UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from ________________ to ________________
Commission file number 000-22117
SILGAN HOLDINGS INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-1269834
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
4 Landmark Square
Stamford, Connecticut 06901
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (203) 975-7110
N/A
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
As of November 10, 2000, the number of shares outstanding of the Registrant's
common stock, $0.01 par value, was 17,702,897.
SILGAN HOLDINGS INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information ................................................................ 3
Item 1. Financial Statements ........................................................... 3
Condensed Consolidated Balance Sheets at September 30, 2000
and December 31, 1999 .......................................................... 3
Condensed Consolidated Statements of Income for the three
months ended September 30, 2000 and 1999 ....................................... 4
Condensed Consolidated Statements of Income for the nine
months ended September 30, 2000 and 1999 ....................................... 5
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999 ....................................... 6
Condensed Consolidated Statement of Deficiency in Stockholders'
Equity for the nine months ended September 30, 2000 ............................ 7
Notes to Condensed Consolidated Financial Statements ........................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .......................................................... 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk ..................... 25
Part II. Other Information ................................................................... 26
Item 6. Exhibits and Reports on Form 8-K ............................................... 26
Signatures .................................................................................... 27
Exhibit Index ................................................................................. 28
-2-
Part I. Financial Information
Item 1. Financial Statements
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
Sept. 30, Sept. 30, Dec. 31,
2000 1999 1999
---- ---- ----
(unaudited) (unaudited) (Note 1)
ASSETS
Current assets:
Cash and cash equivalents ............ $ 3,514 $ 6,309 $ 2,411
Trade accounts receivable, net ....... 332,475 305,206 128,095
Inventories .......................... 249,797 263,250 249,571
Prepaid expenses and other current
assets ............................ 8,941 8,564 8,864
---------- ---------- ----------
Total current assets ............. 594,727 583,329 388,941
Property, plant and equipment, net ........ 641,222 651,338 645,515
Investment in equity affiliate ............ 3,078 -- --
Other non-current assets, net ............. 140,234 146,657 150,829
---------- ---------- ----------
$1,379,261 $1,381,324 $1,185,285
========== ========== ==========
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ............... $ 135,169 $ 129,517 $ 175,430
Accrued payroll and related costs .... 52,749 46,127 56,100
Accrued interest payable ............. 15,505 16,151 10,998
Accrued expenses and other current
liabilities ....................... 16,188 22,860 25,093
Bank revolving loans ................. 214,900 200,241 --
Current portion of long-term debt .... 38,054 31,807 39,351
---------- ---------- ----------
Total current liabilities ........ 472,565 446,703 306,972
Long-term debt ............................ 843,452 893,729 843,909
Other long-term liabilities ............... 83,926 90,471 83,138
Deficiency in stockholders' equity:
Common stock ......................... 204 201 201
Additional paid-in capital ........... 118,349 118,666 118,666
Accumulated deficit .................. (77,990) (108,797) (108,010)
Accumulated other comprehensive
(loss) ............................. (852) (390) (273)
Treasury stock ....................... (60,393) (59,259) (59,318)
---------- --------- ----------
Total deficiency in stockholders'
equity ......................... (20,682) (49,579) (48,734)
---------- --------- ----------
$1,379,261 $1,381,324 $1,185,285
========== ========== ==========
See accompanying notes.
-3-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per common share amounts)
Three Months Ended
------------------
Sept. 30, Sept. 30,
2000 1999
---- ----
Net sales .............................................. $562,375 $571,666
Cost of goods sold ..................................... 487,867 496,988
-------- --------
Gross profit ...................................... 74,508 74,678
Selling, general and administrative expenses ........... 17,732 17,947
Reduction in carrying value of assets .................. -- 24,214
-------- --------
Income from operations ............................ 56,776 32,517
Interest expense and other related financing costs ..... 23,500 22,785
-------- --------
Income before income taxes and equity in
losses of affiliate ............................. 33,276 9,732
Income tax provision ................................... 12,978 3,699
-------- --------
Income before equity in losses of affiliate ....... 20,298 6,033
Equity in losses of affiliate .......................... 1,813 --
-------- --------
Net income ........................................ $ 18,485 $ 6,033
======== ========
Per common share data:
Basic earnings per common share ................... $1.04 $0.34
===== =====
Diluted earnings per common share ................. $1.03 $0.34
===== =====
Weighted average shares used in computation (000's):
Basic ............................................. 17,703 17,515
Effect of dilutive employee stock options ......... 289 475
------ ------
Diluted ........................................... 17,992 17,990
====== ======
See accompanying notes.
-4-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per common share amounts)
Nine Months Ended
-----------------
Sept. 30, Sept. 30,
2000 1999
---- ----
Net sales .............................................. $1,395,527 $1,403,389
Cost of goods sold ..................................... 1,219,658 1,221,043
---------- ----------
Gross profit ...................................... 175,869 182,346
Selling, general and administrative expenses ........... 54,085 55,263
Reduction in carrying value of assets .................. -- 24,214
---------- ----------
Income from operations ............................ 121,784 102,869
Interest expense and other related financing costs ..... 66,097 65,085
---------- ----------
Income before income taxes and equity in
losses of affiliate ............................. 55,687 37,784
Income tax provision ................................... 21,719 14,641
---------- ----------
Income before equity in losses of affiliate ....... 33,968 23,143
Equity in losses of affiliate .......................... 3,948 --
---------- ----------
Net income ........................................ $ 30,020 $ 23,143
========== ==========
Per common share data:
Basic earnings per common share ................... $1.70 $1.30
===== =====
Diluted earnings per common share ................. $1.67 $1.27
===== =====
Weighted average shares used in computation (000's):
Basic ............................................. 17,634 17,757
Effect of dilutive employee stock options ......... 365 494
------ ------
Diluted ........................................... 17,999 18,251
====== ======
See accompanying notes.
