in inventories .... (11,847) 21,238 (Decrease) in trade accounts payable .. (67,550) (51,586) Other, net ............................ (5,439) (461) ----------- --------- Total adjustments ................. (141,657) (76,292) ----------- --------- Net cash used by operating activities ...... (111,136) (47,989) ----------- --------- Cash flows from investing activities: Acquisition of businesses ...................... (42,561) (13,121) Capital expenditures ........................... (41,226) (38,624) Proceeds from sale of assets ................... 4,485 1,521 ----------- --------- Net cash used in investing activities ...... (79,302) (50,224) ----------- --------- Cash flows from financing activities: Borrowings under revolving loans ............... 1,009,150 710,550 Repayments under revolving loans ............... (876,300) (591,650) Proceeds from issuance of common stock ......... 67,220 -- Proceeds from issuance of long-term debt ....... 825,000 125,000 Proceeds from issuance of preferred stock ...... -- 50,000 Repayment of long-term debt .................... (815,141) (155,348) Repurchase of common stock ..................... -- (35,811) Debt issuance costs ............................ (12,781) (3,756) ----------- --------- Net cash provided by financing activities .. 197,148 98,985 ----------- --------- Net increase in cash and cash equivalents ........... 6,710 772 Cash and cash equivalents at beginning of year ...... 1,017 2,102 ----------- --------- Cash and cash equivalents at end of period .......... $ 7,727 $ 2,874 =========== ========= Supplementary data: Cash interest payments ......................... $ 53,232 $ 41,112 Cash income tax payments ....................... 1,209 568 Preferred stock issued in lieu of cash dividend 3,208 1,307 See accompanying notes. Page 6 of 25 SILGAN HOLDINGS INC. CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS'EQUITY (Dollars in thousands, except per share data) Common Stock Total ------------ Additional Accum- deficiency in Par paid-in ulated stockholders' Shares Value capital deficit equity ------ ----- ------- ------- ------ Balance at December 31, 1996 ...... 885,000 $ 9 $ 18,609 $(208,824) $(190,206) Adjustment for 17.133145 for 1 stock split .... 14,277,833 143 (143) -- -- ---------- ---- -------- --------- --------- As restated at December 31, 1996 for stock split .......... 15,162,833 152 18,466 (208,824) (190,206) Issuance of common stock . 3,700,001 37 67,183 -- 67,220 Conversion of subsidiary stock options to parent company .............. -- -- 25,286 -- 25,286 Net income ............... -- -- -- 27,297 27,297 ---------- ---- -------- --------- --------- Balance at September 30, 1997 ..... 18,862,834 $189 $110,935 $(181,527) $ (70,403) ========== ==== ======== ========= ========= See accompanying notes. Page 7 of 25 SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 1997 and 1996 and for the three and nine months then ended is unaudited) 1. Basis of Presentation The accompanying condensed unaudited consolidated financial statements of Silgan Holdings Inc. ("Holdings" or the "Company") have been prepared in accordance with Rule 10-01 of Regulation S-X and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. All adjustments of a normal recurring nature have been made, including appropriate estimates for reserves and provisions which are normally determined or settled at year end. In the opinion of the Company, the accompanying financial statements contain all adjustments (consisting solely of a normal recurring nature) necessary to present fairly Holdings' financial position as of September 30, 1997 and 1996 and December 31, 1996, Holdings' results of operations for the three and nine months ended September 30, 1997 and 1996, the statements of cash flows for the nine months ended September 30, 1997 and 1996, and the statement of deficiency in stockholders' equity for the nine months ended September 30, 1997. While the Company believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these financial statements be read in conjunction with the Company's financial statements and notes included in its Annual Report on Form 10-K for the year ended December 31, 1996. As of June 26, 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 Silgan Corporation, the Merger had no effect on the consolidated financial results of Holdings. Certain reclassifications have been made to prior year's financial statements to conform with current year presentation. 2. Initial Public Offering On February 20, 1997 the Company completed an initial public offering ("Offering") of 5,175,000 shares of common stock, par value $.01 per share (the "Common Stock"), of the Company. In connection with the Offering, the Company 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. Page 8 of 25 SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 1997 and 1996 and for the three and nine months then ended is unaudited) 2. Initial Public Offering (continued) 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. All prior period share and per share data have been adjusted to give effect to the amendment to Holdings' Restated Certificate of Incorporation and the stock split. Per share amounts have been computed based upon the weighted average number of common and common equivalent shares outstanding for each of the periods presented. 