Item 1. Business . . . . . . . . . . . . . . . . . . . . . . 3 2. Properties . . . . . . . . . . . . . . . . . . . . . 4 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 4 4. Submission of Matters to a Vote of Security Holders.. 4 5. Changes in Securities . . . . . . . . . . . . . . . 5
Part II
Item 6. Market for the Registrant's Common Stock and Related Security Holders' Matters . . . . . . . . 5 7. Five-Year Selected Financial Data . . . . . . . . . . 6 8. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . 7 9. Financial Statements and Supplementary Data . . . . . . 8 10. Disagreements on Accounting and Financial Disclosure. . 16
Part III
Item 11. Directors and Executive Officers of the Registrant. . . 16 12. Management Remuneration and Transactions. . . . . . . . 16 13. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . 17 14. Certain Relationships and Related Transactions . . . . . 17
Part IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . 18
SIGNATURES. . . . . . . . . . . . . . . . . . . . 20
- -------------------------------------------------------------------------------- Part 1
Item 1 - Business
(a) GAP Instrument Corp., organized in 1953, is a systems engineering oriented manufacturing organization, producing electromechanical/ solid-state systems to satisfy specific military and commercial requirements for application on board ships, in aircraft, and at ground- based installations. These various systems are primarily servo mechanisms and state-of-the-art signal data-conversion equipment employed in load actuation, information readout display, and operation control.
While utilizing the same disciplines to continue its efforts in the areas of test equipment and simulation equipment, GAP is attempting to find appropriate areas of diversification to convert form a military market to a commercial market.
(b) GAP Instrument Corp.'s operations are classified as a single industry segment.
(c) (1) (I) The principal market for GAP Instrument Corp.'s equipment has been the Department of Defense for military requirements. GAP Instrument Corp. deals with the Department of Defense directly in open competitive bidding and as a subcontractor to other major defense contractors on larger programs. The defense procurement business is very competitive.
(II) Not applicable
(III) The materials utilized in the equipment produced by GAP Instrument Corp. are obtained from standard sources within the United States. These include foundries, sheet metal shops, machine shops, component manufacturers, etc.
(IV) None of the equipment or processes utilized by GAP Instrument Corp. are covered by patents, licenses, franchises, etc.
(V) Not applicable.
(VI) Manufacturing operations are scheduled to fulfill specific product orders under firm contracts primarily from the Department of Defense. GAP Instrument Corp. does not carry significant amounts of stock inventory.
(VII) GAP Instrument Corp.'s present overall business is dependent on a single customer, the Department of Defense, which presently purchases, either directly or indirectly, approximately 80 percent in value of its products.
- -------------------------------------------------------------------------------- (VIII) The dollar backlog of orders of GAP Instrument Corp. at December 31, 1995 was $116,000, compared to $48,000 in 1994. All of the 1995 year-end backlog is expected to be shipped in fiscal year 1996.
(IX) A significant amount of the business is subject to termination of contracts at the election of the Department of Defense. However, such termination procedures usually provide for the recovery of incurred costs and related profit.
(X) Item (c)(1)(I).
(2) (I) Research and development expenses of $50,628 were recorded as prepaid expenses during 1994 for diversification into the telecommunications market. These were expensed during 1995.
(II) Department of Defense.
(III) None.
(IV) The total number of personnel employed by GAP Instrument Corp. as of the end of fiscal year 1995 was 4.
(d) GAP Instrument Corp. does not engage in material operations in foreign countries, nor is its business dependent on a domestic geographic location.
Item 2

Item 2 - Properties
(a) On October 20, 1993 GAP Instrument Corp. moved into space at 100 Horse Block Rd., Yaphank. The rent is currently $1,000 per month on a month to month basis. Rent expense for 1995 was $28,600 for the Yaphank facility.
Item 3

Item 3 - Legal Proceedings
(a) On September 24, 1993, GAP Instrument Corp. the Debtor filed partitions for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the. Eastern District of New York. Under Chapter 11, certain claims against the Debtor in existence prior to the filing of the petitions for relief under the federal bankruptcy laws are stayed while the Debtor continues business operations as "Debtor-in- Possession". These claims are reflected in the December 31, 1994 balance sheet as "Liabilities subject to Compromise." Additional claims (liabilities subject to compromise) may arise subsequent to the filing date resulting from rejection of executory contracts, including leases, and from the determination by the court (or agreed to by parties in interest) of allowed claims for contingencies and other disputed amounts. On October 2, 1995, the Company's Plan of Reorganization was approved by the United States Bankruptcy Court. Payments under the approved plan are reflected on the Balance Sheet as "Liabilities under a Plan of Reorganization."
(b) Amendment to the by-laws approved by New York State changed authorized shares from 4,000,000 to 104,000,000 shares, per approval by stockholders at a special meeting of stockholders December 28, 1993.
Item 4

Item 4 - Submission of Matters to a Vote of Security Holders
On 28 December 1993 a Special Meeting of Stockholders was held. resolutions were passed to authorize and empower the Board of directors to amend, alter, change, add to, repeal, or rescind any and all of the Bylaws, and that the authorized common stock of GAP Instrument Corporation be increased from its present amount thereof, to One Hundred Four Million (104,000,000) shares of par value of One Thousandth of a cent per share ($0.00001).
- -------------------------------------------------------------------------------- Item 5

