Item 1. Business
General
Silgan Holdings Inc. ("Holdings," and, together with its subsidiaries, the "Company") is a Delaware corporation organized in April 1989, that, in June 1989, through certain mergers acquired all of the outstanding common stock of Silgan Corporation ("Silgan"). Holdings' principal asset is all of the outstanding capital stock of Silgan. Prior to June 30, 1989, Holdings did not engage in any business. Silgan is a Delaware corporation formed in August 1987 as a holding company to acquire interests in various packaging manufacturers. See "Company History" below.
The Company is a major manufacturer of a broad range of steel and aluminum containers for human and pet food. The Company also manufactures custom designed plastic containers for health, personal care, food, beverage, pharmaceutical and household chemical products in North America. In 1994, the Company had net sales of $861.4 million.
Management believes that the Company is the sixth largest can producer and one of the largest food can producers in North America, as well as one of the largest producers in North America of custom designed plastic containers for health and personal care products. Silgan has grown rapidly since its inception in 1987 primarily as a result of acquisitions, but also through internally generated growth. In December 1993, Silgan's wholly owned subsidiary, Silgan Containers Corporation ("Containers"), acquired the U.S. metal container business of Del Monte Corporation ("Del Monte"). See "Company History" below.
The Company's strategy is to continue to increase its share of the North American packaging market through acquisitions, as well as investment in internally generated opportunities. The Company intends to focus particular attention on those rigid metal and plastic container segments where operating and market synergies are likely.
The Company is also engaged in the manufacture and sales of paper containers primarily used by processors and packagers in the food industry.
Metal Container Business
Management estimates that Containers is currently the sixth largest can producer and one of the largest manufacturers of metal food containers in North America. In 1994 Containers sold approximately 21% of all metal food containers used in North America. Although the food can industry in North America is relatively mature in terms of unit sales growth, Containers has realized compound annual unit sales growth in excess of 12% since 1987. Types of containers manufactured include those for vegetables, fruit, pet food, tomato based products, evaporated milk and infant formula. Containers has agreements with Nestle Food Company ("Nestle") pursuant to which Containers supplies substantially all of its metal container requirements, and an agreement with Del Monte pursuant to which Containers supplies substantially all of its metal container requirements. In addition to Nestle and Del Monte, Containers has multi-year supply arrangements with other customers. The Company estimates that in excess of 80% of Containers' sales in 1995 will be pursuant to such supply arrangements. See "Sales and Marketing" below.
Containers has focused on growth through acquisition followed by investment in the acquired assets to achieve a low cost position in the food can segment. Since its acquisition in 1987 of the metal container manufacturing division of Nestle ("Nestle Can"), Containers has invested approximately $99 million in its
acquired manufacturing facilities and has spent approximately $67 million for the acquisition of additional can manufacturing assets. As a result of these efforts and management's focus on quality and service, Containers has more than doubled its overall share of the food can segment in terms of unit sales, from a share of approximately 10% in 1987 to a share of approximately 21% in 1994.
Plastic Container Business
Management believes that Silgan's wholly owned subsidiary, Silgan Plastics Corporation ("Plastics"), is one of the leading manufacturers of custom designed, high density polyethylene ("HDPE") and polyethylene terephthalate ("PET") containers sold in North America for health and personal care products. HDPE containers manufactured by Plastics include personal care containers for shampoos, conditioners, hand creams, lotions and cosmetics, household chemical containers for scouring cleaners, specialty cleaning agents and lawn and garden chemicals and pharmaceutical containers for tablets, laxatives and eye cleaning solutions. Plastics manufactures PET custom medicinal and health care product containers (such as mouthwash and cough syrup bottles), custom food product containers (such as salad dressing and instant coffee bottles), and custom non-carbonated soft drink beverage product containers (such as juice bottles) as well as water and liquor bottles. See "Products" below.
Plastics has grown primarily by strategic acquisition. From a sales base of $89 million in 1987, Plastics' sales have grown at a compound rate of 13% to $204 million in 1994. Plastics emphasizes value-added design, fabrication and decoration of custom containers. Plastics is aggressively pursuing opportunities in custom designed PET and HDPE containers for which the market has been growing principally due to consumer preferences for plastic containers. The Company believes it has equipment and technical expertise to take advantage of these growth segments.
Products
Metal Container Business
The Company 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. Types of containers manufactured include those for vegetables, fruit, pet food, tomato based products, evaporated milk and infant formula. The Company does not produce cans for use in the beer or soft drink industries. Cans are produced in a variety of sizes, ranging in diameter from 2-1/8 inches to 6-3/16 inches and in height from 1-7/16 inches to 7 inches.
Plastic Container Business
The Company is also engaged in the manufacture and sale of plastic containers primarily used for health, personal care, food, beverage (other than carbonated soft drinks), pharmaceutical and household chemical products. Plastic containers are produced by converting thermoplastic materials into containers ranging in size from 1/2 to 96 ounces. Emphasis is on value-added design, fabrication and decoration of the containers. The Company designs and manufactures a wide range of containers for health and personal care products such as shampoos, hand creams, lotions and mouthwash. 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. Food and beverage containers are designed and manufactured (generally to unique specifications for a specific customer) to contain products such as salad dressing, coffee, juice, water and liquor. Household chemical containers are designed and manufactured to contain polishes, specialty cleaning agents, lawn and garden chemicals and liquid household products. Pharmaceutical containers are designed and manufactured (either in a generic or in a custom-made form) to contain tablets, solutions and similar products for the ethical and over-the-counter markets.
Manufacturing and Production
As is the practice in the industry, most of the Company's can and plastic container customers provide it with 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. At December 31, 1994, Containers had in excess of 80% of its projected 1995 sales under multi-year contracts. Plastics has written purchase orders or contracts for containers with the majority of its customers. In general, these purchase orders and contracts are for containers made from proprietary molds and are for a duration of 2 to 5 years. Both Containers and Plastics schedule their production to meet their customers' requirements. Because the production time for the Company's products is short, the backlog of customer orders in relation to sales is not significant.
Metal Container Business
The Company uses three basic processes 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. The Company uses a welding process for the side seam of three-piece cans to achieve a superior seal. High integrity of the side seam is further 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. The Company's manufacturing operations include cutting, coating, lithographing, fabricating, assembling and packaging finished cans.
Plastic Container Business
The Company utilizes two basic processes to produce plastic bottles. In the blow extrusion 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 PCR resins because of the relatively low capital costs required to convert its equipment from the use of virgin resins.
The Company's decorating methods for its plastic products include (i) silk screen decoration, which enables the application of images in multiple colors to the bottle, (ii) post-molded decoration, which uses paper labels applied to the bottles with glue, (iii) pressure-sensitive decoration, which applies a plastic film label to a post-molded bottle by pressing against the bottle and (iv) in-mold labeling, which applies a plastic film label to the bottle during the blowing process. The Company has state-of-the-art decorating equipment, including, management believes, one of the largest sophisticated decorating facilities in the Midwest, which allows the Company to custom-design new products with short lead times.
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 discussed above, 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, the inability to do so in the future could have a significant impact on the Company's operating margins.
Metal Container Business
The Company uses tin plated and chromium plated steel, aluminum, copper wire, organic coatings, lining compound and inks in the manufacture and decoration of its metal can products. The Company's steel and other 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 would 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 prices which would allow it to remain competitive. The Company has a contract to obtain the majority of its requirements for aluminum from a supplier at prices that are subject to adjustment based on formulas and market conditions. Such contract expires in 1996. The Company believes that it would be able to satisfy its requirements for aluminum from other suppliers in the event of the loss of its current supplier. The Company believes that it will be able to purchase sufficient quantities of steel and aluminum can sheet for the foreseeable future.
Plastic Container Business
The raw materials used by the Company for the manufacture of plastic containers are primarily resins in pellet form such as HDPE-PCR and virgin HDPE and PET and, to a lesser extent, low density polyethylene, extrudable polyester terephthalate, polyethylene terephthalate glycol, polypropylene, polyvinyl chloride and medium density polyethylene. The Company's resin requirements are acquired through multi-year arrangements for specific quantities of resins with several major suppliers of resins. The price the Company pays for resin raw materials is not fixed and is subject to market pricing. Currently, demand for PET exceeds supplies of PET. However, the Company has long-term arrangements for PET with a number of producers and, as a result, believes that it has adequate supply commitments for PET to satisfy its current business and obligations to customers. The Company anticipates that there will be new capacity for PET beginning in mid-to-late 1995 and into 1996. The Company believes that the successful start-up of such announced new capacity will bring supply of and demand for PET into better balance in 1996. However, delays in the availability of such new capacity could have an adverse impact on the Company's plans for growth in its plastic containers business in 1996. The Company believes that it will be able to purchase sufficient quantities of other resins (including HDPE) for the foreseeable future.
Sales and Marketing
The Company markets its products in most areas of North America primarily by a direct sales force and through a large network of distributors. Because of the high cost of transporting empty containers, the Company generally sells to customers within a 300 mile radius of its manufacturing plants. See also "Competition" below.
In 1994, 1993 and 1992, the Company's metal container business accounted for approximately 76%, 71% and 69%, respectively, of the Company's total sales, and the Company's plastic container business accounted for approximately 24%, 29% and 31%, respectively, of the Company's total sales. In 1994, 1993
and 1992, approximately 26%, 34% and 37%, respectively, of the Company's sales were to Nestle and in 1994 approximately 21% of the Company's sales were to Del Monte. No other customer accounted for more than 10% of the Company's total sales during such years.
