UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarter Ended June 30, 1999 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange
Act of 1934 for the Period ____________ to ____________.
Commission file number 000-22117
SILGAN HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1269834
(State of Incorporation) (I.R.S. Employer Identification Number)
4 Landmark Square
Stamford, Connecticut 06901
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (203) 975-7110
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
As of August 1, 1999, the number of shares outstanding of the registrant's
common stock, $0.01 par value, was 17,493,194.
Part I. Financial Information
Item 1. Financial Statements
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, June 30, Dec. 31,
1999 1998 1998
---- ---- ----
(unaudited) (unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents ............. $ 10,289 $ 3,130 $ 4,753
Accounts receivable, net .............. 177,545 171,214 134,004
Inventories ........................... 345,328 324,556 250,085
Prepaid expenses and other current
assets .............................. 8,641 9,332 9,880
---------- ---------- ----------
Total current assets .............. 541,803 508,232 398,722
Property, plant and equipment, net ......... 671,889 646,672 671,466
Other non-current assets, net .............. 151,448 122,560 153,857
---------- ---------- ----------
$1,365,140 $1,277,464 $1,224,045
========== ========== ==========
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ................ $ 123,535 $ 116,234 $ 184,543
Accrued payroll and related costs ..... 46,369 43,758 45,566
Accrued interest payable .............. 10,900 11,917 10,357
Accrued expenses and other current
liabilities ........................ 21,884 17,763 23,220
Bank revolving loans .................. 195,600 106,573 --
Current portion of long-term debt ..... 33,966 1,805 36,065
---------- ---------- ----------
Total current liabilities ......... 432,254 298,050 299,751
Long-term debt ............................. 893,681 925,631 890,976
Other long-term liabilities ................ 94,974 101,964 90,626
Deficiency in stockholders' equity:
Common stock .......................... 201 191 199
Additional paid-in capital ............ 118,555 113,140 117,911
Accumulated deficit ................... (114,830) (161,007) (131,940)
Accumulated other comprehensive (loss). (436) (505) (723)
Treasury stock ........................ (59,259) -- (42,755)
---------- ---------- ----------
Total deficiency in stockholders'
equity ......................... (55,769) (48,181) (57,308)
---------- ---------- ----------
$1,365,140 $1,277,464 $1,224,045
========== ========== ==========
See accompanying notes.
-2-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per common share amounts)
Three Months Ended
------------------
June 30, June 30,
1999 1998
---- ----
Net sales ........................................... $ 432,975 $ 392,791
Cost of goods sold .................................. 373,167 340,214
--------- ---------
Gross profit ................................... 59,808 52,577
Selling, general and administrative expenses ........ 19,561 16,747
--------- ---------
Income from operations ......................... 40,247 35,830
Interest expense and other related financing costs .. 21,406 19,523
--------- ---------
Income before income taxes ..................... 18,841 16,307
Income tax provision ................................ 7,354 6,120
--------- ---------
Net income ..................................... $ 11,487 $ 10,187
========= =========
Per common share data:
Basic earnings per common share ................ $ 0.65 $ 0.54
========= =========
Diluted earnings per common share .............. $ 0.64 $ 0.50
========= =========
Weighted average shares used in computation:
Basic ......................................... 17,563,509 19,026,490
Effect of dilutive employee stock options ..... 473,774 1,207,626
---------- ----------
Diluted ....................................... 18,037,283 20,234,116
========== ==========
See accompanying notes.
-3-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per common share amounts)
Six Months Ended
----------------
June 30, June 30,
1999 1998
---- ----
Net sales ........................................... $ 831,722 $ 727,204
Cost of goods sold .................................. 724,055 630,303
--------- ---------
Gross profit ................................... 107,667 96,901
Selling, general and administrative expenses ........ 37,315 32,410
--------- ---------
Income from operations ......................... 70,352 64,491
Interest expense and other related financing costs .. 42,300 37,486
--------- ---------
Income before income taxes ..................... 28,052 27,005
Income tax provision ................................ 10,942 10,148
--------- ---------
Net income ..................................... $ 17,110 $ 16,857
========= =========
Per common share data:
Basic earnings per common share ................ $ 0.96 $ 0.89
========= =========
Diluted earnings per common share .............. $ 0.93 $ 0.83
========= =========
Weighted average shares used in computation:
Basic ......................................... 17,878,374 18,947,965
Effect of dilutive employee stock options ..... 503,418 1,256,741
---------- ----------
Diluted ....................................... 18,381,792 20,204,706
========== ==========
See accompanying notes.
