UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended September 30, 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 November 14, 2001, the number of shares outstanding of the registrant's
common stock, $0.01 par value, was 17,846,170.
SILGAN HOLDINGS INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information ........................................ 3
Item 1. Financial Statements .................................... 3
Condensed Consolidated Balance Sheets at
September 30, 2001 and 2000 and December 31, 2000 ....... 3
Condensed Consolidated Statements of Income
for the three months ended September 30, 2001
and 2000 ................................................ 4
Condensed Consolidated Statements of Income
for the nine months ended September 30, 2001
and 2000 ................................................ 5
Condensed Consolidated Statements of Cash
Flows for the nine months ended September 30, 2001
and 2000 ................................................ 6
Condensed Consolidated Statements of Stockholders'
Equity (Deficiency) for the nine months
ended September 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 ........... 19
Item 3. Quantitative and Qualitative Disclosure About
Market Risk ............................................. 28
Part II. Other Information ........................................... 28
Item 6. Exhibits and Reports on Form 8-K ........................ 28
Signatures ............................................................ 29
Exhibit Index ......................................................... 30
-2-
Part I. Financial Information
Item 1. Financial Statements
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited, see Note 1)
Sept. 30, Sept. 30, Dec. 31,
2001 2000 2000
---- ---- ----
Assets
Current assets
Cash and cash equivalents ........................ $ 25,753 $ 3,514 $ 20,073
Trade accounts receivable, net ................... 313,765 332,475 168,307
Inventories ...................................... 257,651 249,797 279,737
Prepaid expenses and other current assets ........ 19,397 8,941 11,874
---------- ---------- ----------
Total current assets ......................... 616,566 594,727 479,991
Property, plant and equipment, net .................... 677,305 641,222 709,513
Goodwill, net ......................................... 150,894 104,518 153,038
Other assets .......................................... 50,173 38,794 41,282
---------- ---------- ----------
$1,494,938 $1,379,261 $1,383,824
========== ========== ==========
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities
Bank revolving loans ............................. $ 134,465 $ 214,900 $ --
Current portion of long-term debt ................ 41,911 38,054 44,948
Trade accounts payable ........................... 138,565 135,169 208,144
Accrued payroll and related costs ................ 51,939 52,749 56,452
Accrued interest payable ......................... 12,247 15,505 9,564
Accrued liabilities .............................. 13,626 16,188 13,142
---------- ---------- ----------
Total current liabilities .................... 392,753 472,565 332,250
Long-term debt ........................................ 983,065 843,452 986,527
Other liabilities ..................................... 108,117 83,926 85,427
---------- ---------- ----------
Total liabilities ............................ 1,483,935 1,399,943 1,404,204
Stockholders' equity (deficiency)
Common stock ..................................... 205 204 204
Paid-in capital .................................. 118,258 118,349 118,099
Retained earnings (accumulated deficit) .......... (39,751) (77,990) (76,702)
Accumulated other comprehensive income (loss) .... (7,316) (852) (1,588)
Treasury stock ................................... (60,393) (60,393) (60,393)
---------- ---------- ----------
Total stockholders' equity (deficiency) ...... 11,003 (20,682) (20,380)
---------- ---------- ----------
$1,494,938 $1,379,261 $1,383,824
========== ========== ==========
See accompanying notes.
-3-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended September 30, 2001 and 2000
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
2001 2000
---- ----
Net sales ............................................. $590,791 $571,369
Cost of goods sold .................................... 511,813 496,861
-------- --------
Gross profit ..................................... 78,978 74,508
Selling, general and administrative expenses .......... 18,667 17,732
-------- --------
Income from operations ........................... 60,311 56,776
Gain on assets contributed to affiliate ............... 5,337 --
Interest and other debt expense ....................... 19,702 23,500
-------- --------
Income before income taxes and equity in
losses of affiliates ........................ 45,946 33,276
Provision for income taxes ............................ 18,468 12,978
-------- --------
Income before equity in losses of affiliates ..... 27,478 20,298
Equity in losses of affiliates ........................ 199 1,813
-------- --------
Net income ....................................... $ 27,279 $ 18,485
======== ========
Per share data
Basic earnings per share ......................... $1.53 $1.04
===== =====
Diluted earnings per share ....................... $1.50 $1.03
===== =====
Weighted average number of shares
Basic ........................................... 17,812 17,703
Assumed exercise of employee stock options ...... 329 289
------ ------
Diluted ......................................... 18,141 17,992
====== ======
See accompanying notes.