Metal Container Business
Management believes that the Company is currently the sixth largest can producer and one of the largest food can producers in North America. In 1994, Containers sold approximately 21% of all metal food containers in North America. Containers has entered into multi-year supply arrangements with many of its customers, including Nestle and Del Monte. The Company estimates that in excess of 80% of its metal container sales in 1995 will be pursuant to such arrangements.
In 1987, the Company, through Containers, and Nestle entered into supply agreements (the "Nestle Supply Agreements") pursuant to which Containers has agreed to supply Nestle with, and Nestle has agreed to purchase from Containers, substantially all of the can requirements of the former Carnation operations of Nestle for a period of ten years, subject to certain conditions. In 1994, the term of three of the Nestle Supply Agreements (representing approximately 70% of the Company's 1994 unit sales to Nestle) was extended through 2001.
The Nestle Supply Agreements provide for certain prices and specify that such prices will be increased or decreased based upon cost change formulas set forth therein. The Nestle Supply Agreements contain provisions that require Containers to maintain certain levels of product quality, service and delivery in order to retain the Nestle business. In the event of a breach of a particular Nestle Supply Agreement, Nestle may terminate such Nestle Supply Agreement but the other Nestle Supply Agreements would remain in effect.
Under the three Nestle Supply Agreements which were recently extended through 2001, Nestle has the right to receive competitive bids under narrowly limited circumstances, and Containers has the right to match any such bids. Under the other six Nestle Supply Agreements, if Nestle receives a competitive bid for any product supplied thereunder, Containers has the right to match such bid with respect to the type and volume of cans over the period of the competitive bid. In either case, in the event that Containers chooses not to match a competitive bid, Nestle may purchase cans from the competitive bidder at the competitive bid price for the term of the bid. Since 1990, under the original Nestle Supply Agreements Nestle has requested that Containers match certain bids received from other potential suppliers. Containers agreed to match such bids (which resulted in minor margin impact) and continues to supply substantially all of the can requirements of the former Carnation operations of Nestle. In the future, there can be no assurance that Containers will choose to match any such bids or that, even if matched, such bids will be at a level sufficient to allow Containers to maintain margins currently received. Until any such bids are received by Nestle and submitted to the Company, the Company cannot predict the effect, if any, of such bids upon its financial condition or results of operations. Significant reductions of margins or the loss of significant unit volume under the Nestle Supply Agreements could, however, have a material adverse effect on the Company.
On December 21, 1993, Containers and Del Monte entered into a supply agreement (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, 100% of Del Monte's annual requirements for metal containers to be used for the packaging of food and beverages in the United States and not less than 65% of Del Monte's annual requirements of metal containers for the packaging of food and beverages at Del Monte's Irapuato, Mexico facility, subject to certain limited exceptions.
The DM Supply Agreement provides for certain prices for all metal containers supplied by Containers to Del Monte thereunder and specifies that such prices will be increased or decreased based upon specified cost change formulas.
Under the DM Supply Agreement, after five years, Del Monte may, under certain circumstances, receive proposals with terms more favorable than those under the DM Supply Agreement from independent commercial can manufacturers for the supply of containers of a type and quality similar to the metal containers that Containers furnishes to Del Monte, which proposals shall be for the remainder of the term of the DM Supply Agreement and for 100% of the annual volume of containers at one or more of Del Monte's canneries. Containers has the right to retain the business subject to the terms and conditions of such competitive proposal.
The sale of metal containers to vegetable pack customers 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 vegetable pack customers beyond the end of the harvest 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. 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 customers in these product segments include Helene Curtis Inc., Procter & Gamble Co., Avon Products, Inc., Jergens Inc., Warner-Lambert Company and Pfizer Inc. The Company also manufactures plastic containers for food and beverage products, such as salad dressings, mustard, mayonnaise, coffee and premium bottled water. Customers in these product segments include Procter & Gamble Co., Kraft General Foods Inc. and General Mills, Inc.
As part of its marketing strategy, the Company has arrangements to sell some of its plastic products to distributors, which in turn sell such products primarily to small-size regional customers. Plastic containers sold to distributors are manufactured by using generic molds with decoration, color and neck finishes added to meet the distributors' individual requirements. The distributors' warehouses and their sales personnel enable the Company to market and inventory a wide range of such products to a variety of customers.
Plastics has written purchase orders or contracts for containers with the majority of its customers. In general, these purchase orders and contracts are for containers made from proprietary molds and are for a duration of 2 to 5 years.
Competition
The packaging industry is highly competitive. The Company competes in this industry with other packaging manufacturers as well as fillers, food processors and packers who manufacture containers for their own use and for sale to others. The Company attempts to compete effectively through the quality of its products, pricing and its ability to meet customer requirements for delivery, performance and technical assistance. The Company also pursues market niches such as the manufacture of easy-open ends and special feature cans, which may differentiate the Company's products from its competitors' products.
Because of the high cost of transporting empty containers, the Company generally sells to customers within a 300 mile radius of its manufacturing plants. Strategically located existing plants give the Company
an advantage over competitors from other areas, and the Company would be disadvantaged by the loss or relocation of a major customer. As of February 28, 1995, the Company operated 34 manufacturing facilities, geographically dispersed throughout the United States and Canada, that serve the distribution needs of its customers.
Metal Container Business
Management believes that the metal food containers segment is mature. Some self-manufacturers have sold or closed can manufacturing operations and entered into long-term supply agreements with the new owners or with commercial can manufacturers. Of the commercial metal can manufacturers, American National Can Company, Crown Cork and Seal Company, Inc. and Ball Corporation are the Company's most significant competitors.
Although metal containers face continued competition from plastic, paper and composite containers, management believes that metal containers are superior to plastic and paper containers in applications where the contents are processed at high temperatures, where the contents are packaged in large or institutional quantities (14 to 64 oz.) or where long-term storage of the product is desirable. Such applications include canned vegetables, fruits, meats and pet foods. These sectors are the principal areas for which the Company manufactures its products.
Plastic Container Business
Plastics competes with a number of large national producers of health, personal care, food, beverage, pharmaceutical and household chemical plastic container products, including Owens-Brockway Plastics Products, a division of Owens-Illinois, Inc., Constar Plastics Inc., a subsidiary of Crown Cork and Seal Company, Inc., Johnson Controls Inc., Continental Plastics Inc. and Plastipak Packaging Inc. In order to compete effectively in the constantly changing market for plastic bottles, the Company must remain current with, and to some extent anticipate innovations in, resin composition and applications and changes in the manufacturing of plastic bottles.
Employees
As of December 31, 1994, the Company employed approximately 670 salaried and 3,330 hourly employees on a full time basis. Approximately 63% of the Company's hourly plant employees are represented by one of the following unions: (i) Sheet Metal Workers International Association, (ii) International Association of Machinists and Aerospace Workers, (iii) The International Brotherhood of Teamsters, (iv) The United Steel Workers of America, (v) Industrial, Technical & Professional Employees Union, (vi) The Glass, Molders, Pottery, Plastics and Allied Workers International Union, (vii) The United Rubber, Cork and Plastic Workers of America and (viii) Oil, Chemical & Atomic Workers International Union.
The Company's labor contracts expire at various times between 1995 and 1999. Contracts covering approximately 22% of the Company's hourly employees presently expire during 1995. The Company expects no significant changes in its relations with these unions. Management believes that its relationship with its employees is good.
Regulation
The Company is subject to federal, state and local environmental laws and regulations. In general, these laws and regulations limit the discharge of pollutants into the air and water and establish standards for the treatment, storage, and disposal of solid and hazardous waste. The Company believes that all of its facilities
are either in compliance in all material respects with all presently applicable environmental laws and regulations or are operating in accordance with appropriate variances, delayed compliance orders or similar arrangements.
In addition to costs associated with regulatory compliance, the Company may be held liable for alleged environmental damage associated with the past disposal of hazardous substances. Generators of hazardous substances disposed of at sites at which environmental problems are alleged to exist, as well as the owners of those sites and certain other classes of persons, are subject to claims under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") regardless of fault or the legality of the original disposal. Liability under CERCLA and under many similar state statutes is joint and several, and, therefore, any responsible party may be held liable for the entire cleanup cost at a particular site. Other state statutes may impose proportionate rather than joint and several liability. The federal Environmental Protection Agency or a state agency may also issue orders requiring responsible parties to undertake removal or remedial actions at certain sites. Pursuant to the agreement relating to the acquisition in 1987 of Nestle Can, the Company has assumed liability for the past waste disposal practices of Nestle Can. The Company has received notice that it is one of many potentially responsible parties (or similarly designated parties) for cleanup of hazardous waste at a site to which it (or its predecessor Nestle Can) is alleged to have shipped such waste and at which the Company's share of cleanup costs could exceed $100,000. See "Legal Proceedings."
Pursuant to the agreement relating to the acquisition in 1987 from Monsanto Company ("Monsanto") of substantially all of the business and related fixed assets and inventory of Monsanto's plastic containers business ("Monsanto Plastic Containers"), Monsanto has agreed to indemnify the Company for substantially all of the costs attributable to the past waste disposal practices of Monsanto Plastic Containers. In connection with the acquisition from Del Monte of substantially all of the fixed assets and working capital of its container manufacturing business in the United States ("DM Can"), Del Monte has agreed to indemnify the Company for a period of three years for substantially all of the costs attributable to any noncompliance by DM Can with any environmental law prior to the closing, including all of the costs attributable to the past waste disposal practices of DM Can.