-5-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine Months Ended
-----------------
Sept. 30, Sept. 30,
2000 1999
---- ----
Cash flows from operating activities:
Net income ........................................ $ 30,020 $ 23,143
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation .................................. 62,350 60,227
Amortization .................................. 4,115 4,125
Reduction in carrying value of assets ......... -- 24,214
Equity in losses of affiliate ................. 3,948 --
Changes in assets and liabilities:
(Increase) in trade accounts receivable ... (204,380) (171,202)
(Increase) in inventories ................. (226) (14,549)
(Increase) decrease in other
non-current assets .................... (7,784) 7,469
(Decrease) in trade accounts payable ...... (40,261) (55,026)
Other, net ................................ 6,461 2,689
--------- ---------
Total adjustments ..................... (175,777) (142,053)
--------- ---------
Net cash used in operating activities ......... (145,757) (118,910)
--------- ---------
Cash flows from investing activities:
Investment in equity affiliate .................... (7,026) --
Capital expenditures .............................. (60,401) (61,899)
Proceeds from sale of assets ...................... 1,167 262
--------- ---------
Net cash used in investing activities ......... (66,260) (61,637)
--------- ---------
Cash flows from financing activities:
Borrowings under revolving loans .................. 682,824 729,609
Repayments under revolving loans .................. (467,924) (529,368)
Purchases of treasury stock ....................... (1,075) (16,504)
Proceeds from stock option exercises .............. 512 514
Repayments of long-term debt ...................... (1,217) (2,148)
--------- ---------
Net cash provided by financing activities ..... 213,120 182,103
--------- ---------
Net increase in cash and cash equivalents .............. 1,103 1,556
Cash and cash equivalents at beginning of year ......... 2,411 4,753
--------- ---------
Cash and cash equivalents at end of period ............. $ 3,514 $ 6,309
========= =========
Supplementary data:
Cash interest payments ............................ $ 60,548 $ 58,241
Cash income tax payments, net of refunds .......... 8,505 4,042
See accompanying notes.
-6-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
(Unaudited, see Note 1)
(Dollars and shares in thousands)
Common stock Accumulated Total
------------ Additional other deficiency in
Par paid-in Accumulated comprehensive Treasury stockholders'
Shares value capital deficit (loss) stock equity
------ ----- ------- ------- ---- ----- ------
Balance at December 31, 1999 17,547 $201 $118,666 $(108,010) $(273) $(59,318) $(48,734)
Comprehensive income:
Net income ........................... 30,020 30,020
Foreign currency translation ......... (579) (579)
--------
Comprehensive income .................... 29,441
Issuance of common shares
under stock option plan,
including income tax
provision of $826 ..................... 256 3 (317) (314)
Purchase of treasury stock .............. (100) (1,075) (1,075)
------ ---- -------- --------- ----- -------- --------
Balance at September 30, 2000 ........... 17,703 $204 $118,349 $ (77,990) $(852) $(60,393) $(20,682)
====== ==== ======== ========= ===== ======== ========
See accompanying notes.
-7-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2000 and 1999 and for the
three and nine months then ended is unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Silgan
Holdings Inc. ("Holdings" or the "Company") have been prepared in accordance
with accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, the
accompanying financial statements include all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation. The results of
operations for any interim period are not necessarily indicative of the results
of operations for the full year.
The condensed consolidated balance sheet at December 31, 1999 has been derived
from the Company's audited financial statements at that date, but does not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements.
The accompanying financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Holdings'
Annual Report on Form 10-K for the year ended December 31, 1999.
2. Rationalization and Acquisition Reserves
As part of its plan to integrate and rationalize the operations of its various
acquired businesses, the Company has established reserves for employee
termination and severance, plant exit costs and assumed liabilities. These costs
are expected to be incurred or realized principally through 2001. Activity in
the Company's rationalization and acquisition reserves since December 31, 1999
is summarized as follows:
Employee
Termination
and Plant Exit Assumed
Severance Costs Liabilities Total
----------- ---------- ----------- -----
(Dollars in thousands)
Balance at December 31, 1999 .... $ 4,347 $10,750 $ 6,956 $22,053
Utilized ........................ (2,860) (3,130) (2,152) (8,142)
------- ------- ------- -------
Balance at September 30, 2000 ... $ 1,487 $ 7,620 $ 4,804 $13,911
======= ======= ======= =======
-8-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2000 and 1999 and for the
three and nine months then ended is unaudited)
2. Rationalization and Acquisition Reserves (continued)
Rationalization and acquisition reserves are included in the Condensed
Consolidated Balance Sheets as follows:
Sept. 30, Dec. 31,
2000 1999
---- ----
(Dollars in thousands)
Accrued expenses and other current liabilities ...... $ 7,797 $14,523
Other long-term liabilities ......................... 6,114 7,530
------- -------
$13,911 $22,053
======= =======
3. Investment in E-Commerce Packaging Venture
On April 5, 2000, the Company announced that it would invest up to $20.0 million
for a minority interest in a neutral, independent e-commerce joint venture,
Packtion Corporation ("Packtion"), with Morgan Stanley Dean Witter Private
Equity and Diamond Technology Partners. The new company, which has over $52.7
million in combined funding commitments, is expected to provide comprehensive
online solutions for the global packaging value chain.