-4-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Six Months Ended
----------------
June 30, June 30,
1999 1998
---- ----
Cash flows from operating activities:
Net income ..................................... $ 17,110 $ 16,857
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation ............................... 40,278 33,761
Amortization ............................... 2,754 2,166
Changes in assets and liabilities, net of
effect of acquisitions:
(Increase) in accounts receivable ..... (43,541) (42,955)
(Increase) in inventories ............. (96,627) (99,599)
Decrease in other non-current assets .. 4,053 6,553
(Decrease) in trade accounts payable .. (61,008) (26,047)
Other, net ............................ 1,334 2,950
--------- ---------
Total adjustments ................. (152,757) (123,171)
--------- ---------
Net cash used in operating activities ...... (135,647) (106,314)
--------- ---------
Cash flows from investing activities:
Acquisition of businesses ...................... -- (136,827)
Capital expenditures, net ...................... (38,314) (37,138)
--------- ---------
Net cash used in investing activities ...... (38,314) (173,965)
--------- ---------
Cash flows from financing activities:
Borrowings under revolving loans ............... 543,700 553,727
Repayments under revolving loans ............... (348,100) (313,327)
Purchases of treasury stock .................... (16,504) --
Proceeds from stock option exercises ........... 401 463
Proceeds from issuance of long-term debt ....... -- 7,193
Repayment of long-term debt .................... -- (18,365)
--------- ---------
Net cash provided by financing activities .. 179,497 229,691
--------- ---------
Net increase (decrease) in cash and cash equivalents. 5,536 (50,588)
Cash and cash equivalents at beginning of year ...... 4,753 53,718
--------- ---------
Cash and cash equivalents at end of period .......... $ 10,289 $ 3,130
========= =========
Supplementary data:
Cash interest payments ......................... $ 41,072 $ 35,838
Cash income tax payments, net of refunds ....... 3,258 1,920
See accompanying notes
-5-
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY
(Unaudited, except for information at December 31, 1998)
(Dollars and shares in thousands)
Common Stock
------------
Accumulated Total
Additional other deficiency in
Par paid-in Accumulated comprehensive Treasury stockholders'
Shares Value capital deficit income (loss) stock equity
------ ----- ---------- ----------- ------------- -------- -------------
Balance at December 31, 1998 .... 18,256 $199 $117,911 $(131,940) $(723) $(42,755) $(57,308)
Comprehensive income:
Net income ................... 17,110 17,110
Foreign currency translation.. 287 287
--------
Comprehensive income ............ 17,397
Issuance of common shares
under stock option plan,
including income tax
benefit of $245 ............... 134 2 644 646
Purchase of treasury stock ...... (897) (16,504) (16,504)
------ ---- -------- --------- ----- -------- --------
Balance at June 30, 1999 ........ 17,493 $201 $118,555 $(114,830) $(436) $(59,259) $(55,769)
====== ==== ======== ========= ===== ======== ========
See accompanying notes.
-6-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1999 and 1998 and for the
three and six months then ended is unaudited)
1. Basis of Presentation
The accompanying condensed unaudited consolidated financial statements of Silgan
Holdings Inc. ("Holdings" or the "Company") have been prepared in accordance
with Rule 10-01 of Regulation S-X and, therefore, do not include all information
and footnotes necessary for a fair presentation of financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. All adjustments of a normal recurring nature have been made,
including appropriate estimates for reserves and provisions which are normally
determined or settled at year end. In the opinion of the Company, the
accompanying financial statements contain all adjustments (consisting solely of
a normal recurring nature) necessary to present fairly Holdings' financial
position as of June 30, 1999 and 1998 and December 31, 1998, results of
operations for the three and six months ended June 30, 1999 and 1998 and cash
flows for the six months ended June 30, 1999 and 1998.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these financial statements
be read in conjunction with Holdings' financial statements and notes included in
its Annual Report on Form 10-K for the year ended December 31, 1998.