The Company is subject to the Occupational Safety and Health Act and other laws regulating noise exposure levels in the production areas of its plants.
Management does not believe that any of the matters described above individually or in the aggregate will have a material effect on the Company's capital expenditures, earnings, financial position or competitive position.
Research and Technology
Metal Container Business
The Company's research, product development and product engineering efforts relating to its metal containers are conducted at its research center at Oconomowoc, Wisconsin and at other plant locations.
Plastic Container Business
The Company's research, product development and product engineering efforts with respect to its plastic containers are currently performed by its manufacturing and engineering personnel located at its Norcross, Georgia facility. In addition to its own research and development staff, the Company participates in arrangements with four non-U.S. plastic container manufacturers that call for an exchange of technology among these manufacturers. Pursuant to these arrangements, the Company licenses its blow molding technology to such manufacturers.
Company History
Silgan was organized in August 1987 as a holding company to acquire interests in various packaging manufacturers. On August 31, 1987, Silgan, through Containers, purchased from Nestle the business and related assets and working capital of Nestle Can for approximately $151 million in cash and the assumption of substantially all of the liabilities of Nestle Can. Also on August 31, 1987, Silgan, through Plastics, purchased from Monsanto substantially all the business and related fixed assets and inventory of Monsanto Plastic Containers for approximately $43 million in cash and the assumption of certain liabilities of Monsanto Plastic Containers. To finance these acquisitions and to pay related fees and expenses, Silgan issued common stock, preferred stock and senior subordinated notes and borrowed amounts under its credit agreement.
During 1988, Containers acquired from The Dial Corporation its metal container manufacturing division known as the Fort Madison Can Company ("Fort Madison"), and from Nestle its carton manufacturing division known as the Seaboard Carton Division ("Seaboard").
During 1989, Plastics acquired Aim Packaging, Inc. ("Aim") and Fortune Plastics, Inc. ("Fortune") in the United States, and Express Plastic Containers Limited ("Express") in Canada, to improve its competitive position in the HDPE container segment.
Holdings was organized in April 1989 as a holding company to acquire all of the outstanding common stock of Silgan. On June 30, 1989, Silgan Acquisition, Inc. ("Acquisition"), a wholly owned subsidiary of Holdings, merged with and into Silgan, and Silgan became a wholly owned subsidiary of Holdings (the "1989 Mergers").
In 1989, the Company acquired the business and related assets of Amoco Container Company ("Amoco Container"). In November 1991, Plastics sold its nonstrategic PET carbonated beverage bottle business (the "PET Beverage Sale"), exiting that commodity business.
In 1992, Holdings and Silgan refinanced a substantial portion of their indebtedness (the "Refinancing") pursuant to a plan to improve their financial flexibility. The Refinancing included the following: (i) the public offering in June 1992 by Silgan of $135 million principal amount of its 11-3/4% Senior Subordinated Notes due 2002 (the "11-3/4% Notes"); (ii) the private placement in June 1992 by Silgan of $50 million principal amount of its Senior Secured Floating Rate Notes due 1997 (the "Secured Notes") with certain institutional investors; (iii) the public offering in June 1992 by Holdings of its 13-1/4% Senior Discount Debentures due 2002 (the "Discount Debentures") for an aggregate amount of proceeds of $165.4 million; (iv) the amendment of the Amended and Restated Credit Agreement, dated as of August 31, 1987, as amended (the "Amended and Restated Credit Agreement") among Silgan and certain of its subsidiaries, the lenders named therein and Bankers Trust Company ("Bankers Trust"), as agent, followed by the prepayment in June 1992 by Silgan of $30 million of term loans and the borrowing by Silgan of approximately $17 million of working capital loans under the Amended and Restated Credit Agreement; (v) the redemption (the "14% Notes Redemption") in August 1992 of all of the outstanding 14% Senior Subordinated Notes due 1997 of Silgan; (vi) the redemption (the "Preferred Stock Redemption") in August 1992 of all of the outstanding 15% Cumulative Exchangeable Redeemable Preferred Stock of Silgan; (vii) the repayment by Silgan of a $25.2 million advance from Holdings and the payment to Holdings of a $15.7 million dividend; (viii) the payment by Holdings in cash of $15.3 million of interest payable on July 1, 1992 on its Senior Reset Debentures due 2004 (the "Holdings Reset Debentures"); (ix) the redemption by Holdings in July 1992 of all of the outstanding Holdings Reset Debentures (the "Holdings Reset Debentures Redemption;" together with the "14% Notes Redemption" and the "Preferred Stock Redemption" being sometimes herein referred to as the "Redemptions"); and (x) the payment of transaction fees and expenses relating to the Refinancing. Additionally, in June 1992 Aim, Fortune and certain other subsidiaries of Plastics were merged into Plastics.
On December 21, 1993, Containers acquired from Del Monte substantially all of the fixed assets and certain working capital of Del Monte's container manufacturing business in the United States for a purchase price of approximately $73 million and the assumption of certain limited liabilities. To finance the acquisition, (i) Silgan, Containers and Plastics (collectively, the "Borrowers") entered into a credit agreement, dated as of December 21, 1993 (the "Credit Agreement") with the lenders from time to time party thereto (the "Banks"), Bank of America National Trust and Savings Association ("Bank of America"), as Co-Agent, and Bankers Trust, as Agent, and (ii) Holdings issued and sold to Mellon Bank, N.A., as trustee for First Plaza Group Trust, a group trust established under the laws of the State of New York ("First Plaza"), 250,000 shares of its Class B Common Stock, par value $.01 per share (the "Holdings Stock"), for a purchase price of $60.00 per share and an aggregate purchase price of $15 million. Additionally, Silgan, Containers and Plastics borrowed term and working capital loans under the Credit Agreement to refinance and repay in full all amounts owing under the Amended and Restated Credit Agreement.
Item 2.
Item 2. Properties
Holdings' and Silgan's principal executive offices are located at 4 Landmark Square, Stamford, Connecticut 06901. The administrative headquarters and principal places of business for Containers and Plastics are located at 21800 Oxnard Street, Woodland Hills, California 91367 and 14515 N. Outer Forty, Chesterfield, Missouri 63017, respectively. All of these offices are leased by the Company.
The Company owns and leases properties for use in the ordinary course of business. Such properties consist primarily of 21 metal container manufacturing facilities, 12 plastic container manufacturing facilities and one paper container manufacturing facility. Seventeen of these facilities are owned and 17 are leased by the Company. The leases expire at various times through 2020. Some of these leases provide renewal options.
Below is a list of the Company's operating facilities, including attached warehouses, as of February 28, 1995 for its metal container business:
Approximate Location (square feet) Building Area -------- ------------- Kingsburgh, CA 37,783 (leased) Modesto, CA 35,585 (leased) Oakland, CA 173,780 (leased) Riverbank, CA 167,000 Stockton, CA 243,500 Stockton, CA 71,785 (leased) Broadview, IL 85,000 Rochelle, IL 175,000 Ft. Dodge, IA 49,500 (leased) Fort Madison, IA 66,000 Mt. Vernon, MO 100,000 St. Joseph, MO 173,725 Hillsboro, OR 47,000 Cambridge Springs, PA 55,000 Crystal City, TX 26,045 (leased) Smithfield, UT 105,000 Toppenish, WA 98,000 Menomonee Falls, WI 116,000 Menomonie, WI 60,000 (leased) Oconomowoc, WI 105,200 Plover, WI 44,495 (leased) Waupun, WI 212,000
Below is a list of the Company's operating facilities, including attached warehouses, as of February 28, 1995 for its plastic container business:
Approximate Building Area Location (square feet) -------- ------------- Anaheim, CA 127,000 (leased) Deep River, CT 140,000 Monroe, GA 117,000 Norcross, GA 59,000 (leased) Ligonier, IN 388,000 (leased) Seymour, IN 406,000 Franklin, KY 122,000 (leased) Louisville, KY 30,000 (leased) Port Clinton, OH 336,000 (leased) Langhorne, PA 156,000 (leased) Mississauga, Ontario 80,000 (leased) Mississauga, Ontario 60,000 (leased)
The Company owns and leases certain other warehouse facilities that are detached from its manufacturing facilities. In addition, the Company owns two other properties that it is not currently using and intends to sell. All of the Company's facilities are subject to liens in favor of the Banks.
The Company believes that its plants, warehouses and other facilities are in good operating condition, adequately maintained, and suitable to meet its present needs and future plans. The Company believes that it has sufficient capacity to satisfy the demand for its products in the foreseeable future. To the extent that the Company needs additional capacity, management believes that the Company can convert certain facilities to continuous operation or make the appropriate capital expenditures to increase capacity.
Item 3.
Item 3. Legal Proceedings
Complaints and Appraisal Petition Arising Out of the 1989 Mergers. Contemporaneous with the merger of Silgan into a subsidiary of Holdings in June 1989, certain holders of 1,050,000 shares of Silgan Class B common stock filed two actions in the Court of Chancery of the State of Delaware (the "Chancery Court") alleging that Silgan and certain affiliates, officers and directors breached fiduciary duties in implementing the 1989 Mergers. One of the actions was voluntarily dismissed without prejudice of the right to reinstate the action upon the conclusion of the appraisal proceeding described below. The second action was dismissed following settlement.