-4-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the nine months ended September 30, 2001 and 2000
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
2001 2000
---- ----
Net sales ............................................. $1,479,722 $1,420,080
Cost of goods sold .................................... 1,292,622 1,244,211
---------- ----------
Gross profit ..................................... 187,100 175,869
Selling, general and administrative expenses .......... 56,656 54,085
Rationalization charge ................................ 3,490 --
---------- ----------
Income from operations ........................... 126,954 121,784
Gain on assets contributed to affiliate ............... 5,337 --
Interest and other debt expense ....................... 63,818 66,097
---------- ----------
Income before income taxes and equity in
losses of affiliates ........................ 68,473 55,687
Provision for income taxes ............................ 27,519 21,719
---------- ----------
Income before equity in losses of affiliates ..... 40,954 33,968
Equity in losses of affiliates ........................ 4,003 3,948
---------- ----------
Net income ....................................... $ 36,951 $ 30,020
========== ==========
Per share data
Basic earnings per share ......................... $2.08 $1.70
===== ====
Diluted earnings per share ....................... $2.05 $1.67
===== =====
Weighted average number of shares
Basic ........................................... 17,752 17,634
Assumed exercise of employee stock options ...... 300 365
------ ------
Diluted ......................................... 18,052 17,999
====== ======
See accompanying notes.
-5-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
For the nine months ended September 30, 2001 and 2000
(Dollars in thousands)
(Unaudited)
2001 2000
---- ----
Cash flows provided by (used in) operating activities
Net income .............................................. $ 36,951 $ 30,020
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation ........................................ 66,007 62,350
Amortization ........................................ 5,677 4,115
Rationalization charge .............................. 3,490 --
Gain on assets contributed to affiliate ............. (5,337) --
Equity in losses of affiliates ...................... 4,003 3,948
Other changes that provided (used) cash:
Trade accounts receivable, net ................. (151,756) (204,380)
Inventories .................................... 6,196 (226)
Trade accounts payable ......................... (69,579) (40,261)
Other, net ..................................... 18,260 (1,323)
--------- ---------
Net cash used in operating activities ............... (86,088) (145,757)
--------- ---------
Cash flows provided by (used in) investing activities
Investment in equity affiliate .......................... (3,039) (7,026)
Proceeds from affiliate ................................. 32,388 --
Capital expenditures .................................... (67,025) (60,401)
Proceeds from asset sales ............................... 309 1,167
--------- ---------
Net cash used in investing activities ............... (37,367) (66,260)
--------- ---------
Cash flows provided by (used in) financing activities
Borrowings under revolving loans ........................ 602,424 682,824
Repayments under revolving loans ........................ (468,019) (467,924)
Repurchase of common stock .............................. -- (1,075)
Proceeds from stock option exercises .................... 982 512
Repayments of long-term debt ............................ (6,252) (1,217)
--------- ---------
Net cash provided by financing activities ........... 129,135 213,120
--------- ---------
Cash and cash equivalents
Net increase ............................................ 5,680 1,103
Balance at beginning of year ............................ 20,073 2,411
--------- ---------
Balance at end of period ................................ $ 25,753 $ 3,514
========= =========
Interest paid ................................................ $ 61,453 $ 60,548
Income taxes paid ............................................ 5,208 8,505
See accompanying notes.
-6-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIENCY)
For the nine months ended September 30, 2000 and 2001
(Dollars and shares in thousands)
(Unaudited)
Common Stock Retained Accumulated Total
------------ earnings other stockholders'
Par Paid-in (accumulated comprehensive Treasury equity
Shares value capital deficit) income (loss) stock (deficiency)
------ ----- ------- ------- ------------- ----- ----------
Balance at December 31, 1999 ............ 17,547 $201 $118,666 $(108,010) $ (273) $(59,318) $(48,734)
Comprehensive income:
Net income ........................ -- -- -- 30,020 -- -- 30,020
Foreign currency translation ...... -- -- -- -- (579) -- (579)
--------
Comprehensive income .................... 29,441
Repurchase of common stock .............. (100) -- -- -- -- (1,075) (1,075)
Stock option exercises, net of
tax provision of $826 ................ 256 3 (317) -- -- -- (314)
------ ---- ------- --------- ------- -------- --------
Balance at September 30, 2000 ........... 17,703 $204 $118,349 $ (77,990) $ (852) $(60,393) $(20,682)
====== ==== ======== ========= ======= ======== ========
Balance at December 31, 2000 ............ 17,703 $204 $118,099 $ (76,702) $(1,588) $(60,393) $(20,380)
Comprehensive income:
Net income ........................ -- -- -- 36,951 -- -- 36,951
Change in fair value of derivatives,
net of tax benefit of $3,152 ... -- -- -- -- (4,690) -- (4,690)
Foreign currency translation ...... -- -- -- -- (1,038) -- (1,038)
--------
Comprehensive income .................... 31,223
Dilution of investment in
equity affiliate ..................... -- -- (1,402) -- -- -- (1,402)
Stock option exercises, including
tax benefit of $580 .................. 143 1 1,561 -- -- -- 1,562
------ ---- ------- --------- ------- -------- --------
Balance at September 30, 2001 ........... 17,846 $205 $118,258 $ (39,751) $(7,316) $(60,393) $11,003
====== ==== ======== ========= ======= ======== ========
See accompanying notes.
