UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from ________________ to ________________
Commission file number 000-22117
SILGAN HOLDINGS INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-1269834
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
4 Landmark Square
Stamford, Connecticut 06901
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (203) 975-7110
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
As of August 14, 2001, the number of shares outstanding of the registrant's
common stock, $0.01 par value, was 17,790,593.
SILGAN HOLDINGS INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information ........................................ 3
Item 1. Financial Statements .................................... 3
Condensed Consolidated Balance Sheets at
June 30, 2001 and 2000 and December 31, 2000 ............ 3
Condensed Consolidated Statements of Income
for the three months ended June 30, 2001
and 2000 ................................................ 4
Condensed Consolidated Statements of Income
for the six months ended June 30, 2001
and 2000 ................................................ 5
Condensed Consolidated Statements of Cash
Flows for the six months ended June 30, 2001
and 2000 ................................................ 6
Condensed Consolidated Statements of Deficiency
in Stockholders' Equity for the six months
ended June 30, 2000 and 2001 ............................ 7
Notes to Condensed Consolidated Financial
Statements .............................................. 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ........... 17
Item 3. Quantitative and Qualitative Disclosure About
Market Risk ............................................. 26
Part II. Other Information ........................................... 26
Item 1. Legal Proceedings ....................................... 26
Item 4. Submission of Matters to a Vote of Security Holders ..... 26
Item 6. Exhibits and Reports on Form 8-K ........................ 27
Signatures ............................................................ 28
Exhibit Index ......................................................... 29
-2-
Part I. Financial Information
Item 1. Financial Statements
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited, see Note 1)
June 30, June 30, Dec. 31,
2001 2000 2000
---- ---- ----
Assets
Current assets
Cash and cash equivalents ...................... $ 49,220 $ 5,262 $ 20,073
Trade accounts receivable, net ................. 200,775 197,924 168,307
Inventories .................................... 372,758 321,458 279,737
Prepaid expenses and other current assets ...... 17,639 8,342 11,874
---------- ---------- ----------
Total current assets ....................... 640,392 532,986 479,991
Property, plant and equipment, net ............... 710,580 642,015 709,513
Goodwill, net .................................... 151,920 105,535 153,038
Other assets ..................................... 37,464 48,505 41,282
---------- ---------- ----------
$1,540,356 $1,329,041 $1,383,824
========== ========== ==========
Liabilities and Deficiency in Stockholders' Equity
Current liabilities
Bank revolving loans ........................... $ 173,065 $ 178,870 $ --
Current portion of long-term debt .............. 41,970 39,290 44,948
Trade accounts payable ......................... 144,112 133,838 208,144
Accrued payroll and related costs .............. 53,276 52,887 56,452
Accrued interest payable ....................... 5,444 10,779 9,564
Accrued liabilities ............................ 49,212 18,143 13,142
---------- ---------- ----------
Total current liabilities .................. 467,079 433,807 332,250
Long-term debt ................................... 986,072 843,629 986,527
Other liabilities ................................ 101,323 90,523 85,427
---------- ---------- ----------
Total liabilities .......................... 1,554,474 1,367,959 1,404,204
Deficiency in stockholders' equity
Common stock ................................... 205 204 204
Paid-in capital ................................ 117,400 118,349 118,099
Retained earnings (accumulated deficit) ........ (67,030) (96,475) (76,702)
Accumulated other comprehensive income (loss) .. (4,300) (603) (1,588)
Treasury stock ................................. (60,393) (60,393) (60,393)
---------- ---------- ----------
Total deficiency in stockholders' equity ... (14,118) (38,918) (20,380)
---------- ---------- ----------
$1,540,356 $1,329,041 $1,383,824
========== ========== ==========
See accompanying notes.
-3-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended June 30, 2001 and 2000
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
2001 2000
---- ----
Net sales ............................................ $445,417 $430,206
Cost of goods sold ................................... 388,225 377,563
-------- --------
Gross profit .................................... 57,192 52,643
Selling, general and administrative expenses ......... 19,257 17,290
------- -------
Income from operations .......................... 37,935 35,353
Interest and other debt expense ...................... 21,248 21,616
------- -------
Income before income taxes and equity in
losses of affiliate ........................ 16,687 13,737
Provision for income taxes ........................... 6,704 5,358
------- -------
Income before equity in losses of affiliate ..... 9,983 8,379
Equity in losses of affiliate ........................ 2,536 2,135
------- -------
Net income ...................................... $ 7,447 $ 6,244
======= =======
Per share data
Basic earnings per share ........................ $0.42 $0.35
===== =====
Diluted earnings per share ...................... $0.41 $0.35
===== =====
Weighted average number of shares
Basic .......................................... 17,742 17,649
Assumed exercise of employee stock options ..... 288 322
------ ------
Diluted ........................................ 18,030 17,971
====== ======
See accompanying notes.
-4-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the six months ended June 30, 2001 and 2000
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
2001 2000
---- ----
Net sales ............................................ $888,931 $848,711
Cost of goods sold ................................... 780,809 747,350
-------- --------
Gross profit .................................... 108,122 101,361
Selling, general and administrative expenses ......... 37,989 36,353
Rationalization charge ............................... 3,490 --
-------- --------
Income from operations .......................... 66,643 65,008
Interest and other debt expense ...................... 44,116 42,597
-------- --------
Income before income taxes and equity in
losses of affiliate ........................ 22,527 22,411
Provision for income taxes ........................... 9,051 8,741
-------- --------
Income before equity in losses of affiliate ..... 13,476 13,670
Equity in losses of affiliate ........................ 3,804 2,135
-------- --------
Net income ...................................... $ 9,672 $ 11,535
======== ========
Per share data
Basic earnings per share ........................ $0.55 $0.66
===== =====
Diluted earnings per share ...................... $0.54 $0.64
===== =====
Weighted average number of shares
Basic .......................................... 17,723 17,600
Assumed exercise of employee stock options ..... 284 403
------ ------
Diluted ........................................ 18,007 18,003
====== ======
See accompanying notes.