On June 2, 2000, the Company funded its initial equity investment of $3.5
million for approximately 45% of the interests in Packaging Markets LLC, the
parent company of Packtion. On August 28, 2000, the Company funded an additional
equity investment of $3.5 million as part of a capital contribution to Packaging
Markets LLC by its members, and maintained its 45% ownership of the interests in
Packaging Markets LLC. During the third quarter of 2000, the Company recorded
its equity in losses of Packtion of $1.8 million. For the nine months ended
September 30, 2000, the Company recorded its equity in losses of Packtion
aggregating $3.9 million.
-9-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2000 and 1999 and for the
three and nine months then ended is unaudited)
4. Comprehensive Income
Comprehensive income is reported in the Condensed Consolidated Statement of
Deficiency in Stockholders' Equity. Amounts included in accumulated other
comprehensive (loss) at September 30, 2000 and 1999 and December 31, 1999
consist of the following:
Sept. 30, Sept. 30, Dec. 31,
2000 1999 1999
---- ---- ----
(Dollars in thousands)
Foreign currency translation ................. $(752) $(370) $(173)
Additional minimum pension liability ......... (100) (20) (100)
----- ----- -----
Accumulated other comprehensive (loss) .... $(852) $(390) $(273)
===== ===== =====
The components of comprehensive income for the three and nine months ended
September 30, 2000 and 1999 are as follows:
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
---- ---- ---- ----
(Dollars in thousands)
Net income ....................... $18,485 $6,033 $30,020 $23,143
Foreign currency translation ..... (249) 46 (579) 333
------- ------ ------- -------
Comprehensive income .......... $18,236 $6,079 $29,441 $23,476
======= ====== ======= =======
-10-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2000 and 1999 and for the
three and nine months then ended is unaudited)
5. Inventories
Inventories consisted of the following:
Sept. 30, Sept. 30, Dec. 31,
2000 1999 1999
---- ---- ----
(Dollars in thousands)
Raw materials ........................ $ 36,242 $ 44,033 $ 33,453
Work-in-process ...................... 50,279 49,986 49,799
Finished goods ....................... 144,397 153,714 148,135
Spare parts and other ................ 11,743 10,769 10,493
-------- -------- --------
242,661 258,502 241,880
Adjustment to value inventory
at cost on the LIFO method ........ 7,136 4,748 7,691
-------- -------- --------
$249,797 $263,250 $249,571
======== ======== ========
6. Long-Term Debt
Long-term debt consisted of the following:
Sept. 30, Sept. 30, Dec. 31,
2000 1999 1999
---- ---- ----
(Dollars in thousands)
Bank debt:
Bank Revolving Loans ............... $ 340,100 $ 335,800 $125,200
Bank A Term Loans .................. 194,047 223,900 194,047
Bank B Term Loans .................. 190,495 192,449 190,495
Canadian Bank Facility ............. 12,558 14,422 14,312
---------- ---------- --------
Total bank debt ................. 737,200 766,571 524,054
Subordinated debt:
9% Senior Subordinated Debentures .. 300,000 300,000 300,000
13 1/4% Subordinated Debentures
(Note 10) ....................... 56,206 56,206 56,206
Other .............................. 3,000 3,000 3,000
---------- ---------- --------
Total subordinated debt ......... 359,206 359,206 359,206
Total debt .............................. 1,096,406 1,125,777 883,260
Less: Amounts to be repaid within
one year ........................ 252,954 232,048 39,351
---------- ---------- --------
$ 843,452 $ 893,729 $843,909
========== ========== ========
-11-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2000 and 1999 and for the
three and nine months then ended is unaudited)
6. Long-Term Debt (continued)
At September 30, 2000, bank revolving loans consisted of $214.9 million related
primarily to seasonal working capital needs and $125.2 million related to
long-term financing of acquisitions. At September 30, 2000, amounts expected to
be repaid within one year consisted of $214.9 million of bank revolving loans
and $38.1 million of bank term loans. Bank revolving loans not expected to be
repaid within one year have been recorded as long-term debt.
7. Income Taxes
For the three months ended September 30, 2000 and 1999, the provision for income
taxes was recorded at an effective tax rate of 39.0% and 38.0%, respectively.
The provision for income taxes for the nine months ended September 30, 2000 and
1999 was recorded at an effective tax rate of 39.0% and 38.7%, respectively.
8. Deficiency in Stockholders' Equity
In 1998, the Company's Board of Directors authorized the repurchase by the
Company of up to $60.0 million of its common stock. In 1999, the Company's Board
of Directors authorized the repurchase by the Company of up to an additional
$10.0 million of its common stock, for a total of $70.0 million. Through
September 30, 2000, the Company had repurchased 2,708,975 shares of its common
stock for $61.0 million. The Company's repurchases of common stock are recorded
as treasury stock and result in an increase in deficiency in stockholders'
equity.
-12-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2000 and 1999 and for the
three and nine months then ended is unaudited)
9. Business Segment Information
Presented below is a table setting forth reportable business segment profit
(loss) for the three and nine months ended September 30, 2000 and 1999 for the
Company's three business segments.
