SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-1269834
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(State of Incorporation) (I.R.S. Employer Identification No.)
4 Landmark Square, Stamford, Connecticut 06901
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (203) 975-7110
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
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(Title of Class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 1, 2001, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $49.5 million.
As of March 1, 2001, the number of shares outstanding of the Registrant's Common
Stock, par value $0.01 per share, was 17,702,897.
Documents Incorporated by Reference:
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Stockholders to be held on May 23, 2001 are incorporated by reference in Part
III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
Page
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Part I............................................................................................................1
Item 1. Business...........................................................................................1
Item 2. Properties........................................................................................13
Item 3. Legal Proceedings.................................................................................16
Item 4. Submission of Matters to a Vote of Security Holders...............................................16
PART II..........................................................................................................17
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.............................17
Item 6. Selected Financial Data...........................................................................17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................................21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................35
Item 8. Financial Statements and Supplementary Data.......................................................36
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure....................................................................................36
PART III.........................................................................................................37
Item 10. Directors and Executive Officers of the Registrant................................................37
Item 11. Executive Compensation............................................................................40
Item 12. Security Ownership of Certain Beneficial Owners and Management....................................40
Item 13. Certain Relationships and Related Transactions....................................................40
PART IV..........................................................................................................41
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.................................41
-i-
PART I
Item 1. Business.
General
Silgan Holdings Inc. ("Holdings"; together with its direct and indirect
owned subsidiaries, the "Company") is a leading North American manufacturer of
consumer goods packaging products. The Company currently produces (i) steel and
aluminum containers for human and pet food, (ii) custom designed plastic
containers for personal care, health care, pharmaceutical, household and
industrial chemical, food, pet care, agricultural chemical, automotive and
marine chemical products as well as plastic closures, caps, sifters and fitments
and thermoformed plastic tubs for food, pet care and household products and
(iii) specialty packaging items used in the food and beverage industries,
including steel closures, aluminum roll-on closures, plastic bowls and cans and
paperboard containers. The Company is the largest manufacturer of metal food
containers in North America, with a unit sale market share in the United States
for the year ended December 31, 2000 of 46%. The Company is also a leading
manufacturer of plastic containers in North America for personal care products
and a major supplier of metal closures for food and beverage products. The
Company's strategy is to increase shareholder value by growing its existing
businesses and expanding into other segments by applying its expertise in
acquiring, financing, integrating and efficiently operating consumer goods
packaging businesses.
The Company was founded in 1987 by its Co-Chief Executive Officers. Since
its inception, the Company has acquired seventeen businesses, including most
recently RXI Plastics, Inc. ("RXI") in October 2000. See "--Company History." As
a result of its growth strategy, the Company has increased its overall share of
the U.S. metal food container market from approximately 10% in 1987 to
approximately 46% in 2000. The Company's plastic container and plastic closure
business has also improved its market position since 1987, with sales increasing
by more than fourfold to $373.0 million in 2000. Sales of the Company's
specialty packaging business have grown from its start in 1994 to $123.9 million
in 2000.
The Company's strategy has enabled it to rapidly increase its net sales and
income from operations. Since 1994, the Company's net sales have grown to
$1,877.5 million in 2000, representing a compound annual growth rate of
approximately 13.9%. During this period, income from operations increased from
$75.1 million in 1994 (excluding the effect of a $16.7 million non-cash charge
for the reduction in carrying value of assets) to $157.1 million in 2000,
representing a compound annual growth rate of approximately 13.1%.
The Company's operating philosophy, which has contributed to its strong
performance since inception, is based on: (i) a significant equity ownership by
management and an entrepreneurial approach to business, (ii) its low cost
producer position and (iii) its long-term customer relationships. The Company's
senior management has a significant ownership interest in the Company, which
fosters an entrepreneurial management style and places a primary focus on
creating shareholder value. The Company has achieved a low cost producer status
through (i) the maintenance of a flat, efficient organizational structure,
resulting in low selling, general and administrative expenses as a percentage of
total net sales, (ii) purchasing economies, (iii) significant capital
investments that have generated manufacturing and production efficiencies, (iv)
plant consolidations and rationalizations and (v) the proximity of its plants to
its customers. The Company's philosophy has also been to develop long-term
customer relationships by acting in partnership with customers, providing
reliable quality and service and utilizing its low cost producer position. This
philosophy has resulted in numerous long-term supply contracts, high retention
of customers' business and recognition from customers, as demonstrated by the
Company's many quality and service awards.
-1-
Growth Strategy
The Company intends to enhance its position as a leading supplier of
consumer goods packaging products by continuing to aggressively pursue a
strategy designed to achieve future growth and to increase profitability. The
key components of this strategy are to (i) increase the Company's market share
in its current business lines through internal growth and through acquisitions
at reasonable cash flow multiples, (ii) expand into complementary business lines
by applying the Company's acquisition and operating expertise to other areas of
the consumer goods packaging market and (iii) improve the profitability of
acquired businesses through integration, rationalization and capital investments
to enhance their manufacturing and production efficiency.
Increase Market Share Through Acquisitions and Internal Growth. The Company
has increased its revenues and market share in the metal food container, plastic
container and closure and specialty packaging markets through acquisitions and
internal growth. As a result of this strategy, the Company has diversified its
customer base, geographic presence and product line. In its acquisitions, the
Company has followed a disciplined approach of acquiring businesses at
reasonable cash flow multiples. No assurance can be given that in the future the
Company will be able to locate or acquire suitable businesses on acceptable
terms or at reasonable cash flow multiples.
The Company's overall share of the U.S. metal food container market has
more than quadrupled since 1987, increasing from approximately 10% in 1987 to
approximately 46% in 2000. During the past thirteen years, the metal food
container market has experienced significant consolidation primarily due to the
desire by food processors to reduce costs and focus resources on their core
operations. The Company's acquisitions of the metal food container manufacturing
operations of Nestle Food Company ("Nestle"), The Dial Corporation ("Dial"), Del
Monte Corporation ("Del Monte"), Agrilink Foods, Inc. ("Agrilink") and Campbell
Soup Company ("Campbell") reflect this trend. Additionally, in 1995 the Company
acquired the Food Metal and Specialty business ("AN Can") of American National
Can Company ("ANC"), expanding its customer base and geographic diversity. See
"--Company History."
The Company's plastic container and plastic closure business has improved
its market position since 1987, with sales increasing by more than fourfold to
$373.0 million in 2000. This improvement was achieved primarily through
strategic acquisitions, including most recently RXI in October 2000, as well as
through internal growth. See "--Company History." The plastic container and
plastic closure segments of the consumer goods packaging industry are highly
fragmented, and management intends to pursue consolidation opportunities in
these segments. The Company also expects to continue to generate internal
growth. For example, the Company intends to aggressively market its plastic
closures and caps to existing customers of its plastic container business.
Additionally, the Company intends to continue to expand its customer base in the
markets that it serves, such as the personal care, health care, pharmaceutical,
household and industrial chemical, food, pet care, agricultural chemical,
automotive and marine chemical markets.
Expand into Complementary Business Lines Through Acquisitions. Management
believes that it can successfully apply its acquisition and operating expertise
to new segments of the consumer goods packaging industry. For example, with the
acquisition of RXI the Company expanded its business into plastic closures,
caps, sifters and fitments and thermoformed plastic tubs. Although no assurance
can be given that the Company will be able to locate or acquire attractive
acquisition candidates on acceptable terms, management believes that certain
trends in and characteristics of the consumer goods packaging industry will
generate attractive acquisition opportunities in complementary business lines.
Importantly, the industry is fragmented, with numerous segments and multiple
participants in the various segments. Additionally, many of these segments are
experiencing consolidation.
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Enhance Profitability of Acquired Companies. The Company seeks to acquire
businesses at reasonable cash flow multiples and to enhance profitability
through productivity and cost reduction opportunities. The additional sales and
production capacity provided through acquisitions have enabled the Company to
rationalize plant operations and decrease overhead costs through plant closings
and downsizings. In addition, the Company's acquisitions have enabled it to
realize manufacturing efficiencies as a result of optimizing production
scheduling and minimizing product transportation costs. The Company has also
benefited from the economies of its scale and from the elimination of redundant
selling and administrative functions. In addition to the benefits realized
through the integration of acquired businesses, the Company has improved the
operating performance of its plant facilities by making capital investments for
productivity improvements and manufacturing cost reductions. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Operating Strategy."
Financial Strategy
The Company's financial strategy is to use leverage to support its growth
and increase shareholder returns. The Company's stable and predictable cash
flow, generated largely as a result of its long-term customer relationships and
generally recession resistant business, supports its financial strategy.
Management has successfully operated its businesses and achieved its growth
strategy while managing the Company's indebtedness. Management intends to
continue to apply this financial strategy in its business as it pursues its
growth strategy.
As part of its financial strategy and in the absence of compelling
acquisition opportunities, the Company intends to use its free cash flow to
repay indebtedness or for other permitted purposes. In 1999, for example, the
Company did not complete any acquisition, and it reduced its total debt by $43.7
million as compared to 1998 despite higher capital expenditures and interest
expense and the incurrence of $16.6 million of indebtedness for Common Stock
repurchases in 1999. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Financial Strategy."
Business Segments
Holdings is a holding company that conducts its business through two wholly
owned operating subsidiaries, Silgan Containers Corporation (together with its
subsidiaries, "Containers") and Silgan Plastics Corporation (together with its
subsidiaries, "Plastics"). Containers' operations include the Company's metal
food container business and specialty packaging business. See Note 18 to the
Company's Consolidated Financial Statements for the year ended December 31, 2000
included elsewhere in this Annual Report on Form 10-K.
Metal Food Container Business. For 2000, the Company's metal food container
business had net sales of $1,380.6 million (approximately 73% of the Company's
net sales) and income from operations of $120.9 million (approximately 75% of
the Company's income from operations, without giving effect to corporate
expense). The Company's metal food container business has realized compound
annual unit sales growth of approximately 12.0% since 1994. The Company's metal
food container business 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. The Company's metal food container business manufactures
metal containers for soup, vegetables, fruit, pet food, meat, tomato based
products, coffee, seafood, adult nutritional drinks and other miscellaneous food
products. The Company estimates that approximately 80% of its projected metal
food container sales in 2001 will be pursuant to long-term supply arrangements,
including agreements with Nestle, Del Monte, Campbell and several other major
food processors. See "--Sales and Marketing." The Company's metal food container
business is also engaged in marketing its new licensed Dot-Top metal closure for
metal containers, which new closure provides opening convenience and
resealability. Rights to manufacture and sell this new closure have been
obtained by Containers from Metalgrafica Rojek pursuant to an exclusive license
arrangement for North America.
-3-
Plastic Container Business. For 2000, Plastics had net sales of $373.0
million (approximately 20% of the Company's net sales) and income from
operations of $38.6 million (approximately 24% of the Company's income from
operations, without giving effect to corporate expense). Plastics emphasizes
value-added design, fabrication and decoration of custom designed polyethylene
terephthalate ("PET") and high density polyethylene ("HDPE") containers in its
business. Plastics manufactures custom designed HDPE containers for personal
care and health care products, including containers for shampoos, conditioners,
hand creams, lotions, cosmetics and toiletries, household and industrial
chemical products, including containers for scouring cleaners, cleaning agents
and lawn and garden chemicals, and pharmaceutical products, including containers
for tablets, antacids and eye cleaning solutions. Plastics also manufactures
custom designed and stock PET containers for mouthwash, respiratory and
gastrointestinal products, liquid soap, skin care lotions, peanut butter, salad
dressings, condiments, premium bottled water and liquor. In addition, as a
result of its acquisition of RXI, Plastics manufactures plastic containers,
closures, caps, sifters and fitments for food, household and pet care products,
including salad dressings, peanut butter, spices, liquid margarine, powdered
drink mixes, arts and crafts supplies and kitty litter, as well as thermoformed
plastic tubs for personal care and household products, including soft fabric
wipes.
Specialty Packaging Business. For 2000, the Company's specialty packaging
business had net sales of $123.9 million (approximately 7% of the Company's net
sales) and income from operations of $0.8 million (approximately 1% of the
Company's income from operations, without giving effect to corporate expense).
The Company's specialty packaging business manufactures and sells steel closures
for glass and plastic containers, aluminum roll-on closures for glass and
plastic containers, its licensed Omni plastic container (a multi-layer
microwaveable and retortable plastic bowl), its licensed Procan multi-layer
plastic can and paperboard containers, all for use in the food and beverage
industries. The Company's specialty packaging business also manufactures its
proprietary Polystar easy-open plastic end, which it markets with its Omni
plastic containers as an all-plastic microwavable package.
Manufacturing and Production
As is the practice in the industry, most of the Company's customers provide
it with quarterly or annual estimates of products and quantities pursuant to
which periodic commitments are given. Such estimates enable the Company to
effectively manage production and control working capital requirements. The
Company schedules its production to meet customers' requirements. Because the
production time for the Company's products is short, the backlog of customer
orders in relation to its sales is not material.
Metal Food Container Business
The manufacturing operations of the Company's metal food container business
include cutting, coating, lithographing, fabricating, assembling and packaging
finished cans. Three basic processes are used to produce cans. The traditional
three-piece method requires three pieces of flat metal to form a cylindrical
body with a welded side seam, a bottom and a top. High integrity of the side
seam is assured by the use of sophisticated electronic weld monitors and organic
coatings that are thermally cured by induction and convection processes. The
other two methods of producing cans start by forming a shallow cup that is then
formed into the desired height using either the draw and iron process or the
draw and redraw process. Using the draw and redraw process, the Company
manufactures steel and aluminum two-piece cans, the height of which generally
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.
-4-
Plastic Container Business
The Company utilizes two basic processes to produce plastic containers. In
the extrusion blowmolding 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 and injection stretch blowmolding
processes, 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 manufactures plastic closures, caps, sifter and fitments using
runnerless injection molding technology. In such process, pellets of plastic
resin are melted and forced under pressure into a mold, where they take the
mold's shape. The Company's thermoformed plastic tubs are manufactured by
melting pellets of plastic resin into a plastic sheet. Such plastic sheets are
then stamped by hot molds to form plastic tubs.
The Company's decorating methods for its plastic containers include (i)
in-mold labeling which applies a plastic film label to the bottle during the
blowing process and (ii) 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 with an adhesive, (iii) heat transfer decoration which uses
a plastic coated label applied by heat, and (iv) hot stamping decoration which
transfers images from a die using metallic foils. The Company has
state-of-the-art decorating equipment, including several of the largest
sophisticated decorating facilities in the country.
Specialty Packaging Business
The Company's manufacturing operations for metal closures include cutting,
coating, lithographing, fabricating and lining closures. The Company
manufactures continuous thread and lug style steel closures and aluminum roll-on
closures for glass and plastic containers, ranging in size from 18 to 110
millimeters in diameter. The Company employs state-of-the-art multi-die presses
to manufacture closures, offering it a low-cost, high quality means of
production.
The Company's Omni and Procan plastic containers are manufactured using a
plastic injection blowmolding process where dissimilar pellets of plastic are
heated and co-injected in a proprietary process to form a five-layer preform,
which is immediately transferred to a blowmold for final shaping and cooling.
The Company designed its equipment for this manufacturing process, and the
equipment utilizes a variety of proprietary processes to make rigid plastic
containers capable of holding processed foods for extended shelf lives. The
Company's Omni plastic container is a multi-layer microwaveable bowl,
predominantly used for single serve food applications, and is marketed with the
Company's proprietary Polystar easy-open plastic end or an aluminum easy-open
end. The Company's Procan container is a multi-layer plastic can with an
easy-open metal end, which can package retortable, hard-to-hold food products.
The Company's Omni and Procan plastic containers are manufactured pursuant to a
royalty-free, perpetual license with ANC which was entered into in connection
with the Company's acquisition of AN Can.
The Company's specialty packaging business is also engaged in the
manufacture of paperboard containers. See "--General--Business
Segments--Specialty Packaging Business."
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Raw Materials
The Company does not believe that it is materially dependent upon any
single supplier for any of its raw materials, and, based upon the existing
arrangements with suppliers, its current and anticipated requirements and market
conditions, the Company believes that it has made adequate provisions for
acquiring raw materials. Although increases in the prices of raw materials have
generally been passed along to the Company's customers in accordance with the
Company's long-term supply arrangements and otherwise, any inability to do so in
the future could have a significant impact on the Company's results of
operations.
Metal Food 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 food container products. The Company's material
requirements are supplied through purchase orders with suppliers with whom the
Company 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 virgin HDPE, virgin PET,
recycled HDPE, recycled PET, polypropylene and, to a lesser extent, polystyrene,
low density polyethylene, polyethylene terephthalate glycol, polyvinyl chloride
and medium density polyethylene. The Company's resin requirements are acquired
through multi-year arrangements for specific quantities of resins with several
major suppliers of resins. The price that the Company pays for resin raw
materials is not fixed and is subject to market pricing. The Company believes
that it will be able to purchase sufficient quantities of resins for the
foreseeable future.
Specialty Packaging Business
The Company uses tin plated and chromium plated steel, aluminum, organic
coatings, low-metallic inks and pulpboard, plastic and organic lining materials
in its metal closure operations. The Company purchases polypropylene, HDPE,
ethyl vinyl alcohol and colorant resins for its Omni and Procan plastic
containers and Polystar easy-open plastic ends. The Company also currently
purchases a proprietary compounded resin product from a supplier for its Omni
plastic container, which resin is produced pursuant to a license with ANC. The
Company uses paperboard and various inks for its paperboard container
manufacturing operations. The Company typically purchases these materials from
suppliers under annual or multi-year supply arrangements, subject to market
pricing. If suppliers fail to deliver under these arrangements, the Company
would be forced to purchase these materials on the open market, and no assurance
can be given that it would be able to purchase materials of comparable quality
or at comparable prices or terms. The Company believes that it will be able to
purchase sufficient quantities of raw materials for its specialty packaging
business in the foreseeable future.
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Sales and Marketing
The Company's philosophy has been to develop long-term customer
relationships by acting in partnership with its customers, providing reliable
quality and service. The Company markets its products in most areas of North
America primarily by a direct sales force and for its plastic container and
specialty packaging businesses, in part, through a network of distributors.
Because of the high cost of transporting empty containers, the Company's metal
food and plastic container businesses generally sell to customers within a 300
mile radius of their manufacturing plants. See also "--Competition."
In 2000, 1999, and 1998, approximately 12%, 12%, and 14%, respectively, of
the Company's sales were to Nestle, and approximately 11%, 11%, and 12%,
respectively, of the Company's sales were to Del Monte. Additionally, in 2000
and 1999 approximately 11% and 12% of the Company's sales were to Campbell. No
other customer accounted for more than 10% of the Company's total sales during
such years.
Metal Food Container Business
The Company is the largest manufacturer of metal food containers in North
America, with a unit sale market share in 2000 in the United States of
approximately 46%. The Company's largest customers for this segment include
Nestle, Del Monte, Campbell, Hormel Foods Corp., Kraft Foods Inc., ConAgra Foods
Inc., Unilever, N.V., The Pillsbury Company, Dial and Agrilink.
The Company has entered into multi-year supply arrangements with many of
its customers, including Nestle, Del Monte, Campbell and several other major
food producers. The Company estimates that approximately 80% of its projected
metal food container sales in 2001 will be pursuant to such multi-year supply
arrangements. Historically, the Company has been successful in continuing these
multi-year supply arrangements with its customers. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Operating
Strategy."
Since its inception in 1987, the Company has supplied Nestle with
substantially all of its U.S. metal container requirements. In 2000, total sales
of metal containers by the Company to Nestle were $222.0 million.
The Company currently has three supply agreements with Nestle (the "Nestle
Supply Agreements") under which it supplies Nestle with a large majority of its
U.S. metal container requirements (representing approximately 9.2% of the
Company's 2000 sales). The terms of the Nestle Supply Agreements were recently
extended for an additional seven years through 2008 for approximately half of
the metal container sales under the Nestle Supply Agreements, in return for
certain price reductions for such metal containers that began in 2001. The
Company believes that these price reductions will not have a material adverse
effect on its financial condition or results of operations. The terms of the
Nestle Supply Agreements for the remaining metal containers currently supplied
thereunder continue through 2004.
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. These agreements contain provisions that require the Company to
maintain certain levels of product quality, service and delivery in order to
retain the business. In the event of a breach of any such agreement, Nestle may
terminate such Nestle Supply Agreement but the other Nestle Supply Agreements
would remain in effect. Under certain limited circumstances, Nestle may provide
to the Company a competitive bid for certain metal containers sales under these
agreements. The Company has the right to retain the business subject to the
terms of such bid. There can be no assurance that such bid will be made at sales
prices then in effect for such metal containers, and until such bid is received
the Company cannot predict the effect, if any, on its results of operations of
matching or not matching such bid. In the event the Company chooses not to match
such bid, the Nestle Supply Agreements will terminate only with respect to the
metal containers which are the subject of such bid.
-7-
The Company also supplies metal containers to Nestle pursuant to purchase
orders from Nestle (representing approximately 2.6% of the Company's 2000
sales). These sales are substantially pursuant to supply arrangements that the
Company has had with Nestle since 1987. There can be no assurance, however, that
the Company will continue to supply such metal containers to Nestle in any
future period. However, the Company believes that the loss of any such sales
would not have a material adverse effect on the Company's results of operations.
In connection with the Company's acquisition of Del Monte's U.S. metal
container manufacturing operations in December 1993, the Company and Del Monte
entered into a supply agreement (the "DM Supply Agreement") pursuant to which
Del Monte has agreed to purchase from the Company substantially all of its
annual requirements for metal containers to be used for the packaging of food
and beverages in the United States, subject to certain limited exceptions. The
term of the DM Supply Agreement currently continues until December 21, 2006. In
2000, sales of metal containers by the Company to Del Monte were $200.7 million.
The DM Supply Agreement provides for certain prices for metal containers
supplied by the Company to Del Monte and specifies that such prices will be
increased or decreased based upon specified cost change formulas. Under the DM
Supply Agreement, Del Monte may, under certain circumstances, receive proposals
from independent commercial can manufacturers for the supply of containers of a
type and quality similar to the metal containers that the Company furnishes to
Del Monte, which proposals must be for the remainder of the term of the DM
Supply Agreement and for 100% of the annual volume of containers at one or more
of Del Monte's processing facilities. The Company has the right to retain the
business subject to the terms and conditions of such competitive proposal. There
can be no assurance that any such proposal will be made at sales prices
equivalent to those currently in effect or otherwise on terms similar to those
currently in effect. The Company cannot predict the effect, if any, on its
results of operations of matching or not matching any such proposal. During the
term of the DM Supply Agreement, Del Monte is not permitted to purchase pursuant
to such proposals more than 50% of its metal containers from suppliers other
than the Company.
In connection with the Company's June 1998 acquisition of the steel
container manufacturing business of Campbell ("CS Can"), the Company and
Campbell entered into a ten-year supply agreement (the "Campbell Supply
Agreement"). Under the Campbell Supply Agreement, Campbell has agreed to
purchase from the Company for the term of such agreement substantially all of
its steel container requirements to be used for the packaging of foods and
beverages in the United States. In 2000, sales of metal containers by the
Company to Campbell were $201.0 million.
The Campbell Supply Agreement provides for certain prices for containers
supplied by the Company to Campbell and specifies that such prices will be
increased or decreased based upon specified cost change formulas. The Campbell
Supply Agreement permits Campbell, beginning in June 2003, to receive proposals
from independent commercial can manufacturers for the supply of containers of a
type and quality similar to the metal containers supplied by the Company to
Campbell, which proposals must be for the remainder of the term of the Campbell
Supply Agreement and for 100% of the annual volume of containers at any one or
more of Campbell's food processing plants. The Company has the right to retain
the business subject to the terms and conditions of such competitive proposal.
Until a competitive bid is received, the Company cannot predict the
-8-
effect, if any, on its results of operations of matching or not matching any
such bids. Upon any material breach by the Company of its obligations under the
Campbell Supply Agreement, Campbell has the right to terminate such agreement.
In addition, Campbell has the right, at the end of the term of the Campbell
Supply Agreement or upon the occurrence of certain material defaults under
agreements with Campbell (including certain events of bankruptcy, certain
defaults under the Company's agreements governing its material indebtedness, and
certain breaches, after applicable cure periods, by the Company of its material
obligations under its agreements with Campbell), to purchase from the Company
the assets used to manufacture containers for Campbell that are located at the
facilities that the Company leases from Campbell. The purchase price for such
assets would be determined at the time of purchase in accordance with an agreed
upon formula that is based upon the net book value of the assets.
The Company's metal food container business sales are dependent, in part,
upon the vegetable, tomato and fruit harvests in the midwest and western regions
of the United States. The size and quality of these harvests varies from year to
year, depending in large part upon the weather conditions in those regions, and
the Company's results of operations could be impacted accordingly. The Company's
results of operations could be materially adversely affected in a year in which
crop yields are substantially lower than normal in either of the prime
agricultural regions of the United States in which the Company operates.
The sale of metal containers to vegetable and fruit processors is seasonal
and monthly revenues increase during the months of June through October. As is
common in the packaging industry, the Company must build inventory and then
carry accounts receivable for some seasonal customers beyond the end of the
season. Consistent with industry practice, such customers may return unused
containers. Historically, such returns have been minimal.