-5-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2001 and 2000
(Dollars in thousands)
(Unaudited)
2001 2000
---- ----
Cash flows provided by (used in) operating activities
Net income ........................................ $ 9,672 $ 11,535
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation .................................. 44,676 41,687
Amortization .................................. 3,742 2,744
Rationalization charge ........................ 3,490 --
Equity in losses of affiliate ................. 3,804 2,135
Other changes that provided (used) cash:
Trade accounts receivable, net ............ (32,468) (69,829)
Inventories ............................... (93,021) (71,887)
Trade accounts payable .................... (64,032) (41,592)
Other, net ................................ 220 (7,294)
--------- ---------
Net cash used in operating activities ......... (123,917) (132,501)
--------- ---------
Cash flows provided by (used in) investing activities
Investment in equity affiliate .................... (3,039) (3,516)
Proceeds from joint venture ....................... 32,388 --
Capital expenditures .............................. (46,697) (40,558)
Proceeds from asset sales ......................... 281 1,119
--------- ---------
Net cash used in investing activities ......... (17,067) (42,955)
--------- ---------
Cash flows provided by (used in) financing activities
Borrowings under revolving loans .................. 473,524 469,353
Repayments under revolving loans .................. (300,459) (290,483)
Repurchase of common stock ........................ -- (1,075)
Proceeds from stock option exercises .............. 311 512
Repayments and redemptions of long-term debt ...... (3,245) --
--------- ---------
Net cash provided by financing activities ..... 170,131 178,307
--------- ---------
Cash and cash equivalents
Net increase ...................................... 29,147 2,851
Balance at beginning of year ...................... 20,073 2,411
--------- ---------
Balance at end of period .......................... $ 49,220 $ 5,262
========= =========
Interest paid ........................................ $ 47,519 $ 42,109
Income taxes paid .................................... 1,112 6,242
See accompanying notes.
-6-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF DEFICIENCY
IN STOCKHOLDERS' EQUITY
For the six months ended June 30, 2000 and 2001
(Dollars and shares in thousands)
(Unaudited)
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 December 31, 1999 ............ 17,547 $201 $118,666 $(108,010) $ (273) $(59,318) $(48,734)
Comprehensive income:
Net income ........................ -- -- -- 11,535 -- -- 11,535
Foreign currency translation ...... -- -- -- -- (330) -- (330)
--------
Comprehensive income .................... 11,205
Repurchase of common stock .............. (100) -- -- -- -- (1,075) (1,075)
Stock option exercises, net of
tax provision of $826 ................ 256 3 (317) -- -- -- (314)
------ ---- ------- --------- ------- -------- --------
Balance at June 30, 2000 ................ 17,703 $204 $118,349 $ (96,475) $ (603) $(60,393) $(38,918)
====== ==== ======== ========= ======= ======== ========
Balance at December 31, 2000 ............ 17,703 $204 $118,099 $ (76,702) $(1,588) $(60,393) $(20,380)
Comprehensive income:
Net income ........................ -- -- -- 9,672 -- -- 9,672
Change in fair value of derivatives
net of tax benefit of $1,733 ... -- -- -- -- (2,579) -- (2,579)
Foreign currency translation ...... -- -- -- -- (133) -- (133)
--------
Comprehensive income .................... 6,960
Dilution of investment in
equity affiliate ..................... -- -- (1,402) -- -- -- (1,402)
Stock option exercises, including
tax benefit of $393 .................. 88 1 703 -- -- -- 704
------ ---- ------- --------- ------- -------- --------
Balance at June 30, 2001 ................ 17,791 $205 $117,400 $ (67,030) $(4,300) $(60,393) $(14,118)
====== ==== ======== ========= ======= ======== ========
See accompanying notes.
-7-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2001 and 2000 and for the
three and six months then ended is unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Silgan
Holdings Inc. ("Holdings" or the "Company") have been prepared in accordance
with accounting principles generally accepted in the United States ("GAAP") for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, the
accompanying financial statements include all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation. The results of
operations for any interim period are not necessarily indicative of the results
of operations for the full year.
The condensed consolidated balance sheet at December 31, 2000 has been derived
from the Company's audited financial statements at that date, but does not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements.
The accompanying financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Holdings'
Annual Report on Form 10-K for the year ended December 31, 2000.
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
Note 2. New Accounting Pronouncements
Derivative Instruments and Hedging Activities
- ---------------------------------------------
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 138. 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
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type and
effectiveness of the hedge transaction.
The Company utilizes certain financial instruments to manage its interest rate
and energy cost exposures. The Company limits its use of derivative financial
instruments to interest rate and natural gas swap agreements. The Company does
not utilize derivative financial instruments for speculative purposes.
-8-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2001 and 2000 and for the
three and six months then ended is unaudited)
Note 2. New Accounting Pronouncements (continued)
The Company has entered into interest rate swap agreements 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 June 30, 2001 and January 1, 2001, the aggregate notional principal
amounts of these agreements were $225 million and $150 million, respectively.
Under these agreements at June 30, 2001, the Company pays fixed rates of
interest ranging from 4.7% 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 ($125 million notional principal amount).
The Company has entered into natural gas swap agreements to manage its exposure
to fluctuations in natural gas prices. At June 30, 2001 and January 1, 2001, the
aggregate notional principal amount of these agreements was 1,170,000 MMBtu and
170,000 MMBtu of natural gas, respectively. Under these agreements at June 30,
2001, the Company pays a fixed natural gas price ranging from $4.04 per MMBtu to
$5.78 per MMBtu and receives a NYMEX-based natural gas price. These agreements
mature at various times through June 2002.
The interest rate and natural gas swap agreements are accounted for as cash flow
hedges. To the extent these swap agreements are effective pursuant to SFAS No.