In 1989, the same Silgan stockholders also sought appraisal of the value of their shares of Class B common stock pursuant to Section 262 of the Delaware General Corporation Law. Following discovery, and settlement with the holders of 650,000 shares of Class B common stock, trial of the appraisal with respect to the remaining 400,000 shares of Class B common stock was conducted during the week of November 28, 1994. Post-trial briefing is scheduled to be completed on April 17, 1995.
Management believes that the consideration offered in the 1989 Mergers fully reflected the value of Silgan's Class B common stock and that the ultimate resolution of the appraisal proceeding will not have a material effect on the financial condition or results of operations of the Company.
Katell/Desert Complaint. On November 6, 1991, Gerald L. Katell ("Katell") and Desert Equities, Inc. ("Desert"), who are limited partners of The Morgan Stanley Leveraged Equity Fund, L.P. ("MSLEF"), filed a consolidated complaint in the Chancery Court (the "Katell/Desert Complaint") against a number of defendants, including Holdings and Silgan. (The plaintiffs previously had filed similar complaints in the New York Supreme Court, but the complaints were dismissed on the grounds that, in the interests of substantial justice, the actions should be heard in the courts of Delaware.) The plaintiffs allege, among other things, that the general partners of MSLEF breached duties owed to the limited partners by selling MSLEF's investment in Silgan at a grossly inadequate price. Holdings and Silgan are named as defendants in Court III of such amended complaint, which charges them with aiding and abetting breaches of fiduciary duty by MSLEF and the general partners. The plaintiffs claim damages in the amount of $4.67 million.
After full briefing and oral argument on a motion by defendants to dismiss the amended complaint filed by plaintiffs, the court dismissed all claims against Holdings and Silgan by memorandum opinion and order dated January 14, 1993. The court denied plaintiffs' motion to reargue the dismissal by order dated March 29, 1993. Because the Katell/Desert Complaint continues against certain other defendants, the plaintiffs' right to appeal the dismissal of the claims against Holdings and Silgan has not yet expired.
Management believes that there is no factual basis for the allegations and claims contained in the Katell/Desert Complaint. Management also believes that the lawsuit is without merit and intends to defend the lawsuit vigorously. In addition, management believes that the ultimate resolution of these matters and the appraisal proceedings will not have a material effect on the financial condition or results of operations of the Company.
Summer del Caribe. On October 17, 1989, the State of California, on behalf of the California Department of Health Services, filed a suit in the United States District Court for the Northern District of California against the owners and operators of a recycling facility operated by Summer del Caribe, Inc., Dale Summer and Lynn Rodich. The complaint also named 16 can manufacturing companies, including Silgan, that had sent small amounts of solder dross to the facility for recycling as "Responsible Parties" under the California Superfund statute. The Company is one of 16 defendant can companies participating in a steering committee. The steering committee has actively undertaken a feasibility study which was approved by the California Department of Toxic Substances in June 1994. The Company has agreed with the other can company defendants that its apportioned share of cleanup costs would be 6.72% of the total cost of cleanup. On March 14, 1995, the court approved the Consent Order settling the case and reaffirming the Company's 6.72% apportioned share of the cleanup costs. Although the total cost of cleanup has not yet been determined, the Company understands that the State of California's current worst case estimate of total cleanup costs for all parties is $5.5 million. The steering committee believes that the cost to remediate will be less than one-half the government's estimate. Accordingly, the Company believes its maximum exposure is not greater than 6.72% of $3 million, or approximately $202,000.
Other. Other than the actions mentioned above, there are no other pending legal proceedings, other than ordinary routine litigation incidental to the business of the Company, to which the Company is a party or to which any of its properties are subject.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5.
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.
Holdings has three classes of Common Stock, its Class A Common Stock, par value $.01 per share (the "Holdings Class A Stock"), its Class B Common Stock, par value $.01 per share (the "Holdings Class B Stock"), and its Class C Common Stock, par value $.01 per share (the "Holdings Class C Stock," together with the Holdings Class A Stock and the Holdings Class B Stock being herein referred to as the "Holdings Common Stock"). The Holdings Common Stock is not publicly traded on any market or exchange. There are two holders of record of the Holdings Class A Stock, two holders of record of the Holdings Class B Stock and one holder of record of the Holdings Class C Stock. See "Security Ownership of Certain Beneficial Owners and Management." Holdings has not paid any dividends on the Holdings Common Stock. Pursuant to the Amended and Restated Holdings Guaranty, dated as of December 21, 1993 made by Holdings in favor of the banks under the Credit Agreement, Bank of America, as Co-Agent and Bankers Trust, as Agent, and, unless certain financial tests are met, the indenture in respect of the Discount Debentures, Holdings is prohibited from paying any such dividends, and it does not intend to pay any such dividends in the foreseeable future.
Item 6.
Item 6. Selected Financial Data.
Set forth below are selected historical consolidated financial data of Holdings at December 31, 1994, 1993, 1992, 1991 and 1990 and for the periods then ended.
The selected historical consolidated financial data of Holdings at December 31, 1994 and 1993 and for each of the three years in the period ended December 31, 1994 (with the exception of employee data) were derived from the historical consolidated financial statements that were audited by Ernst & Young, independent auditors, whose report appears elsewhere in this Annual Report on Form 10-K. The selected historical consolidated financial data of Holdings at December 31, 1992, 1991 and 1990 and for the years ended December 31, 1991 and 1990 were derived from the historical audited consolidated financial statements for such periods.
The selected historical consolidated financial data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the audited financial statements and accompanying notes thereto included elsewhere in this Annual Report on Form 10-K.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The Company has focused on growth through acquisitions followed by investment in the acquired assets to gain production efficiencies and provide internal growth. Since Silgan's inception in 1987, the metal food can business, which had sales of $647 million in 1994, has realized compound growth of 12% through both internal growth and acquisitions of food can businesses, including the acquisition of Del Monte's captive can manufacturing operations in December 1993. The Company believes that its investments have enabled it to achieve a low cost position in the food can segment. To contain costs, the Company closed two smaller, higher cost metal container facilities in 1992 and another smaller facility in early 1995. The Company believes that the addition of the Del Monte facilities has created further cost reduction opportunities through plant rationalization as well as line reconfiguration and production scheduling. The Company expects that these cost reduction opportunities, which began to be implemented in late 1994, will be fully realized by 1997. To enhance its competitive position, the Company has maintained a stable customer base by entering into multi-year supply arrangements with a majority of its metal food can customers. Such arrangements generally provide for pricing changes in accordance with cost change formulas, thereby reducing the Company's exposure to the volatility of raw material prices but also limiting the Company's ability to increase prices. The arrangement to supply substantially all of Del Monte's metal container requirements in the United States under the DM Supply Agreement extends to 2002 and the arrangement to supply a majority of Nestle's domestic metal container requirements under the Nestle Supply Agreements extends through 2001. The Company estimates that in excess of 80% of its 1995 metal container sales will be subject to long term contracts.
The plastic container business has grown from a sales base of $89 million in 1987 to $204 million in 1994. In 1989, the Company made four acquisitions of plastic container manufacturers to improve its competitive position in the plastic container segment. As a result of these acquisitions, the Company implemented an aggressive consolidation and rationalization program during the period from 1991 through 1993, closing three manufacturing facilities and consolidating the technical and administrative functions of its plastic container business. The full benefit of the consolidation and rationalization program was not realized until 1994. The Company is aggressively pursuing opportunities in custom designed PET and HDPE containers for which the market has been growing principally due to consumer preferences for plastic containers. The Company believes it has equipment and technical expertise to take advantage of these growth segments.
Summary results for the Company's two business segments, metal and plastic containers, for the calendar years 1994, 1993 and 1992 are provided below. See Note 13 of the Notes to Consolidated Financial Statements which are included elsewhere in this Annual Report on Form 10-K.
This discussion should be read in conjunction with the selected financial data, the historical statements of operations and the notes thereto included elsewhere in this Annual Report on Form 10-K.
Results of Operations
Year Ended December 31, 1994 Compared with Year Ended December 31, 1993.
Consolidated net sales increased $215.9 million, or 33.4%, to $861.4 million for the year ended December 31, 1994, as compared to $645.5 million for the same period in 1993. Approximately 81% of this increase related to sales to Del Monte pursuant to the DM Supply Agreement entered into by the Company on December 21, 1993 to supply substantially all of Del Monte's metal container requirements for a period of ten years. The remainder of this increase resulted principally from greater unit sales in both the metal container and plastic container businesses.
Net sales for the metal container business (including paper containers) were $657.1 million for the year ended December 31, 1994, an increase of $197.9 million (43.1%) over net sales for the metal container business of $459.2 million for the same period in 1993. Sales of metal containers increased $201.6 million primarily as a result of the DM Supply Agreement, which represented $174.7 million of this increase, an increase of $20.1 million (9.1%) in sales to all other customers and an increase of $6.8 million (3.2%) in sales to Nestle. Sales of metal containers increased principally from higher unit volume and reflected continued growth in sales of pet food containers, as well as greater sales to vegetable pack customers due to a larger than normal pack in 1994. Sales of paper containers included in the metal container segment declined $3.7 million to $9.6 million during 1994.