-7-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2001 and 2000 and for the
three and nine 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 September 30, 2001 and 2000 and for the
three and nine 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 September 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 September 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).
In October 2001, the Company entered into two interest rate swap agreements for
an aggregate notional principal amount of $50 million. Under these agreements,
the Company pays a fixed rate of interest of 3.8% and receives a floating rate
of interest based on three month LIBOR. Both agreements mature in 2004.
The Company has entered into natural gas swap agreements to manage its exposure
to fluctuations in natural gas prices. At September 30, 2001 and January 1,
2001, the aggregate notional amount of these agreements was 850,000 MMBtu and
170,000 MMBtu of natural gas, respectively. Under these agreements at September
30, 2001, the Company pays a fixed natural gas price ranging from $4.04 per
MMBtu to $5.73 per MMBtu and receives a NYMEX-based natural gas price. These
agreements mature at various times through June 2002.
In October and November 2001, the Company entered into natural gas swap
agreements for an aggregate notional amount of 1,000,000 MMBtu. Under these
agreements, the Company pays fixed natural gas prices ranging from $2.34 per
MMBtu to $3.91 per MMBtu and receives a NYMEX-based natural gas price. These
agreements mature at various times through March 2003.
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 are 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 are recorded in net earnings.
-9-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2001 and 2000 and for the
three and nine months then ended is unaudited)
Note 2. New Accounting Pronouncements (continued)
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 September 30, 2001 was $8.1 million and
was recorded in other liabilities. As a result, the Company recorded an
additional charge to accumulated other comprehensive income (loss) of $4.6
million, net of both taxes and net losses reclassified to earnings. The Company
estimates that it will reclassify $1.2 million, net of tax, of the amount
recorded in accumulated other comprehensive income (loss) as a charge to
earnings during the next three months. The actual amount that will be
reclassified to earnings will vary from this amount as a result of changes in
market conditions.
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.
Impairment and Disposal of Long-Lived Assets and Discontinued Operations
- ------------------------------------------------------------------------ In
October 2001, the Board issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This Statement supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting provisions of Accounting
Principles Board ("APB") No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." The Company does
not expect the adoption of this standard on January 1, 2002 to have a
significant impact on its financial position or results of operations.
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 primarily through 2001.
-10-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2001 and 2000 and for the
three and nine months then ended is unaudited)
Note 3. Rationalization Charges and Acquisition Reserves (continued)
As part of its plans to integrate the operations of its various acquired
businesses, including the Food Metal and Specialty business of American National
Can Company ("AN Can"), the steel container manufacturing business of Campbell
Soup Company ("CS Can"), Clearplass Containers, Inc. ("Clearplass") and Winn
Packaging Co. ("Winn"), and rationalize certain facilities, the Company has
established reserves for employee severance and benefits, plant exit costs and
acquisition liabilities. These costs are expected to be incurred primarily
through 2002. Activity in the Company's rationalization and acquisition reserves
since December 31, 2000 is summarized as follows:
Employee Plant
Severance Exit Acquisition
and Benefits Costs Liabilities Total
------------ ----- ----------- -----
(Dollars in thousands)
Balance at December 31, 2000
- ----------------------------
AN Can Acquisition ....................................... $2,364 $2,622 $ 4,000 $ 8,986
CS Can, Clearplass and Winn Acquisitions ................. -- 2,123 252 2,375
San Leandro and City of Industry Plant Closings .......... -- 606 -- 606
Other Acquisitions ....................................... -- 208 -- 208
------ ------ ------- -------
Balance at December 31, 2000 ............................. 2,364 5,559 4,252 12,175
Activity for the Nine Months Ended September 30, 2001
- -----------------------------------------------------
AN Can Acquisition ....................................... (763) (166) (2,000) (2,929)
CS Can, Clearplass and Winn Acquisitions ................. -- (230) (252) (482)
San Leandro and City of Industry Plant Closings .......... -- (297) -- (297)
Fairfield Plant Rationalization Charge ................... 874 2,616 -- 3,490
Fairfield Plant Closing .................................. (629) (687) -- (1,316)
Other Acquisitions ....................................... -- (183) -- (183)
------ ------ ------- -------
Total Activity ........................................... (518) 1,053 (2,252) (1,717)