133 in offsetting the variability of the hedged cash flows, changes in their
fair values will be recorded in accumulated other comprehensive income (loss), a
component of stockholders' equity, and reclassified into earnings in future
periods when earnings are also affected by the variability of the hedged cash
flows. To the extent these swap agreements are not effective as hedges, changes
in their fair values will be recorded in net earnings.
The adoption of SFAS No. 133 on January 1, 2001 resulted in the Company
recording a net liability of $0.1 million on the balance sheet to reflect the
fair value of outstanding swap agreements and a transition adjustment of $0.1
million ($0.1 million net of tax) to reflect the cumulative effect of adoption
in accumulated other comprehensive income (loss). The fair value of the
outstanding swap agreements in effect at June 30, 2001 was $4.4 million and
recorded in other liabilities. As a result, the Company recorded an additional
charge to accumulated other comprehensive income (loss) of $2.5 million, net of
both taxes and net losses reclassified to earnings. The Company estimates that
it will reclassify $1.5 million, net of tax, of the amount recorded in
accumulated other comprehensive income (loss) as a charge to earnings during the
next six months. The actual amount that will be reclassified to earnings will
vary from this amount as a result of changes in market conditions.
-9-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2001 and 2000 and for the
three and six months then ended is unaudited)
Note 2. New Accounting Pronouncements (continued)
Business Combinations and Goodwill and Other Intangible Assets
- --------------------------------------------------------------
During July 2001, the Financial Accounting Standards Board (the "Board") issued
SFAS No. 141, "Business Combinations," which revises the accounting treatment
for business combinations to require the use of purchase accounting and prohibit
the use of the pooling-of-interests method for business combinations initiated
after June 30, 2001. During July 2001, the Board also issued SFAS No. 142,
"Goodwill and Other Intangible Assets," which revises the accounting for
goodwill to eliminate amortization of goodwill on transactions consummated after
June 30, 2001 and of all other goodwill as of January 1, 2002. Other intangible
assets will continue to be amortized over their useful lives. SFAS No. 142
requires goodwill and other intangibles to be assessed for impairment each year
and more frequently if circumstances indicate a possible impairment. During
2002, the Company will perform its first impairment test as of January 1, 2002.
The Company is currently evaluating the provisions of these standards.
Note 3. Rationalization Charges and Acquisition Reserves
During the first quarter of 2001, the Company completed its plan to close one
plastic container facility. The plan included the termination of approximately
150 plant employees and other related exit costs. This decision resulted in a
first quarter pre-tax charge to earnings of $3.5 million (including
approximately $1.0 million in anticipated cash payments), which consists of $2.6
million for plant exit costs and $0.9 million for employee severance and
benefits. The Company closed the facility in May 2001 and expects related cash
payments to be made through 2001.
As part of its plan to integrate and rationalize the operations of its various
acquired businesses, the Company has established reserves for employee severance
and benefits, plant exit costs and assumed liabilities. These costs are expected
to be incurred through 2002.
Activity in the Company's rationalization and acquisition reserves since
December 31, 2000 is summarized as follows:
Severance
and Plant Exit Assumed
Benefits Costs Liabilities Total
---------- ---------- ----------- -----
(Dollars in thousands)
Balance at December 31, 2000 ... $ 2,364 $5,559 $4,252 $12,175
Rationalization Charge ......... 874 2,616 -- 3,490
Utilized ....................... (1,355) (975) (396) (2,726)
------- ------ ------ -------
Balance at June 30, 2001 ....... $ 1,883 $7,200 $3,856 $12,939
======= ====== ====== =======
-10-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2001 and 2000 and for the
three and six months then ended is unaudited)
Note 3. Rationalization Charges and Acquisition Reserves (continued)
Rationalization and acquisition reserves are included in the Condensed
Consolidated Balance Sheets as follows:
June 30, June 30, Dec. 31,
2001 2000 2000
---- ---- ----
(Dollars in thousands)
Accrued liabilities .......... $ 8,226 $ 8,526 $ 7,462
Other liabilities ............ 4,713 8,114 4,713
------- ------- -------
$12,939 $16,640 $12,175
======= ======= =======
Note 4. Comprehensive Income (Loss)
Comprehensive income is reported in the Condensed Consolidated Statements of
Deficiency in Stockholders' Equity. Amounts included in accumulated other
comprehensive income (loss) consisted of the following:
June 30, June 30, Dec. 31,
2001 2000 2000
---- ---- ----
(Dollars in thousands)
Foreign currency translation ........... $ (824) $(503) $ (691)
Change in fair value of derivatives .... (2,579) -- --
Minimum pension liability .............. (897) (100) (897)
------- ----- -------
Accumulated other comprehensive
income (loss) ..................... $(4,300) $(603) $(1,588)
======= ===== =======
The change in fair value of derivatives component of accumulated other
comprehensive income (loss) is comprised of a $0.1 million charge, net of tax,
for the cumulative effect of adopting SFAS No. 133 and an additional charge of
$2.5 million, net of both tax and net losses reclassified to earnings, for the
change in fair value of derivatives for the six months ended June 30, 2001. The
amount reclassified to earnings for both the three and six month periods ended
June 30, 2001 was a net loss of $0.4 million.
-11-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2001 and 2000 and for the
three and six months then ended is unaudited)
Note 5. Inventories
Inventories consisted of the following:
June 30, June 30, Dec. 31,
2001 2000 2000
---- ---- ----
(Dollars in thousands)
Raw materials ....................... $ 35,662 $ 38,008 $ 43,873
Work-in-process ..................... 57,187 50,755 51,191
Finished goods ...................... 260,880 214,151 165,680
Spare parts and other ............... 12,431 11,487 11,698
-------- -------- --------
366,160 314,401 272,442
Adjustment to value inventory
at cost on the LIFO method ....... 6,598 7,057 7,295
-------- -------- --------
$372,758 $321,458 $279,737
======== ======== ========
Note 6. Investments
Packtion Corporation
- --------------------
In April 2000, the Company, together with Morgan Stanley Dean Witter Private
Equity and Diamondcluster International, Inc., agreed to invest in Packtion
Corporation ("Packtion"), an e-commerce joint venture aimed at integrating the
packaging supply chain, from design through manufacturing and procurement. The
parties agreed to invest through Packaging Markets LLC, a limited liability
company.