Plastic Container Business
The Company is one of the leading manufacturers of custom designed and
stock HDPE and PET containers sold in North America. The Company markets its
plastic containers and plastic closures in most areas of North America through a
direct sales force, through a large network of distributors and, more recently,
through e-commerce.
Management believes that the Company is a leading manufacturer of plastic
containers in North America for personal care products. More than 60% of the
Company's plastic containers are sold for personal care and health care
products, such as hair care, skin care and oral care, and pharmaceutical
products. The Company's largest customers in these product segments include
Unilever Home and Personal Care North America (a unit of Unilever, N.V.), Pfizer
Inc., The Procter & Gamble Company, Bristol-Myers Squibb Co., L'Oreal Retail
Division of Cosmair, Inc., Avon Products Inc. and Johnson & Johnson.
The Company also manufactures plastic containers for food and beverage, pet
care and household and industrial chemical products. Customers in these product
segments include The Procter & Gamble Company, Kraft Foods Inc., Ralcorp
Holdings, Inc., Ralston Purina Company, S.C. Johnson & Sons, Inc., The Clorox
Company and Limeosol Company, Inc. In addition, the Company manufactures plastic
closures, caps, sifters and fitments for food, household and pet care products,
as well as thermoformed plastic tubs for personal care and household products.
Customers in these product segments include Lipton (a unit of Unilever Home and
Personal Care North America), The Kroger Company, Ontario Foods, McCormick &
Co., Elmer's Products, Inc., Nice-Pak Products, Inc. and Ralston Purina Company.
The Company has arrangements to sell some of its plastic containers and
plastic closures to distributors, who in turn resell such products primarily to
regional customers. Plastic containers sold to distributors are manufactured by
using generic and custom molds with decoration added to meet the end users'
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.
-9-
Plastics has written purchase orders or contracts for the supply of
containers with the majority of its customers. In general, these purchase orders
and contracts are for containers made from proprietary molds and are for a
duration of 1 to 7 years.
Specialty Packaging Business
The Company believes that in the United States it is the largest
manufacturer of aluminum roll-on closures, the largest manufacturer of
retortable, multi-layer microwaveable plastic bowls for single serve food
applications, and the third largest supplier of steel closures. The Company's
metal closures are used by food processors for hot-filled foods, including pasta
sauces, salsas, apple sauces, pickles and new-age beverages such as
ready-to-drink teas, juices and wellness beverages; mayonnaise; beers and wines;
bottled water and carbonated beverages; chocolate drinks; and liquor products.
The Company's Omni and Procan plastic containers are used by food processors for
microwaveable prepared foods, including soup, pasta and meat-based single serve
meals; pie fillings; and powdered drink mixes.
The Company's specialty packaging business has had long-term relationships
with many of its customers. A majority of the sales of the specialty packaging
business are pursuant to multi-year contracts that contain provisions for the
pass through of material and labor cost changes. The Company's largest customers
in this segment include Campbell, Lipton (a unit of Unilever Home and Personal
Care North America), Anheuser-Busch Companies, Inc., Snapple Beverage Group and
Cadbury Beverages (both units of Cadbury Schweppes PLC), Nestle, Hormel Foods
Corp., South Beach Beverages and Pepsi Cola (both units of PepsiCo, Inc.),
Gerber Products Co. (a unit of Novartis Consumer Health, Inc.), Arizona Beverage
Co. and Miller Brewing Co. (a unit of Philip Morris Companies Inc.).
The Company's specialty packaging business sells its products primarily
through a direct sales force. The Company also supplements its sales of
specialty packaging products through its use of several regional distributors,
thereby allowing the Company to market these products to a wider variety of
customers throughout the United States.
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.
Certain of the Company's competitors may have greater financial resources than
the Company. The Company attempts to compete effectively through the quality of
its products, competitive pricing and its ability to meet customer requirements
for delivery, performance and technical assistance.
Because of the high cost of transporting empty containers, the Company's
metal food and plastic container businesses generally sell to customers within a
300 mile radius of its manufacturing plants. As of March 1, 2001, the Company
operated 62 manufacturing facilities, geographically dispersed throughout the
United States and Canada, that serve the distribution needs of its customers.
Strategically located existing plants give the Company an advantage over
competitors from other areas, but the Company could be disadvantaged by the
relocation of a major customer.
-10-
Metal Food Container Business
Of the commercial metal food container manufacturers, Crown Cork and Seal
Company, Inc. and Ball Corporation are the Company's most significant national
competitors. As an alternative to purchasing containers from commercial can
manufacturers, customers have the ability to invest in equipment to
self-manufacture their containers.
Although metal containers face continued competition from plastic, paper,
glass and composite containers, management believes that metal containers are
superior to plastic and paper containers in applications where the contents are
processed at high temperatures, where the contents are packaged in larger
consumer or institutional quantities (8 to 64 oz.) or where long-term storage of
the product is desirable. Management also believes that metal containers are
more desirable generally than glass containers because metal containers are more
durable and less costly to transport.
Plastic Container Business
Plastics competes with a number of large national producers of plastic
containers and plastic closures for personal care, health care, pharmaceutical,
household and industrial chemical, food, pet care, agricultural chemical,
automotive and marine chemical products, including Owens-Illinois, Inc., Crown
Cork and Seal Company, Inc., Schmalbach-Lubeca AG, Plastipak Packaging Inc. and
Rexam plc. In order to compete effectively in the constantly changing market for
plastic bottles, the Company must remain current with, and to some extent
anticipate, innovations in resin composition and applications and changes in the
technology for the manufacturing of plastic bottles.
Specialty Packaging Business
The Company's competitors in the manufacture and sale of metal closures
include White Cap Inc. (a subsidiary of Schmalbach-Lubeca AG), Anchor Closures
(a unit of Crown Cork and Seal Company, Inc.), and Zapata International Corp.
The Company competes in the manufacture and sale of metal closures through its
established customer relationships, the quality of its products, its service,
and its low cost producer position. While management believes that metal
closures are superior to plastic closures because they offer stronger product
integrity and greater aesthetics through metal lithography, metal closures have
faced competition for several years from plastic substitutions, particularly as
plastic containers have replaced glass containers.
The Company's Omni and Procan plastic containers compete with certain
plastic thermoformed containers produced by Rexam plc and Huhtamaki Van Leer and
with metal containers similar to those produced by the Company's metal food
container business. The Company believes that its Omni and Procan products are
able to compete effectively because of their convenience, microwaveability,
processability and ability to package hard-to-hold food products.
Employees
As of December 31, 2000, the Company employed approximately 1,310 salaried
and 5,765 hourly employees on a full-time basis. Approximately 56% of the
Company's hourly plant employees are represented by a variety of unions. In
addition, as of December 31, 2000, in connection with the Company's acquisition
of CS Can, Campbell provided the Company with approximately 30 salaried and 300
hourly employees on a full-time basis at two of the facilities leased by the
Company from Campbell.
-11-
The Company's labor contracts expire at various times between 2001 and
2005. As of December 31, 2000, contracts covering approximately 16% of the
Company's hourly employees expire during 2001. 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 environment and establish standards for the treatment,
storage, and disposal of solid and hazardous waste. The Company believes that
all of its facilities are either in compliance in all material respects with all
presently applicable environmental laws and regulations or are operating in
accordance with appropriate variances, delayed compliance orders or similar
arrangements.
In addition to costs associated with regulatory compliance, the Company may
be held liable for alleged environmental damage associated with the past
disposal of hazardous substances. Generators of hazardous substances disposed of
at sites at which environmental problems are alleged to exist, as well as the
owners of those sites and certain other classes of persons, are subject to
claims under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 ("CERCLA") regardless of fault or the legality of the
original disposal. Liability under CERCLA and under many similar state statutes
is joint and several, and, therefore, any responsible party may be held liable
for the entire cleanup cost at a particular site. Other state statutes may
impose proportionate rather than joint and several liability. The federal
Environmental Protection Agency or a state agency may also issue orders
requiring responsible parties to undertake removal or remedial actions at
certain sites.
The Company is also subject to the Occupational Safety and Health Act and
other laws regulating noise exposure levels and other safety and health concerns
in the production areas of its plants.
Management does not believe that any of the regulatory matters described
above individually or in the aggregate will have a material effect on the
Company's capital expenditures, earnings, financial position or competitive
position.
Research and Product Development
The Company's research, product development and product engineering efforts
relating to its metal food container and specialty packaging businesses are
conducted at its new research facility in Oconomowoc, Wisconsin. The Company's
research, product development and product engineering efforts with respect to
its plastic container business are performed by its manufacturing and
engineering personnel located at its Norcross, Georgia facility.
Company History
Holdings is a Delaware corporation formed as a holding company to acquire
interests in various packaging manufacturers. See "--General." Holdings'
principal assets are all of the outstanding capital stock of Containers and
Plastics.
-12-
Since its origin in 1987, the Company has completed the following
acquisitions:
Acquired Business Year Products
----------------- ---- --------
Nestle's metal container manufacturing
division 1987 Metal food containers
Monsanto Company's plastic container business 1987 Plastic containers
Fort Madison Can Company of Dial 1988 Metal food containers
Seaboard Carton Division of Nestle 1988 Paperboard containers
Aim Packaging, Inc. 1989 Plastic containers
Fortune Plastics Inc. 1989 Plastic containers
Express Plastic Containers Limited 1989 Plastic containers
Amoco Container Company 1989 Plastic containers
Del Monte's U.S. can manufacturing operations 1993 Metal food containers
Food Metal and Specialty business of ANC 1995 Metal food containers,
steel closures and
Omni plastic containers
Finger Lakes Packaging Company, Inc., a 1996 Metal food containers
subsidiary of Agrilink
Alcoa Inc.'s North American aluminum roll-on 1997 Aluminum roll-on closures
closure business ("Roll-on Closures")
Rexam plc's North American plastic container 1997 Plastic containers and
business closures
Winn Packaging Co. ("Winn") 1998 Plastic containers
Campbell's steel container manufacturing
business 1998 Metal food containers
Clearplass Containers, Inc. ("Clearplass") 1998 Plastic containers
RXI Plastics, Inc. 2000 Plastic containers and
plastic closures, caps,
sifters and fitments
Item 2. Properties.
Holdings' principal executive offices are located at 4 Landmark Square,
Stamford, Connecticut 06901. The administrative headquarters and principal
places of business for the Company's metal food container, plastic container and
specialty packaging businesses are located at 21800 Oxnard Street, Woodland
Hills, California 91367; 14515 N. Outer Forty, Chesterfield, Missouri 63017; and
9700 West Higgins Road, Rosemont, Illinois 60018, 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 33 metal food container, 24
plastic container and 5 specialty packaging manufacturing facilities.
Twenty-eight of these facilities are owned and 34 are leased by the Company. The
leases expire at various times through 2020. Some of these leases provide
renewal options as well as various purchase options.
-13-
Below is a list of the Company's operating facilities, including attached
warehouses, as of March 1, 2001 for its metal food container business:
Approximate Building Area
Location (square feet)
-------- -------------------------
Tarrant, AL.............................. 89,100 (leased)
Kingsburg, CA............................ 35,600 (leased)
Modesto, CA.............................. 37,800 (leased)
Modesto, CA.............................. 128,000 (leased)
Modesto, CA.............................. 150,000 (leased)
Riverbank, CA............................ 167,000
Sacramento, CA........................... 284,900 (leased)
Stockton, CA............................. 243,500
Hoopeston, IL............................ 323,000
Rochelle, IL............................. 175,000
Waukegan, IL............................. 40,000 (leased)
Hammond, IN.............................. 158,000 (leased)
Laporte, IN.............................. 144,000 (leased)
Fort Madison, IA......................... 65,000
Ft. Dodge, IA............................ 155,200 (leased)
Benton Harbor, MI........................ 20,200 (leased)
Savage, MN............................... 160,000
St. Paul, MN............................. 470,000
Mt. Vernon, MO........................... 100,000
Northtown, MO............................ 111,700 (leased)
St. Joseph, MO........................... 173,700
Maxton, NC............................... 231,800 (leased)
Edison, NJ............................... 260,000
Lyons, NY................................ 149,700
Napoleon, OH............................. 339,600 (leased)
Crystal City, TX......................... 26,000 (leased)
Paris, TX................................ 266,300 (leased)
Toppenish, WA............................ 105,000
Menomonee Falls, WI...................... 116,000
Menomonie, WI............................ 129,400 (leased)
Oconomowoc, WI........................... 105,200
Plover, WI............................... 91,400 (leased)
Waupun, WI............................... 212,000
-14-
Below is a list of the Company's operating facilities, including attached
warehouses, as of March 1, 2001 for its plastic container business:
Approximate Building Area
Location (square feet)
-------- -------------------------
Anaheim, CA.............................. 127,000 (leased)
Valencia, CA............................. 93,000 (leased)
Deep River, CT........................... 140,000
Monroe, GA............................... 139,600
Norcross, GA............................. 59,000 (leased)
Flora, IL................................ 56,400
Ligonier, IN............................. 469,000 (276,000 leased)
Plainfield, IN........................... 106,000 (leased)
Seymour, IN.............................. 431,000
Franklin, KY............................. 122,000 (leased)
Cape Girardeau, MO....................... 70,000 (leased)
Penn Yan, NY............................. 100,000
Fairfield, OH............................ 185,000 (leased)
Ottawa, OH............................... 267,000
Port Clinton, OH......................... 257,400 (leased)
Langhorne, PA............................ 156,000 (leased)
Houston, TX.............................. 335,000
Richmond, VA............................. 70,000 (leased)
Triadelphia, WV.......................... 177,000
Mississauga, Ontario..................... 75,000 (leased)
Mississauga, Ontario..................... 62,600 (leased)
Scarborough, Ontario..................... 117,000
Lachine, Quebec.......................... 113,300 (leased)
Lachine, Quebec.......................... 77,800 (leased)
Below is a list of the Company's operating facilities, including attached
warehouses, as of March 1, 2001 for its specialty packaging business:
Approximate Building Area
Location (square feet)
-------- -------------------------
Norwalk, CT.............................. 14,400 (leased)
Broadview, IL............................ 85,000
Woodstock, IL............................ 186,700 (leased)
Evansville, IN........................... 188,000
Richmond, IN............................. 462,000
The Company owns and leases certain other warehouse facilities that are
detached from its manufacturing facilities. All of the Company's U.S. facilities
are subject to liens in favor of the banks under its U.S. senior secured credit
agreement, and all of the Company's Canadian facilities are subject to liens in
favor of the banks under the Company's Canadian senior secured credit agreement.
The Company believes that its plants, warehouses and other facilities are
in good operating condition, adequately maintained, and suitable to meet its
present needs and future plans. The Company believes that it has sufficient
capacity to satisfy the demand for its products in the foreseeable future. To
the extent that the Company needs additional capacity, management believes that
the Company can convert certain facilities to continuous operation or make the
appropriate capital expenditures to increase capacity.
-15-
Item 3. Legal Proceedings.
The Company is a party to routine legal proceedings arising in the ordinary
course of its business. The Company is not a party to, and none of its
properties are subject to, any pending legal proceedings which could have a
material adverse effect on its business or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
-16-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Common Stock is quoted on the Nasdaq National Market System under the
symbol SLGN. As of March 1, 2001, there were approximately 76 holders of record
of the Common Stock. Holdings has never declared or paid cash dividends on its
Common Stock. Holdings currently anticipates that it will retain all available
funds for use in the operation and expansion of its business and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. Any future determination to pay cash dividends will be at the discretion
of Holdings' Board of Directors and will be dependent upon Holdings'
consolidated results of operations and financial condition, applicable
contractual restrictions and other factors deemed relevant by Holdings' Board of
Directors. The Company's U.S. senior secured credit agreement and the indenture
for its 9% Senior Subordinated Debentures due 2009 (the "9% Debentures") allow
Holdings to pay dividends on its Common Stock up to specified limits. The
following table sets forth the high and low closing sales prices of Holdings'
Common Stock as reported by the Nasdaq National Market System for the periods
indicated below.
High Low
---- ---
1999
----
First Quarter............... $27.875 $16.688
Second Quarter.............. 24.500 14.750
Third Quarter............... 24.125 18.000
Fourth Quarter.............. 19.875 11.250
High Low
---- ---
2000
----
First Quarter............... $17.000 $11.750
Second Quarter.............. 13.750 7.250
Third Quarter............... 10.000 7.750
Fourth Quarter.............. 9.750 5.750
Item 6. Selected Financial Data.
Set forth below are selected historical consolidated financial data of the
Company at December 31, 2000, 1999, 1998, 1997, and 1996 and for the years then
ended.
The selected historical consolidated financial data of the Company at
December 31, 2000 and 1999 and for each of the three years in the period ended
December 31, 2000 were derived from the historical consolidated financial
statements of the Company for such periods that were audited by Ernst & Young
LLP, independent auditors, whose report appears elsewhere in this Annual Report
on Form 10-K. The selected historical consolidated financial data of the Company
at December 31, 1998, 1997, and 1996 and for the years ended December 31, 1997
and 1996 were derived from the historical audited consolidated financial
statements of the Company for such periods.
The selected historical consolidated financial data of the Company should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical financial statements of
the Company, including the notes thereto, included elsewhere in this Annual
Report on Form 10-K.
-17-
Selected Financial Data
Year Ended December 31,
-----------------------
2000(a) 1999 1998(b) 1997 1996
------- ---- ------- ---- ----
(Dollars in millions, except per share data)
Operating Data:
Net sales (c) ...................................... $1,877.5 $1,892.1 $1,768.7 $1,541.3 $1,428.0
Cost of goods sold ................................. 1,648.3 1,656.7 1,546.3 1,333.4 1,244.2
-------- -------- -------- -------- --------
Gross profit ....................................... 229.2 235.4 222.4 207.9 183.8
Selling, general and administrative expenses ....... 72.1 75.0 68.1 60.8 60.5
Non-cash stock option charge (d) ................... -- -- -- 22.5 --
Rationalization charges (e) ........................ -- 36.1 -- -- --
-------- -------- -------- -------- --------
Income from operations ............................. 157.1 124.3 154.3 124.6 123.3
Interest and other debt expense .................... 91.2 86.1 81.5 80.7 89.4
-------- -------- -------- -------- --------
Income before income taxes and equity in
losses of affiliate ............................. 65.9 38.2 72.8 43.9 33.9
Provision for (benefit from) income taxes (f) ...... 25.8 14.3 26.9 (6.7) 3.3
-------- -------- -------- -------- --------
Income before equity in losses of affiliate and
extraordinary items ............................. 40.1 23.9 45.9 50.6 30.6
Equity in losses of affiliate ...................... 4.6 -- -- -- --
-------- -------- -------- -------- --------
Income before extraordinary items .................. 35.5 23.9 45.9 50.6 30.6
Extraordinary items - loss on early
extinguishment of debt, net of income taxes ..... 4.2 -- -- 16.4 2.2
-------- -------- -------- -------- --------
Income before preferred stock dividend
requirement ..................................... 31.3 23.9 45.9 34.2 28.4
Preferred stock dividend requirement ............... -- -- -- 3.2 3.0
-------- -------- -------- -------- --------
Net income applicable to common
stockholders .................................... $ 31.3 $ 23.9 $ 45.9 $ 31.0 $ 25.4
======== ======== ======== ======== ========
Basic earnings per common share:
Income before extraordinary items and
preferred stock dividend requirement .......... $ 2.01 $1.35 $2.41 $ 2.75 $ 1.75
Extraordinary items ............................. (0.24) -- -- (0.89) (0.13)
Preferred stock dividend requirement ............ -- -- -- (0.18) (0.17)
------ ----- ----- ------ ------
Net income per basic common share ............... 1.77 $1.35 $2.41 $ 1.68 $ 1.45
====== ===== ===== ====== ======
Diluted earnings per common share:
Income before extraordinary items and
preferred stock dividend requirement .......... $ 1.97 $1.32 $2.30 $ 2.56 $ 1.65
Extraordinary items ............................. (0.23) -- -- (0.83) (0.12)
Preferred stock dividend requirement ............ -- -- -- (0.16) (0.16)
------ ----- ----- ------ ------
Net income per diluted common share ........... $ 1.74 $1.32 $2.30 $ 1.57 $ 1.37
====== ===== ===== ====== ======
(continued)
-18-
Selected Financial Data (continued)
Year Ended December 31,
-----------------------
2000(a) 1999 1998(b) 1997 1996
------- ---- ------- ---- ----
(Dollars in millions, except per share data)
Selected Segment Data:
Net sales (c):
Metal food containers ........................... $1,380.6 $1,431.0 $1,323.7 $1,160.4 $1,118.2
Plastic containers .............................. 373.0 323.0 312.8 264.4 217.3
Specialty packaging ............................ 123.9 138.1 132.2 116.5 92.5
Income from operations (g):
Metal food containers ........................... 120.9 120.7 116.1 118.5 95.6
Plastic containers .............................. 38.6 38.6 38.0 28.5 18.4
Specialty packaging ............................. 0.8 5.0 3.3 1.9 10.5
Other Data:
Adjusted EBITDA (h) ................................ $ 246.1 $ 246.4 $ 231.8 $ 210.5 $ 181.6
Capital expenditures ............................... 89.2 87.4 86.1 62.2 56.9
Depreciation and amortization (i) .................. 89.0 86.0 77.5 63.4 57.5
Cash flows provided by operating activities ........ 95.1 143.3 147.4 117.9 125.2
Cash flows used in investing activities ............ (218.5) (84.9) (278.3) (100.5) (98.3)
Cash flows provided by (used in) financing
activities ...................................... 141.0 (60.7) 82.0 35.3 (27.9)
Balance Sheet Data (at end of period):
Total assets ....................................... $1,383.8 $1,185.3 $1,224.0 $1,050.6 $ 913.5
Total debt ......................................... 1,031.5 883.3 927.0 805.3 786.1
Redeemable preferred stock ......................... -- -- -- -- 53.0
Deficiency in stockholders' equity ................. (20.4) (48.7) (57.3) (67.3) (191.0)
(footnotes follow)
-19-
Notes to Selected Financial Data
(a) On October 1, 2000, the Company acquired RXI. The acquisition was accounted
for as a purchase transaction and the results of operations have been included
with the Company's consolidated results of operations from the date of
acquisition.
(b) On June 1, 1998, the Company acquired CS Can. The acquisition was accounted
for as a purchase transaction and the results of operations have been included
with the Company's consolidated results of operations from the date of
acquisition.
(c) During the fourth quarter of 2000, the Company adopted Emerging Issues Task
Force ("EITF") Issue No. 00-10, "Accounting for Shipping and Handling Fees and
Costs." EITF Issue No. 00-10 addresses the income statement classification for
shipping and handling fees and costs. The Company's statements of income,
including those presented for comparative purposes, include the reclassification
of certain revenue reductions to cost of goods sold. These reclassifications did
not affect the Company's income from operations or net income.
(d) In connection with Holdings' initial public offering of its Common Stock in
February 1997 (the "IPO"), the Company recognized a non-cash charge of $22.5
million at the time of the IPO for the excess of the fair market value over the
grant price of certain stock options, less $3.7 million previously accrued.
(e) In the fourth quarter of 1999, the Company completed its plan to close two
manufacturing facilities of the metal food container business, resulting in a
charge of $11.9 million (including $7.3 million for the write-down in carrying
value of assets determined to be impaired). Additionally, based upon a review of
the depreciable assets of the metal food container business in 1999, the Company
determined that certain adjustments were necessary to properly reflect net
realizable values and recorded a non-cash, pre-tax write-down of $24.2 million
in 1999 for the excess of carrying value over estimated net realizable value of
machinery and equipment which had become obsolete or surplus. See Note 3 to the
Consolidated Financial Statements of the Company for the year ended December 31,
2000 included elsewhere in this Annual Report on Form 10-K.
(f) During 1997, the Company determined that it was more likely than not that
future tax benefits arising from its net operating loss carryforwards would be
realized in future years due to the Company's continued improvement in earnings
and the probability of future taxable income. Accordingly, in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, the Company
recognized an income tax benefit of $27.4 million for its recoverable net
operating loss carryforwards.
(g) Income from operations in the selected segment data excludes (i) charges of
$36.1 million for the year ended December 31, 1999 as referred to in footnote
(e) above, (ii) the non-cash stock option charge of $22.5 million incurred as a
result of the IPO, as referred to in footnote (d) above, and (iii) corporate
expense.
(h) "Adjusted EBITDA" means consolidated net income before equity in losses of
an affiliate, extraordinary items and preferred stock dividends, plus
consolidated interest expense, income tax expense and depreciation and
amortization expense, as adjusted to add back charges incurred for the closing
of facilities ($11.9 million for the year ended December 31, 1999 as referred to
in footnote (e) above), charges incurred for the reduction in carrying value of
assets ($24.2 million for the year ended December 31, 1999 as referred to in
footnote (e) above), the non-cash charge of $22.5 million incurred in 1997 in
connection with the IPO as referred to in footnote (d) above, and the non-cash
charge relating to the vesting of benefits under stock appreciation rights of
$0.8 million for the year ended December 31, 1996. The Company has included
information regarding Adjusted EBITDA because management believes that many
investors consider it important in assessing a company's ability to service and
incur debt. Accordingly, this information has been disclosed herein to permit a
more complete analysis of the Company's financial condition. Adjusted EBITDA
should not be considered in isolation or as a substitute for net income or other
consolidated statement of income or cash flows data prepared in accordance with
accounting principles generally accepted in the United States ("GAAP") as a
measure of the profitability or liquidity of the Company. See the consolidated
statements of income and consolidated statements of cash flows of the Company,
including the notes thereto, included elsewhere in this Annual Report on Form
10-K. Adjusted EBITDA does not take into account the Company's debt service
requirements and other commitments and, accordingly, is not necessarily
indicative of amounts that may be available for discretionary uses.