Net sales for the plastic container business of $204.3 million during the year ended December 31, 1994 increased $18.0 million, or 9.7%, over net sales of plastic containers of $186.3 million for the same period in 1993. The increase in net sales of plastic containers was attributable to increased unit sales to new and existing customers, particularly PET customers, and to a lesser extent, higher average sales prices due to the pass through of increased resin costs.
Cost of goods sold was 86.8% of consolidated net sales ($747.5 million) for the year ended December 31, 1994, a decrease of 1.7 percentage points as compared to 88.5% of consolidated net sales ($571.2 million) for the same period in 1993. The decrease in cost of goods sold as a percentage of consolidated net sales principally resulted from synergistic benefits resulting from the acquisition of DM Can, lower per unit manufacturing costs realized on higher sales and production volumes and improved manufacturing efficiencies in the plastic container business resulting from larger cost reduction and productivity investments in 1993.
Selling, general and administrative expenses as a percentage of consolidated net sales declined 0.5 percentage points to 4.5% of consolidated net sales ($38.8 million) for the year ended December 31, 1994, as compared to 5.0% ($32.5 million) for the same period in 1993. The decrease as a percentage of consolidated net sales resulted principally from a modest increase in selling, general and administrative functions relative to the increased sales associated with the acquisition of DM Can, offset in part by an increase of $1.3 million in benefits accrued under stock appreciation rights agreements.
Income from operations as a percentage of consolidated net sales increased 0.3 percentage points to 6.8% ($58.4 million) for the year ended December 31, 1994, compared with 6.5% ($41.8 million) for the same period in 1993. During 1994 the Company incurred a charge of $16.7 million to write-down certain properties held for sale to their net realizable value and to reduce the carrying value of certain technologically obsolete and inoperable equipment. Without giving effect to this nonrecurring charge, income from operations in
would have been 8.7% ($75.1 million), an increase of 2.2 percentage points as compared to 1993, and was principally attributable to the aforementioned improvement in gross margin.
Income from operations as a percentage of net sales for the metal container business (without giving effect to the $7.2 million charge to write-down the carrying value of certain assets) increased 1.0% to 10.2% ($67.0 million) during 1994 as compared to 1993, principally due to operating synergies realized from the acquisition of DM Can and lower per unit manufacturing costs incurred as a result of higher production volumes in 1994. Income from operations as a percentage of net sales attributable to the plastic container business (without giving effect to the $9.5 million charge to write-down the carrying value of certain assets) in 1994 was 4.6% ($9.4 million), as compared to 0.3% ($0.6 million) in 1993. The improved operating performance of the plastic container business resulted from production efficiencies realized as a result of rationalizations and capital investment made in prior periods, and lower unit manufacturing costs.
Interest expense, including amortization of debt financing costs, increased by approximately $11.5 million to $65.8 million for the year ended December 31, 1994. This increase resulted from the incurrance of additional bank borrowings to finance the acquisition of DM Can, higher average bank borrowing rates, higher accretion of interest on the Discount Debentures and increased charges for the amortization of debt financing costs.
The provisions for income taxes for the years ended December 31, 1994 and 1993 were comprised of federal, state and foreign income taxes currently payable. The increase in the provision for income taxes in 1994 reflects an increase in federal income taxes currently payable. During 1994, the Company fully utilized its alternative minimum tax net operating loss carryovers and, therefore, was subject to tax at the rate of 20% on its alternative minimum taxable income. Without the benefit of its alternative minimum tax net operating loss carryovers, the Company expects that its provision for federal income taxes payable in 1995 will approximate $10 million and increase annually thereafter.
As a result of the items discussed above, the net loss for the year ended December 31, 1994 was $13.0 million, $1.4 million less than the loss before extraordinary charges and cumulative effect of changes in accounting principles for the year ended December 31, 1993 of $14.4 million.
In conjunction with the acquisition of DM Can in 1993, the Company incurred an extraordinary charge of $1.3 million for the early extinguishment of debt. Also, during 1993 the Company adopted SFAS No. 106, SFAS No. 109 and SFAS No. 112. The cumulative effect of these accounting changes, for years prior to 1993, was to decrease net income by $6.3 million. As a result of these charges, the net loss for 1993 was $22.0 million.
Year Ended December 31, 1993 Compared with Year Ended December 31, 1992.
Consolidated net sales increased $15.5 million, or 2.5%, to $645.5 million for the year ended December 31, 1993, as compared to $630.0 million for the same period in 1992. This increase resulted from greater unit sales by the metal container business offset by a decline in sales volume of the plastic container business.
Net sales for the metal container business (including paper containers) were $459.2 million for the year ended December 31, 1993, an increase of $21.8 million (5.0%) over net sales for the metal container business of $437.4 million for the same period in 1992. Sales of metal containers increased 4.7% in 1993, primarily as a result of higher unit sales to non-vegetable pack customers and to a lesser extent the purchase of an additional manufacturing facility in May 1993, offset in part, by a decline in sales to Nestle due to reduced demand and lower unit sales to vegetable pack customers due to the extremely wet weather in the summer of
1993. Sales of paper containers included in the metal container segment increased $1.7 million to $13.3 million during 1993.
Net sales for the plastic container business of $186.3 million during the year ended December 31, 1993 were $6.3 million lower than net sales of plastic containers of $192.6 million for the same period in 1992. The decrease in net sales of plastic containers was primarily attributable to lower unit sales to existing customers due to soft market conditions.
Cost of goods sold was 88.5% of consolidated net sales ($571.2 million) for the year ended December 31, 1993, as compared to 88.1% of consolidated net sales ($555.0 million) for the same period in 1992. The increase in cost of goods sold as a percentage of consolidated net sales principally resulted from higher per unit manufacturing costs incurred as a result of higher depreciation expense, lost margin on outsourced cans due to capacity constraints in early 1993, offset in part by improved manufacturing efficiency.
Selling, general and administrative expenses as a percentage of net sales declined 0.2 percentage points to 5.0% of consolidated net sales ($32.5 million) for the year ended December 31, 1993, as compared to 5.2% ($32.8 million) for the same period in 1992. The decrease in selling, general and administrative expenses as a percentage of consolidated net sales was principally attributable to the maintenance of a constant level of expenditures on a greater sales base.
Income from operations as a percentage of consolidated net sales was 6.5% ($41.8 million) for the year ended December 31, 1993, as compared to 6.7% ($42.3 million) for the same period in 1992. The decrease was principally attributable to the aforementioned decline in gross margin.
Income from operations as a percentage of net sales for the metal container business was 9.2% ($42.3 million) during 1993, as compared to 9.3% ($40.7 million) in 1992. Income from operations as a percentage of net sales attributable to the plastic container business was 0.3% ($0.6 million) during 1993, as compared to 1.2% ($2.3 million) in 1992. The decline in operating performance of the plastic container business resulted from production inefficiencies incurred as a result of plant consolidations and higher per unit manufacturing costs realized from reduced unit volume.
Interest expense decreased by approximately $5.5 million to $54.3 million for the year ended December 31, 1993 compared with $59.8 million (including minority interest expense of $2.7 million) for the same period in 1992. The decrease principally reflected the benefit of the refinancing in June 1992 of the Company's and Silgan's debt and Silgan's preferred stock at lower average interest rates.
The provisions for income taxes for 1993 and 1992 were comprised of state and foreign components and recognized the benefit of certain deductions for federal income tax which were available to Holdings. Effective January 1, 1993, the Company adopted SFAS No. 109. The application of the new standard did not have an effect on the Company's provision for income taxes for 1993.
The loss before extraordinary charges and cumulative effect of changes in accounting principles for the year ended December 31, 1993 was $14.4 million, as compared to $19.8 million for the year ended December 31, 1992. The decrease in the loss before extraordinary charges and cumulative effect of changes in accounting principles was principally the result of the decrease in interest expense in 1993.
As a result of the refinancing of the Amended and Restated Credit Agreement in conjunction with the acquisition of DM Can and the refinancing in June 1992 of Silgan's debt and preferred stock and Holdings' debt, the Company incurred extraordinary charges of $1.3 million and $23.6 million for the early extinguishment of debt in 1993 and 1992, respectively.
During 1993 the Company adopted SFAS No. 106 and SFAS No. 112. The cumulative effect of these accounting changes was to decrease net income by $5.0 million and $1.3 million, respectively.
Capital Resources and Liquidity
The Company's liquidity requirements arise primarily from its obligations under the indebtedness incurred in connection with its acquisitions and the refinancing of such indebtedness, capital investment in new and existing equipment and the funding of the Company's seasonal working capital needs. Historically, the Company has met these liquidity requirements through cash flow generated from operating activities and working capital borrowings. As described below, beginning in December 1996 the Company's liquidity requirements may also be affected by the interest associated with Holdings' indebtedness.
During 1994, cash generated from operations of $47.3 million along with working capital borrowings of $10.4 million were used to fund capital expenditures of $27.9 million (net of proceeds of $1.3 million), make mandatory debt repayments of $20.5 million, pay $6.9 million to former shareholders of Silgan in partial settlement of outstanding litigation and increase cash balances by $2.4 million. In late 1994, the Company entered into a program to accelerate the purchase of certain raw materials prior to anticipated 1995 price increases. As a result, at December 31, 1994 inventories were approximately $14 million higher than the prior year. There was not a corresponding increase in trade payables, however, because the advance purchase of raw materials was paid for prior to year-end through additional working capital borrowings. The trade receivable balance increased at December 31, 1994 as compared to the prior year-end principally as a result of the DM Supply Agreement, which became effective on December 21, 1993.