Item 5 - Changes in Securities
On July 29, 1994, the Company issued an additional 93,000,000 shares. These shares went - with the approval of the U.S. Bankruptcy Court for Eastern New York - to resolve post-petition debt.
30,000,000 shares to Advanced Logic Resources, Inc. 30,000,000 shares to Eloco Inc. 20,000,000 shares to Bruce Binnie 5,000,000 shares to Lawrence Monahan 2,000,000 shares to Robert Hood 2,000,000 shares to George Guttner 1,000,000 shares to John Medcie 1,000,000 shares to Alan G Binnie 1,000,000 shares to Letty A Norjen 1,000,000 shares to Michael Fasullo
PART II
Item 6

Item 6 - Market for the Registrant's Common Stock and Related Security Holders' Matters
At December 31, 1995, GAP Instrument Corp. had issued and outstanding 98,678,423 shares of common stock held by 1,087 stockholders of record. 2,000 shares are claimed by two former officers which are not recognized by GAP Instrument Corp.. Market prices listed in the following tabulation were obtained from the National Quotation Bureau, Inc., and represent prices between dealers and do not include retail markup, markdown, or commission, and may not necessarily represent actual transactions.
1995 1994
Bid Asked Bid Asked First Quarter N o Q u o t e N o Q u o t e Second Quarter N o Q u o t e N o Q u o t e Third Quarter N o Q u o t e N o Q u o t e Fourth Quarter N o Q u o t e N o Q u o t e
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Item 8

Item 8 - Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources
GAP Instrument Corp. has primarily relied on its results from operations to provide working capital. Due to lack of working capital on September 23, 1993, GAP Instrument Corp. the Debtor filed partitions for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the Eastern District of New York.
In order to continue operations, and pay post petition expenses, GAP Instrument Corp. issued, on July 29, 1994, 3,000,000 shares of common stock, and on October 31, 1995, 1,744,070 shares of common stock, to suppliers and key personnel.
On October 2, 1995 GAP Instrument Corp. emerged from Chapter 11 and is operating under a plan approved by the United States Bankruptcy Court for the Eastern District of New York and the creditors.
RESULTS OF OPERATIONS
Operating income (loss) for the years 1995 and 1994, were ($98,016) and ($154,677). Sales volume for the respective years were $258,439 and $332,312.
GAP Instrument Corp. is fully aware that its military business over the next decade will continue to decline. Thus, GAP instrument Corp. entered the tele communications market as a Value Added Network for the Federal Government and as an Internet Service Provider (ISP) for Federal contractors.
Federal tax loss carryforwards at December 31, 1995 are ($704,710) which will provide for future tax benefits relief in future years.
The dollar backlog of sales at December 31, 1995, 1994 and 1993 were $116,000, $48,500, and $123,885, respectively. All of the 1995 backlog will be shipped in 1996.
- -------------------------------------------------------------------------------- Item 9