In the first quarter of 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 $3.0 million, bringing its total investment to
$10.1 million representing approximately a 25% interest in Packtion. In
connection therewith, the Company also recorded a reduction to paid-in capital
of $1.4 million due to the dilution of its investment. Packtion was dissolved on
May 31, 2001.
The Company accounted for its investment in Packtion using the equity method.
For the six months ended June 30, 2001, the Company recorded equity in losses of
Packtion aggregating $3.8 million which includes its final losses and eliminates
its investment in Packtion.
-12-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2001 and 2000 and for the
three and six months then ended is unaudited)
Note 6. Investments (continued)
White Cap LLC
- -------------
Effective July 1, 2001, the Company formed a joint venture company with
Schmalbach-Lubeca AG that will supply an extensive range of metal and plastic
closures to the food and beverage industries in North America. The new venture
operates under the name White Cap LLC ("White Cap"). The Company contributed
certain metal closure assets and liabilities, including its manufacturing
facilities in Evansville and Richmond, Indiana, in return for a 35% interest in
and $32.4 million cash proceeds from the joint venture. Net sales for the two
facilities contributed totaled approximately $88 million in 2000.
In connection with the formation of White Cap, the Company received the $32.4
million cash proceeds from the venture on June 29, 2001 and contributed its
manufacturing facilities effective July 1, 2001. As a result, at June 30, 2001
the Company recorded a short-term liability in an amount equal to such cash
distribution. When the investment in the venture is established in the third
quarter of 2001, this liability will be eliminated. The Company will account for
its investment in White Cap LLC using the equity method. As a result of this
transaction, the Company expects to record a gain during the third quarter.
Also, as a result of this transaction, beginning with the third quarter of 2001,
the Company will no longer report the financial results of its remaining
specialty packaging business as a separate segment. The results of the remaining
operations, which had net sales of approximately $36 million in 2000, will be
included with the Company's other businesses.
-13-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2001 and 2000 and for the
three and six months then ended is unaudited)
Note 7. Long-Term Debt
Long-term debt consisted of the following:
June 30, June 30, Dec. 31,
2001 2000 2000
---- ---- ----
(Dollars in thousands)
Bank debt
Bank Revolving Loans ................ $ 542,000 $ 304,070 $ 367,400
Bank A Term Loans ................... 159,218 194,047 159,218
Bank B Term Loans ................... 188,542 190,495 188,542
Canadian Bank Facility .............. 8,120 13,971 12,850
---------- ---------- ----------
Total bank debt .................. 897,880 702,583 728,010
Subordinated debt
9% Senior Subordinated Debentures ... 300,000 300,000 300,000
13 1/4% Subordinated Debentures ..... -- 56,206 --
Other ............................... 3,227 3,000 3,465
---------- ---------- ----------
Total subordinated debt .......... 303,227 359,206 303,465
Total debt .............................. 1,201,107 1,061,789 1,031,475
Less current portion ................ 215,035 218,160 44,948
---------- ---------- ----------
$ 986,072 $ 843,629 $ 986,527
========== ========== ==========
Under the Company's U.S. senior secured bank credit facility (the "U.S. Credit
Agreement"), the Company has available to it $670.5 million of bank revolving
loans. The Company also has $4.5 million of bank revolving loans available to it
under its Canadian bank facility (the "Canadian Bank Facility"). Bank revolving
loans may be used by the Company for working capital needs, acquisitions and
other permitted purposes. Bank revolving loans may be borrowed, repaid and
reborrowed until December 31, 2003, their final maturity date under both
facilities.
At June 30, 2001, bank revolving loans under the U.S. Credit Agreement consisted
of $173.1 million related primarily to seasonal working capital needs and $368.9
million related primarily to long-term financing of acquisitions. At June 30,
2001, amounts expected to be repaid within one year consisted of $173.1 million
of bank revolving loans and $42.0 million of bank term loans. Bank revolving
loans not expected to be repaid within one year have been reclassified as
long-term debt.
-14-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2001 and 2000 and for the
three and six months then ended is unaudited)
Note 8. Business Segment Information
Reportable business segment information for the Company's three business
segments is as follows:
Metal Food Plastic Specialty
Containers Containers(1) Packaging Other(2) Total
---------- ---------- --------- ----- -----
(Dollars in thousands)
Three Months Ended June 30, 2001
- --------------------------------
Net sales .................................... $288,173 $124,725 $32,519 $ -- $445,417
EBITDA(3) .................................... 35,850 23,723 3,575 (1,000) 62,148
Depreciation and amortization(4) ............. 13,508 8,113 2,566 26 24,213
Segment profit (loss) ........................ 22,342 15,610 1,009 (1,026) 37,935
Three Months Ended June 30, 2000
- --------------------------------
Net sales .................................... $309,963 $ 86,600 $33,643 $ -- $430,206
EBITDA (3) ................................... 39,428 14,615 3,636 (482) 57,197
Depreciation and amortization(4) ............. 13,096 6,140 2,583 25 21,844
Segment profit (loss) ........................ 26,332 8,475 1,053 (507) 35,353
Six Months Ended June 30, 2001
- ------------------------------
Net sales .................................... $579,869 $247,021 $62,041 $ -- $888,931
EBITDA(3) .................................... 66,476 47,543 5,415 (1,714) 117,720
Depreciation and amortization(4) ............. 26,540 16,098 4,897 52 47,587
Segment profit (loss) ........................ 39,936 31,445 518 (1,766) 70,133
Six Months Ended June 30, 2000
- ------------------------------
Net sales .................................... $611,960 $171,620 $65,131 $ -- $848,711
EBITDA(3) .................................... 74,068 30,059 6,389 (1,874) 108,642
Depreciation and amortization(4) ............. 26,165 12,365 5,053 51 43,634
Segment profit (loss) ........................ 47,903 17,694 1,336 (1,925) 65,008
-15-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2001 and 2000 and for the
three and six months then ended is unaudited)
Note 8. Business Segment Information (continued)
(1) Excludes a rationalization charge of $3.5 million for the six months
ended June 30, 2001 related to the closing of a facility.