Metal Food Plastic Specialty
Containers(1) Containers Packaging Other(2) Total
---------- ---------- --------- ----- -----
(Dollars in millions)
Three Months Ended
September 30, 2000
- ------------------
Net sales ................................ $ 445.3 $ 85.8 $ 31.2 $ -- $ 562.3
EBITDA(3) ................................ 62.6 13.8 2.7 (0.6) 78.5
Depreciation and amortization(4) ......... 13.4 5.8 2.4 0.1 21.7
Segment profit (loss) .................... 49.2 8.0 0.3 (0.7) 56.8
Three Months Ended
September 30, 1999
- ------------------
Net sales ................................ $ 456.2 $ 79.1 $ 36.4 $ -- $ 571.7
EBITDA(3) ................................ 58.1 15.7 4.6 (0.7) 77.7
Depreciation and amortization(4) ......... 12.4 6.2 2.4 -- 21.0
Segment profit (loss) .................... 45.7 9.5 2.2 (0.7) 56.7
Nine Months Ended
September 30, 2000
- ------------------
Net sales ................................ $1,044.5 $256.5 $ 94.5 $ -- $1,395.5
EBITDA(3) ................................ 136.7 43.9 9.0 (2.5) 187.1
Depreciation and amortization(4) ......... 39.6 18.2 7.4 0.1 65.3
Segment profit (loss) .................... 97.1 25.7 1.6 (2.6) 121.8
Nine Months Ended
September 30, 1999
- ------------------
Net sales ................................ $1,058.3 $242.0 $103.1 $ -- $1,403.4
EBITDA(3) ................................ 131.5 48.1 13.5 (2.8) 190.3
Depreciation and amortization(4) ......... 38.1 17.7 7.3 0.1 63.2
Segment profit (loss) .................... 93.4 30.4 6.2 (2.9) 127.1
-13-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2000 and 1999 and for the
three and nine months then ended is unaudited)
9. Business Segment Information (continued)
(1)Excludes a non-cash charge of $24.2 million for the reduction in the
carrying value of certain assets of the metal food container business
recorded in 1999.
(2)The other category provides information pertaining to the corporate
holding company.
(3)EBITDA means earnings before interest, taxes, depreciation and
amortization.
(4)Depreciation and amortization excludes debt cost amortization of $0.4
million for each of the three months ended September 30, 2000 and 1999
and $1.2 million for each of the nine months ended September 30, 2000 and
1999.
Total segment profit is reconciled to income before income taxes and equity in
losses of affiliate as follows:
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
---- ---- ---- ----
(Dollars in millions)
Total segment profit ................... $56.8 $56.7 $121.8 $127.1
Reduction in carrying value of assets
of metal food container business ..... -- 24.2 -- 24.2
Interest expense and other related
financing costs ...................... 23.5 22.8 66.1 65.1
----- ----- ------ ------
Income before income taxes and
equity in losses of affiliate .... $33.3 $ 9.7 $ 55.7 $ 37.8
===== ===== ====== ======
10. Subsequent Events
Acquisition of RXI Holdings, Inc. Effective October 1, 2000, Silgan
Plastics Corporation, a wholly owned subsidiary of Holdings, acquired all of the
outstanding stock of RXI Holdings, Inc., a Delaware corporation ("RXI
Holdings"), for approximately $125.0 in cash. The Company funded the purchase
price for RXI Holdings using revolving loans under its U.S. senior secured bank
credit facility (the "U.S. Credit Agreement"). The transaction will be accounted
for using the purchase method of accounting, and the purchase price will be
allocated to the tangible and intangible assets acquired and liabilities assumed
based on their fair value.
-14-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2000 and 1999 and for the
three and nine months then ended is unaudited)
10. Subsequent Events (continued)
RXI Holdings through its subsidiary, RXI Plastics, Inc., a Delaware
corporation, is a manufacturer and seller of rigid plastic packaging, including
plastic bottles and closures for the pet care, food, personal care, household
and industrial chemical, agricultural chemical and automotive industries as well
as thermoformed plastic containers. RXI Holdings had net sales of $102.4 million
for its fiscal year ended June 30, 2000. The operations of RXI Holdings are
conducted at seven manufacturing facilities in the United States. The facilities
are located in Richmond, Virginia; Triadelphia, West Virginia; Plainfield,
Indiana; Ottawa, Ohio; Cape Girardeau, Missouri; Houston, Texas; and Valencia,
California.
U.S. Credit Agreement. Pursuant to the U.S. Credit Agreement, the
Company has the right at any time to request one or more lenders to increase
their revolving loan commitments thereunder by up to an aggregate of $200.0
million. In October 2000, certain lenders agreed pursuant to the Company's
request to increase their revolving loan commitments under the U.S. Credit
Agreement by an aggregate of $125.0 million. Accordingly, under the U.S. Credit
Agreement, the Company currently has available to it up to $670.5 million of
bank revolving loans. The Company also has $4.3 million of bank revolving loans
available to it under its Canadian bank facility. Bank revolving loans may be
used by the Company for working capital needs, acquisitions, common stock
repurchases and other permitted purposes. Bank revolving loans may be borrowed,
repaid and reborrowed until December 31, 2003, their final maturity date under
both facilities.
Redemption of 13 1/4% Subordinated Debentures. On November 3, 2000, the
Company gave irrevocable notice to redeem all $56.2 million principal amount of
its outstanding 13 1/4% Subordinated Debentures due 2006 (the "13 1/4%
Debentures"). The Company has fixed December 8, 2000 as the date for this
redemption. The redemption price for all of the 13 1/4% Debentures is 109.938%
of their principal amount, or approximately $61.8 million, plus accrued and
unpaid interest to the redemption date. As permitted under the U.S. Credit
Agreement and the other documents governing the Company's indebtedness, the
Company will fund the redemption of all of the 13 1/4% Debentures with lower
cost revolving loans under its U.S. Credit Agreement. In the fourth quarter of
2000, the Company will incur an extraordinary charge, net of tax, of
approximately $4.2 million, or $0.23 per diluted share, for the premium to be
paid in connection with this redemption and for the write-off of unamortized
financing costs related to the 13 1/4% Debentures.