Item 9 - Financial Statements and Supplementary Data
Page
Balance Sheets as of December 31, 1995 and 1994. 9
Statements of Income (Loss) and Accumulated
Deficit for the Years Ended December 31,
1995, 1994 and 1993. . . . . . . . . . . . . 10
Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993 . . . 11
Notes to Financial Statements . . . . . . . . . 12
Independent Auditors Report . . . . . . . . . . 15
- -------------------------------------------------------------------------------- GAP INSTRUMENT CORP. BALANCE SHEETS December 31, 1995 and 1994
ASSETS
December 31, 1995 1994 ------------ ------------ Current Assets: Cash (overdraft) $ (1,553) $ 14,078 Accounts receivable ( Note 3) 61,777 13,491 Inventories, at lower of cost or market (Note 4) - 40,118 ------------ ------------ Total current assets 60,224 67,687
Fixed assets, at cost less accumulated depreciation (Note 5) 12,998 3,761 Other assets 8,110 112,561 ------------ ------------ Total assets $ 81,332 $ 184,009 ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities: Liabilities subject to compromise(Note 2) $ - $ 554,705 Accounts payable 29,860 16,216 Liabilities resulting from Plan of Reorganization (Note 2) 47,194 - Accrued liabilities - 22,136 Accrued payroll and taxes 347 670 Due from officers (Note 3) 56,000 24,000 ----------- ------------ Total current liabilities 133,401 617,727
Long-term debt Liabilities resulting from Plan of Reorganization (Note 2) 189,795 - ----------- ------------ Total long-term liabilities 189,795 - ----------- ------------ Total liabilities 323,196 617,727 ----------- ------------ Stockholders' Deficit: Common stock $ .00001 par value 1995 104,000,000 shares authorized; 98,678,423 shares outstanding 1995 987 - 96,934,353 shares outstanding 1994 - 969 Capital in excess of par value 3,341,815 3,341,833 Accumulated deficit (3,584,666) (3,776,520) ----------- ------------- Total stockholders' deficit (241,864) (433,718) ----------- ------------- Total Liabilities and Stockholders' Deficit $ 81,332 $ 184,009 =========== =============
See Independent Auditor's Report and Notes to Financial Statements.
- -------------------------------------------------------------------------------- GAP INSTRUMENT CORP. STATEMENTS OF INCOME (LOSS) AND ACCUMULATED DEFICIT For the years ended December 31, 1995, 1994 and 1993
See Independent Auditor's Report and Notes to Financial Statements.
- -------------------------------------------------------------------------------- GAP INSTRUMENT CORP. STATEMENTS OF CASH FLOWS For the years ended December 31,1995, 1994 and 1993
1995 1994 1993 ---------- ---------- ---------- Cash Flows from Operating Activities: Net income (Loss) $ 191,855 ($162,202) ($438,457) Add (deduct) non-cash items: Depreciation and amortization 4,675 1,905 1,903 Gain from adoption of plan of reorganization (293,870) - - Add (deduct) other changes: Accounts receivable (48,286) 4,518 13,603 Inventories 40,118 4,072 83,248 Prepaid expenses - 2,217 8,161 Accounts payable 13,643 (16,888) 33,104 Accrued liabilities (22,136) 22,136 32,996 Accrued payroll and taxes (323) (32,326) 166,730 ---------- ---------- --------- Net Cash Provided (Used) by Operating Activities (114,324) (176,658) (112,517) ---------- ---------- ---------
Cash Flows from Investing Activities: Purchase of equipment and leasehold improvements (13,912) (1,348) - Principal payments on bankruptcy debt (23,846) - - Increase in other assets 104,451 (68,645) - Abandonment of leasehold improvements 8,954 ---------- ---------- --------- Cash Provided (Used) by Investing Activities (66,693) (69,963) 8,954 ---------- ---------- ---------
Cash Flows from Financing Activities: Shareholder loans 32,000 18,000 6,000 Issuance of Stock for Post-Petition Debt - 236,910 - Payment of Long-term debt - - 94,950 ---------- ---------- --------- Cash Provided (Used)from Financing Activities 32,000 254,910 100,950 ---------- ---------- ---------
Net Increase (Decrease) in Cash (15,631) 8,289 (2,613)
Beginning Cash 14,078 5,789 8,402 ---------- ---------- --------- Ending Cash (Overdraft) $ (1,553) $ 14,078 $ 5,789 ========== ========== =========
Income Taxes 404 - -
See Independent Auditor's Report and Notes to Financial Statements
- -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994
NOTE 1 - BUSINESS DESCRIPTION
GAP Instrument Corp., organized in 1953, is a systems engineering oriented manufacturing organization, producing electromechanical/solid -state systems to satisfy specific military and commercial requirements for application on board ships, in aircraft, and at ground-based installations. These various systems are primarily servo mechanisms and state-of-the-art signal data-conversion equipment employed in load actuation, information readout display, and operation control.
While utilizing the same disciplines to continue its efforts in the areas of test equipment and simulation equipment, GAP Instrument Corp is attempting to find appropriate areas of diversification to convert form a military market to a commercial market.
NOTE 2 - PETITION FOR RELIEF UNDER CHAPTER 11
On September 24, 1993, GAP Instrument Corp. (the Debtor) filed petitions for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the Eastern District of New York. Under Chapter 11, certain claims against the Debtor in existence prior to the filing of the petitions for relief under the federal bankruptcy laws are stayed while the Debtor continues business operations as Debtor-in- Possession. These claims are reflected in the December 31, 1994 balance sheets as "Liabilities subject to Compromise". Additional claims (liabilities subject to compromise) may come to light subsequent to the filing date resulting from rejection of executory contracts, including leases, and from the determination by the court or agreement by parties in interest. A plan of reorganization was approved on October 2, 1995. This plan calls for payments over the next five years in settlement of the compromised liabilities. These liabilities are reflected in the December 31,1995 Balance Sheet as "Liabilities Resulting from Plan of Reorganization."
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies of GAP Instrument Corp. Assets and liabilities, and revenues and expenses, are recognized on the accrual basis of accounting. GAP Instrument Corp. considers all highly liquid debt instruments with a maturity of three months or less to be cash equivalents. Accounts receivable are recorded when goods are shipped or when customer is registered(VAN service). Doubtful accounts are written-off when receivable is determined to be uncollectable - i.e., contract terminated. As of December 31, 1995 and 1994 no allowance for doubtful accounts was deemed necessary, as management does not anticipate any further probable losses.
Inventories are stated at the lower of cost (first in-first out) or market. Machinery and leasehold improvements are stated at cost less accumulated depreciation and are removed from the asset and accumulated depreciation accounts when disposed of. Ordinary repairs and maintenance are charged directly to expense as incurred. Losses were recognized in 1993 for the abandonment of leasehold improvements when GAP Instrument Corp moved.