(2) Provides information pertaining to the corporate holding company and
includes a $0.7 million credit for the three months ended June 30, 2000
related to the reimbursement of start-up costs for Packtion.
(3) EBITDA means earnings before equity in losses of affiliate, interest,
income taxes, depreciation and amortization, as adjusted to add back
rationalization charges. While 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 GAAP
as a measure of the profitability or liquidity of the Company,
management believes that many investors and lenders consider it
important in assessing a company's ability to service and incur debt.
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, EBITDA is not computed in accordance with GAAP and may
not be comparable to other similarly titled measures of other
companies.
(4) Depreciation and amortization excludes debt cost amortization of $0.4
million for each of the three months ended June 30, 2001 and 2000 and
$0.8 million for each of the six months ended June 30, 2001 and 2000.
Total segment profit is reconciled to income before income taxes and equity in
losses of affiliate as follows:
Three Months Ended Six Months Ended
----------------------- -----------------------
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
(Dollars in thousands)
Total segment profit ...................... $37,935 $35,353 $70,133 $65,008
Interest and other debt expense ........... 21,248 21,616 44,116 42,597
Rationalization charge .................... -- -- 3,490 --
------- ------- ------- -------
Income before income taxes
and equity in losses of affiliate .... $16,687 $13,737 $22,527 $22,411
======= ======= ======= =======
-16-
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Statements included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Quarterly Report on
Form 10-Q which are not historical facts are "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and Securities Exchange Act of 1934. Such forward-looking
statements are made based upon management's expectations and beliefs concerning
future events impacting the Company and therefore involve a number of
uncertainties and risks, including, but not limited to, those described in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000
and the Company's other filings with the Securities and Exchange Commission. As
a result, the actual results of operations or financial condition of the Company
could differ materially from those expressed or implied in such forward-looking
statements.
RESULTS OF OPERATIONS - THREE MONTHS
Summary unaudited results of operations for the Company's three business
segments, metal food containers, plastic containers and specialty packaging, for
the three months ended June 30, 2001 and 2000 are provided below.
2001 2000
---- ----
(Dollars in millions)
Net sales
Metal food containers ........... $288.2 $310.0
Plastic containers .............. 124.7 86.6
Specialty packaging ............. 32.5 33.6
------ ------
Consolidated ................. $445.4 $430.2
====== ======
Operating profit
Metal food containers ........... $ 22.3 $ 26.3
Plastic containers .............. 15.6 8.5
Specialty packaging ............. 1.0 1.0
Other (1) ....................... (1.0) (0.5)
------ ------
Consolidated ................. $ 37.9 $ 35.3
====== ======
- -------------
(1) Includes a $0.7 million credit for the reimbursement of start-up costs
for Packtion for the three months ended June 30, 2000.
-17-
Three Months Ended June 30, 2001 Compared with Three Months Ended June 30, 2000
Net Sales. Consolidated net sales increased $15.2 million, or 3.5%, to $445.4
million for the three months ended June 30, 2001, as compared to net sales of
$430.2 million for the same three months in the prior year. This increase was
the result of higher net sales in the plastic container business, partially
offset by lower sales in the metal food container and specialty packaging
businesses.
Net sales for the metal food container business were $288.2 million for the
three months ended June 30, 2001, a decrease of $21.8 million, or 7.0%, from net
sales of $310.0 million for the same period in 2000. This decrease was primarily
attributable to lower unit sales, reflecting generally soft market conditions.
Net sales for the plastic container business of $124.7 million during the three
months ended June 30, 2001 increased $38.1 million, or 44.0%, from net sales of
$86.6 million for the same period in 2000. This increase in net sales was
principally attributable to the acquisition of RXI Plastics, Inc. ("RXI"), which
was acquired in October 2000, and higher unit sales from the existing business.
Excluding RXI, second quarter 2001 net sales increased $8.7 million, or 10.0%,
versus the same period last year.
Net sales for the specialty packaging business decreased $1.1 million, or 3.3%,
to $32.5 million during the three months ended June 30, 2001, as compared to net
sales of $33.6 million for the same period in 2000. This decrease was primarily
due to lower unit sales.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 87.2% ($388.2 million) for the three months ended June 30, 2001, a decrease
of 0.5 percentage points as compared to 87.7% ($377.6 million) for the same
period in 2000. The increase in gross profit margin was primarily attributable
to higher unit volume in the plastic container business, partially offset by
lower unit sales and higher energy costs in the metal food container and
specialty packaging businesses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales increased by
0.3 percentage points to 4.3% ($19.3 million) for the three months ended June
30, 2001, as compared to 4.0% ($17.3 million) for the same period in 2000. This
increase was principally the result of higher selling, general and
administrative expenses in the plastic container business and the absence in the
current year period of a credit recorded in the second quarter of 2000 for the
reimbursement of $0.7 million in start-up costs incurred for Packtion during the
first quarter of 2000, partially offset by lower selling, general and
administrative expenses in the metal food container business.
-18-
Income from Operations. Income from operations for the second quarter of 2001
increased $2.6 million, or 7.4%, to $37.9 million, as compared to $35.3 million
in the same period in 2000. This increase was a result of higher unit volume in
the plastic container business, partially offset by lower unit volume and income
from operations in the metal food container business. Income from operations as
a percentage of consolidated net sales for the three months ended June 30, 2001
improved 0.3 percentage points to 8.5%, as compared to 8.2% for the same period
in 2000. This increase was primarily a result of higher operating margins of the
plastic container business, partially offset by lower operating margins of the
metal food container business.