On December 21, 1993 Silgan, Containers and Plastics entered into the Credit Agreement to finance the acquisition of DM Can and to refinance and repay in full all amounts owing under the Amended and Restated Credit Agreement. In conjunction therewith the Banks loaned the Company $60.0 million of A Term Loans, $80.0 million of B Term Loans and $29.8 million of working capital loans. In addition, Holdings issued and sold 250,000 shares of its Class B Common Stock for $15.0 million. With these proceeds, the Company (i) repaid $41.5 million of term loans and $60.8 million of working capital loans under the Amended and Restated Credit Agreement; (ii) acquired from Del Monte substantially all the fixed assets and certain working capital of Del Monte's container manufacturing business for approximately $73 million; and (iii) paid fees and expenses of $8.9 million.
For 1993, the Company used cash generated from operations of $48.1 million and available cash balances of $2.7 million to fund capital expenditures of $42.5 million, repay working capital loans of $7.2 million (in addition to working capital loans which were repaid with proceeds from the Credit Agreement), and pay $1.1 million of term loans. During the year, the Company increased its annual amount of capital spending in order to reduce costs and to add incremental production capacity. The increase in inventory at December 31, 1993 as compared to the prior year principally resulted from the inventory acquired as part of the acquisition of DM Can.
To improve their financial flexibility, Holdings and Silgan completed the Refinancing in 1992. The Refinancing (i) lowered Holdings' consolidated average cost of indebtedness by retiring the 14% Notes and the Holdings Reset Debentures with new indebtedness bearing lower interest rates, (ii) improved Silgan's liquidity and ability to further repay its indebtedness by eliminating Silgan's obligation to pay cash dividends on the Preferred Stock through the Preferred Stock Redemption and by deferring for an additional two years (until December 1996) and reducing the cash interest requirements on Holdings' indebtedness, (iii) provided Holdings with additional financial flexibility by eliminating restrictions in the indenture relating to the 14% Notes on Silgan's ability to pay dividends to Holdings in order to fund interest payments on Holdings' indebtedness through the 14% Notes Redemption and (iv) extended the average length of maturity of Silgan's indebtedness
by issuing the 11-3/4% Notes and the Secured Notes to refinance $30 million of bank term loans and the 14% Notes.
In connection with the Refinancing, Holdings and Silgan received $333.1 million in proceeds from the issuance of the Secured Notes, the 11-3/4% Notes, and the Discount Debentures net of debt issuance costs of $17.3 million. On June 29, 1992, Silgan repaid $30 million of term loans under its credit agreement. On July 29, 1992, Holdings paid $181.6 million to redeem the Holdings Reset Debentures. On August 16, 1992, Silgan paid $31.5 million to redeem the Preferred Stock. On August 28, 1992, Silgan paid $89.3 million to redeem the 14% Notes.
The Company borrowed working capital loans of $19.2 million during the year ended December 31, 1992 which, along with cash provided by operations during 1992 of $15.4 million (which included payment of $17.7 million in cash interest on the Holdings Reset Debentures) were used principally to fund capital expenditures of $23 million, to make term loan repayments of $10.2 million (in addition to the term loan repayment made in connection with the Refinancing), to pay cash dividends of $1.1 million on the Preferred Stock and to increase outstanding cash balances by $1.1 million.
Since a portion of the proceeds realized from the Credit Agreement on December 21, 1993 were used to repay working capital loans under the Amended and Restated Credit Agreement, the Company was able to reduce the amount of its commitment for working capital loans. Under the Credit Agreement, the commitment for working capital loans was reduced by $41 million to $70 million. As of December 31, 1994, the outstanding principal amount of working capital loans was $12.6 million and, subject to a borrowing base limitation and taking into account outstanding letters of credit, the unused portion of working capital commitments at such date was $51.9 million.
Because the Company sells metal containers used in vegetable and fruit processing, its sales are seasonal. As a result, a significant portion of the Company's revenues are generated in the first nine months of the year. As is common in the packaging industry, the Company must access working capital to build inventory and then carry accounts receivable for some customers beyond the end of the summer and fall packing season. Seasonal accounts are generally settled by year end. Due to the Company's seasonal requirements, the Company expects to incur short term indebtedness to finance its working capital requirements, and it is estimated that approximately $40 million of the working capital revolver, including letters of credit, will be utilized at its peak in July 1995.
In addition to its operating cash needs, the Company's cash requirements over the next several years are anticipated to consist primarily of (i) annual capital expenditures of $35 million to $40 million (approximately $15 million of which is nondiscretionary in each year), (ii) principal amortization payments of A Term Loans under the Credit Agreement of approximately $20 million in each of 1995 and 1996, (iii) expenditures of approximately $7 million associated with the rationalization of facilities related to the acquisition of DM Can, (iv) the scheduled maturity on September 15, 1996 of the working capital loans and $80 million of B Term Loans under the Credit Agreement, (v) the scheduled maturity of the $50 million principal amount of the Secured Notes in 1997, (vi) the Company's interest requirements, including interest on working capital loans, the principal amount of which will vary depending upon seasonal requirements, the Secured Notes and bank term loans, all of which bear fluctuating rates of interest, and the 11-3/4% Notes and semi-annual cash interest payments of $18.2 million on the Discount Debentures commencing in December 1996, and (vii) payments of approximately $14 million for federal and state tax liabilities beginning in 1995 (assuming the redemption of the Discount Debentures at maturity) and increasing annually thereafter by approximately $2 million.
Interest on the Discount Debentures is payable at a rate of 13-1/4% per annum from and after June 15, 1996, and commencing on December 15, 1996 semi-annual interest payments of $18.2 million will be required to be made thereon. Since Holdings' only asset is its investment in Silgan, its ability to pay interest on the Discount Debentures on and after December 15, 1996 (the date on which interest is first payable on the Discount Debentures) may depend upon its receipt of funds paid by dividend or otherwise loaned, advanced or transferred by Silgan to Holdings. While Silgan has no legal obligation to make such funds available, it is expected that Silgan will do so if it is permitted under the agreements to which it shall then be a party and if it then has sufficient funds available for such purpose. If sufficient funds to pay such interest are not generated by the operations of Silgan's subsidiaries, Silgan or Holdings may seek to borrow or otherwise finance the amount of such payments or refinance the Discount Debentures. Neither the Indenture for the 11-3/4% Notes nor the Secured Notes limits the ability of Silgan to pay cash dividends to Holdings in order to enable Holdings to pay interest on the Discount Debentures. The Credit Agreement presently prohibits Silgan from paying dividends or otherwise transferring funds to Holdings in order to service Holdings' indebtedness; however, the Credit Agreement matures on September 15, 1996, prior to the date on which interest or principal is payable on the Discount Debentures. Silgan expects to enter into a new credit facility to replace the Credit Agreement on or before September 15, 1996 on terms which would not limit the ability of Silgan to transfer funds to Holdings in order to enable Holdings to pay interest on the Discount Debentures. However, there can be no assurance that Silgan will be able to enter into a new credit facility on such terms. In such event, Silgan and Holdings would consider pursuing alternative arrangements, including possible equity and/or debt financings, to enable Holdings to meet its obligations. There can be no assurance that any such alternative, if pursued, would be accomplished or would enable Holdings to make timely payments of its obligations under the Discount Debentures. The funding requirements of Holdings to service its indebtedness (beginning in December 1996) will be met by Silgan through cash generated by operations or borrowings or by Holdings through refinancings of its existing indebtedness or additional debt or equity financings.
In addition to any financing effected as described above, the Company may consider refinancing all or any part of its indebtedness through other debt financings and/or equity financings, including a public offering of equity. Any such financings would depend upon the market conditions existing at the time and would have to be effected in compliance with the Company's agreements in respect of its indebtedness.
The Discount Debentures represent "applicable high yield discount obligations" ("AHYDOs") within the meaning of Section 163(i) of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the tax deduction which would otherwise be available to Holdings in respect of the accretion of interest on the Discount Debentures during their noncash interest period ending June 15, 1996 ($109.6 million) has been and will continue to be deferred, which, in turn, will increase the taxable income of Holdings and reduce the after-tax cash flows of Holdings. However, as a result of Holdings' utilization of its net operating loss carryforward, which, as of December 31, 1994, amounts to approximately $75 million for regular federal income tax purposes, the effect of such deferral on the regular federal income taxes of Holdings has been and will continue to be mitigated until such net operating loss carryforward is fully utilized.
In 1993, Holdings became subject to alternative minimum tax ("AMT") and, due to the utilization of its AMT net operating loss carryforwards, incurred an AMT liability at a rate of 2%. In 1994, Holdings fully utilized its AMT loss carryforward. Accordingly, in 1995 and thereafter, Holdings will incur an AMT liability at a rate of 20% (or the applicable rate then in effect). The AMT paid is allowed (subject to certain limitations) as an indefinite credit carryover against Holdings' regular tax liability in the future when and if Holdings' regular tax liability exceeds the AMT liability.