-15-
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Statements included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Quarterly Report on
Form 10-Q which are not historical facts are "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and Securities Exchange Act of 1934. Such forward-looking
statements are made based upon management's expectations and beliefs concerning
future events impacting the Company and therefore involve a number of
uncertainties and risks, including, but not limited to, those described in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999
and the Company's other filings with the Securities and Exchange Commission. As
a result, the actual results of operations or financial condition of the Company
could differ materially from those expressed or implied in such forward-looking
statements.
RESULTS OF OPERATIONS - THREE MONTHS
Summary unaudited results of operations for the Company's three business
segments, metal food containers, plastic containers and specialty packaging, for
the three months ended September 30, 2000 and 1999 are provided below.
Three Months Ended September 30,
--------------------------------
2000 1999
---- ----
(In millions)
Net sales:
Metal food containers ..................... $445.3 $456.2
Plastic containers ........................ 85.8 79.1
Specialty packaging ....................... 31.2 36.4
------ ------
Consolidated ........................... $562.3 $571.7
====== ======
Operating profit:
Metal food containers (a) ................. $ 49.2 $ 21.5
Plastic containers ........................ 8.0 9.5
Specialty packaging ....................... 0.3 2.2
Other ..................................... (0.7) (0.7)
------ ------
Consolidated ............................ $ 56.8 $ 32.5
====== ======
- ----------
(a) Includes a non-cash charge of $24.2 million for the reduction in the
carrying value of certain assets of the metal food container business
recorded in 1999.
-16-
Three Months Ended September 30, 2000 Compared with Three Months Ended September
30, 1999
Net Sales. Consolidated net sales for the three months ended September 30, 2000
decreased $9.4 million, or 1.6%, to $562.3 million as compared to the third
quarter of 1999 as a result of lower net sales of the metal food container and
specialty packaging businesses, offset in part by higher net sales of the
plastic container business.
Net sales for the metal food container business were $445.3 million for the
three months ended September 30, 2000, a decrease of $10.9 million, or 2.4%,
from net sales of $456.2 million for the same period in 1999. The decrease in
third quarter net sales was primarily attributable to lower unit sales
principally because of a reduced fruit and vegetable pack as compared to the
prior year and the loss of lower margin sales related to the closure of a West
Coast facility earlier this year.
Net sales for the plastic container business of $85.8 million during the three
months ended September 30, 2000 increased $6.7 million, or 8.5%, from net sales
of $79.1 million for the same period in 1999. The increase in net sales was
principally attributable to higher prices due to the pass through of increased
resin costs, and was partially offset by lower unit sales to certain major
customers who were adjusting their inventory levels and due to fewer new
products being introduced by customers as compared to the prior year.
Net sales for the specialty packaging business decreased $5.2 million, or 14.3%,
to $31.2 million during the three months ended September 30, 2000, as compared
to $36.4 million for the same period in 1999. This decrease was primarily due to
generally soft demand from customers and to lower unit sales of metal closures
as a result of conversions from metal to plastic.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 86.8% ($487.9 million) for the three months ended September 30, 2000, a
decrease of 0.1 percentage points as compared to 86.9% ($497.0 million) for the
same period in 1999. The slight increase in gross profit margin was primarily
attributable to the metal food container business principally as a result of an
improved sales mix and benefits realized from plant rationalizations. This
improvement was largely offset by the effect of increased resin costs of the
plastic container business, lower unit sales of the Company's three business
segments and operating inefficiencies at one plant of the specialty packaging
business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales increased
slightly to 3.2% ($17.7 million) for the three months ended September 30, 2000,
as compared to 3.1% ($17.9 million) for the three months ended September 30,
1999.
-17-
Income from Operations. Income from operations for the three months ended
September 30, 2000 was $56.8 million, as compared to $56.7 million for the same
period in 1999 excluding the effect of the non-cash charge in 1999 of $24.2
million to write down the carrying value of certain assets of the metal food
container business described below. Including the effect of the non-cash charge,
income from operations for the three months ended September 30, 1999 was $32.5
million. Income from operations as a percentage of consolidated net sales
increased to 10.1% for the three months ended September 30, 2000, as compared to
9.9% for the same period in 1999 excluding the effect of the non-cash charge.
During the third quarter of 1999, the Company completed a study initiated
earlier that year to evaluate the long-term utilization of all assets of its
metal food container business, including assets acquired through acquisitions.
As a result, the Company recorded a non-cash charge to earnings in the third
quarter of 1999 of $24.2 million to reduce the carrying value of those assets
determined to be surplus or obsolete.
Income from operations for the metal food container business for the three
months ended September 30, 2000 increased $3.5 million, or 7.7%, to $49.2
million, as compared to $45.7 million for the same period in 1999 excluding the
effect of the non-cash charge. Including the effect of the non-cash charge,
income from operations of the metal food container business for the three months
ended September 30, 1999 was $21.5 million. Income from operations as a
percentage of net sales of the metal food container business increased 1.0
percentage point to 11.0% for the three months ended September 30, 2000, as
compared to 10.0% for the same period in 1999 excluding the effect of the
non-cash charge. The increase in operating income and improvement in operating
margins of the metal food container business was primarily a result of an
improved sales mix and benefits realized from plant rationalizations, offset in
part by other higher manufacturing costs, including energy costs.