- -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS CONTINUED
Net sales are recorded on the completed contract method of accounting. Sales orders normally require delivery dates of less than one year. The preparation of financial statements in conformity with generally accepted accounting principals requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Liabilities resulting from the adoption of the plan of reorganization under Chapter 11 of the United States Bankruptcy Court are shown as "Liabilities resulting from Plan of Reorganization." The payments under the Plan that are due with-in one year are shown in the current liabilities and those due later than one year are grouped with the long term liabilities. The balance sheet caption "Liabilities Subject to Compromise" are the liabilities as of the date of the Bankruptcy filing. See Note 2 above.
Officer loans are payable on demand and currently there is no interest being accrued.
Income taxes: During 1995 the Company adopted FAS 109 (Accounting for Income Taxes.)
This statement requires the use of the asset and liability approach in the recognition of deferred tax assets and liabilities for the expected future tax consequences of the event that have been recognized in the company's financial statements or tax return. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is realized. Financial statements for prior years, have not been restated and the cumulative effect of the accounting change would not be material.
NOTE 4 - INVENTORIES:
Inventories were carried on the FIFO basis.
December 31, 1995 1994 1993
Raw materials and components 0 35,258 $ 36,760
Work in process 0 4,860 7,430 ------ --------- --------- 0 $ 40,118 $ 44.190 ====== ========= =========
Inventories of raw materials and components were written-off at December 31, 1995 due to obsolescence of inventories. Parts are currently purchased on a as needed only basis.
- -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS CONTINUED
NOTE 5 - FIXED ASSETS:
Fixed assets at December 31 consisted of the following:
1995 1994 ---------- ---------- Production Equipment and leasehold improvements $ 5,730 $ 20,331 Administrative equipment 13,848 - ---------- ---------- 19,578 20,331 Less: Accumulated depreciation and amortization (6,580) (16,570) ---------- ---------- Fixed assets net of accumulated depreciation $ 12,998 $ 3,761 ========== ==========
Assets are depreciated over five and ten year periods using the straight line depreciation method. Leasehold improvements are amortized over the remaining life of the lease. Depreciation and amortization expense for the years ended December 31, 1995, 1994 and 1993 was $4,675, 1,905, and $1,903, respectively. Leasehold improvements were abandoned when the Company moved its facilities. Depreciation is computed on the tax basis, MACRS. The difference between straight line and MACRS is not material.
NOTE 6 - INCOME TAXES: The annual provision for income taxes differs from amounts computed applying the maximum US Federal income tax rate to the pre-tax income as follows:
1995 1994 ---------- ---------- Computed tax at maximum rate $ 65,230 - State Income Tax, net of Federal tax effect 404 - Tax benefit of operating loss carryforward (65,634) - ---------- ---------- Provision for income taxes - -
Deferred tax assets (liabilities) at December 31, 1995 and 1994 consist of the following: 1995 1994 ---------- ---------- Deferred tax assets $(704,710) $(896,565) Deferred tax assets valuation allowance 704,710 896,565 ---------- ---------- Net deferred tax assets - - ========== ==========
- -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS CONTINUED
NOTE 7 - BUSINESS SEGMENT REPORTING: Company operations are no longer a single industry segment, namely, system design and manufacture of electronic products used for data conversion and display instrumentation. Direct sales to United States Government Agencies or its prime contractors in 1995, 1994 and 1993, were $ 224,152, $246,000, and $205,354, respectively. The Company entered a new business segment, namely, telecommunications providing Value Added Network Services via the Internet for the Federal Government. 1995 sales for this business segment were $ 34,045.
NOTE 8 - PER SHARE DATA: Earnings per share data are based on the average number of common shares outstanding during the year. Shares for convertible debt have been excluded in these computations since their inclusion is not material. The number of common shares outstanding for 1995 were 98,678,423, and for 1994 were 96,934,353 and for 1993 were 3,934,354.
NOTE 9 - COMMITMENTS AND CONTINGENCIES: On October 20, 1993 the Company moved into facilities in Yaphank, currently rented at $3,200 per month on a month to month basics. Rent expense for 1995 was $28,600.
NOTE 10 - GOING CONCERN There is substantial doubt about the ability of GAP Instrument Corp to continue as a going concern. As shown in the accompanying financial statements, the Company had net losses, before effects of extraordinary gain, of ($98,016), $(154,677), and $(415,457) during each of the three years ended December 31, 1995, 1994 and 1993, respectively and, as of those dates, had stockholders' (deficit) of $(241,864), $(433,718), and $(511,390), respectively. Management plans to expand its presence in the value added network area (VAN) in which management believes there is substantial growth opportunity.
NOTE 11 - RELATED PARTY TRANSACTIONS GAP Instrument Corp rents its Yaphank facility from Advanced Logic Resources, Inc. which has 31.03% ownership percentage in the Company, at a rental of $3,200 per month on a month-to-month basis.
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS GAP Instrument Corp, whose only financial instruments are cash, short-term trade receivables and payables and loans from stockholders', for which their carrying amounts approximate fair values. - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of GAP Instrument Corp
We have audited the accompanying balance sheet of GAP Instrument Corp (a New York corporation) as of December 31, 1995, and the related statements of income (loss) and accumulated deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of GAP Instrument Corp as of December 31, 1994 and 1993, were audited by other auditors whose report dated January 31, 1995, on those statements included explanatory paragraphs that described the Company's going concern issue.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of GAP Instrument Corp as of December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 10 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 10. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ SCHWAEBER SLOANE SCHULMAN & CO., PC
Great Neck NY April 29, 1996
- -------------------------------------------------------------------------------- Item 10