Balance at September 30, 2001
- -----------------------------
AN Can Acquisition ....................................... 1,601 2,456 2,000 6,057
CS Can, Clearplass and Winn Acquisitions ................. -- 1,893 -- 1,893
San Leandro and City of Industry Plant Closings .......... -- 309 -- 309
Fairfield Plant Closing .................................. 245 1,929 -- 2,174
Other Acquisitions ....................................... -- 25 -- 25
------ ------ ------- -------
Balance at September 30, 2001 ............................ $1,846 $6,612 $ 2,000 $10,458
====== ====== ======= =======
-11-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2001 and 2000 and for the
three and nine 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:
Sept. 30, Sept. 30, Dec. 31,
2001 2000 2000
---- ---- ----
(Dollars in thousands)
Accrued liabilities .......... $ 7,745 $ 7,797 $ 7,462
Other liabilities ............ 2,713 6,114 4,713
------- ------- -------
$10,458 $13,911 $12,175
======= ======= =======
Note 4. Comprehensive Income (Loss)
Comprehensive income is reported in the Condensed Consolidated Statements of
Stockholders' Equity (Deficiency). Amounts included in accumulated other
comprehensive income (loss) consisted of the following:
Sept. 30, Sept. 30, Dec. 31,
2001 2000 2000
---- ---- ----
(Dollars in thousands)
Foreign currency translation ........... $(1,729) $(752) $ (691)
Change in fair value of derivatives .... (4,690) -- --
Minimum pension liability .............. (897) (100) (897)
------- ----- -------
Accumulated other comprehensive
income (loss) ..................... $(7,316) $(852) $(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
$4.6 million, net of both tax and net losses reclassified to earnings, for the
change in fair value of derivatives for the nine months ended September 30,
2001. The amounts reclassified to earnings from accumulated other comprehensive
income (loss) for the three and nine month periods ended September 30, 2001 were
net losses of $0.9 million and $1.3 million, respectively.
-12-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2001 and 2000 and for the
three and nine months then ended is unaudited)
Note 5. Inventories
Inventories consisted of the following:
Sept. 30, Sept. 30, Dec. 31,
2001 2000 2000
---- ---- ----
(Dollars in thousands)
Raw materials ........................ $ 33,798 $ 36,242 $ 43,873
Work-in-process ...................... 42,907 50,279 51,191
Finished goods ....................... 163,766 144,397 165,680
Spare parts and other ................ 9,467 11,743 11,698
-------- -------- --------
249,938 242,661 272,442
Adjustment to value inventory
at cost on the LIFO method ........ 7,713 7,136 7,295
-------- -------- --------
$257,651 $249,797 $279,737
======== ======== ========
Note 6. Investments
White Cap LLC
- -------------
Effective July 1, 2001, the Company formed a joint venture company with
Schmalbach-Lubeca AG that supplies 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 of cash proceeds from the joint venture. Net sales for the two
facilities contributed totaled approximately $88 million in 2000.
The Company accounts for its investment in the White Cap joint venture using the
equity method. During the third quarter of 2001, the Company recorded equity
losses of the White Cap joint venture of $0.2 million and a gain on the assets
contributed to the venture of $5.3 million.
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.
-13-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2001 and 2000 and for the
three and nine months then ended is unaudited)
Note 6. Investments (continued)
Packtion Corporation (continued)
- --------------------
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.
During the first six months of 2001, the Company recorded equity losses of
Packtion aggregating $3.8 million which included its final losses and eliminated
its investment in Packtion.
Note 7. Long-Term Debt
Long-term debt consisted of the following:
Sept. 30, Sept. 30, Dec. 31,
2001 2000 2000
---- ---- ----
(Dollars in thousands)
Bank debt
Bank Revolving Loans .................. $ 503,400 $ 340,100 $ 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 ................ 5,129 12,558 12,850
---------- ---------- ----------
Total bank debt .................... 856,289 737,200 728,010
Subordinated debt
9% Senior Subordinated Debentures ..... 300,000 300,000 300,000
13 1/4% Subordinated Debentures ....... -- 56,206 --
Other ................................. 3,152 3,000 3,465
---------- ---------- ----------
Total subordinated debt ............ 303,152 359,206 303,465
Total debt ................................. 1,159,441 1,096,406 1,031,475
Less current portion .................. 176,376 252,954 44,948
---------- ---------- ----------
$ 983,065 $ 843,452 $ 986,527
========== ========== ==========
-14-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2001 and 2000 and for the
three and nine months then ended is unaudited)
Note 7. Long-Term Debt (continued)
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 September 30, 2001, bank revolving loans under the U.S. Credit Agreement
consisted of $134.5 million related primarily to seasonal working capital needs
and $368.9 million related primarily to long-term financing of acquisitions. At
September 30, 2001, amounts expected to be repaid within one year consisted of
$134.5 million of bank revolving loans and $41.9 million of bank term loans.