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. The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF") 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 or BTNY. Net proceeds received from the Offering of $67.2 million were used by the Company to prepay bank term loans and to redeem the Company's remaining outstanding 13 1/4% Senior Discount Debentures due 2002 ("13 1/4% Discount Debentures"). In connection with the early redemption of the 13 1/4% Discount Debentures, the Company incurred a pre-tax extraordinary charge of $0.8 million for the write-off of unamortized deferred financing costs. 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 Holdings' stock option plan. Under Accounting Principles Board Statement ("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. 3. Earnings per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128 ("SFAS No. 128"), Earnings per Share, which supersedes APB No. 15, Earnings per Share. Page 9 of 25 SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 1997 and 1996 and for the three and nine months then ended is unaudited) 3. Earnings per Share (continued) The new pronouncement is effective for the December 31, 1997 financial statements and earlier adoption is not permitted. Upon adoption, the Company will be required to change its current method of computing earnings per share and to restate all prior periods. Under SFAS No. 128, primary earnings per share will be replaced with basic earnings per share. Basic earnings per share will exclude the dilutive effect of stock options. In addition, the new pronouncement requires that diluted earnings per share, formerly known as fully diluted earnings per share, be calculated using the treasury stock method applying the average market price for the period rather than the higher of the average market price or the ending market price. For the three and nine months ended September 30, 1997, the Company's basic earnings per share would have been $0.07 and $0.13, respectively, greater than its primary earnings per share. The impact of SFAS No. 128 on the calculation of the Company's fully diluted earnings per share for these quarters is not material. The weighted average number of common and common equivalent shares increased in the third quarter of 1997 as compared to the third quarter of 1996 due to the issuance of 3,700,001 shares of Common Stock in February 1997, offset by the July 1996 repurchase of 4,283,287 shares of Class B Common Stock (adjusted for the stock split). 4. Acquisitions Effective April 1, 1997, the Company acquired the aluminum roll-on closure business ("Roll-on Closure") from Alcoa Closure Systems International, Inc. and the North American plastic container business ("Rexam Plastics") from Rexam plc and Rexam Plastics Inc. In 1996, Roll-on Closure and Rexam Plastics had combined net sales of approximately $80.0 million. The acquisitions of Roll-on Closure and Rexam Plastics were accounted for using the purchase method of accounting, and accordingly the results of operations have been included in the consolidated financial statements of the Company from April 1, 1997. The aggregate purchase price for the acquisitions of $42.6 million was funded through incremental bank term loan borrowings of $75.0 million (a portion of which was used to repay revolving loan borrowings), and consisted of assets acquired of $56.5 million, including goodwill of $6.6 million, and liabilities assumed of $13.9 million. Goodwill is being amortized over a forty-year period. Page 10 of 25 SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 1997 and 1996 and for the three and nine months then ended is unaudited) 4. Acquisitions (continued) The preliminary purchase price was allocated to inventory, machinery and equipment, and net working capital acquired based upon estimated fair market values as of the date of acquisition. 5. Inventories Inventories consisted of the following (in thousands): Sept. 30, Sept. 30, Dec. 31, 1997 1996 1996 ---- ---- ---- Raw materials and supplies ........... $ 30,837 $ 28,666 $ 30,126 Work-in-process ...................... 43,599 41,049 38,015 Finished goods ....................... 132,307 111,229 116,498 Spare parts and other ................ 8,410 8,054 7,771 -------- -------- -------- 215,153 188,998 192,410 Adjustment to value inventory at cost on the LIFO Method ......... 