Item 10 - Disagreements on Accounting and Financial Disclosure NONE
Part III
Item 11

Item 11 -Directors and Executive Officers of the Registrant
* These shares are Beneficially owned by virtue of being a Director of Advanced Logic Resources, Inc. and Eloco, Inc.
^ These shares are Beneficially owned by virtue of being a Director of Elcoc Inc.
The shares of Common Stock indicated above are the only securities of GAP Instrument Corp. owned by the directors and executive officers of the registrant.
Item 12

Item 12 -Management Remuneration and Transactions
In 1995, total remuneration for all Directors and Officers was $0
Item 13

Item 13 -Security Ownership of Certain Beneficial Owners and Management
Name and Address Amount Beneficially Owned Percent of Class - --------------------- --------------------------- ----------------- Eloco, Inc. Yaphank, NY 11980 30,036,732 shares 30.44
Advanced Logic Resources, Inc. Yaphank, NY 11980 30,620,000 shares 31.03
Alan G. Binnie Ridge, NY 11961 21,604,055 shares 21.89
Lawrence Monahan 5,007,400 shares 5.07
Beneficially owned securities of GAP Instrument Corp. held by all Directors and Officers of GAP Instrument Corp. as a group:
Amount Beneficially Owned Percent of Class ---------------------------- ------------------ 65,664,132 66.54
- -------------------------------------------------------------------------------- Item 14

Item 14 - Certain Relationships and Related Transactions None
PART IV
Item 15

Item 15 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(1) Financial Statements: Reference is made to Part II, Item 9. (2) Exhibits Index: (3), (4) Reference is made to Form 10-K for 1980. (5), (9), (10), (11), (12), (13), (18), (19), (20), (22), (23), (24), (25), and (28) are not applicable.
(3) Financial Statement Schedules for the Years Ended December 1995, 1994 and 1993:
Page No.
Supplementary Profit and Loss Information 19
(4) Reports on Form 8-K: The Company filed a Report on Form 8K for the last quarter covered by these financial statements. The Company filed a Report on Form 8K subsequent to year end.
SUPPLEMENTARY PROFIT AND LOSS INFORMATION
Charged to Profit and Loss To Cost To Other of Sales Accounts Total ---------- ----------- ---------- Year ended December 1993: Maintenance and repairs $ 9,004 $ - $ 9,004 Depreciation and amortization of fixed assets 1,903 1,903
Taxes other than income taxes: Payroll 7,783 6,330 14,113 Property - 7,799 7,799 Rents 60,918 26,108 87,026 ---------- ----------- ---------- $ 79,608 $40,237 $119,845 ========== =========== ==========
Year ended December 31, 1994: Maintenance and repairs $ 2,681 - $ 2,681 Depreciation and amortization of fixed assets 1,905 - 1,905 Taxes other than income taxes: Payroll 2,248 2,248 Rents 6,000 7,000 13,000 ---------- ----------- ---------- $ 10,586 $ 9,248 $ 19,834 =========== ============ ==========
Year ended December 31, 1995: Maintenance and repairs $ - 1,056 $ 1,056 Depreciation and amortization of fixed assets - 4,675 4,675 Taxes other than income taxes: Payroll 2,312 2,312 Rents 28,600 28,600 ----------- ------------ ---------- $ - $ 36,643 $ 36,643
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ James M. Edwardson ______________________________________ Date May 1, 1996 James M. Edwardson Chairman of the Board of Directors, and Chief Operating Officer
/s/ Robert Baer ______________________________________ Date May 1, 1996 Robert Baer President
/s/ Letty A. Norjen ______________________________________ Date May 1, 1996 Letty A. Norjen Secretary and Director
/s/ Deidre C. Morrison ______________________________________ Date May 1, 1996 Deirdre C. Morrison Treasurer