Bank revolving loans not expected to be repaid within one year have been
reclassified as long-term debt.
-15-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2001 and 2000 and for the
three and nine months then ended is unaudited)
Note 8. Business Segment Information
As a result of the White Cap joint venture, the Company no longer reports the
results of its remaining specialty packaging business as a separate segment. The
results of the Omni plastic container and Polystar easy-open plastic end
businesses are reported with the plastic container business, and the results of
the paperboard container business are reported with the metal food container
business. The historical results of the metal closure business are reported
separately. Prior year amounts have been restated to conform with the current
presentation.
Reportable business segment information for the Company's business segments is
as follows:
Metal Food Plastic Metal
Containers Containers(1) Closures Other(2) Total
---------- ---------- -------- ----- -----
(Dollars in thousands)
Three Months Ended September 30, 2001
- -------------------------------------
Net sales .................................... $ 471,969 $118,822 $ -- $ -- $ 590,791
EBITDA(3) .................................... 65,063 19,284 -- (1,196) 83,151
Depreciation and amortization(4) ............. 13,627 9,194 -- 19 22,840
Segment profit (loss) ........................ 51,436 10,090 -- (1,215) 60,311
Three Months Ended September 30, 2000
- -------------------------------------
Net sales .................................... $ 454,852 $ 93,344 $23,173 $ -- $ 571,369
EBITDA (3) ................................... 62,425 14,911 1,867 (792) 78,411
Depreciation and amortization (4) ............ 13,468 6,959 1,183 25 21,635
Segment profit (loss) ........................ 48,957 7,952 684 (817) 56,776
Nine Months Ended September 30, 2001
- ------------------------------------
Net sales .................................... $1,055,432 $378,040 $46,250 $ -- $1,479,722
EBITDA (3) ................................... 130,945 67,399 5,743 (3,216) 200,871
Depreciation and amortization (4) ............ 40,281 27,599 2,475 72 70,427
Segment profit (loss) ........................ 90,664 39,800 3,268 (3,288) 130,444
Nine Months Ended September 30, 2000
- ------------------------------------
Net sales .................................... $1,070,623 $277,728 $71,729 $ -- $1,420,080
EBITDA (3) ................................... 136,151 46,578 7,274 (2,950) 187,053
Depreciation and amortization(4) ............. 39,742 21,726 3,725 76 65,269
Segment profit (loss) ........................ 96,409 24,852 3,549 (3,026) 121,784
-16-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2001 and 2000 and for the
three and nine months then ended is unaudited)
Note 8. Business Segment Information (continued)
(1) Excludes a rationalization charge of $3.5 million for the nine months
ended September 30, 2001 related to the closing of a facility.
(2) Provides information pertaining to the corporate holding company.
(3) EBITDA means earnings before equity in losses of affiliates, interest,
income taxes, depreciation and amortization, as adjusted to add back
rationalization charges and subtract the gain on assets contributed to
affiliate. 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 September 30, 2001 and 2000
and of $1.3 and $1.2 million for the nine months ended September 30,
2001 and 2000, respectively.
Total segment profit is reconciled to income before income taxes and equity in
losses of affiliates as follows:
Three Months Ended Nine Months Ended
----------------------- -------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2001 2000 2001 2000
---- ---- ---- ----
(Dollars in thousands)
Total segment profit ......................... $60,311 $56,776 $130,444 $121,784
Rationalization charge ....................... -- -- 3,490 --
Gain on assets contributed
to affiliate .............................. 5,337 -- 5,337 --
Interest and other debt expense .............. 19,702 23,500 63,818 66,097
------- ------- -------- --------
Income before income taxes and
equity in losses of affiliates ......... $45,946 $33,276 $ 68,473 $ 55,687
======= ======= ======== ========
-17-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2001 and 2000 and for the
three and nine months then ended is unaudited)
Note 9. Subsequent Event
On November 9, 2001, The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF
II") completed a public offering of 4,100,000 shares of common stock of the
Company owned by it at $19.00 per share. MSLEF II has also granted the
underwriters an option, exercisable at any time until December 6, 2001, to
purchase up to an additional 492,000 shares owned by it to cover
over-allotments, if any, at the offering price. The Company did not sell any
shares in the offering and did not receive any proceeds from the sale of the
shares in the offering.
Following the offering, MSLEF II will own 1,735,842 shares, or 9.7%, of the
Company's common stock, assuming no exercise of the underwriters over-allotment
option. The shares that were sold were registered pursuant to registration
rights of MSLEF II under a stockholders agreement with the Company.