1,706 1,692 3,571 -------- -------- -------- $216,859 $190,690 $195,981 ======== ======== ======== 6. Refinancings Credit Agreement On July 29, 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"). In connection with such refinancing, the Company incurred a pre-tax extraordinary charge of $11.9 million for the write-off of unamortized deferred financing costs. The Credit Agreement provides 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. Page 11 of 25 SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 1997 and 1996 and for the three and nine months then ended is unaudited) 6. Refinancings (continued) Credit Agreement (continued) Principal on the A Term Loans and B Term Loans is required to be repaid in installments during each of the years set forth below (in millions): Year A Term Loan B Term Loan ---------- ----------- ----------- 1997 $ - $ 1.0 1998 25.0 2.0 1999 30.0 2.0 2000 35.0 2.0 2001 40.0 2.0 2002 55.0 2.0 2003 65.0 2.0 2004 - 2.0 2005 - 185.0 ------ ------ Total $250.0 $200.0 ====== ====== Generally, Revolving Loans may be borrowed, repaid, and reborrowed from time to time until their maturity. 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, (ii) 1/2 of 1.0% in excess of the Federal Funds Rate, or (iii) Banker's 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 is reset quarterly for the period beginning January 1, 1998 based upon the Leverage Ratio, as defined in the Credit Agreement. 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. Page 12 of 25 SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 1997 and 1996 and for the three and nine months then ended is unaudited) 6. Refinancings (continued) Credit Agreement (continued) 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, as well as require the Company to meet specified financial covenants. 9.0% Senior Subordinated Debentures On June 9, 1997, the Company issued $300.0 million aggregate principal amount of 9.0% Senior Subordinated Debentures (the "Debentures") due June 1, 2009. The Debentures represent general unsecured obligations of the Company, subordinate in right of payment to obligations of the Company under the Credit Agreement and effectively subordinate to all obligations of the subsidiaries of the Company. Interest on the Debentures is payable semi-annually in cash on each June 1 and December 1 beginning on December 1, 1997. The 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% Page 13 of 25 SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 1997 and 1996 and for the three and nine months then ended is unaudited) 6. Refinancings (continued) 9.0% Senior Subordinated Debentures (continued) In addition, at any time on or prior to June 1, 2000, up to 35% of the aggregate principal amount of the 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 the 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 Debentures), the Company is required to make an offer to purchase the Debentures at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest to the date of purchase. The Indenture relating to the Debentures contains covenants which are generally less restrictive than those under the Credit Agreement. These covenants, among other things, limit the ability of the Company and its subsidiaries to incur indebtedness, make certain payments (including dividends) with respect to their capital stock, make prepayments of subordinated indebtedness, make loans or investments, enter into transactions with affiliates, engage in mergers or consolidations, grant liens, and, with respect to the Company's subsidiaries, issue stock and provide guarantees of indebtedness, as well as direct the application of the proceeds from certain asset sales. Net cash proceeds received from the issuance of the Debentures were approximately $291.5 million, of which the Company used $148.6 million to repay bank term loans under its previous credit agreement and $142.9 to redeem the 11 3/4% Senior Subordinated Notes due 2002 (the "11 3/4% Notes"). As a result of the early repayment of debt, the Company incurred pre-tax extraordinary charges of $5.5 million for the write-off of unamortized deferred financing costs and $7.9 million for premiums paid upon the redemption of the 11 3/4% Notes. Page 14 of 25 SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 1997 and 1996 and for the three and nine months then ended is unaudited) 6. Refinancings (continued) 13 1/4% Subordinated Debentures (continued) On June 13, 1997, the Company exchanged its outstanding 13 1/4% Cumulative Exchangeable Redeemable Preferred Stock ("Preferred Stock") with a liquidation value of $56.2 million for a like principal amount of 13 1/4% Subordinated Debentures due 2006 (the "Exchange Debentures"). The Exchange Debentures are general obligations of the Company, subordinate in right of payment to all Senior Indebtedness (as defined in the Indenture relating to the Exchange Debentures), including indebtedness under the Company's Credit Agreement and the Debentures, and effectively subordinate to all obligations of the subsidiaries of the Company. The Exchange Debentures bear interest at the dividend rate of the Preferred Stock. Interest is payable semi-annually in cash or, on or