Additionally, Adjusted EBITDA is not computed in accordance with GAAP and may
not be comparable to other similarly titled measures of other companies.
(i) Depreciation and amortization excludes amortization of debt financing costs.
-20-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis is intended to assist in an
understanding of the consolidated financial condition and results of operations
of the Company for the three-year period ended December 31, 2000. The Company's
consolidated financial statements and the notes thereto included elsewhere in
this Annual Report on Form 10-K contain detailed information that should be
referred to in conjunction with the following discussion and analysis.
General
The Company is a leading North American manufacturer of consumer goods
packaging products. The Company currently produces (i) steel and aluminum
containers for human and pet food, (ii) custom designed plastic containers for
personal care, health care, pharmaceutical, household and industrial chemical,
food, pet care, agricultural chemical, automotive and marine chemical products
as well as plastic closures, caps, sifters and fitments and thermoformed plastic
tubs for food, pet care and household products and (iii) specialty packaging
items used in the food and beverage industries, including steel closures,
aluminum roll-on closures, plastic bowls and cans and paperboard containers. The
Company is the largest manufacturer of metal food containers in North America,
with a unit sale market share for the year ended December 31, 2000 of 46% in the
United States, a leading manufacturer of plastic containers in North America for
personal care products and a major supplier of metal closures for food and
beverage products. See "Business--General."
Revenue Growth
The Company's strategy is to increase shareholder value by growing its
existing businesses and expanding into other segments by applying its expertise
in acquiring, financing, integrating and efficiently operating consumer goods
packaging businesses. The Company has increased its revenues and market share in
the metal food container, plastic container and closure and specialty packaging
markets through acquisitions and internal growth. As a result of this strategy,
the Company has diversified its customer base, geographic presence and product
line.
For example, during the past thirteen years, the metal food container
market has experienced significant consolidation primarily due to the desire by
food processors to reduce costs and focus resources on their core operations.
The Company's acquisitions of the metal food container manufacturing operations
of Nestle, Dial, Del Monte, Agrilink and Campbell reflect this trend. During
this period, the Company's overall share of the U.S. metal food container market
more than quadrupled, from approximately 10% in 1987 to approximately 46% in
2000. See "Business--General--Growth Strategy."
The Company's plastic container and plastic closure business has also
improved its market position since 1987, with sales increasing by more than
fourfold to $373.0 million in 2000. This improvement was achieved through
strategic acquisitions and, to a lesser extent, through internal growth. The
plastic container and plastic closure segments of the consumer goods packaging
industry are highly fragmented, and management intends to pursue consolidation
opportunities (at reasonable cash flow multiples) in those segments. See
"Business--General--Growth Strategy."
Management believes that it can successfully apply its acquisition and
operating expertise to new segments of the consumer goods packaging industry.
With its acquisition of RXI in October 2000, the Company expanded its business
into plastic closures, caps, sifters and fitments and thermoformed plastic tubs.
Although no assurance can be given that the Company will be able to locate or
acquire attractive acquisition candidates on acceptable terms, management
believes that certain trends in and characteristics of the consumer goods
packaging industry will generate attractive acquisition opportunities in
complementary business lines. Importantly, the industry is fragmented, with
numerous segments and multiple participants in the various segments.
Additionally, many of these segments are experiencing consolidation. See
"Business--General--Growth Strategy."
-21-
Operating Strategy
The Company seeks to acquire businesses at reasonable cash flow multiples
and to enhance profitability through productivity and cost reduction
opportunities. The additional sales and production capacity provided through
acquisitions have enabled the Company to rationalize plant operations and
decrease overhead costs through plant closings and downsizings. In addition, the
Company's acquisitions have enabled it to realize manufacturing efficiencies as
a result of optimizing production scheduling and minimizing product
transportation costs. The Company has also benefited from the economies of its
scale and from the elimination of redundant selling and administrative
functions, as well as from the investment of capital to upgrade the acquired
facilities. See "Business--General--Growth Strategy--Enhance Profitability of
Acquired Companies."
Historically, the Company has been able to improve the operating margins of
its acquired businesses through productivity and cost reduction opportunities.
Following an acquisition, the Company initiates a systematic program, which
usually is implemented over a number of years, to optimize its manufacturing
facilities. As a result, this improvement to operating margins generally has
been realized over a number of years.
In addition to the benefits realized through the integration of acquired
businesses, the Company has improved the operating performance of its existing
plant facilities through the investment of capital for productivity improvements
and manufacturing cost reductions. The Company has also invested capital for new
market opportunities, such as easy-open ends for metal food containers. Over the
past five years, the Company has invested $381.8 million in capital to improve
its productivity, reduce its manufacturing costs and invest in new market
opportunities.
For the period from 1995 through 2000, the operating margins of the
Company's metal food container business (without giving effect to
rationalization charges in 1995) improved from approximately 6.5% in 1995 to
8.8% in 2000. This improvement was principally a result of the benefits realized
from rationalization and integration activities, manufacturing efficiencies,
economies of increased purchasing volumes and the elimination of redundant costs
related to its acquisitions since 1995, the investment of capital for
productivity improvements and new market opportunities and an improved sales
mix. This improvement was achieved despite the impact of lower margin sales to
Campbell, price reductions under extended long-term supply agreements and
competitive pricing pressure.
The operating margins of the Company's plastic container business also
improved from approximately 6.0% in 1995 to 10.3% in 2000. This improvement was
primarily due to benefits realized as a result of higher unit sales principally
from acquisitions, an improved sales mix, manufacturing efficiencies, economies
of its scale, elimination of redundant costs related to acquisitions and the
investment of capital for productivity improvements.
The Company operates in a competitive industry where it is necessary to
realize cost reduction opportunities to offset continued competitive pricing
pressure. Further, the multi-year supply arrangements entered into by the
Company's metal food container business with many of its customers, including
Nestle, Del Monte, Campbell and several other major food producers, limit the
Company's ability to increase its margins. The Company estimates that
approximately 80% of its projected metal food container sales in 2001 will be
pursuant to such arrangements. See "Business--Sales and Marketing." These
multi-year supply arrangements generally provide for the pass through of
material and labor cost changes, thereby significantly reducing the exposure of
the Company's results of operations to the volatility of these costs. See
"Business--Raw Materials."
-22-
Historically, the Company has been successful in continuing its multi-year
supply arrangements with its customers, without any resulting material adverse
effect on its financial condition or results of operations. There can be no
assurance, however, that in the future the Company will retain these multi-year
supply arrangements or, if the Company continues these arrangements, that they
will be continued without any material adverse effect on its financial condition
or results of operations. Recently, the Company and Nestle agreed to extend the
term of the Nestle Supply Agreements for approximately half of the metal
containers sales thereunder by seven years from 2001 through 2008, in return for
certain price reductions which took effect in 2001. The Company believes that
these price reductions will not have a material adverse effect on its financial
condition or results of operations. See "Business--Sales and Marketing."
The Company's metal food container business sales and, to a lesser extent,
operating income are dependent, in part, upon the vegetable, tomato and fruit
harvests in the midwest and western regions of the United States. The size and
quality of these harvests varies from year to year, depending in large part upon
the weather conditions in those regions. Because of the seasonality of the
harvests, the Company has historically experienced higher unit sales volume in
the second and third quarters of its fiscal year and generated a
disproportionate amount of its annual income from operations during these
quarters. This seasonal impact has been mitigated somewhat by the acquisition of
CS Can. Sales to Campbell generally have been highest in the fourth quarter due
to the seasonal demand for soup products.
Financial Strategy
The Company's financial strategy is to use leverage to support its growth
and increase shareholder returns. The Company's stable and predictable cash
flow, generated largely as a result of its long-term customer relationships and
generally recession resistant business, supports its financial strategy.
Management has successfully operated its businesses and achieved its growth
strategy while managing the Company's indebtedness. Management intends to
continue to apply this financial strategy in its business as it pursues its
growth strategy.
In 2000, the Company used $124.0 million of its revolving loan facility
under its U.S. senior secured credit facility to finance its acquisition of RXI.
In 1998, the Company used $194.0 million of its revolving loan facily under its
U.S. senior secured credit facility to finance its acquisitions of Winn, CS Can
and Clearplass.
As part of its financial strategy and in the absence of compelling
acquisition opportunities, the Company intends to use its free cash flow to
repay indebtedness or for other permitted purposes. In 1999, for example, the
Company did not complete any acquisition, and it reduced its total debt by $43.7
million as compared to 1998 despite higher capital expenditures and interest
expense and the incurrence of $16.6 million of indebtedness for Common Stock
repurchases in 1999.
To the extent the Company utilizes its revolving loan borrowings under its
senior secured credit facilities for acquisitions or other permitted purposes in
future periods, its interest expense may increase. Further, since the Company's
revolving loan and term loan borrowings under its senior secured credit
facilities bear interest at floating rates, it is sensitive to changes in
prevailing rates of interest and, accordingly, its interest expense may vary
from period to period. After taking into account interest rate swap arrangements
that the Company entered into to mitigate the effect of interest rate
fluctuations, at December 31, 2000 the Company had $578.0 million of
indebtedness which bore interest at floating rates. See "--Effect of Inflation
and Interest Rate Fluctuations" and "Quantitative and Qualitative Disclosures
About Market Risk--Interest Rate Risk."
-23-
In light of the Company's strategy to use leverage to support its growth
and optimize shareholder returns, the Company has incurred and will continue to
incur significant interest expense. For 2000, the Company's aggregate financing
costs were 58.0% of its income from operations as compared to 53.6%, 52.8%,
57.1% and 74.9% for 1999, 1998, 1997 and 1996, respectively (without giving
effect to charges in 1999 and 1997).
Results of Operations
The following table sets forth certain income statement data for the
Company, expressed as a percentage of net sales, for each of the periods
presented, and should be read in conjunction with the consolidated financial
statements of the Company and related notes included elsewhere in this Annual
Report on Form 10-K.
Year Ended December 31,
-----------------------
2000 1999 1998
---- ---- ----
Operating Data:
Net sales:
Metal food containers ........................... 73.5% 75.6% 74.8%
Plastic containers .............................. 19.9 17.1 17.7
Specialty packaging ............................ 6.6 7.3 7.5
----- ----- -----
Total ........................................ 100.0 100.0 100.0
Cost of goods sold ................................ 87.8 87.6 87.4
----- ----- -----
Gross Profit ...................................... 12.2 12.4 12.6
Selling, general and administrative expenses ...... 3.8 3.9 3.9
Rationalization charges ........................... -- 1.9 --
----- ----- -----
Income from operations ............................ 8.4 6.6 8.7
Interest and other debt expense ................... 4.9 4.6 4.6
----- ----- -----
Income before income taxes and equity in
losses of affiliate ............................. 3.5 2.0 4.1
Provision for income taxes ........................ 1.4 0.7 1.5
----- ----- -----
Income before equity in losses of affiliate
and extraordinary item .......................... 2.1 1.3 2.6
Equity in losses of affiliate ..................... 0.2 -- --
----- ----- -----
Income before extraordinary item .................. 1.9 1.3 2.6
Extraordinary item - loss on early extinguishment
of debt, net of income taxes .................... 0.2 -- --
----- ----- -----
Net income ........................................ 1.7% 1.3% 2.6%
===== ===== =====
-24-
Summary historical results for the Company's three business segments, metal
food containers, plastic containers and specialty packaging, for the years ended
December 31, 2000, 1999, and 1998 are provided below.
Year Ended December 31,
-----------------------
2000 1999 1998
---- ---- ----
(Dollars in millions)
Net sales(1):
Metal food containers .............. $1,380.6 $1,431.0 $1,323.7
Plastic containers ................. 373.0 323.0 312.8
Specialty packaging ............... 123.9 138.1 132.2
-------- -------- --------
Consolidated .................... $1,877.5 $1,892.1 $1,768.7
======== ======== ========
Income from operations:
Metal food containers .............. $ 120.9 $ 120.7 $ 116.1
Plastic containers ................. 38.6 38.6 38.0
Specialty packaging ............... 0.8 5.0 3.3
Rationalization charges(2) ......... -- (36.1) --
Corporate expense .................. (3.2) (3.9) (3.1)
-------- -------- --------
Consolidated .................... $ 157.1 $ 124.3 $ 154.3
======== ======== ========
- ------------
(1) During the fourth quarter of 2000, the Company adopted EITF Issue No.
00-10, "Accounting for Shipping and Handling Fees and Costs." EITF Issue
No. 00-10 addresses the income statement classification for shipping and
handling fees and costs. The Company's net sales include the
reclassification of certain revenue reductions to cost of goods sold. These
reclassifications did not affect the Company's income from operations or
net income.
(2) Included in income from operations of the Company in 1999 are an aggregate
of $36.1 million of rationalization charges, consisting of a charge of
$11.9 million relating to the closing of two manufacturing facilities of
the metal food container business (which included $7.3 million for the
non-cash write-down in carrying value of assets determined to be impaired)
and a non-cash charge of $24.2 million for the excess of carrying value
over estimated net realizable value of machinery and equipment of the metal
food container business which had become obsolete or surplus. See Note 3 to
the Consolidated Financial Statements of the Company for the year ended
December 31, 2000 included elsewhere in this Annual Report on Form 10-K.
Year Ended December 31, 2000 Compared with Year Ended December 31, 1999
Net Sales. Consolidated net sales decreased $14.6 million, or 0.7%, to
$1,877.5 million for the year ended December 31, 2000, as compared to net sales
of $1,892.1 million for the prior year. This decrease resulted primarily from
lower unit sales of the metal food container and specialty packaging businesses,
which was largely offset by higher net sales of the plastic container business.
Excluding incremental sales added by the October 2000 acquisition of RXI,
consolidated net sales for 2000 decreased by $41.2 million, or 2.2%, from the
prior year.
Net sales for the metal food container business were $1,380.6 million for
the year ended December 31, 2000, a decrease of $50.4 million, or 3.5%, from net
sales of $1,431.0 million for the prior year. This decrease was primarily due to
the withdrawal from lower margin sales related to the closure of a West Coast
facility at the beginning of 2000 and to lower unit sales principally due to a
reduced fruit and vegetable pack in 2000 and generally lower demand from
customers.
-25-
Net sales for the plastic container business of $373.0 million for the year
ended December 31, 2000 increased $50.0 million, or 15.5%, from net sales of
$323.0 million for 1999. This increase in net sales was principally attributable
to higher average sales prices due to the pass through of increased resin costs
and to incremental sales added by RXI. Excluding incremental sales added by RXI,
net sales for the plastic container business for 2000 increased $23.4 million,
or 7.2%, from the prior year.
Net sales for the specialty packaging business decreased $14.2 million, or
10.3%, to $123.9 million for the year ended December 31, 2000, as compared to
$138.1 million for the prior year. This decrease was primarily due to generally
soft demand from customers and to the continued conversion of metal closures to
plastic closures.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net
sales was 87.8% ($1,648.3 million) for the year ended December 31, 2000, an
increase of 0.2 percentage point as compared to 87.6% ($1,656.7 million) in
1999. The decline in gross profit margin was attributable to lower margins
realized by the plastic container and specialty packaging businesses as
discussed below, and was offset in part by higher margins from the metal food
container business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales for the year
ended December 31, 2000 decreased to 3.8% ($72.1 million), as compared to 3.9%
($75.0 million) for the prior year. This decrease was primarily a result of the
absence in 2000 of costs incurred in 1999 for Year 2000 readiness issues, lower
headcount and generally lower spending.
Income from Operations. Income from operations decreased $3.3 million, or
2.1%, to $157.1 million for the year ended December 31, 2000, as compared to
income from operations of $160.4 million for the prior year excluding the effect
of an aggregate of $36.1 million of rationalization charges recorded in 1999.
This decrease was primarily a result of lower operating income of the specialty
packaging business. Including the effect of the rationalization charges, income
from operations for the year ended December 31, 1999 was $124.3 million. Income
from operations as a percentage of consolidated net sales for the year ended
December 31, 2000 was 8.4%, as compared to 8.5% for 1999 excluding the effect of
the rationalization charges recorded in 1999. The slight decline in operating
margins was attributable to lower operating margins of the plastic container and
specialty packaging businesses, which was largely offset by the improved
operating performance of the metal food container business.
Income from operations for the metal food container business for the year
ended December 31, 2000 was $120.9 million, a $0.2 million increase over income
from operations, excluding the effect of the rationalization charges recorded in
1999, of $120.7 million for the prior year. Including the effect of the
rationalization charges, income from operations for the metal food container
business for the year ended December 31, 1999 was $84.6 million. Income from
operations as a percentage of net sales for the metal food container business
was 8.8% for the year ended December 31, 2000, as compared to 8.4% in 1999
excluding the effect of the rationalization charges recorded in 1999. The
improved operating margins of the metal food container business was principally
attributable to benefits realized from an improved sales mix, plant
rationalizations and lower selling, general and administrative expenses, and was
partially offset by higher energy costs and depreciation expense.
Pursuant to continued efforts to optimize production efficiencies and to
withdraw from lower margin business, the Company decided in the fourth quarter
of 1999 to close two West Coast manufacturing facilities of the metal food
container business, and accordingly recorded a pre-tax charge to earnings of
$11.9 million, which included $7.3 million for the non-cash write-down in
carrying value of certain assets determined to be impaired. Additionally, in the
third quarter of 1999, the Company recorded a non-cash pre-tax charge to
earnings of $24.2 million to reduce the carrying value of certain assets of the
metal food container business determined to be surplus or obsolete.
-26-
Income from operations for the plastic container business for the year
ended December 31, 2000 of $38.6 million remained constant with income from
operations for the prior year. Income from operations as a percentage of net
sales for the plastic container business for the year ended December 31, 2000
was 10.3%, as compared to 12.0% for 1999. The decrease in income from operations
as a percentage of net sales for the plastic container business was principally
attributable to the effects of increased resin prices which resulted in an
increase in net sales but not in income from operations and to lower selling
prices relating to the extension of certain long-term contracts.
Income from operations for the specialty packaging business for the year
ended December 31, 2000 was $0.8 million, a $4.2 million decrease as compared to
income from operations of $5.0 million for the prior year. This decrease was
primarily due to lower net sales of the specialty packaging business in 2000 as
compared to 1999. Income from operations as a percentage of net sales for the
specialty packaging business declined to 0.6% for the year ended December 31,
2000, as compared to 3.6% in 1999. The decline in operating performance of the
specialty packaging business was primarily a result of lower unit sales, a
change in sales mix, operating inefficiencies at two plants and higher energy
costs, and was partially offset by lower selling, general and administrative
expenses.
Interest Expense. Interest expense increased $5.1 million to $91.2 million
for the year ended December 31, 2000, as compared to $86.1 million in 1999. This
increase was principally a result of increased borrowing in the fourth quarter
of 2000 to finance the acquisition of RXI and higher interest rates in 2000, and
was offset in part by lower average borrowings outstanding during the first nine
months of 2000 primarily as a result of the planned inventory reduction by the
Company's metal food container business.
Income Taxes. The provision for income taxes for the year ended December
31, 2000 was recorded at an effective tax rate of 39.1% ($25.8 million), as
compared to 37.4% ($14.3 million) for 1999. The effective tax rate in 2000
increased as compared to 1999 primarily due to the utilization of state tax net
operating loss carryforwards in 1999 that were not available in 2000.
Net Income and Earnings per Share. As a result of the items discussed
above, income for the year ended December 31, 2000 was $40.1 million, or $2.23
per diluted share, before the Company's share of losses in its equity investment
in Packtion Corporation, an e-commerce packaging venture, and an extraordinary
loss related to the early extinguishment of the Company's 13-1/4% Subordinated
Debentures due 2006 (the "13-1/4% Subordinated Debentures"). Income for the year
ended December 31, 1999 was $46.6 million, or $2.56 per diluted share, before
rationalization charges recorded in 1999. Including its share of losses in its
equity investment in Packtion Corporation of $4.6 million, or $0.26 per diluted
share, and the extraordinary loss, net of tax, of $4.2 million, or $0.23 per
diluted share, net income for the year ended December 31, 2000 was $31.3
million, or $1.74 per diluted share. For the year ended December 31, 1999,
including rationalization charges, net of tax, of $22.6 million, or $1.24 per
diluted share, net income was $23.9 million, or $1.32 per diluted share.
In 2000, the Company made an equity investment of $7.0 million in Packtion
Corporation, through a limited liability company of which Morgan Stanley Dean
Witter Private Equity and Diamondcluster International, Inc. are also investors,
for approximately a 45% interest. As required, the Company has recorded its
share of losses of Packtion Corporation aggregating $4.6 million, or $0.26 per
diluted share. Such recorded losses do not reflect any income tax benefit
because the Company does not have the required equity ownership in Packtion
Corporation to consolidate it with the Company for income tax purposes. See
"--Capital Resources and Liquidity."
-27-
During 2000, the Company incurred an extraordinary charge, net of tax, of
$4.2 million, or $0.23 per diluted share, for the premium paid in connection
with the redemption of its 13-1/4% Subordinated Debentures and for the write-off
of unamortized deferred financing costs related thereto. See "--Capital
Resources and Liquidity."
Year Ended December 31, 1999 Compared with Year Ended December 31, 1998
Net Sales. Consolidated net sales increased $123.4 million, or 7.0%, to
$1,892.1 million for the year ended December 31, 1999, as compared to net sales
of $1,768.7 million for the prior year. This increase resulted primarily from
incremental sales added from acquisitions and, to a lesser extent, from
increased sales from all three business segments.
Net sales for the metal food container business were $1,431.0 million for
the year ended December 31, 1999, an increase of $107.3 million, or 8.1%, from
net sales of $1,323.7 million for the prior year. This increase resulted from
sales to Campbell under the Campbell Supply Agreement entered into in June 1998
and from increased unit sales to other customers, and was offset in part by
lower price realization under recently extended long-term supply agreements.
Net sales for the plastic container business of $323.0 million for the year
ended December 31, 1999 increased $10.2 million, or 3.3%, from net sales of
$312.8 million for 1998. This increase in net sales was principally attributable
to incremental sales added by the August 1998 acquisition of Clearplass as well
as increased unit sales of the existing business.
Net sales for the specialty packaging business increased $5.9 million, or
4.5%, to $138.1 million for the year ended December 31, 1999, as compared to
$132.2 million for the prior year. This increase was a result of higher unit
sales.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net
sales was 87.6% ($1,656.7 million) for the year ended December 31, 1999, an
increase of 0.2 percentage point as compared to 87.4% ($1,546.3 million) in
1998. The decline in gross profit margin was primarily attributable to lower
margins realized by the metal food container business as discussed below, and
was offset in part by the leveraging effect of increased unit sales of the
specialty packaging business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales for the year
ended December 31, 1999 remained essentially flat at 3.9% as compared to 1998
($75.0 million and $68.1 million, respectively).
Income from Operations. Excluding the effect of an aggregate of $36.1
million of rationalization charges recorded in 1999, income from operations
increased $6.1 million, or 4.0%, to $160.4 million for the year ended December
31, 1999, as compared to income from operations of $154.3 million for the prior
year. This increase was a result of increased operating income from all three
business segments. Including the effect of the rationalization charges, income
from operations for the year ended December 31, 1999 was $124.3 million. Income
from operations as a percentage of consolidated net sales for the year ended
December 31, 1999, excluding the effect of the rationalization charges recorded
in 1999, was 8.5% as compared to 8.7% for 1998. The decline in operating margins
was attributable to lower operating margins of the metal food container and
plastic container businesses, and was offset in part by the improved operating
performance of the specialty packaging business.
In order to maximize production efficiencies, the Company decided in the
fourth quarter of 1999 to close two West Coast manufacturing facilities of the
metal food container business, and accordingly recorded a pre-tax charge to
earnings of $11.9 million, which included $7.3 million for the non-cash
write-down in carrying value of certain assets determined to be impaired.
Additionally, in the third quarter of 1999, the Company recorded a non-cash
pre-tax charge to earnings of $24.2 million to reduce the carrying value of
certain assets of the metal food container business determined to be surplus or
obsolete.
-28-
Income from operations for the metal food container business for the year
ended December 31, 1999, excluding the effect of the rationalization charges
recorded in 1999, was $120.7 million, a $4.6 million, or 4.0%, increase over
income from operations of $116.1 million for the metal food container business
for the prior year. This increase was principally due to increased net sales of
the metal food container business in 1999 as compared to 1998. Including the
effect of the rationalization charges, income from operations for the metal food
container business for the year ended December 31, 1999 was $84.6 million.
Income from operations as a percentage of net sales for the metal food container
business, excluding the effect of the rationalization charges recorded in 1999,
was 8.4% for the year ended December 31, 1999 as compared to 8.8% in 1998. The
decline in operating margins of the metal food container business was
principally attributable to anticipated lower margin sales to Campbell and lower
price realization under recently extended long-term supply agreements, and was
partially offset by lower overall per unit manufacturing costs.