-18-
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 three months ended September 30,
2001 and 2000 are provided below.
2001 2000
---- ----
(Dollars in millions)
Net sales (1)
Metal food containers ............... $472.0 $454.9
Plastic containers .................. 118.8 93.3
Metal closures ...................... -- 23.2
------ ------
Consolidated ..................... $590.8 $571.4
====== ======
Operating profit (1)
Metal food containers ............... $ 51.4 $ 48.9
Plastic containers .................. 10.1 8.0
Metal closures ...................... -- 0.7
Other ............................... (1.2) (0.8)
------ ------
Consolidated ..................... $ 60.3 $ 56.8
====== ======
- -------------
(1) As a result of the White Cap joint venture, the Company no longer
reports the results of its remaining specialty packaging business,
which had net sales of approximately $36 million in 2000, as a
separate segment. The results of the Omni plastic container and
Polystar easy-open plastic end businesses are reported with the
plastic container business, and the results of the paperboard
container business are reported with the metal food container
business. The historical results of the metal closure business are
reported separately. Prior year amounts have been restated to conform
with the current presentation.
-19-
Three Months Ended September 30, 2001 Compared with Three Months Ended September
30, 2000
Net Sales. Consolidated net sales increased $19.4 million, or 3.4%, to $590.8
million for the three months ended September 30, 2001, as compared to net sales
of $571.4 million for the same three months in the prior year. This increase was
the result of higher net sales in the plastic container and metal food container
businesses, partially offset by the impact of contributing the metal closure
business to the White Cap joint venture.
Net sales for the metal food container business were $472.0 million for the
three months ended September 30, 2001, an increase of $17.1 million, or 3.8%,
from net sales of $454.9 million for the same period in 2000. This increase was
primarily attributable to the acquisition of new food can accounts, largely
offset by a weaker fruit and vegetable pack as compared to last year.
Net sales for the plastic container business of $118.8 million during the three
months ended September 30, 2001 increased $25.5 million, or 27.3%, from net
sales of $93.3 million for the same period in 2000. This increase in net sales
was largely due to the acquisition of RXI Plastics, Inc. ("RXI Plastics") in
October 2000. Excluding RXI Plastics, third quarter 2001 net sales were
essentially unchanged from net sales for the same period last year, reflecting
generally softer market conditions as compared to earlier in the year.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 86.6% ($511.8 million) for the three months ended September 30, 2001, a
decrease of 0.4 percentage points as compared to 87.0% ($496.9 million) for the
same period in 2000. Excluding the impact of contributing the metal closure
business to the White Cap joint venture, the gross profit margin for the third
quarter of 2001 was essentially unchanged from the same period in 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales increased by
0.1 percentage points to 3.2% ($18.7 million) for the three months ended
September 30, 2001, as compared to 3.1% ($17.7 million) for the same period in
2000. This slight increase was principally the result of higher selling, general
and administrative expenses in the plastic container business, partially offset
by lower selling, general and administrative expenses in the metal food
container business.
Income from Operations. Income from operations for the third quarter of 2001
increased $3.5 million, or 6.2%, to $60.3 million, as compared to $56.8 million
in the same period in 2000. This increase was a result of a favorable sales mix
in the metal food container business and higher sales in the plastic container
business, partially offset by the impact of contributing the metal closure
business to the White Cap joint venture. Income from operations as a percentage
of consolidated net sales for the three months ended September 30, 2001 improved
0.3 percentage points to 10.2%, as compared to 9.9% for the same period in 2000.
Excluding the impact of contributing the metal closure business to the White Cap
joint venture, income from operations as a percentage of consolidated net sales
for the third quarter of 2001 was essentially unchanged from the same period in
2000.
-20-
Income from operations as a percentage of net sales for the metal food container
business increased 0.2 percentage points to 10.9% ($51.4 million) for the three
months ended September 30, 2001, as compared to 10.7% ($48.9 million) for the
same period in 2000. The slight increase in income from operations as a
percentage of net sales for the metal food container business was primarily a
result of a favorable sales mix.
Income from operations for the plastic container business for the three months
ended September 30, 2001 increased $2.1 million, or 26.3%, to $10.1 million, as
compared to $8.0 million for the same period in 2000. This increase was
primarily a result of higher unit volume. Income from operations as a percentage
of net sales for the plastic container business was 8.5% for the three months
ended September 30, 2001, essentially unchanged from the same period in 2000.
Interest Expense. Interest expense decreased $3.8 million to $19.7 million for
the three months ended September 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
Plastics.
Income Taxes. The provision for income taxes for the three months ended
September 30, 2001 and 2000 was recorded at an effective income tax rate of
40.2% and 39.0%, respectively ($18.5 million and $13.0 million, respectively).