Income from operations for the plastic container business for the three months
ended September 30, 2000 was $8.0 million, as compared to $9.5 million for the
third quarter of 1999. Income from operations as a percentage of net sales of
the plastic container business declined 2.7 percentage points to 9.3% in the
third quarter of 2000, as compared to 12.0% in the third quarter of 1999. This
decline was due to the effect of sharply increased resin prices, lower selling
prices resulting from competitive pricing and higher per unit manufacturing
costs primarily as a result of lower unit production.
Income from operations for the specialty packaging business for the three months
ended September 30, 2000 was $0.3 million, as compared to $2.2 million in the
same period in the prior year. This decrease was primarily due to the effect of
lower net sales and operating inefficiencies at one plant. Operating margins of
the specialty packaging business declined to 0.1% in the third quarter of 2000
as compared to 6.0% in the third quarter of 1999 for the reasons mentioned
above.
-18-
Interest Expense. Interest expense increased $0.7 million to $23.5 million for
the three months ended September 30, 2000 as compared to the same period in
1999. Lower average borrowings outstanding during the quarter due to repayments
made late in the prior year and to lower net working capital usage this year
offset much of the effect of higher current period interest rates.
Income Taxes. The provision for income taxes for the three months ended
September 30, 2000 and 1999 was recorded at an effective tax rate of 39.0% and
38.0%, respectively ($13.0 million and $3.7 million, respectively).
Net Income and Earnings per Share. Income before equity in losses of affiliate
for the three months ended September 30, 2000 was $20.3 million, or $1.13 per
diluted share, as compared to $21.0 million, or $1.17 per diluted share, for the
same period in 1999 excluding the effect of the non-cash charge described above.
Including the Company's equity in losses of affiliate of $1.8 million, net
income for the three months ended September 30, 2000 was $18.5 million, or $1.03
per diluted share. Including the effect of the non-cash charge, net income for
the three months ended September 30, 1999 was $6.0 million, or $0.34 per diluted
share.
RESULTS OF OPERATIONS - NINE MONTHS
Summary unaudited results of operations for the Company's three business
segments, metal food containers, plastic containers and specialty packaging, for
the nine months ended September 30, 2000 and 1999 are provided below.
Nine Months Ended September 30,
-------------------------------
2000 1999
---- ----
(In millions)
Net sales:
Metal food containers ................. $1,044.5 $1,058.3
Plastic containers .................... 256.5 242.0
Specialty packaging ................... 94.5 103.1
-------- --------
Consolidated ....................... $1,395.5 $1,403.4
======== ========
Operating profit:
Metal food containers(a) .............. $ 97.1 $ 69.2
Plastic containers .................... 25.7 30.4
Specialty packaging ................... 1.6 6.2
Other ................................. (2.6) (2.9)
-------- --------
Consolidated ........................ $ 121.8 $ 102.9
======== ========
(a) Includes a non-cash charge of $24.2 million for the reduction in the
carrying value of certain assets of the metal food container business
recorded in 1999.
-19-
Nine Months Ended September 30, 2000 Compared with Nine Months Ended September
30, 1999
Net Sales. Consolidated net sales decreased $7.9 million, or 0.1%, to $1,395.5
million for the nine months ended September 30, 2000, as compared to net sales
of $1,403.4 million for the same nine months in the prior year. This slight
decrease was primarily attributable to lower unit sales of the Company's three
business segments which was mostly offset by higher prices of the plastic
container business due to the pass through of increased resin costs.
Net sales for the metal food container business were $1,044.5 million for the
nine months ended September 30, 2000, a decrease of $13.8 million, or 1.3%, from
net sales of $1,058.3 million for the same period in 1999. This decrease was
primarily due to the loss of lower margin sales related to the closure of a West
Coast facility earlier this year and to lower unit sales principally because of
a reduced fruit and vegetable pack as compared to the prior year and generally
lower demand.
Net sales for the plastic container business of $256.5 million during the nine
months ended September 30, 2000 increased $14.5 million, or 6.0%, from net sales
of $242.0 million for the same period in 1999. The increase in net sales was
principally attributable to higher prices due to the pass through of increased
resin costs and to a favorable sales mix, and was offset in part by lower unit
sales to certain major customers who were adjusting their inventory levels and
due to fewer new products being introduced by customers as compared to the prior
year.
Net sales for the specialty packaging business decreased $8.6 million, or 8.3%,
to $94.5 million during the nine months ended September 30, 2000, as compared to
$103.1 million for the same period in 1999. This decrease was primarily
attributable to lower unit sales as a result of generally soft demand from
customers, the conversion of metal closures to plastic and a change in sales mix
during the current period as compared to the same period in 1999.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 87.4% ($1,219.7 million) for the nine months ended September 30, 2000, an
increase of 0.4 percentage points as compared to 87.0% ($1,221.0 million) for
the same period in 1999. The decline in gross profit margins was primarily
attributable to the effect of increased resin costs of the plastic container
business and lower unit sales of the Company's three business segments.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales remained
constant at 3.9% for the nine months ended September 30, 2000 and 1999 ($54.1
million and $55.3 million, respectively).
Income from Operations. Income from operations for the nine months ended
September 30, 2000 was $121.8 million, as compared to $127.1 million for the
same period in 1999 excluding the effect of the non-cash charge in 1999 of $24.2
-20-
million to write down the carrying value of certain assets of the metal food
container business described above. Including the effect of the non-cash charge,
income from operations for the nine months ended September 30, 1999 was $102.9
million. Income from operations as a percentage of consolidated net sales
decreased to 8.7% for the nine months ended September 30, 2000, as compared to
9.1% for the same period in 1999 excluding the effect of the non-cash charge.