Income from operations as a percentage of net sales for the metal food container
business decreased 0.8 percentage points to 7.7% ($22.3 million) for the three
months ended June 30, 2001, as compared to 8.5% ($26.3 million) for the same
period in 2000. The decrease in income from operations as a percentage of net
sales for the metal food container business was primarily a result of lower unit
volume and higher per unit manufacturing costs, including higher energy costs
and was partially offset by benefits realized from a previous plant
rationalization.
Income from operations as a percentage of net sales for the plastic container
business increased 2.7 percentage points to 12.5% ($15.6 million) for the three
months ended June 30, 2001, as compared to 9.8% ($8.5 million) for the same
period in 2000. The increase in income from operations as a percentage of net
sales for the plastic container business was primarily a result of higher unit
volume.
Income from operations for the specialty packaging business and income from
operations as a percentage of net sales for the specialty packaging business for
the three months ended June 30, 2001 were $1.0 million and 3.1%, respectively,
essentially unchanged from the same period in 2000.
Interest Expense. Interest expense decreased $0.4 million to $21.2 million for
the three months ended June 30, 2001 as compared to the same period in 2000. The
benefits of lower interest rates during the quarter more than offset the impact
of higher average borrowings outstanding during the quarter, principally due to
debt incurred in October 2000 for the acquisition of RXI.
Income Taxes. The provision for income taxes for the three months ended June 30,
2001 and 2000 was recorded at an effective tax rate of 40.2% and 39.0%,
respectively ($6.7 million and $5.4 million, respectively).
Net Income and Earnings per Share. Before equity in losses of Packtion, income
for the three months ended June 30, 2001 was $10.0 million and earnings per
diluted share were $0.55, as compared to $8.4 million and $0.47, respectively,
for the same period in the prior year. Including equity in losses of Packtion,
net income for the three months ended June 30, 2001 was $7.4 million, or $0.41
per diluted share, as compared to $6.2 million, or $0.35 per diluted share, for
the same period in 2000.
-19-
RESULTS OF OPERATIONS - SIX MONTHS
Summary unaudited results of operations for the Company's three business
segments, metal food containers, plastic containers and specialty packaging, for
the six months ended June 30, 2001 and 2000 are provided below.
2001 2000
---- ----
(Dollars in millions)
Net sales
Metal food containers ........... $579.9 $612.0
Plastic containers .............. 247.0 171.6
Specialty packaging ............. 62.0 65.1
------ ------
Consolidated ................. $888.9 $848.7
====== ======
Operating profit
Metal food containers ........... $ 39.9 $ 47.9
Plastic containers(1) ........... 27.9 17.7
Specialty packaging ............. 0.5 1.3
Other ........................... (1.7) (1.9)
------ ------
Consolidated ................. $ 66.6 $ 65.0
====== ======
- -------------
(1) Includes a rationalization charge of $3.5 million in the first quarter
of 2001 related to the closing of a facility.
Six Months Ended June 30, 2001 Compared with Six Months Ended June 30, 2000
Net Sales. Consolidated net sales increased $40.2 million, or 4.7%, to $888.9
million for the six months ended June 30, 2001, as compared to net sales of
$848.7 million for the same six months in the prior year. This increase was the
result of higher net sales in the plastic container business, partially offset
by lower sales in the metal food container and specialty packaging businesses.
Net sales for the metal food container business were $579.9 million for the six
months ended June 30, 2001, a decrease of $32.1 million, or 5.2%, from net sales
of $612.0 million for the same period in 2000. This decrease was primarily
attributable to lower unit sales due to generally soft market conditions and a
particularly strong first quarter of 2000 in the food can segment.
Net sales for the plastic container business of $247.0 million during the six
months ended June 30, 2001 increased $75.4 million, or 43.9%, from net sales of
$171.6 million for the same period in 2000. This increase in net sales was
principally attributable to the acquisition of RXI in October 2000 and higher
unit sales from the existing business. Excluding RXI, net sales during the six
months ended June 30, 2001 increased $17.3 million, or 10.1%, versus the same
period last year.
Net sales for the specialty packaging business decreased $3.1 million, or 4.8%,
to $62.0 million during the six months ended June 30, 2001, as compared to net
sales of $65.1 million for the same period in 2000. This decrease was primarily
due to lower unit sales.
-20-
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 87.8% ($780.8 million) for the six months ended June 30, 2001, a decrease of
0.3 percentage points as compared to 88.1% ($747.4 million) for the same period
in 2000. The increase in gross profit margin was primarily attributable to
higher unit sales in the plastic container business, partially offset by lower
unit sales and the effects of higher energy costs in the metal food container
and specialty packaging businesses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were 4.3% of consolidated net sales for the six months
ended June 30, 2001, essentially unchanged from the same period in 2000.
Income from Operations. Excluding the rationalization charge of $3.5 million
related to the closing of a plastic container manufacturing facility in 2001,
income from operations for the six months ended June 30, 2001 increased $5.1
million, or 7.8%, to $70.1 million, as compared to $65.0 million in the same
period in 2000. This increase was primarily a result of higher unit volume in
the plastic container business, partially offset by lower unit volume and higher
energy costs in the metal food container and specialty packaging businesses.
Excluding the rationalization charge, income from operations as a percentage of
consolidated net sales for the six months ended June 30, 2001 improved 0.2
percentage points to 7.9%, as compared to 7.7% for the same period in 2000. This
increase was primarily a result of higher operating margins of the plastic
container business, partially offset by lower operating margins of the metal
food container and specialty packaging businesses. Including the rationalization
charge, income from operations for the six months ended June 30, 2001 was $66.6
million or 7.5% of consolidated net sales.
Income from operations as a percentage of net sales for the metal food container
business decreased 0.9 percentage points to 6.9% ($39.9 million) for the six
months ended June 30, 2001, as compared to 7.8% ($47.9 million) for the same
period in 2000. The decrease in income from operations as a percentage of net
sales for the metal food container business was primarily a result of lower unit
volume and higher per unit manufacturing costs, including higher energy costs,
and was partially offset by benefits realized from a previous plant
rationalization.