Net Income and Earnings per Share. Earnings for the three months ended September
30, 2001 before the impact of the investment in the White Cap joint venture were
$24.3 million, or $1.34 per diluted share, as compared to $20.3 million, or
$1.13 per diluted share, for the same period in the prior year before the impact
of the investment in Packtion. Including the pre-tax gain on the assets
contributed to the White Cap joint venture of $5.3 million and equity losses of
the White Cap joint venture of $0.2 million, or a combined $0.16 per diluted
share, net earnings for the three months ended September 30, 2001 were $27.3
million, or $1.50 per diluted share, as compared to $18.5 million, or $1.03 per
diluted share, for the same period in 2000 including equity losses in Packtion
of $1.8 million, or $0.10 per diluted share.
-21-
RESULTS OF OPERATIONS - NINE MONTHS
Summary unaudited results of operations for the nine months ended September 30,
2001 and 2000 are provided below.
2001 2000
---- ----
(Dollars in millions)
Net sales (1)
Metal food containers ............. $1,055.4 $1,070.6
Plastic containers ................ 378.0 277.7
Metal closures .................... 46.3 71.8
-------- --------
Consolidated ................... $1,479.7 $1,420.1
======== ========
Operating profit (1)
Metal food containers ............. $ 90.7 $ 96.4
Plastic containers (2) ............ 36.3 24.9
Metal closures .................... 3.3 3.5
Other ............................. (3.3) (3.0)
-------- --------
Consolidated ................... $ 127.0 $ 121.8
======== ========
- -------------
(1) As a result of the White Cap joint venture, the Company no longer
reports the results of its remaining specialty packaging business,
which had net sales of approximately $36 million in 2000, as a
separate segment. The results of the Omni plastic container and
Polystar easy-open plastic end businesses are reported with the
plastic container business, and the results of the paperboard
container business are reported with the metal food container
business. The historical results of the metal closure business are
reported separately. Prior year amounts have been restated to conform
with the current presentation.
(2) Includes a rationalization charge of $3.5 million in the first quarter
of 2001 related to the closing of a facility.
Nine Months Ended September 30, 2001 Compared with Nine Months Ended September
30, 2000
Net Sales. Consolidated net sales increased $59.6 million, or 4.2%, to $1.480
billion for the nine months ended September 30, 2001, as compared to net sales
of $1.420 billion for the same nine 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 business and the impact of
contributing the metal closure business to the White Cap joint venture.
Net sales for the metal food container business were $1.055 billion for the nine
months ended September 30, 2001, a decrease of $15.2 million, or 1.4%, from net
sales of $1.071 billion for the same period in 2000. This decrease was primarily
attributable to lower net sales due to generally soft market conditions and a
weaker fruit and vegetable pack as compared to last year, partially offset by
the acquisition of new food can accounts.
-22-
Net sales for the plastic container business of $378.0 million during the nine
months ended September 30, 2001 increased $100.3 million, or 36.1%, from net
sales of $277.7 million for the same period in 2000. This increase in net sales
was principally attributable to the acquisition of RXI Plastics in October 2000
and higher unit sales from the existing business. Excluding RXI Plastics, net
sales during the nine months ended September 30, 2001 increased $15.9 million,
or 5.7%, versus the same period last year.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 87.4% ($1.293 billion) for the nine months ended September 30, 2001, a
decrease of 0.2 percentage points as compared to 87.6% ($1.244 billion) 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 business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were 3.8% of consolidated net sales for the nine months
ended September 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 nine months ended September 30, 2001 increased
$8.7 million, or 7.1%, to $130.5 million, as compared to $121.8 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 business and, to a lesser
extent, the impact of contributing the metal closure business to the White Cap
joint venture. Excluding the rationalization charge, income from operations as a
percentage of consolidated net sales for the nine months ended September 30,
2001 improved 0.2 percentage points to 8.8%, as compared to 8.6% 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. Including the rationalization charge,
income from operations for the nine months ended September 30, 2001 was $127.0
million or 8.6% of consolidated net sales.
Income from operations as a percentage of net sales for the metal food container
business decreased 0.4 percentage points to 8.6% ($90.7 million) for the nine
months ended September 30, 2001, as compared to 9.0% ($96.4 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 energy costs, 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 1.5 percentage points to
10.5% ($39.8 million) for the nine months ended September 30, 2001, as compared
to 9.0% ($24.9 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 nine months ended September 30, 2001 was $36.3
million or 9.6% of net sales.
-23-
Interest Expense. Interest expense decreased $2.3 million to $63.8 million for
the nine months ended September 30, 2001 as compared to the same period in 2000.