The deferred accreted interest will not be deductible until the redemption, retirement or other repayment of the Discount Debentures (other than with stock or debt of Holdings or a related party). Until the deferred accreted interest is deductible, except to the extent the net operating loss carryforward is available, Holdings
will realize taxable income sooner and in a greater amount than if the deferred accreted interest on the Discount Debentures were deductible as it accretes. Depending upon its tax position and financial condition and the benefit which may be available through the deduction of the deferred accreted interest, Holdings could decide in the future to refinance the Discount Debentures or a portion thereof prior to their stated maturity date. In such event, the full amount of the deferred accreted interest (applicable to the Discount Debentures retired) should be deductible under the carryback and carryforward rules under the Code unless the holders of the Discount Debentures receive stock or debt of Holdings or a related party in exchange for the Discount Debentures. No assurance can be given that Holdings will be able to refinance the Discount Debentures at such time; however, management believes that application of the AHYDO rules will not have a material adverse effect on Holdings' financial condition or ability to repay the Discount Debentures. In addition, the IRS has broad authority to issue regulations under the AHYDO rules with retroactive effect to prevent the avoidance of the purposes of those rules through agreements to borrow amounts due under a debt instrument or other arrangements, and thus these regulations, when issued, may affect the timing or availability of the tax deductions for original issue discount on the Discount Debentures.
Management believes that cash generated by operations and funds from working capital borrowings under the Credit Agreement will be sufficient to meet the Company's expected operating needs, planned capital expenditures and debt service requirements until the maturity of the working capital facility under the Credit Agreement on September 15, 1996. Management also believes that it will be able to replace the working capital facility under the Credit Agreement with another facility on or prior to September 15, 1996 on terms which will be acceptable to the Company. However, there can be no assurance that the Company will be able to replace its working capital facility. In such event, the Company could be required to consider alternative equity or debt financings in order to meet its cash needs. The ability of the Company to effect any such financing and the extent to which the Company may seek or be required to obtain additional financing will depend upon a variety of factors, including the future performance of the Company and its subsidiaries, which will be subject to prevailing economic conditions and to financial, business and other factors (including the state of the economy and the financial markets, demand for the products of the Company and its subsidiaries, costs of raw materials, legislative and regulatory changes and other factors beyond the control of the Company and its subsidiaries) affecting the business and operations of the Company and its subsidiaries as well as prevailing interest rates, actual amounts expended for capital expenditures and other corporate purposes and the timing and amount of debt prepayments or redemptions.
The Credit Agreement, the Secured Notes and the indentures relating to the 11-3/4% Notes and the Discount Debentures each contain restrictive covenants that, among other things, limit the Company's ability to incur debt, sell assets and engage in certain transactions. Management does not expect these limitations to have a material effect on the Company's business or results of operations. The Company is in compliance with all financial and operating covenants contained in such financing agreements and believes that it will continue to be in compliance during 1995 with all such covenants.
Effect of Interest Rate Fluctuations and Inflation
Because the Company has indebtedness which bears interest at floating rates, the Company's financial results will be sensitive to changes in prevailing interest rates. To mitigate the effect of significant changes in interest rates, the Company may enter into interest rate hedge agreements (with counterparties that, in the Company's judgment, have sufficient creditworthiness) with respect to a portion of its floating rate indebtedness. At December 31, 1994, the Company was not a party to any interest rate hedge agreement.
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.
Item 8.
Item 8. Financial Statements and Supplementary Data.
See Item 14 below for a listing of financial statements and schedules included therein.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
Directors and Executive Officers of Holdings
The current directors and executive officers of Holdings and their respective ages, positions and principal occupations, five-year employment history and other directorships held are furnished below:
Age at Five-Year Employment March 15, History and Other Directorships Name and Position 1995 Held ----------------- -------- -------------------------------
R. Philip Silver 52 Prior to forming S&H, Inc. Chairman of the Board and ("S&H") in 1987, President of Co-Chief Executive Officer Continental Can Company from of Holdings and Silgan since June 1983 to August 1986; March 1994; formerly consultant to packaging President of Holdings and industry from August 1986 to Silgan; Director of Holdings August 1987; Vice Chairman of since April 1989 and of the Board and Director of Silgan since August 1987; Sweetheart Holdings Inc. and Chairman of the Board of Sweetheart Cup Company, Inc. Plastics since March 1994; from September 1989 to January Director of Containers and 1991; Chairman of the Board and Plastics since August 1987. Director of Sweetheart Holdings Inc. and Sweetheart Cup Company, Inc. from January 1991 through August 1993; Director, Johnstown America Corporation.
D. Greg Horrigan 51 Prior to forming S&H in 1987, President and Co-Chief Executive Vice President and Executive Officer of Operating Officer of Holdings and Silgan since Continental Can Company from March 1994; formerly 1984 to 1987; Chairman of the Chairman of the Board of Board and Director of Holdings and Silgan; Sweetheart Holdings Inc. and Director of Holdings since Sweetheart Cup Company, Inc. April 1989 and of Silgan from September 1989 to January since August 1987; Chairman 1991; Vice Chairman of the of the Board of Containers Board and Director of since August 1987; Director Sweetheart Holdings Inc. and of Containers and Plastics Sweetheart Cup Company, Inc. since August 1987. from January 1991 through August 1993.
Age at Five-Year Employment March 15, History and Other Directorships Name and Position 1995 Held ----------------- -------- -------------------------------
James S. Hoch 34 Executive Director of Morgan Director, Vice President and Stanley & Co., Ltd. since 1994; Assistant Secretary of Principal of Morgan Stanley & Holdings since January 1991; Co. Incorporated since 1993; Director of Silgan since Vice President of Morgan January 1991; Vice President Stanley & Co. Incorporated from and Assistant Secretary of 1991 to 1993. Director of Silgan since 1987; Director, Sullivan Communications, Inc., Vice President and Assistant Sullivan Graphics, Inc. and Secretary of Containers Nokia Aluminium Ox. since January 1991; Director, Vice President and Assistant Secretary of Plastics since January 1991.
Robert H. Niehaus 39 Managing Director of Morgan Vice President, Assistant Stanley & Co. Incorporated Secretary and Director of since January 1, 1990; Holdings since April 1989; Principal of Morgan Stanley & Vice President, Assistant Co. Incorporated from 1988 to Secretary and Director of 1989. Vice President and Silgan since August 1987; Director of MSLEF II, Inc. Vice President, Assistant since January 1990; Vice Secretary and Director of Chairman of MSCP III since Containers and Plastics January 1994. Director of since August 1987. American Italian Pasta Company, Fort Howard Corporation, PSF Finance Holdings, Inc., Randall's Food Markets, Inc., Waterford Crystal Ltd. and Waterford Wedgewood UK plc.
Harley Rankin, Jr. 55 Prior to joining the Company, Executive Vice President and Senior Vice President and Chief Chief Financial Officer of Financial Officer of Armtek Holdings since April 1989; Corporation; prior to Armtek Treasurer of Holdings since Corporation, Vice President and January 1992; Executive Vice Chief Financial Officer of President and Chief Continental Can Company from Financial Officer of Silgan November 1984 to August 1986. since January 1989; Vice President, Chief Financial Treasurer of Silgan since Officer and Treasurer of January 1992; Vice President Sweetheart Holdings Inc. and of Containers and Plastics Vice President of Sweetheart since January 1989; Cup Company, Inc. from Treasurer of Plastics since September 1989 to August 1993. January 1994.
Age at Five-Year Employment March 15, History and Other Directorships Name and Position 1995 Held ----------------- -------- -------------------------------
Harold J. Rodriguez, Jr. 39 Employed by Ernst & Young from Vice President of Holdings 1978 to 1987, last serving as and Silgan since March 1994; Senior Manager specializing in Vice President of Containers taxation. Controller, and Plastics since March Assistant Secretary and 1994; Controller and Assistant Treasurer of Assistant Treasurer of Sweetheart Holdings Inc. and Holdings and Silgan since Assistant Secretary and March 1990; Assistant Assistant Treasurer of Controller and Assistant Sweetheart Cup Company, Inc. Treasurer of Holdings from from September 1989 to August April 1989 to March 1990; 1993. Assistant Controller and Assistant Treasurer of Silgan from October 1987 to March 1990.
Management of Metal Container Business
In addition to the persons listed under "--Directors and Executive Officers of Holdings" above, the following are the principal executive officers of Containers:
Age at Five-Year Employment March 15, History and Other Directorships Name and Position 1995 Held ----------------- --------- -------------------------------
James D. Beam 52 Vice President - Marketing & President and a non-voting Sales of Containers from Director of Containers September 1987 to July 1990; since July 1990. Vice President and General Manager of Continental Can Company, Western Food Can Division, from March 1986 to September 1987.
Gerald T. Wojdon 59 General Manager of Vice President - Manufacturing of the Can Operations and Assistant Division of The Carnation Secretary of Containers Company from August 1982 to since September 1987. August 1987.
Gary M. Hughes 52 Vice President, Sales and Vice President - Sales & Marketing of the Beverage Marketing of Containers Division of Continental Can since July 1990. Company from February 1988 to July 1990; prior to February 1988, was employed by Continental Can in various regional sales positions.