Income from operations for the plastic container business for the year
ended December 31, 1999 increased 1.6% to $38.6 million, as compared to income
from operations of $38.0 million for the plastic container business for the
prior year, primarily due to increased net sales. Income from operations as a
percentage of net sales for the plastic container business for the year ended
December 31, 1999 was 12.0% as compared to 12.1% for 1998. The decrease in
income from operations as a percentage of net sales for the plastic container
business was principally attributable to higher depreciation expense and higher
selling, general and administrative expenses primarily related to the Clearplass
acquisition.
Income from operations for the specialty packaging business for the year
ended December 31, 1999 was $5.0 million, a $1.7 million increase over income
from operations of $3.3 million for the specialty packaging business for the
prior year. This increase was principally attributable to increased net sales of
the specialty packaging business in 1999 as compared to 1998. Income from
operations as a percentage of net sales for the specialty packaging business
improved 1.1 percentage points to 3.6% for the year ended December 31, 1999 as
compared to 2.5% in 1998. The improvement in operating performance of the
specialty packaging business was primarily due to higher unit sales which
resulted in lower per unit production costs, and was offset in part by higher
depreciation expense and higher selling, general and administrative expenses
partially attributable to higher new product development costs and costs
incurred in connection with Year 2000 readiness issues.
Interest Expense. Interest expense increased $4.6 million to $86.1 million
for the year ended December 31, 1999, as compared to $81.5 million in 1998. This
increase was principally a result of higher average revolving loan balances
outstanding for the year ended December 31, 1999 as compared to the prior year,
primarily to finance the acquisitions of CS Can in June 1998 and Clearplass in
August 1998 and Common Stock repurchases.
Income Taxes. The provision for income taxes for the year ended December
31, 1999 was recorded at an effective tax rate of 37.4% ($14.3 million), as
compared to 36.9% ($26.9 million) for 1998.
Net Income and Earnings per Share. As a result of the items discussed
above, income for the year ended December 31, 1999, excluding the effect of the
rationalization charges recorded in 1999, was $46.6 million, or $2.56 per
diluted share, as compared to $45.9 million, or $2.30 per diluted share, for the
year ended December 31, 1998. Although income for 1999 was only slightly higher
than the prior year primarily due to higher interest expense, 1999 earnings per
diluted share increased $0.26 principally due to the benefits from Common Stock
repurchases. Including the net-of-tax effect of $22.6 million, or $1.24 per
diluted share, of the rationalization charges, net income for the year ended
December 31, 1999 was $23.9 million, or $1.32 per diluted share.
-29-
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.
In 2000, net borrowings of revolving loans of $243.7 million ($242.1
million under the Company's U.S. senior secured credit facility and $1.6 million
under the Company's Canadian senior secured credit facility), cash generated
from operations of $95.1 million, proceeds from asset sales of $1.8 million and
proceeds from the exercise of employee stock options of $0.5 million were used
by the Company to fund its acquisition of RXI for $124.0 million, capital
expenditures of $89.2 million, the redemption of the 13-1/4% Subordinated
Debentures for $61.8 million, the repayment of $39.3 million of term loan
borrowings under its senior secured credit facilities, the increase in its cash
balances of $17.7 million, its investment in Packtion Corporation of $7.0
million, repurchases of Common Stock for $1.1 million and debt financing costs
of $1.0 million.
In April 2000, the Company, together with Morgan Stanley Dean Witter
Private Equity and Diamondcluster International, Inc., agreed to invest, subject
to certain conditions, in Packtion Corporation, a neutral, independent
e-commerce joint venture. The parties agreed to make such investments through
Packaging Markets LLC, a limited liability company. In June and August 2000, the
Company funded two equity investments in Packtion Corporation of $3.5 million
each, for a total investment of $7.0 million and approximately a 45% interest in
Packtion Corporation. At December 31, 2000, after recording its equity share of
losses of $4.6 million in Packtion Corporation and its share of closing costs
for Packtion Corporation of $0.2 million as a reduction to its investment, the
Company's net investment in Packtion Corporation was $2.2 million. Subsequently,
in connection with the investment in Packtion Corporation by The Proctor &
Gamble Company and E.I. du Pont de Nemours & Co., the Company funded additional
equity investments in Packtion Corporation in 2001 of $3.1 million, and
presently has approximately a 25% interest in Packtion Corporation. As of the
date hereof, the Company has no further obligation to invest or otherwise
provide funding to Packtion Corporation. Packtion Corporation offers an
e-commerce solution that integrates the entire packaging supply chain, from
design through manufacture and procurement.
In December 2000, the Company redeemed all of its outstanding 13-1/4%
Subordinated Debentures ($56.2 million principal amount) with lower cost
revolving loans under its U.S. senior secured credit facility. The redemption
price for all of the 13-1/4% Subordinated Debentures, including premiums, was
$61.8 million. The Company expects to benefit from this redemption because of
the lower interest rate that will be applicable to such indebtedness, despite
the slight increase in its indebtedness as a result. Based on interest rates for
its revolving loans under its U.S. senior secured credit facility at the time of
the redemption, the Company estimated interest savings of approximately $2.6
million annually on such indebtedness.
In 1999, cash generated from operations of $143.3 million, $2.4 million of
cash balances and $0.5 million of cash proceeds from the exercise of employee
stock options were used to repay $44.7 million of borrowings under the Company's
senior secured credit facilities, fund net capital expenditures of $84.9 million
and repurchase $16.6 million of Holdings' Common Stock.
-30-
In 1998, cash generated from operations of $147.4 million, net borrowings
of revolving loans of $135.9 million under the Company's U.S. senior secured
credit facility, $4.2 million of borrowings under the Company's Canadian senior
secured credit facility, $3.0 million of other borrowings related to the
acquisition of CS Can, $2.3 million of proceeds from employee stock option
exercises, $1.8 million of proceeds from asset sales, and $49.0 million of cash
balances were used to fund capital expenditures of $86.1 million, the
acquisitions of Winn, CS Can and Clearplass for an aggregate amount of $194.0
million, the repurchase of Common Stock for $43.4 million, and the repayment of
$20.1 million of bank term loans.
During 1997, the Company entered into its current U.S. senior secured
credit facility and its current Canadian senior secured credit facility. The
Company's senior secured credit facilities currently provide it with revolving
loans of up to approximately $675.0 million (including $125.0 million added in
October 2000). Revolving loans are available to the Company for its working
capital and general corporate purposes (including acquisitions). In addition,
the Company may request to borrow up to an additional $75.0 million of revolving
loans from one or more lenders under its U.S. senior secured credit facility.
Revolving loans under the Company's senior secured credit facilities may be
borrowed, repaid and reborrowed until December 31, 2003, their final maturity,
at which point all such outstanding revolving loans must be repaid.
The Company's U.S. senior secured credit facility also provided it with A
term loans ($159.2 million currently outstanding) and B term loans ($188.5
million currently outstanding), which are required to be repaid in annual
installments through December 31, 2003 and December 31, 2005, respectively.
Additionally, the Company's Canadian senior secured credit facility provided it
with term loans ($11.3 million currently outstanding), which are required to be
repaid in annual installments through December 31, 2003. See Note 9 to the
Consolidated Financial Statements of the Company for the year ended December 31,
2000 included elsewhere in this Annual Report on Form 10-K.
Because the Company sells metal containers used in fruit and vegetable pack
processing, it has seasonal sales. As is common in the industry, the Company
must access working capital to build inventory and then carry accounts
receivable for some customers beyond the end of the summer and fall packing
season. Seasonal accounts are generally settled by year end. Due to the
Company's seasonal requirements, the Company incurs short term indebtedness to
finance its working capital requirements.
The Company utilizes its revolving loan facilities for seasonal working
capital needs and for other general corporate purposes, including acquisitions.
Revolving loan borrowings under the Company's senior secured credit facilities
will be due and payable on December 31, 2003.
As of December 31, 2000, there were $367.4 million of outstanding revolving
loans under the Company's U.S. senior secured credit facility, and, after taking
into account outstanding letters of credit thereunder, the unused portion of the
revolving loan facility under the Company's U.S. senior secured credit facility
at such date was $286.7 million. For 2001, the Company estimates that at its
month-end peak it will utilize approximately $530-540 million of its revolving
loan facility under its U.S. senior secured credit facility. As a result, the
Company estimates that approximately $130-140 million of its revolving loan
facility under its U.S. senior secured credit facility is available to it in
2001 for acquisitions and other permitted purposes.
Additionally, as of December 31, 2000, there were $1.6 million of
outstanding revolving loans under the Company's Canadian senior secured credit
facility, and the unused portion of the revolving loan facility under the
Company's Canadian senior secured credit facility at such date was approximately
$2.9 million.
-31-
The Company's Board of Directors has authorized the repurchase by the
Company of up to $70 million of its Common Stock. Since July 1998, the Company
has repurchased 2,708,975 shares of its Common Stock for an aggregate cost of
approximately $61.0 million. Such repurchases were financed through revolving
loan borrowings under the Company's U.S. senior secured credit facility. The
Company intends to finance future repurchases, if any, of its Common Stock with
revolving loans from its U.S. senior secured credit facility.
In addition to its operating cash needs, the Company believes its cash
requirements over the next few years (without taking into account the effect of
future acquisitions) will consist primarily of (i) annual capital expenditures
of $85 to $90 million, (ii) annual principal amortization payments of bank term
loans under its senior secured credit facilities beginning in 2001 of
approximately $44.6 million, $60.6 million and $71.2 million, (iii) expected
total expenditures of approximately $11.0 million over the next few years
associated with plant rationalizations, employee severance and workforce
reductions and other plant exit costs, (iv) the Company's interest requirements,
including interest on revolving loans (the principal amount of which will vary
depending upon seasonal requirements and acquisitions) and bank term loans under
its senior secured credit facilities, most of which bear fluctuating rates of
interest, and the 9% Debentures, and (v) payments of approximately $20.0 million
for federal and state tax liabilities in 2001, which will increase annually
thereafter.
For information regarding income tax matters, see Note 13 to the Company's
Consolidated Financial Statements for the year ended December 31, 2000 included
elsewhere in this Annual Report on Form 10-K.
During the fourth quarter of 1999, the Company completed its plan to close
two West Coast metal food container facilities. The plan included the
elimination of approximately 130 plant employees, termination of two operating
leases and other plant related exit costs. This decision resulted in a fourth
quarter 1999 pre-tax charge to earnings of $11.9 million, which included $7.3
million for the non-cash write down in carrying value of certain assets
determined to be impaired, $2.4 million for plant exit costs and $2.2 million
for employee severance and benefits. Through December 31, 2000, the Company
incurred expenditures of $1.8 million for plant exist costs and $2.2 million
related to employee severance and benefits. Although the Company has closed both
facilities, the timing of cash payments in connection therewith is dependent
upon, among other things, resolution of certain matters with the lessor of one
of the facilities. Accordingly, cash payments related to these facility closings
are expected through 2001. See Note 3 to the Company's Consolidated Financial
Statements for the year ended December 31, 2000 included elsewhere in this
Annual Report on Form 10-K.
In connection with its 1998 acquisitions of CS Can, Clearplass and Winn,
the Company developed plans to integrate these businesses into its operations by
rationalizing certain of the acquired plant operations. Pursuant to these plans
which were finalized in 1999, the Company accrued liabilities of $5.4 million,
of which $4.9 million related to plant exit costs and assumed liabilities and
$0.5 million related to employee severance and relocation costs. Principally all
actions under the integration plans for Clearplass and Winn have been completed.
The timing of cash payments relating to the CS Can integration activities is
dependent upon, among other things, the time required to obtain necessary
environmental permits and approvals in connection with a consent order with the
U.S. Environmental Protection Agency to which the Company is subject as a result
of its acquisition of CS Can and complexities associated with the transfer of
the labor force of Campbell for CS Can to the Company. Through December 31,
2000, the Company incurred expenditures of $2.5 million for plant exit costs and
assumed liabilities and $0.5 million related to employee severance and benefits.
Cash payments related to these acquisitions are expected through 2001. See Note
3 to the Company's Consolidated Financial Statements for the year ended December
31, 2000 included elsewhere in this Annual Report on Form 10-K.
Acquisition reserves established in connection with the purchase of AN Can
in 1995 aggregated $49.5 million and related to plant exit costs ($6.6 million),
employee termination and severance ($26.1 million) which included the
elimination of an estimated 500 plant, selling and administrative employees, and
-32-
the assumption of certain liabilities and the elimination of selling, general
and administrative functions ($16.8 million). Through December 31, 2000, the
Company incurred expenditures of $4.0 million related to plant exit costs, $23.7
million related to employee severance and benefits and $12.8 million related to
the payment of certain assumed liabilities. Although the Company has completed
its restructuring plan, the timing of cash payments relating to these costs has
been dependent upon, among other things, the expiration of binding labor
obligations assumed by the Company and complexities associated with qualifying
different facilities with the Food and Drug Administration and for other
customer's requirements. Accordingly, cash payments related to this acquisition
are expected through 2002. See Note 3 to the Company's Consolidated Financial
Statements for the year ended December 31, 2000 included elsewhere in this
Annual Report on Form 10-K.
During the first quarter of 2001, the Company completed its plan to close
one plastic container facility. The plan includes the elimination of
approximately 150 plant employees and other plant related exit costs. This
decision will result in a first quarter 2001 pre-tax charge to earnings of
approximately $3.5 million, which includes $2.6 million for plant exit costs and
$0.9 million for employee severance and benefits. Cash payments related to this
facility closing are expected through 2001. See Note 3 to the Company's
Consolidated Financial Statements for the year ended December 31, 2000 included
elsewhere in this Annual Report on Form 10-K.
Excess of cost over the fair value of net assets acquired (or goodwill) is
amortized on a straight-line basis principally over 40 years. The amortization
periods have been estimated given the nature of the technology, industry
practice and long-term customer relationships of the businesses acquired.
Management believes that the amortization periods utilized are appropriate. See
the Company's Consolidated Financial Statements for the year ended December 31,
2000 and the Notes thereto included elsewhere in this Annual Report on Form
10-K.
Management believes that cash generated by operations and funds from the
revolving loans available under the Company's senior secured credit facilities
will be sufficient to meet the Company's expected operating needs, planned
capital expenditures, debt service and tax obligations until the final maturity
of its revolving loan facilities under its senior secured credit facilities on
December 31, 2003. Management also believes that it will be able to refinance
its senior secured credit facilities and replace its revolving loan facilities
prior to December 31, 2003 on terms which will be acceptable to the Company.
However, there can be no assurance that the Company will be able to effect such
refinancing or, if it is able to effect such refinancing, that such refinancing
will be effected on the same terms (including interest rates) as the Company's
current senior secured credit facilities. The ability of the Company to effect
any such refinancing and the terms thereof (including interest rates) will
depend upon a variety of factors, including the future performance of the
Company and its subsidiaries, which will be subject to prevailing economic
conditions and to financial, business and other factors (including the state of
the economy and the financial markets and other factors beyond the control of
the Company and its subsidiaries) affecting the business and operations of the
Company and its subsidiaries as well as prevailing interest rates, the timing of
such refinancing and the amount of debt to be refinanced.
The Company is also continually evaluating and pursuing acquisition
opportunities in the consumer goods packaging market and will likely incur
additional indebtedness, including indebtedness under the revolving loan
facility of its U.S. senior secured credit facility, to finance any such
acquisition.
The Company's senior secured credit facilities and the indenture with
respect to the 9% Debentures contain restrictive covenants that, among other
things, limit the Company's ability to incur debt, sell assets and engage in
certain transactions. Management does not expect these limitations to have a
material effect on the Company's business or results of operations. The Company
is in compliance with all financial and operating covenants contained in such
financing agreements and believes that it will continue to be in compliance
during 2001 with all such covenants.
-33-
Effect of Inflation and Interest Rate Fluctuations
Historically, inflation has not had a material effect on the Company, other
than to increase its cost of borrowing. In general, the Company has been able to
increase the sales prices of its products to reflect any increases in the prices
of raw materials. See "Business--Raw Materials" and "--Sales and Marketing."
Because the Company has indebtedness which bears interest at floating
rates, the Company's financial results will be sensitive to changes in
prevailing market rates of interest. As of December 31, 2000, the Company had
$1,031.5 million of indebtedness outstanding, of which $578.0 million bore
interest at floating rates, taking into account interest rate swap agreements
entered into by the Company as of such date to mitigate the effect of interest
rate fluctuations. Under these agreements, floating rate interest based on the
three month LIBOR rate was exchanged for fixed rates of interest ranging from
5.6% to 6.4%. The aggregate notional principal amounts of these agreements
totals $150.0 million, with $100.0 million aggregate notional principal amount
maturing in 2002 and $50.0 million aggregate notional principal amount maturing
in 2003. In March 2001, the Company entered into additional interest rate swap
agreements for an aggregate notional principal amount of $50.0 million which
exchanged floating rate interest based on the three month LIBOR rate for fixed
rates of interest of 4.9% and 4.7%. These agreements mature in 2003. Depending
upon market conditions, the Company may enter into additional interest rate swap
or hedge agreements (with counterparties that, in the Company's judgment, have
sufficient creditworthiness) to hedge its exposure against interest rate
volatility. See "Quantitative and Qualitative Disclosures About Market
Risk--Interest Rate Risk."
New Accounting Pronouncements
On January 1, 2000, the Company adopted EITF Issue No. 99-5, "Accounting
for Pre-Production Costs Related to Long-Term Supply Agreements." EITF Issue No.
99-5 establishes accounting standards for costs incurred after December 31, 1999
to design and develop molds, dies and other tools that an entity will not own
and that will be used to produce products that will be sold under a long-term
arrangement. It had been the Company's policy to expense such costs as incurred;
however, as required by EITF Issue No. 99-5, the Company began to capitalize
such costs in 2000. Adoption of this pronouncement did not have a material
impact on the Company's consolidated financial statements.
During the fourth quarter of 2000, the Company adopted EITF Issue No.
00-10, "Accounting for Shipping and Handling Fees and Costs." EITF Issue No.
00-10 addresses the income statement classification for shipping and handling
fees and costs. The Company's statements of income, including those presented
for comparative purposes, include the reclassification of certain revenue
reductions to cost of goods sold. These reclassifications did not affect the
Company's income from operations or net income.
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
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. 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. Initial
adoption of SFAS No. 133, as amended, on January 1, 2001 did not have a
significant impact on the Company's financial position or results of operations.
However, since the impact of SFAS No. 133, as amended, thereafter is dependent
on future market rates and outstanding derivative positions, the Company cannot
determine at this time the impact that its application subsequent to January 1,
2001 will have on its financial position or results of operations.
-34-
Forward Looking Statements
Statements included in "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and elsewhere in this Annual Report on Form
10-K which are not historical facts are "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and the Securities Exchange Act of 1934, as amended. These
forward-looking statements are made based upon management's expectations and
beliefs concerning future events impacting the Company and therefore involve a
number of uncertainties and risks. As a result, the actual results of operations
or financial condition of the Company could differ materially from those
expressed or implied in these forward-looking statements. Important factors that
could cause the actual results of operations or financial condition of the
Company to differ from those expressed or implied in these forward-looking
statements include, but are not necessarily limited to, the ability of the
Company to effect cost reduction initiatives and realize benefits from capital
investments; the ability of the Company to locate or acquire suitable
acquisition candidates at reasonable cash flow multiples and on acceptable
terms; the Company's ability to assimilate the operations of its acquired
businesses into its existing operations; the Company's ability to generate free
cash flow to invest in its business and service its indebtedness; limitations
and restrictions contained in the Company's instruments and agreements governing
its indebtedness; the ability of the Company to retain sales with its major
customers; the size and quality of the vegetable, tomato and fruit harvests in
the midwest and west regions of the United States; changes in the pricing and
availability to the Company of raw materials or the Company's ability generally
to pass raw material price increases through to its customers; changes in
consumer preferences for different packaging products; competitive pressures,
including new product developments or changes in competitors' pricing for
products; changes in governmental regulations or enforcement practices; changes
in general economic conditions, such as fluctuations in interest rates and
changes in energy costs (such as natural gas and electricity); changes in labor
relations and costs; and other factors described elsewhere in this Annual Report
on Form 10-K or in the Company's other filings with the Securities and Exchange
Commission.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risks relating to the Company's operations result primarily from
changes in interest rates. In the normal course of business, the Company also
has limited foreign currency risk associated with its Canadian operations and
risk related to commodity price changes for items such as natural gas. The
Company employs established policies and procedures to manage its exposure to
such risks. Interest rate, foreign currency and commodity pricing 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.
Interest Rate Risk
The Company's interest rate risk management objective is to limit the
impact of interest rate changes on its earnings and cash flow and to lower its
overall borrowing cost. To achieve its objectives, the Company regularly
evaluates the amount of its variable rate debt as a percentage of its aggregate
debt. The Company manages its exposure to interest rate fluctuations in its
variable rate debt through interest rate swap agreements. These agreements
effectively convert interest rate exposure from variable rates to fixed rates of
interest. Notes 9 and 10 to the Company's Consolidated Financial Statements
included elsewhere in this Annual Report on Form 10-K outline the principal
amounts, interest rates, fair values and other terms required to evaluate the
expected cash flows from these agreements. See also "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Effect of Inflation
and Interest Rate Fluctuations."
Based on the average outstanding amount of variable rate indebtedness of
the Company in 2000, a one percentage point change in the interest rates for the
Company's variable rate indebtedness would have impacted the Company's 2000
interest expense by an aggregate of approximately $6.4 million, after taking
into account the average outstanding notional amount of the Company's interest
rate swap agreements during 2000.
-35-
Foreign Currency Exchange Rate Risk
The Company does not conduct a significant portion of its manufacturing or
sales activity in foreign markets. Presently, the Company's only foreign
activities are conducted in Canada. The Company's reported financial results
could be affected, however, by factors such as changes in foreign currency
exchange rates in the markets where it operates. When the U.S. dollar
strengthens against such foreign currencies, the reported U.S. dollar value of
local currency operating profits generally decreases; when the U.S. dollar
weakens against such foreign currencies, the reported U.S. dollar value of local
currency operating profits generally increases. Since the Company does not have
significant foreign operations, the Company does not believe it is necessary to
enter into any derivative financial instruments to reduce its exposure to
foreign currency exchange rate risk.
Because the Company's Canadian subsidiary operates within its local
economic environment, the Company believes it is appropriate to finance such
operation with local currency borrowings. In determining the amount of such
borrowings, the Company evaluates the operation's short and long-term business
plans, tax implications, and the availability of borrowings with acceptable
interest rates and terms. This strategy mitigates the risk of reported losses or
gains in the event that the Canadian currency strengthens or weakens against the
U.S. dollar. Furthermore, the Company's Canadian operating profit is used to
repay its local borrowings or is reinvested in Canada, and is not expected to be
remitted to the Company or invested elsewhere. As a result, it is not necessary
for the Company to mitigate the economic effects of currency rate fluctuations
on its Canadian earnings.
Commodity Pricing Risk
The Company purchases commodities for its products such as metal and
resins. These commodities are generally purchased pursuant to contracts or at
market prices established with the vendor. In general, the Company does not
engage in hedging activities for these commodities due to its ability to pass on
price changes to its customers.
The Company also purchases other commodities, such as natural gas and
electricity, and is subject to risks on the pricing of such commodities. In
general, the Company purchases such commodities pursuant to contracts or at
market prices. The Company manages part of its exposure to natural gas price
fluctuations through natural gas swap agreements. These agreements effectively
convert pricing exposure for natural gas from market pricing to a fixed price.
Note 10 to the Company's Consolidated Financial Statements included elsewhere in
this Annual Report on Form 10-K outlines the terms necessary to evaluate these
transactions.
Item 8. Financial Statements and Supplementary Data.
See Item 14, "Exhibits, Financial Statements, Schedules and Reports on Form
8-K," below for a listing of financial statements and schedules included
herewith which are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
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PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this Item is set forth in the Company's Proxy
Statement for its Annual Meeting of Stockholders to be held on May 23, 2001 in
the sections entitled "Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance", and is incorporated herein by reference.
Executive Officers of Holdings
The following table sets forth certain information (ages as of December 31,
2000) concerning the executive officers of Holdings.
Name Age Position
- ---- --- --------
R. Philip Silver.......... 58 Chairman of the Board and Co-Chief
Executive Officer
D. Greg Horrigan.......... 57 President and Co-Chief Executive Officer
Harley Rankin, Jr......... 61 Executive Vice President, Chief Financial
Officer and Treasurer
Frank W. Hogan, III....... 40 Vice President, General Counsel and
Secretary
Glenn A. Paulson.......... 57 Vice President--Corporate Development
Nancy Merola.............. 38 Vice President and Controller
Executive Officers of Containers
The following table sets forth certain information (ages as of December 31,
2000) concerning the executive officers of Containers.
Name Age Position
- ---- --- --------
James D. Beam............. 57 President
Gary M. Hughes............ 58 Executive Vice President
Gerald T. Wojdon.......... 64 Executive Vice President
L. Geoffrey Greulich...... 39 Senior Vice President
Michael A. Beninato....... 52 Vice President--Supply Chain Management
Joseph A. Heaney.......... 47 Vice President--Finance
H. Schuyler Todd.......... 60 Vice President--Human Resources
John Wilbert.............. 42 Vice President--Operations
Executive Officers of Plastics
The following table sets forth certain information (ages as of December 31,
2000) concerning the executive officers of Plastics.