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 1995, the Company had net sales of approximately $1.1 billion.
On August 1, 1995, Silgan's wholly owned subsidiary, Silgan Containers Corporation ("Containers"), acquired from American National Can Company ("ANC") substantially all of the assets of ANC's Food Metal and Specialty business ("AN Can") for approximately $349 million. See "Company History" below. AN Can manufactures and sells metal food containers and rigid plastic containers for a variety of food products and metal caps and closures for food and beverage products. The acquisition of AN Can has enabled the Company to diversify its customer base and geographic presence. The Company believes that the acquisition of AN Can will also result in the realization of cost savings for the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." On a pro forma basis after giving effect to the acquisition of AN Can, in 1995 the Company would have had net sales of approximately $1.4 billion.
Management believes that the Company is the sixth largest can producer and the largest food can producer 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 addition to the acquisition of AN Can in August 1995, Containers acquired the U.S. metal container manufacturing business of Del Monte Corporation ("Del Monte") in December 1993. 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 synergies are likely.
Metal Container Business
Management estimates that Containers is currently the sixth largest can producer and the largest manufacturer of metal food containers in North America. In 1995, Containers sold approximately 28% of all metal food containers used in the United States. On a pro forma basis after giving effect to the acquisition of AN Can, in 1995 Containers would have sold approximately 36% of all metal food containers sold in the United States. Although the food can industry in the United States is relatively mature in terms of unit sales growth, Containers, on a pro forma basis after giving effect to the acquisition of AN Can, has realized compound annual unit sales growth in excess of 16% since 1987. Types of containers manufactured include those for vegetables, fruit, pet food, meat, tomato based products, coffee, soup, seafood, 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 approximately 80% of Containers' sales in 1996 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 $131 million in its acquired manufacturing facilities and has spent approximately $307 million for the acquisition of additional can manufacturing facilities and equipment. As a result of these efforts and management's focus on quality and service, Containers has more than tripled 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 36% in 1995, on a pro forma basis after giving effect to the acquisition of AN Can.
Containers also manufacturers and sells certain specialty packaging items, including metal caps and closures, plastic bowls and paper containers primarily used by processors and packagers in the food industry. In 1995, the Company had sales of specialty items of approximately $37 million.
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, cosmetics and toiletries, household chemical containers for scouring cleaners, specialty cleaning agents, lawn and garden chemicals and pharmaceutical containers for tablets, laxatives and eye cleaning solutions. Plastics manufactures PET custom containers for mouthwash, liquid soap, skin care lotions, gastrointestinal and respiratory products, pourable and viscous salad dressings, condiments, instant coffees, premium water and liquor. 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 12% to $220 million in 1995. 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, meat, tomato based products, coffee, soup, seafood, evaporated milk and infant formula. The Company does not produce cans for use in the beer or soft drink industries.
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, conditioners, hand creams, lotions, cosmetics and toiletries, liquid soap, gastrointestinal and respiratory products, 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, condiments, instant coffee, premium 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, 1995, Containers had approximately 80% of its projected 1996 sales under multi-year contracts. Plastics has purchase orders or contracts for containers with the majority of its customers. In general, these purchase orders and contracts are for containers made from proprietary molds and are for a duration of 2 to 5 years. Both Containers and Plastics schedule their production to meet their customers' requirements. Because the production time for the Company's products is short, the backlog of customer orders in relation to sales is not significant.
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 to utilize multi-layer container construction.
The Company's decorating methods for its plastic products include (1) in-mold labeling which applies a paper or plastic film label to the bottle during the blowing process and (2) post-mold decoration. Post-mold decoration includes (i) silk screen decoration which enables the applications of images in multiple colors to the bottle, (ii) pressure sensitive decoration which uses a plastic film or paper label applied by pressure, (iii) heat transfer decoration which uses a plastic film or plastic coated paper label applied by heat, and (iv) hot stamping decoration which transfers images from a die using metallic foils. The Company has state-of-the-art decorating equipment, including, management believes, one of the largest sophisticated decorating facilities in the 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, 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 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 comparable prices or terms. The Company believes that it will be able to purchase sufficient quantities of steel and aluminum can sheet for the foreseeable future.
Plastic Container Business
The raw materials used by the Company for the manufacture of plastic containers are primarily resins in pellet form such as HDPE-PCR and virgin HDPE and PET and, to a lesser extent, low density polyethylene, extrudable polyethylene terephthalate, polyethylene terephthalate glycol, polypropylene, polyvinyl chloride and medium density polyethylene. The Company's resin requirements are acquired through multi-year arrangements for specific quantities of resins with several major suppliers of resins. The price the Company pays for resin raw materials is not fixed and is subject to market pricing. The Company believes that it will be able to purchase sufficient quantities of resins for the foreseeable future.
Sales and Marketing
The Company 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 1995, 1994 and 1993, the Company's metal container business accounted for approximately 80%, 76% and 71%, respectively, of the Company's total sales, and the Company's plastic container business accounted for approximately 20%, 24% and 29%, respectively, of the Company's total sales. On a pro forma basis after giving effect to the acquisition of AN Can, metal and plastic containers in 1995 would have accounted for approximately 84% and 16% of the Company's total sales, respectively. In 1995, 1994 and 1993, approximately 21%, 26% and 34%, respectively, of the Company's sales were to Nestle and in 1995 and 1994 approximately 15% and 21%, respectively, of the Company's sales were to Del Monte. On a pro forma basis after giving effect to the acquisition of AN Can, in 1995 approximately 17% and 11% of the Company's sales would have been to Nestle and Del Monte, respectively. 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 the largest food can producer in North America. In 1995, Containers sold approximately 28% of all metal food containers in the United States. Containers has entered into multi-year supply arrangements with many of its customers, including Nestle and Del Monte. The Company estimates that approximately 80% of its metal container sales in 1996 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 1995, sales of metal cans by the Company to Nestle were $236.0 million.
The Nestle Supply Agreements provide for certain prices and specify that such prices will be increased or decreased based upon cost change formulas set forth therein. The Nestle Supply Agreements contain provisions that require Containers to maintain certain levels of product quality, service and delivery in order to retain the Nestle business. In the event of a breach of a particular Nestle Supply Agreement, Nestle may terminate such Nestle Supply Agreement but the other Nestle Supply Agreements would remain in effect.
In 1994, the term of certain of the Nestle Supply Agreements (representing approximately 70% of the Company's 1995 unit sales to Nestle) was extended through 2001. Under these Nestle Supply Agreements, Nestle has the right to receive competitive bids under narrowly limited circumstances, and Containers has the right to match any such bids. 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. The Company cannot predict the effect, if any, of such bids upon its financial condition or results of operations. The Company is currently engaged in discussions with Nestle regarding the pricing and the extension of the term for certain can requirements under these Nestle Supply Agreements. On a pro forma basis after giving effect to the acquisition of AN Can, such can requirements would have represented approximately 6% of the Company's 1995 sales.