Income from operations for the metal food container business for the nine months
ended September 30, 2000 increased $3.7 million, or 4.0%, to $97.1 million, as
compared to $93.4 million for the same period in 1999 excluding the effect of
the non-cash charge. Including the effect of the non-cash charge, income from
operations of the metal food container business for the nine months ended
September 30, 1999 was $69.2 million. Income from operations as a percentage of
net sales of the metal food container business increased 0.5 percentage points
to 9.3% for the nine months ended September 30, 2000, as compared to 8.8% for
the same period in 1999 excluding the effect of the non-cash charge. The
increase in operating income and improvement in operating margins of the metal
food container business was primarily a result of an improved sales mix,
benefits realized from plant rationalizations and lower selling, general and
administrative expenses, offset in part by increased per unit manufacturing
costs due to a planned reduction in inventory and by higher depreciation
expense.
Income from operations for the plastic container business for the nine months
ended September 30, 2000 was $25.7 million, as compared to $30.4 for the same
period in 1999. Income from operations as a percentage of net sales for the
plastic container business for the nine months ended September 30, 2000
decreased 2.6 percentage points to 10.0%, as compared to 12.6% for the same
period in 1999. The decrease in income from operations as a percentage of net
sales was principally attributable to the effects of lower unit sales, increased
resin costs, lower selling prices resulting from competitive pricing and higher
depreciation.
Income from operations for the specialty packaging business for the nine months
ended September 30, 2000 was $1.6 million, as compared to $6.2 million for the
same nine months in 1999. Income from operations as a percentage of net sales
for the specialty packaging business decreased to 1.7% for the nine months ended
September 30, 2000, as compared to 6.0% for the same period in 1999. This
decrease was primarily due to the effects of lower net sales, a change in sales
mix and operating inefficiencies at one plant.
Interest Expense. Interest expense increased $1.0 million to $66.1 million for
the nine months ended September 30, 2000 as compared to the same period in 1999.
Lower average borrowings outstanding during the current year period due to
repayments made late in the prior year and to lower net working capital usage
this year offset much of the effect of higher current period interest rates.
Income Taxes. The provision for income taxes for the nine months ended September
30, 2000 and 1999 was recorded at an effective tax rate of 39.0% and 38.7%,
respectively ($21.7 million and $14.6 million, respectively).
-21-
Net Income and Earnings per Share. Income before equity in losses of affiliate
for the nine months ended September 30, 2000 was $33.9 million, or $1.89 per
diluted share, as compared to $38.2 million, or $2.09 per diluted share, for the
same period in 1999 excluding the effect of the non-cash charge described above.
Including the Company's equity in losses of affiliate of $3.9 million, net
income for the nine months ended September 30, 2000 was $30.0 million, or $1.67
per diluted share. Including the effect of the non-cash charge, net income for
the nine months ended September 30, 2000 was $23.1 million, or $1.27 per diluted
share.
CAPITAL RESOURCES AND LIQUIDITY
The Company's liquidity requirements arise primarily from its obligations under
the indebtedness incurred in connection with its acquisitions and the
refinancing of such indebtedness, capital investment in new and existing
equipment and the funding of the Company's seasonal working capital needs.
Historically, the Company has met these liquidity requirements through cash flow
generated from operating activities and revolving loan borrowings.
For the nine months ended September 30, 2000, the Company used net borrowings of
revolving loans of $214.9 million under the Company's credit agreements,
proceeds from asset sales of $1.2 million and proceeds from the exercise of
stock options of $0.5 million to fund cash used by operations of $145.8 million
for the Company's seasonal working capital needs, the Company's investment of
$7.0 million in Packtion, an e-commerce packaging venture, repurchases of common
stock for $1.1 million, the repayment of $1.2 million of long-term debt and
capital expenditures of $60.4 million and to increase cash balances by $1.1
million.
Because the Company sells metal containers used in fruit and vegetable pack
processing, its sales are seasonal. As is common in the industry, the Company
must access working capital to build inventory and then carry accounts
receivable for some customers beyond the end of the summer and fall packing
season. Seasonal accounts are generally settled by year end. Due to the
Company's seasonal requirements, the Company expects to incur short-term
indebtedness to finance its working capital requirements.
The Company utilizes its revolving loan facilities for seasonal working capital
needs and for other general corporate purposes, including acquisitions and
repurchases of its common stock. During the third quarter of 2000, at its
month-end peak the Company had incurred approximately $215 million of revolving
loan borrowings for seasonal working capital needs. Amounts available under the
Company's revolving loan facilities in excess of its seasonal working capital
needs are available to the Company to pursue its growth strategy and for other
permitted purposes.
As of September 30, 2000, the Company had $340.1 million of revolving loans
outstanding, of which $214.9 million related primarily to seasonal working
capital needs and $125.2 million related to long-term financing of acquisitions.
Revolving loans not expected to be repaid within one year have been recorded as
long-term debt. The unused portion of revolving loan commitments under the
Company's credit agreements at September 30, 2000, after taking into account
-22-
outstanding letters of credit but before the increase in October 2000 in the
Company's revolving loan facility under the U.S. Credit Agreement, was $192.9
million.
In October 2000, pursuant to the agreement of certain lenders under the U.S.
Credit Agreement the Company's revolving loan facility thereunder was increased
by $125.0 million from $545.5 million to $670.5 million in accordance with the
terms of the U.S. Credit Agreement.
Effective October 1, 2000, the Company acquired all of the outstanding stock of
RXI Holdings, a manufacturer and seller of rigid plastic packaging, for
approximately $125.0 in cash. The Company funded the purchase price for RXI
Holdings using revolving loans under its U.S. Credit Agreement.
On November 3, 2000, the Company gave irrevocable notice to redeem all of its
outstanding 13 1/4% Debentures ($56.2 million principal amount), at a redemption
price of 109.938% of their principal amount, or approximately $61.8 million,
plus accrued and unpaid interest to the redemption date. The Company has fixed
December 8, 2000 as the date for this redemption. As permitted under the U.S.
Credit Agreement and the other documents governing the Company's indebtedness,
the Company will fund the redemption price for all of the 13 1/4% Debentures
with lower cost revolving loans under the U.S. Credit Agreement. Based on the
current interest rates for its revolving loans under the U.S. Credit Agreement,
the Company estimates annual interest savings of approximately $2.6 million on
the indebtedness being refinanced as a result of this redemption. After this
redemption, the Company estimates that approximately $120-$130 million, taking
into account the Company's anticipated month-end peak seasonal borrowing needs,
of its revolving loan facility under its U.S. Credit Agreement will be available
to it for acquisitions, repurchases of common stock and other permitted
purposes. In the fourth quarter of 2000, the Company will incur an extraordinary
charge, net of tax, of approximately $4.2 million, or $0.23 per diluted share,
for the premium to be paid in connection with this redemption and for the
write-off of unamortized financing costs related to the 13 1/4% Debentures.
In 1998, the Company's Board of Directors authorized the repurchase of up to
$60.0 million of its common stock. In 1999, the Company's Board of Directors
authorized the repurchase by the Company of up to an additional $10.0 million of
its common stock, for a total of $70.0 million. As of September 30, 2000, the
Company had repurchased 2,708,975 shares of its common stock for an aggregate
cost of approximately $61.0 million. The Company intends to finance future share
repurchases, if any, through revolving loan borrowings under its U.S. Credit
Agreement or through internally generated funds.
Management believes that cash generated by operations and funds from revolving
loan borrowings under the Company's credit agreements will be sufficient to meet
the Company's expected operating needs, planned capital expenditures,
investments in an affiliate, debt service, rationalization costs, share
repurchase plan and tax obligations for the foreseeable future.
The Company is in compliance with all financial and operating covenants
contained in the instruments and agreements governing its indebtedness and
believes that it will continue to be in compliance with all such covenants
during 2000.
-23-
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During May 2000, the Emerging Issues Task Force ("EITF") issued EITF Issue No.
00-10, "Accounting for Shipping and Handling Fees and Costs." EITF No. 00-10
addresses the income statement classification for shipping and handling fees and
costs. The Company plans to adopt EITF No. 00-10 in the fourth quarter of 2000.
The Company's income statements, including those presented for comparative
purposes, will include the reclassification of certain revenue reductions to
cost of goods sold. These reclassifications will not affect the Company's income
from operations or net income.
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In June 1999, the FASB issued
SFAS No. 137, which amended SFAS No. 133 to delay its effective date. In June
2000, the FASB issued SFAS No. 138, which further amended SFAS No. 133. The
Company will adopt SFAS No. 133, as amended, on January 1, 2001. SFAS No. 133
requires that all derivative instruments be recorded on the consolidated balance
sheet at their fair value. Changes in the fair value of derivatives will be
recorded each period in net income or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. The Company does not anticipate that the adoption
of SFAS No. 133, as amended, will have a material impact on its financial
position or results of operations.
-24-
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Market risks relating to the Company's operations result primarily from changes
in interest rates. The Company also has limited foreign currency risk associated
with its Canadian operations. The Company employs established policies and
procedures to manage its exposure to fluctuations in interest rates and the
value of foreign currencies. Interest rate and foreign currency transactions are
used only to the extent considered necessary to meet the Company's objectives.
The Company does not utilize derivative financial instruments for trading or
other speculative purposes.
Information regarding the Company's interest rate risk and foreign currency
exchange rate risk has been disclosed in its Annual Report on Form 10-K for the
fiscal year ended December 31, 1999. There has not been a material change to the
Company's interest rate risk or foreign currency exchange rate risk since such
filing.
-25-
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
12 Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K
None
-26-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned thereunto duly authorized.
SILGAN HOLDINGS INC.
Dated: November 13, 2000 /s/Harley Rankin, Jr.
- ------------------------- -------------------------------
Harley Rankin, Jr.
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
-27-
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
----------- -------
12 Ratio of Earnings to Fixed Charges
for the three and nine months ended
September 30, 2000 and 1999
27 Financial Data Schedule for the nine
months ended September 30, 2000,
submitted to the Securities and Exchange
Commission in electronic format
-28-
Exhibit 12
SILGAN HOLDINGS INC.
RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited)
(Dollars in thousands)
Income before income taxes and equity in losses
of affiliate ......................................................... $33,276 $ 9,732 $ 55,687 $ 37,784
Add:
Interest expense and debt amortization .......................... 23,500 22,785 66,097 65,085
Rental expense representative of interest factor ................ 311 259 906 762
------- ------- -------- --------
Earnings, as adjusted ........................................... $57,087 $32,776 $122,690 $103,631
======= ======= ======== ========
Fixed charges:
Interest expense and debt amortization .......................... $23,500 $22,785 $ 66,097 $ 65,085
Rental expense representative of interest factor ................ 311 259 906 762
------- ------- -------- --------
Total fixed charges ............................................. $23,811 $23,044 $ 67,003 $ 65,847
======= ======= ======== ========
Ratio of earnings to fixed charges ..................................... 2.40 1.42 1.83 1.57