prior to July 15, 2000, at the option of the Company, in additional Exchange 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 Exchange Debentures due July 15, 1997 was paid in cash. The Exchange 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 Exchange 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. Page 15 of 25 SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 1997 and 1996 and for the three and nine months then ended is unaudited) 6. Refinancings (continued) 13 1/4% Subordinated Debentures (continued) Upon the occurrence of a Change of Control (as defined in the Indenture relating to the Exchange Debentures), the Company is required to make an offer to purchase all of the Exchange Debentures at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest to the date of purchase. The Indenture relating to the Exchange Debentures contains covenants which are generally comparable to or less restrictive than those under the Indenture relating to the Debentures. 7. Income Taxes During the first quarter of 1997, the Company determined that it was more likely than not that a portion of 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 $23.2 million by releasing the valuation allowance. The Company provides for income taxes during interim reporting periods based upon an estimate of its annual effective tax rate. This estimate reflects the benefits of net operating loss carryforwards and adjustments to the valuation allowance related to the realizability of the Company's deferred tax assets. Page 16 of 25 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q regarding the Company's financial results and condition, and plans and strategy for its business and related financing includes forward looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve uncertainties and risks, including, but not limited to, factors described in this Quarterly Report on Form 10-Q and in the Company's other filings with the Securities and Exchange Commission. The Company's actual financial results and condition, and plans and strategy for its business and related financing may differ from such forward looking statements. RESULTS OF OPERATIONS - THREE MONTHS Summary unaudited results of operations for the Company's two business segments, metal and plastic containers, for the three months ended September 30, 1997 and 1996 are provided below. Three Months Ended Sept. 30, ---------------------------- 1997 1996 ---- ---- (In millions) Net sales: Metal containers and specialty .............. $ 425.1 $ 417.6 Plastic containers .......................... 68.2 56.0 ------ ------ Consolidated ............................ $ 493.3 $ 473.6 ====== ====== Operating profit: Metal containers and specialty .............. $ 46.0 $ 39.6 Plastic containers .......................... 7.5 4.2 Corporate expense ........................... (0.5) (0.2) ------ ------ Consolidated ............................ $ 53.0 $ 43.6 ====== ====== Three Months Ended September 30, 1997 Compared with Three Months ended September 30, 1996 Net Sales. Consolidated net sales increased $19.7 million, or 4.2%, to $493.3 million for the three months ended September 30, 1997, as compared to net sales of $473.6 million for the same three months in the prior year. This increase resulted from sales generated by the recent acquisitions and an increase in unit sales by the plastic container business, offset in part by lower sales from the existing metal container business. Page 17 of 25 Net sales for the metal container business (including net sales of its specialty business of $33.6 million) were $425.1 million for the three months ended September 30, 1997, an increase of $7.5 million, or 1.8%, from net sales of $417.6 million for the same period in 1996. Sales of metal cans of $391.5 million for the three months ended September 30, 1997 decreased $2.2 million from net sales of metal cans of $393.7 million for the same period in 1996. Lower net sales principally resulted from a decline in unit sales to vegetable pack customers offset by additional sales generated by Finger Lakes Packaging Company Inc. ("Finger Lakes"), acquired by the Company in October 1996. Sales of specialty items included in the metal container segment increased $9.7 million to $33.6 million during the three months ended September 30, 1997, as compared to $23.9 million for the same period in 1996. The increase was the result of additional revenue generated by Roll-on Closure, acquired by the Company on April 1, 1997. Net sales for the plastic container business of $68.2 million during the three months ended September 30, 1997 increased $12.2 million, or 21.8%, from net sales of $56.0 million for the same period in 1996. This increase in net sales resulted from both additional sales generated by Rexam Plastics which was acquired on April 1, 1997 and higher unit sales to existing customers. Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales was 86.0% ($424.3 million) for the three months ended September 30, 1997, a decrease of 1.5 percentage points as compared to 87.5% ($414.5 million) for the same period in 1996. The decrease in cost of goods sold as a percentage of net sales was attributable to improved operating efficiencies achieved as a result of higher production volumes, plant rationalizations and capital investment benefits. Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of consolidated net sales remained constant for the three months ended September 30, 1997 and 1996 at 3.2% ($16.0 million and $15.4 million, respectively). Income from Operations. Income from operations as a percentage of consolidated net sales improved to 10.7% ($53.0 million) for the three months ended September 30, 1997, as compared with 9.2% ($43.6 million) for the same period in the prior year, as a result of the aforementioned improvement in gross margins. The $9.4 million increase in income from operations was primarily attributable to the improved operating performance of both the metal and plastic container businesses along with the contribution from the Company's recent acquisitions. Income from operations as a percentage of net sales for the metal container business improved to 10.8% ($46.0 million) for the three months ended September 30, 1997, from 9.5% ($39.6 million) for the same period in the prior year. This increase in income from operations as a percentage of net sales primarily related to the continued realization of operating efficiencies from plant rationalizations, capital investment benefits, and lower indirect manufacturing costs. Page 18 of 25 Income from operations as a percentage of net sales for the plastic container business increased 3.5 percentage points to 11.0% ($7.5 million) for the three months ended September 30, 1997, as compared to 7.5% ($4.2 million) for the same period in 1996. The improved operating performance of the plastic container business was principally attributable to manufacturing efficiencies realized as a result of both increased sales and production volumes and capital investment benefits. Interest Expense. Interest expense for the three months ended September 30, 1997 declined $1.5 million to $20.9 million from $22.4 million for the same period in 1996. During the third quarter of 1997, the Company completed the refinancing of its bank debt and its 11 3/4% Notes with lower cost indebtedness. Since the third quarter of 1996, the Company has also refinanced the remaining outstanding balance of the 13 1/4% Discount Debentures with a portion of the proceeds from the initial public offering. The benefit of these refinancings resulted in a reduction in interest expense which has been offset in part by additional bank debt used to fund the acquisitions of Finger Lakes, Roll-on Closure and Rexam Plastics and the issuance of the Exchange Debentures in exchange for the Preferred Stock. Income Taxes. In 1997 the Company determined that it was more likely than not that a portion of the future tax benefits arising from its net operating loss carryforwards would be realizable and, as a result, recorded a provision for income taxes (including both current and deferred taxes) in the third quarter based upon an estimate of the Company's annual effective income tax rate. For the third quarter of 1997 the Company reflected an effective tax rate of 32% ($10.3 million). In the third quarter of 1996, prior to the recognition of the benefit of the net operating loss carryforward, the Company recorded income taxes based upon only federal, state and foreign cash taxes currently payable. In 1996 the Company realized cash tax savings from the deduction of accreted interest on the retired 13 1/4% Discount Debentures. As a result, the effective tax rate for the third quarter of 1996 was 2% ($0.5 million). Net Income. As a result of the items discussed above, net income of $21.8 million (before the extraordinary charge of $7.4 million) increased $1.1 million for the three months ended September 30, 1997, as compared to net income of $20.7 million (before the extraordinary charge of $2.1 million and preferred stock dividend requirement of $1.3 million for the third quarter of 1996). During the third quarter of 1997, the Company incurred an extraordinary charge of $7.4 million, net of tax, for the write-off of unamortized deferred financing costs associated with the refinancing of its previous bank credit agreement. In the third quarter of 1996, the Company incurred an extraordinary charge of $2.1 million, net of taxes, for the write-off of unamortized deferred financing costs associated with the refinancing of the 13 1/4% Discount Debentures. Page 19 of 25 RESULTS OF OPERATIONS - NINE MONTHS Summary unaudited results of operations for the Company's two business segments, metal and plastic containers, for the nine months ended September 30, 1997 and 1996 are provided below. Nine Months Ended Sept. 30, --------------------------- 1997 1996 ---- ---- (In millions) Net sales: Metal containers and specialty ............ $ 955.4 $ 917.8 Plastic containers ........................ 194.9 162.7 -------- -------- Consolidated .......................... $ 1,150.3 $ 1,080.5 ======== ======== Operating profit: Metal containers and specialty ............ $ 101.9 $ 89.4 Plastic containers ........................ 22.7 13.1 Non-cash stock option charge .............. (22.5) -- Corporate expense ......................... (1.2) (0.8) -------- -------- Consolidated .......................... $ 100.9 $ 101.7 ======== ======== Nine Months Ended September 30, 1997 Compared with Nine Months ended September 30, 1996 Net Sales. Consolidated net sales increased $69.8 million, or 6.5%, to $1,150.3 million for the nine months ended September 30, 1997, as compared to net sales of $1,080.5 million for the same nine months in the prior year. This increase resulted primarily from net sales generated by the recently acquired businesses. Net sales for the metal container business (including net sales of its specialty business of $84.7 million) were $955.4 million for the nine months ended September 30, 1997, an increase of $37.6 million, or 4.1%, from net sales of $917.8 million for the same period in 1996. Sales of metal cans of $870.7 million for the nine months ended September 30, 1997 were $19.1 million, or 2.2%, greater than net sales of metal cans of $851.6 million for the same period in 1996. The increase resulted from sales generated by Finger Lakes, offset in part by slightly lower unit sales to existing customers. Sales of specialty items included in the metal container segment increased $18.5 million to $84.7 million during the nine months ended September 30, 1997, from $66.2 million in the same period in 1996. The increase related to sales realized from Roll-on Closure, offset in part by lower unit volume to existing customers. Page 20 of 25 Net sales for the plastic container business of $194.9 million during the nine months ended September 30, 1997 increased $32.2 million, or 19.8%, from net sales of $162.7 million for the same period in 1996. This increase in net sales resulted from significantly higher unit sales to existing customers and from sales generated by Rexam Plastics. Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales was 85.3% ($981.7 million) for the nine months ended September 30, 1997, a decrease of 1.2 percentage points as compared to 86.5% ($934.8 million) for the same period in 1996. The decrease in cost of goods sold as a percentage of net sales was primarily attributable to improved operating efficiencies achieved as a result of plant rationalizations, capital investment benefits and higher production volumes. Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of consolidated net sales decreased 0.2 percentage points to 3.9% ($45.2 million) for the nine months ended September 30, 1997, versus 4.1% ($44.0 million) for the nine months ended September 30, 1996. The decrease in selling, general and administrative expenses as a percentage of net sales principally related to the increase in net sales revenue generated from the recent acquisitions without a commensurate increase in selling, general and administrative costs. Income from Operations. Before consideration of the non-cash stock option charge, income from operations as a percentage of consolidated net sales for the nine months ended September 30, 1997 would have increased 1.3 percentage points to 10.7% ($123.4 million), as compared to 9.4% ($101.7 million) for the same period in the prior year. Including the non-cash stock option charge of $22.5 million incurred in 1997, income from operations as a percentage of consolidated net sales was 8.8% ($100.9 million) for the nine months ended September 30, 1997. In conjunction with the Offering, stock options issued under the stock option plans of Holdings' subsidiaries were converted to Holdings stock options. In accordance with generally accepted accounting principles, the Company recorded a charge of $22.5 million at the time of the Offering 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 to 10.7% ($101.9 million) for the nine months ended September 30, 1997, from 9.7% ($89.4 million) for the same period in the prior year. As compared to the prior year the increase in income from operations as a percentage of net sales principally resulted from improved operating efficiencies realized from plant rationalizations and capital investment benefits, and from a normalized production schedule in 1997 as compared to the negative impact of a planned inventory reduction in the first half of 1996. Page 21 of 25 Income from operations as a percentage of net sales for the plastic container business improved to 11.6% ($22.7 million) for the nine months ended September 30, 1997, as compared to 8.1% ($13.1 million) for the same period in 1996. The improved operating performance of the plastic container business was 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 