The Company has also commenced discussions with Nestle with respect to the continuation beyond 1997 of the other Nestle Supply Agreements, which would have represented approximately 6% of the Company's sales in 1995 on a pro forma basis after giving effect to the acquisition of AN Can. Although the Company intends to make every effort to extend these Nestle Supply Agreements on reasonable terms and conditions, there can be no assurance that these Nestle Supply Agreements will be extended.
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. In 1995, sales of metal containers by the Company to Del Monte were $159.4 million.
The DM Supply Agreement provides for certain prices for all metal containers supplied by Containers to Del Monte thereunder and specifies that such prices will be increased or decreased based upon specified cost change formulas.
Under the DM Supply Agreement, beginning in December 1998, Del Monte may, under certain circumstances, receive proposals with terms more favorable than those under the DM Supply Agreement from independent commercial can manufacturers for the supply of containers of a type and quality similar to the metal containers that Containers furnishes to Del Monte, which proposals shall be for the remainder of the term of the DM Supply Agreement and for 100% of the annual volume of containers at one or more of Del Monte's canneries. Containers has the right to retain the business subject to the terms and conditions of such competitive proposal.
The sale of metal containers to vegetable and fruit processors is seasonal and monthly revenues increase during the months of June through October. As is common in the packaging industry, the Company must build inventory and then carry accounts receivable for some seasonal customers beyond the end of the season. The acquisition of AN Can increased the Company's seasonal metal container business. Consistent with industry practice, such customers may return unused containers. Historically, such returns have been minimal.
Plastic Container Business
The Company is one of the leading manufacturers of custom designed HDPE and PET containers sold in North America. The Company markets its plastic containers in most areas of North America through a direct sales force and through a large network of distributors. 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., Andrew Jergens Inc., Chesebrough-Ponds USA Co., Dial Corp., Warner-Lambert Company and Pfizer Inc. The Company also manufactures plastic containers for food and beverage products, such as salad dressings, condiments, instant coffee and premium water and liquor. 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, 1996, the Company operated 44 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, Crown Cork and Seal Company, Inc. and Ball Corporation are the Company's most significant national competitors. As an alternative to purchasing cans from commercial can manufacturers, customers have the ability to invest in equipment to self-manufacture their cans.
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, 1995, the Company employed approximately 940 salaried and 4,170 hourly employees on a full-time basis, including approximately 1,400 employees who joined the Company on August 1, 1995 as a result of the acquisition of AN Can. Approximately 63% of the Company's hourly plant employees are represented by a variety of unions.
The Company's labor contracts expire at various times between 1996 and 2008. Contracts covering approximately 12% of the Company's hourly employees presently expire during 1996. 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. In 1989, the Company received notice that it is one of many potentially responsible parties (or similarly designated parties) for cleanup of hazardous waste at a site to which it (or its predecessor Nestle Can) is alleged to have shipped such waste and at which the Company's share of cleanup costs could exceed $100,000. See "Legal Proceedings."
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. In connection with the acquisition of AN Can, subject to certain limitations, ANC has agreed to indemnify the Company for a period of three years for the costs attributable to any noncompliance by AN Can with any environmental law prior to the closing, including costs attributable to the past waste disposal practices of AN Can.
The Company is subject to the Occupational Safety and Health Act and other laws regulating noise exposure levels and other safety and health concerns in the production areas of its plants.
Management does not believe that any of the matters described above individually or in the aggregate will have a material effect on the Company's capital expenditures, earnings, financial position or competitive position.
Research and Technology
Metal Container Business
The Company's research, product development and product engineering efforts relating to its metal containers are currently conducted at its research centers at Oconomowoc, Wisconsin; Neenah, Wisconsin and at other plant locations. The Company is building a state-of-the-art research facility in Oconomowoc, Wisconsin in order to consolidate its two main research centers into one facility.
Plastic Container Business
The Company's research, product development and product engineering efforts with respect to its plastic containers are currently performed by its manufacturing and engineering personnel located at its Norcross, Georgia facility. In addition to its own research and development staff, the Company participates in arrangements with three non-U.S. plastic container manufacturers that 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 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") and 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. 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 "1993 Credit Agreement") with the lenders from time to time party thereto (the "Banks"), Bank of America National Trust and Savings Association, as Co-Agent, and Bankers Trust Company ("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 1993 Credit Agreement to refinance and repay in full all amounts owing under their previous credit agreement.
On August 1, 1995, Containers acquired from ANC substantially all of the assets of ANC's Food Metal and Specialty business for a purchase price of approximately $349 million and the assumption of specific limited liabilities. To finance the acquisition, Silgan, Containers and Plastics (collectively, the "Borrowers") entered into a $675 million credit facility pursuant to a credit agreement, dated as of August 1, 1995 (the "Credit Agreement") with the lenders from time to time party thereto (the "Banks"), Bankers Trust, as Administrative Agent and Co-Arranger, and Bank of America Illinois, as Documentation Agent and Co-Arranger. Containers used funds borrowed under the Credit Agreement to finance in full the purchase price for its acquisition of AN Can and to refinance and repay in full all amounts owing under the 1993 Credit Agreement and Silgan's $50 million of Senior Secured Floating Rate Notes due 1997 (the "Secured Notes"). Additionally, Silgan has used borrowings under the Credit Agreement to make non-interest bearing advances to Holdings to enable Holdings to purchase $61.7 million face amount of the Discount Debentures, which Discount Debentures have been canceled.
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 30 metal container manufacturing facilities, 11 plastic container manufacturing facilities and 3 specialty packaging manufacturing facilities. Nineteen of these facilities are owned and 25 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, 1996 for its metal container business:
Approximate Building Area Location (square feet) -------- ------------- City of Industry, CA 50,000 (leased) Kingsburgh, CA 37,783 (leased) Modesto, CA 35,585 (leased) Modesto, CA 128,000 (leased) Modesto, CA 150,000 (leased) Riverbank, CA 167,000 San Leandro, CA 200,000 (leased) Stockton, CA 243,500 Broadview, IL 85,000 Hoopeston, IL 323,000 Rochelle, IL 175,000 Waukegan, IL 40,000 (leased) Woodstock, IL 160,000 (leased) Evansville, IN 188,000 Hammond, IN 160,000 (leased) Laporte, IN 144,000 (leased) Fort Madison, IA 66,000 Ft. Dodge, IA 49,500 (leased) Savage, MN 160,000 St. Paul, MN 470,000 West Point, MS 25,000 (leased) Mt. Vernon, MO 100,000 Northtown, MO 112,000 (leased) St. Joseph, MO 173,725 Edison, NJ 280,000 Crystal City, TX 26,045 (leased) Toppenish, WA 98,000 Vancouver, WA 127,000 (leased) Menomonee Falls, WI 116,000 Menomonie, WI 60,000 (leased) Oconomowoc, WI 105,200 Plover, WI 58,000 (leased) Waupun, WI 212,000
In addition to the above facilities, the Company intends to purchase from ANC its St. Louis, MO facility by June 1996.
Below is a list of the Company's operating facilities, including attached warehouses, as of February 28, 1996 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 284,000 (leased) Ligonier, IN 193,000 Seymour, IN 406,000 Franklin, KY 122,000 (leased) Port Clinton, OH 336,000 (leased) Langhorne, PA 156,000 (leased) Mississauga, Ontario 80,000 (leased) Mississauga, Ontario 60,000 (leased)
The Company owns and leases certain other warehouse facilities that are detached from its manufacturing facilities. All of the Company's facilities are subject to liens in favor of the Banks.
The Company believes that its plants, warehouses and other facilities are in good operating condition, adequately maintained, and suitable to meet its present needs and future plans. The Company believes that it has sufficient capacity to satisfy the demand for its products in the foreseeable future. To the extent that the Company needs additional capacity, management believes that the Company can convert certain facilities to continuous operation or make the appropriate capital expenditures to increase capacity.
Item 3.