Name Age Position
- ---- --- --------
Russell F. Gervais........ 57 President
Alan H. Koblin............ 48 Senior Vice President
Charles Minarik........... 63 Senior Vice President--Commercial
Development
Colleen J. Jones.......... 40 Senior Vice President--Finance and
Administration
Emidio DiMeo.............. 41 Senior Vice President
Thomas Richmond........... 42 Senior Vice President
Donald E. Bliss........... 49 Vice President--Sales
Howard H. Cole............ 55 Vice President--Human Resources and
Administration
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Mr. Silver has been Chairman of the Board and Co-Chief Executive Officer of
Holdings since March 1994. Mr. Silver is one of the founders of the Company and
was formerly President of Holdings. Mr. Silver has been a Director of Holdings
since its inception. Mr. Silver has been a Director of Containers since its
inception in August 1987 and Vice President of Containers since May 1995. Mr.
Silver has been a Director of Plastics since its inception in August 1987 and
Chairman of the Board of Plastics since March 1994. Prior to founding the
Company in 1987, Mr. Silver was a consultant to the packaging industry. Mr.
Silver was President of Continental Can Company from June 1983 to August 1986.
Mr. Horrigan has been President and Co-Chief Executive Officer of Holdings
since March 1994. Mr. Horrigan is one of the founders of the Company and was
formerly Chairman of the Board of Holdings. Mr. Horrigan has been a Director of
Holdings since its inception. Mr. Horrigan has been Chairman of the Board of
Containers and a Director of Plastics since their inception in August 1987. Mr.
Horrigan was Executive Vice President and Operating Officer of Continental Can
Company from 1984 to 1987.
Mr. Rankin has been Executive Vice President and Chief Financial Officer of
Holdings since its inception and Treasurer of Holdings since January 1992. Mr.
Rankin has been Vice President of Containers and Plastics since January 1991 and
May 1991, respectively, and was Treasurer of Plastics from January 1994 to
December 1994. Prior to joining the Company, Mr. Rankin was Senior Vice
President and Chief Financial Officer of Armtek Corporation. Mr. Rankin was Vice
President and Chief Financial Officer of Continental Can Company from November
1984 to August 1986.
Mr. Hogan has been Vice President, General Counsel and Secretary of
Holdings since June 1997. Mr. Hogan has also been Vice President, General
Counsel and Secretary of Containers and Plastics since June 1997. From September
1995 until June 1997, Mr. Hogan was a partner at the law firm of Winthrop,
Stimson, Putnam & Roberts. From April 1988 to September 1995, Mr. Hogan was an
associate at such firm.
Mr. Paulson has been Vice President--Corporate Development of Holdings
since January 1996. Mr. Paulson has also been Vice President of Containers since
January 1999. Mr. Paulson was employed by Containers to manage the transition of
AN Can from August 1995 to December 1995. From January 1989 to July 1995, Mr.
Paulson was employed by ANC, last serving as Senior Vice President and General
Manager, Food Metal and Specialty, North America. Prior to his employment with
ANC, Mr. Paulson was President of the beverage packaging operations of
Continental Can Company.
Ms. Merola has been Vice President and Controller of Holdings since October
2000. From February 2000 to October 2000, Ms. Merola was Manager, Reporting and
Specialized Accounting, for Texaco Inc. Previously, Ms. Merola was Director,
Corporate Accounting and Headquarters Planning, at RJR Nabisco Holdings, Inc.
since January 1997. From September 1995 to January 1997, Ms. Merola was
Financial Manager - Operations Finance at Kraft Foods Inc., a subsidiary of
Philip Morris Companies Inc. From 1989 to 1995, Ms. Merola held various
positions with Philip Morris Companies Inc., last serving as Manager, Financial
Planning and Analysis.
Mr. Beam has been President of Containers since July 1990. From September
1987 to July 1990, Mr. Beam was Vice President--Marketing & Sales of Containers.
Mr. Beam was Vice President and General Manager of Continental Can Company,
Western Food Can Division, from March 1986 to September 1987.
-38-
Mr. Hughes has been Executive Vice President of Containers since January
1998. Previously, Mr. Hughes was Vice President--Sales & Marketing of Containers
since July 1990. From February 1988 to July 1990, Mr. Hughes was Vice President,
Sales and Marketing of the Beverage Division of Continental Can Company. Prior
to February 1988, Mr. Hughes was employed by Continental Can Company in various
sales positions.
Mr. Wojdon has been Executive Vice President of Containers since January
1998. Previously, Mr. Wojdon was Vice President--Operations of Containers since
September 1987. From August 1982 to August 1987, Mr. Wojdon was General Manager
of Manufacturing of the Can Division of the Carnation Company.
Mr. Greulich has been Senior Vice President of Containers since July 2000.
From October 1998 to June 2000 he was Vice President of Corporate Development
for American Business Products Corp. Prior to that, Mr. Greulich was employed by
Tenneco Packaging, a unit of Tenneco Inc., last serving as Regional Operations
Director.
Mr. Beninato has been Vice President - Supply Chain Management of
Containers since January 2001. Prior to that, Mr. Beninato was Director of
Production Planning and Warehousing of Containers from August 1995 to January
2001. Prior to joining Containers in August 1995, Mr. Beninato was employed by
ANC for over 28 years in various production control positions.
Mr. Heaney has been Vice President--Finance of Containers since October
1995. From September 1990 to October 1995, Mr. Heaney was Controller, Food Metal
and Specialty Division of ANC. From August 1977 to August 1990, Mr. Heaney was
employed by ANC and American Can Company in various divisional, regional and
plant finance/accounting positions.
Mr. Todd has been Vice President--Human Resources of Containers since April
1999. From September 1987 to April 1999, Mr. Todd was Director of Human
Resources of Containers. Previously, Mr. Todd was employed for approximately
eleven years by the Can Division of the Carnation Company as Industrial
Relations Manager.
Mr. Wilbert has been Vice President--Operations of Containers since January
1998. From October 1992 to January 1998, Mr. Wilbert was Area Manager of
Operations of Containers. Prior to 1992, Mr. Wilbert was employed by Containers
in various positions.
Mr. Gervais has been President of Plastics since December 1992. From
September 1989 to December 1992, Mr. Gervais was Vice President--Sales &
Marketing of Plastics. From March 1984 to September 1989, Mr. Gervais was
President and Chief Executive Officer of Aim Packaging, Inc.
Mr. Koblin has been Senior Vice President of Plastics since January 2000.
Previously, Mr. Koblin was Vice President--Sales & Marketing of Plastics since
December 1994. From 1992 to 1994, Mr. Koblin was Director of Sales & Marketing
of Plastics. From 1990 to 1992, Mr. Koblin was Vice President of Churchill
Industries.
Mr. Minarik has been Senior Vice President--Commercial Development of
Plastics since January 2000. Previously, he was Vice President--Operations and
Commercial Development of Plastics since May 1993. From February 1991 to August
1992, Mr. Minarik was President of Wheaton Industries Plastics Group. Mr.
Minarik was Vice President--Marketing of Constar International, Inc. from March
1983 to February 1991.
Ms. Jones has been Senior Vice President, Finance and Administration of
Plastics since October 2000. Prior to that, Ms. Jones was Vice
President--Finance of Plastics since December 1994. From November 1993 to
December 1994, Ms. Jones was Corporate Controller of Plastics and from July 1989
to November 1993, she was Manager--Finance of Plastics. From July 1982 to July
1989, Ms. Jones was an Audit Manager for Ernst & Young LLP.
-39-
Mr. DiMeo has been Senior Vice President of Plastics and of Silgan Plastics
Canada Inc. since October 2000. Prior to that, Mr. DiMeo was Vice President of
Silgan Plastics Canada Inc. since May 1999. From April 1997 to May 1999, Mr.
DiMeo was General Manager of Silgan Plastics Canada Inc. From March 1995 to
April 1997, Mr. DiMeo was President and General Manager of Rexam Containers
Limited of Canada.
Mr. Richmond has been Senior Vice President of Plastics since October 2000.
Previously, Mr. Richmond was President of RXI from October 1995 to October 2000.
From January 1993 to October 1995, Mr. Richmond was Executive Vice President of
Plastic Engineered Components. From February 1991 to January 1993, he was Vice
President and General Manager of Berry Plastics Corporation. From October 1988
to February 1991, Mr. Richmond was Vice President and General Manager of Carnaud
Metalbox in the United States. Prior to that, he was employed by American Can
Company since September 1979, last serving as an Area Manager.
Mr. Bliss has been Vice President--Sales of Plastics since January 2000.
From November 1993 to December 1999, Mr. Bliss was National Sales Director at
Plastics. Prior to that, Mr. Bliss was employed by Graham Packaging Company,
last serving as Regional Sales Director.
Mr. Cole has been Vice President--Human Resources and Administration and
Assistant Secretary of Plastics since September 1987. From April 1986 to
September 1987, Mr. Cole was Manager of Personnel of the Monsanto Engineered
Products Division of Monsanto Company.
Item 11. Executive Compensation.
The information required by this Item is set forth in the Company's Proxy
Statement for its Annual Meeting of Stockholders to be held on May 23, 2001 in
the sections entitled "Election of Directors--Compensation of Directors",
"Executive Compensation" and "Compensation Committee Interlocks and Insider
Participation", and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is set forth in the Company's Proxy
Statement for its Annual Meeting of Stockholders to be held on May 23, 2001 in
the section entitled "Security Ownership of Certain Beneficial Owners and
Management", and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item is set forth in the Company's Proxy
Statement for its Annual Meeting of Stockholders to be held on May 23, 2001 in
the section entitled "Certain Relationships and Related Transactions", and is
incorporated herein by reference.
-40-
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.
(a)
Financial Statements:
Report of Independent Auditors..................................................................... F-1
Consolidated Balance Sheets at December 31, 2000 and 1999.......................................... F-2
Consolidated Statements of Income for the years ended December 31, 2000, 1999
and 1998...................................................................................... F-3
Consolidated Statements of Deficiency in Stockholders' Equity for the years ended
December 31, 2000, 1999 and 1998.............................................................. F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999
and 1998...................................................................................... F-5
Notes to Consolidated Financial Statements......................................................... F-6
Schedules:
I. Condensed Financial Information of Registrant:
Condensed Balance Sheets of Silgan Holdings Inc. (Parent Company) at
December 31, 2000 and 1999................................................. F-41
Condensed Statements of Income of Silgan Holdings Inc. (Parent Company)
for the years ended December 31, 2000, 1999 and 1998......................... F-42
Condensed Statements of Cash Flows of Silgan Holdings Inc. (Parent
Company) for the years ended December 31, 2000, 1999 and 1998................ F-43
Notes to Condensed Financial Statements of Silgan Holdings Inc. (Parent
Company)..................................................................... F-44
II. Valuation and Qualifying Accounts for the years ended December 31,
2000, 1999 and 1998.................................................................. F-46
All other financial statements and schedules not listed have been omitted
because they are not applicable or not required, or because the required
information is included in the consolidated financial statements or notes
thereto.
-41-
Exhibits:
Exhibit
Number Description
------ -----------
3.1 Restated Certificate of Incorporation of Holdings (incorporated
by reference to Exhibit 3.1 filed with Holdings' Annual Report on
Form 10-K for the year ended December 31, 1996, Commission File
No. 000-22117).
3.2 Amended and Restated By-laws of Holdings (incorporated by
reference to Exhibit 3.2 filed with Holdings' Annual Report on
Form 10-K for the year ended December 31, 1996, Commission File
No. 000-22117).
4.1 Indenture, dated as of June 9, 1997, between Holdings (as
successor to Silgan Corporation) and The First National Bank of
Chicago, as trustee, with respect to the 9% Debentures
(incorporated by reference to Exhibit 4.1 filed with Holdings'
Current Report on Form 8-K, dated June 9, 1997, Commission File
No. 000-22117).
4.2 First Supplemental Indenture, dated as of June 24, 1997 among
Holdings, Silgan Corporation and The First National Bank of
Chicago, as trustee, to the Indenture, dated as of June 9, 1997,
between Holdings (as successor to Silgan Corporation) and The
First National Bank of Chicago, as trustee, with respect to the
9% Debentures (incorporated by reference to Exhibit 4.2 filed
with Holdings' Registration Statement on Form S-4, dated July 8,
1997, Registration Statement No. 333-30881).
4.3 Form of Holdings' 9% Senior Subordinated Debentures due 2009
(incorporated by reference to Exhibit 4.10 filed with Holdings'
Registration Statement on Form S-4, dated July 8, 1997,
Registration Statement No. 333-30881).
10.1 Stockholders Agreement, dated as of December 21, 1993, among R.
Philip Silver, D. Greg Horrigan, The Morgan Stanley Leveraged
Equity Fund II, L.P., Bankers Trust New York Corporation, First
Plaza Group Trust and Holdings (incorporated by reference to
Exhibit 3 filed with Holdings' Current Report on Form 8-K, dated
March 25, 1994, Commission File No. 33-28409).
10.2 Amendment to Stockholders Agreement, dated as of February 14,
1997, among R. Philip Silver, D. Greg Horrigan, The Morgan
Stanley Leveraged Equity Fund II, L.P., Bankers Trust New York
Corporation, and Holdings (incorporated by reference to Exhibit
10.42 filed with Holdings' Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, Commission File No.
000-22117).
-42-
Exhibit
Number Description
------ -----------
+10.3 Amended and Restated Management Services Agreement, dated as of
February 14, 1997, between S&H Inc. and Holdings (incorporated by
reference to Exhibit 10.25 filed with Holdings' Annual Report on
Form 10-K for the year ended December 31, 1996, Commission File
No. 000-22117).
+10.4 Amended and Restated Management Services Agreement, dated as of
February 14, 1997, between S&H Inc. and Containers (incorporated
by reference to Exhibit 10.26 filed with Holdings' Annual Report
on Form 10-K for the year ended December 31, 1996, Commission
File No. 000-22117).
+10.5 Amended and Restated Management Services Agreement, dated as of
February 14, 1997, between S&H Inc. and Plastics (incorporated by
reference to Exhibit 10.27 filed with Holdings' Annual Report on
Form 10-K for the year ended December 31, 1996, Commission File
No. 000-22117).
10.6 Credit Agreement, dated as of July 29, 1997, among Holdings,
Containers, Plastics, certain other subsidiaries, various
lenders, Bankers Trust Company, as Administrative Agent and as a
Co-Arranger, Bank of America National Trust & Savings
Association, as Syndication Agent and as a Co-Arranger, Goldman
Sachs Credit Partners L.P., as Co-Documentation Agent and as a
Co-Arranger, and Morgan Stanley Senior Funding, Inc., as
Co-Documentation Agent and as a Co-Arranger (incorporated by
reference to Exhibit 99.1 filed with Holdings' Current Report on
Form 8-K, dated August 8, 1997, Commission File No. 000-22117).
*10.7 First Amendment and Consent, dated as of December 3, 1997, among
Holdings, Containers, Plastics, various lenders, Bankers Trust
Company, as Administrative Agent and as a Co-Arranger, Bank of
America National Trust & Savings Association, as Syndication
Agent and as a Co-Arranger, Goldman Sachs Credit Partners L.P.,
as Co-Documentation Agent and as a Co-Arranger, and Morgan
Stanley Senior Funding, Inc., as Co-Documentation Agent and as a
Co-Arranger.
*10.8 Second Amendment and Consent, dated as of June 1, 1998, among
Holdings, Containers, Plastics, Silgan Containers Manufacturing
Corporation, various lenders, Bankers Trust Company, as
Administrative Agent and as a Co-Arranger, Bank of America
National Trust & Savings Association, as Syndication Agent and as
a Co-Arranger, Goldman Sachs Credit Partners L.P., as
Co-Documentation Agent and as a Co-Arranger, and Morgan Stanley
Senior Funding, Inc., as Co-Documentation Agent and as a
Co-Arranger.
*10.9 Third Amendment, dated as of August 29, 2000, among Holdings,
Containers, Plastics, Silgan Containers Manufacturing
Corporation, various lenders, Bankers Trust Company, as
Administrative Agent and as a Co-Arranger, Bank of America
National Trust & Savings Association, as Syndication Agent and as
a Co-Arranger, Goldman Sachs Credit Partners L.P., as
Co-Documentation Agent and as a Co-Arranger, and Morgan Stanley
Senior Funding, Inc., as Co-Documentation Agent and as a
Co-Arranger.
10.10 Security Agreement, dated as of July 29, 1997, among Holdings,
Containers, Plastics, certain other subsidiaries of any of them
and Bankers Trust Company, as Collateral Agent (incorporated by
reference to Exhibit 99.2 filed with Holdings' Current Report on
Form 8-K, dated August 8, 1997, Commission File No. 000-22117).
-43-
Exhibit
Number Description
------ -----------
10.11 Pledge Agreement dated as of July 29, 1997, made by Holdings,
Containers, Plastics and Silgan Containers Manufacturing
Corporation (as successor to California-Washington Can
Corporation and SCCW Can Corporation), as Pledgors, in favor of
Bankers Trust Company, as Collateral Agent and as Pledgee
(incorporated by reference to Exhibit 99.3 filed with Holdings'
Current Report on Form 8-K, dated August 8, 1997, Commission File
No. 000-22117).
10.12 Borrowers/Subsidiaries Guaranty, dated as of July 29, 1997, made
by Holdings, Containers, Plastics and Silgan Containers
Manufacturing Corporation (as successor to California-Washington
Can Corporation and SCCW Can Corporation) (incorporated by
reference to Exhibit 99.4 filed with Holdings' Current Report on
Form 8-K, dated August 8, 1997, Commission File No. 000-22117).
10.13 Asset Purchase Agreement, dated as of June 2, 1995, between ANC
and Containers (incorporated by reference to Exhibit 1 filed with
Holdings' Current Report on Form 8-K dated August 14, 1995,
Commission File No. 33-28409).
10.14 Purchase Agreement, dated as of June 1, 1998, by and among
Campbell, Silgan Can Company and Containers (incorporated by
reference to Exhibit 2 filed with Holdings' Current Report on
Form 8-K dated June 15, 1998, Commission File No. 000-22117).
10.15 Underwriting Agreement, dated as of February 13, 1997, among
Holdings, Silgan Corporation, Containers, Plastics, The Morgan
Stanley Leveraged Equity Fund II, L.P., Bankers Trust New York
Corporation and the underwriters listed on Schedule I thereto
(incorporated by reference to Exhibit 10.40 filed with Holdings'
Annual Report on Form 10-K for the fiscal year ended December 31,
1996, Commission File No. 000-22117).
10.16 Placement Agreement between Silgan Corporation and Morgan Stanley
& Co. Incorporated, dated June 3, 1997 (incorporated by reference
to Exhibit 99.1 filed with Holdings' Current Report on Form 8-K
dated June 9, 1997, Commission File No. 000-22117).
+10.17 Employment Agreement, dated as of September 14, 1987, between
James Beam and Canaco Corporation (Containers) (incorporated by
reference to Exhibit 10(vi) filed with Silgan Corporation's
Registration Statement on Form S-1, dated January 11, 1988,
Registration Statement No. 33-18719).
+10.18 Amended and Restated Employment Agreement, dated as of June 18,
1987, between Gerald Wojdon and Canaco Corporation (Containers)
(incorporated by reference to Exhibit 10(vii) filed with Silgan
Corporation's Registration Statement on Form S-1, dated January
11, 1998, Registration Statement No. 33-18719).
+10.19 Employment Agreement, dated as of September 1, 1989, between
Silgan Corporation, InnoPak Plastics Corporation (Plastics),
Russell F. Gervais and Aim Packaging, Inc. (incorporated by
reference to Exhibit 5 filed with Silgan Corporation's Report on
Form 8-K, dated March 15, 1989, Commission File No. 33-18719).
-44-
Exhibit
Number Description
------ -----------
+10.20 Employment Agreement dated as of August 1, 1995 between
Containers (as assignee of Holdings) and Glenn A. Paulson, as
amended pursuant to an amendment dated March 1, 1997
(incorporated by reference to Exhibit 10.19 filed with Holdings'
Annual Report on Form 10-K for the year ended December 31, 1999,
Commission File No. 000-22117).
+10.21 InnoPak Plastics Corporation (Plastics) Pension Plan for Salaried
Employees (incorporated by reference to Exhibit 10.32 filed with
Silgan Corporation's Annual Report on Form 10-K for the year
ended December 31, 1988, Commission File No. 33-18719).
+10.22 Containers Pension Plan for Salaried Employees (incorporated by
reference to Exhibit 10.34 filed with Silgan Corporation's Annual
Report on Form 10-K for the year ended December 31, 1988,
Commission File No. 33-18719).
+10.23 Silgan Holdings Inc. Fourth Amended and Restated 1989 Stock
Option Plan (incorporated by reference to Exhibit 10.21 filed
with Holdings' Annual Report on Form 10-K for the year ended
December 31, 1996, Commission File No. 000-22117).
+10.24 Form of Holdings Nonstatutory Stock Option Agreement
(incorporated by reference to Exhibit 10.22 filed with Holdings'
Annual Report on Form 10-K for the year ended December 31, 1996,
Commission File No. 000-22117).
*12 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends for the years ended December 31, 2000,
1999, 1998, 1997 and 1996.
*21 Subsidiaries of the Registrant.
*23 Consent of Ernst & Young LLP.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of 2000.
- -----------------
*Filed herewith.
+Management contract or compensatory plan or arrangement.
-45-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SILGAN HOLDINGS INC.
Date: March 29, 2001 By /s/ R. Philip Silver
--------------------
R. Philip Silver
Chairman of the Board and
Co-Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
Chairman of the Board and
/s/ R. Philip Silver Co-Chief Executive Officer
- -------------------- (Principal Executive Officer) March 29, 2001
(R. Philip Silver)
/s/ D. Greg Horrigan President, Co-Chief Executive
- -------------------- Officer and Director March 29, 2001
(D. Greg Horrigan)
/s/ Leigh J. Abramson March 29, 2001
- -------------------- Director
(Leigh J. Abramson)
/s/ Thomas M. Begel March 29, 2001
- -------------------- Director
(Thomas M. Begel)
/s/ Jeffrey C. Crowe March 29, 2001
- -------------------- Director
(Jeffrey C. Crowe)
/s/ James S. Hoch March 29, 2001
- --------------------- Director
(James S. Hoch)
Executive Vice President, Chief
/s/ Harley Rankin, Jr. Financial Officer and Treasurer
- --------------------- (Principal Financial Officer) March 29, 2001
(Harley Rankin, Jr.)
/s/ Nancy Merola Vice President and Controller
- ---------------------- (Principal Accounting Officer) March 29, 2001
(Nancy Merola)
-46-
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Silgan Holdings Inc.
We have audited the accompanying consolidated financial statements and
schedules of Silgan Holdings Inc. as listed in the accompanying index to the
financial statements (Item 14(a)). These financial statements and schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements listed in the accompanying index
to the financial statements (Item 14(a)) present fairly, in all material
respects, the consolidated financial position of Silgan Holdings Inc. at
December 31, 2000 and 1999, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Stamford, Connecticut
January 30, 2001, except for the last
paragraph of Note 3, the 3rd paragraph of
Note 8, and the last paragraph of the
"Interest Rate Swap Agreements" section
in Note 10, as to which the date is March
26, 2001.
F-1
SILGAN HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
(Dollars in thousands)
2000 1999
---- ----
Assets
Current assets:
Cash and cash equivalents ........................ $ 20,073 $ 2,411
Trade accounts receivable, less allowances
of $3,001 and $2,991, respectively ............ 168,307 128,095
Inventories ...................................... 279,737 249,571
Prepaid expenses and other current assets ........ 11,874 8,864
---------- ----------
Total current assets ......................... 479,991 388,941
Property, plant and equipment, net .................... 709,513 645,515
Goodwill, net ......................................... 153,038 107,551
Deferred tax assets ................................... -- 14,593
Other assets .......................................... 41,282 28,685
---------- ----------
$1,383,824 $1,185,285
========== ==========
Liabilities and Deficiency in Stockholders' Equity
Current liabilities:
Current portion of long-term debt ................ $ 44,948 $ 39,351
Trade accounts payable ........................... 208,144 175,430
Accrued payroll and related costs ................ 56,452 56,100
Accrued interest payable ......................... 9,564 10,998
Accrued liabilities .............................. 13,142 25,093
---------- ----------
Total current liabilities .................... 332,250 306,972
Long-term debt ........................................ 986,527 843,909
Other liabilities ..................................... 85,427 83,138
Commitments and contingencies
Deficiency in stockholders' equity:
Common stock ($0.01 par value per share;
100,000,000 shares authorized, 20,388,372 and
20,132,169 shares issued and 17,702,897 and
17,546,694 shares outstanding, respectively).... 204 201
Paid-in capital .................................. 118,099 118,666
Retained earnings (accumulated deficit) .......... (76,702) (108,010)
Accumulated other comprehensive income (loss) .... (1,588) (273)
Treasury stock at cost (2,685,475 and 2,585,475
shares, respectively) .......................... (60,393) (59,318)
---------- ----------
Total deficiency in stockholders' equity ..... (20,380) (48,734)
---------- ----------
$1,383,824 $1,185,285
========== ==========
See notes to consolidated financial statements.