Excluding the rationalization charge, income from operations as a percentage of
net sales for the plastic container business increased 2.4 percentage points to
12.7% ($31.4 million) for the six months ended June 30, 2001, as compared to
10.3% ($17.7 million) for the same period in 2000. The increase in income from
operations as a percentage of net sales for the plastic container business was
primarily a result of higher unit volume. Including the rationalization charge,
income from operations for the six months ended June 30, 2001 was $27.9 million
or 11.3% of net sales.
The specialty packaging business had income from operations of $0.5 million, or
0.8% of net sales, for the six months ended June 30, 2001, as compared to income
from operations of $1.3 million, or 2.0% of net sales, for the same period in
2000. The decline in operating performance of the specialty packaging business
was due primarily to the effects of lower unit sales and higher energy costs.
-21-
Interest Expense. Interest expense increased $1.5 million to $44.1 million for
the six months ended June 30, 2001 as compared to the same period in 2000. This
increase was a result of higher average borrowings outstanding during the first
six months of 2001, principally due to debt incurred in October 2000 for the
acquisition of RXI, which more than offset the benefit of lower interest rates.
Income Taxes. The provision for income taxes for the six months ended June 30,
2001 and 2000 was recorded at an effective tax rate of 40.2% and 39.0%,
respectively ($9.1 million and $8.7 million, respectively).
Net Income and Earnings per Share. Before the rationalization charge and equity
in losses of Packtion, income for the six months ended June 30, 2001 was $15.6
million and earnings per diluted share were $0.86, as compared to income and
earnings per diluted share before equity in losses of Packtion of $13.7 million
and $0.76, respectively, for the same period in the prior year. Including the
rationalization charge and equity in losses of Packtion, net income for the six
months ended June 30, 2001 was $9.7 million, or $0.54 per diluted share, as
compared to net income including equity in losses of Packtion of $11.5 million,
or $0.64 per diluted share, for the same period in 2000.
CAPITAL RESOURCES AND LIQUIDITY
The Company's liquidity requirements arise primarily from its obligations under
the indebtedness incurred in connection with its acquisitions and the
refinancing of such indebtedness, capital investment in new and existing
equipment and the funding of the Company's seasonal working capital needs.
Historically, the Company has met these liquidity requirements through cash flow
generated from operating activities and revolving loan borrowings.
For the six months ended June 30, 2001, the Company used net borrowings of
revolving loans of $173.1 million under the U.S. Credit Agreement, cash proceeds
from White Cap of $32.4 million on June 29, 2001 and the proceeds from stock
option exercises of $0.3 million to fund cash used by operations of $123.9
million for the Company's seasonal working capital needs, net capital
expenditures of $46.4 million, the repayment of $3.2 million of long-term debt
and its investment in Packtion of $3.0 million and to increase cash balances by
$29.1 million.
Because the Company sells metal containers used in fruit and vegetable pack
processing, its sales are seasonal. As is common in the industry, the Company
must access working capital to build inventory and then carry accounts
receivable for some customers beyond the end of the summer and fall packing
season. Seasonal accounts are generally settled by year end. Due to the
Company's seasonal requirements, the Company expects to incur short-term
indebtedness to finance its working capital requirements.
The Company utilizes its revolving loan facilities for seasonal working capital
needs and for other general corporate purposes, including acquisitions. For
2001, the Company estimates that at its month-end peak it will utilize
approximately $545 - $555 million of its revolving loan facilities. Amounts
available under the Company's revolving loan facilities in excess of its
seasonal working capital needs are available to the Company to pursue its growth
strategy and for other permitted purposes.
-22-
As of June 30, 2001, the Company had $542.0 million of revolving loans
outstanding under the U.S. Credit Agreement, of which $173.1 million related
primarily to seasonal working capital needs and $368.9 million related primarily
to long-term financing of acquisitions. Revolving loans not expected to be
repaid within one year have been reclassified as long-term debt. The unused
portion of revolving loan commitments under the Company's credit agreements at
June 30, 2001, after taking into account outstanding letters of credit, was
$112.1 million.
During the first quarter of 2001, the Company completed its plan to close one
plastic container facility. The plan included the termination of approximately
150 plant employees and other related exit costs. This decision resulted in a
first quarter 2001 pre-tax charge to earnings of $3.5 million (including
approximately $1.0 million in anticipated cash payments), which consists of $2.6
million for plant exit costs and $0.9 million for employee severance and
benefits. The Company closed the facility in May 2001 and expects related cash
payments to be made through 2001.
In April 2000, the Company, together with Morgan Stanley Dean Witter Private
Equity and Diamondcluster International, Inc. agreed to invest in Packtion, an
e-commerce joint venture aimed at integrating the packaging supply chain, from
design through manufacturing and procurement. The parties agreed to invest
through Packaging Markets LLC, a limited liability company. In the first quarter
of 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 in Packtion of $3.0 million, bringing its total investment to $10.1
million representing approximately a 25% interest in Packtion. In connection
therewith, the Company also recorded a reduction to paid-in capital of $1.4
million due to the dilution of its investment. Packtion was dissolved on May 31,
2001. For the six months ended June 30, 2001, the Company recorded equity in
losses of Packtion aggregating $3.8 million which includes its final losses and
eliminates its investment in Packtion.
Effective July 1, 2001, the Company formed a joint venture company with
Schmalbach-Lubeca AG that will supply an extensive range of metal and plastic
closures to the food and beverage industries in North America. The new venture
operates under the name White Cap LLC. The Company contributed certain metal
closure assets and liabilities, including its manufacturing facilities in
Evansville and Richmond, Indiana, in return for a 35% interest in and $32.4
million cash proceeds from the joint venture. Net sales for the two facilities
contributed totaled approximately $88 million in 2000. Also, as a result of this
transaction, beginning with the third quarter of 2001, the Company will no
longer report the financial results of its remaining specialty packaging
business as a separate segment. The remaining operations, which had net sales of
approximately $36 million in 2000, will be included with the Company's other
businesses.