Item 3. Legal Proceedings
Appraisal Petition Arising from 1989 Mergers. In connection with appraisal proceedings filed by certain former holders of 400,000 shares of stock of Silgan in respect of the 1989 Mergers, on June 15, 1995, the Delaware Court of Chancery awarded these former stockholders $5.94 per share, plus simple interest at a rate per annum of 9.5%. This award was less than the amount, $6.50 per share, that these former stockholders would have received in the 1989 Mergers. The right of these former stockholders to appeal the Chancery Court's decision has expired, and Silgan has tendered payment for such shares. Prior to the trial for the appraisal, Silgan and the former holders of 650,000 shares of Silgan's stock agreed to a settlement with respect to the value of such shares, and Silgan made payment in full in respect of such settlement.
Katell/Desert Complaint. With respect to a complaint filed by certain limited partners of The Morgan Stanley Leveraged Equity Fund, L.P. against a number of defendants, including Holdings and Silgan, 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. The plaintiffs' time to appeal the dismissal of the claims against Holdings and Silgan expired following the dismissal of the claims against certain other defendants in June 1995.
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 material pending legal proceedings to which the Company is a party or to which any of its properties are subject.
Item 4.

Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.................................... 14 Item 6.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 17 Item 8.

Item 8. Financial Statements and Supplementary Data............ 28 Item 9.

Item 10. Directors and Executive Officers of the Registrant..... 29 Item 11.

Item 12. Security Ownership of Certain Beneficial Owners and Management............................................. 37 Item 13.

Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K.................................... 47
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