The benefits of lower interest rates more than offset the impact of higher
average borrowings outstanding during the first nine months of 2001, principally
due to debt incurred in October 2000 for the acquisition of RXI Plastics.
Income Taxes. The provision for income taxes for the nine months ended September
30, 2001 and 2000 was recorded at an effective income tax rate of 40.2% and
39.0%, respectively ($27.5 million and $21.7 million, respectively).
Net Income and Earnings per Share. Earnings before the impact of the investments
in Packtion and the White Cap joint venture and before the first quarter 2001
rationalization charge relating to closing a plastic container manufacturing
facility were $39.9 million, or $2.21 per diluted share, for the first nine
months of 2001. Earnings before the impact of the investment in Packtion for the
first nine months of 2000 were $33.9 million, or $1.89 per diluted share.
Including equity losses of Packtion and the White Cap joint venture of a
combined $4.0 million, or $0.22 per diluted share, the pre-tax gain on the
assets contributed to the White Cap joint venture of $5.3 million, or $0.18 per
diluted share, and the first quarter pre-tax rationalization charge of $3.5
million, or $0.12 per diluted share, the Company's net earnings were $37.0
million, or $2.05 per diluted share, for the first nine months of 2001.
Including equity losses of Packtion of $3.9 million, or $0.22 per diluted share,
the Company's net earnings were $30.0 million, or $1.67 per diluted share, for
the first nine months of 2000.
-24-
CAPITAL RESOURCES AND LIQUIDITY
The Company's liquidity requirements arise primarily from its obligations under
the indebtedness incurred in connection with its acquisitions and the
refinancing of such indebtedness, capital investment in new and existing
equipment and the funding of the Company's seasonal working capital needs.
Historically, the Company has met these liquidity requirements through cash flow
generated from operating activities and revolving loan borrowings.
For the nine months ended September 30, 2001, the Company used net borrowings of
revolving loans of $134.4 million under the U.S. Credit Agreement, cash proceeds
from White Cap of $32.4 million and the proceeds from stock option exercises of
$1.0 million to fund cash used by operations of $86.1 million for the Company's
seasonal working capital needs, net capital expenditures of $66.7 million, the
repayment of $6.3 million of long-term debt and its investment in Packtion of
$3.0 million and to increase cash balances by $5.7 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. During
the second quarter of 2001, at its month-end peak, 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. The unused
portion of revolving loan commitments under the Company's credit agreements at
its 2001 month-end borrowing peak, after taking into account outstanding letters
of credit, was $112.1 million. Amounts available under the Company's revolving
loan facilities in excess of its seasonal working capital needs are available to
the Company to pursue its growth strategy and for other permitted purposes.
As of September 30, 2001, the Company had $503.4 million of revolving loans
outstanding under the U.S. Credit Agreement, of which $134.5 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
September 30, 2001, after taking into account outstanding letters of credit, was
$155.2 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 primarily through 2001. See Note 3 to the Condensed
Consolidated Financial Statements included herein.
-25-
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. During the first six months of 2001, the Company recorded equity losses of
Packtion aggregating $3.8 million which included its final losses and eliminated
its investment in Packtion.
Effective July 1, 2001, the Company formed a joint venture company with
Schmalbach-Lubeca AG that supplies 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. During the third quarter
of 2001, the Company recorded equity losses of the White Cap joint venture of
$0.2 million and a gain on assets contributed to the venture of $5.3 million.
The Company's Board of Directors has authorized the repurchase of up to $70
million of its common stock. As of September 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.
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.
-26-
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.
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.
In October 2001, the Board issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." This Statement supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting provisions of APB No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." The Company does not expect the adoption of this
standard on January 1, 2002 to have a significant impact on its financial
position or results of operations.
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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 two years by entering into natural
gas swap agreements with major trading companies 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 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
1. On October 24, 2001, the Company filed a Current Report on Form 8-K
with which it filed a copy of its press release announcing its
financial results for the three and nine month periods ended September
30, 2001.
2. On October 26, 2001, the Company filed a Current Report on Form 8-K
with which it furnished pursuant to Regulation FD, but did not file, a
copy of its press release regarding its estimated 2001 and preliminary
2002 earnings.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned thereunto duly authorized.
SILGAN HOLDINGS INC.
Dated: November 14, 2001 /s/Harley Rankin, Jr.
- ------------------------- -------------------------------
Harley Rankin, Jr.
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Dated: November 14, 2001 /s/Nancy Merola
- ------------------------- ----------------------------
Nancy Merola
Vice President and Controller
(Chief Accounting Officer)
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EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
----------- -------
12 Ratio of Earnings to Fixed Charges
for the three and nine months ended
September 30, 2001 and 2000
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