for the nine months ended September 30, 1997 declined $6.3 million, from $68.3 million for the same period in 1996 to $62.0 million. Since 1996, the Company has refinanced principally all of its senior and subordinated indebtedness with lower cost indebtedness and equity. The decline in interest expense reflects the benefit of these refinancings, offset in part by interest expense incurred on additional borrowings used to finance the purchases of Finger Lakes, Roll-on Closure and Rexam Plastics. Income Taxes. The provision for income taxes for the first nine months of 1997 was based upon an estimate of the Company's annual effective tax rate and includes the benefit of the recognition of a portion of the net operating loss carryforward. In accordance with SFAS No. 109, the Company determined that the future tax benefits arising from its net operating loss carryforward would be realized due to the Company's continued improvement in earnings and increased probability of future taxable income. Accordingly, the Company reduced its valuation allowance and recognized an income tax benefit of $23.2 million during the first quarter of 1997. For the nine months ended September 30, 1996, prior to the recognition of the benefits of net operating loss carryforward, the Company recorded its income tax provision based only on federal, state and foreign taxes currently payable and reflected the benefit of cash tax savings realized from the deduction of accreted interest on the retired 13 1/4% Discount Debentures. Net Income. Before consideration of the extraordinary charges and preferred stock dividend requirement, net income for the nine months ended September 30, 1997 was $46.9 million, an increase of $16.5 million over net income of $30.4 million for the nine months ended September 30, 1996. During 1997, the Company incurred extraordinary charges of $16.4 million (net of tax of $9.7 million) for the write-off of $18.2 million of unamortized deferred financing costs related to the early redemption of the 13 1/4% Discount Debentures, the 11 3/4% Notes, and the refinancing of the bank credit agreement and for premiums paid of $7.9 million upon the redemption of the 11 3/4% Notes. During 1996, the Company incurred an extraordinary charge of $2.1 million (net of tax of $0.1 million) for the write-off of unamortized deferred financing costs related to the early redemption of a portion of the 13 1/4% Discount Debentures. Page 22 of 25 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 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, in 1997 the Company refinanced principally all of its outstanding indebtedness. As a result, the Company expects that its interest expense, including amortization of debt financing costs, for the year ended December 31, 1997 will decline approximately $9.0 million as compared to 1996. In the third quarter of 1997, the Company completed the refinancing of the remaining amounts outstanding under its previous credit facility by entering into a new $1.0 billion senior secured credit facility. The Credit Agreement lowers interest rates, increases the amount of borrowings available to the Company, extends maturities and provides more flexibility to make acquisitions, pay dividends, repurchase stock, and refinance existing indebtedness. Borrowings under the Credit Agreement currently bear interest at 150 basis points less than the rates under the previous credit facility. The interest rate for A Term Loans and Revolving Loans will initially be prime or LIBOR plus 1.0% and for the B Term Loans 50 basis points higher. The interest rates will be reset quarterly for the period beginning January 1, 1998 based upon the Company's Leverage Ratio, as defined. During 1997 in implementing its refinancing strategy the Company used proceeds of $67.2 million from the Offering, proceeds of $300.0 million from the issuance of the Debentures, along with borrowings of $75.0 million under the previous credit agreement and $450.0 million of term loans under the new Credit Agreement to repay $59.0 million principal amount of 13 1/4% Discount Debentures, refinance $613.3 million of term loans under the previous credit agreement, redeem the 11 3/4% Notes for $142.9 million and pay fees and expenses related thereto of $12.8 million. Through September 30, 1997, the Company has used excess proceeds of $64.2 million realized from the refinancings referred to above and borrowings of $132.9 million of revolving loans to fund cash used by operations of $111.1 million for the Company's seasonal working capital needs, capital expenditures of $36.7 million (net of asset sales), the acquisitions of Roll-on Closure and Rexam Plastics for $42.6 million, and an increase in cash balances of $6.7 million. Page 23 of 25 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. Approximately $180.0 million of revolving loans under the Company's bank facility, including letters of credit, were utilized at its peak in early August 