Age at Five-Year Employment March 15, History and Other Directorships Name and Position 1995 Held ----------------- -------- -------------------------------
Dennis Nerstad 57 Vice President of Containers Vice President - from December 1993 to June Production Services of 1994. Vice President - Containers since July Distribution and Container 1994. Manufacturing of Del Monte from August 1989 to December 1993; Director of Container Manufacturing of Del Monte from November 1983 to July 1989; prior to 1983, employed by Del Monte in various regional and plant positions.
Management of Plastic Container Business
In addition to the persons listed under "--Directors and Executive Officers of Holdings" above, the following are the principal executive officers of Plastics:
Age at March 15, Five-Year Employment Name and Position 1995 History and Positions ----------------- -------- --------------------- Russell F. Gervais 51 President and Chief Executive President and non-voting Officer of Aim Packaging, Inc. Director of Plastics since from March 1984 to September December 1992; Vice 1989. President - Sales & Marketing of Plastics from September 1989 until December 1992.
Howard H. Cole 49 Manager of Personnel of Monsanto Vice President and Engineered Products Division of Assistant Secretary of the Monsanto Company from April Plastics since September 1986 to September 1987. 1987.
Charles Minarik 57 President of Wheaton Industries Vice President - Operations Plastics Group from February 1991 and Commercial Development to August 1992; Vice President - of Plastics since May 1993. Marketing of Constar International, Inc. from March 1983 to February 1991.
Age at March 15, Five-Year Employment Name and Position 1995 History and Positions ----------------- -------- ---------------------
Alan H. Koblin 43 Vice President of Churchill Vice President - Sales & Industries from 1990 to 1992. Marketing of Plastics since 1994, Director of Sales & Marketing of Plastics from 1992 to 1994.
Colleen J. Jones 35 Audit Manager, Arthur Young & Vice President - Finance Company from July 1982 to July and Chief Financial Officer 1989. of Plastics since January 1995, Assistant Secretary of Plastics since November 1993, Corporate Controller of Plastics from October 1993 to January 1995, Manager - Finance of Plastics from July 1989 to October 1993.
Item 11.
Item 11. Executive Compensation.
The following table sets forth information concerning the annual and long term compensation for services rendered in all capacities to the Company during the fiscal years ended December 31, 1994, 1993 and 1992 of those persons who at December 31, 1994 were (i) the Chief Executive Officer of Holdings and (ii) the other four most highly compensated executive officers of Holdings and its subsidiaries. No director of Holdings or its subsidiaries receives any compensation for serving as a director of Holdings or its subsidiaries. See "Certain Transactions - Management Agreements."
Pension Plans
The Company has established pension plans (the "Pension Plans") covering substantially all of the salaried employees of Containers and Plastics, respectively, including the executive officers (the "Containers Pension Plan" and the "Plastics Pension Plan," respectively). The Pension Plans are defined benefit plans intended to be qualified pension plans under Section 401(a) of the Code, under which pension costs are determined annually on an actuarial basis with contributions made accordingly.
Certain salaried employees of Containers, including Containers' executive officers, were covered by the Carnation Employees Plan Number Two for United States Employees (the "Carnation Pension Plan") immediately prior to the acquisition of Nestle Can. The Containers Pension Plan recognizes prior service under the Carnation Pension Plan for purposes of eligibility, vesting and benefit accrual. The benefits payable at retirement under, or upon vested termination from, the Containers Pension Plan are based on the benefit formula and all other factors then in effect under the Containers Pension Plan applied to all combined pension service. Such benefit shall be offset by the accrued benefit, if any, such employee is entitled to receive under the Carnation Pension Plan as of August 31, 1987. In connection with the acquisition of DM Can, employees of Del Monte that were employed by Containers are also covered by the Containers Pension Plan. Generally, the Containers Pension Plan credits such employees with their prior service with Del Monte for purposes of eligibility, vesting and benefit accrual.
The Containers Pension Plan was amended effective July 1, 1994 to eliminate mandatory employee contributions, and to substantially revise the benefit formula. The new formula is based on a percentage of the participant's average base pay over the final three years of employment, multiplied by the participant's years of service (not to exceed 35). The particular percentage applied in the formula depends on when the participant's services were performed and on whether the participant's average base salary exceeds "covered compensation" (the average of Social Security wage bases for the 35 years preceding retirement). For service performed through June 30, 1994, the percentage is 1.3% up to covered compensation, and 1.75% above covered compensation. For service performed after June 30, 1994, the percentage is .75% up to covered compensation, and 1.2% above covered compensation. In no event will a participant's benefit be less than the benefit accrued as of June 30, 1994 under the prior benefit formula. Average base pay used in the benefit formula consists of a participant's base salary exclusive of any bonus, overtime or other extra compensation. A participant becomes fully vested after five years of service or upon reaching age 55, if earlier.
The following table illustrates the estimated annual normal retirement benefits that are payable under the Containers Pension Plan based upon the final pay formula. Such benefit levels assume retirement at age 65, the years of service shown, continued existence of the Containers Pension Plan without substantial change and payment in the form of a single life annuity and includes benefits, if any, payable under the Carnation Pension Plan which will be paid by that plan.
Pursuant to Section 401(a)(17) of the Code, there is a limit on the amount of annual compensation which can be taken into account under the Containers Pension Plan. The dollar limit on compensation for 1993 was $235,840. The dollar limit on compensation for 1994 is $150,000. The dollar limit, where applicable, will reduce the amount of benefits payable to highly compensated participants in the Containers Pension Plan.
As of December 31, 1994, the years of credited service under the Containers Pension Plan for the eligible executive officer named in the Summary Compensation Table is as follows: James D. Beam, 7.
Certain salaried employees of Plastics, including Plastics' executive officers, were covered by the Monsanto Company Salaried Employees' Pension Plan (the "Monsanto Pension Plan") immediately prior to the acquisition of Monsanto Plastic Containers. The Plastics Pension Plan recognizes prior service under the Monsanto Pension Plan for purposes of eligibility, vesting and benefit accrual. The benefits payable at retirement under, or upon vested termination from, the Plastics Pension Plan are based on the benefit formula and all other factors then in effect under the Plastics Pension Plan applied to all combined pension service. Such benefit is offset by the accrued benefit, if any, such employee is entitled to receive under the Monsanto Pension Plan as of August 31, 1987.
Under the Plastics Pension Plan, pensions are based on the greatest of (i) years of benefit service multiplied by 1.4% of Average Earnings, which is defined as the greater of (a) average compensation received during the final 36 months of employment or (b) average compensation received during the highest three of the final five calendar years of employment; (ii) years of benefit service multiplied by 1.5% of Average Earnings less a 50% social security offset; or (iii) years of benefit service multiplied by $30.00. For employees hired between April 1, 1986 and September 1, 1987, the formula is the greater of (i) years of benefit service multiplied by 1.2% of Average Earnings; or (ii) years of benefit service multiplied by 1.5% of Average Earnings less a 50% social security offset. For employees hired after September 1, 1987, the formula is years of benefit service multiplied by 1.1% of Average Earnings. Average Earnings under the Plastics Pension Plan is a participant's total cash income before deduction for contributions, if any, to a plan pursuant to Section 401(k) of the Code or Section 125 of the Code less any moving expense allowance but, in no event, shall Average Earnings exceed 125% of base pay of the participant. A participant becomes fully vested after five years of service or attainment of Normal Retirement Age (as defined under the Plastics Pension Plan), if earlier.
The following table illustrates the estimated annual normal retirement benefits that are payable under the Plastics Pension Plan based upon the greater of 1.4% of Average Earnings, without reduction for social security or other offset amounts, or 1.5% of Average Earnings less a 50% social security offset. Such benefit levels assume retirement age at 65, the years of service shown, continued existence of the Plastics Pension Plan without substantial change and payment in the form of a single life annuity and includes benefits, if any, payable under the Monsanto Pension Plan which will be paid by that plan.
Pursuant to Section 401(a)(17) of the Code, there is a limit on the amount of annual compensation which can be taken into account under the Plastics Pension Plan. The dollar limit on compensation for 1993 was $235,840. The dollar limit on compensation for 1994 is $150,000. The dollar limit, where applicable, will reduce the amount of benefits payable to highly compensated participants in the Plastics Pension Plan.
As of December 31, 1994, the years of credited service under the Plastics Pension Plan for the eligible executive officer named in the Summary Compensation Table is as follows: Russell F. Gervais, 5.
Certain Employment Agreements
Certain executive officers and other key employees of Containers and Plastics (including Messrs. Beam and Gervais) have executed employment agreements. The initial term of each such employment agreement is generally three years from its effective date and is automatically extended for successive one year periods unless terminated pursuant to the terms of such agreement. Each such employment agreement provides for, among other things, a minimum severance benefit equal to base salary and benefits for, in most cases, a period of one year (or the remainder of the term of the agreement, if longer) (i) if the employee is terminated by his employer for any reason other than disability or for cause as specified in the agreement or (ii) if the employee voluntarily terminates employment due to a demotion and, in some cases, significant relocation, all as specified in the agreement.
The foregoing summaries of the various benefit plans and agreements of the Company are qualified by reference to such plans and agreements, copies of certain of which have been filed as exhibits to this Annual Report on Form 10-K.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Certain Beneficial Owners of Holdings' Capital Stock
The following table sets forth, as of March 15, 1995, certain information with respect to the beneficial ownership by certain persons and entities of outstanding shares of capital stock of Holdings: