SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-1269834
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(State of Incorporation) (I.R.S. Employer Identification No.)
4 Landmark Square, Stamford, Connecticut 06901
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (203) 975-7110
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
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(Title of Class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 1, 2002, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $328.4 million.
As of March 1, 2002, the number of shares outstanding of the Registrant's Common
Stock, par value $0.01 per share, was 18,005,685.
Documents Incorporated by Reference:
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Stockholders to be held on May 29, 2002 are incorporated by reference in Part
III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
Page
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Part I........................................................................................... 1
Item 1. Business........................................................................... 1
Item 2. Properties.........................................................................12
Item 3. Legal Proceedings..................................................................13
Item 4. Submission of Matters to a Vote of Security Holders................................13
PART II..........................................................................................14
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..............14
Item 6. Selected Financial Data............................................................14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.........................35
Item 8. Financial Statements and Supplementary Data........................................36
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.....................................................................36
PART III.........................................................................................37
Item 10. Directors and Executive Officers of the Registrant.................................37
Item 11. Executive Compensation.............................................................41
Item 12. Security Ownership of Certain Beneficial Owners and Management.....................41
Item 13. Certain Relationships and Related Transactions.....................................41
PART IV..........................................................................................42
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K..................42
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PART I
Item 1. Business.
General
We are a leading North American manufacturer of metal and plastic consumer
goods packaging products. We had consolidated net sales of $1.941 billion in
2001. Our products are used for a wide variety of end markets and we have 59
manufacturing plants throughout North America. Our product lines include:
o steel and aluminum containers for human and pet food; and
o custom designed plastic containers and closures for personal care, health
care, pharmaceutical, household and industrial chemical, food, pet care,
agricultural chemical, automotive and marine chemical products.
We are the largest manufacturer of metal food containers in North America,
with a unit volume market share in the United States of approximately 47% in
2001. Our leadership in this market is driven by our high levels of quality,
service and technological support, low cost producer position, strong long-term
customer relationships and our proximity to customers through our widespread
geographic presence. We believe we have the most comprehensive equipment
capabilities in the industry. For 2001, our metal food container business had
net sales of $1,401.1 million (approximately 72% of our total net sales) and
income from operations before net rationalization charges of $114.2 million
(approximately 68% of our total income from operations before net
rationalization charges).
We are also a leading manufacturer of plastic containers in North America
for personal care products. Our success in the plastic packaging market is
largely due to our demonstrated ability to provide high levels of quality,
service and technological support, our value-added design-focused products and
our extensive geographic presence. We produce plastic containers from a full
range of resin materials and offer a comprehensive array of molding and
decorating capabilities. For 2001, our plastic container business had net sales
of $493.6 million (approximately 26% of our total net sales) and income from
operations before rationalization charges of $49.5 million (approximately 30% of
our total income from operations before net rationalization charges).
Our customer base includes some of the world's best-known branded consumer
products companies. Our philosophy has been to develop long-term customer
relationships by acting in partnership with our customers by providing reliable
quality, service and technological support and utilizing our low cost producer
position. The strength of our customer relationships is evidenced by our large
number of long-term supply contracts, our high retention of customers' business
and our continued recognition from customers, as demonstrated by the many
quality and service awards we have received. We estimate that in 2002
approximately 85% of our projected metal food container sales and more than a
majority of our projected plastic container sales will be under long-term supply
arrangements.
Our objective is to increase shareholder value through efficiently
deploying our capital and management resources to grow our business and reduce
costs in our existing operations and to make acquisitions at attractive cash
flow multiples. We believe we will accomplish this goal because of our leading
market positions and management expertise in acquiring, financing, integrating
and efficiently operating consumer goods packaging businesses.
We were founded in 1987 by our Co-Chief Executive Officers, R. Philip
Silver and D. Greg Horrigan, former members of senior management of the
packaging operations of Continental Group Inc., or Continental Can, which in the
mid-1980's was one of the largest packaging companies in the world. Our senior
management has on average 29 years of experience in the packaging industry. Mr.
Silver and
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Mr. Horrigan have approximately a 40% ownership interest in Silgan Holdings.
Management's large ownership interest in Silgan Holdings fosters an
entrepreneurial management style and places a primary focus on creating
shareholder value.
Our History
Since our inception in 1987, we have acquired seventeen businesses,
including most recently RXI Holdings, Inc., or RXI, in October 2000. As a result
of the benefits of these acquisitions and organic growth, we have increased our
overall share of the U.S. metal food container market from approximately 10% in
1987 to approximately 47% in 2001. Our plastic container and closure business
has also improved its market position since 1987, with sales increasing more
than fivefold to $493.6 million in 2001. The following chart shows our
acquisitions since our inception:
Acquired Business Year Products
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Nestle Food Company's metal container 1987 Metal food containers
manufacturing division
Monsanto Company's plastic container business 1987 Plastic containers
Fort Madison Can Company of The Dial 1988 Metal food containers
Corporation
Seaboard Carton Division of Nestle Food 1988 Paperboard containers
Company
Aim Packaging, Inc. 1989 Plastic containers
Fortune Plastics Inc. 1989 Plastic containers
Express Plastic Containers Limited 1989 Plastic containers
Amoco Container Company 1989 Plastic containers
Del Monte Corporation's U.S. can 1993 Metal food containers
manufacturing operations
Food Metal and Specialty business of 1995 Metal food containers,
American National Can Company steel closures and Omni
plastic containers
Finger Lakes Packaging Company, Inc., a 1996 Metal food containers
subsidiary of Agrilink Foods, Inc.
Alcoa Inc.'s North American aluminum roll-on 1997 Aluminum roll-on
closure business closures
Rexam plc's North American plastic container 1997 Plastic containers and
business closures
Winn Packaging Co. 1998 Plastic containers
Campbell Soup Company's steel container 1998 Metal food containers
manufacturing business
Clearplass Containers, Inc. 1998 Plastic containers
RXI Holdings, Inc. 2000 Plastic containers and
plastic closures, caps,
sifters and fitments
Our Strategy
We intend to enhance our position as a leading supplier of consumer goods
packaging products by continuing to aggressively pursue a strategy designed to
achieve future growth and increase shareholder value by focusing on the
following key elements:
Expand Through Acquisitions at Attractive Cash Flow Multiples and Through
Internal Growth
We intend to continue to increase our market share in our current business
lines through acquisitions and internal growth. We use a disciplined approach to
acquire businesses at attractive cash flow multiples. As a result, we expect to
continue to expand and diversify our customer base, geographic presence and
product lines. This strategy has enabled us to rapidly increase our net sales
and income from operations before rationalization and stock option charges,
which have grown at a compound annual growth rate of 12.3% and 11.6%,
respectively, since 1994.
During the past fourteen years, the metal food container market has
experienced significant consolidation primarily due to the desire by food
processors to reduce costs and focus resources on their core operations. Our
acquisitions of the metal food container manufacturing operations of Nestle Food
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Company, or Nestle, The Dial Corporation, or Dial, Del Monte Corporation, or Del
Monte, Agrilink Foods, Inc., or Agrilink, and Campbell Soup Company, or
Campbell, reflect this trend. We estimate that approximately 15% of the market
for metal food containers is still served by self-manufacturers.
We have improved our market position for our plastic container and closure
business since 1987, with sales increasing more than fivefold to $493.6 million
in 2001. We achieved this improvement primarily through strategic acquisitions,
including most recently RXI, as well as through internal growth. The plastic
container and closure business of the consumer goods packaging industry is
highly fragmented, and we intend to pursue further consolidation opportunities
in this market. We also believe that we can successfully apply our acquisition
and operating expertise to new markets of the consumer goods packaging industry.
For example, with the acquisition of RXI we expanded our business into plastic
closures, caps, sifters and fitments and thermoformed plastic tubs. We expect to
continue to generate internal growth in our plastic container and closure
business. For example, we intend to aggressively market our plastic closures to
existing customers of our plastic container business. Additionally, we intend to
continue to expand our customer base in the markets that we serve, such as the
personal care, health care, pharmaceutical, household and industrial chemical,
food, pet care, agricultural chemical, automotive and marine chemical markets.
Enhance Profitability of Acquired Companies Through Productivity Improvements
and Cost Reductions
We intend to continue to enhance profitability through productivity and
cost reduction opportunities from acquired businesses. The additional sales and
production capacity provided through acquisitions have enabled us to rationalize
plant operations and decrease overhead costs through plant closings and
downsizings. In addition, we expect that our acquisitions will continue to
enable us to realize manufacturing efficiencies as a result of optimizing
production scheduling and minimizing product transportation costs. We expect to
continue to benefit from our economies of scale and from the elimination of
redundant selling and administrative functions. In addition to the benefits
realized through the integration of acquired businesses, we have improved the
operating performance of our plant facilities by making capital investments for
productivity improvements and manufacturing cost reductions.
Supply "Best Value" Packaging Products With High Levels of Quality, Service and
Technological Support
Since our inception we have been, and intend to continue to be, devoted to
consistently supplying our products with the combination of quality, price and
service that our customers consider to be "best value." Within our metal food
container business, we focus on providing high quality and high levels of
service and utilizing our low cost producer position. We also offer value added
features for our metal food containers such as easy-open ends. Within our
plastic container and closure business, we provide high levels of quality and
service and focus on value added, custom designed plastic containers to meet
changing product and packaging demands of brand owners. Furthermore, with the
acquisition of RXI, we believe that we are one of the few plastic container
packaging businesses that can custom design and manufacture both plastic
containers and plastic closures. We will continue to supply customized products
that can be delivered quickly to our customers with superior levels of design,
development and technology support.
Maintain Low Cost Producer Position
We will continue pursuing opportunities to strengthen our low cost position
in the metal food container and plastic container segments by:
o maintaining a flat, efficient organizational structure,
resulting in low selling, general and administrative expenses as a
percentage of total net sales;
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o achieving and maintaining our economies of scale;
o investing in new technologies to increase manufacturing and production
efficiency;
o rationalizing our existing plant structure; and
o serving our customers from our strategically located plants.
Through our facilities dedicated to our metal food container products, we
believe that we provide the most comprehensive equipment capabilities in the
industry. Through our facilities dedicated to our plastic container and closure
products, we have the capacity to manufacture customized products across the
entire spectrum of resin materials, decorating techniques and molding processes
required by our customers. We intend to leverage our manufacturing, design, and
engineering capabilities to continue to create cost-effective manufacturing
systems that will drive our improvements in product quality, operating
efficiency and customer support.
Utilize Leverage to Support Growth and Increase Shareholder Value
Our financial strategy is to use leverage to support our growth and
increase shareholder returns. Our stable and predictable cash flow, generated
largely as a result of our long-term customer relationships and generally
recession resistant business, supports our financial strategy. We intend to
continue using leverage, supported by our stable cash flows, to make
value-enhancing acquisitions. In the absence of attractive acquisition
opportunities, we intend to use our free cash flow to repay indebtedness or for
other permitted purposes. In 2001, for example, we did not complete any
acquisitions, and we reduced our total debt by $86.3 million as compared to
2000. Similarly, in 1999, we did not complete any acquisitions, and we reduced
our total debt by $44.7 million despite, among other things, the incurrence of
$16.6 million of debt for common stock repurchases.
Business Segments
We are a holding company that conducts our business through two wholly
owned operating subsidiaries, Silgan Containers Corporation, or Silgan
Containers, and Silgan Plastics Corporation, or Silgan Plastics. Silgan
Containers includes the metal food container operations and Silgan Plastics
includes the plastic container and closure operations.
Metal Food Containers--72% of our total net sales in 2001
We are the largest manufacturer of metal food containers in North America,
with a unit volume market share in the United States of 47% in 2001. Our metal
food container business is engaged in the manufacture and sale of steel and
aluminum containers that are used primarily by processors and packagers for food
products, such as metal containers for soup, vegetables, fruit, meat, tomato
based products, coffee, seafood, adult nutritional drinks, pet food and other
miscellaneous food products. For 2001, our metal food container business had net
sales of $1,401.1 million (approximately 72% of our total net sales) and income
from operations before net rationalization charges of $114.2 million
(approximately 68% of our total income from operations before net
rationalization charges). Since 1994, our metal food container business has
realized compound annual unit sales growth of approximately 10%. We estimate
that approximately 85% of our projected metal food container sales in 2002 will
be pursuant to long-term supply arrangements.
Although metal containers face competition from plastic, paper, glass and
composite containers, we believe metal containers are superior to plastic and
paper containers in applications where the contents are processed at high
temperatures, where the contents are packaged in larger consumer or
institutional quantities (8 to 64 oz.) or where the long-term storage of the
product is desirable while
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maintaining the product's quality. We also believe that metal containers are
generally more desirable than glass containers because metal containers are more
durable and less costly to transport.
Plastic Containers--26% of our total net sales in 2001
We are one of the leading manufacturers of custom designed high density
polyethylene, or HDPE, and polyethylene terephthalate, or PET, containers for
the personal care market in North America. We produce plastic containers from a
full range of resin materials and offer a comprehensive array of molding and
decorating capabilities. Approximately 60% of Silgan Plastics' sales in 2001
were to the personal care and health care markets. For 2001, Silgan Plastics had
net sales of $493.6 million (approximately 26% of our total net sales) and
income from operations before rationalization charges of $49.5 million
(approximately 30% of our total income from operations before net
rationalization charges). Since 1987, we have improved our market position for
our plastic container and closure business, with sales increasing more than
fivefold.
We manufacture custom designed and stock HDPE containers for: personal care
and health care products, including containers for shampoos, conditioners, hand
creams, lotions, cosmetics and toiletries; household and industrial chemical
products, including containers for scouring cleaners, cleaning agents and lawn
and garden chemicals; and pharmaceutical products, including containers for
tablets, antacids and eye cleaning solutions. We also manufacture custom
designed and stock PET containers for mouthwash, respiratory and
gastrointestinal products, liquid soap, skin care lotions, peanut butter, salad
dressings, condiments, premium bottled water and liquor. As a result of our
acquisition of RXI, we manufacture plastic containers, closures, caps, sifters
and fitments for food, household and pet care products, including salad
dressings, peanut butter, spices, liquid margarine, powdered drink mixes, arts
and crafts supplies and kitty litter, as well as thermoformed plastic tubs for
personal care and household products, including soft fabric wipes. Additionally,
we manufacture our licensed Omni plastic container (a multi-layer microwaveable
and retortable plastic bowl) for food products and our proprietary Polystar
easy-open plastic end which we market with our Omni plastic container as an
all-plastic microwaveable package.
Our leading position in the plastic container market is largely driven by
our rapid response to our customers' design, development and technology support
needs. Our value-added, diverse product line is the result of our ability to
produce plastic containers from a full range of resin materials using a broad
array of manufacturing, molding and decorating capabilities. We benefit from our
unique scale and nationwide presence, as significant consolidation is occurring
in many of our customers' markets. Through these capabilities, we are
well-positioned to serve our personal care market customers, who demand
customized solutions as they continue to seek innovative means to differentiate
their products in the marketplace using packaging.
Metal Closures--2% of our total net sales in 2001
Historically, we have reported a third business segment, specialty
packaging, in our results of operations. We manufactured and sold in our
specialty packaging business steel closures for glass and plastic containers,
aluminum roll-on closures for glass and plastic containers, our licensed Omni
plastic container, our proprietary Polystar easy-open plastic end and paperboard
containers, all for use in the food and beverage industries.
On July 1, 2001, we 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, or White Cap. We contributed to the venture certain metal
closure assets and liabilities, including our manufacturing plants in Evansville
and Richmond, Indiana, in return for a 35% interest in the joint venture and
$32.4 million of cash proceeds from the joint venture.
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As a result of this transaction we no longer report the financial results
of our remaining specialty packaging business as a separate business segment. We
report the results of our Omni plastic container and Polystar easy-open plastic
end businesses with our plastic container business and the results of our
paperboard container business with our metal food container business. We also
report the historical results of our metal closure business separately. We have
restated prior year amounts to conform to this presentation.
Manufacturing and Production
As is the practice in the industry, most of our customers provide us with
quarterly or annual estimates of products and quantities pursuant to which
periodic commitments are given. These estimates enable us to effectively manage
production and control working capital requirements. We schedule our production
to meet customers' requirements. Because the production time for our products is
short, the backlog of customer orders in relation to our sales is not material.
As of March 1, 2002, we operated 59 manufacturing facilities, geographically
dispersed throughout the United States and Canada, that serve the distribution
needs of our customers.
Metal Food Container Business
The manufacturing operations of our metal food container business include
cutting, coating, lithographing, fabricating, assembling and packaging finished
cans. We use three basic processes to produce cans. The traditional three-piece
method requires three pieces of flat metal to form a cylindrical body with a
welded side seam, a bottom and a top. High integrity of the side seam is assured
by the use of sophisticated electronic weld monitors and organic coatings that
are thermally cured by induction and convection processes. The other two methods
of producing cans start by forming a shallow cup that is then formed into the
desired height using either the draw and iron process or the draw and redraw
process. Using the draw and redraw process, we manufacture steel and aluminum
two-piece cans, the height of which generally does not exceed the diameter. For
cans the height of which is greater than the diameter, we manufacture steel
two-piece cans by using a drawing and ironing process. Quality and stackability
of these cans are comparable to that of the shallow two-piece cans described
above. We manufacture can bodies and ends from thin, high-strength aluminum
alloys and steels by utilizing proprietary tool and die designs and selected can
making equipment.
Plastic Container Business
We utilize two basic processes to produce plastic containers. In the
extrusion blowmolding process, pellets of plastic resin are heated and extruded
into a tube of plastic. A two-piece metal mold is then closed around the plastic
tube and high pressure air is blown into it causing a bottle to form in the
mold's shape. In the injection and injection stretch blowmolding processes,
pellets of plastic resin are heated and injected into a mold, forming a plastic
preform. The plastic preform is then blown into a bottle-shaped metal mold,
creating a plastic bottle.
We also manufacture plastic closures, caps, sifters and fitments using
runnerless injection molding technology. In this process, pellets of plastic
resin are melted and forced under pressure into a mold, where they take the
mold's shape. Our thermoformed plastic tubs are manufactured by melting pellets
of plastic resin into a plastic sheet. The plastic sheets are then stamped by
hot molds to form plastic tubs. Our Omni plastic containers are manufactured
using a plastic injection blowmolding process where dissimilar pellets of
plastic are heated and co-injected in a proprietary process to form a five-layer
preform, which is immediately transferred to a blowmold for final shaping. We
designed the equipment for this manufacturing process, and the equipment
utilizes a variety of proprietary processes to make rigid plastic containers
capable of holding processed foods for extended shelf lives. We manufacture Omni
plastic containers pursuant to a royalty-free, perpetual license with American
National Can Company, or ANC, which was entered into at the time of our
acquisition of the Food Metal and Specialty business of ANC.
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We have state-of-the-art decorating equipment, including several of the
largest sophisticated decorating facilities in the country. Our decorating
methods for plastic containers are in-mold labeling, which applies a plastic
film label to the bottle during the blowing process, and post-mold decoration.
Post-mold decoration includes:
o silk screen decoration which enables the applications of images in
multiple colors to the bottle;
o pressure sensitive decoration which uses a plastic film or paper label
with an adhesive;
o heat transfer decoration which uses a plastic coated label applied by
heat; and
o hot stamping decoration which transfers images from a die using
metallic foils.
Raw Materials
We do not believe that we are materially dependent upon any single supplier
for any of our raw materials, and, based upon the existing arrangements with
suppliers, our current and anticipated requirements and market conditions, we
believe that we have made adequate provisions for acquiring raw materials.
Increases in the prices of raw materials have generally been passed along to our
customers in accordance with our long-term supply arrangements and otherwise.
Metal Food Container Business
We use tin plated and chromium plated steel, aluminum, copper wire, organic
coatings, lining compound and inks in the manufacture and decoration of our
metal food container products. Our material requirements are supplied through
contracts and purchase orders with suppliers with whom we have long-term
relationships. If our suppliers fail to deliver under their arrangements, we
would be forced to purchase raw materials on the open market, and no assurances
can be given that we would be able to make the purchases at comparable prices or
terms. We believe that we will be able to purchase sufficient quantities of
steel and aluminum can sheet for the foreseeable future.
Plastic Container Business
The raw materials we use in our plastic container and closure business are
primarily resins in pellet form such as virgin HDPE, virgin PET, recycled HDPE,
recycled PET, polypropylene and, to a lesser extent, polystyrene, low density
polyethylene, polyethylene terephthalate glycol, polyvinyl chloride and medium
density polyethylene. Our resin requirements are acquired through multi-year
arrangements for specific quantities of resins with several major suppliers of
resins. The price that we pay for resin raw materials is not fixed and is
subject to market pricing. We believe that we will be able to purchase
sufficient quantities of resins for the foreseeable future.
Sales and Marketing
Our philosophy has been to develop long-term customer relationships by
acting in partnership with our customers, providing reliable quality and
service. We market our products in most areas of North America primarily by a
direct sales force and for our plastic container business, in part, through a
network of distributors. Because of the high cost of transporting empty
containers, our metal food and plastic container businesses generally sell to
customers within a 300 mile radius of their manufacturing plants.
In 2001, 2000, and 1999, approximately 11%, 12%, and 12%, respectively, of
our sales were to Nestle; approximately 10%, 11%, and 11%, respectively, of our
sales were to Del Monte; and
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approximately 12%, 11% and 11%, respectively, of our sales were to Campbell. No
other customer accounted for more than 10% of our total sales during those
years.
Metal Food Container Business
We are the largest manufacturer of metal food containers in North America,
with a unit sale market share in 2001 in the United States of approximately 47%.
Our largest customers for this segment include Nestle, Del Monte, Campbell,
Hormel Foods Corp., or Hormel, Kraft Foods Inc., or Kraft, ConAgra Foods Inc.,
Unilever, N.V., General Mills, Inc., Dial and Agrilink.
We have entered into multi-year supply arrangements with many of our
customers, including Nestle, Del Monte, Campbell and several other major food
producers. We estimate that approximately 85% of our projected metal food
container sales in 2002 will be pursuant to multi-year supply arrangements.
Historically, we have been successful in continuing these multi-year supply
arrangements with our customers.
Since our inception in 1987, we have supplied Nestle with substantially all
of its U.S. metal container requirements. In 2001, our total sales of metal
containers to Nestle were $218.4 million.
We currently have three supply agreements with Nestle under which we supply
Nestle with a large majority of its U.S. metal container requirements
(representing approximately 8.4% of our total 2001 sales and, together with
additional sales to Nestle under purchase orders, approximately 11.2% of our
total 2001 sales). The terms of the Nestle agreements were recently extended for
an additional seven years through 2008 for approximately half of the metal
container sales under the Nestle agreements, in return for certain price
reductions for metal containers that began in 2001. These price reductions did
not materially affect our financial condition or results of operations. The
terms of the Nestle agreements for the remaining metal containers currently
supplied thereunder continue through 2004.
The Nestle agreements provide for certain prices and specify that those
prices will be increased or decreased based upon cost change formulas. These
agreements contain provisions that require us to maintain levels of product
quality, service and delivery in order to retain the business. In the event we
breach any one of the agreements, Nestle may terminate the agreement but the
other Nestle agreements would remain in effect.
Under limited circumstances, Nestle may provide to us a competitive bid for
metal containers sales under these agreements. We have the right to retain the
business subject to the terms of the bid. In the event we choose not to match
the bid, the Nestle agreements will terminate only with respect to the metal
containers which are the subject of the bid.
In connection with our acquisition of Del Monte's U.S. metal container
manufacturing operations in December 1993, we entered into a supply agreement
with Del Monte. Del Monte has agreed to purchase from us substantially all of
its annual requirements for metal containers to be used for the packaging of
food and beverages in the United States. The term of the Del Monte agreement
continues until December 21, 2006. In 2001, our sales of metal containers to Del
Monte amounted to $195.4 million.
The Del Monte agreement provides certain prices for our metal containers
and specifies that those prices will be increased or decreased based upon
specified cost change formulas. Del Monte may, under certain circumstances,
receive proposals from independent commercial can manufacturers for the supply
of containers of a type and quality similar to the metal containers that we
furnish to Del Monte. The proposals must be for the remainder of the term of the
Del Monte agreement and for 100% of the annual volume of containers at one or
more of Del Monte's processing facilities. We have the right to retain the
business subject to the terms and conditions of the competitive proposal. In
addition, during
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the term of our agreement, Del Monte is not permitted to purchase pursuant to
the proposals more than 50% of its metal containers from any other suppliers.
In connection with our June 1998 acquisition of the steel container
manufacturing business of Campbell, or CS Can, we entered into a ten-year supply
agreement with Campbell. Campbell has agreed to purchase from us substantially
all of its steel container requirements to be used for the packaging of foods
and beverages in the United States. In 2001, our sales of metal containers to
Campbell were $236.4 million.
The Campbell agreement provides certain prices for containers supplied by
us to Campbell and specifies that those prices will be increased or decreased
based upon specified cost change formulas. The Campbell agreement permits
Campbell, beginning in June 2003, to receive proposals from independent
commercial can manufacturers for the supply of containers of a type and quality
similar to the metal containers that we supply to Campbell. The proposals must
be for the remainder of the term of the Campbell agreement and for 100% of the
annual volume of containers at one or more of Campbell's food processing plants.
We have the right to retain the business subject to the terms and conditions of
the competitive proposal. Upon any material breach by us, Campbell has the right
to terminate this agreement. In addition, Campbell has the right, at the end of
the term of the Campbell agreement or upon the occurrence of specified material
defaults under other agreements with Campbell, to purchase from us the assets
used to manufacture containers for Campbell. These assets are located at the
facilities we lease from Campbell. The purchase price for the assets would be
determined at the time of purchase in accordance with an agreed upon formula
that is based upon the net book value of the assets.
Plastic Container Business
We are one of the leading manufacturers of custom designed and stock HDPE
and PET containers sold in North America. We market our plastic containers and
closures in most areas of North America through a direct sales force, through a
large network of distributors and, more recently, through e-commerce.
We are a leading manufacturer of plastic containers in North America for
personal care products. Approximately 60% of our plastic containers are sold for
personal care and health care products, such as hair care, skin care and oral
care, and pharmaceutical products. Our largest customers in these product
segments include Unilever Home and Personal Care North America (a unit of
Unilever, N.V.), Pfizer Inc., The Procter & Gamble Company, L'Oreal Retail
Division of Cosmair, Inc., Avon Products Inc., Alberto Culver USA, Inc. and
Johnson & Johnson.
We also manufacture plastic containers for food and beverage, pet care and
household and industrial chemical products. Customers in these product segments
include The Procter & Gamble Company, Kraft, Nestle's Purina Pet Care, The
Clorox Company and S.C. Johnson & Sons, Inc. In addition, we manufacture plastic
closures, caps, sifters and fitments for food, household and pet care products,
as well as thermoformed plastic tubs for personal care and household products
and Omni plastic bowls for microwaveable prepared foods. Customers in these
product segments include Lipton (a unit of Unilever Home and Personal Care North
America), The Kroger Company, McCormick & Co., Nice-Pak Products, Inc., Nestle's
Purina Pet Care, Campbell and Hormel.
We have arrangements to sell some of our plastic containers and closures to
distributors, who in turn resell those products primarily to regional customers.
Plastic containers sold to distributors are manufactured by using generic and
custom molds with decoration added to meet the end users' requirements. The
distributors' warehouses and their sales personnel enable us to market and
inventory a wide range of such products to a variety of customers.
-9-
We have written purchase orders or contracts for the supply of containers
with the majority of our customers. In general, these purchase orders and
contracts are for containers made from proprietary molds and are for a duration
of one to seven years.
Competition
The packaging industry is highly competitive. We compete in this industry
with other packaging manufacturers as well as fillers, food processors and
packers who manufacture containers for their own use and for sale to others. We
attempt to compete effectively through the quality of our products, competitive
pricing and our ability to meet customer requirements for delivery, performance
and technical assistance.
Because of the high cost of transporting empty containers, our metal food
and our plastic container businesses generally sell to customers within a 300
mile radius of our manufacturing plants. Strategically located existing plants
give us an advantage over competitors from other areas, but we could be
disadvantaged by the relocation of a major customer.
Metal Food Container Business
Of the commercial metal food container manufacturers, Crown Cork and Seal
Company, Inc. and Ball Corporation are our most significant national
competitors. As an alternative to purchasing containers from commercial can
manufacturers, customers have the ability to invest in equipment to
self-manufacture their containers.
Although metal containers face competition from plastic, paper, glass and
composite containers, we believe that metal containers are superior to plastic
and paper containers in applications where the contents are processed at high
temperatures, where the contents are packaged in larger consumer or
institutional quantities (8 to 64 oz.) or where long-term storage of the product
is desirable while maintaining the product's quality. We also believe that metal
containers are more desirable generally than glass containers because metal
containers are more durable and less costly to transport.
Plastic Container Business
Our plastic container and closure business competes with a number of large
national producers of plastic containers and closures for personal care, health
care, pharmaceutical, household and industrial chemical, food, pet care,
agricultural chemical, automotive and marine chemical products. These
competitors include Owens-Illinois, Inc., Crown Cork and Seal Company, Inc.,
Plastipak Packaging Inc., Consolidated Container Company LLC and Rexam plc. To
compete effectively in the constantly changing market for plastic containers and
closures, we must remain current with, and to some extent anticipate,
innovations in resin composition and applications and changes in the technology
for the manufacturing of plastic containers and closures.
Employees
As of December 31, 2001, we employed approximately 1,400 salaried and 6,000
hourly employees on a full-time basis. Approximately 49% of our hourly plant
employees as of that date were represented by a variety of unions. In addition,
as of December 31, 2001, in connection with our acquisition of Campbell's steel
container manufacturing business, Campbell provided us with approximately 20
salaried and 200 hourly employees on a full-time basis at one of the facilities
that we lease from Campbell.
Our labor contracts expire at various times between 2002 and 2005. As of
December 31, 2001, contracts covering approximately 6% of our hourly employees
will expire during 2002. We expect no
-10-
significant changes in our relations with these unions. We believe that we have
a good relationship with our employees.
Regulation
We are subject to federal, state and local environmental laws and
regulations. In general, these laws and regulations limit the discharge of
pollutants into the environment and establish standards for the treatment,
storage, and disposal of solid and hazardous waste. We believe that all of our
facilities are either in compliance in all material respects with all presently
applicable environmental laws and regulations or are operating in accordance
with appropriate variances, delayed compliance orders or similar arrangements.
In addition to costs associated with regulatory compliance, we may be held
liable for alleged environmental damage associated with the past disposal of
hazardous substances. Those that generate hazardous substances that are disposed
of at sites at which environmental problems are alleged to exist, as well as the
owners of those sites and other classes of persons, are subject to claims under
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, or CERCLA, regardless of fault or the legality of the original disposal.
CERCLA and many similar state statutes may hold a responsible party liable for
the entire cleanup cost at a particular site even though that party may not have
caused the entire problem. Other state statutes may impose proportionate rather
than joint and several liability. The federal Environmental Protection Agency or
a state agency may also issue orders requiring responsible parties to undertake
removal or remedial actions at sites.
We are also subject to the Occupational Safety and Health Act and other
laws regulating noise exposure levels and other safety and health concerns in
the production areas of our plants.
On June 18, 2001, we received a fine from the Jefferson County, Alabama
Department of Health for $2.3 million for alleged air violations at our Tarrant
City, Alabama leased facility. The alleged violations stem from activities
occurring during the facility's ownership by a predecessor owner, which we
discovered and voluntarily disclosed to the Jefferson County agency last year.
Initial review of the fine indicates that most of it is related to our 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, we filed an indemnity claim against the former owner
seeking to offset any costs or penalties we incur. We are reviewing this matter
with Jefferson County, as well as all of our legal options. We do not expect to
incur any material liability in excess of the indemnification available to us.
Our management does not believe that any of the regulatory matters
described above, individually or in the aggregate, will have a material effect
on our capital expenditures, earnings, financial position or competitive
position.
Research and Product Development
Our research, product development and product engineering efforts relating
to our metal food container business are conducted at our research facility in
Oconomowoc, Wisconsin. Our research, product development and product engineering
efforts with respect to our plastic container business are performed by our
manufacturing and engineering personnel located at our Norcross, Georgia
facility. The amounts we have spent on research and development during the last
three fiscal years are not material.
-11-
Item 2. Properties.
Our principal executive offices are located at 4 Landmark Square, Stamford,
Connecticut 06901. The administrative headquarters and principal places of
business for our metal food container and plastic container businesses are
located at 21800 Oxnard Street, Woodland Hills, California 91367 and 14515 N.
Outer Forty, Chesterfield, Missouri 63017, respectively. We lease all of these
offices.
We own and lease properties for use in the ordinary course of business. The
properties consist primarily of 34 operating facilities for the metal food
container business and 25 operating facilities for the plastic container
business. We own 26 of these facilities and lease 33. The leases expire at
various times through 2020. Some of these leases provide renewal options as well
as various purchase options.
Below is a list of our operating facilities, including attached warehouses,
as of March 1, 2002 for our metal food container business:
Approximate Building Area
Location (square feet)
-------- -------------------------
Tarrant, AL........................ 89,100 (leased)
Kingsburg, CA...................... 35,600 (leased)
Modesto, CA........................ 37,800 (leased)
Modesto, CA........................ 128,000 (leased)
Modesto, CA........................ 150,000 (leased)
Riverbank, CA...................... 167,000
Sacramento, CA..................... 284,900 (leased)
Stockton, CA....................... 243,500
Broadview, IL...................... 85,000
Hoopeston, IL...................... 323,000
Rochelle, IL....................... 175,000
Waukegan, IL....................... 40,000 (leased)
Hammond, IN........................ 158,000 (leased)
Laporte, IN........................ 144,000 (leased)
Fort Madison, IA................... 121,000 (56,000 leased)
Ft. Dodge, IA...................... 155,200 (leased)
Benton Harbor, MI.................. 20,200 (leased)
Savage, MN......................... 160,000
St. Paul, MN....................... 470,000
Mt. Vernon, MO..................... 100,000
Northtown, MO...................... 111,700 (leased)
St. Joseph, MO..................... 173,700
Maxton, NC......................... 231,800 (leased)
Edison, NJ......................... 265,500
Lyons, NY.......................... 149,700
Napoleon, OH....................... 339,600 (leased)
Crystal City, TX................... 26,000 (leased)
Paris, TX.......................... 266,300 (leased)
Toppenish, WA...................... 105,000
Menomonee Falls, WI................ 116,000
Menomonie, WI...................... 129,400 (leased)
Oconomowoc, WI..................... 105,200
Plover, WI......................... 91,400 (leased)
Waupun, WI......................... 212,000
-12-
Below is a list of the Company's operating facilities, including attached
warehouses, as of March 1, 2002 for our plastic container business:
Approximate Building Area
Location (square feet)
-------- -------------------------
Anaheim, CA........................ 127,000 (leased)
Valencia, CA....................... 122,500 (leased)
Deep River, CT..................... 140,000
Norwalk, CT........................ 14,400 (leased)
Monroe, GA......................... 139,600
Norcross, GA....................... 59,000 (leased)
Flora, IL.......................... 56,400
Woodstock, IL...................... 186,700 (leased)
Ligonier, IN....................... 469,000 (276,000 leased)
Plainfield, IN..................... 105,700 (leased)
Seymour, IN........................ 450,000
Franklin, KY....................... 122,000 (leased)
Cape Girardeau, MO................. 71,700 (leased)
Penn Yan, NY....................... 100,000
Ottawa, OH......................... 267,000
Port Clinton, OH................... 257,400 (leased)
Langhorne, PA...................... 156,000 (leased)
Houston, TX........................ 335,200
Richmond, VA....................... 70,000 (leased)
Triadelphia, WV.................... 168,400
Mississauga, Ontario............... 75,000 (leased)
Mississauga, Ontario............... 62,600 (leased)
Scarborough, Ontario............... 117,000
Lachine, Quebec.................... 113,300 (leased)
Lachine, Quebec.................... 77,800 (leased)
We own and lease other warehouse facilities that are detached from our
manufacturing facilities. We believe that our plants, warehouses and other
facilities are in good operating condition, adequately maintained, and suitable
to meet our present needs and future plans. We believe that we have sufficient
capacity to satisfy the demand for our products in the foreseeable future. To
the extent that we need additional capacity, we believe that we can convert
certain facilities to continuous operation or make the appropriate capital
expenditures to increase capacity.
All of our U.S. facilities are subject to liens in favor of the banks under
our U.S. credit agreement, and all of our Canadian facilities are subject to
liens in favor of the banks under our Canadian credit agreement.
Item 3. Legal Proceedings.
We are a party to routine legal proceedings arising in the ordinary course
of our business. We are not a party to, and none of our properties are subject
to, any pending legal proceedings which could have a material adverse effect on
our business or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
-13-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Our Common Stock is quoted on the Nasdaq National Market System under the
symbol SLGN. As of March 1, 2002, we had approximately 71 holders of record of
our Common Stock. We have never declared or paid cash dividends on our Common
Stock. We currently anticipate that we will retain all available funds for use
in the operation and expansion of our business and do not anticipate paying any
cash dividends on our Common Stock in the foreseeable future. Any future
determination to pay cash dividends will be at the discretion of our Board of
Directors and will be dependent upon our consolidated results of operations and
financial condition, applicable contractual restrictions and other factors
deemed relevant by our Board of Directors. We are allowed to pay cash dividends
on our Common Stock up to specified limits under our U.S. and Canadian senior
secured credit agreements and our indenture for our 9% Senior Subordinated
Debentures due 2009, or the 9% Debentures. The table below sets forth the high
and low closing sales prices of our Common Stock as reported by the Nasdaq
National Market System for the periods indicated below.
High Low
---- ---
2000
----
First Quarter...................... $17.000 $11.750
Second Quarter..................... 13.750 7.250
Third Quarter...................... 10.000 7.750
Fourth Quarter..................... 9.750 5.750
High Low
2001 ---- ---
----
First Quarter...................... $12.563 $ 7.875
Second Quarter..................... 22.940 10.875
Third Quarter...................... 25.290 16.500
Fourth Quarter..................... 26.160 18.650
Item 6. Selected Financial Data.
In the table that follows, we provide you with selected financial data of
Silgan Holdings Inc. We have prepared this data using our consolidated financial
statements for the five years ended December 31, 2001. Our consolidated
financial statements for the five years ended December 31, 2001 were audited by
Ernst & Young LLP, independent auditors.
You should read this selected financial data along with the financial
statements and related notes included elsewhere in this Annual Report, as well
as the section of this Annual Report titled "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
-14-
Selected Financial Data
Year Ended December 31,
-----------------------
2001 2000(a) 1999 1998(b) 1997
---- ---- ---- ---- ----
(Dollars in millions, except per share data)
Operating Data:
Net sales .......................................... $1,941.0 $1,877.5 $1,892.1 $1,768.7 $1,541.3
Cost of goods sold ................................. 1,700.7 1,648.3 1,656.7 1,546.3 1,333.4
-------- -------- -------- -------- --------
Gross profit ....................................... 240.3 229.2 235.4 222.4 207.9
Selling, general and administrative expenses ....... 78.6 72.1 75.0 68.1 60.8
Non-cash stock option charge (c) ................... -- -- -- -- 22.5
Rationalization charges, net (d) ................... 9.3 -- 36.1 -- --
-------- -------- -------- -------- --------
Income from operations ............................. 152.4 157.1 124.3 154.3 124.6
Gain on assets contributed to affiliate ............ 4.9 -- -- -- --
Interest and other debt expense .................... 81.2 91.2 86.1 81.5 80.7
-------- -------- -------- -------- --------
Income before income taxes and equity in
losses of affiliates ............................ 76.1 65.9 38.2 72.8 43.9
Provision for (benefit from) income taxes (e) ...... 30.2 25.8 14.3 26.9 (6.7)
-------- -------- -------- -------- --------
Income before equity in losses of affiliates and
extraordinary items ............................. 45.9 40.1 23.9 45.9 50.6
Equity in losses of affiliates ..................... 4.1 4.6 -- -- --
-------- -------- -------- -------- --------
Income before extraordinary items .................. 41.8 35.5 23.9 45.9 50.6
Extraordinary items - loss on early
extinguishment of debt, net of income taxes ..... -- 4.2 -- -- 16.4
-------- -------- -------- -------- --------
Income before preferred stock dividend
requirement ..................................... 41.8 31.3 23.9 45.9 34.2
Preferred stock dividend requirement ............... -- -- -- -- 3.2
-------- -------- -------- -------- --------
Net income applicable to common
stockholders .................................... $ 41.8 $ 31.3 $ 23.9 $ 45.9 $ 31.0
======== ======== ======== ======== ========
Per Share Data:
Basic earnings per common share:
Income before extraordinary items and
preferred stock dividend requirement .......... $2.35 $ 2.01 $1.35 $2.41 $ 2.75
Extraordinary items ............................. -- (0.24) -- -- (0.89)
Preferred stock dividend requirement ............ -- -- -- -- (0.18)
----- ------ ----- ----- ------
Net income per basic common share ............... $2.35 $ 1.77 $1.35 $2.41 $ 1.68
===== ====== ===== ===== ======
Diluted earnings per common share:
Income before extraordinary items and
preferred stock dividend requirement .......... $2.31 $ 1.97 $1.32 $2.30 $ 2.56
Extraordinary items ............................. -- (0.23) -- -- (0.83)
Preferred stock dividend requirement ............ -- -- -- -- (0.16)
----- ------ ----- ----- ------
Net income per diluted common share ........... $2.31 $ 1.74 $1.32 $2.30 $ 1.57
===== ====== ===== ===== ======
(continued)
-15-
Selected Financial Data (continued)
Year Ended December 31,
-----------------------
2001 2000(a) 1999 1998(b) 1997
---- ---- ---- ---- ----
(Dollars in millions, except per share data)
Selected Segment Data (f):
Net sales:
Metal food containers ........................... $1,401.1 $1,387.7 $1,440.0 $1,333.0 $1,170.3
Plastic containers .............................. 493.6 399.0 350.5 337.5 289.3
Metal closures ................................. 46.3 90.8 101.6 98.2 81.7
Income from operations (g):
Metal food containers ........................... 114.2 120.2 120.6 115.7 117.9
Plastic containers .............................. 49.5 36.9 40.0 37.4 28.5
Metal closures .................................. 3.3 3.7 3.7 4.3 2.5
Other Data:
Adjusted EBITDA (h) ................................ $ 257.3 $ 246.1 $ 246.4 $ 231.8 $ 210.5
Capital expenditures ............................... 93.0 89.2 87.4 86.1 62.2
Depreciation and amortization (i) .................. 95.5 89.0 86.0 77.5 63.4
Cash flows provided by operating activities ........ 143.0 95.1 143.3 147.4 117.9
Cash flows used in investing activities ............ (59.8) (218.5) (84.9) (278.3) (100.5)
Cash flows (used in) provided by financing
activities ...................................... (85.3) 141.0 (60.7) 82.0 35.3
Balance Sheet Data (at end of period):
Goodwill, net ...................................... $ 141.5 $ 153.0 $ 107.6 $ 109.2 $ 66.9
Total assets ....................................... 1,311.8 1,383.8 1,185.3 1,224.0 1,050.6
Total debt ......................................... 944.8 1,031.5 883.3 927.0 805.3
Stockholders' equity (deficiency) .................. 15.1 (20.4) (48.7) (57.3) (67.3)
(footnotes follow)
-16-
Notes to Selected Financial Data
(a) On October 1, 2000, we acquired RXI. The acquisition was accounted for
as a purchase transaction and the results of operations have been included with
our consolidated results of operations from the date of acquisition.
(b) On June 1, 1998, we acquired CS Can. The acquisition was accounted for
as a purchase transaction and the results of operations have been included with
our consolidated results of operations from the date of acquisition.
(c) In connection with our initial public offering of our Common Stock, or
IPO, we recognized a non-cash charge of $22.5 million at the time of our IPO for
the excess of the fair market value over the grant price of certain stock
options, less $3.7 million previously accrued.
(d) During 2001, we approved and announced plans primarily related to
closing two metal food container facilities and a plastic container facility.
These decisions resulted in pre-tax charges to earnings of $9.3 million, net
(including $3.0 million for the non-cash write-down in carrying value of
assets). In 1999, we approved and announced plans to close two manufacturing
facilities of the metal food container business, resulting in a charge of $11.9
million (including $7.3 million for the non-cash write-down in carrying value of
assets). Additionally, based upon a review of the depreciable assets of the
metal food container business in 1999, we determined that adjustments were
necessary to properly reflect net realizable values and recorded a non-cash,
pre-tax write-down of $24.2 million in 1999 for the excess of carrying value
over estimated net realizable value of machinery and equipment which had become
obsolete or surplus. You should also see Note 3 to our Consolidated Financial
Statements for the year ended December 31, 2001 included elsewhere in this
Annual Report.
(e) During 1997, we determined that it was more likely than not that future
tax benefits arising from our net operating loss carryforwards would be realized
in future years due to our continued improvement in earnings and the probability
of future taxable income. Accordingly, in accordance with Statement of Financial
Accounting Standards No. 109, we recognized an income tax benefit of $27.4
million for our recoverable net operating loss carryforwards.
(f) As a result of the White Cap joint venture, we no longer report the
results of our remaining specialty packaging business, which had net sales of
approximately $34.3 million, $33.1 million and $36.5 million in 2001, 2000 and
1999, respectively, as a separate business segment. The results of the Omni
plastic container and Polystar easy-open plastic end businesses are reported
with our plastic container business, and the results of the paperboard container
business are reported with our 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.
(g) Income from operations in the selected segment data excludes (1) net
charges of $9.3 million for the year ended December 31, 2001 as referred to in
footnote (d) above, (2) charges of $36.1 million for the year ended December 31,
1999 as referred to in footnote (d) above, (3) the non-cash stock option charge
of $22.5 million incurred as a result of our IPO in February 1997 as referred
to in footnote (c) above, and (4) corporate expense.
(h) "Adjusted EBITDA" means consolidated net income before equity in losses
of affiliates, extraordinary items and preferred stock dividends, plus
consolidated interest expense, income tax expense and depreciation and
amortization expense, as adjusted to (1) add back charges incurred for the
closing of facilities ($9.3 million, net, for the year ended December 31, 2001
and $11.9 million for the year ended December 31, 1999, each as referred to in
footnote (d) above), charges incurred for the reduction in carrying value of
assets ($24.2 million for the year ended December 31, 1999 as referred to in
footnote (d) above) and the non-cash charge of $22.5 million incurred in 1997 in
connection with our IPO as referred to in footnote (c) above, and (2) subtract
the gain on assets contributed to affiliate of $4.9 million for the year ended
December 31, 2001. We have included information regarding Adjusted EBITDA
because management believes that many investors and lenders consider it
important in assessing a company's ability to service and incur debt.
Accordingly, this information has been disclosed herein to permit a more
complete analysis of our financial condition. Adjusted EBITDA should not be
considered in isolation or as a substitute for net income or other consolidated
statement of income or cash flows data prepared in accordance with accounting
principles generally accepted in the United States as a measure of our
profitability or liquidity. You should also see our Consolidated Statements of
Income and Consolidated Statements of Cash Flows, including the notes thereto,
included elsewhere in this Annual Report. Adjusted EBITDA does not take into
account our debt service requirements and other commitments and, accordingly, is
not necessarily indicative of amounts that may be available for discretionary
uses. Additionally, Adjusted EBITDA is not computed in accordance with
accounting principles generally accepted in the United States and may not be
comparable to other similarly titled measures of other companies.
(i) Depreciation and amortization excludes amortization of debt financing
costs.
-17-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis is intended to assist you in an
understanding of our consolidated financial condition and results of operations
for the three-year period ended December 31, 2001. Our consolidated financial
statements and the accompanying notes included elsewhere in this Annual Report
contain detailed information that you should refer to in conjunction with the
following discussion and analysis.
General
We are a leading North American manufacturer of metal and plastic consumer
goods packaging products. We currently produce steel and aluminum containers for
human and pet food and custom designed plastic containers and closures for
personal care, health care, pharmaceutical, household and industrial chemical,
food, pet care, agricultural chemical, automotive and marine chemical products.
We are the largest manufacturer of metal food containers in North America, with
a unit sale market share for the year ended December 31, 2001 of approximately
47% in the United States and a leading manufacturer of plastic containers in
North America for personal care products.
Revenue Growth
Our objective is to increase shareholder value through efficiently
deploying capital and management resources to grow our business and reduce costs
of existing operations and to make acquisitions at attractive cash flow
multiples. We have increased our revenues and market share in the metal food
container and plastic container and closure markets through acquisitions and
internal growth. As a result, we have expanded and diversified our customer
base, geographic presence and product line.
For example, during the past fourteen years, the metal food container
market has experienced significant consolidation primarily due to the desire by
food processors to reduce costs and focus resources on their core operations.
Our acquisitions of the metal food container manufacturing operations of Nestle,
Dial, Del Monte, Agrilink and Campbell reflect this trend.
We have improved the market position of our plastic container and closure
business since 1987, with sales increasing more than fivefold to $493.6 million
in 2001. We achieved this improvement primarily through strategic acquisitions,
including most recently RXI, as well as through internal growth. The plastic
container and closure business of the consumer goods packaging industry is
highly fragmented, and we intend to pursue further consolidation opportunities
in this market. We also believe that we can successfully apply our acquisition
and operating expertise to new markets of the consumer goods packaging industry.
For example, with the acquisition of RXI we expanded our business into plastic
closures, caps, sifters and fitments and thermoformed plastic tubs. We expect to
continue to generate internal growth in our plastic container and closure
business. For example, we intend to aggressively market our plastic closures to
existing customers of our plastic container business. Additionally, we intend to
continue to expand our customer base in the markets that we serve, such as the
personal care, health care, pharmaceutical, household and industrial chemical,
food, pet care, agricultural chemical, automotive and marine chemical markets.
Operating Performance
We use a disciplined approach to acquire businesses at attractive cash flow
multiples and to enhance profitability through productivity and cost reduction
opportunities. The additional sales and production capacity provided through
acquisitions have enabled us to rationalize plant operations and decrease
overhead costs through plant closings and downsizings. In addition, our
acquisitions have enabled us to realize manufacturing efficiencies as a result
of optimizing production scheduling and minimizing product transportation costs.
We have also benefited from our economies of scale and from
-18-
the elimination of redundant selling and administrative functions. In addition
to the benefits realized through the integration of acquired businesses, we have
improved the operating performance of our plant facilities by making capital
investments for productivity improvements and manufacturing cost reductions.
Historically, we have been able to improve the operating margins of our
acquired businesses through productivity and cost reduction opportunities.
Following an acquisition, we initiate a systematic program implemented over a
number of years to optimize our manufacturing facilities. As a result, an
improvement to operating margins of the acquired businesses has in general been
realized over a number of years.
In addition to the benefits realized through the integration of acquired
businesses, we have improved the operating performance of our existing plant
facilities through the investment of capital for productivity improvements and
manufacturing cost reductions. We have also invested capital for new market
opportunities, such as easy-open ends for metal food containers. Over the past
five years, we have invested $418.0 million in capital to improve our
productivity, reduce our manufacturing costs and invest in new market
opportunities.
For the period from 1995 through 2001, the operating margins of our metal
food container business (without giving effect to rationalization charges in
1995 and 2001) improved from approximately 6.5% in 1995 to 8.2% in 2001. We
achieved this improvement principally as a result of the following factors and
despite competitive pricing pressure:
o the benefits realized from rationalization and integration activities;
o economies of scale and the elimination of redundant costs related to
acquisitions;
o the investment of capital for productivity improvements and manufacturing
cost reductions; and
o an improved sales mix.
The operating margins of our plastic container business (without giving
effect to a rationalization charge in 2001) also improved from approximately
6.0% in 1995 to 10.0% in 2001. This improvement was primarily due to:
o volume benefits realized principally as a result of acquisitions;
o economies of scale and the elimination of redundant costs related to
acquisitions;
o the investment of capital for productivity improvements; and
o an improved sales mix.
We operate in a competitive industry where it is necessary to realize cost
reduction opportunities to offset continued competitive pricing pressure.
Further, the multi-year supply arrangements entered into by our businesses with
many of our customers limit our ability to increase our margins. We estimate
that approximately 85% of our projected metal food container sales in 2002 and
more than a majority of our projected plastic container and closure sales in
2002 will be under multi-year arrangements. These multi-year supply arrangements
generally provide for the pass through of changes in material, labor and other
manufacturing costs, thereby significantly reducing the exposure of our results
of operations to the volatility of these costs.
-19-
Historically, we have been successful in continuing our multi-year supply
arrangements with our customers, without any resulting material adverse effect
on our financial condition or results of operations. Recently, we agreed to
extend the term of our supply agreements with Nestle for approximately half of
the metal containers sales covered under these agreements by seven years from
2001 through 2008, in return for price reductions which took effect in 2001.
These price reductions did not have a material adverse effect on our financial
condition or results of operations.
Our metal food container business sales and, to a lesser extent, operating
income are dependent, in part, upon the vegetable and fruit harvests in the
midwest and western regions of the United States. The size and quality of these
harvests varies from year to year, depending in large part upon the weather
conditions in those regions. Because of the seasonality of the harvests, we have
historically experienced higher unit sales volume in the third quarter of our
fiscal year and generated a disproportionate amount of our annual income from
operations during that quarter. This seasonal impact has been mitigated somewhat
by the acquisition of CS Can from Campbell. Sales to Campbell generally have
been highest in the fourth quarter due to the seasonal demand for soup products.
Use of Capital
We use leverage to support our growth and increase shareholder returns. Our
stable and predictable cash flow, generated largely as a result of our long-term
customer relationships and generally recession resistant business, supports our
financial strategy. We intend to continue using leverage, supported by our
stable cash flows, to make value-enhancing acquisitions. In the absence of
attractive acquisition opportunities, we intend to use our free cash flow to
repay indebtedness or for other permitted purposes. For example, in 2001, we did
not complete any acquisitions, and we reduced our total debt by $86.3 million.
Similarly, in 1999, we did not complete any acquisitions, and we reduced our
total debt by $44.7 million despite, among other things, the incurrence of $16.6
million of debt for common stock repurchases.
To the extent we utilize debt for acquisitions or other permitted purposes
in future periods, our interest expense may increase. Further, since the
revolving loan and term loan borrowings under our senior secured credit
facilities bear interest at floating rates, our interest expense is sensitive to
changes in prevailing rates of interest and, accordingly, our interest expense
may vary from period to period. After taking into account interest rate swap
arrangements that we entered into to mitigate the effect of interest rate
fluctuations, at December 31, 2001 we had $366.7 million of indebtedness which
bore interest at floating rates.
In light of our strategy to use leverage to support our growth and optimize
shareholder returns, we have incurred and will continue to incur significant
interest expense. For 2001, our aggregate financing costs were 50.2% of our
income from operations as compared to 58.0%, 53.6%, 52.8%, and 57.1% for 2000,
1999, 1998 and 1997, respectively (without giving effect to rationalization
charges in 2001 and 1999 and a non-cash stock option charge in 1997).
We are currently discussing with financial institutions a refinancing of
our U.S. senior secured credit facility. Our revolving loan facility and a
portion of our term loan debt under our U.S. senior secured credit facility
matures on December 31, 2003. As early as the second quarter of 2002, we may
refinance our current U.S. senior secured credit facility with a new U.S. senior
secured credit facility and possibly from an issuance of additional subordinated
indebtedness. However, we can not guarantee that we will be able to refinance
our current U.S. senior secured credit facility. We anticipate that our new U.S.
senior secured credit facility will provide us with term loans and a new
revolving loan facility. We expect to be able to use the new revolving loan
facility and additional term loans for working capital purposes, acquisitions
and other permitted purposes.
-20-
Packtion Investment
In April 2000, we, together with Morgan Stanley Private Equity and
Diamondcluster International, Inc., agreed to invest in Packtion Corporation, or
Packtion, an e-commerce joint venture aimed at integrating the packaging supply
chain, from design through manufacture and procurement. The parties agreed to
make the investments through Packaging Markets LLC, a limited liability company.
The joint venture was expected to provide a comprehensive online marketplace for
packaging goods and services and to combine content, tools and collaboration
capabilities to streamline the product development process and enhance
transaction opportunities for buyers and sellers of packaging. The products that
Packtion was developing included a web-based software tool to enable product and
package design, development and collaboration; an internet-based secure
environment enabling the sharing of packaging related product information and
the transaction of business electronically; and an informational source of
packaging related knowledge, tools and expert services. Packtion had
insignificant sales for internet consulting services and incurred net losses.
In June and August 2000, we invested a total of $7.0 million in Packtion
representing approximately a 45% interest in Packtion. For the year ended
December 31, 2000, we recorded equity losses of $4.6 million in Packtion. In
addition, we recorded our share of Packtion's closing costs, $0.2 million, as a
reduction to our investment. In the first quarter of 2001 in connection with an
investment by The Procter & Gamble Company and E.I. Du Pont de Nemours & Co. in
Packtion, we funded additional investments of $3.1 million, bringing our total
investment to $10.1 million representing approximately a 25% interest in
Packtion. In connection with this transaction, we also recorded a reduction to
paid-in capital of $1.4 million due to the dilution of our investment. Packtion
was dissolved on May 31, 2001 after its board of directors determined that there
had been slower than anticipated market acceptance of its business. During 2001,
we recorded equity losses of Packtion aggregating $3.8 million, which included
our final losses and eliminated our investment.
White Cap Joint Venture
Effective July 1, 2001, we 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. We contributed $48.4 million of metal
closure assets, including our manufacturing facilities in Evansville and
Richmond, Indiana, and $7.1 million of metal closure liabilities to White Cap in
return for a 35% interest in and $32.4 million of cash proceeds from the joint
venture. Net sales of our metal closure business which was contributed to the
White Cap joint venture totaled $46.3 million, $90.8 million and $101.6 million
in 2001, 2000 and 1999, respectively. During 2001, we recorded equity losses of
the White Cap joint venture of $0.3 million and a gain on the assets contributed
to the joint venture of $4.9 million.
Historically, we reported the results of our specialty packaging business
as a separate business segment, which included our metal closure business. As a
result of the White Cap joint venture on July 1, 2001, we no longer report the
financial results of our remaining specialty packaging business, which had net
sales of $34.3 million, $33.1 million and $36.5 million in 2001, 2000 and 1999,
respectively, as a separate business segment. We report the results of our Omni
plastic container and our Polystar easy-open plastic end businesses with our
plastic container business and the results of our paperboard container business
with our metal food container business. We report the historical results of our
metal closures business separately. We have restated prior year amounts to
conform with the current presentation.
-21-
Results of Operations
The following table sets forth certain income statement data expressed as a
percentage of net sales for each of the periods presented. You should read this
table in conjunction with our Consolidated Financial Statements for the year
ended December 31, 2001 and the accompanying notes included elsewhere in this
Annual Report.
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Operating Data:
Net sales:(1)
Metal food containers.......................... 72.2% 73.9% 76.1%
Plastic containers............................. 25.4 21.3 18.5
Metal closures................................. 2.4 4.8 5.4
----- ----- -----
Total....................................... 100.0 100.0 100.0
Cost of goods sold............................... 87.6 87.8 87.6
----- ----- -----
Gross profit..................................... 12.4 12.2 12.4
Selling, general and administrative expenses..... 4.0 3.8 3.9
Rationalization charges, net(2).................. 0.5 -- 1.9
----- ----- -----
Income from operations........................... 7.9 8.4 6.6
Gain on assets contributed to affiliate.......... 0.3 -- --
Interest and other debt expense.................. 4.2 4.9 4.6
----- ----- -----
Income before income taxes and equity in
losses of affiliates .......................... 4.0 3.5 2.0
Provision for income taxes....................... 1.6 1.4 0.7
----- ----- -----
Income before equity in losses of affiliates
and extraordinary item......................... 2.4 2.1 1.3
Equity in losses of affiliates................... 0.2 0.2 --
----- ----- -----
Income before extraordinary item................. 2.2 1.9 1.3
Extraordinary item - loss on early extinguishment
of debt, net of income taxes................... -- 0.2 --
----- ----- -----
Net income....................................... 2.2% 1.7% 1.3%
===== ===== =====
Summary results for our business segments, metal food containers, plastic
containers and metal closures, for the years ended December 31, 2001, 2000, and
1999 are provided below.
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
(Dollars in millions)
Net sales:(1)
Metal food containers.............. $1,401.1 $1,387.7 $1,440.0
Plastic containers................. 493.6 399.0 350.5
Metal closures..................... 46.3 90.8 101.6
-------- -------- --------
Consolidated.................... $1,941.0 $1,877.5 $1,892.1
======== ======== ========
Income from operations:(1)
Metal food containers.............. $ 114.2 $ 120.2 $ 120.6
Plastic containers................. 49.5 36.9 40.0
Metal closures..................... 3.3 3.7 3.7
Rationalization charges, net(2).... (9.3) -- (36.1)
Corporate.......................... (5.3) (3.7) (3.9)
-------- -------- --------
Consolidated.................... $ 152.4 $ 157.1 $ 124.3
======== ======== ========
- ------------
(1) As a result of the White Cap joint venture, we no longer report the results
of our remaining specialty packaging business, which had net sales of $34.3
million, $33.1 million and $36.5 million in 2001, 2000 and 1999,
respectively, as a separate business segment. The results of the Omni
plastic container and Polystar easy-open
-22-
plastic end businesses are reported with our plastic container business,
and the results of the paperboard container business are reported with our
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) Included in income from operations in 2001 are net rationalization charges
of $9.3 million, consisting of $5.8 million (including $3.0 million for the
non-cash write-down in carrying value of certain assets) relating primarily
to closing two metal food container manufacturing facilities and $3.5
million relating to closing a plastic container manufacturing facility.
Included in income from operations in 1999 are $36.1 million of
rationalization charges, consisting of a charge of $11.9 million relating
to the closing of two manufacturing facilities of the metal food container
business (which included $7.3 million for the non-cash write-down in
carrying value of assets) and a non-cash charge of $24.2 million for the
excess of carrying value over estimated net realizable value of machinery
and equipment of the metal food container business which had become
obsolete or surplus. You should also read Note 3 to our Consolidated
Financial Statements for the year ended December 31, 2001 included
elsewhere in this Annual Report.
Year Ended December 31, 2001 Compared with Year Ended December 31, 2000
Net Sales. Consolidated net sales increased $63.5 million, or 3.4%, to
$1.941 billion for the year ended December 31, 2001, as compared to net sales of
$1.878 billion for the prior year. This increase was the result of increased net
sales of the plastic container business largely due to the acquisition of RXI in
October 2000 and slightly higher net sales of the metal food container business,
partially offset by the impact of contributing the metal closure business to the
White Cap joint venture. Excluding incremental sales added by RXI and the impact
of the White Cap joint venture, consolidated net sales for 2001 increased by
$21.5 million, or 1.2%, from the prior year.
Net sales for the metal food container business were $1.401 billion for the
year ended December 31, 2001, an increase of $13.4 million, or 1.0%, from net
sales of $1.388 billion for the prior year. This increase was primarily due to
the acquisition of new food can customers and a favorable sales mix primarily
driven by increased sales of convenience ends, largely offset by weaker fruit
and vegetable packs in 2001 as compared to 2000 and generally softer market
conditions in the first half of the year as compared to last year.
Net sales for the plastic container business of $493.6 million for the year
ended December 31, 2001 increased $94.6 million, or 23.7%, from net sales of
$399.0 million for 2000. This increase in net sales was largely due to the
acquisition of RXI in October 2000. Excluding incremental sales added by RXI,
net sales for the plastic container business for 2001 increased $10.3 million,
or 2.6%, from the prior year as customer inventory restocking in the first half
of the year more than offset generally softer market conditions later in the
year.
Net sales for the metal closure business were $46.3 million for the year
ended December 31, 2001, as compared to net sales of $90.8 million for the prior
year. The decrease in net sales was a result of contributing the metal closure
business to the White Cap joint venture on July 1, 2001.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net
sales was 87.6% ($1.701 billion) for the year ended December 31, 2001, a
decrease of 0.2 percentage point as compared to 87.8% ($1.648 billion) in 2000.
The increase in gross profit margin was attributable to higher margins from the
plastic container business and was offset in part by lower margins realized by
the metal food container business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales for the year
ended December 31, 2001 increased to 4.0% ($78.5 million), as compared to 3.8%
($72.1 million) for the prior year. This increase in selling, general and
-23-
administrative expenses as a percentage of consolidated net sales was primarily
a result of costs we incurred related to the secondary public offering by a
selling stockholder in November 2001.
Income from Operations. Excluding net rationalization charges of $9.3
million recorded in 2001, income from operations increased $4.6 million, or
2.9%, to $161.7 million for the year ended December 31, 2001, as compared to
income from operations of $157.1 million for the prior year. This increase was
primarily a result of higher sales in the plastic container business, partially
offset by lower operating income in the metal food container business and the
impact of contributing the metal closure business to the White Cap joint
venture. Including rationalization charges, income from operations for the year
ended December 31, 2001 was $152.4 million. Excluding rationalization charges,
income from operations as a percentage of consolidated net sales for the year
ended December 31, 2001 was 8.3%, as compared to 8.4% for 2000. The slight
decline in operating margins was attributable to lower operating margins of the
metal food container business, which was largely offset by the improved
performance of the plastic container business.
During the fourth quarter of 2001, we recorded a net rationalization charge
of $5.8 million. This charge was comprised of a charge of $7.0 million,
including $4.2 million for the non-cash write-down in carrying value of assets,
primarily relating to closing two metal food container manufacturing facilities
and a $1.2 million credit to income as a result of placing certain assets with
carrying values that were previously written-down back in service. In the first
quarter of 2001, we recorded a rationalization charge of $3.5 million relating
to closing a plastic container manufacturing facility.
Excluding the effect of the net rationalization charge recorded in the
fourth quarter of 2001, income from operations for the metal food container
business for the year ended December 31, 2001 was $114.2 million, a $6.0 million
decrease from income from operations of $120.2 million for the prior year.
Including the effect of the rationalization charge, income from operations for
the metal food container business for the year ended December 31, 2001 was
$108.4 million.
Excluding the effect of the rationalization charge, income from operations
as a percentage of net sales for the metal food container business was 8.2% for
the year ended December 31, 2001, as compared to 8.7% in 2000. The lower
operating margins of the metal food container business was principally
attributable to higher energy costs, higher depreciation expense, start-up costs
related to the manufacture of convenience ends and higher employee medical
costs, partially offset by benefits realized from a previous plant
rationalization and a favorable sales mix.
Excluding the first quarter 2001 rationalization charge, income from
operations for the plastic container business for the year ended December 31,
2001 was $49.5 million, a $12.6 million increase over income from operations of
$36.9 million for the prior year. Including the effect of the rationalization
charge, income from operations for the plastic container business for the year
ended December 31, 2001 was $46.0 million.
Excluding the effect of the rationalization charge, income from operations
as a percentage of net sales for the plastic container business for the year
ended December 31, 2001 was 10.0%, as compared to 9.2% for 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 metal closure business for the year ended
December 31, 2001 was $3.3 million, as compared to income from operations of
$3.7 million for the prior year. The decrease in income from operations was the
result of contributing the metal closure business to the White Cap joint venture
on July 1, 2001.
-24-
Interest Expense. Interest expense decreased $10.0 million to $81.2 million
for the year ended December 31, 2001, as compared to $91.2 million in 2000. This
decrease was principally a result of the benefit of lower interest rates that
more than offset the impact of higher average borrowings outstanding,
principally due to debt incurred in the fourth quarter of 2000 for the
acquisition of RXI.
Income Taxes. The provision for income taxes for the year ended December
31, 2001 was recorded at an effective tax rate of 39.7% ($30.2 million), as
compared to 39.1% ($25.8 million) for 2000.
Net Income and Earnings per Share. Before net rationalization charges and
the impact of our equity investments, income for the year ended December 31,
2001 was $48.5 million, or $2.69 per diluted share. Income for the year ended
December 31, 2000 was $40.1 million, or $2.23 per diluted share, before equity
in losses of Packtion and an extraordinary loss related to the early
extinguishment of our 13-1/4% Subordinated Debentures. Including net
rationalization charges of $9.3 million, or $0.31 per diluted share, equity in
losses of Packtion and White Cap of $4.1 million, or $0.23 per diluted share,
and the gain on assets contributed to the White Cap joint venture of $4.9
million, or $0.16 per diluted share, net income for the year ended December 31,
2001 was $41.8 million, or $2.31 per diluted share. Including equity in losses
of Packtion of $4.6 million, or $0.26 per diluted share, and the extraordinary
loss, net of tax, of $4.2 million, or $0.23 per diluted share, net income for
the year ended December 31, 2000 was $31.3 million, or $1.74 per diluted share.
Year Ended December 31, 2000 Compared with Year Ended December 31, 1999
Net Sales. Consolidated net sales decreased $14.6 million, or 0.7%, to
$1.878 billion for the year ended December 31, 2000, as compared to net sales of
$1.892 billion for the prior year. This decrease resulted primarily from lower
unit sales of the metal food container and metal closure businesses, which was
largely offset by higher net sales of the plastic container business. Excluding
incremental sales added by the October 2000 acquisition of RXI, consolidated net
sales for 2000 decreased by $41.2 million, or 2.2%, from the prior year.
Net sales for the metal food container business were $1.388 billion for the
year ended December 31, 2000, a decrease of $52.3 million, or 3.6%, from net
sales of $1.440 billion for the prior year. This decrease was primarily due to
the withdrawal from lower margin sales related to the closure of a West Coast
facility at the beginning of 2000 and to lower unit sales principally due to a
reduced fruit and vegetable pack in 2000 and generally lower demand from
customers.
Net sales for the plastic container business of $399.0 million for the year
ended December 31, 2000 increased $48.5 million, or 13.8%, from net sales of
$350.5 million for 1999. This increase in net sales was principally attributable
to higher average sales prices due to the pass through of increased resin costs
and to incremental sales added by RXI. Excluding incremental sales added by RXI,
net sales for the plastic container business for 2000 increased $21.9 million,
or 6.2%, from the prior year.
Net sales for the metal closure business were $90.8 million for the year
ended December 31, 2000, as compared to $101.6 million for the prior year. The
decrease in net sales was primarily due to generally soft demand from customers
and to the continued conversion of metal closures to plastic closures.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net
sales was 87.8% ($1.648 billion) for the year ended December 31, 2000, an
increase of 0.2 percentage point as compared to 87.6% ($1.657 billion) in 1999.
The decline in gross profit margin was attributable to lower margins realized by
the plastic container and metal closure businesses as discussed below, and was
offset in part by higher margins from the metal food container business.
-25-
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales for the year
ended December 31, 2000 decreased to 3.8% ($72.1 million), as compared to 3.9%
($75.0 million) for the prior year. This decrease was primarily a result of the
absence in 2000 of costs incurred in 1999 for Year 2000 readiness issues, lower
headcount and generally lower spending.
Income from Operations. Income from operations decreased $3.3 million, or
2.1%, to $157.1 million for the year ended December 31, 2000, as compared to
income from operations of $160.4 million for the prior year excluding the effect
of an aggregate of $36.1 million of rationalization charges recorded in 1999.
This decrease was primarily a result of lower operating income of the plastic
container business. Including the effect of the rationalization charges, income
from operations for the year ended December 31, 1999 was $124.3 million. Income
from operations as a percentage of consolidated net sales for the year ended
December 31, 2000 was 8.4%, as compared to 8.5% for 1999 excluding the effect of
the rationalization charges recorded in 1999. The slight decline in operating
margins was attributable to lower operating margins of the plastic container
business, which was largely offset by the improved operating performance of the
metal food container business.
Income from operations for the metal food container business for the year
ended December 31, 2000 was $120.2 million, a $0.4 million decrease from income
from operations, excluding the effect of the rationalization charges recorded in
1999, of $120.6 million for the prior year. Including the effect of the
rationalization charges, income from operations for the metal food container
business for the year ended December 31, 1999 was $84.5 million. Income from
operations as a percentage of net sales for the metal food container business
was 8.7% for the year ended December 31, 2000, as compared to 8.4% in 1999
excluding the effect of the rationalization charges recorded in 1999. The
improved operating margins of the metal food container business was principally
attributable to benefits realized from an improved sales mix, plant
rationalizations and lower selling, general and administrative expenses, and was
partially offset by higher energy costs and depreciation expense.
Pursuant to continued efforts to optimize production efficiencies and to
withdraw from lower margin business, we decided in the fourth quarter of 1999 to
close two West Coast manufacturing facilities of the metal food container
business, and accordingly recorded a pre-tax charge to earnings of $11.9
million, which included $7.3 million for the non-cash write-down in carrying
value of certain assets. Additionally, in the third quarter of 1999, we recorded
a non-cash pre-tax charge to earnings of $24.2 million to reduce the carrying
value of certain assets of the metal food container business determined to be
surplus or obsolete.
Income from operations for the plastic container business for the year
ended December 31, 2000 was $36.9 million, a $3.1 million decrease from income
from operations for the prior year. Income from operations as a percentage of
net sales for the plastic container business for the year ended December 31,
2000 was 9.2%, as compared to 11.4% for 1999. The decrease in income from
operations as a percentage of net sales for the plastic container business was
principally attributable to the effects of increased resin prices which resulted
in an increase in net sales but not in income from operations and to lower
selling prices relating to the extension of certain long-term contracts.
Income from operations for the metal closure business for the year ended
December 31, 2000 of $3.7 million remained essentially even with income from
operations for the prior year. Income from operations as a percentage of net
sales for the metal closure business increased to 4.1% for the year ended
December 31, 2000, as compared to 3.6% in 1999. The increase in operating
margins of the metal closure business was primarily a result of lower selling,
general and administrative expenses, partially offset by lower unit sales,
operating inefficiencies at two plants and higher energy costs.
-26-
Interest Expense. Interest expense increased $5.1 million to $91.2 million
for the year ended December 31, 2000, as compared to $86.1 million in 1999. This
increase was principally a result of increased borrowing in the fourth quarter
of 2000 to finance the acquisition of RXI and higher interest rates in 2000, and
was offset in part by lower average borrowings outstanding during the first nine
months of 2000 primarily as a result of the planned inventory reduction by our
metal food container business.
Income Taxes. The provision for income taxes for the year ended December
31, 2000 was recorded at an effective tax rate of 39.1% ($25.8 million), as
compared to 37.4% ($14.3 million) for 1999. The effective tax rate in 2000
increased as compared to 1999 primarily due to the utilization of state tax net
operating loss carryforwards in 1999 that were not available in 2000.
Net Income and Earnings per Share. As a result of the items discussed
above, income for the year ended December 31, 2000 was $40.1 million, or $2.23
per diluted share, before losses in our equity investment in Packtion and an
extraordinary loss related to the early extinguishment of our 13-1/4%
Subordinated Debentures. Income for the year ended December 31, 1999 was $46.6
million, or $2.56 per diluted share, before rationalization charges recorded in
1999. Including our share of losses in our equity investment in Packtion of $4.6
million, or $0.26 per diluted share, and the extraordinary loss, net of tax, of
$4.2 million, or $0.23 per diluted share, net income for the year ended December
31, 2000 was $31.3 million, or $1.74 per diluted share. For the year ended
December 31, 1999, including rationalization charges of $36.1 million, or $1.24
per diluted share, net income was $23.9 million, or $1.32 per diluted share.
Capital Resources and Liquidity
Our principal sources of liquidity have been net cash from operating
activities and corporate borrowings under our revolving loan facilities. Our
liquidity requirements arise primarily from our obligations under the
indebtedness incurred in connection with our acquisitions and the refinancing of
that indebtedness, capital investment in new and existing equipment and the
funding of our seasonal working capital needs.
In 2001, we used cash generated from operations of $143.0 million, cash
proceeds from the White Cap joint venture of $32.4 million, proceeds from asset
sales of $3.9 million, cash balances of $2.0 million and proceeds from the
exercise of employee stock options of $1.0 million to fund capital expenditures
of $93.0 million, repayments of borrowings under our senior secured credit
facilities of $86.3 million and our investment in Packtion of $3.0 million.
In 2001, trade accounts receivable, net decreased $23.4 million to $144.9
million as compared to 2000. This decrease was primarily due to the impact of
contributing our metal closure business to the White Cap joint venture and the
impact of a few customers delaying payments in 2000 until the beginning of 2001.
Inventories decreased $17.1 million to $262.6 million in 2001 as compared to
2000. This decrease was primarily due to the impact of contributing our metal
closure business to the White Cap joint venture and the timing of raw material
purchases and business requirements. Trade accounts payable decreased $34.3
million to $173.9 million principally due to the timing of payments and raw
material purchases.
In 2000, we used net borrowings of revolving loans of $243.7 million
($242.1 million under our U.S. senior secured credit facility and $1.6 million
under our Canadian senior secured credit facility), cash generated from
operations of $95.1 million, proceeds from asset sales of $1.8 million and
proceeds from the exercise of employee stock options of $0.5 million to fund our
acquisition of RXI for $124.0 million, capital expenditures of $89.2 million,
the redemption of the 13-1/4% Subordinated Debentures for $61.8 million, the
repayment of $39.3 million of term loan borrowings under our senior secured
-27-
credit facilities, the increase in our cash balances of $17.7 million, our
investment in Packtion of $7.0 million, repurchases of common stock for $1.1
million and debt financing costs of $1.0 million.
In 2000, trade accounts receivable, net increased $40.2 million to $168.3
million as compared to 1999. This increase was primarily due to a few customers
delaying payments until the beginning of 2001 and the acquisition of RXI.
Inventories, net increased $30.2 million to $279.7 million in 2000 as compared
to 1999. This increase was primarily due to the acquisition of RXI, the timing
of raw material purchases and the timing of business requirements for new and
existing customers. Trade accounts payable increased $32.7 million to $208.1
million primarily due to the timing of payments and raw material purchases.
In December 2000, we redeemed all of our outstanding 13-1/4% Subordinated
Debentures ($56.2 million principal amount) with lower cost revolving loans
under our U.S. senior secured credit facility. The redemption price for all of
the 13-1/4% Subordinated Debentures, including premiums, was $61.8 million. We
benefited from this redemption because of the lower interest rate applicable to
such indebtedness, despite the slight increase in our indebtedness as a result.
In 1999, we used cash generated from operations of $143.3 million, $2.4
million of cash balances and $0.5 million of cash proceeds from the exercise of
employee stock options to repay $44.7 million of borrowings under our senior
secured credit facilities, fund net capital expenditures of $84.9 million and
repurchase $16.6 million of our common stock.
Our senior secured credit facilities currently provide us with revolving
loans of up to approximately $675.0 million (including $125.0 million added in
October 2000). Revolving loans are available to us for our seasonal working
capital requirements and general corporate purposes, including acquisitions. In
addition, we may request to borrow up to an additional $75.0 million of
revolving loans from one or more lenders under our U.S. senior secured credit
facility. Revolving loans under our senior secured credit facilities may be
borrowed, repaid and reborrowed until December 31, 2003, their final maturity,
at which point all such outstanding revolving loans must be repaid. As of
December 31, 2001, we had $333.0 million of revolving loans outstanding under
our U.S. senior secured credit facility, and, after taking into account
outstanding letters of credit, the available portion of the revolving loan
facility under our U.S. senior secured credit facility was $321.5 million.
Additionally, as of December 31, 2001, there were no outstanding revolving
loans under our Canadian senior secured credit facility, and after taking into
account outstanding letters of credit, the available portion of the revolving
loan facility under our Canadian senior secured credit facility was
approximately $4.1 million.
Our U.S. senior secured credit facility also provided us with A Term Loans
($119.4 million outstanding at December 31, 2001) and B Term Loans ($186.6
million outstanding at December 31, 2001), which are required to be repaid in
annual installments through December 31, 2003 and December 31, 2005,
respectively. Additionally, our Canadian senior secured credit facility provided
us with term loans ($2.6 million outstanding at December 31, 2001), which are
required to be repaid in annual installments through December 31, 2003. You
should also read Note 9 to our Consolidated Financial Statements for the year
ended December 31, 2001 included elsewhere in this Annual Report.
We are currently discussing with financial institutions a refinancing of
our U.S. senior secured credit facility. As early as the second quarter of 2002,
we may refinance all outstanding term loans and revolving loans under our
current U.S. senior secured credit facility with new term loans and a revolving
loan facility under a new U.S. senior secured credit facility and possibly from
an issuance of additional subordinated indebtedness. However, we can not
guarantee that we will be able to refinance our current U.S. senior secured
credit facility. We expect to be able to use the new revolving loan facility and
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additional term loans for working capital purposes, acquisitions and other
permitted purposes. Based on the current market, we also expect that the
interest rate margins under the new U.S. senior secured credit facility will be
higher than the interest rate margins under our current U.S. senior secured
credit facility. Accordingly, if we complete a refinancing of our U.S. senior
secured credit facility, we expect that our interest expense will increase
during the second half of 2002 as compared to the second half of 2001.
Because we sell metal containers used in fruit and vegetable pack
processing, we have seasonal sales. As is common in the industry, we 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 our seasonal requirements, we
incur short term indebtedness to finance our working capital requirements.
For 2002, we estimate that we will utilize approximately $190-200 million
of revolving loans under our senior secured credit facilities for our month-end
peak seasonal working capital requirements. We may use the available portion of
our revolving loan facilities, after taking into account our seasonal needs and
outstanding letters of credit, for acquisitions and other permitted purposes.
Our board of directors has authorized the repurchase of up to $70 million
of our common stock. As of December 31, 2001, we have repurchased 2,708,975
shares of our common stock for an aggregate cost of approximately $61.0 million.
The repurchases were financed through revolving loan borrowings under our U.S.
senior secured credit facility. We intend to finance future repurchases, if any,
of our Common Stock with revolving loans from our U.S. senior secured credit
facility.
In addition to our operating cash needs, we believe our cash requirements
over the next few years (without taking into account the effect of future
acquisitions) will consist primarily of:
o annual capital expenditures of $80 to $110 million;
o annual principal amortization payments of bank term loans under our
current senior secured credit facilities in 2002 through 2005 of
approximately $58.0 million, $68.1 million, $2.0 million and $180.7
million and the repayment of outstanding revolving loans under our
current senior secured credit facilities ($333.0 million outstanding at
December 31, 2001) no later than December 31, 2003;
o our interest requirements, including interest on revolving loans (the
principal amount of which will vary depending upon seasonal
requirements) and bank term loans under our senior secured credit
facilities, which bear fluctuating rates of interest, and the 9%
Debentures; and
o payments of approximately $20 million for federal, state and foreign
tax liabilities in 2002, which will increase annually thereafter.
We believe that cash generated from operations and funds from the revolving
loans available under our current senior secured credit facilities as well as
proceeds and available loans from the refinancing of our current U.S. senior
secured credit facility as discussed above will be sufficient to meet our
expected operating needs, planned capital expenditures, debt service and tax
obligations for the foreseeable future. We are also continually evaluating and
pursuing acquisition opportunities in the consumer goods packaging market and
may incur additional indebtedness, including indebtedness under our senior
secured credit facilities, to finance any such acquisition.
A portion of our term loan indebtedness and all of our revolving loan
indebtedness under our current U.S. senior secured credit facility matures on
December 31, 2003. As discussed above, we may refinance our current U.S. senior
secured credit facility as early as the second quarter of 2002 with a new
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U.S. senior secured credit facility and possibly from an issuance of additional
subordinated indebtedness. However, we may not be able to effect such
refinancing and, if we are able to effect such refinancing, we may not be able
to do so on the same terms (including interest rate margins) as our current U.S.
senior secured credit facility. Our ability to effect this refinancing and the
terms of this refinancing will depend upon a variety of factors, including:
o our future prospects, 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 our control) affecting our business and operations;
o prevailing interest rates;
o the timing of the refinancing; and
o the amount of debt to be refinanced.
Our senior secured credit facilities and the indenture with respect to the
9% Debentures contain restrictive covenants that, among other things, limit our
ability to incur debt, sell assets and engage in certain transactions. We do not
expect these limitations, or any limitations that may exist in any new U.S.
senior secured credit facility, to have a material effect on our business or our
results of operations. We are in compliance with all financial and operating
covenants contained in our financing agreements and believe that we will
continue to be in compliance during 2002 with all of these covenants.
Our contractual obligations at December 31, 2001 are provided below:
Payments Due By Period
-----------------------------------------------------
Less Than 1-3 4-5
Total 1 Year Years Years Thereafter
Long-term debt ......................... $ 944.8 $58.0 $403.1 $180.7 $303.0
Minimum rental commitments ............. 94.7 18.6 26.8 18.5 30.8
-------- ----- ------ ------ ------
Total contractual cash obligations ..... $1,039.5 $76.6 $429.9 $199.2 $333.8
======== ===== ====== ====== ======
At December 31, 2001, we also had outstanding letters of credit of $16.0
million that were issued under our U.S. senior secured credit facility.
Effect of Inflation and Interest Rate Fluctuations
Historically, inflation has not had a material effect on us, other than to
increase our cost of borrowing. In general, we have been able to increase the
sales prices of our products to reflect any increases in the prices of raw
materials.
Because we have indebtedness which bears interest at floating rates, our
financial results will be sensitive to changes in prevailing market rates of
interest. As of December 31, 2001, we had $944.8 million of indebtedness
outstanding, of which $366.7 million bore interest at floating rates, taking
into account interest rate swap agreements we entered into as of that date to
mitigate the effect of interest rate fluctuations. Under these agreements,
floating rate interest based on the three month LIBOR rate was exchanged for
fixed rates of interest ranging from 3.8% to 6.4%. The aggregate notional
principal amounts of these agreements totals $275 million, with $100 million
aggregate notional principal amount maturing in 2002, $125 million aggregate
notional principal amount maturing in 2003 and $50 million aggregate notional
principal amount maturing in 2004. Depending upon market conditions, we may
enter into additional interest rate swap or hedge agreements (with
counterparties that, in our judgment,
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have sufficient creditworthiness) to hedge our exposure against interest rate
volatility.
Rationalization Charges and Acquisition Reserves
During the fourth quarter of 2001, we approved and announced to employees
separate plans to exit our Northtown, Missouri and Kingsburg, California metal
food container facilities and to cease operation of our composite container
department at our Waukegan, Illinois metal food container facility. These plans
included the termination of approximately 80 plant employees, the termination of
an operating lease and other plant related exit costs including equipment
dismantle costs. These decisions resulted in a fourth quarter pre-tax charge to
earnings of $7.0 million. This charge consisted of $4.2 million for the non-cash
write-down in carrying value of assets, $1.4 million for employee severance and
benefits and $1.4 million for plant exit costs. Through December 31, 2001,
excluding the non-cash write-down, a total of $0.1 million has been expended
relating to these plans. At December 31, 2001, this reserve had a balance of
$2.7 million. Cash payments relating to these plans are expected through 2002.
During the first quarter of 2001, we approved and announced to employees a
plan to exit our Fairfield, Ohio plastic container facility. The plan included
the termination of approximately 150 plant employees and other related exit
costs including equipment dismantle costs and contractual rent obligations. This
decision resulted in a first quarter pre-tax charge to earnings of $3.5 million,
which consisted of $2.6 million for plant exit costs and $0.9 million for
employee severance and benefits. Through December 31, 2001, a total of $1.4
million has been expended relating to this plan. These expenditures consisted of
$0.7 million related to employee severance and benefits and $0.7 million for
plant exit costs. At December 31, 2001, this reserve had a balance of $2.1
million. Although we have closed the plant, the timing of cash payments is
dependent upon the expiration of a lease obligation. Accordingly, cash payments
related to closing this facility are expected primarily through 2002.
During the fourth quarter of 1999, we approved and announced to employees
separate plans to exit our San Leandro and City of Industry, California metal
food container facilities. These plans included the termination of approximately
130 plant employees, termination of two operating leases and other plant related
exit costs including equipment dismantle costs and contractual rent obligations.
These decisions resulted in a fourth quarter pre-tax charge to earnings of $11.9
million. This charge consisted of $7.3 million for the non-cash write-down in
carrying value of assets, $2.2 million for employee severance and benefits and
$2.4 million for plant exit costs. Through December 31, 2001, excluding the
non-cash write-down, a total of $4.4 million has been expended relating to these
plans. These expenditures consisted of $2.2 million related to employee
severance and benefits and $2.2 million for plant exit costs. During the fourth
quarter of 2001, certain assets with carrying values that were previously
written down as part of this rationalization charge were placed back in service.
As a result, we recorded $1.2 million as a credit to rationalization charges,
net in our Consolidated Statements of Income, and recorded those assets in our
Consolidated Balance Sheets at their depreciated cost, which approximates fair
value. At December 31, 2001, this reserve had a balance of $0.2 million.
Although we have closed both plants, the timing of cash payments has been
dependent upon the resolution of various matters with the lessor of one of the
facilities. Accordingly, cash payments related to closing these facilities are
expected through 2002.
During 1999, we initiated and concluded a study to evaluate the long-term
utilization of all assets of our metal food container business. As a result,
during the third quarter of 1999, we determined that certain adjustments were
necessary to properly reflect the net realizable values of machinery and
equipment which had become surplus or obsolete and recorded a non-cash pre-tax
charge to earnings of $24.2 million to reduce the carrying value of those
assets.
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Acquisition reserves established in connection with our 1998 purchases of
CS Can, Clearplass Containers, Inc., and Winn Packaging Co., were recorded
pursuant to plans that we began to assess and formulate at the time of the
acquisitions and which were finalized in 1999. As a result of these plans, we
recorded acquisition reserves totaling $5.4 million, of which $0.5 million
related to employee severance and benefits, $4.6 million related to plant exit
costs necessary to comply with environmental requirements that existed at the
time of the acquisition and to exit the acquired Albia, Iowa and Sheffield,
Alabama plastic container manufacturing facilities and $0.3 million related to
liabilities incurred in connection with these acquisitions. Through December 31,
2001, a total of $3.5 million has been expended relating to these plans, which
consisted of $0.5 million related to employee severance and benefits, $2.9
million for plant exit costs and $0.1 million for the payment of acquisition
related liabilities. The timing of cash payments relating to the CS Can
activities has been primarily dependent upon obtaining necessary environmental
permits and approvals in connection with a consent order with the U.S.
Environmental Protection Agency to which we are subject as a result of our
acquisition of CS Can. All actions under these plans were completed during the
fourth quarter of 2001 at amounts less than previously estimated, and,
accordingly, we reversed $1.9 million of acquisition reserves as a reduction to
goodwill.
Acquisition reserves established in connection with our purchase of the
Food Metal and Specialty Business of ANC in 1995 aggregating approximately $49.5
million were recorded pursuant to plans that we began to assess and formulate at
the date of the acquisition and which were finalized in 1996. These reserves
consisted of employee severance and benefits costs ($26.1 million) for the
termination of approximately 500 plant, selling and administrative employees,
plant exit costs ($6.6 million) related to the planned closure of the St. Louis,
Missouri plant, the downsizing of the Hoopeston, Illinois and Savage, Minnesota
facilities and the restructuring of the St. Paul, Minnesota plant and
liabilities incurred in connection with the acquisition ($16.8 million). Through
December 31, 2001, a total of $44.0 million has been expended related to these
plans, which consisted of $24.6 million for employee severance and benefits,
$4.6 million for plant exit costs and $14.8 million for payment of acquisition
related liabilities. At December 31, 2001, this reserve had a balance of $5.5
million. Although we have completed our plan, cash payments are expected to
continue for pension obligations totaling $1.5 million which are required to be
paid pursuant to a labor agreement in place at the time of acquisition, the last
in a series of $2.0 million annual contractual payments that began in 1996 and
continue through 2002 to resolve a contract dispute that arose in connection
with the acquisition and the resolution of various environmental liabilities,
estimated at $2.0 million, that existed at the time of the acquisition.
You should also read Note 3 to our Consolidated Financial Statements for
the year ended December 31, 2001 included elsewhere in this Annual Report.
Critical Accounting Policies
Accounting principles generally accepted in the United States require
estimates and assumptions that affect the reported amounts in our consolidated
financial statements and the accompanying notes. Some of these estimates and
assumptions require difficult, subjective and/or complex judgments. Critical
accounting policies cover accounting matters that are inherently uncertain
because the future resolution of such matters is unknown. We believe that our
accounting policies for deferred income taxes, pension and postretirement
benefits and acquisition and rationalization reserves reflect the more
significant judgments and estimates in our consolidated financial statements.
You should also read our Consolidated Financial Statements for the year ended
December 31, 2001 and the accompanying notes included elsewhere in this Annual
Report.
At December 31, 2001, we had approximately $39.1 million of deferred tax
assets relating to $102.6 million of net operating loss carryforwards, or NOLs,
that expire between 2011 and 2021, for
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which no valuation allowance has been established. We had NOLs of approximately
$39.7 million available to offset furture consolidated taxable income (excluding
CS Can), and CS Can had NOLs of approximately $62.9 million available to offset
its future taxable income. We believe that it is more likely than not that these
NOLs will be available to reduce future income tax liabilities based on
estimated future taxable income, the reversal of temporary differences in future
periods and the utilization of tax planning strategies. Current levels of
consolidated pre-tax earnings (excluding CS Can) are sufficient to generate the
taxable income required to realize our deferred tax assets. Pre-tax earnings
levels for CS Can would need to increase from current levels to generate
sufficient taxable income to realize its deferred tax assets. We would reduce
our deferred tax assets by a valuation allowance if it became more likely than
not that a portion of these NOLs would not be utilized. If a valuation allowance
were established, additional expense would be recorded within the provision for
income taxes in our Consolidated Statements of Income in the period that the
determination was made. This process requires the use of significant judgment
and estimates.
Our pension and postretirement benefit costs and liabilities are developed
from actuarial valuations. Inherent in these valuations are assumptions,
including the discount rate, expected return on plan assets, rate of
compensation increase and health care cost trend rate. In making these
assumptions, we consider current market conditions, including changes in
interest rates. Changes in assumptions could have a significant effect on
related pension and postretirement benefit costs and liabilities in the future.
Historically, we have maintained a strategy of acquiring businesses and
enhancing profitability through productivity and cost reduction opportunities.
Acquisitions require us to estimate the fair value of the assets acquired and
liabilities assumed in the transactions. These estimates of fair value are based
on our business plans for the acquired entities, which includes eliminating
operating redundancies, facility closings and rationalizations and assumptions
as to the ultimate resolution of liabilities assumed. We also continually
evaluate the operating performance of our existing facilities and our business
requirements and, when deemed appropriate, we exit or rationalize existing
operating facilities. Establishing reserves for acquisition plans and facility
rationalizations requires the use of estimates. Although we believe that these
estimates accurately reflect the costs of these plans, actual costs incurred may
differ from these estimates.
New Accounting Pronouncements
Effective January 1, 2001, we adopted Statement of Financial Accounting
Standards, or 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 our financial position or results of operations.
During July 2001, the Financial Accounting Standards Board, or 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, we will perform our first impairment test as of January
1, 2002. We estimate that net income and diluted earnings per share would
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have been approximately $44.8 million and $2.48, respectively, for the year
ended December 31, 2001; $33.9 million and $1.88, respectively, for the year
ended December 31, 2000; and $26.4 million and $1.45, respectively, for the year
ended December 31, 1999, had the provisions of SFAS No. 142 been applied in
those years. We do not anticipate having to record a charge to net income for
the potential impairment of goodwill or other intangible assets as a result of
adoption of SFAS No. 142.
In October 2001, the Board issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No.
121 and the accounting and reporting provisions of Accounting Principles Board
Opinion 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." SFAS No. 144 provides updated guidance
concerning the recognition and measurement of an impairment loss for certain
types of long-lived assets and expands the scope of a discontinued operation to
include a component of an entity. SFAS No. 144 is effective on January 1, 2002.
We do not expect the adoption of SFAS No. 144 to have a significant impact on
our 2002 financial statements.
Forward-Looking Statements
The statements we have made in "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and elsewhere in this Annual
Report which are not historical facts are "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and the Securities Exchange Act of 1934, as amended. These
forward-looking statements are made based upon our management's expectations and
beliefs concerning future events impacting us and therefore involve a number of
uncertainties and risks. As a result, the actual results of our operations or
our financial condition could differ materially from those expressed or implied
in these forward-looking statements. Important factors that could cause the
actual results of our operations or our financial condition to differ from those
expressed or implied in these forward-looking statements include, but are not
necessarily limited to:
o our ability to effect cost reduction initiatives and realize benefits
from capital investments;
o our ability to locate or acquire suitable acquisition candidates at
attractive cash flow multiples and on acceptable terms;
o our ability to assimilate the operations of our acquired businesses
into our existing operations;
o our ability to generate free cash flow to invest in our business and
service our indebtedness;
o limitations and restrictions contained in our instruments and
agreements governing our indebtedness;
o our ability to retain sales with our major customers;
o the size and quality of the vegetable and fruit harvests in the midwest
and west regions of the United States;
o changes in the pricing and availability to us of raw materials or our
ability generally to pass raw material price increases through to our
customers;
o changes in consumer preferences for different packaging products;
-34-
o competitive pressures, including new product developments or changes in
competitors' pricing for products;
o changes in governmental regulations or enforcement practices;
o changes in general economic conditions, such as fluctuations in
interest rates and changes in energy costs (such as natural gas and
electricity);
o changes in labor relations and costs;
o our ability to refinance our current U.S. senior secured credit
facility and, if we are able to effect this refinancing, the terms of
this refinancing, all of which will be dependant upon a variety of
factors, including our future prospects, the state of the economy and
the financial markets, prevailing interest rates, the timing of the
refinancing, the amount of debt to be refinanced and other factors
beyond our control; and
o other factors described elsewhere in this Annual Report or in our other
filings with the Securities and Exchange Commission.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risks relating to our operations result primarily from changes in
interest rates. In the normal course of business, we also have limited foreign
currency risk associated with our Canadian operations and risk related to
commodity price changes for items such as natural gas. We employ established
policies and procedures to manage our exposure to these risks. Interest rate,
foreign currency and commodity pricing transactions are used only to the extent
considered necessary to meet our objectives. We do not utilize derivative
financial instruments for trading or other speculative purposes.
Interest Rate Risk
Our interest rate risk management objective is to limit the impact of
interest rate changes on our net income and cash flow and to lower our overall
borrowing cost. To achieve our objectives, we regularly evaluate the amount of
our variable rate debt as a percentage of our aggregate debt. We manage our
exposure to interest rate fluctuations in our variable rate debt through
interest rate swap agreements. These agreements effectively convert interest
rate exposure from variable rates to fixed rates of interest. We have entered
into these agreements with banks under our U.S. senior secured credit facility,
and our obligations under these agreements are guaranteed and secured on a pari
passu basis with our obligations under our U.S. senior secured credit facility.
You should also read Notes 9 and 10 to our Consolidated Financial Statements
included elsewhere in this Annual Report which outline the principal amounts,
interest rates, fair values and other terms required to evaluate the expected
cash flows from these agreements.
Based on the average outstanding amount of our variable rate indebtedness
in 2001, a one percentage point change in the interest rates for our variable
rate indebtedness would have impacted 2001 interest expense by an aggregate of
approximately $6.4 million, after taking into account the average outstanding
notional amount of our interest rate swap agreements during 2001.
Foreign Currency Exchange Rate Risk
We do not conduct a significant portion of our manufacturing or sales
activity in foreign markets. Presently, our only foreign activities are
conducted in Canada. When the U.S. dollar
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strengthens against such foreign currencies, the reported U.S. dollar value of
local currency operating profits generally decreases; when the U.S. dollar
weakens against such foreign currencies, the reported U.S. dollar value of local
currency operating profits generally increases. Since we do not have significant
foreign operations, we do not believe it is necessary to enter into any
derivative financial instruments to reduce our exposure to foreign currency
exchange rate risk.
Because our Canadian subsidiary operates within its local economic
environment, we believe it is appropriate to finance such operation with local
currency borrowings. In determining the amount of such borrowings, we evaluate
the operation's short and long-term business plans, tax implications, and the
availability of borrowings with acceptable interest rates and terms. This
strategy mitigates the risk of reported losses or gains in the event that the
Canadian currency strengthens or weakens against the U.S. dollar. Furthermore,
our Canadian operating profit is used to repay its local borrowings or is
reinvested in Canada, and is not expected to be remitted to us or invested
elsewhere. As a result, it is not necessary for us to mitigate the economic
effects of currency rate fluctuations on our Canadian earnings.
Commodity Pricing Risk
We purchase commodities for our products such as metal and resins. These
commodities are generally purchased pursuant to contracts or at market prices
established with the vendor. In general, we do not engage in hedging activities
for these commodities due to our ability to pass on price changes to our
customers.
We also purchase other commodities, such as natural gas and electricity,
and are subject to risks on the pricing of these commodities. In general, we
purchase these commodities pursuant to contracts or at market prices. We manage
a significant portion of our exposure to natural gas price fluctuations through
natural gas swap agreements. These agreements effectively convert pricing
exposure for natural gas from market pricing to a fixed price. You should also
read Note 10 to our Consolidated Financial Statements included elsewhere in this
Annual Report which outlines the terms necessary to evaluate these transactions.
Item 8. Financial Statements and Supplementary Data.
We refer you to Item 14, "Exhibits, Financial Statements, Schedules and
Reports on Form 8-K," below for a listing of financial statements and schedules
included in this Annual Report which are incorporated here in this Annual Report
by this reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
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PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this Item is set forth in our Proxy Statement
for our annual meeting of stockholders to be held on May 29, 2002 in the
sections entitled "Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance", and is incorporated in this Annual Report by
this reference.
Our Directors and Executive Officers
The following table sets forth certain information (ages as of December 31,
2001) concerning our directors and executive officers. We are a holding company
and our operations are conducted through Silgan Containers and Silgan Plastics,
each of which has its own independent management.
Name Age Position
- ---- --- --------
R. Philip Silver.......... 59 Chairman of the Board and Co-Chief Executive
Officer and Director
D. Greg Horrigan.......... 58 President and Co-Chief Executive Officer and
Director
Leigh J. Abramson......... 33 Director
John W. Alden............. 60 Director
Jeffrey C. Crowe.......... 55 Director
Edward A. Lapekas......... 58 Director
Harley Rankin, Jr......... 62 Executive Vice President and Chief Financial
Officer
Frank W. Hogan, III....... 41 Vice President, General Counsel and Secretary
Glenn A. Paulson.......... 58 Vice President--Corporate Development
Nancy Merola.............. 39 Vice President and Controller
Malcolm E. Miller......... 34 Vice President and Treasurer
Executive Officers of Silgan Containers
The following table sets forth certain information (ages as of December 31,
2001) concerning the executive officers of Silgan Containers.
Name Age Position
- ---- --- --------
James D. Beam............. 58 President
Gary M. Hughes............ 59 Executive Vice President
Thomas Richmond........... 43 Executive Vice President
L. Geoffrey Greulich...... 40 Senior Vice President
John Wilbert.............. 43 Senior Vice President--Operations
Michael A. Beninato....... 53 Vice President--Supply Chain Management
Joseph A. Heaney.......... 48 Vice President--Finance
H. Schuyler Todd.......... 61 Vice President--Human Resources
Executive Officers of Silgan Plastics
The following table sets forth certain information (ages as of December 31,
2001) concerning the executive officers of Silgan Plastics.
Name Age Position
- ---- --- --------
Russell F. Gervais........ 58 President
Alan H. Koblin............ 49 Senior Vice President
Charles Minarik........... 64 Senior Vice President--Commercial Development
Colleen J. Jones.......... 41 Senior Vice President--Finance and
Administration
Emidio DiMeo.............. 42 Senior Vice President
Donald E. Bliss........... 50 Vice President--Sales
Howard H. Cole............ 56 Vice President--Human Resources and
Administration
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Mr. Silver has been our Chairman of the Board and Co-Chief Executive
Officer since March 1994. Mr. Silver is one of our founders and was formerly our
President. Mr. Silver has been a director since our inception. Mr. Silver has
been a director of Silgan Containers since its inception in August 1987 and Vice
President of Silgan Containers since May 1995. Mr. Silver has been a director of
Silgan Plastics since its inception in August 1987 and Chairman of the Board of
Silgan Plastics since March 1994. Prior to founding Silgan Holdings in 1987, Mr.
Silver was a consultant to the packaging industry. Mr. Silver was President of
Continental Can Company from June 1983 to August 1986.
Mr. Horrigan has been our President and Co-Chief Executive Officer since
March 1994. Mr. Horrigan is one of our founders and was formerly our Chairman of
the Board. Mr. Horrigan has been a director since our inception. Mr. Horrigan
has been Chairman of the Board of Silgan Containers and a director of Silgan
Plastics since their inception in August 1987. Mr. Horrigan was Executive Vice
President and Operating Officer of Continental Can Company from 1984 to 1987.
Mr. Abramson has been one of our directors since September 1996. He has
been with Morgan Stanley & Co. Incorporated since 1990 and Morgan Stanley
Private Equity since 1992 and has been a Managing Director of Morgan Stanley &
Co. Incorporated since December 2001. Mr. Abramson is also a director of Weblink
Wireless, Inc., Smurfit Stone Container Corp. and several private companies.
Mr. Alden has been one of our directors since November 2001. From 1965
until 2000, Mr. Alden was employed by United Parcel Service of America, Inc., or
UPS, serving in various management positions. Until his retirement in 2000, Mr.
Alden was Vice Chairman of UPS since 1996 and a director of UPS since 1988. Mr.
Alden is also a director of Barnes Group Inc.
Mr. Crowe has been one of our directors since May 1997. Mr. Crowe has been
Chairman of the Board, President and Chief Executive Officer of Landstar System,
Inc., or Landstar, since April 1991, and President and Chief Executive Officer
of Landstar System Holdings, Inc., or LSHI, since June 1989 and Chairman of LSHI
since March 1991. Mr. Crowe has also been President of Signature Insurance
Company, a subsidiary of LSHI, since February 1997. Mr. Crowe has served as
Chairman of the National Defense Transportation Association since October 1993.
From November 1989 to November 1998, Mr. Crowe served in a number of capacities
at the American Trucking Association, Inc., or ATA, including Director,
Secretary and as a member of the ATA Executive Committee. Mr. Crowe has served
as a Director of the National Chamber Foundation since November 1997, a Director
of the U.S. Chamber of Commerce since February 1998 and a Director of Sun Trust
Bank North-Florida, N.A. since January 1999.
Mr. Lapekas has been one of our directors since October 2001. Mr. Lapekas
was Executive Chairman of Packtion Corporation, an e-commerce packaging venture,
from October 2000 until June 2001. From May 1996 until July 2000, Mr. Lapekas
was employed by American National Can Group, Inc., last serving as Chairman and
Chief Executive Officer. Prior to that, Mr. Lapekas served as Deputy Chairman
and Chief Operating Officer of Schmalbach-Lubeca AG. From 1971 until 1991, Mr.
Lapekas was employed by Continental Can Company where he served in various
strategy, planning, operating and marketing capacities.
Mr. Rankin has been our Executive Vice President and Chief Financial
Officer since our inception. Mr. Rankin was also our Treasurer from January 1992
until October 2001. Mr. Rankin has indicated his intention to retire in May
2002. Mr. Rankin has been Vice President of Silgan Containers and Silgan
Plastics since January 1991 and May 1991, respectively, and was Treasurer of
Silgan Plastics from January 1994 to December 1994. Prior to joining us, Mr.
Rankin was Senior Vice President and Chief Financial Officer of Armtek
Corporation. Mr. Rankin was Vice President and Chief Financial Officer of
Continental Can Company from November 1984 to August 1986.
-38-
Mr. Hogan has been our Vice President, General Counsel and Secretary since
June 1997. Mr. Hogan has also been Vice President, General Counsel and Secretary
of Silgan Containers and Silgan Plastics since June 1997. From September 1995
until June 1997, Mr. Hogan was a partner at the law firm of Winthrop, Stimson,
Putnam & Roberts. From April 1988 to September 1995, Mr. Hogan was an associate
at that firm.
Mr. Paulson has been our Vice President--Corporate Development since
January 1996. Mr. Paulson has also been Vice President of Silgan Containers
since January 1999. Mr. Paulson was employed by Silgan Containers to manage the
transition of AN Can from August 1995 to December 1995. From January 1989 to
July 1995, Mr. Paulson was employed by ANC, last serving as Senior Vice
President and General Manager, Food Metal and Specialty, North America. Prior to
his employment with ANC, Mr. Paulson was President of the beverage packaging
operations of Continental Can Company.
Ms. Merola has been our Vice President and Controller since October 2000.
Ms. Merola has also been Vice President of Silgan Containers and Silgan Plastics
since October 2000. From February 2000 to October 2000, Ms. Merola was Manager,
Reporting and Specialized Accounting, for Texaco Inc. Previously, Ms. Merola was
Director, Corporate Accounting and Headquarters Planning, at RJR Nabisco
Holdings, Inc. since January 1997. From September 1995 to January 1997, Ms.
Merola was Financial Manager--Operations Finance at Kraft Foods Inc., a
subsidiary of Philip Morris Companies Inc. From 1989 to 1995, Ms. Merola held
various positions with Philip Morris Companies Inc., last serving as Manager,
Financial Planning and Analysis.
Mr. Miller has been our Vice President and Treasurer since October 2001.
Mr. Miller has also been Vice President of Silgan Containers and Silgan Plastics
since October 2001. Previously, Mr. Miller was Assistant Vice President and
Assistant Treasurer of Primedia Inc. from April 2000 until October 2001. Prior
to that, Mr. Miller was employed by us from June 1997 until April 2000, last
serving as Assistant Treasurer. From June 1995 until June 1997, Mr. Miller was
employed by International Paper Company, last serving as a Senior Financial
Analyst.
Mr. Beam has been President of Silgan Containers since July 1990. From
September 1987 to July 1990, Mr. Beam was Vice President--Marketing & Sales of
Silgan Containers. Mr. Beam was Vice President and General Manager of
Continental Can Company, Western Food Can Division, from March 1986 to September
1987.
Mr. Hughes has been Executive Vice President of Silgan Containers since
January 1998. Previously, Mr. Hughes was Vice President--Sales & Marketing of
Silgan Containers since July 1990. From February 1988 to July 1990, Mr. Hughes
was Vice President, Sales and Marketing of the Beverage Division of Continental
Can Company. Prior to February 1988, Mr. Hughes was employed by Continental Can
Company in various sales positions.
Mr. Richmond has been Executive Vice President of Silgan Containers since
September 2001. Previously, he was Senior Vice President of Silgan Plastics
since October 2000. Prior to that, Mr. Richmond was President of RXI from
October 1995 to October 2000. From January 1993 to October 1995, Mr. Richmond
was Executive Vice President of Plastic Engineered Components. From February
1991 to January 1993, he was Vice President and General Manager of Berry
Plastics Corporation. From October 1988 to February 1991, Mr. Richmond was Vice
President and General Manager of Carnaud Metalbox in the United States. Prior to
that, he was employed by American Can Company since September 1979, last serving
as an Area Manager.
Mr. Greulich has been Senior Vice President of Silgan Containers since July
2000. From October 1998 to June 2000 he was Vice President of Corporate
Development for American Business Products
-39-
Corp. Prior to that, Mr. Greulich was employed by Tenneco Packaging, a unit of
Tenneco Inc., last serving as Regional Operations Director.
Mr. Wilbert has been Senior Vice President--Operations of Silgan Containers
since September 2001. Prior to that, Mr. Wilbert was Vice President-Operations
of Silgan Containers since January 1998. From October 1992 to January 1998, Mr.
Wilbert was Area Manager of Operations of Silgan Containers. Prior to 1992, Mr.
Wilbert was employed by Silgan Containers in various positions.
Mr. Beninato has been Vice President--Supply Chain Management of Silgan
Containers since January 2001. Prior to that, Mr. Beninato was Director of
Production Planning and Warehousing of Silgan Containers from August 1995 to
January 2001. Prior to joining Silgan Containers in August 1995, Mr. Beninato
was employed by ANC for over 28 years in various production control positions.
Mr. Heaney has been Vice President--Finance of Silgan Containers since
October 1995. From September 1990 to October 1995, Mr. Heaney was Controller,
Food Metal and Specialty Division of ANC. From August 1977 to August 1990, Mr.
Heaney was employed by ANC and American Can Company in various divisional,
regional and plant finance/accounting positions.
Mr. Todd has been Vice President--Human Resources of Silgan Containers
since April 1999. From September 1987 to April 1999, Mr. Todd was Director of
Human Resources of Silgan Containers. Previously, Mr. Todd was employed for
approximately eleven years by the Can Division of the Carnation Company as
Industrial Relations Manager.
Mr. Gervais has been President of Silgan Plastics since December 1992. From
September 1989 to December 1992, Mr. Gervais was Vice President--Sales &
Marketing of Silgan Plastics. From March 1984 to September 1989, Mr. Gervais was
President and Chief Executive Officer of Aim Packaging, Inc.
Mr. Koblin has been Senior Vice President of Silgan Plastics since January
2000. Previously, Mr. Koblin was Vice President--Sales & Marketing of Silgan
Plastics since December 1994. From 1992 to 1994, Mr. Koblin was Director of
Sales & Marketing of Silgan Plastics. From 1990 to 1992, Mr. Koblin was Vice
President of Churchill Industries.
Mr. Minarik has been Senior Vice President--Commercial Development of
Silgan Plastics since January 2000. Previously, he was Vice
President--Operations and Commercial Development of Silgan Plastics since May
1993. From February 1991 to August 1992, Mr. Minarik was President of Wheaton
Industries Plastics Group. Mr. Minarik was Vice President--Marketing of Constar
International, Inc. from March 1983 to February 1991.
Ms. Jones has been Senior Vice President--Finance and Administration of
Silgan Plastics since October 2000. Prior to that, Ms. Jones was Vice
President--Finance of Silgan Plastics since December 1994. From November 1993 to
December 1994, Ms. Jones was Corporate Controller of Silgan Plastics and from
July 1989 to November 1993, she was Manager--Finance of Silgan Plastics.
Mr. DiMeo has been Senior Vice President of Silgan Plastics and of Silgan
Plastics Canada Inc. since October 2000. Prior to that, Mr. DiMeo was Vice
President of Silgan Plastics Canada Inc. since May 1999. From April 1997 to May
1999, Mr. DiMeo was General Manager of Silgan Plastics Canada Inc. From March
1995 to April 1997, Mr. DiMeo was President and General Manager of Rexam
Containers Limited of Canada.
Mr. Bliss has been Vice President--Sales of Silgan Plastics since January
2000. From November 1993 to December 1999, Mr. Bliss was National Sales Director
at Silgan Plastics. Prior to that, Mr. Bliss was employed by Graham Packaging
Company, last serving as Regional Sales Director.
-40-
Mr. Cole has been Vice President--Human Resources and Administration and
Assistant Secretary of Silgan Plastics since September 1987. From April 1986 to
September 1987, Mr. Cole was Manager of Personnel of the Monsanto Engineered
Products Division of Monsanto Company.
Item 11. Executive Compensation.
The information required by this Item is set forth in our Proxy Statement
for our annual meeting of stockholders to be held on May 29, 2002 in the
sections entitled "Election of Directors--Compensation of Directors", "Executive
Compensation" and "Compensation Committee Interlocks and Insider Participation",
and is incorporated here in this Annual Report by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is set forth in our Proxy Statement
for our annual meeting of stockholders to be held on May 29, 2002 in the section
entitled "Security Ownership of Certain Beneficial Owners and Management", and
is incorporated here in this Annual Report by this reference.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item is set forth in our Proxy Statement
for our annual meeting of stockholders to be held on May 29, 2002 in the section
entitled "Certain Relationships and Related Transactions", and is incorporated
here in this Annual Report by this reference.
-41-
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.
(a)
Financial Statements:
Report of Independent Auditors......................................................... F-1
Consolidated Balance Sheets at December 31, 2001 and 2000.............................. F-2
Consolidated Statements of Income for the years ended December 31, 2001, 2000
and 1999.......................................................................... F-3
Consolidated Statements of Stockholders' Equity (Deficiency) for the years ended
December 31, 2001, 2000 and 1999.................................................. F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000
and 1999.......................................................................... F-5
Notes to Consolidated Financial Statements............................................. F-6
Schedules:
II. Valuation and Qualifying Accounts for the years ended December 31,
2001, 2000 and 1999.................................................... F-42
All other financial statements and schedules not listed have been omitted
because they are not applicable or not required, or because the required
information is included in the consolidated financial statements or notes
thereto.
-42-
Exhibits:
Exhibit
Number Description
- ------ -----------
3.1 Restated Certificate of Incorporation of Silgan Holdings (incorporated
by reference to Exhibit 3.1 filed with our Annual Report on Form 10-K
for the year ended December 31, 1996, Commission File No. 000-22117).
3.2 Amended and Restated By-laws of Silgan Holdings (incorporated by
reference to Exhibit 3.2 filed with our Annual Report on Form 10-K for
the year ended December 31, 1996, Commission File No. 000-22117).
4.1 Indenture, dated as of June 9, 1997, between Silgan Holdings (as
successor to Silgan Corporation) and The First National Bank of
Chicago, as trustee, with respect to the 9% Debentures (incorporated
by reference to Exhibit 4.1 filed with our Current Report on Form 8-K,
dated June 9, 1997, Commission File No. 000-22117).
4.2 First Supplemental Indenture, dated as of June 24, 1997 among Silgan
Holdings, Silgan Corporation and The First National Bank of Chicago,
as trustee, to the Indenture, dated as of June 9, 1997, between Silgan
Holdings (as successor to Silgan Corporation) and The First National
Bank of Chicago, as trustee, with respect to the 9% Debentures
(incorporated by reference to Exhibit 4.2 filed with our Registration
Statement on Form S-4, dated July 8, 1997, Registration Statement No.
333-30881).
4.3 Form of Silgan Holdings' 9% Senior Subordinated Debentures due 2009
(incorporated by reference to Exhibit 4.10 filed with our Registration
Statement on Form S-4, dated July 8, 1997, Registration Statement No.
333-30881).
*10.1 Amended and Restated Stockholders Agreement, dated as of November 6,
2001, among R. Philip Silver, D. Greg Horrigan and Silgan Holdings.
*10.2 Letter agreement dated November 6, 2001 between Silgan Holdings and
The Morgan Stanley Leveraged Equity Fund II, L.P.
+10.3 Amended and Restated Management Services Agreement, dated as of
February 14, 1997, between S&H Inc. and Silgan Holdings (incorporated
by reference to Exhibit 10.25 filed with our Annual Report on Form
10-K for the year ended December 31, 1996, Commission File No.
000-22117).
+10.4 Amended and Restated Management Services Agreement, dated as of
February 14, 1997, between S&H Inc. and Silgan Containers
(incorporated by reference to Exhibit 10.26 filed with our Annual
Report on Form 10-K for the year ended December 31, 1996, Commission
File No. 000-22117).
+10.5 Amended and Restated Management Services Agreement, dated as of
February 14, 1997, between S&H Inc. and Silgan Plastics (incorporated
by reference to Exhibit 10.27 filed with our Annual Report on Form
10-K for the year ended December 31, 1996, Commission File No.
000-22117).
-43-
Exhibit
Number Description
- ------ -----------
10.6 Credit Agreement, dated as of July 29, 1997, among Silgan Holdings,
Silgan Containers, Silgan Plastics, certain other subsidiaries,
various lenders, Bankers Trust Company, as Administrative Agent and as
a Co-Arranger, Bank of America National Trust & Savings Association,
as Syndication Agent and as a Co-Arranger, Goldman Sachs Credit
Partners L.P., as Co-Documentation Agent and as a Co-Arranger, and
Morgan Stanley Senior Funding, Inc., as Co-Documentation Agent and as
a Co-Arranger (incorporated by reference to Exhibit 99.1 filed with
our Current Report on Form 8-K, dated August 8, 1997, Commission File
No. 000-22117).
10.7 First Amendment and Consent, dated as of December 3, 1997, among
Silgan Holdings, Silgan Containers, Silgan Plastics, various lenders,
Bankers Trust Company, as Administrative Agent and as a Co-Arranger,
Bank of America National Trust & Savings Association, as Syndication
Agent and as a Co-Arranger, Goldman Sachs Credit Partners L.P., as
Co-Documentation Agent and as a Co-Arranger, and Morgan Stanley Senior
Funding, Inc., as Co-Documentation Agent and as a Co-Arranger
(incorporated by reference to Exhibit 10.7 filed with our Annual
Report on Form 10-K for the year ended December 31, 2000, Commission
File No. 000-22117).
10.8 Second Amendment and Consent, dated as of June 1, 1998, among Silgan
Holdings, Silgan Containers, Silgan Plastics, Silgan Containers
Manufacturing Corporation, various lenders, Bankers Trust Company, as
Administrative Agent and as a Co-Arranger, Bank of America National
Trust & Savings Association, as Syndication Agent and as a
Co-Arranger, Goldman Sachs Credit Partners L.P., as Co-Documentation
Agent and as a Co-Arranger, and Morgan Stanley Senior Funding, Inc.,
as Co-Documentation Agent and as a Co-Arranger (incorporated by
reference to Exhibit 10.8 filed with our Annual Report on Form 10-K
for the year ended December 31, 2000, Commission File No. 000-22117).
10.9 Third Amendment, dated as of August 29, 2000, among Silgan Holdings,
Silgan Containers, Silgan Plastics, Silgan Containers Manufacturing
Corporation, various lenders, Bankers Trust Company, as Administrative
Agent and as a Co-Arranger, Bank of America National Trust & Savings
Association, as Syndication Agent and as a Co-Arranger, Goldman Sachs
Credit Partners L.P., as Co-Documentation Agent and as a Co-Arranger,
and Morgan Stanley Senior Funding, Inc., as Co-Documentation Agent and
as a Co-Arranger (incorporated by reference to Exhibit 10.9 filed with
our Annual Report on Form 10-K for the year ended December 31, 2000,
Commission File No. 000-22117).
10.10 Security Agreement, dated as of July 29, 1997, among Silgan Holdings,
Silgan Containers, Silgan Plastics, certain other subsidiaries of any
of them and Bankers Trust Company, as Collateral Agent (incorporated
by reference to Exhibit 99.2 filed with our Current Report on Form
8-K, dated August 8, 1997, Commission File No. 000-22117).
10.11 Pledge Agreement dated as of July 29, 1997, made by Silgan Holdings,
Silgan Containers, Silgan Plastics and Silgan Containers Manufacturing
Corporation (as successor to California-Washington Can Corporation and
SCCW Can Corporation), as Pledgors, in favor of Bankers Trust Company,
as Collateral Agent and as Pledgee (incorporated by reference to
Exhibit 99.3 filed with our Current Report on Form 8-K, dated August
8, 1997, Commission File No. 000-22117).
-44-
Exhibit
Number Description
- ------ -----------
10.12 Borrowers/Subsidiaries Guaranty, dated as of July 29, 1997, made by
Silgan Holdings, Silgan Containers, Silgan Plastics and Silgan
Containers Manufacturing Corporation (as successor to
California-Washington Can Corporation and SCCW Can Corporation)
(incorporated by reference to Exhibit 99.4 filed with our Current
Report on Form 8-K, dated August 8, 1997, Commission File No.
000-22117).
10.13 Asset Purchase Agreement, dated as of June 2, 1995, between American
National Can Company and Silgan Containers (incorporated by reference
to Exhibit 1 filed with our Current Report on Form 8-K dated August
14, 1995, Commission File No. 33-28409).
10.14 Purchase Agreement, dated as of June 1, 1998, by and among Campbell,
Silgan Can Company and Silgan Containers (incorporated by reference to
Exhibit 2 filed with our Current Report on Form 8-K dated June 15,
1998, Commission File No. 000-22117).
10.15 Underwriting Agreement, dated as of February 13, 1997, among Silgan
Holdings, Silgan Corporation, Silgan Containers, Silgan Plastics, The
Morgan Stanley Leveraged Equity Fund II, L.P., Bankers Trust New York
Corporation and the underwriters listed on Schedule I thereto
(incorporated by reference to Exhibit 10.40 filed with our Annual
Report on Form 10-K for the fiscal year ended December 31, 1996,
Commission File No. 000-22117).
10.16 Placement Agreement between Silgan Corporation and Morgan Stanley &
Co. Incorporated, dated June 3, 1997 (incorporated by reference to
Exhibit 99.1 filed with our Current Report on Form 8-K dated June 9,
1997, Commission File No. 000-22117).
*10.17 Equity Underwriting Agreement, dated November 6, 2001, among Silgan
Holdings, The Morgan Stanley Leveraged Equity Fund II, L.P., and
Deutsche Banc Alex. Brown Inc. and Morgan Stanley & Co. Incorporated
as representatives of the several underwriters listed on Schedule I
thereto.
+10.18 Employment Agreement, dated as of September 14, 1987, between James
Beam and Canaco Corporation (Silgan Containers) (incorporated by
reference to Exhibit 10(vi) filed with Silgan Corporation's
Registration Statement on Form S-1, dated January 11, 1988,
Registration Statement No. 33-18719).
+10.19 Employment Agreement, dated as of September 1, 1989, between Silgan
Corporation, InnoPak Plastics Corporation (Silgan Plastics), Russell
F. Gervais and Aim Packaging, Inc. (incorporated by reference to
Exhibit 5 filed with Silgan Corporation's Report on Form 8-K, dated
March 15, 1989, Commission File No. 33-18719).
+10.20 Employment Agreement dated as of August 1, 1995 between Silgan
Containers (as assignee of Silgan Holdings) and Glenn A. Paulson, as
amended pursuant to an amendment dated March 1, 1997 (incorporated by
reference to Exhibit 10.19 filed with our Annual Report on Form 10-K
for the year ended December 31, 1999, Commission File No. 000-22117).
-45-
Exhibit
Number Description
- ------ -----------
+10.21 InnoPak Plastics Corporation (Plastics) Pension Plan for Salaried
Employees (incorporated by reference to Exhibit 10.32 filed with
Silgan Corporation's Annual Report on Form 10-K for the year ended
December 31, 1988, Commission File No. 33-18719).
+10.22 Containers Pension Plan for Salaried Employees (incorporated by
reference to Exhibit 10.34 filed with Silgan Corporation's Annual
Report on Form 10-K for the year ended December 31, 1988, Commission
File No. 33-18719).
+10.23 Silgan Holdings Inc. Fourth Amended and Restated 1989 Stock Option
Plan (incorporated by reference to Exhibit 10.21 filed with our Annual
Report on Form 10-K for the year ended December 31, 1996, Commission
File No. 000-22117).
+10.24 Form of Silgan Holdings Nonstatutory Stock Option Agreement
(incorporated by reference to Exhibit 10.22 filed with our Annual
Report on Form 10-K for the year ended December 31, 1996, Commission
File No. 000-22117).
*12 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends for the years ended December 31, 2001, 2000,
1999, 1998 and 1997.
21 Subsidiaries of the Registrant (incorporated by reference to Exhibit
21 filed with our Annual Report on Form 10-K for the year ended
December 31, 2000, Commission File No. 000-22117).
*23 Consent of Ernst & Young LLP.
(b) Reports on Form 8-K:
We did not file any reports on Form 8-K during the fourth quarter of 2001.
- -----------------
*Filed herewith.
+Management contract or compensatory plan or arrangement.
-46-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SILGAN HOLDINGS INC.
Date: March 29, 2002 By /s/ R. Philip Silver
-------------------------
R. Philip Silver
Chairman of the Board and
Co-Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
Chairman of the Board and
/s/ R. Philip Silver Co-Chief Executive Officer
- ---------------------- (Principal Executive Officer) March 29, 2002
(R. Philip Silver)
/s/ D. Greg Horrigan President, Co-Chief Executive
- ---------------------- Officer and Director March 29, 2002
(D. Greg Horrigan)
/s/ Leigh J. Abramson
- ---------------------- Director March 29, 2002
(Leigh J. Abramson)
/s/ John W. Alden
- ---------------------- Director March 29, 2002
(John W. Alden)
/s/ Jeffrey C. Crowe
- ---------------------- Director March 29, 2002
(Jeffrey C. Crowe)
/s/ Edward A. Lapekas
- ---------------------- Director March 29, 2002
(Edward A. Lapekas)
Executive Vice President and
/s/ Harley Rankin, Jr. Chief Financial Officer
- ---------------------- (Principal Financial Officer) March 29, 2002
(Harley Rankin, Jr.)
/s/ Nancy Merola Vice President and Controller
- ---------------------- (Principal Accounting Officer) March 29, 2002
(Nancy Merola)
-47-
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Silgan Holdings Inc.
We have audited the accompanying consolidated financial statements and
schedules of Silgan Holdings Inc. as listed in the accompanying index to the
financial statements (Item 14(a)). These financial statements and schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements listed in the accompanying index
to the financial statements (Item 14(a)) present fairly, in all material
respects, the consolidated financial position of Silgan Holdings Inc. at
December 31, 2001 and 2000, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Stamford, Connecticut
January 29, 2002
F-1
SILGAN HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
(Dollars in thousands)
2001 2000
---- ----
Assets
Current assets:
Cash and cash equivalents ........................ $ 18,009 $ 20,073
Trade accounts receivable, less allowances
of $3,449 and $3,001, respectively ............ 144,903 168,307
Inventories ...................................... 262,627 279,737
Prepaid expenses and other current assets ........ 12,053 11,874
---------- ----------
Total current assets ......................... 437,592 479,991
Property, plant and equipment, net .................... 677,542 709,513
Goodwill, net ......................................... 141,465 153,038
Other assets .......................................... 55,221 41,282
---------- ----------
$1,311,820 $1,383,824
========== ==========
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities:
Current portion of long-term debt ................ $ 57,999 $ 44,948
Trade accounts payable ........................... 173,851 208,144
Accrued payroll and related costs ................ 59,215 56,452
Accrued interest payable ......................... 5,022 9,564
Accrued liabilities .............................. 21,631 13,142
---------- ----------
Total current liabilities .................... 317,718 332,250
Long-term debt ........................................ 886,770 986,527
Other liabilities ..................................... 92,184 85,427
---------- ----------
Total liabilities ............................ 1,296,672 1,404,204
Commitments and contingencies
Stockholders' equity (deficiency):
Common stock ($0.01 par value per share;
100,000,000 shares authorized, 20,539,145 and
20,388,372 shares issued and 17,853,670 and
17,702,897 shares outstanding, respectively) ... 205 204
Paid-in capital .................................. 118,319 118,099
Retained earnings (accumulated deficit) .......... (34,937) (76,702)
Accumulated other comprehensive income (loss) .... (8,046) (1,588)
Treasury stock at cost (2,685,475 shares) ........ (60,393) (60,393)
---------- ----------
Total stockholders' equity (deficiency) ...... 15,148 (20,380)
---------- ----------
$1,311,820 $1,383,824
========== ==========
See notes to consolidated financial statements.
F-2
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 2001, 2000 and 1999
(Dollars in thousands, except per share data)
2001 2000 1999
---- ---- ----
Net sales .............................................. $1,940,994 $1,877,497 $1,892,078
Cost of goods sold ..................................... 1,700,708 1,648,247 1,656,694
---------- ---------- ----------
Gross profit ...................................... 240,286 229,250 235,384
Selling, general and administrative expenses ........... 78,541 72,148 74,943
Rationalization charges, net ........................... 9,334 -- 36,149
---------- ---------- ----------
Income from operations ............................ 152,411 157,102 124,292
Gain on assets contributed to affiliate ................ 4,908 -- --
Interest and other debt expense ........................ 81,192 91,178 86,057
---------- ---------- ----------
Income before income taxes and equity in
losses of affiliates .......................... 76,127 65,924 38,235
Provision for income taxes ............................. 30,222 25,790 14,305
---------- ---------- ----------
Income before equity in losses of affiliates and
extraordinary item ............................ 45,905 40,134 23,930
Equity in losses of affiliates ......................... 4,140 4,610 --
---------- ---------- ----------
Income before extraordinary item .................. 41,765 35,524 23,930
Extraordinary item - loss on early extinguishment
of debt, net of income taxes ......................... -- 4,216 --
---------- ---------- ----------
Net income ........................................ $ 41,765 $ 31,308 $ 23,930
========== ========== ==========
Basic earnings per share:
Income before extraordinary item .................. $2.35 $ 2.01 $1.35
Extraordinary item ................................ -- (0.24) --
----- ------ -----
Basic net income per share ............................. $2.35 $ 1.77 $1.35
===== ====== =====
Diluted earnings per share:
Income before extraordinary item .................. $2.31 $ 1.97 $1.32
Extraordinary item ................................ -- (0.23) --
----- ------ -----
Diluted net income per share ........................... $2.31 $ 1.74 $1.32
===== ====== =====
See notes to consolidated financial statements.
F-3
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
For the years ended December 31, 2001, 2000 and 1999
(Dollars and shares in thousands)
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 January 1, 1999 ............... 18,256 $199 $117,911 $(131,940) $ (723) $(42,755) $(57,308)
Comprehensive income:
Net income ............................ -- -- -- 23,930 -- -- 23,930
Minimum pension liability ............. -- -- -- -- (80) -- (80)
Foreign currency translation .......... -- -- -- -- 530 -- 530
--------
Comprehensive income .................. 24,380
--------
Stock option exercises, including
tax benefit of $243 .................... 193 2 755 -- -- -- 757
Repurchase of common stock ............... (902) -- -- -- -- (16,563) (16,563)
------ ---- -------- --------- ------- -------- --------
Balance at December 31, 1999 ............. 17,547 201 118,666 (108,010) (273) (59,318) (48,734)
Comprehensive income:
Net income ............................ -- -- -- 31,308 -- -- 31,308
Minimum pension liability ............. -- -- -- -- (797) -- (797)
Foreign currency translation .......... -- -- -- -- (518) -- (518)
--------
Comprehensive income .................. 29,993
--------
Stock option exercises, including
tax provision of $826 .................. 256 3 (317) -- -- -- (314)
Equity affiliate closing costs ........... -- -- (250) -- -- -- (250)
Repurchase of common stock ............... (100) -- -- -- -- (1,075) (1,075)
------ ---- -------- --------- ------- -------- --------
Balance at December 31, 2000 ............. 17,703 204 118,099 (76,702) (1,588) (60,393) (20,380)
Comprehensive income:
Net income ............................ -- -- -- 41,765 -- -- 41,765
Minimum pension liability ............. -- -- -- -- (1,966) -- (1,966)
Change in fair value of
derivatives, net of tax
benefit of $2,151 ................... -- -- -- -- (3,267) -- (3,267)
Foreign currency translation .......... -- -- -- -- (1,225) -- (1,225)
--------
Comprehensive income .................. 35,307
--------
Stock option exercises, including
tax benefit of $595 .................... 151 1 1,622 -- -- -- 1,623
Dilution of investment in
equity affiliate ....................... -- -- (1,402) -- -- -- (1,402)
------ ---- -------- --------- ------- -------- --------
Balance at December 31, 2001 ............. 17,854 $205 $118,319 $ (34,937) $(8,046) $(60,393) $ 15,148
====== ==== ======== ========= ======= ======== ========
See notes to consolidated financial statements.
F-4
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2001, 2000 and 1999
(Dollars in thousands)
2001 2000 1999
---- ---- ----
Cash flows provided by (used in) operating activities:
Net income ............................................ $ 41,765 $ 31,308 $ 23,930
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ..................................... 89,772 84,577 82,093
Amortization of goodwill and other intangibles.... 5,759 4,392 3,881
Amortization of debt issuance costs .............. 1,675 1,658 1,593
Rationalization charges, net ..................... 9,334 -- 36,149
Equity in losses of affiliates ................... 4,140 4,610 --
Gain on assets contributed to affiliate .......... (4,908) -- --
Deferred income tax provision .................... 13,852 11,749 4,629
Extraordinary item ............................... -- 6,926 --
Other changes that provided (used) cash,
net of effects of acquisitions:
Trade accounts receivable ................... 19,179 (26,995) 5,909
Inventories ................................. 1,220 (18,366) (870)
Trade accounts payable ...................... (34,293) 21,106 (9,113)
Accrued liabilities ......................... 4,312 (19,610) 7,143
Other, net .................................. (8,824) (6,210) (12,075)
--------- ---------- ---------
Net cash provided by operating activities ........ 142,983 95,145 143,269
--------- ---------- ---------
Cash flows provided by (used in) investing activities:
Investment in equity affiliate ........................ (3,039) (7,026) --
Proceeds from equity affiliate ........................ 32,388 -- --
Acquisition of businesses ............................. -- (124,015) --
Capital expenditures .................................. (93,042) (89,227) (87,421)
Proceeds from asset sales ............................. 3,901 1,789 2,514
--------- ---------- ---------
Net cash used in investing activities ............ (59,792) (218,479) (84,907)
--------- ---------- ---------
Cash flows provided by (used in) financing activities:
Borrowings under revolving loans ...................... 710,749 1,198,459 912,959
Repayments under revolving loans ...................... (746,719) (954,724) (923,659)
Proceeds from stock option exercises .................. 1,028 512 514
Repurchase of common stock ............................ -- (1,075) (16,563)
Repayments and redemptions of long-term debt .......... (50,313) (101,124) (33,955)
Debt financing costs .................................. -- (1,052) --
--------- ---------- ---------
Net cash (used in) provided by financing
activities ..................................... (85,255) 140,996 (60,704)
--------- ---------- ---------
Cash and cash equivalents:
Net (decrease) increase ............................... (2,064) 17,662 (2,342)
Balance at beginning of year .......................... 20,073 2,411 4,753
--------- ---------- ---------
Balance at end of year ................................ $ 18,009 $ 20,073 $ 2,411
========= ========== =========
Interest paid .............................................. $ 85,825 $ 91,200 $ 84,037
Income taxes paid, net of refunds .......................... 8,308 13,352 9,511
See notes to consolidated financial statements.
F-5
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 1. Summary of Significant Accounting Policies
Nature of Business. Silgan Holdings Inc., or Holdings, conducts its business
through its wholly owned operating subsidiaries, Silgan Containers Corporation,
or Containers, and Silgan Plastics Corporation, or Plastics. We are engaged in
the manufacture and sale of steel and aluminum containers for human and pet food
and custom designed plastic containers and closures for personal care, health
care, pharmaceutical, household and industrial chemical, food, pet care,
agricultural chemical, automotive and marine chemical products. Principally all
of our businesses are based in the United States.
Basis of Presentation. The consolidated financial statements include the
accounts of Holdings and its subsidiaries, all of which are wholly owned. All
significant intercompany transactions have been eliminated. The preparation of
consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
The functional currency for our foreign operations is the Canadian dollar.
Balance sheet accounts of our foreign subsidiaries are translated at exchange
rates in effect at the balance sheet date, while revenue and expense accounts
are translated at average rates prevailing during the year. Translation
adjustments are reported as a component of accumulated other comprehensive
income (loss).
Certain prior years' amounts have been reclassified to conform with the current
year's presentation.
Cash and Cash Equivalents. Cash equivalents represent short-term, highly liquid
investments which are readily convertible to cash and have maturities of three
months or less at the time of purchase. The carrying values of these assets
approximate their fair values. As a result of our cash management system, checks
issued and presented to the banks for payment may create negative cash balances.
Checks outstanding in excess of related cash balances totaling approximately
$74.8 million at December 31, 2001 and $106.8 million at December 31, 2000 are
included in trade accounts payable.
Inventories. Inventories are valued at the lower of cost or market (net
realizable value) and the cost is principally determined on the last-in,
first-out basis, or LIFO.
F-6
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 1. Summary of Significant Accounting Policies (continued)
Property, Plant and Equipment, Net. Property, plant and equipment is stated at
historical cost less accumulated depreciation. Major renewals and betterments
that extend the life of an asset are capitalized and repairs and maintenance
expenditures are charged to expense as incurred. Design and development costs
for molds, dies and other tools that we do not own and that will be used to
produce products that will be sold under long-term supply arrangements are
capitalized. Depreciation is computed using the straight-line method over the
estimated useful lives of depreciable assets. The principal estimated useful
lives are 35 years for buildings and range between 3 to 18 years for machinery
and equipment. Leasehold improvements are amortized over the shorter of the life
of the related asset or the life of the lease.
Interest incurred on amounts borrowed in connection with the installation of
major machinery and equipment acquisitions is capitalized. Capitalized interest
of $1.6 million in 2001 and $2.4 million in 2000 was recorded as part of the
cost of the assets to which it relates and is amortized over the assets'
estimated useful life.
Goodwill. Excess purchase price over the fair value of net assets acquired (or
goodwill) is amortized on a straight-line basis principally over 40 years. The
amortization periods have been estimated given the nature of the technology,
industry practice and long-term customer relationships of the businesses
acquired. Goodwill is included in impairment reviews when events or
circumstances exist that indicate its carrying amount may not be recoverable.
Accumulated amortization of goodwill at December 31, 2001 and 2000 was $25.6
million and $20.7 million, respectively.
During July 2001, the Financial Accounting Standards Board, or the Board, issued
Statement of Financial Accounting Standards, or 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, we will perform our
first impairment test as of January 1, 2002. We estimate that net income and
diluted earnings per share would have been approximately $44.8 million and
$2.48, respectively, for the year ended December 31, 2001; $33.9 million and
$1.88, respectively, for the year ended December 31, 2000; and $26.4 million and
$1.45, respectively, for the year ended December 31, 1999, had the provisions of
SFAS No. 142 been applied in those years. We do not anticipate having to record
a charge to net income for the potential impairment of goodwill or other
intangible assets as a result of the adoption of SFAS No. 142.
F-7
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 1. Summary of Significant Accounting Policies (continued)
Impairment of Long-Lived Assets. We assess long-lived assets for impairment
under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." Under these rules, we assess long-lived
assets for impairment whenever events or changes in circumstances indicate the
carrying amount of the assets may not be fully recoverable. An impairment exists
if the estimate of future undiscounted cash flows generated by the assets is
less than the carrying value of the assets. If an impairment is determined to
exist, any related impairment loss is then measured by comparing the fair value
of the assets to their carrying amount.
In October 2001, the Board issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No. 121 and the
accounting and reporting provisions of Accounting Principles Board Opinion, or
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." SFAS No. 144 provides updated guidance
concerning the recognition and measurement of an impairment loss for certain
types of long-lived assets and expands the scope of a discontinued operation to
include a component of an entity. SFAS No. 144 is effective on January 1, 2002.
We do not expect the adoption of SFAS No. 144 to have a significant impact on
our 2002 financial statements.
Other Assets. Other assets consist principally of investments in equity
affiliates, debt issuance costs which are being amortized on a straight-line
basis over the terms of the related debt agreements (6 to 12 years) and other
intangible assets which are being amortized over their expected useful lives
using the straight-line method.
Hedging Instruments. We utilize certain derivative financial instruments to
manage our interest rate and natural gas cost exposures. We do not engage in
trading or other speculative uses of these financial instruments. For a
financial instrument to qualify as a hedge, we must be exposed to interest rate
or price risk, and the financial instrument must reduce the exposure and be
designated as a hedge. Financial instruments qualifying for hedge accounting
must maintain a high correlation between the hedging instrument and the item
being hedged, both at inception and throughout the hedged period.
Effective January 1, 2001, we 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 our financial position or results of operations.
F-8
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 1. Summary of Significant Accounting Policies (continued)
Income Taxes. We account for income taxes using the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period of enactment of such change.
Income taxes are calculated for Holdings and the acquired steel container
manufacturing business of Campbell Soup Company, or CS Can, on a separate return
basis. U.S. income taxes have not been provided on the accumulated earnings of
our foreign subsidiaries since these earnings are expected to be permanently
reinvested.
Revenue Recognition. Revenues are recognized when goods are shipped and the
title and risk of loss pass to the customer. Shipping and handling fees and
costs incurred in connection with products sold are recorded in cost of goods
sold in our Consolidated Statements of Income.
Stock Based Compensation. We account for our employee stock option plan in
accordance with APB No. 25, "Accounting for Stock Issued to Employees."
Accordingly, no compensation expense is recognized when the exercise price of
employee stock options is less than or equal to the market price of the
underlying stock on the date of grant.
F-9
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 2. Acquisition
On October 1, 2000, we acquired all of the outstanding capital stock of RXI
Holdings, Inc., or RXI Plastics, a manufacturer and seller of rigid plastic
packaging, for $124.0 million in cash. We financed the purchase price through
revolving loan borrowings under our U.S. bank credit agreement. The acquisition
was accounted for using the purchase method of accounting. Accordingly, the
purchase price has been allocated to the assets acquired and liabilities assumed
based on their fair values at the date of acquisition, and RXI Plastics' results
of operations have been included in our consolidated operating results from the
date of acquisition.
During 2001, we completed the allocation of excess purchase price over the fair
value of net assets acquired. As a result, we reduced goodwill by $4.3 million
primarily to reflect the final valuation of property, plant and equipment and
deferred income taxes. Goodwill of $45.5 million has been recorded and is being
amortized over 40 years.
Note 3. Rationalization Charges and Acquisition Reserves
During the fourth quarter of 2001, we approved and announced to employees
separate plans to exit our Northtown, Missouri and Kingsburg, California metal
food container facilities and to cease operation of our composite container
department at our Waukegan, Illinois metal food container facility. These plans
included the termination of approximately 80 plant employees, the termination of
an operating lease and other plant related exit costs including equipment
dismantle costs. These decisions resulted in a fourth quarter pre-tax charge to
earnings of $7.0 million. This charge consisted of $4.2 million for the non-cash
write-down in carrying value of assets, $1.4 million for employee severance and
benefits and $1.4 million for plant exit costs. Through December 31, 2001, a
total of $0.1 million, excluding the non-cash write-down, has been expended
relating to these plans. At December 31, 2001, this reserve had a balance of
$2.7 million. Cash payments relating to these plans are expected through 2002.
During the first quarter of 2001, we approved and announced to employees a plan
to exit our Fairfield, Ohio plastic container facility. The plan included the
termination of approximately 150 plant employees and other related exit costs
including equipment dismantle costs and contractual rent obligations. This
decision resulted in a first quarter pre-tax charge to earnings of $3.5 million,
which consisted of $2.6 million for plant exit costs and $0.9 million for
employee severance and benefits. Through December 31, 2001, a total of $1.4
million has been expended relating to this plan. These expenditures consisted of
$0.7 million related to employee severance and benefits and $0.7 million for
plant exit costs. At December 31, 2001, this reserve had a balance of $2.1
million. Although we have closed the plant, the timing of cash payments is
dependent upon the expiration of a lease obligation. Accordingly, cash payments
related to closing this facility are expected primarily through 2002.
F-10
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 3. Rationalization Charges and Acquisition Reserves (continued)
During the fourth quarter of 1999, we approved and announced to employees
separate plans to exit our San Leandro and City of Industry, California metal
food container facilities. These plans included the termination of approximately
130 plant employees, termination of two operating leases and other plant related
exit costs including equipment dismantle costs and contractual rent obligations.
These decisions resulted in a fourth quarter pre-tax charge to earnings of $11.9
million. This charge consisted of $7.3 million for the non-cash write-down in
carrying value of assets, $2.2 million for employee severance and benefits and
$2.4 million for plant exit costs. Through December 31, 2001, a total of $4.4
million, excluding the non-cash write-down, has been expended relating to these
plans. These expenditures consisted of $2.2 million related to employee
severance and benefits and $2.2 million for plant exit costs. During the fourth
quarter of 2001, certain assets with carrying values that were previously
written down as part of this rationalization charge were placed back in service.
As a result, we recorded $1.2 million as a credit to rationalization charges,
net in our Consolidated Statements of Income, and recorded those assets in our
Consolidated Balance Sheets at their depreciated cost, which approximates fair
value. At December 31, 2001, this reserve had a balance of $0.2 million.
Although we have closed both plants, the timing of cash payments has been
dependent upon the resolution of various matters with the lessor of one of the
facilities. Accordingly, cash payments related to closing these facilities are
expected through 2002.
During 1999, we initiated and concluded a study to evaluate the long-term
utilization of all assets of our metal food container business. As a result,
during the third quarter of 1999, we determined that certain adjustments were
necessary to properly reflect the net realizable values of machinery and
equipment which had become surplus or obsolete and recorded a non-cash pre-tax
charge to earnings of $24.2 million to reduce the carrying value of those
assets.
Acquisition reserves established in connection with our 1998 purchases of CS
Can, Clearplass Containers, Inc., or Clearplass, and Winn Packaging Co., or
Winn, were recorded pursuant to plans that we began to assess and formulate at
the time of the acquisitions and which were finalized in 1999. As a result of
these plans, we recorded acquisition reserves totaling $5.4 million, of which
$0.5 million related to employee severance and benefits, $4.6 million related to
plant exit costs necessary to comply with environmental requirements that
existed at the time of the acquisition and to exit the acquired Albia, Iowa and
Sheffield, Alabama plastic container manufacturing facilities and $0.3 million
related to liabilities incurred in connection with these acquisitions. Through
December 31, 2001, a total of $3.5 million has been expended relating to these
plans, which consisted of $0.5 million related to employee severance and
benefits, $2.9 million for plant exit costs and $0.1 million for the payment of
acquisition related liabilities. The timing of cash payments relating to the CS
Can activities has been primarily dependent upon obtaining necessary
environmental permits and approvals in connection with a consent order with the
U.S. Environmental Protection Agency to which we are subject as a result of our
acquisition of CS Can. All actions under these plans were completed during the
fourth quarter of 2001 at amounts less than previously estimated, and,
accordingly, we reversed $1.9 million of acquisition reserves as a reduction to
goodwill.
F-11
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 3. Rationalization Charges and Acquisition Reserves (continued)
Acquisition reserves established in connection with our purchase of the Food
Metal and Specialty Business of American National Can Company, or AN Can, in
1995 aggregating approximately $49.5 million were recorded pursuant to plans
that we began to assess and formulate at the date of the acquisition and which
were finalized in 1996. These reserves consisted of employee severance and
benefits costs ($26.1 million) for the termination of approximately 500 plant,
selling and administrative employees, plant exit costs ($6.6 million) related to
the planned closure of the St. Louis, Missouri plant, the downsizing of the
Hoopeston, Illinois and Savage, Minnesota facilities and the restructuring of
the St. Paul, Minnesota plant and liabilities incurred in connection with the
acquisition ($16.8 million). Through December 31, 2001, a total of $44.0 million
has been expended related to these plans, which consisted of $24.6 million for
employee severance and benefits, $4.6 million for plant exit costs and $14.8
million for payment of acquisition related liabilities. At December 31, 2001,
this reserve had a balance of $5.5 million. Although we have completed our plan,
cash payments are expected to continue for pension obligations totaling $1.5
million which are required to be paid pursuant to a labor agreement in place at
the time of acquisition, the last in a series of $2.0 million annual contractual
payments that began in 1996 and continue through 2002 to resolve a contract
dispute that arose in connection with the acquisition and the resolution of
various environmental liabilities, estimated at $2.0 million, that existed at
the time of the acquisition.
F-12
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 3. Rationalization Charges and Acquisition Reserves (continued)
Our continuing efforts to integrate and rationalize our operations are part of
our strategy to maximize production efficiencies. Activity in our
rationalization and acquisition reserves since December 31, 1999 is summarized
as follows (dollars in thousands):
Employee Plant
Severance Exit Acquisition
and Benefits Costs Liabilities Total
------------ ----- ----------- -----
Balance at December 31, 1999
- ----------------------------
AN Can Acquisition .............................................. $ 2,555 $ 4,451 $ 6,704 $13,710
CS Can, Clearplass and Winn Acquisitions ........................ -- 3,711 252 3,963
San Leandro and City of Industry Plant Rationalizations ......... 1,792 2,332 -- 4,124
Other Acquisitions .............................................. -- 256 -- 256
------- ------- ------- -------
Balance at December 31, 1999 .................................... 4,347 10,750 6,956 22,053
2000 Activity
- -------------
AN Can Acquisition .............................................. (191) (1,829) (2,704) (4,724)
CS Can, Clearplass and Winn Acquisitions ........................ -- (1,588) -- (1,588)
San Leandro and City of Industry Plant Rationalizations ......... (1,792) (1,726) -- (3,518)
Other Acquisitions .............................................. -- (48) -- (48)
------- ------- ------- -------
Total ........................................................... (1,983) (5,191) (2,704) (9,878)
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 Rationalizations ......... -- 606 -- 606
Other Acquisitions .............................................. -- 208 -- 208
------- ------- ------- -------
Balance at December 31, 2000 .................................... 2,364 5,559 4,252 12,175
2001 Activity
- -------------
AN Can Acquisition .............................................. (873) (645) (2,000) (3,518)
CS Can, Clearplass and Winn Acquisitions ........................ -- (425) (80) (505)
CS Can, Clearplass and Winn Reversal to Goodwill ................ -- (1,698) (172) (1,870)
San Leandro and City of Industry Plant Rationalizations ......... -- (409) -- (409)
Fairfield Plant Rationalization Charge .......................... 874 2,616 -- 3,490
Fairfield Plant Rationalization ................................. (637) (749) -- (1,386)
Northtown, Kingsburg and Waukegan Plant
Rationalization Charges ....................................... 1,421 1,425 -- 2,846
Northtown, Kingsburg and Waukegan Plant Rationalizations ........ (88) (26) -- (114)
Other Acquisitions .............................................. -- (208) -- (208)
------- ------- ------- -------
Total ........................................................... 697 (119) (2,252) (1,674)
Balance at December 31, 2001
- ----------------------------
AN Can Acquisition .............................................. 1,491 1,977 2,000 5,468
CS Can, Clearplass and Winn Acquisitions ........................ -- -- -- --
San Leandro and City of Industry Plant Rationalizations ......... -- 197 -- 197
Fairfield Plant Rationalization ................................. 237 1,867 -- 2,104
Northtown, Kingsburg and Waukegan Plant Rationalizations ........ 1,333 1,399 -- 2,732
Other Acquisitions .............................................. -- -- -- --
------- ------- ------- -------
Balance at December 31, 2001 .................................... $ 3,061 $ 5,440 $ 2,000 $10,501
======= ======= ======= =======
F-13
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 3. Rationalization Charges and Acquisition Reserves (continued)
At December 31, 2001 and 2000, rationalization and acquisition reserves were
included in our Consolidated Balance Sheets as follows:
2001 2000
---- ----
(Dollars in thousands)
Accrued liabilities ..... $ 8,492 $ 7,462
Other liabilities ....... 2,009 4,713
------- -------
$10,501 $12,175
======= =======
Note 4. Comprehensive Income (Loss)
Comprehensive income (loss) is reported in our Consolidated Statements of
Stockholders' Equity (Deficiency). Amounts included in accumulated other
comprehensive income (loss) at December 31 are as follows:
2001 2000
---- ----
(Dollars in thousands)
Foreign currency translation ........... $(1,916) $ (691)
Change in fair value of derivatives .... (3,267) -
Minimum pension liability .............. (2,863) (897)
------- -------
Accumulated other comprehensive
income (loss) ...................... $(8,046) $(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
$3.2 million, net of both tax and net losses reclassified to earnings, for the
change in fair value of derivatives for the year ended December 31, 2001. The
amount reclassified to earnings from accumulated other comprehensive income
(loss) for the year ended December 31, 2001 was a net loss of $4.6 million.
F-14
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 5. Inventories
The components of inventories at December 31 are as follows:
2001 2000
---- ----
(Dollars in thousands)
Raw materials ..................... $ 29,602 $ 43,873
Work-in-process ................... 45,510 51,191
Finished goods .................... 168,362 165,680
Spare parts and other ............. 12,128 11,698
-------- --------
255,602 272,442
Adjustment to value inventory
at cost on the LIFO method ..... 7,025 7,295
-------- --------
$262,627 $279,737
======== ========
The amount of inventory recorded on the first-in, first-out method at December
31, 2001 and 2000 was $22.3 million and $31.6 million, respectively.
Note 6. Property, Plant and Equipment, Net
Property, plant and equipment, net, at December 31 are as follows:
2001 2000
---- ----
(Dollars in thousands)
Land ............................... $ 7,869 $ 8,152
Buildings and improvements ......... 128,815 128,185
Machinery and equipment ............ 1,055,207 1,022,176
Construction in progress ........... 56,504 73,574
---------- ----------
1,248,395 1,232,087
Accumulated depreciation ........... (570,853) (522,574)
---------- ----------
Property, plant and
equipment, net ............... $ 677,542 $ 709,513
========== ==========
F-15
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 7. Other Assets
Other assets at December 31 are as follows:
2001 2000
---- ----
(Dollars in thousands)
Investments in equity affiliates (see Note 8) ... $14,342 $ 2,167
Debt issuance costs ............................. 13,727 13,738
Intangible pension asset ........................ 10,855 10,240
Other ........................................... 22,783 19,954
------- -------
61,707 46,099
Accumulated amortization ........................ (6,486) (4,817)
------- -------
$55,221 $41,282
======= =======
Note 8. Investments in Equity Affiliates
White Cap LLC
- -------------
Effective July 1, 2001, we 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, or White Cap. We contributed $48.4 million of metal closure
assets, including our manufacturing facilities in Evansville and Richmond,
Indiana, and $7.1 million of metal closure liabilities to White Cap in return
for a 35% interest in and $32.4 million of cash proceeds from the joint venture.
Net sales of our metal closure business, which was contributed to the White Cap
joint venture, totaled $46.3 million, $90.8 million and $101.6 million in 2001,
2000 and 1999, respectively.
We account for our investment in the White Cap joint venture using the equity
method. During 2001, we recorded equity losses of the White Cap joint venture of
$0.3 million and a gain on the assets contributed to the joint venture of $4.9
million.
F-16
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 8. Investments in Equity Affiliates (continued)
Packtion Corporation
- --------------------
In April 2000, we, together with Morgan Stanley Dean Witter Private Equity and
Diamondcluster International Inc., agreed to invest in Packtion Corporation, or
Packtion, an e-commerce joint venture aimed at integrating the packaging supply
chain from design through manufacturing and procurement. The parties agreed to
make the investments through Packaging Markets LLC, a limited liability company.
The joint venture was expected to provide a comprehensive online marketplace for
packaging goods and services and to combine content, tools and collaboration
capabilities to streamline the product development process and enhance
transaction opportunities for buyers and sellers of packaging. The products that
Packtion was developing included a web-based software tool to enable product and
package design, development and collaboration; an internet-based secure
environment enabling the sharing of packaging related product information and
the transaction of business electronically; and an informational source of
packaging related knowledge, tools and expert services. Packtion had
insignificant sales for internet consulting services and incurred net losses. We
accounted for our investment in Packtion using the equity method.
In June and August 2000, we invested a total of $7.0 million in Packtion
representing approximately a 45% interest in Packtion. For the year ended
December 31, 2000, we recorded equity losses of Packtion aggregating $4.6
million. In addition, we recorded our share of Packtion's closing costs, $0.2
million, as a reduction to our investment. 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, we invested an additional $3.1 million bringing
our total investment to $10.1 million representing approximately a 25% interest
in Packtion. In connection with this transaction, we also recorded a reduction
to paid-in capital of $1.4 million due to the dilution of our investment.
Packtion was dissolved on May 31, 2001, after its board of directors determined
that there had been slower than anticipated market acceptance of its business.
During 2001, we recorded equity losses of Packtion aggregating $3.8 million,
which included our final losses and eliminated our investment.
F-17
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 9. Long-Term Debt
Long-term debt at December 31 is as follows:
2001 2000
---- ----
(Dollars in thousands)
Bank Debt:
Bank Revolving Loans ..................... $333,025 $ 367,400
Bank A Term Loans ........................ 119,413 159,218
Bank B Term Loans ........................ 186,588 188,542
Canadian Bank Facility ................... 2,639 12,850
-------- ----------
Total bank debt ........................ 641,665 728,010
Subordinated Debt:
9% Senior Subordinated Debentures ........ 300,000 300,000
Other .................................... 3,104 3,465
-------- ----------
Total subordinated debt ................ 303,104 303,465
-------- ----------
Total Debt .................................. 944,769 1,031,475
Less current portion ..................... 57,999 44,948
-------- ----------
$886,770 $ 986,527
======== ==========
The aggregate annual maturities of long-term debt at December 31, 2001 are as
follows (dollars in thousands):
2002 ............ $ 57,999
2003 ............ 401,090
2004 ............ 1,954
2005 ............ 180,726
2006 ............ --
Thereafter ...... 303,000
--------
$944,769
========
F-18
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 2000 and 1999
Note 9. Long-Term Debt (continued)
Bank Credit Agreement
- ---------------------
Our U.S. senior secured credit facility, or the Credit Agreement, initially
provided us with $250.0 million of A Term Loans, $200.0 million of B Term Loans
and up to $550.0 million of Revolving Loans. Pursuant to the Credit Agreement,
we initially had the right at any time to request one or more lenders to
increase their revolving loan commitments thereunder by up to an aggregate of
$200.0 million. In October 2000, certain lenders agreed pursuant to our request
to increase their revolving loan commitments under the Credit Agreement by an
aggregate of $125.0 million. As a result, we currently have the right to request
up to an additional $75.0 million of revolving loans from one or more lenders.
The A Term Loans and Revolving Loans mature on December 31, 2003 and the B Term
Loans mature on June 30, 2005. Principal of the A Term Loans and B Term Loans is
required to be repaid in scheduled annual installments and amounts repaid may
not be reborrowed. Principal repayments of $39.8 million and $34.8 million of A
Term Loans were made during 2001 and 2000, respectively. Principal repayments of
$2.0 million of B Term Loans were made during both 2001 and 2000.
The Credit Agreement requires us to prepay the term loans with proceeds received
from the incurrence of indebtedness, except proceeds used to refinance other
existing indebtedness; with proceeds received from certain assets sales; and,
under certain circumstances, with 50% of our excess cash flow, as defined.
Generally, prepayments are allocated pro rata to the A Term Loans and B Term
Loans and applied first to the scheduled amortization payments in the year of
such prepayments and, to the extent in excess thereof, pro rata to the remaining
installments of the term loans.
The Credit Agreement provides us with a commitment for a revolving credit
facility of up to $670.5 million (after giving effect to the reduction of such
facility by $4.5 million for the revolving loan facility under our Canadian bank
facility) for working capital needs and other general corporate purposes,
including acquisitions. Revolving Loans may be borrowed, repaid and reborrowed
over the life of the Credit Agreement until their final maturity. At December
31, 2001, there were $333.0 million of Revolving Loans outstanding and, after
taking into account outstanding letters of credit of $16.0 million, borrowings
available under the revolving credit facility of the Credit Agreement were
$321.5 million. Based on our ability and intention to continue to refinance for
more than one year our outstanding Revolving Loan borrowings at December 31,
2001, such borrowings were reclassified as long-term debt. Seasonal Revolving
Loan borrowings during the year will be classified as current obligations.
F-19
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 9. Long-Term Debt (continued)
Bank Credit Agreement (continued)
- ---------------------
We may utilize up to a maximum of $30.0 million of our revolving credit facility
under the Credit Agreement for letters of credit as long as the aggregate amount
of borrowings of Revolving Loans and letters of credit do not exceed the amount
of the commitment under such revolving credit facility. The Credit Agreement
provides for the payment of a commitment fee ranging from 0.15% to 0.375% (0.25%
at December 31, 2001) per annum on the daily average unused portion of
commitments available under the revolving credit facility of the Credit
Agreement and at December 31, 2001 a 1.375% per annum fee on outstanding letters
of credit. In connection with the $125.0 million increase to the revolving loan
commitments under the Credit Agreement, we pay a 1.5% per annum facility fee on
the incremental commitment.
Credit Agreement borrowings may be designated as Base Rate or Eurodollar Rate
borrowings. The Base Rate is the higher of 1/2 of 1.0% in excess of the Adjusted
Certificate of Deposit Rate, as defined in the Credit Agreement, 1/2 of 1.0% in
excess of the Federal Funds Rate, or Bankers Trust Company's prime lending rate.
Currently, Base Rate borrowings bear interest at the Base Rate plus a margin of
0.125% in the case of A Term Loans and Revolving Loans and at the Base Rate plus
a margin of 0.625% in the case of B Term Loans. Eurodollar Rate borrowings
currently bear interest at the Eurodollar Rate plus a margin of 1.125% in the
case of A Term Loans and Revolving Loans and a margin of 1.625% in the case of B
Term Loans. In accordance with the Credit Agreement, the interest rate margin on
Base Rate and Eurodollar Rate borrowings will be reset quarterly based upon the
Company's Leverage Ratio, as defined in the Credit Agreement. As of December 31,
2001, the interest rate for Base Rate borrowings was 4.9% and the interest rate
for Eurodollar Rate borrowings ranged between 3.1% and 5.9%. For 2001, 2000 and
1999, the weighted average annual interest rate paid on all term loans was 6.0%,
7.8%, and 6.7%, respectively. We have entered into interest rate swap agreements
with an aggregate notional amount of $275.0 million to convert interest rate
exposure from variable to fixed interest rates on A Term Loans and B Term Loans.
See Note 10 which includes a discussion of the interest rate swap agreements.
Because we sell metal containers used in fruit and vegetable pack processing, we
have seasonal sales. As is common in the industry, we 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 our seasonal requirements, we incur
short-term indebtedness to finance our working capital requirements. For 2001,
2000 and 1999, the average amount of borrowings, including seasonal borrowings,
under our U.S. revolving credit facility was $497.0 million, $339.5 million and
$308.1 million, respectively; the weighted average annual interest rate paid on
such borrowings was 5.3%, 7.5%, and 6.4%, respectively; and, after taking into
account outstanding letters of credit, the highest amount of such borrowings was
$584.3 million, $529.9 million and $404.4 million, respectively.
F-20
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 9. Long-Term Debt (continued)
Bank Credit Agreement (continued)
- ---------------------
The indebtedness under the Credit Agreement is guaranteed by Holdings and
certain of its U.S. subsidiaries and is secured by a security interest in
substantially all of their real and personal property. The stock of certain of
our U.S. subsidiaries has been pledged to the lenders under the Credit
Agreement. At December 31, 2001, we had assets of a U.S. subsidiary of $136.5
million which were restricted and could not be transferred to Holdings or any
other subsidiary of Holdings.
The Credit Agreement contains various covenants which limit, among other things,
our ability and the ability of our subsidiaries to grant liens, sell assets and
use the proceeds from certain asset sales, make certain payments (including
dividends) on our capital stock, incur indebtedness or provide guarantees, make
loans or investments, enter into transactions with affiliates, make capital
expenditures, engage in any business other than the packaging business, and,
with respect to our subsidiaries, issue stock. In addition, we are required to
meet specified financial covenants including Interest Coverage and Leverage
Ratios, each as defined in the Credit Agreement. We are currently in compliance
with all covenants under the Credit Agreement.
Canadian Bank Facility
- ----------------------
Through a wholly owned Canadian subsidiary, we have a Canadian bank facility, or
the Canadian Bank Facility, with various Canadian banks. The Canadian Bank
Facility initially provided our Canadian subsidiaries with Cdn. $26.5 million
(U.S. $18.5 million) of term loans, and provides such subsidiaries with up to
Cdn. $6.5 million (U.S. $4.5 million) of revolving loans. Principal of the term
loans is required to be repaid in annual installments until maturity on December
31, 2003. At December 31, 2001, term loans of Cdn. $4.2 million (U.S. $2.6
million) were outstanding under the Canadian Bank Facility. During 2001 and
2000, we repaid Cdn. $12.8 million (U.S. $8.2 million) and Cdn. $3.7 million
(U.S. $2.5 million), respectively, of term loans in accordance with terms of the
Canadian Bank Facility.
The revolving loans may be borrowed, repaid and reborrowed until maturity on
December 31, 2003. There were no revolving loans outstanding under the Canadian
Bank Facility at December 31, 2001, and there were Cdn. $2.3 million (U.S. $1.6
million) of revolving loans outstanding at December 31, 2000 under the Canadian
Bank Facility.
Revolving loan and term loan borrowings may be designated as Canadian Prime Rate
or Bankers Acceptance borrowings. Currently, Canadian Prime Rate borrowings bear
interest at the Canadian Prime Rate, as defined in the Canadian Bank Facility,
plus no margin. Bankers Acceptance borrowings bear interest at the rate for
bankers acceptances plus a margin of 1.0%. Similar to the Credit Agreement, the
interest rate margin on both Canadian Prime Rate and Bankers Acceptance
borrowings will be reset quarterly based upon our consolidated Leverage Ratio.
As of December 31, 2001, the interest rate for Bankers Acceptance borrowings was
3.1%.
F-21
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 9. Long-Term Debt (continued)
Canadian Bank Facility (continued)
- ----------------------
The indebtedness under the Canadian Bank Facility is guaranteed by Holdings and
certain of its subsidiaries and is secured by a security interest in
substantially all of the real and personal property of our Canadian subsidiaries
and all of the stock of our Canadian subsidiaries. The Canadian Bank Facility
contains covenants which are generally no more restrictive than and are
generally similar to the covenants in the Credit Agreement.
9.0% Senior Subordinated Debentures
- -----------------------------------
The $300.0 million aggregate principal amount of 9.0% Senior Subordinated
Debentures, or the 9% Debentures, due June 1, 2009 are general unsecured
obligations of Holdings, subordinate in right of payment to obligations under
the Credit Agreement and the Canadian Bank Facility and effectively subordinate
to all obligations of the subsidiaries of Holdings. Interest on the 9%
Debentures is payable semi-annually in cash on the first day of each June and
December.
The 9% Debentures are redeemable, at the option of Holdings, in whole or in
part, at any time after June 1, 2002 at the following redemption prices
(expressed in percentages of principal amount) plus accrued and unpaid interest
thereon to the redemption date if redeemed during the twelve month period
beginning June 1 of the years set forth below:
Year Redemption Price
---- ----------------
2002 .......... 104.500%
2003 .......... 103.375%
2004 .......... 102.250%
2005 .......... 101.125%
Thereafter .... 100.000%
Upon the occurrence of a Change of Control (as defined in the Indenture relating
to the 9% Debentures), Holdings is required to make an offer to purchase the 9%
Debentures at a purchase price equal to 101% of their principal amount, plus
accrued and unpaid interest to the date of purchase.
The Indenture relating to the 9% Debentures contains covenants which are
generally less restrictive than those under the Credit Agreement and Canadian
Bank Facility.
F-22
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 9. Long-Term Debt (continued)
13 1/4% Subordinated Debentures
- -------------------------------
In December 2000, we redeemed all $56.2 million principal amount of our
outstanding 13 1/4% Subordinated Debentures due 2006, or the 13 1/4% Debentures.
The redemption price was 109.938% of the principal amount, or approximately
$61.8 million, plus accrued and unpaid interest to the redemption date. As
permitted under the Credit Agreement and the other documents governing our
indebtedness, we funded the redemption with lower cost revolving loans under our
Credit Agreement. As a result, in the fourth quarter of 2000, we recorded an
extraordinary loss of $6.9 million, $4.2 million after-tax, or $0.23 per diluted
share, for the premium paid in connection with this redemption and for the
write-off of unamortized financing costs related to the 13 1/4% Debentures.
Note 10. Financial Instruments
The financial instruments recorded in our Consolidated Balance Sheets include
cash and cash equivalents, accounts receivable, accounts payable, debt
obligations and swap agreements. Due to their short-term maturity, the carrying
amounts of cash and cash equivalents, accounts receivable and accounts payable
approximate their fair market value. The following table summarizes the carrying
amounts and estimated fair values of our other financial instruments at December
31 (bracketed amount represents an unrecognized asset):
2001 2000
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(Dollars in thousands)
Bank debt ......................... $641,665 $641,665 $728,010 $728,010
Subordinated debt.................. 300,000 305,250 300,000 269,700
Interest rate swap agreements...... 5,037 5,037 -- 723
Natural gas swap agreements........ 1,768 1,768 -- (711)
Methods and assumptions used in estimating fair values are as follows:
Bank debt: The carrying amounts of our variable rate bank revolving loans and
term loans approximate their fair values.
Subordinated debt: The fair value of our 9% Debentures is estimated based on
quoted market prices.
Interest Rate and Natural Gas Swap Agreements: The fair value of the interest
rate and natural gas swap agreements reflects the estimated amounts that we
would pay or receive at December 31, 2001 and 2000 in order to terminate the
contracts based on the present value of expected cash flows derived from market
rates and prices.
F-23
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 10. Financial Instruments (continued)
Derivative Instruments and Hedging Activities
- ---------------------------------------------
We utilize certain derivative financial instruments to manage our interest rate
and energy cost exposures. We limit our use of derivative financial instruments
to interest rate and natural gas swap agreements. We do not utilize derivative
financial instruments for speculative purposes.
Our 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 (deficiency), 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 income. During 2001,
ineffectiveness for our hedges reduced net income by $0.2 million and was
recorded in interest and other debt expense in our Consolidated Statements of
Income.
The adoption of SFAS No. 133 on January 1, 2001 resulted in 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 December 31, 2001 was a net liability of $6.8 million
and was recorded in the Consolidated Balance Sheets as follows: $6.7 million in
other liabilities, $1.1 million in accrued interest payable and $1.0 million in
other assets. As a result, we recorded an additional charge to accumulated other
comprehensive income (loss) of $3.2 million, net of both taxes and net losses
reclassified to earnings. We estimate that we will reclassify $4.6 million, net
of tax, of the amount recorded in accumulated other comprehensive income (loss)
as a charge to earnings during the next twelve months. The actual amount that
will be reclassified to earnings will vary from this amount as a result of
changes in market conditions.
F-24
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 10. Financial Instruments (continued)
Interest Rate Swap Agreements
- -----------------------------
We have entered into interest rate swap agreements with major banks to manage
our exposure to interest rate fluctuations. The interest rate swap agreements
effectively convert interest rate exposure from variable rates to fixed rates of
interest. At December 31, 2001 and 2000, the aggregate notional principal
amounts of these agreements were $275 million and $150 million, respectively.
These agreements are with financial institutions which are expected to fully
perform under the terms thereof. Under these agreements, we pay fixed rates of
interest ranging from 3.8% to 6.4% and receive floating rates of interest based
on three month LIBOR. These agreements mature in 2002 ($100 million notional
principal amount), 2003 ($125 million notional principal amount) and 2004 ($50
million notional principal amount). The difference between amounts to be paid or
received on interest rate swap agreements is recorded as interest expense. Net
payments of $2.0 million, net receipts of $0.6 million and net payments of $1.1
million were made under our interest rate swap agreements for the years ended
December 31, 2001, 2000 and 1999, respectively.
Natural Gas Swap Agreements
- ---------------------------
We have entered into natural gas swap agreements with major trading companies to
manage our exposure to fluctuations in natural gas prices. At December 31, 2001
and December 31, 2000, the aggregate notional principal amount of these
agreements was 1,560,000 MMBtu and 170,000 MMBtu of natural gas, respectively.
These agreements are with institutions that are expected to fully perform under
the terms thereof. Under these agreements, we pay fixed natural gas prices
ranging from $2.73 to $5.73 per MMBtu and receive a NYMEX-based natural gas
price. These agreements mature at various times through March 2003. Realized
gains and losses on these natural gas swap agreements are deferred as a
component of inventories and are recognized when related costs are recorded to
cost of goods sold. Payments under these natural gas swap agreements were $1.3
million during 2001, and payments and receipts under these agreements were
essentially equal in 2000. We did not enter into any natural gas swap agreements
in 1999. During 2001 and 2000, natural gas swap agreements for aggregate
notional amounts of 780,000 MMBtu and 98,000 MMBtu of natural gas expired,
respectively.
Concentration of Credit Risk
- ----------------------------
We derive a significant portion of our revenue from multi-year supply agreements
with many of our customers. Aggregate revenues from our three largest customers
accounted for approximately 33.5%, 33.6% and 33.8% of our net sales in 2001,
2000 and 1999, respectively. The receivable balances from these customers
collectively represented 30.5% and 31.2% of our trade accounts receivable at
December 31, 2001 and 2000, respectively. As is common in the packaging
industry, we provide extended payment terms for some of our customers due to the
seasonality of the vegetable and fruit pack processing business. Exposure to
losses is dependent on each customer's financial position. We perform ongoing
credit evaluations of our customers' financial condition, and our receivables
are generally not collateralized. We maintain an allowance for doubtful accounts
which we believe is adequate to cover potential credit losses based on customer
credit evaluations, collection history and other information.
F-25
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 11. Commitments and Contingencies
We have a number of noncancelable operating leases for office and plant
facilities, equipment and automobiles that expire at various dates through 2020.
Certain operating leases have renewal options as well as various purchase
options. Minimum future rental payments under these leases are as set forth
below for each of the following years (dollars in thousands):
2002 .......... $18,550
2003 .......... 15,769
2004 .......... 11,061
2005 .......... 9,656
2006 .......... 8,824
Thereafter .... 30,882
-------
$94,742
=======
Rent expense was approximately $22.8 million in 2001, $19.0 million in 2000 and
$18.9 million in 1999.
We are a party to routine legal proceedings arising in the ordinary course of
our business. We are not a party to, and none of our properties are subject to,
any pending legal proceedings which could have a material adverse effect on our
business or financial condition.
Note 12. Retirement Benefits
We sponsor a number of defined benefit pension and defined contribution plans
which cover substantially all employees, other than union employees covered by
multi-employer defined benefit pension plans under collective bargaining
agreements. Pension benefits are provided based on either a career average,
final pay or years of service formula. With respect to certain hourly employees,
pension benefits are provided based on stated amounts for each year of service.
It is our policy to fund accrued pension and defined contribution costs in
compliance with ERISA requirements. Assets of the plans consist primarily of
equity and bond funds.
We have unfunded defined benefit health care and life insurance plans that
provide postretirement benefits to certain employees. The plans are
contributory, with retiree contributions adjusted annually, and contain cost
sharing features including deductibles and coinsurance. Retiree health benefits
are paid as covered expenses are incurred.
F-26
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 12. Retirement Benefits (continued)
The changes in benefit obligations and plan assets as well as the funded status
of our retirement plans at December 31 are as follows:
Pension Benefits Postretirement Benefits
---------------- -----------------------
2001 2000 2001 2000
---- ---- ---- ----
(Dollars in thousands)
Change in Benefit Obligation
Obligation at beginning of year .................... $128,840 $110,423 $ 49,682 $ 43,054
Service cost .................................... 7,653 6,986 1,778 1,228
Interest cost ................................... 9,472 8,671 3,640 3,220
Actuarial losses ................................ 2,438 1,911 2,494 1,445
Plan amendments ................................. 785 592 -- --
Benefits paid ................................... (5,004) (4,247) (2,475) (2,230)
Participants' contributions ..................... -- -- 218 292
Acquisition ..................................... 1,519 4,193 1,211 2,673
Curtailments or settlements ..................... (8,215) -- (5,874) --
Special termination benefits .................... -- 311 -- --
-------- -------- -------- --------
Obligation at end of year .......................... 137,488 128,840 50,674 49,682
Change in Plan Assets
Fair value of plan assets at beginning of year ..... 97,770 85,244 -- --
Actual return on plan assets .................... 508 2,391 -- --
Employer contributions .......................... 15,585 15,296 2,257 1,938
Participants' contributions ..................... -- -- 218 292
Benefits paid ................................... (5,004) (4,247) (2,475) (2,230)
Curtailments or settlements ..................... (7,927) -- -- --
Expenses ........................................ (972) (914) -- --
-------- -------- -------- --------
Fair value of plan assets at end of year ........... 99,960 97,770 -- --
Funded Status
Funded Status ...................................... (37,528) (31,070) (50,674) (49,682)
Unrecognized actuarial loss (gain) .............. 9,116 (2,180) 5,710 3,239
Unrecognized prior service cost ................. 15,803 15,593 109 124
-------- -------- -------- --------
Net amount recognized .............................. $(12,609) $(17,657) $(44,855) $(46,319)
======== ======== ======== ========
Amounts recognized in the Consolidated Balance
Sheets
Prepaid benefit cost ............................ $ 4,005 $ 289 $ -- $ --
Accrued benefit liability ....................... (32,217) (29,083) (44,855) (46,319)
Intangible asset ................................ 10,855 10,240 -- --
Accumulated other comprehensive loss ............ 4,748 897 -- --
-------- -------- -------- --------
Net amount recognized .............................. $(12,609) $(17,657) $(44,855) $(46,319)
======== ======== ======== ========
F-27
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 12. Retirement Benefits (continued)
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for our pension plans with accumulated benefit obligations in
excess of plan assets were $137.5 million, $119.5 million and $100.0 million,
respectively, at December 31, 2001 and $94.6 million, $84.5 million and $70.2
million, respectively, at December 31, 2000.
The components of the net periodic benefit cost for each of the years ended
December 31 are as follows:
Pension Benefits Postretirement Benefits
--------------------------------- -------------------------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
(Dollars in thousands)
Service cost ..................................... $ 7,653 $ 6,986 $ 6,710 $1,778 $1,228 $1,031
Interest cost .................................... 9,472 8,671 7,616 3,640 3,220 2,944
Expected return on plan assets ................... (8,754) (7,925) (6,722) -- -- --
Amortization of prior service cost ............... 2,108 1,745 1,531 15 15 15
Amortization of actuarial (gains) losses ......... (93) (143) (29) 23 20 62
Losses due to settlement or curtailment .......... 151 311 -- -- -- --
------- ------- ------- ------ ------ ------
Net periodic benefit cost ........................ $10,537 $ 9,645 $ 9,106 $5,456 $4,483 $4,052
======= ======= ======= ====== ====== ======
Our principal pension and postretirement benefit plans used the following
weighted average actuarial assumptions at December 31:
2001 2000
---- ----
Discount rate ...................... 7.25% 7.50%
Expected return on plan assets ..... 9.00% 9.00%
Rate of compensation increase ...... 3.60% 3.75%
F-28
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 12. Retirement Benefits (continued)
The assumed health care cost trend rates used to determine the accumulated
postretirement benefit obligation in 2001 ranged from 9.0% to 10.0% for pre-age
65 retirees and 8.0% to 9.0% for post-age 65 retirees, declining gradually to an
ultimate rate of 5.5% in 2009. Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care plan. A one
percentage point change in the assumed health care cost trend rates would have
the following effects:
1-Percentage 1-Percentage
Point Increase Point Decrease
-------------- --------------
(Dollars in thousands)
Effect on postretirement benefit cost......... $ 512 $ (424)
Effect on postretirement benefit obligation... 2,950 (2,563)
We participate in several multi-employer pension plans which provide defined
benefits to certain of our union employees. Amounts contributed to these plans
and charged to pension cost in 2001, 2000 and 1999 were $4.6 million, $4.7
million and $4.8 million, respectively.
We also sponsor defined contribution pension and profit sharing plans covering
substantially all employees. Our contributions to these plans are based upon
employee contributions and operating profitability. Contributions charged to
expense for these plans were $6.4 million in 2001, $5.1 million in 2000 and $5.9
million in 1999.
F-29
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 13. Income Taxes
The components of the provision for income taxes are as follows:
2001 2000 1999
---- ---- ----
(Dollars in thousands)
Current:
Federal .............. $11,618 $ 7,859 $ 5,879
State ................ 1,372 816 1,143
Foreign .............. 3,380 2,656 2,654
------- ------- -------
16,370 11,331 9,676
Deferred:
Federal .............. 12,378 10,372 5,952
State ................ 2,182 953 (1,490)
Foreign .............. (708) 424 167
------- ------- -------
13,852 11,749 4,629
------- ------- -------
$30,222 $23,080 $14,305
======= ======= =======
The provision for income taxes is included in our Consolidated Statements of
Income as follows:
2001 2000 1999
---- ---- ----
(Dollars in thousands)
Income before equity in losses of
affiliates and extraordinary item ..... $30,222 $25,790 $14,305
Extraordinary item ....................... -- (2,710) --
------- ------- -------
$30,222 $23,080 $14,305
======= ======= =======
F-30
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 13. Income Taxes (continued)
The provision for income taxes varied from income taxes computed at the
statutory U.S. federal income tax rate as a result of the following:
2001 2000 1999
---- ---- ----
(Dollars in thousands)
Income taxes computed at the statutory
U.S. federal income tax rate ............ $26,644 $20,649 $13,382
State and foreign taxes,
net of federal tax benefit .............. 1,955 1,109 (357)
Amortization of goodwill .................. 1,309 1,009 906
Other ..................................... 314 313 374
------- ------- -------
$30,222 $23,080 $14,305
======= ======= =======
Effective tax rate........................ 39.7% 39.1% 37.4%
Deferred income taxes reflect the net tax effect of temporary differences
between the financial statement carrying amounts of assets and liabilities and
their respective tax bases. Significant components of our deferred tax assets
and liabilities at December 31 are as follows:
2001 2000
---- ----
(Dollars in thousands)
Deferred tax assets:
Pension and postretirement liabilities ........ $ 24,694 $ 20,026
Rationalization and other accrued
liabilities ................................. 24,971 22,732
Net operating loss carryforwards .............. 39,128 55,356
AMT and other credit carryforwards ............ 25,405 14,635
Other ......................................... 5,729 3,986
--------- ---------
Total deferred tax assets .................. 119,927 116,735
Deferred tax liabilities:
Property, plant and equipment ................. (115,060) (107,995)
Other ......................................... (10,843) (9,106)
--------- ---------
Total deferred tax liabilities ............. (125,903) (117,101)
--------- ---------
Net deferred tax liability ...................... $ (5,976) $ (366)
========= =========
F-31
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 13. Income Taxes (continued)
We file a consolidated U.S. federal income tax return that includes all domestic
subsidiaries except CS Can, which files a separate consolidated U.S. federal
income tax return. At December 31, 2001, we had net operating loss carryforwards
of approximately $39.7 million that are available to offset future consolidated
taxable income (excluding CS Can) and that expire in 2011 and 2012. At December
31, 2001, CS Can had net operating loss carryforwards of approximately $62.9
million that are available to offset its future taxable income and that expire
from 2018 through 2021. We believe that it is more likely than not that these
net operating loss carryforwards will be available to reduce future income tax
liabilities based upon estimated future taxable income, the reversal of
temporary differences in future periods and the utilization of tax planning
strategies. We also have $23.4 million of alternative minimum tax credits and CS
Can has $0.4 million of alternative minimum tax credits which are available
indefinitely to reduce future income tax payments.
Pre-tax income of foreign subsidiaries was $10.7 million in 2001, $8.9 million
in 2000 and $8.1 million in 1999. At December 31, 2001, approximately $22.7
million of accumulated earnings of foreign subsidiaries are expected to be
permanently reinvested. Accordingly, applicable U.S. federal income taxes have
not been provided. Determination of the amount of unrecognized deferred U.S.
income tax liability is not practicable to estimate.
Note 14. Stock Option Plan
We have established a stock option plan, or the Plan, for key employees pursuant
to which options to purchase shares of our Common Stock may be granted.
The Plan authorizes grants of non-qualified or incentive stock options to
purchase shares of our Common Stock. A maximum of 3,533,417 shares may be issued
for stock options under the Plan. As of December 31, 2001, there were options
for 695,914 shares of our Common Stock available for future issuance under the
Plan. The exercise price of the stock options granted under the Plan is the fair
market value of the Common Stock on the grant date. The stock options granted
under the Plan generally vest ratably over a five year period beginning one year
after the grant date and have a term of ten years.
F-32
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 2000 and 1999
Note 14. Stock Option Plan (continued)
The following is a summary of stock option activity for years ended December 31,
2001, 2000 and 1999:
Weighted Average
Options Exercise Price
------- ----------------
Options outstanding at December 31, 1998 ..... 934,523 $ 8.64
=========
Granted ................................... 115,000 $17.61
Exercised ................................. (192,255) 2.67
---------
Options outstanding at December 31, 1999 ..... 857,268 11.17
=========
Granted ................................... 823,900 $13.62
Exercised ................................. (256,203) 2.00
Canceled .................................. (236,500) 21.88
---------
Options outstanding at December 31, 2000 ..... 1,188,465 12.71
=========
Granted ................................... 100,000 $20.76
Exercised ................................. (150,773) 6.82
---------
Options outstanding at December 31, 2001 ..... 1,137,692 14.20
=========
At December 31, 2001, 2000 and 1999, the remaining contractual life of options
outstanding was 7.0 years, 7.5 years and 4.8 years, respectively, and there were
402,372, 360,065 and 581,488 options exercisable with weighted average exercise
prices of $12.26, $8.12 and $5.16, respectively.
The following is a summary of stock options outstanding and exercisable at
December 31, 2001 by range of exercise price:
Range of Remaining Weighted Weighted
Exercise Number Contractual Average Average
Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
------ ----------- ------------ -------------- ----------- --------------
$ 0.56 - $ 9.81 241,119 4.1 $ 2.53 180,319 $ 1.89
11.63 - 22.13 811,573 8.0 15.55 170,053 17.01
25.15 - 36.75 85,000 6.5 31.14 52,000 32.65
--------- -------
1,137,692 402,372
========= =======
F-33
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 14. Stock Option Plan (continued)
We apply APB No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for the Plan. Accordingly, no compensation expense
has been recognized. Had compensation expense been determined based on the fair
value of such awards at the grant date, in accordance with the methodology
prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation," our net
income and basic and diluted earnings per share would have been as follows
(dollars in thousands, except per share amounts):
2001 2000 1999
---- ---- ----
Net income:
As reported ................ $41,765 $31,308 $23,930
Pro forma .................. 40,428 29,865 23,291
Basic earnings per share:
As reported ................ $2.35 $1.77 $1.35
Pro forma .................. 2.27 1.69 1.32
Diluted earnings per share:
As reported ................ $2.31 $1.74 $1.32
Pro forma .................. 2.24 1.66 1.28
The weighted average fair value of options granted was $14.01, $9.28 and $10.10
for 2001, 2000 and 1999, respectively.
The fair value was calculated using the Black-Scholes option-pricing model based
on the following weighted average assumptions for grants made in 2001, 2000 and
1999:
2001 2000 1999
---- ---- ----
Risk-free interest rate......... 4.5% 6.6% 5.2%
Expected volatility............. 60.3% 60.6% 50.4%
Dividend yield.................. -- -- --
Expected option life (years).... 8 8 8
Note 15. Capital Stock
Our authorized capital stock consists of 100,000,000 shares of Common Stock, par
value $.01 per share, and 10,000,000 shares of preferred stock, par value $.01
per share.
Our Board of Directors previously authorized the repurchase of up to $70.0
million of our Common Stock from time to time in the open market, through
privately negotiated transactions or through block purchases. Our repurchases of
Common Stock are recorded as treasury stock and result in a charge to
stockholders' equity (deficiency). Through December 31, 2001, we repurchased
2,708,975 shares of our Common Stock for $61.0 million, which were initially
funded from Revolving Loan borrowings under our Credit Agreement that were
repaid with operating cash flows.
F-34
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 16. Earnings Per Share
The components of the calculation of earnings per share are as follows (dollars
and shares in thousands):
2001 2000 1999
---- ---- ----
Income before extraordinary item .............. $41,765 $35,524 $23,930
Extraordinary item ............................ -- 4,216 --
------- ------- -------
Net income .................................. $41,765 $31,308 $23,930
======= ======= =======
Weighted average number of shares used in:
Basic earnings per share .................... 17,777 17,652 17,706
Assumed exercise of employee stock options... 304 351 492
------ ------ ------
Diluted earnings per share .................. 18,081 18,003 18,198
====== ====== ======
Options to purchase 172,826 to 842,289 shares of Common Stock at prices ranging
from $11.63 to $36.75 per share for 2001, 743,575 to 997,900 shares of Common
Stock at prices ranging from $9.31 to $36.75 per share for 2000 and 215,000 to
330,000 shares of Common Stock at prices ranging from $17.00 to $36.75 per share
for 1999 were outstanding but were excluded from the computation of diluted
earnings per share because the exercise prices for such options were greater
than the average market price of the Common Stock and, therefore, the effect
would be antidilutive.
Note 17. Related Party Transactions
Pursuant to various management services agreements, or the Management
Agreements, entered into between each of Holdings, Containers and Plastics and
S&H Inc., or S&H, a company wholly owned by Mr. Silver, the Chairman and
Co-Chief Executive Officer of Holdings, and Mr. Horrigan, the President and
Co-Chief Executive Officer of Holdings, S&H provides Holdings and its
subsidiaries with general management, supervision and administrative services.
F-35
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 17. Related Party Transactions (continued)
In 2001 and 2000, in consideration for its services, S&H receives a fee in an
amount equal to 90.909% of 4.95% of our consolidated EBDIT (as defined in the
Management Agreements) until our consolidated EBDIT has reached the Scheduled
Amount set forth in the Management Agreements, plus reimbursement for all
related out-of-pocket expenses. In 1999, in consideration for its services, S&H
received a fee of 4.95% of our consolidated EBDIT until our consolidated EBDIT
reached the Scheduled Amount as set forth in the Management Agreements, and 3.3%
of our consolidated EBDIT after our consolidated EBDIT exceeded the Scheduled
Amount up to the Maximum Amount as set forth in the Management Agreements, plus
reimbursement for all out-of-pocket expenses. We paid $5.1 million and $4.9
million to S&H under the Management Agreements in 2001 and 2000, respectively.
In 1999, we paid $5.5 million to S&H under the Management Agreements, of which
S&H paid $0.5 million to Morgan Stanley Dean Witter & Co., or MS & Co., for
financial advisory services. These payments to S&H were allocated, based upon
EBDIT, as a charge to operating income of each of our business segments. Under
the terms of the Management Agreements, we have agreed, subject to certain
exceptions, to indemnify S&H and any of its affiliates, officers, directors,
employees, subcontractors, consultants or controlling persons against any loss
or damage they may sustain arising in connection with the Management Agreements.
During each of 2001, 2000 and 1999, The Morgan Stanley Leveraged Equity Fund II,
L.P., an affiliate of MS & Co., held a significant amount of our Common Stock.
For financial advisory services provided by MS & Co. to Holdings and its
subsidiaries, MS & Co. was paid $0.5 million in each of 2001 and 2000 by us and
$0.5 million in 1999 by S&H.
In 2001, we entered into swap agreements with Morgan Stanley Capital Group,
Inc., or MSCG, an affiliate of MS & Co., for an aggregate notional principal
amount of 1,000,000 MMBtu of natural gas. During 2001, an aggregate notional
principal amount of 100,000 MMBtu of these natural gas swap agreements were
settled under which we paid an insignificant amount to MSCG.
Landstar System, Inc., or Landstar, provided transportation services to our
subsidiaries in the amount of $0.7 million, $0.9 million and $1.3 million in
2001, 2000 and 1999, respectively. Mr. Crowe, a director of Holdings, is the
Chairman of the Board, President and Chief Executive Officer of Landstar.
F-36
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 18. Business Segment Information
We are engaged in the packaging industry and report our results primarily in two
business segments: metal food containers and plastic containers. The metal food
containers segment manufactures steel and aluminum containers for human and pet
food and paperboard containers. The plastic containers segment manufactures
custom designed plastic containers for personal care, health care,
pharmaceutical, household and industrial chemical, food, pet care, agricultural
chemical, automotive and marine chemical products, as well as plastic bowls and
cans, plastic closures, caps, sifters and fitments and thermoformed plastic tubs
for personal care, food, pet care and household products. These segments are
strategic business operations that offer different products. Each are managed
separately because each business produces a packaging product requiring
different technology, production and marketing strategies. Each segment operates
primarily in the United States. There are no inter-segment sales.
Historically, we also reported the results of our specialty packaging business
as a separate business segment, which included our metal closures, Omni plastic
container, Polystar easy-open plastic end and paperboard container businesses.
As a result of the White Cap joint venture on July 1, 2001, we no longer report
the results of our remaining specialty packaging businesses, which had net sales
of $34.3 million, $33.1 million and $36.5 million in 2001, 2000 and 1999,
respectively, as a separate business segment. The results of the Omni plastic
container and Polystar easy-open plastic end businesses are reported with our
plastic containers business, and the results of the paperboard container
business are reported with our metal food containers business. The results of
our metal closures business, which was contributed to the White Cap joint
venture, are reported separately. Our metal closures business manufactured steel
caps and closures and aluminum roll-on closures. Prior year amounts have been
restated to conform with the current presentation.
The accounting policies of the reportable segments are the same as those
described in Note 1. We evaluate the performance of our business segments based
upon earnings before extraordinary items, equity in losses of affiliates,
interest, income taxes, depreciation and amortization, as adjusted to add back
rationalization charges, net and subtract the gain on assets contributed to
affiliate, or Adjusted EBITDA. We believe Adjusted EBITDA provides important
information in enabling us to assess our ability to service and incur debt.
Adjusted EBITDA is not intended to be a measure of profitability in isolation or
as a substitute for net income or other operating income data prepared in
accordance with accounting principles generally accepted in the United States.
F-37
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 18. Business Segment Information (continued)
Information for each of the past three years for our business segments is as
follows:
Metal Food Plastic Metal
Containers(1) Containers(2) Closures Corporate Total
------------- ------------- -------- --------- -----
(Dollars in thousands)
2001
- ----
Net sales ........................ $1,401,146 $493,598 $ 46,250 $ -- $1,940,994
Adjusted EBITDA .................. 169,301 87,346 5,743 (5,114) 257,276
Depreciation and amortization .... 55,097 37,864 2,475 95 95,531
Segment profit (loss) ............ 114,204 49,482 3,268 (5,209) 161,745
Segment assets ................... 856,336 454,104 -- -- 1,310,440
Capital expenditures ............. 54,869 37,340 761 72 93,042
2000
- ----
Net sales ........................ $1,387,705 $398,953 $ 90,839 $ -- $1,877,497
Adjusted EBITDA .................. 173,301 67,777 8,592 (3,598) 246,072
Depreciation and amortization .... 53,063 30,887 4,917 103 88,970
Segment profit (loss) ............ 120,238 36,890 3,675 (3,701) 157,102
Segment assets ................... 860,546 466,663 54,166 -- 1,381,375
Capital expenditures ............. 58,617 28,292 2,298 20 89,227
1999
- ----
Net sales ........................ $1,440,005 $350,492 $101,581 $ -- $1,892,078
Adjusted EBITDA .................. 172,667 68,875 8,649 (3,776) 246,415
Depreciation and amortization .... 52,035 28,919 4,915 105 85,974
Segment profit (loss) ............ 120,632 39,956 3,734 (3,881) 160,441
Segment assets ................... 787,533 321,429 61,341 -- 1,170,303
Capital expenditures ............. 56,798 26,633 3,977 13 87,421
- --------------
(1) Excludes rationalization charges, net, of $5.8 million and $36.1 million
recorded in 2001 and 1999, respectively.
(2) Excludes a rationalization charge, net, of $3.5 million recorded in 2001.
F-38
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 18. Business Segment Information (continued)
Total segment profit is reconciled to income before income taxes and equity in
losses of affiliates as follows:
2001 2000 1999
---- ---- ----
(Dollars in thousands)
Total segment profit .......................... $161,745 $157,102 $160,441
Rationalization charges, net .................. 9,334 -- 36,149
Gain on assets contributed to affiliate ....... 4,908 -- --
Interest and other debt expense ............... 81,192 91,178 86,057
-------- -------- --------
Income before income taxes
and equity in losses of affiliates ....... $ 76,127 $ 65,924 $ 38,235
======== ======== ========
Total segment assets are reconciled to total assets as follows:
2001 2000 1999
---- ---- ----
(Dollars in thousands)
Total segment assets ............. $1,310,440 $1,381,375 $1,170,303
Deferred tax asset ............... -- -- 14,593
Other assets ..................... 1,380 2,449 389
---------- ---------- ----------
Total assets .................. $1,311,820 $1,383,824 $1,185,285
========== ========== ==========
Financial information relating to our operations by geographic area is as
follows:
2001 2000 1999
---- ---- ----
(Dollars in thousands)
Net sales:
United States ................ $1,882,114 $1,823,349 $1,845,180
Canada ....................... 58,880 54,148 46,898
---------- ---------- ----------
Total net sales ............ $1,940,994 $1,877,497 $1,892,078
========== ========== ==========
Long-lived assets:
United States ................ $ 796,632 $ 838,180 $ 729,628
Canada ....................... 22,375 24,371 23,438
---------- ---------- ----------
Total long-lived assets .... $ 819,007 $ 862,551 $ 753,066
========== ========== ==========
F-39
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 18. Business Segment Information (continued)
Net sales are attributed to the country from which the product was manufactured
and shipped.
Our sales to Nestle Food Company accounted for 11.2%, 12.2% and 12.0% of our
consolidated net sales during 2001, 2000 and 1999, respectively. Our sales to
Del Monte Corporation accounted for 10.1%, 10.7%, and 10.9% of our consolidated
net sales during 2001, 2000 and 1999, respectively. Our sales to Campbell Soup
Company accounted for 12.2%, 10.7% and 10.9% of our consolidated net sales
during 2001, 2000 and 1999, respectively.
F-40
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
Note 19. Quarterly Results of Operations (Unaudited)
The following table presents our quarterly results of operations for the years
ended December 31, 2001 and 2000 (dollars in thousands, except per share data):
First Second Third Fourth
----- ------ ----- ------
2001 (1)
- ----
Net sales .............................. $443,514 $445,417 $590,791 $461,272
Gross profit ........................... 50,930 57,192 78,978 53,186
Net income ............................. 2,225 7,447 27,279 4,814
Basic net income per share (2) ......... $0.13 $0.42 $1.53 $0.27
Diluted net income per share (2) ....... 0.12 0.41 1.50 0.26
2000 (3)
- ----
Net sales .............................. $418,505 $430,206 $571,369 $457,417
Gross profit ........................... 48,718 52,643 74,508 53,381
Income before extraordinary item ....... 5,291 6,244 18,485 5,504
Net income ............................. 5,291 6,244 18,485 1,288
Basic earnings per share: (2)
Income before extraordinary item .... $0.30 $0.35 $1.04 $0.31
Net income .......................... 0.30 0.35 1.04 0.07
Diluted earnings per share: (2)
Income before extraordinary item .... $0.29 $0.35 $1.03 $0.30
Net income .......................... 0.29 0.35 1.03 0.07
- --------------
(1) Net income for the first quarter of 2001 includes a pre-tax charge of $3.5
million incurred in connection with our rationalization of a plastic
container facility. Net income for the third quarter of 2001 includes a
pre-tax gain on assets contributed to affiliate of $5.3 million recorded in
connection with the formation of the White Cap joint venture. Net income
for the fourth quarter of 2001 includes a pre-tax charge of $5.8 million,
net incurred in connection with our rationalization of certain metal food
container facilities and a reduction of $0.4 million to the pre-tax gain on
assets contributed to affiliate.
(2) Earnings per share amounts are computed independently for each of the
periods presented. Accordingly, the sum of the quarterly earnings per share
amounts may not equal the total for the year.
(3) Net income for the fourth quarter of 2000 includes an extraordinary loss of
$4.2 million after-tax ($0.24 per basic share and $0.23 per diluted share)
for the premium paid in connection with the redemption of the 13 1/4%
Debentures and for the write-off of related unamortized financing costs.
F-41
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
SILGAN HOLDINGS INC.
For the years ended December 31, 2001, 2000 and 1999
(Dollars in thousands)
Additions
---------
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions period
- ----------- ---------- ---------- -------- ---------- ---------
For the year ended December 31, 2001:
Allowance for doubtful
accounts receivable ......................... $3,001 $1,697 $(10) $(1,239)(1) $3,449
====== ====== === ======= ======
For the year ended December 31, 2000:
Allowance for doubtful
accounts receivable ......................... $2,991 $ 165 $305 $ (460)(1) $3,001
====== ====== ==== ======= ======
For the year ended December 31, 1999:
Allowance for doubtful
accounts receivable ......................... $3,325 $ (684) $500 $ (150)(1) $2,991
====== ====== ==== ======= ======
(1) Uncollectible accounts written off, net of recoveries.
F-42
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
10.1 Amended and Restated Stockholders Agreement, dated as of November 6,
2001, among R. Philip Silver, D. Greg Horrigan and Silgan Holdings.
10.2 Letter agreement dated November 6, 2001 between Silgan Holdings and
The Morgan Stanley Leveraged Equity Fund II, L.P.
10.17 Equity Underwriting Agreement, dated November 6, 2001, among Silgan
Holdings, The Morgan Stanley Leveraged Equity Fund II, L.P., and
Deutsche Banc Alex. Brown Inc. and Morgan Stanley & Co. Incorporated
as representatives of the several underwriters listed on Schedule I
thereto.
12 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends for the years ended December 31, 2001,
2000, 1999, 1998 and 1997.
23 Consent of Ernst & Young LLP.