F-2
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 2000, 1999 and 1998
(Dollars in thousands, except per share data)
2000 1999 1998
---- ---- ----
Net sales .......................................... $1,877,497 $1,892,078 $1,768,745
Cost of goods sold ................................. 1,648,247 1,656,694 1,546,322
---------- ---------- ----------
Gross profit .................................. 229,250 235,384 222,423
Selling, general and administrative expenses ....... 72,148 74,943 68,159
Rationalization charges ............................ -- 36,149 --
---------- ---------- ----------
Income from operations ........................ 157,102 124,292 154,264
Interest and other debt expense .................... 91,178 86,057 81,456
---------- ---------- ----------
Income before income taxes .................... 65,924 38,235 72,808
Provision for income taxes ......................... 25,790 14,305 26,884
---------- ---------- ----------
Income before equity in losses of affiliate
and extraordinary item ....................... 40,134 23,930 45,924
Equity in losses of affiliate ...................... 4,610 -- --
---------- ---------- ----------
Income before extraordinary item .............. 35,524 23,930 45,924
Extraordinary item - loss on early extinguishment
of debt, net of income taxes ..................... 4,216 -- --
---------- ---------- ----------
Net income .................................... $ 31,308 $ 23,930 $ 45,924
========== ========== ==========
Basic earnings per share:
Income before extraordinary item .............. $ 2.01 $1.35 $2.41
Extraordinary item ............................ (0.24) -- --
------ ----- -----
Basic net income per share ......................... $ 1.77 $1.35 $2.41
====== ===== =====
Diluted earnings per share:
Income before extraordinary item .............. $ 1.97 $1.32 $2.30
Extraordinary item ............................ (0.23) -- --
------ ----- -----
Diluted net income per share ....................... $ 1.74 $1.32 $2.30
====== ===== =====
See notes to consolidated financial statements.
F-3
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY
For the years ended December 31, 2000, 1999 and 1998
(Dollars and shares in thousands)
Common Stock Retained Accumulated Total
------------ Earnings Other Deficiency in
Par Paid-in (Accumulated Comprehensive Treasury Stockholders'
Shares Value Capital Deficit) Income (Loss) Stock Equity
------ ----- --------- ----------- ------------- -------- -------------
Balance at January 1, 1998 ............... 18,863 $189 $110,935 $(177,864) $ (508) $ -- $(67,248)
Comprehensive income:
Net income ............................ -- -- -- 45,924 -- -- 45,924
Minimum pension liability ............. -- -- -- -- (20) -- (20)
Foreign currency translation .......... -- -- -- -- (195) -- (195)
--------
Comprehensive income .................. 45,709
--------
Stock option exercises, net of
tax benefit of $5,268 .................. 1,077 10 7,504 -- -- -- 7,514
Repurchase of common stock ............... (1,707) -- -- -- -- (43,378) (43,378)
Issuance of treasury stock
for stock option exercises ............. 23 -- (528) -- -- 623 95
------ ---- -------- --------- ------- -------- --------
Balance at December 31, 1998 ............. 18,256 199 117,911 (131,940) (723) (42,755) (57,308)
Comprehensive income:
Net income ............................ -- -- -- 23,930 -- -- 23,930
Minimum pension liability ............. -- -- -- -- (80) -- (80)
Foreign currency translation .......... -- -- -- -- 530 -- 530
--------
Comprehensive income .................. 24,380
--------
Stock option exercises, net of
tax benefit of $243 .................... 193 2 755 -- -- -- 757
Repurchase of common stock ............... (902) -- -- -- -- (16,563) (16,563)
------ ---- -------- --------- ------- -------- --------
Balance at December 31, 1999 ............. 17,547 201 118,666 (108,010) (273) (59,318) (48,734)
Comprehensive income:
Net income ............................ -- -- -- 31,308 -- -- 31,308
Minimum pension liability ............. -- -- -- -- (797) -- (797)
Foreign currency translation .......... -- -- -- -- (518) -- (518)
--------
Comprehensive income .................. 29,993
--------
Stock option exercises, net
of tax provision of $826 ............... 256 3 (317) -- -- -- (314)
Equity affiliate closing costs ........... -- -- (250) -- -- -- (250)
Repurchase of common stock ............... (100) -- -- -- -- (1,075) (1,075)
------ ---- -------- --------- ------- -------- --------
Balance at December 31, 2000 ............. 17,703 $204 $118,099 $ (76,702) $(1,588) $(60,393) $(20,380)
====== ==== ======== ========= ======= ======== ========
See notes to consolidated financial statements.
F-4
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
2000 1999 1998
---- ---- ----
Cash flows provided by (used in) operating activities:
Net income .............................................. $ 31,308 $ 23,930 $ 45,924
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ....................................... 84,577 82,093 74,274
Amortization of goodwill and other intangibles ..... 4,392 3,881 3,226
Amortization of debt issuance costs ................ 1,658 1,593 1,606
Rationalization charges ............................ -- 31,498 --
Equity in losses of affiliate ...................... 4,610 -- --
Deferred income tax provision ...................... 11,749 4,629 16,131
Extraordinary item ................................. 6,926 -- --
Other changes that provided (used) cash,
net of effects from acquisitions:
Trade accounts receivable ..................... (26,995) 5,909 (2,415)
Inventories ................................... (18,366) (870) (24,322)
Trade accounts payable ........................ 21,106 (9,113) 40,160
Accrued liabilities ........................... (19,610) 11,794 6,617
Other, net .................................... (6,210) (12,075) (13,789)
---------- --------- ----------
Net cash provided by operating activities .......... 95,145 143,269 147,412
---------- --------- ----------
Cash flows provided by (used in) investing activities:
Investment in equity affiliate .......................... (7,026) -- --
Acquisition of businesses ............................... (124,015) -- (194,034)
Capital expenditures .................................... (89,227) (87,421) (86,073)
Proceeds from asset sales ............................... 1,789 2,514 1,770
---------- --------- ----------
Net cash used in investing activities .............. (218,479) (84,907) (278,337)
---------- --------- ----------
Cash flows provided by (used in) financing activities:
Borrowings under revolving loans ........................ 1,198,459 912,959 1,039,677
Repayments under revolving loans ........................ (954,724) (923,659) (903,777)
Proceeds from stock option exercises .................... 512 514 2,341
Repurchase of common stock .............................. (1,075) (16,563) (43,378)
Proceeds from issuance of long-term debt ................ -- -- 7,193
Repayments and redemptions of long-term debt ............ (101,124) (33,955) (20,096)
Debt financing costs .................................... (1,052) -- --
---------- --------- ----------
Net cash provided by (used in) financing
activities ....................................... 140,996 (60,704) 81,960
---------- --------- ----------
Cash and cash equivalents:
Net increase (decrease) ................................. 17,662 (2,342) (48,965)
Balance at beginning of year ............................ 2,411 4,753 53,718
---------- --------- ----------
Balance at end of year .................................. $ 20,073 $ 2,411 $ 4,753
========== ========= ==========
Interest paid ................................................ $ 91,200 $ 84,037 $ 80,654
Income taxes paid, net of refunds ............................ 13,352 9,511 3,835
See notes to consolidated financial statements.
F-5
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 1. Summary of Significant Accounting Policies
Nature of Business. Silgan Holdings Inc. ("Holdings"; together with its wholly
owned subsidiaries, the "Company") is a company owned by Holdings' management,
The Morgan Stanley Leveraged Equity Fund II, L. P. ("MSLEF II"), an affiliate of
Morgan Stanley Dean Witter & Co. ("MS & Co."), and public shareholders.
Holdings, through its wholly owned operating subsidiaries, Silgan Containers
Corporation ("Containers") and Silgan Plastics Corporation ("Plastics"), is
engaged in the manufacture and sale of steel and aluminum containers for human
and pet food products and custom designed plastic containers for personal care,
health care, pharmaceutical, household and industrial chemical, food, pet care,
agricultural chemical, automotive and marine chemical products, as well as
plastic closures, caps, sifters and fitments and thermoformed plastic tubs for
food, pet care and household products. The Company also manufactures specialty
packaging items used in the food and beverage industries, including steel
closures, aluminum roll-on closures, plastic bowls and cans and paperboard
containers. Principally all of the Company's businesses are based in the United
States.
Basis of Presentation. The consolidated financial statements include the
accounts of Holdings and its subsidiaries, all of which are wholly owned. All
significant intercompany transactions have been eliminated. The preparation of
consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
The functional currency for the Company's foreign operations is the Canadian
dollar. Balance sheet accounts of the Company's foreign subsidiaries are
translated at exchange rates in effect at the balance sheet date, while revenue
and expense accounts are translated at average rates prevailing during the year.
Translation adjustments are reported as a component of accumulated other
comprehensive income (loss).
Certain prior years' amounts have been reclassified to conform with the current
year's presentation.
Cash and Cash Equivalents. Cash equivalents represent short-term, highly liquid
investments which are readily convertible to cash and have maturities of three
months or less at the time of purchase. The carrying values of these assets
approximate their fair values. As a result of the Company's cash management
system, checks issued and presented to the banks for payment may create negative
cash balances. Checks outstanding in excess of related cash balances totaling
approximately $106.8 million at December 31, 2000 and $92.5 million at December
31, 1999 are included in trade accounts payable.
Inventories. Inventories are valued at the lower of cost or market (net
realizable value) and the cost is principally determined on the last-in,
first-out basis (LIFO).
F-6
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 1. Summary of Significant Accounting Policies (continued)
Property, Plant and Equipment, Net. Property, plant and equipment is stated at
historical cost less accumulated depreciation. Major renewals and betterments
that extend the life of an asset are capitalized and repairs and maintenance
expenditures are charged to expense as incurred. Depreciation is computed using
the straight-line method over the estimated useful lives of depreciable assets.
The principal estimated useful lives are 35 years for buildings and range
between 3 to 18 years for machinery and equipment. Leasehold improvements are
amortized over the shorter of the life of the related asset or the life of the
lease. The carrying value of property, plant and equipment is reviewed when
facts and circumstances suggest that it may be impaired.
Interest incurred on amounts borrowed in connection with the installation of
major machinery and equipment acquisitions is capitalized. Capitalized interest
of $2.4 million in 2000 and $0.7 million in 1999 was recorded as part of the
cost of the assets to which it relates and is amortized over the assets'
estimated useful life.
Goodwill. Excess of cost over the fair value of net assets acquired (or
goodwill) is amortized on a straight-line basis principally over 40 years.
Goodwill is included in impairment reviews when events or circumstances exist
that indicate its carrying amount may not be recoverable. If a review indicates
that goodwill will not be recoverable based on the estimated undiscounted cash
flows of the business acquired over the remaining amortization period, the
carrying value would be reduced by the estimated shortfalls of cash flows.
Accumulated amortization of goodwill at December 31, 2000 and 1999 was $20.7
million and $16.5 million, respectively.
Impairment of Long-Lived Assets. The Company assesses long-lived assets for
impairment under Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." Under these rules, the Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate the carrying
amount of the assets may not be fully recoverable. An impairment exists if the
estimate of future undiscounted cash flows generated by the assets is less than
the carrying value of the assets. If an impairment is determined to exist, any
related impairment loss is then measured by comparing the fair value of the
assets to their carrying amount.
Other Assets. Other assets consist principally of debt issuance costs which are
being amortized on a straight-line basis over the terms of the related debt
agreements (6 to 12 years) and other intangible assets which are being amortized
over their expected useful lives using the straight-line method.
Hedging Instruments. The Company utilizes certain financial instruments to
manage its interest rate and energy cost exposures. The Company does not engage
in trading or other speculative use of these financial instruments. For a
financial instrument to qualify as a hedge, the Company must be exposed to
interest rate or price risk, and the financial instrument must reduce the
exposure and be designated as a hedge. Financial instruments qualifying for
hedge accounting must maintain a high correlation between the hedging instrument
and the item being hedged, both at inception and throughout the hedged period.
See Note 10.
F-7
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 1. Summary of Significant Accounting Policies (continued)
Income Taxes. The Company accounts for income taxes using the liability method
in accordance with SFAS No. 109, "Accounting for Income Taxes." The provision
for income taxes includes federal, state and foreign income taxes currently
payable and those deferred because of temporary differences between the
financial statement and tax bases of assets and liabilities. No U.S. income
taxes have been provided on the unremitted earnings of foreign subsidiaries
since the Company's policy is to permanently reinvest such earnings.
Revenue Recognition. Revenues are recognized when goods are shipped. Staff
Accounting Bulletin No. 101, "Revenue Recognition," issued by the Securities
Exchange Commission, did not have an impact on the Company's revenues for any of
the years presented.
Stock Based Compensation. The Company has elected to follow Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its employee stock
options. Accordingly, no compensation expense is recognized when the exercise
price of employee stock options equals the market price of the underlying stock
on the date of grant.
Earnings Per Share. Earnings per share amounts for all periods presented conform
to the requirements of SFAS No. 128, "Earnings Per Share." SFAS No. 128 requires
the disclosure of basic and diluted earnings per share. Basic earnings per share
is computed by dividing net income (the numerator) by the weighted average
number of common shares outstanding (the denominator) for the period. The
computation of diluted earnings per share is similar to basic earnings per
share, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potentially
dilutive common shares had been issued.
Recently Issued Accounting Pronouncements. On January 1, 2000, the Company
adopted Emerging Issues Task Force ("EITF") Issue No. 99-5, "Accounting for
Pre-Production Costs Related to Long-Term Supply Agreements." EITF Issue No.
99-5 establishes accounting standards for costs incurred after December 31, 1999
to design and develop molds, dies and other tools that an entity will not own
and that will be used to produce products that will be sold under a long-term
arrangement. It had been the Company's policy to expense such costs as incurred;
however, as required by EITF Issue No. 99-5, the Company began to capitalize
such costs in 2000. Adoption of this pronouncement did not have a material
impact on the Company's consolidated financial statements.
During the fourth quarter of 2000, the Company adopted EITF Issue No. 00-10,
"Accounting for Shipping and Handling Fees and Costs." EITF Issue No. 00-10
addresses the income statement classification for shipping and handling fees and
costs. The Company's Consolidated Statements of Income, including those
presented for comparative purposes, include the reclassification of certain
revenue reductions to cost of goods sold. These reclassifications did not affect
the Company's income from operations or net income.
F-8
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 1. Summary of Significant Accounting Policies (continued)
In June 1998, the Financial Accounting Standards Board (the "FASB") issued 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 until January 1, 2001. In June 2000, the FASB issued SFAS No.
138, which further amended SFAS No. 133. SFAS No. 133 requires all derivative
instruments to be recorded in the consolidated balance sheets at their fair
values. 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. Initial adoption of SFAS No. 133, as amended, on January 1, 2001
did not have a significant impact on the Company's financial position or results
of operations. Since the impact of SFAS No. 133, as amended, thereafter is
dependent on future market rates and outstanding derivative positions, the
Company cannot determine at this time the impact that its application subsequent
to January 1, 2001 will have on its financial position or results of operations.
Note 2. Acquisition
On October 1, 2000, the Company acquired all of the outstanding capital stock of
RXI Holdings, Inc. ("RXI"), a manufacturer and seller of rigid plastic
packaging, for $124.0 million in cash. The Company financed the purchase price
through revolving loan borrowings under its U.S. bank credit agreement. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price has been allocated to the assets acquired and
liabilities assumed based on their fair values at the date of acquisition, and
RXI's results of operations have been included in the consolidated operating
results of the Company from the date of acquisition.
The excess of the purchase price over the estimated fair market value of net
assets acquired of approximately $49.8 million has been recorded as goodwill and
is being amortized over 40 years. The allocation of purchase price is based on
preliminary estimates and assumptions and is subject to revision when valuations
and integration plans have been finalized.
F-9
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 2. Acquisition (continued)
The unaudited pro forma results of operations of the Company for the years ended
December 31, 2000 and December 31, 1999 which are set forth below include the
historical results of the Company and give pro forma effect to the acquisition
of RXI as if the acquisition occurred as of the beginning of each year. The pro
forma adjustments made to the Company's historical results of operations for the
years ended December 31, 2000 and 1999 also reflect the effect of the previously
discussed preliminary allocation of purchase price and the financing of the
acquisition and certain other adjustments as if these events had occurred as of
the beginning of 2000 or 1999.
The pro forma results of operations do not give effect to synergies expected to
result from the integration of RXI's operations with the Company's existing
operations. Accordingly, the unaudited pro forma results of operations are not
necessarily indicative of what actually would have occurred if the acquisition
had been consummated at the beginning of each year, nor are they necessarily
indicative of future consolidated results of operations. The Company's unaudited
pro forma results of operations for the years ended December 31 would have been
as follows:
2000 1999
---- ----
(Dollars in thousands, except per share data)
Net sales ................................ $1,959,167 $1,987,228
Income from operations ................... 161,435 128,806
Income before income taxes ............... 63,390 34,838
Income before extraordinary item ......... 33,981 21,803
Net income ............................... 29,765 21,803
Diluted earnings per share:
Income before extraordinary item ...... $1.89 $1.20
Net income ............................ 1.65 1.20
F-10
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 3. Rationalization Charges and Acquisition Reserves
During 1999, the Company initiated and concluded a study to evaluate the
long-term utilization of all assets of its metal food container business. As a
result, during the third quarter of 1999 the Company determined that certain
adjustments were necessary to properly reflect the net realizable values of
machinery and equipment which had become surplus or obsolete and recorded a
non-cash pre-tax charge to earnings of $24.2 million to reduce the carrying
value of those assets.
During the fourth quarter of 1999, the Company completed its plan to close two
West Coast metal food container facilities. The plan included the elimination of
approximately 130 plant employees, termination of two operating leases and other
plant related exit costs. This decision resulted in a fourth quarter pre-tax
charge to earnings of $11.9 million, which included $7.3 million for the
non-cash write-down in carrying value of certain assets determined to be
impaired, $2.4 million for plant exit costs and $2.2 million for employee
severance and benefits. Through December 31, 2000, the Company incurred
expenditures of $1.8 million for plant exit costs and $2.2 million related to
employee severance and benefits. Although the Company has closed both plants,
the timing of cash payments is dependent upon, among other things, resolution of
certain matters with the lessor of one of the facilities. Accordingly, cash
payments related to these closures are expected through 2001.
In connection with its 1998 acquisitions of the steel container manufacturing
business ("CS Can") of Campbell Soup Company ("Campbell"), Clearplass
Containers, Inc. ("Clearplass") and Winn Packaging Co. ("Winn"), the Company
developed plans to integrate these businesses into its operations by
rationalizing certain of the acquired plant operations. Pursuant to these plans,
which were finalized in 1999, the Company accrued liabilities of $5.4 million,
of which $4.9 million related to plant exit costs and assumed liabilities and
$0.5 million related to employee severance and relocation costs. Principally all
actions under the integration plans for Clearplass and Winn have been completed.
The timing of cash payments relating to the CS Can integration activities is
dependent upon, among other things, the time required to obtain necessary
environmental permits and approvals in connection with a consent order with the
U.S. Environmental Protection Agency to which the Company is subject as a result
of its acquisition of CS Can and complexities associated with the transfer of
the labor force of Campbell for CS Can to the Company. Since these acquisitions,
the Company incurred expenditures of $2.5 million for plant exit costs and
assumed liabilities and $0.5 million related to employee severance and benefits.
Cash payments related to these acquisitions are expected through 2001.
F-11
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 3. Rationalization Charges and Acquisition Reserves (continued)
Acquisition reserves established in connection with the purchase of the Food
Metal and Specialty business ("AN Can") of American National Can Company in 1995
aggregated $49.5 million and related to plant exit costs ($6.6 million),
employee termination and severance ($26.1 million) which included the
elimination of an estimated 500 plant, selling and administrative employees, as
well as the assumption of certain liabilities and the elimination of selling,
general and administrative functions ($16.8 million). Since the acquisition, the
Company incurred expenditures of $4.0 million related to plant exit costs, $23.7
million related to employee severance and benefits and $12.8 million related to
the payment of certain assumed liabilities. Although the Company has completed
its restructuring plan, the timing of cash payments relating to these costs has
been dependent upon, among other things, the expiration of binding labor
obligations assumed by the Company and complexities associated with qualifying
different facilities with the Food and Drug Administration and for other
customer's requirements. Accordingly, cash payments related to this acquisition
are expected through 2002.
Management's continuing efforts to integrate and rationalize its operations are
part of the Company's strategy to maximize production efficiencies. Activity in
the Company's rationalization and acquisition reserves since December 31, 1998
is summarized as follows (dollars in thousands):
Severance
and Plant Exit Assumed
Benefits Costs Liabilities Total
--------- ---------- ----------- -----
Balance at December 31, 1998... $ 6,595 $ 9,992 $ 8,257 $24,844
Purchase accounting ........... (2,166) 238 813 (1,115)
Rationalization charges ....... 2,213 2,438 -- 4,651
Utilized in 1999 .............. (2,295) (1,918) (2,114) (6,327)
------- ------- ------- -------
Balance at December 31, 1999... $ 4,347 $10,750 $ 6,956 $22,053
======= ======= ======= =======
Utilized in 2000 .............. (1,983) (5,191) (2,704) (9,878)
------- ------- ------- -------
Balance at December 31, 2000... $ 2,364 $ 5,559 $ 4,252 $12,175
======= ======= ======= =======
F-12
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 3. Rationalization Charges and Acquisition Reserves (continued)
At December 31, 2000 and 1999, rationalization and acquisition reserves were
included in the Consolidated Balance Sheets as follows:
2000 1999
---- ----
(Dollars in thousands)
Accrued liabilities..... $ 7,462 $14,523
Other liabilities ...... 4,713 7,530
------- -------
$12,175 $22,053
======= =======
During the first quarter of 2001, the Company completed its plan to close one
plastic container facility. The plan includes the elimination of approximately
150 plant employees and other related exit costs. This decision will result in a
first quarter pre-tax charge to earnings of approximately $3.5 million, which
includes $2.6 million for plant exit costs and $0.9 million for employee
severance and benefits. Cash payments related to this closure are expected
through 2001.
Note 4. Comprehensive Income
Comprehensive income is reported in the Consolidated Statements of Deficiency in
Stockholders' Equity. Amounts included in accumulated other comprehensive income
(loss) at December 31 are as follows:
2000 1999
---- ----
(Dollars in thousands)
Foreign currency translation......... $ (691) $(173)
Minimum pension liability............ (897) (100)
------- -----
Accumulated other comprehensive
income (loss)................... $(1,588) $(273)
======= =====
F-13
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 5. Inventories
The components of inventories at December 31 are as follows:
2000 1999
---- ----
(Dollars in thousands)
Raw materials ................... $ 43,873 $ 33,453
Work-in-process ................. 51,191 49,799
Finished goods .................. 165,680 148,135
Spare parts and other ........... 11,698 10,493
-------- --------
272,442 241,880
Adjustment to value inventory
at cost on the LIFO method.... 7,295 7,691
-------- --------
$279,737 $249,571
======== ========
The amount of inventory recorded on the first-in, first-out method at December
31, 2000 and 1999 was $31.6 million and $19.5 million, respectively.
Note 6. Property, Plant and Equipment, Net
Property, plant and equipment, net, at December 31 are as follows:
2000 1999
---- ----
(Dollars in thousands)
Land .......................... $ 8,152 $ 7,173
Buildings and improvements..... 128,185 104,831
Machinery and equipment ....... 1,022,176 934,393
Construction in progress ...... 73,574 61,586
---------- ----------
1,232,087 1,107,983
Accumulated depreciation....... (522,574) (462,468)
---------- ----------
Property, plant and
equipment, net ......... $ 709,513 $ 645,515
========== ==========
F-14
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 7. Other Assets
Other assets at December 31 are as follows:
2000 1999
---- ----
(Dollars in thousands)
Debt issuance costs .......................... $13,738 $14,853
Intangible pension asset ..................... 10,240 7,364
Investment in equity affiliate (see Note 8)... 2,167 --
Other ........................................ 19,954 10,450
------- -------
46,099 32,667
Accumulated amortization ..................... (4,817) (3,982)
------- -------
$41,282 $28,685
======= =======
Note 8. Investment in E-Commerce Packaging Venture
In April 2000, the Company announced that it would invest in a neutral,
independent e-commerce joint venture, Packtion Corporation ("Packtion"), with
Morgan Stanley Dean Witter Private Equity and Diamondcluster International, Inc.
Packtion offers an e-commerce solution that integrates the entire packaging
supply chain, from design through manufacturing and procurement.
In June and August 2000, the Company funded two equity investments in Packtion
of $3.5 million each, for a total investment of $7.0 million representing
approximately a 45% interest in Packtion. The Company accounts for its
investment in Packtion using the equity method. For the year ended December 31,
2000, the Company recorded equity in losses from Packtion aggregating $4.6
million. In addition, the Company recorded its share of Packtion's closing
costs, $0.2 million, as a reduction to its investment.
In 2001 in connection with an investment by The Proctor & Gamble Company and E.
I. Du Pont de Nemours & Co. in Packtion, the Company funded additional equity
investments of $3.1 million, for a total investment of $10.1 million
representing approximately a 25% interest in Packtion. The Company has no
further obligation to invest or otherwise provide funding to Packtion.
F-15
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 9. Long-Term Debt
Long-term debt at December 31 is as follows:
2000 1999
---- ----
(Dollars in thousands)
Bank Debt
Bank Revolving Loans ................. $ 367,400 $125,200
Bank A Term Loans .................... 159,218 194,047
Bank B Term Loans .................... 188,542 190,495
Canadian Bank Facility ............... 12,850 14,312
---------- --------
Total bank debt .................... 728,010 524,054
Subordinated Debt
9% Senior Subordinated Debentures .... 300,000 300,000
13 1/4% Subordinated Debentures ...... -- 56,206
Other ................................ 3,465 3,000
---------- --------
Total subordinated debt ............ 303,465 359,206
---------- --------
Total Debt .............................. 1,031,475 883,260
Less current portion ................. 44,948 39,351
---------- --------
$ 986,527 $843,909
========== ========
The aggregate annual maturities of long-term debt at December 31, 2000 are as
follows (dollars in thousands):
2001........... $ 44,948
2002........... 60,679
2003........... 440,168
2004........... 1,954
2005........... 180,726
Thereafter..... 303,000
----------
$1,031,475
==========
F-16
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 9. Long-Term Debt (continued)
Bank Credit Agreement
- ---------------------
The Company's U.S. senior secured credit facility (the "Credit Agreement")
initially provided the Company with (i) $250.0 million of A Term Loans, (ii)
$200.0 million of B Term Loans and (iii) up to $550.0 million of Revolving
Loans.
Pursuant to the Credit Agreement, the Company may at any time 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
Credit Agreement by an aggregate of $125.0 million.
The A Term Loans and Revolving Loans mature on December 31, 2003 and the B Term
Loans mature on June 30, 2005. Principal of the A Term Loans and B Term Loans is
required to be repaid in scheduled annual installments and amounts repaid may
not be reborrowed. Principal repayments of $34.8 million and $29.9 million of A
Term Loans were made during 2000 and 1999, respectively. Principal repayments of
$2.0 million of B Term Loans were made during both 2000 and 1999.
The Credit Agreement requires the Company to prepay the term loans with proceeds
received from the incurrence of indebtedness, except proceeds used to refinance
other existing indebtedness; with proceeds received from certain assets sales;
and, under certain circumstances, with 50% of the Company's excess cash flow, as
defined. Generally, prepayments are allocated pro rata to the A Term Loans and B
Term Loans and applied first to the scheduled amortization payments in the year
of such prepayments and, to the extent in excess thereof, pro rata to the
remaining installments of the term loans.
The Credit Agreement provides the Company with a commitment for a revolving
credit facility of up to $670.5 million (after giving effect to the reduction of
such facility by $4.5 million for the revolving loan facility under the
Company's Canadian bank facility) for working capital needs and other general
corporate purposes, including acquisitions. Revolving Loans may be borrowed,
repaid and reborrowed over the life of the Credit Agreement until their final
maturity. At December 31, 2000, there were $367.4 million of Revolving Loans
outstanding and, after taking into account outstanding letters of credit of
$16.4 million, borrowings available under the revolving credit facility of the
Credit Agreement were $286.7 million. Based on the Company's ability and
intention to continue to refinance for more than one year its outstanding
Revolving Loan borrowings at December 31, 2000, such borrowings were
reclassified as long-term debt. Seasonal Revolving Loan borrowings during the
year will be classified as current obligations.
F-17
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 9. Long-Term Debt (continued)
Bank Credit Agreement (continued)
- ---------------------
The Company may utilize up to a maximum of $30.0 million of its revolving credit
facility under the Credit Agreement for letters of credit as long as the
aggregate amount of borrowings of Revolving Loans and letters of credit do not
exceed the amount of the commitment under such revolving credit facility. The
Credit Agreement provides for the payment of a commitment fee ranging from 0.15%
to 0.375% (0.25% at December 31, 2000) per annum on the daily average unused
portion of commitments available under the revolving credit facility of the
Credit Agreement and at December 31, 2000 a 1.25% per annum fee on outstanding
letters of credit. In connection with the $125.0 million increase to the
revolving loan commitments under the Credit Agreement, the Company pays a 1.5%
per annum facility fee on such incremental commitment.
Credit Agreement borrowings may be designated as Base Rate or Eurodollar Rate
borrowings. The Base Rate is the higher of (i) 1/2 of 1.0% in excess of the
Adjusted Certificate of Deposit Rate, as defined in the Credit Agreement, (ii)
1/2 of 1.0% in excess of the Federal Funds Rate, or (iii) Bankers Trust
Company's prime lending rate. Currently, Base Rate borrowings bear interest at
the Base Rate plus no margin in the case of A Term Loans and Revolving Loans and
at the Base Rate plus a margin of 0.5% in the case of B Term Loans. Eurodollar
Rate borrowings currently bear interest at the Eurodollar Rate plus a margin of
1.0% in the case of A Term Loans and Revolving Loans and a margin of 1.5% in the
case of B Term Loans. In accordance with the Credit Agreement, the interest rate
margin on Base Rate and Eurodollar Rate borrowings will be reset quarterly based
upon the Company's Leverage Ratio, as defined in the Credit Agreement. As of
December 31, 2000, the interest rate for Base Rate borrowings was 9.5% and the
interest rate for Eurodollar Rate borrowings ranged between 7.5% and 8.3%. For
2000, 1999 and 1998, the weighted average annual interest rate paid on all term
loans was 7.8%, 6.7%, and 7.0%, respectively. The Company has entered into
interest rate swap agreements with an aggregate notional amount of $150.0
million to convert interest rate exposure from variable to fixed interest rates
on A Term Loans and B Term Loans (for a discussion of the interest rate swap
agreements, see Note 10).
Because the Company sells metal containers used in fruit and vegetable pack
processing, it has seasonal sales. As is common in the industry, the Company
must access working capital to build inventory and then carry accounts
receivable for some customers beyond the end of the summer and fall packing
season. Seasonal accounts are generally settled by year end. Due to the
Company's seasonal requirements, the Company incurs short-term indebtedness to
finance its working capital requirements. For 2000, 1999 and 1998, the average
amount of borrowings, including seasonal borrowings, under the Company's U. S.
revolving credit facility was $339.5 million, $308.1 million and $197.5 million,
respectively; the weighted average annual interest rate paid on such borrowings
was 7.5%, 6.4%, and 6.7%, respectively; and the highest amount of such
borrowings was $529.9 million, $404.4 million and $372.0 million, respectively.
F-18
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 9. Long-Term Debt (continued)
Bank Credit Agreement (continued)
- ---------------------
The indebtedness under the Credit Agreement is guaranteed by Holdings and
certain of its U.S. subsidiaries and is secured by a security interest in
substantially all of their real and personal property. The stock of certain of
the Company's U.S. subsidiaries has been pledged to the lenders under the Credit
Agreement. At December 31, 2000, the Company had assets of a U.S. subsidiary of
$140.2 million which were restricted and could not be transferred to Holdings or
any other subsidiary of Holdings.
The Credit Agreement contains various covenants which limit, among other things,
the ability of the Company and its subsidiaries to grant liens, sell assets and
use the proceeds from certain asset sales, make certain payments (including
dividends) on its capital stock, incur indebtedness or provide guarantees, make
loans or investments, enter into transactions with affiliates, make capital
expenditures, engage in any business other than the packaging business, and,
with respect to the Company's subsidiaries, issue stock. In addition, the
Company is required to meet specified financial covenants including Interest
Coverage and Leverage Ratios, each as defined in the Credit Agreement. The
Company is currently in compliance with all covenants under the Credit
Agreement.
Canadian Bank Facility
- ----------------------
The Company, through a wholly owned Canadian subsidiary, has a Canadian bank
facility (the "Canadian Bank Facility") with various Canadian banks. The
Canadian Bank Facility initially provided the Company's Canadian subsidiaries
with Cdn. $26.5 million (U.S. $18.5 million) of term loans, and provides such
subsidiaries with up to Cdn. $6.5 million (U.S. $4.5 million) of revolving
loans. Principal of the term loans is required to be repaid in annual
installments until maturity on December 31, 2003. At December 31, 2000, term
loans of Cdn. $17.0 million (U.S. $11.3 million) were outstanding under the
Canadian Bank Facility. During 2000 and 1999, the Company repaid Cdn. $3.7
million (U.S. $2.5 million) and Cdn. $3.2 million (U.S. $2.1 million),
respectively, of term loans in accordance with terms of the Canadian Bank
Facility.
The revolving loans may be borrowed, repaid and reborrowed until maturity on
December 31, 2003. At December 31, 2000, there were Cdn. $2.3 million (U.S. $1.6
million) of revolving loans outstanding under the Canadian Bank Facility.
Revolving loan and term loan borrowings may be designated as Canadian Prime Rate
or Bankers Acceptance borrowings. Currently, Canadian Prime Rate borrowings bear
interest at the Canadian Prime Rate, as defined in the Canadian Bank Facility,
plus no margin. Bankers Acceptance borrowings bear interest at the rate for
bankers acceptances plus a margin of 1.0%. Similar to the Credit Agreement, the
interest rate margin on both Canadian Prime Rate and Bankers Acceptance
borrowings will be reset quarterly based upon the Company's consolidated
Leverage Ratio. As of December 31, 2000, the interest rate for Bankers
Acceptance borrowings ranged from 6.8% to 7.0% and the interest rate for
Canadian Prime Rate borrowings was 7.5%.
F-19
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 9. Long-Term Debt (continued)
Canadian Bank Facility (continued)
- ----------------------
The indebtedness under the Canadian Bank Facility is guaranteed by Holdings and
certain of its subsidiaries and is secured by a security interest in
substantially all of the real and personal property of the Company's Canadian
subsidiaries and all of the stock of the Company's Canadian subsidiaries. The
Canadian Bank Facility contains covenants which are generally no more
restrictive than and are generally similar to the covenants in the Credit
Agreement.
9.0% Senior Subordinated Debentures
- -----------------------------------
The $300.0 million aggregate principal amount of 9.0% Senior Subordinated
Debentures (the "9% Debentures") due June 1, 2009 are general unsecured
obligations of Holdings, subordinate in right of payment to obligations under
the Credit Agreement and the Canadian Bank Facility and effectively subordinate
to all obligations of the subsidiaries of Holdings. Interest on the 9%
Debentures is payable semi-annually in cash on the first day of each June and
December.
The 9% Debentures are redeemable, at the option of Holdings, in whole or in
part, at any time after June 1, 2002 at the following redemption prices
(expressed in percentages of principal amount) plus accrued and unpaid interest
thereon to the redemption date if redeemed during the twelve month period
beginning June 1 of the years set forth below:
Year Redemption Price
---- ----------------
2002........... 104.500%
2003........... 103.375%
2004........... 102.250%
2005........... 101.125%
Thereafter..... 100.000%
Upon the occurrence of a Change of Control (as defined in the Indenture relating
to the 9% Debentures), Holdings is required to make an offer to purchase the 9%
Debentures at a purchase price equal to 101% of their principal amount, plus
accrued and unpaid interest to the date of purchase.
The Indenture relating to the 9% Debentures contains covenants which are
generally less restrictive than those under the Credit Agreement and Canadian
Bank Facility.
F-20
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 9. Long-Term Debt (continued)
13 1/4% Subordinated Debentures
- -------------------------------
On December 8, 2000, the Company redeemed all $56.2 million principal amount of
its outstanding 13 1/4% Subordinated Debentures due 2006 (the "13 1/4%
Debentures"). The redemption price was 109.938% of the principal amount, or
approximately $61.8 million, plus accrued and unpaid interest to the redemption
date. As permitted under the Credit Agreement and the other documents governing
the Company's indebtedness, the Company funded the redemption with lower cost
revolving loans under its Credit Agreement. As a result, in the fourth quarter
of 2000 the Company recorded an extraordinary loss of $6.9 million, $4.2 million
after-tax, or $0.23 per diluted share, for the premium paid in connection with
this redemption and for the write-off of unamortized financing costs related to
the 13 1/4% Debentures.
F-21
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 10. Financial Instruments
The Company's financial instruments recorded on the Consolidated Balance Sheets
include cash and cash equivalents, accounts receivable, accounts payable and
debt obligations. Due to their short-term maturity, the carrying amounts of cash
and cash equivalents, accounts receivable and accounts payable approximate their
fair market value. The following table summarizes the carrying amounts and
estimated fair values of the Company's remaining financial instruments at
December 31 (bracketed amount represents an unrecognized asset):
2000 1999
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(Dollars in thousands)
Bank debt ......................... $728,010 $728,010 $524,054 $524,054
Subordinated debt.................. 300,000 269,700 356,206 345,702
Interest rate swap agreements...... -- 723 -- (1,984)
Natural gas swap agreements........ -- (711) -- --
Methods and assumptions used in estimating fair values are as follows:
Bank debt: The carrying amounts of the Company's variable rate bank revolving
loans and term loans approximate their fair values.
Subordinated debt: The fair value of the Company's fixed rate borrowings, which
are comprised of the 9% Debentures at December 31, 2000 and the 9% Debentures
and the 13 1/4% Debentures at December 31, 1999, are estimated based on quoted
market prices.
Interest Rate and Natural Gas Swap Agreements: The fair value of the interest
rate and natural gas swap agreements reflects the estimated amounts that the
Company would pay or receive at December 31, 2000 and 1999 in order to terminate
the contracts based on quoted market prices.
The Company does not utilize derivative financial instruments for speculative
purposes. Its use of derivative financial instruments is limited to interest
rate swap agreements which assist in managing exposure to adverse movement in
interest rates on a portion of its indebtedness and natural gas swap agreements
which assist in managing exposure to adverse movements in natural gas prices on
a portion of its natural gas purchases.
F-22
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 10. Financial Instruments (continued)
Interest Rate Swap Agreements
- -----------------------------
The Company has interest rate swap agreements with a major bank to manage its
exposure to interest rate fluctuations. The interest rate swap agreements
effectively convert interest rate exposure from variable rates to fixed rates of
interest. At December 31, 2000 and 1999, the aggregate notional principal
amounts of these agreements were $150 million and $100 million, respectively.
These agreements are with a financial institution which is expected to fully
perform under the terms thereof. Under these agreements, the Company pays fixed
rates of interest ranging from 5.6% to 6.4% and receives floating rates of
interest based on three month LIBOR. These agreements mature in 2002 ($100
million notional principal amount) and in 2003 ($50 million notional principal
amount). The difference between amounts to be paid or received on interest rate
swap agreements is recorded as interest expense. During 1999, interest rate swap
agreements for an aggregate notional amount of $200 million expired. Net
receipts of $0.7 million and net payments of $1.0 million and $0.3 million were
made under the Company's interest rate swap agreements for the years ended
December 31, 2000, 1999 and 1998, respectively.
In March 2001, the Company entered into two interest rate swap agreements with
an aggregate notional principal amount of $50 million. Under these agreements,
the Company pays fixed rates of interest of 4.9% and 4.7% and receives a
floating rate of interest based on three month LIBOR. Both agreements mature in
2003.
Natural Gas Swap Agreements
- ---------------------------
The Company has natural gas swap agreements with a major trading company to
manage its exposure to fluctuations in natural gas prices. At December 31, 2000,
the aggregate notional principal amount of these agreements was 170,000 MMBtu of
natural gas. These agreements are with an institution that is expected to fully
perform under the terms thereof. Under these agreements, the Company pays a
fixed natural gas price of $5.33 per MMBtu and receives a NYMEX-based natural
gas price. These agreements mature in the first quarter of 2001. Realized gains
and losses on these natural gas swap agreements are deferred as a component of
inventories and are recognized when related costs are recorded to cost of goods
sold. Payments and receipts under these natural gas agreements were essentially
equal in 2000. During 2000, natural gas swap agreements for an aggregate
notional principal amount of 98,000 MMBtu of natural gas expired. There were no
natural gas swap agreements outstanding at December 31, 1999.
F-23
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 10. Financial Instruments (continued)
Concentration of Credit Risk
- ----------------------------
The Company derives a significant portion of its revenue from multi-year supply
agreements with many of its customers. Aggregate revenues from its three largest
customers accounted for approximately 33.6% of net sales in 2000, 33.8% of its
net sales in 1999 and 33.7% of its net sales in 1998. The receivable balances
from these customers collectively represented 31.5% and 27.8% of the Company's
trade accounts receivable at December 31, 2000 and 1999, respectively. As is
common in the packaging industry, the Company provides extended payment terms
for some of its customers due to the seasonality of the vegetable and fruit pack
processing business. Exposure to losses is dependent on each customers'
financial position. The Company performs ongoing credit evaluations of its
customers' financial condition, and its receivables are generally not
collateralized. The Company maintains an allowance for doubtful accounts which
management believes is adequate to cover potential credit losses based on
customer credit evaluations, collection history and other information.
F-24
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 11. Commitments and Contingencies
The Company has a number of noncancelable operating leases for office and plant
facilities, equipment and automobiles that expire at various dates through 2020.
Certain operating leases have renewal options as well as various purchase
options. Minimum future rental payments under these leases are as set forth
below for each of the following years (dollars in thousands):
2001........... $18,945
2002........... 15,022
2003........... 12,025
2004........... 7,521
2005........... 6,545
Thereafter..... 31,012
-------
$91,070
=======
Rent expense was approximately $19.0 million in 2000, $18.9 million in 1999 and
$18.2 million in 1998.
The Company is a party to routine legal proceedings arising in the ordinary
course of its business. The Company is not a party to, and none of its
properties are subject to, any pending legal proceedings which could have a
material adverse effect on its business or financial condition.
Note 12. Retirement Benefits
The Company sponsors defined benefit pension and defined contribution plans
which cover substantially all employees, other than union employees covered by
multi-employer defined benefit pension plans under collective bargaining
agreements. Pension benefits are provided based on either a career average,
final pay or years of service formula. With respect to certain hourly employees,
pension benefits are provided based on stated amounts for each year of service.
It is the Company's policy to fund accrued pension and defined contribution
costs in compliance with ERISA requirements. Assets of the plans consist
primarily of equity and bond funds.
The Company has unfunded defined benefit health care and life insurance plans
that provide postretirement benefits to certain employees. The plans are
contributory, with retiree contributions adjusted annually, and contain cost
sharing features including deductibles and coinsurance. Retiree health benefits
are paid as covered expenses are incurred.
F-25
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 12. Retirement Benefits (continued)
The changes in benefit obligations and plan assets as well as the funded status
of the Company's retirement plans at December 31 are as follows:
Pension Benefits Postretirement Benefits
---------------- -----------------------
2000 1999 2000 1999
---- ---- ---- ----
(Dollars in thousands)
Change in Benefit Obligation
Obligation at beginning of year .................... $110,423 $107,578 $ 43,054 $ 38,557
Service cost .................................... 6,986 6,710 1,228 1,031
Interest cost ................................... 8,671 7,616 3,220 2,944
Actuarial losses (gains) ........................ 1,911 (8,675) 1,445 1,945
Plan amendments ................................. 592 746 -- --
Benefits paid ................................... (4,247) (3,536) (2,230) (1,708)
Participants' contributions ..................... -- -- 292 285
Acquisition ..................................... 4,193 -- 2,673 --
Divestitures, curtailments or settlements ....... -- (16) -- --
Special termination benefits .................... 311 -- -- --
-------- -------- -------- --------
Obligation at end of year .......................... 128,840 110,423 49,682 43,054
Change in Plan Assets
Fair value of plan assets at beginning of year ..... 85,244 73,833 -- --
Actual return on plan assets .................... 2,391 7,260 -- --
Employer contributions .......................... 15,296 8,648 1,938 1,423
Participants' contributions ..................... -- -- 292 285
Benefits paid ................................... (4,247) (3,536) (2,230) (1,708)
Expenses ........................................ (914) (961) -- --
-------- -------- -------- --------
Fair value of plan assets at end of year ........... 97,770 85,244 -- --
Funded Status
Funded Status ...................................... (31,070) (25,179) (49,682) (43,054)
Unrecognized actuarial (gain) loss .............. (2,180) (10,683) 3,239 1,814
Unrecognized prior service cost ................. 15,593 12,552 124 139
-------- --------- -------- --------
Net amount recognized .............................. $(17,657) $(23,310) $(46,319) $(41,101)
======== ======== ======== ========
Amounts recognized in the Consolidated Balance
Sheets
Prepaid benefit cost ............................ $ 289 $ 144 $ -- $ --
Accrued benefit liability ....................... (28,983) (30,898) (46,319) (41,101)
Intangible asset ................................ 10,240 7,364 -- --
Accumulated other comprehensive income .......... 797 80 -- --
-------- -------- -------- --------
Net amount recognized .............................. $(17,657) $(23,310) $(46,319) $(41,101)
======== ======== ======== ========
F-26
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 12. Retirement Benefits (continued)
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the Company's pension plans with projected and accumulated
benefit obligations in excess of plan assets were $94.6 million, $84.5 million
and $70.2 million, respectively, at December 31, 2000 and $63.2 million, $57.7
million and $42.8 million, respectively, at December 31, 1999.
The components of the net periodic benefit cost for each of the years ended
December 31 are as follows:
Pension Benefits Postretirement Benefits
--------------------------------- -------------------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
(Dollars in thousands)
Service cost ..................................... $ 6,986 $ 6,710 $ 6,186 $1,228 $1,031 $1,022
Interest cost .................................... 8,671 7,616 6,315 3,220 2,944 2,511
Expected return on plan assets ................... (7,925) (6,722) (5,823) -- -- --
Amortization of prior service cost ............... 1,745 1,531 681 15 15 27
Amortization of actuarial (gains) losses ......... (143) (29) (97) 20 62 25
Losses due to settlement or curtailment .......... 311 -- 2,081 -- -- --
------- ------- ------- ------ ------ ------
Net periodic benefit cost ........................ $ 9,645 $ 9,106 $ 9,343 $4,483 $4,052 $3,585
======= ======= ======= ====== ====== ======
F-27
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 12. Retirement Benefits (continued)
The principal pension and postretirement benefit plans of the Company used the
following weighted average actuarial assumptions as of December 31:
2000 1999
---- ----
Discount rate...................... 7.50% 7.50%
Expected return on plan assets..... 9.00% 9.00%
Rate of compensation increase...... 3.75% 3.75%
The assumed health care cost trend rates used to determine the accumulated
postretirement benefit obligation in 2000 ranged from 9.0% to 10.0% for pre-age
65 retirees and 8.0% to 9.0% for post-age 65 retirees, declining gradually to an
ultimate rate of 5.5% in 2007. Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care plan. A one
percentage point change in the assumed health care cost trend rates would have
the following effects:
1-Percentage 1-Percentage
Point Increase Point Decrease
-------------- --------------
(Dollars in thousands)
Effect on postretirement benefit cost......... $ 447 $ (378)
Effect on postretirement benefit obligation... $4,070 $(3,500)
The Company participates in several multi-employer pension plans which provide
defined benefits to certain of its union employees. Amounts contributed to these
plans and charged to pension cost in 2000, 1999 and 1998 were $9.3 million, $9.1
million and $9.3 million, respectively.
The Company also sponsors defined contribution pension and profit sharing plans
covering substantially all employees. Company contributions to these plans are
based upon employee contributions and operating profitability. Contributions
charged to expense for these plans were $5.1 million in 2000, $5.9 million in
1999 and $5.6 million in 1998.
F-28
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 13. Income Taxes
Components of the provision for income taxes are as follows:
2000 1999 1998
---- ---- ----
(Dollars in thousands)
Current
Federal ............... $ 7,859 $ 5,879 $ 8,653
State ................. 816 1,143 --
Foreign ............... 2,656 2,654 2,100
------- ------- -------
11,331 9,676 10,753
Deferred
Federal ............... 10,372 5,952 15,967
State ................. 953 (1,490) --
Foreign ............... 424 167 164
------- ------- -------
11,749 4,629 16,131
------- ------- -------
$23,080 $14,305 $26,884
======= ======= =======
The provision for income taxes is included in the Consolidated Statements of
Income as follows:
2000 1999 1998
---- ---- ----
(Dollars in thousands)
Income before extraordinary item ...... $25,790 $14,305 $26,884
Extraordinary item .................... (2,710) -- --
------- ------- -------
$23,080 $14,305 $26,884
======= ======= =======
F-29
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 13. Income Taxes (continued)
The provision for income taxes varied from income taxes computed at the
statutory U.S. federal income tax rate as a result of the following:
2000 1999 1998
---- ---- ----
(Dollars in thousands)
Income taxes computed at the statutory
U.S. federal income tax rate ............ $20,649 $13,382 $25,483
State and foreign taxes,
net of federal tax benefit .............. 1,109 (357) 70
Amortization of goodwill .................. 1,009 906 682
Other ..................................... 313 374 649
------- ------- -------
$23,080 $14,305 $26,884
======= ======= =======
Effective tax rate........................ 39.1% 37.4% 36.9%
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities at December 31 are as follows:
2000 1999
---- ----
(Dollars in thousands)
Deferred tax assets:
Book reserves not yet deductible for tax
purposes ..................................... $ 54,886 $ 66,675
Net operating loss carryforwards ................ 55,356 53,534
AMT and other credit carryforwards .............. 14,635 9,016
Other ........................................... 2,609 3,527
-------- --------
Total deferred tax assets .................... 127,486 132,752
Deferred tax liabilities:
Tax over book depreciation ...................... 106,224 97,174
Book over tax basis of assets acquired .......... 18,785 18,349
Other ........................................... 2,843 2,636
-------- --------
Total deferred tax liabilities ............... 127,852 118,159
-------- --------
Net deferred tax (liability) asset ................ $ (366) $ 14,593
======== ========
F-30
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 13. Income Taxes (continued)
The Company files a consolidated U.S. federal income tax return which includes
all domestic subsidiaries except CS Can. At December 31, 2000, the Company had
net operating loss carryforwards of approximately $94.4 million (excluding $51.0
million from CS Can) which are available to offset future consolidated taxable
income of the group and expire from 2007 through 2012. The Company believes that
it is more likely than not that these net operating loss carryforwards will be
available to reduce future income tax liabilities based upon continued
profitability and estimated future taxable income. The Company also has $14.2
million of alternative minimum tax credits which are available indefinitely to
reduce future tax payments for regular federal income tax purposes.