The Company's Board of Directors has authorized the repurchase of up to $70
million of its common stock. As of June 30, 2001, the Company had repurchased
2,708,975 shares of its common stock for an aggregate cost of approximately
$61.0 million. The Company intends to finance future share repurchases, if any,
through revolving loan borrowings under its U.S. Credit Agreement or through
internally generated funds.
-23-
Management believes that cash generated by operations and funds from revolving
loan borrowings under the Company's credit agreements will be sufficient to meet
the Company's expected operating needs, planned capital expenditures, debt
service, rationalization costs and tax obligations until the final maturity of
its revolving loan facilities under its credit agreements on December 31, 2003.
Management also believes that it will be able to refinance its credit agreements
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 credit agreements. The
ability of the Company to effect any such refinancing and the terms thereof
(including interest rates) will depend on 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 continually evaluating and pursuing acquisition opportunities in
the consumer goods packaging market and may incur additional indebtedness,
including indebtedness under the revolving loan facility under its U.S. Credit
Agreement, to finance any such acquisitions and to fund any resulting increased
operating needs. However, the Company may need to incur additional new
indebtedness to finance any such acquisitions and to fund any resulting
increased operating needs. Any new financing will have to be effected in
compliance with the agreements governing the Company's indebtedness. There can
be no assurance that the Company will be able to complete any such acquisition
or obtain any such new financing.
The Company is in compliance with all financial and operating covenants
contained in the instruments and agreements governing its indebtedness and
believes that it will continue to be in compliance with all such covenants
during 2001.
-24-
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 138. 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 earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. The adoption of SFAS No. 133, as
amended, did not have a significant impact on the Company's financial position
or results of operations. See Note 2 to the Condensed Consolidated Financial
Statements included herein.
During July 2001, the Board issued SFAS No. 141, "Business Combinations," which
revises the accounting treatment for business combinations to require the use of
purchase accounting and prohibit the use of the pooling-of-interests method for
business combinations initiated after June 30, 2001. During July 2001, the Board
also issued SFAS No. 142, "Goodwill and Other Intangible Assets," which revises
the accounting for goodwill to eliminate amortization of goodwill on
transactions consummated after June 30, 2001 and of all other goodwill as of
January 1, 2002. Other intangible assets will continue to be amortized over
their useful lives. SFAS No. 142 requires goodwill and other intangibles to be
assessed for impairment each year and more frequently if circumstances indicate
a possible impairment. During 2002, the Company will perform its first
impairment test as of January 1, 2002. The Company is currently evaluating the
provisions of these standards.
-25-
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE 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.
Information regarding the Company's interest rate risk, foreign currency
exchange rate risk and commodity pricing risk has been disclosed in its Annual
Report on Form 10-K for the fiscal year ended December 31, 2000. Since such
filing, there has not been a material change to the Company's interest rate
risk, foreign currency rate risk or commodity pricing risk or to the Company's
policies and procedures to manage its exposure to such risks, except that
beginning in the second quarter of 2001 the Company began managing its exposure
to fluctuations in natural gas prices for up to a significant portion of its
natural gas purchases over a period of up to one year by entering into natural
gas swap agreements with a major trading company to convert pricing exposure
from market prices to fixed prices. See Note 2 to the Condensed Consolidated
Financial Statements included herein.
Part II. Other Information
Item 1. Legal Proceedings
On June 18, 2001, the Company received a fine from the Jefferson County, Alabama
Department of Health ("Jefferson County") for $2.3 million for alleged air
violations at its Tarrant City, Alabama leased facility. The alleged violations
stem from activities occurring during the facility's ownership by a predecessor
owner, which the Company discovered and voluntarily disclosed to such state
agency last year. Initial review of the fine indicates that most of it is
related to the Company's alleged "economic benefit" for operating certain
equipment without upgraded control devices that the former owner should have
installed. Based on the discovery of these alleged violations, the Company filed
an indemnity claim seeking to offset any costs or penalties that it incurs. The
Company has filed a response to the fine which is being considered by Jefferson
County and is also reviewing all of its legal options. The Company does not
expect to incur any liability in excess of the indemnification available to it.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders (the "Annual Meeting"), for which
proxies were solicited pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, was held on May 23, 2001 for the purposes of (1)
electing two directors of the Company to serve for a three year term until the
Company's annual meeting of stockholders in 2004 and until their successors are
duly elected and qualified and (2) ratifying the appointment by the Board of
Directors of the Company of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending December 31, 2001.
-26-
The nominees for director listed in the proxy statement, each of whom was
elected at the Annual Meeting, are named below, and each received the number of
votes for election as indicated below (with each share of the Company's common
stock being entitled to one vote):
Number of Shares Number of Shares
Voted For Withheld
--------- --------
R. Philip Silver 17,329,637 135,550
Leigh J. Abramson 17,178,291 286,896
The directors of the Company whose term of office as a director continued after
the Annual Meeting are D. Greg Horrigan and James S. Hoch, each of whose term of
office as a director continues until the Company's annual meeting of
stockholders in 2002, and Thomas M. Begel and Jeffrey C. Crowe, each of whose
term of office as a director continues until the Company's annual meeting of
stockholders in 2003.
The ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 2001 was approved
at the Annual Meeting. There were 17,438,992 votes cast ratifying such
appointment, 21,200 votes cast against ratification of such appointment and
4,995 votes abstaining.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
12 Ratio of Earnings to Fixed Charges
(b) Reports on Form 8-K
None.
-27-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned thereunto duly authorized.
SILGAN HOLDINGS INC.
Dated: August 14, 2001 /s/Harley Rankin, Jr.
- ----------------------- -------------------------------
Harley Rankin, Jr.
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
Dated: August 14, 2001 /s/Nancy Merola
- ----------------------- ----------------------------
Nancy Merola
Vice President and Controller
(Chief Accounting Officer)
-28-
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
----------- -------
12 Ratio of Earnings to Fixed Charges
for the three and six months ended
June 30, 2001 and 2000
-29-