1997. The Credit Agreement increases the Company's current borrowing capacity for revolving loans by approximately $325.0 million. The Company intends to use these available funds to pursue its growth strategy through strategic acquisitions in the metal food can, plastic bottle and closure businesses, and by acquiring businesses in complementary areas of the North American consumer goods packaging market. In addition, the Company may use this additional borrowing capacity for other purposes, including operating needs. Revolving loan borrowings utilizing this additional borrowing capacity will be due and payable on December 31, 2003. In addition to its operating cash needs, the Company believes its cash requirements over the next several years will consist primarily of (i) annual capital expenditures of $55.0 to $65.0 million, (ii) scheduled annual principal amortization payments of bank term loans under the Credit Agreement of $27.0 million, $32.0 million, $37.0 million and $42.0 million beginning in December 1998, (iii) expenditures expected to range between $20.0 million to $30.0 million over the next three years associated with plant rationalizations, employee severance and administrative workforce reductions, other plant exit costs and employee relocation costs relating to AN Can, (iv) the Company's interest requirements, including interest on revolving loans under the Credit Agreement, the principal amount of which will vary depending upon seasonal requirements, bank term loans under the Credit Agreement, most of which bear fluctuating rates of interest, the Exchange Debentures (for which the Company intends to make future interest payments in cash) and the Debentures, and (v) payments of approximately $5.0 million (based on the Company's current estimate of its 1997 net income) for federal and state tax liabilities in 1997. Beginning in 1998, the Company expects to incur federal tax liability at the alternative minimum tax rates then in effect. Management believes that cash generated by operations and funds received from revolving loan borrowings under the Company's Credit Agreement will be sufficient to meet the Company's expected operating needs, planned capital expenditures, debt service and tax obligations for the foreseeable future. The Company is in compliance with all financial and operating covenants contained in the instruments and agreements governing its indebtedness and believes that it will continue to be in compliance with all such covenants during 1997. Page 24 of 25 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Description - -------------- ----------- 11 Computation of Earnings Per Common Share 27 Financial Data Schedule. (b) Reports on Form 8-K On August 8, 1997, Silgan Holdings Inc. filed a Current Report on Form 8-K regarding the new Credit Agreement. Page 25 of 25 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized. SILGAN HOLDINGS INC. Dated: November 7, 1997 /s/Harley Rankin, Jr. - ------------------------ --------------------- Harley Rankin, Jr. Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Dated: November 7, 1997 /s/Harold J. Rodriguez, Jr. - ------------------------ --------------------------- Harold J. Rodriguez, Jr. Vice President and Controller (Chief Accounting Officer) EX-11 2 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 SILGAN HOLDINGS INC. COMPUTATION OF EARNINGS PER COMMON SHARE (Dollars in thousands, except per share data) Quarter Quarter Ended Ended 9/30/97 9/30/96 ------- ------- Net income available to common stockholders ........ $ 14,468 $ 17,328 =========== =========== Weighted average common shares outstanding ......... 18,862,834 16,209,859 Incremental shares issuable pursuant to employee stock options (if dilutive) ...................... 1,749,940 1,621,951 ----------- ----------- Total shares ....................................... 20,612,774 17,831,810 =========== =========== Net income per common share ........................ $ 0.70 $ 0.97 =========== =========== Nine Months Nine Months Ended Ended 9/30/97 9/30/96 ------- ------- Net income available to common stockholders ........ $ 27,297 $ 26,996 =========== =========== Weighted average common shares outstanding ......... 18,246,167 18,363,531 Incremental shares issuable pursuant to employee stock options (if dilutive) ...................... 1,714,721 1,621,951 ----------- ----------- Total shares ....................................... 19,960,888 19,985,482 =========== =========== Net income per common share ........................ $ 1.37 $ 1.35 =========== =========== EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains 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. 1,000 9-MOS DEC-31-1997 SEP-30-1997 7,727 0 251,893 0 216,859 485,026 522,468 0 1,134,117 321,721 805,206 0 0 189 (70,592) 1,134,117 1,150,304 1,150,304 981,650 981,650 22,522 0 61,988 38,923 (7,980) 46,903 0 (16,382) 0 27,297 1.37 1.37
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