Pre-tax income of foreign subsidiaries was $8.9 million in 2000, $8.1 million in
1999 and $6.3 million in 1998. At December 31, 2000, the cumulative amount of
unremitted foreign earnings for which no deferred taxes have been provided
aggregated $15.9 million. Determination of the amount of unrecognized deferred
U.S. income tax liability is not practicable because of the complexities
associated with its hypothetical calculation. However, unrecognized foreign tax
credit carryforwards would be available to reduce some portion of the U.S.
income tax liability.
Note 14. Stock Option Plan
The Company has established a stock option plan (the "Plan") for key employees
pursuant to which options to purchase shares of Common Stock of the Company may
be granted.
The Plan authorizes grants of non-qualified or incentive stock options to
purchase shares of the Company's Common Stock. A maximum of 3,533,417 shares may
be issued for stock options under the Plan. As of December 31, 2000, there were
options for 795,914 shares of the Company's Common Stock available for future
issuance under the Plan. The exercise price of the stock options granted under
the Plan is the fair market value of the Common Stock on the grant date. The
stock options granted under the Plan generally vest ratably over a five year
period beginning one year after the grant date and have a term of ten years.
F-31
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 14. Stock Option Plan (continued)
The following is a summary of stock option activity for years ended December 31,
2000, 1999 and 1998:
Weighted Average
Options Exercise Price
------- ----------------
Options outstanding at December 31, 1997 ..... 1,940,103 $ 3.71
=========
Granted ................................... 95,000 $33.92
Exercised ................................. (1,100,580) 2.13
---------
Options outstanding at December 31, 1998 ..... 934,523 8.64
=========
Granted ................................... 115,000 $17.61
Exercised ................................. (192,255) 2.67
---------
Options outstanding at December 31, 1999 ..... 857,268 11.17
=========
Granted ................................... 823,900 $13.62
Exercised ................................. (256,203) 2.00
Canceled .................................. (236,500) 21.88
---------
Options outstanding at December 31, 2000 ..... 1,188,465 12.71
=========
At December 31, 2000, 1999 and 1998, the remaining contractual life of options
outstanding was 7.5 years, 4.8 years and 4.8 years, respectively, and there were
360,065, 581,488 and 645,455 options exercisable with weighted average exercise
prices of $8.12, $5.16 and $3.12, respectively.
The following is a summary of stock options outstanding and exercisable at
December 31, 2000 by range of exercise price:
Range of Remaining Weighted Weighted
Exercise Number Contractual Average Average
Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
------ ----------- ------------ -------------- ----------- --------------
$ 0.56 - $ 9.81 347,065 4.7 $ 3.69 271,065 $ 2.20
13.38 - 22.13 771,400 8.8 14.98 51,000 21.22
28.88 - 36.75 70,000 6.8 32.43 38,000 32.74
--------- -------
1,188,465 360,065
========= =======
F-32
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 14. Stock Option Plan (continued)
The Company applies APB No. 25, "Accounting for Stock Issued to Employees," and
related interpretations in accounting for the Plan. Accordingly, no compensation
expense has been recognized. Had compensation expense been determined based on
the fair value of such awards at the grant date, in accordance with the
methodology prescribed by SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and basic and diluted earnings per share
would have been as follows (dollars in thousands, except per share amounts):
2000 1999 1998
---- ---- ----
Net income:
As reported ................ $31,308 $23,930 $45,924
Pro forma .................. 29,865 23,291 45,361
Basic earnings per share:
As reported ................ $1.77 $1.35 $2.41
Pro forma .................. 1.69 1.32 2.39
Diluted earnings per share:
As reported ................ $1.74 $1.32 $2.30
Pro forma .................. 1.66 1.28 2.27
The weighted average fair value of options granted was $9.28, $10.10 and $14.22
for 2000, 1999 and 1998, respectively.
The fair value was calculated using the Black-Scholes option-pricing model based
on the following weighted average assumptions for grants made in 2000, 1999 and
1998:
2000 1999 1998
---- ---- ----
Risk-free interest rate......... 6.6% 5.2% 5.6%
Expected volatility............. 60.6% 50.4% 38.6%
Dividend yield.................. - - -
Expected option life (years).... 8 8 5
Note 15. Capital Stock
The Company's authorized capital stock consists of 100,000,000 shares of Common
Stock, par value $.01 per share, and 10,000,000 shares of preferred stock, par
value $.01 per share.
The Company's Board of Directors previously authorized the repurchase by the
Company of up to $70.0 million of its Common Stock from time to time in the open
market, through privately negotiated transactions or through block purchases.
The Company's repurchases of Common Stock are recorded as treasury stock and
result in an increase in deficiency in stockholders' equity. Through December
31, 2000, the Company had repurchased 2,708,975 shares of its Common Stock for
$61.0 million, which were initially funded from Revolving Loan borrowings under
its Credit Agreement that were repaid with operating cash flows. In 1998, the
Company issued 23,500 shares ($0.6 million) of its Common Stock from its
treasury stock for stock option exercises.
F-33
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 16. Earnings Per Share
The components of the calculation of earnings per share are as follows (dollars
and shares in thousands):
2000 1999 1998
---- ---- ----
Income before extraordinary item ............ $35,524 $23,930 $45,924
Extraordinary item .......................... 4,216 -- --
------- ------- -------
Net income .................................. $31,308 $23,930 $45,924
======= ======= =======
Weighted average number of shares used in:
Basic earnings per share .................... 17,652 17,706 19,003
Assumed exercise of employee stock options... 351 492 948
------ ------ ------
Diluted earnings per share .................. 18,003 18,198 19,951
====== ====== ======
Options to purchase 743,575 to 997,900 shares of Common Stock at prices ranging
from $9.3125 to $36.75 per share for 2000, 215,000 to 330,000 shares of Common
Stock at prices ranging from $17.00 to $36.75 per share for 1999 and 140,000
shares of Common Stock at prices ranging from $28.875 to $36.75 per share for
1998 were outstanding but were excluded from the computation of diluted earnings
per share because the exercise prices for such options were greater than the
average market price of the Common Stock and, therefore, the effect would be
antidilutive.
F-34
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 17. Related Party Transactions
Pursuant to various management services agreements (the "Management Agreements")
entered into between each of Holdings, Containers and Plastics and S&H Inc.
("S&H"), a company wholly owned by Mr. Silver, the Chairman and Co-Chief
Executive Officer of Holdings, and Mr. Horrigan, the President and Co-Chief
Executive Officer of Holdings, S&H provides Holdings and its subsidiaries with
general management, supervision and administrative services.
In consideration for its services, S&H receives a fee in an amount equal to
90.909% of 4.95% of Holdings' consolidated EBDIT (as defined in the Management
Agreements) until EBDIT has reached the Scheduled Amount set forth in the
Management Agreements, plus reimbursement for all related out-of-pocket
expenses. In 1999 and 1998, in consideration for its services S&H received a fee
of 4.95% of Holdings' consolidated EBDIT until EBDIT reached the Scheduled
Amount as set forth in the Management Agreements, and 3.3% of Holdings'
consolidated EBDIT after EBDIT exceeded the Scheduled Amount up to the Maximum
Amount as set forth in the Management Agreements, plus reimbursement for all
out-of-pocket expenses. The total amount paid under the Management Agreements
was $4.9 million, $5.5 million (including $0.5 million paid to MS & Co. by S&H)
and $5.3 million (including $0.5 million paid to MS & Co. by S&H) in 2000, 1999
and 1998, respectively, and was allocated, based upon EBDIT, as a charge to
operating income of each business segment. Under the terms of the Management
Agreements, the Company has agreed, subject to certain exceptions, to indemnify
S&H and any of its affiliates, officers, directors, employees, subcontractors,
consultants or controlling persons against any loss or damage they may sustain
arising in connection with the Management Agreements.
For financial advisory services provided by MS & Co. to Holdings and its
subsidiaries, MS & Co. was paid $0.5 million in 2000 by the Company and $0.5
million in each of 1999 and 1998 by S&H.
F-35
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 18. Business Segment Information
The Company is engaged in the packaging industry and has three business units:
metal food containers, plastic containers and specialty packaging. The metal
food containers segment manufactures steel and aluminum containers for human and
pet food products. The plastic container segment manufactures custom designed
plastic containers for personal care, health care, pharmaceutical, household and
industrial chemical, food, pet care, agricultural chemical, automotive and
marine chemical products, as well as plastic closures, caps, sifters and
fitments and thermoformed plastic tubs for food, pet care and household
products. The specialty packaging business includes the manufacture of specialty
packaging items used in the food and beverage industries, including steel
closures, aluminum roll-on closures, plastic bowls and cans and paperboard
containers. These segments are strategic business operations that offer
different products. Each are managed separately because each business produces a
packaging product requiring different technology, production and marketing
strategies. Each segment operates primarily in the United States. There are no
intersegment sales.
The accounting policies of the reportable segments are the same as those
described in Note 1. The Company evaluates the performance of the respective
business units based upon earnings before interest, taxes, depreciation and
amortization, as adjusted for unusual items ("Adjusted EBITDA"). The Company
believes Adjusted EBITDA provides important information in enabling it to assess
its ability to service and incur debt. Adjusted EBITDA is not intended to be a
measure of profitability in isolation or as a substitute for net income or other
operating income data prepared in accordance with accounting principles
generally accepted in the United States.
F-36
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 18. Business Segment Information (continued)
Reportable business segment information for each of the past three years for the
Company's three business segments are as follows:
Metal Food Plastic Specialty
Containers(1) Containers Packaging Other(2) Total
------------- ---------- --------- -------- -----
(Dollars in thousands)
2000
- ----
Net sales ........................ $1,380,562 $373,048 $123,887 $ -- $1,877,497
Adjusted EBITDA .................. 173,729 64,820 10,579 (3,056) 246,072
Depreciation and amortization .... 52,840 26,217 9,810 103 88,970
Segment profit (loss) ............ 120,889 38,603 769 (3,159) 157,102
Segment assets ................... 854,067 432,112 95,196 -- 1,381,375
Capital expenditures ............. 58,617 25,035 5,555 20 89,227
1999
- ----
Net sales ........................ $1,430,973 $323,038 $138,067 $ -- $1,892,078
Adjusted EBITDA .................. 172,469 62,868 14,854 (3,776) 246,415
Depreciation and amortization .... 51,720 24,219 9,930 105 85,974
Segment profit (loss) ............ 120,749 38,649 4,924 (3,881) 160,441
Segment assets ................... 780,774 284,021 105,508 -- 1,170,303
Capital expenditures ............. 56,798 24,549 6,061 13 87,421
1998
- ----
Net sales ........................ $1,323,706 $312,834 $132,205 $ -- $1,768,745
Adjusted EBITDA .................. 164,357 58,216 12,172 (2,981) 231,764
Depreciation and amortization .... 48,275 20,179 8,931 115 77,500
Segment profit (loss) ............ 116,082 38,037 3,241 (3,096) 154,264
Segment assets ................... 816,999 285,790 104,902 -- 1,207,691
Capital expenditures ............. 46,601 34,153 5,294 25 86,073
- --------------
(1) Excludes rationalization charges of $36.1 million recorded in 1999.
(2) The other category provides information pertaining to the corporate holding company.
F-37
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 18. Business Segment Information (continued)
Total segment profit is reconciled to income before income taxes as follows:
2000 1999 1998
---- ---- ----
(Dollars in thousands)
Total segment profit ................. $157,102 $160,441 $154,264
Interest and other debt expense ...... 91,178 86,057 81,456
Rationalization charges .............. -- 36,149 --
-------- -------- --------
Income before income taxes ........ $ 65,924 $ 38,235 $ 72,808
======== ======== ========
Total segment assets are reconciled to total assets as follows:
2000 1999 1998
---- ---- ----
(Dollars in thousands)
Total segment assets .............. $1,381,375 $1,170,303 $1,207,691
Deferred tax asset ................ -- 14,593 15,902
Other assets ...................... 2,449 389 452
---------- ---------- ----------
Total assets ................... $1,383,824 $1,185,285 $1,224,045
========== ========== ==========
Financial information relating to the Company's operations by geographic area is
as follows:
2000 1999 1998
---- ---- ----
(Dollars in thousands)
Net Sales:
United States .................. $1,823,349 $1,845,180 $1,725,902
Canada ......................... 54,148 46,898 42,843
---------- ---------- ----------
Total net sales ............. $1,877,497 $1,892,078 $1,768,745
========== ========== ==========
Long-Lived Assets:
United States .................. $ 838,180 $ 729,628 $ 762,596
Canada ......................... 24,371 23,438 18,052
---------- ---------- ----------
Total long-lived assets ..... $ 862,551 $ 753,066 $ 780,648
========== ========== ==========
F-38
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 18. Business Segment Information (continued)
Net sales are attributed to the country from which the product was manufactured
and shipped.
Metal food container and specialty packaging sales to Nestle Food Company
accounted for 12.2%, 12.0% and 13.6% of consolidated net sales of the Company
during 2000, 1999 and 1998, respectively. Metal food container sales to Del
Monte Corporation accounted for 10.7%, 10.9%, and 11.8% of consolidated net
sales of the Company during 2000, 1999 and 1998, respectively. Metal food
container and specialty packaging sales to Campbell Soup Company accounted for
10.7%, 10.9% and 8.4% of consolidated net sales of the Company during 2000, 1999
and 1998, respectively.
Note 19. Quarterly Results of Operations (Unaudited)
The following table presents the unaudited quarterly results of operations of
the Company for the years ended December 31, 2000 and 1999 (dollars in
thousands, except per share data):
First Second Third Fourth
---- ------ ----- ------
2000
- ----
Net sales .................................... $418,505 $430,206 $571,369 $457,417
Gross profit ................................. 48,718 52,643 74,508 53,381
Income before extraordinary item ............. 5,291 6,244 18,485 5,504
Net income ................................... 5,291 6,244 18,485 1,288
Basic earnings per share:
Income before extraordinary item .......... $0.30 $0.35 $1.04 $0.31
Net income ................................ 0.30 0.35 1.04 0.07
Diluted earnings per share:
Income before extraordinary item .......... $0.29 $0.35 $1.03 $0.30
Net income ................................ 0.29 0.35 1.03 0.07
1999
- ----
Net sales .................................... $405,938 $441,096 $582,261 $462,783
Gross profit ................................. 47,859 59,808 74,678 53,039
Net income ................................... 5,623 11,487 6,033 787
Basic net income per share ................... $0.31 $0.65 $0.34 $0.04
Diluted net income per share ................. $0.30 $0.64 $0.34 $0.04
F-39
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Note 19. Quarterly Results of Operations (Unaudited) (continued)
Earnings per share amounts are computed independently for each of the periods
presented. Accordingly, the sum of the quarterly earnings per share amounts may
not equal the total for the year.
The results of operations for the fourth quarter of 2000 include an
extraordinary loss of $4.2 million after-tax ($0.24 per basic share and $0.23
per diluted share) for the premium paid in connection with the redemption of the
13 1/4% Debentures and for the write-off of related unamortized financing costs.
The results of operations for the third quarter of 1999 include a pre-tax
non-cash charge of $24.2 million for the reduction in the carrying value of
certain assets of the metal food container business deemed to be surplus or
obsolete.
The results of operations for the fourth quarter of 1999 include a pre-tax
charge of $11.9 million incurred in connection with the Company's closing of two
West Coast metal food container facilities.
F-40
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SILGAN HOLDINGS INC. (Parent Company)
CONDENSED BALANCE SHEETS
December 31, 2000 and 1999
(Dollars in thousands)
2000 1999
---- ----
Assets
Current assets:
Cash and cash equivalents ....................... $ 32 $ 49
Notes receivable - subsidiaries ................. 41,758 36,783
Interest receivable - subsidiaries .............. 6,665 10,088
Other current assets ............................ 20 27
-------- ---------
Total current assets .......................... 48,475 46,947
Notes receivable-subsidiaries ...................... 606,002 703,965
Deferred tax asset ................................. 81,296 80,201
Other assets ....................................... 2,398 312
-------- ---------
$738,171 $ 831,425
======== =========
Liabilities and Deficiency in Stockholders' Equity
Current liabilities:
Current portion of long-term debt ............... $ 41,758 $ 36,783
Accrued interest payable ........................ 6,665 10,088
Accounts payable and accrued expenses ........... 881 1,267
-------- ---------
Total current liabilities ..................... 49,304 48,138
Excess of distributions over investment
in subsidiaries ................................. 75,425 114,703
Long-term debt ..................................... 606,002 703,965
Other liabilities .................................. 27,820 13,353
Deficiency in stockholders' equity:
Common stock .................................... 204 201
Paid-in capital ................................. 118,099 118,666
Retained earnings (accumulated deficit) ......... (76,702) (108,010)
Accumulated other comprehensive income (loss) ... (1,588) (273)
Treasury stock at cost (2,685,475 and
2,585,475 shares, respectively) .............. (60,393) (59,318)
-------- ---------
Total deficiency in stockholders' equity ...... (20,380) (48,734)
-------- ---------
$738,171 $ 831,425
======== =========
See notes to condensed financial statements.
F-41
SILGAN HOLDINGS INC. (Parent Company)
CONDENSED STATEMENTS OF INCOME
For the years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
2000 1999 1998
---- ---- ----
Net sales ........................................ $ -- $ -- $ --
Cost of goods sold ............................... -- -- --
------- ------- -------
Gross profit ................................ -- -- --
Selling, general and administrative expenses ..... 3,137 3,873 3,095
------- ------- -------
Loss from operations ........................ (3,137) (3,873) (3,095)
Interest and other debt expense, net ............. -- -- --
------- ------- -------
Loss before income taxes .................... (3,137) (3,873) (3,095)
Benefit from income taxes ........................ (1,227) (1,475) (1,145)
------- ------- -------
Loss before equity in losses of affiliate.... (1,910) (2,398) (1,950)
Equity in losses of affiliate .................... (4,610) -- --
------- ------- -------
Net loss before equity in earnings
of consolidated subsidiaries .............. (6,520) (2,398) (1,950)
Equity in earnings of consolidated subsidiaries... 37,828 26,328 47,874
------- ------- -------
Net income .................................. $31,308 $23,930 $45,924
======= ======= =======
See notes to condensed financial statements.
F-42
SILGAN HOLDINGS INC. (Parent Company)
CONDENSED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
2000 1999 1998
---- ---- ----
Cash flows provided by (used in) operating activities:
Net income ........................................... $ 31,308 $ 23,930 $ 45,924
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in earnings of consolidated subsidiaries .... (37,828) (26,328) (47,874)
Equity in losses of affiliate ...................... 4,610 -- --
Deferred income tax provision ...................... (1,227) (1,475) (1,145)
Changes in other assets and liabilities, net ....... 9,634 3,386 783
-------- -------- --------
Net cash provided by (used in) operating activities... 6,497 (487) (2,312)
-------- -------- --------
Cash flows provided by (used in) investing activities:
Notes receivable from subsidiaries ................ 92,988 31,807 18,365
Investment in equity affiliate .................... (7,026) -- --
Cash distribution received from subsidiaries ...... 1,075 16,563 43,378
-------- -------- --------
Net cash provided by investing activities ............ 87,037 48,370 61,743
-------- -------- --------
Cash flows provided by (used in) financing activities:
Repayments and redemptions of long-term debt ...... (92,988) (31,807) (18,365)
Proceeds from stock option exercises .............. 512 514 2,341
Repurchase of common stock ........................ (1,075) (16,563) (43,378)
-------- -------- --------
Net cash used in financing activities ................ (93,551) (47,856) (59,402)
-------- -------- --------
Cash and cash equivalents:
Net (decrease) increase .............................. (17) 27 29
Balance at beginning of year ......................... 49 22 (7)
-------- -------- --------
Balance at end of year ............................... $ 32 $ 49 $ 22
======== ======== ========
See notes to condensed financial statements.
F-43
SILGAN HOLDINGS INC. (Parent Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
For the years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
Note 1. Basis of Presentation
Silgan Holdings Inc. ("Holdings" or the "Parent Company") has two wholly owned
subsidiaries, Silgan Containers Corporation ("Containers") and Silgan Plastics
Corporation ("Plastics") (collectively with Holdings, the "Company"). Holdings'
investment in its subsidiaries is stated at cost plus its share of the
undistributed earnings/losses of its subsidiaries. The Parent Company's
financial statements should be read in conjunction with the Company's
Consolidated Financial Statements included elsewhere in this Annual Report on
Form 10-K.
Note 2. Long-Term Debt
Debt obligations of the Parent Company at December 31 consist of the following:
2000 1999
---- ----
(Dollars in thousands)
Bank Debt:
Bank A Term Loans ........................... $159,218 $194,047
Bank B Term Loans ........................... 188,542 190,495
-------- --------
Total bank debt ........................... 347,760 384,542
-------- --------
Subordinated Debt:
9% Senior Subordinated Debentures ........... 300,000 300,000
13 1/4% Subordinated Debentures ............. -- 56,206
-------- --------
Total subordinated debt ................... 300,000 356,206
-------- --------
Total Debt ..................................... 647,760 740,748
Less current portion of long-term debt ...... 41,758 36,783
-------- --------
$606,002 $703,965
======== ========
F-44
SILGAN HOLDINGS INC. (Parent Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
For the years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
Note 2. Long-Term Debt (continued)
The aggregate annual maturities of outstanding debt obligations of the Parent
Company at December 31, 2000 are as follows (dollars in thousands):
2001........... $ 41,758
2002........... 56,685
2003........... 66,636
2004........... 1,954
2005........... 180,727
Thereafter..... 300,000
--------
$647,760
========
As of December 31, 2000 and 1999, the obligations of Holdings had been pushed
down to its subsidiaries.
In 2000 and 1999, Holdings received interest income from its subsidiaries in the
same amount as the interest expense it incurred on its obligations.
Note 3. Guarantees
Pursuant to the Credit Agreement, Holdings guarantees all of the indebtedness of
its subsidiaries incurred under the Credit Agreement. Holdings' subsidiaries may
borrow up to $670.5 million of revolving loans under the Credit Agreement.
Holdings' guarantee under the Credit Agreement is secured by a pledge by
Holdings of all of the stock of certain of its U.S. subsidiaries. Holdings also
guarantees all of the indebtedness of its Canadian subsidiaries under the
Canadian Bank Facility. At December 31, 2000, term loans of Cdn. $17.0 million
(U.S. $11.3 million) and revolving loans of Cdn. $2.3 million (U.S. $1.6
million) were outstanding under the Canadian Bank Facility. Holdings' guarantee
under the Canadian Bank Facility is secured by a pledge by Holdings of all of
the stock of its Canadian subsidiaries.
Note 4. Dividends from Subsidiaries
Cash dividends received by Holdings from its consolidated subsidiaries accounted
for by the equity method were $1.1 million, $16.6 million and $43.4 million for
the years ended December 31, 2000, 1999, and 1998, respectively.
F-45
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
SILGAN HOLDINGS INC.
For the years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
Additions
---------
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions period
- ----------- ---------- ---------- -------- ---------- ---------
For the year ended December 31, 2000:
Allowance for doubtful
accounts receivable ......................... $2,991 $ 165 $305 $(460)(1) $3,001
====== ===== ==== ===== ======
For the year ended December 31, 1999:
Allowance for doubtful
accounts receivable ......................... $3,325 $(684) $500 $(150)(1) $2,991
====== ===== ==== ===== ======
For the year ended December 31, 1998:
Allowance for doubtful
accounts receivable ......................... $3,415 $ 361 $ 57 $(508)(1) $3,325
====== ===== ==== ===== ======
(1) Uncollectible accounts written off, net of recoveries.
F-46
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
10.7 First Amendment and Consent, dated as of December 3, 1997,
among Holdings, Containers, Plastics, various lenders,
Bankers Trust Company, as Administrative Agent and as a
Co-Arranger, Bank of America National Trust & Savings
Association, as Syndication Agent and as a Co-Arranger,
Goldman Sachs Credit Partners L.P., as Co-Documentation
Agent and as a Co-Arranger, and Morgan Stanley Senior
Funding, Inc., as Co-Documentation Agent and as a
Co-Arranger.
10.8 Second Amendment and Consent, dated as of June 1, 1998,
among Holdings, Containers, Plastics, Silgan Containers
Manufacturing Corporation, various lenders, Bankers Trust
Company, as Administrative Agent and as a Co-Arranger, Bank
of America National Trust & Savings Association, as
Syndication Agent and as a Co-Arranger, Goldman Sachs Credit
Partners L.P., as Co-Documentation Agent and as a
Co-Arranger, and Morgan Stanley Senior Funding, Inc., as
Co-Documentation Agent and as a Co-Arranger.
10.9 Third Amendment, dated as of August 29, 2000, among
Holdings, Containers, Plastics, Silgan Containers
Manufacturing Corporation, various lenders, Bankers Trust
Company, as Administrative Agent and as a Co-Arranger, Bank
of America National Trust & Savings Association, as
Syndication Agent and as a Co-Arranger, Goldman Sachs Credit
Partners L.P., as Co-Documentation Agent and as a
Co-Arranger, and Morgan Stanley Senior Funding, Inc., as
Co-Documentation Agent and as a Co-Arranger.
12 Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends for the years ended December
31, 2000, 1999, 1998, 1997 and 1996.
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.