2. Comprehensive Income
Comprehensive income is reported in the Consolidated Statements of Deficiency in
Stockholders' Equity. Amounts included in accumulated other comprehensive income
(loss) at June 30, 1999 and 1998 and December 31, 1998 consist of the following:
June 30, June 30, Dec. 31,
1999 1998 1998
-------- -------- --------
(Dollars in thousands)
Foreign currency translation ............... $(416) $(505) $(703)
Additional minimum pension liability ....... (20) -- (20)
----- ----- -----
Accumulated other comprehensive income
(loss)................................. $(436) $(505) $(723)
===== ===== =====
The components of comprehensive income for the three and six months ended June
30, 1999 and 1998 are as follows:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
(Dollars in thousands)
Net income ............................ $11,487 $10,187 $17,110 $16,857
Foreign currency translation
adjustments ...................... 192 (150) 287 3
------- ------- ------- -------
Comprehensive income ............... $11,679 $10,037 $17,397 $16,860
======= ======= ======= =======
-7-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1999 and 1998 and for the
three and six months then ended is unaudited)
3. Inventories
Inventories consisted of the following:
June 30, June 30, Dec. 31,
1999 1998 1998
-------- -------- --------
(Dollars in thousands)
Raw materials and supplies ................. $ 47,242 $ 41,073 $ 34,224
Work-in-process ............................ 53,879 57,109 52,415
Finished goods ............................. 227,688 214,538 147,339
Spare parts and other ...................... 10,266 10,581 10,927
-------- -------- --------
339,075 323,301 244,905
Adjustment to value inventory
at cost on the LIFO Method .............. 6,253 1,255 5,180
--------- -------- --------
$345,328 $324,556 $250,085
======== ======== ========
4. Long-Term Debt
Long-term debt consisted of the following:
June 30, June 30, Dec. 31,
1999 1998 1998
-------- -------- --------
(Dollars in thousands)
Bank debt:
Bank Revolving Loans .................. $ 331,500 $ 240,400 $ 135,900
Bank A Term Loans ..................... 223,900 223,900 223,900
Bank B Term Loans ..................... 192,449 192,449 192,449
Canadian Bank Facility ................ 16,192 18,054 15,586
---------- ---------- ----------
Total bank debt .................... 764,041 674,803 567,835
Subordinated debt:
9% Senior Subordinated Debentures ..... 300,000 300,000 300,000
13 1/4% Subordinated Debentures ....... 56,206 56,206 56,206
Other ................................. 3,000 3,000 3,000
---------- ---------- ----------
Total subordinated debt ............ 359,206 359,206 359,206
Total debt ................................. 1,123,247 1,034,009 927,041
Less: Amounts to be repaid within
one year ....................... 229,566 108,378 36,065
---------- ---------- ----------
$ 893,681 $ 925,631 $ 890,976
========== ========== ==========
-8-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1999 and 1998 and for the
three and six months then ended is unaudited)
4. Long-Term Debt (continued)
Under the Company's U.S. senior secured bank credit facility (the "U.S. Credit
Agreement"), the Company has available to it $545.5 million of bank revolving
loans. The Company also has $4.5 million of bank revolving loans available to it
under its Canadian bank facility. Bank revolving loans may be used by the
Company for working capital needs, acquisitions, common stock repurchases and
other permitted purposes. Bank revolving loans may be borrowed, repaid and
reborrowed until December 31, 2003, their final maturity date under both
facilities.
At June 30, 1999, bank revolving loans totaled $331.5 million, of which $195.6
million related to seasonal working capital needs and common share repurchases
and $135.9 million related to long-term financing of acquisitions. At June 30,
1999, amounts expected to be repaid within one year consisted of $195.6 million
of bank revolving loans and $34.0 million of bank term loans. Bank revolving
loans not expected to be repaid within one year have been recorded as long-term
debt.
5. Income Taxes
The provision for income taxes for the six months ended June 30, 1999 was
recorded at an effective tax rate of 39.0%. The comparable prior period rate in
1998 was approximately 38.0%.
6. Stockholders' Equity
The Company's Board of Directors has authorized the repurchase by the Company of
up to $70.0 million of its common stock, including $10 million authorized in
April 1999. The Company expects to fund repurchases from internally generated
funds or from revolving loan borrowings under its U.S. Credit Agreement. The
Company's repurchases of common stock are recorded as treasury stock and result
in a reduction of stockholders' equity. Through June 30, 1999, the Company
repurchased 2,603,975 shares of its common stock for $59.9 million. In 1998, the
Company issued 23,500 shares ($0.6 million) of its common stock from its
treasury stock for stock option exercises.
7. Business Segment Information
Presented below is a table setting forth reportable business segment profit or
loss for the three and six months ended June 30, 1999 and 1998 for the Company's
three business segments. Segment information for 1998 has been restated to
conform with the requirements of Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information."
-9-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1999 and 1998 and for the
three and six months then ended is unaudited)
7. Business Segment Information (continued)
Metal Food Plastic Specialty
Containers Containers Packaging Other(1) Total
---------- ---------- --------- -------- -----
(Dollars in millions)
Three Months Ended
June 30, 1999
- -------------
Net sales ......................... $313.9 $ 84.0 $35.1 $ -- $433.0
EBITDA(2) ......................... 41.5 16.7 4.7 (1.4) 61.5
Depreciation and amortization(3) .. 12.7 5.9 2.6 0.1 21.3
Segment profit (loss) ............. 28.8 10.8 2.1 (1.5) 40.2
Three Months Ended
June 30, 1998
- -------------
Net sales ......................... $282.3 $ 77.0 $33.5 $ -- $392.8
EBITDA(2) ......................... 37.2 14.0 3.7 (0.9) 54.0
Depreciation and amortization(3) .. 11.3 4.6 2.3 -- 18.2
Segment profit (loss) ............. 25.9 9.4 1.4 (0.9) 35.8
Six Months Ended
June 30, 1999
- -------------
Net sales ......................... $602.1 $162.9 $66.7 $ -- $831.7
EBITDA(2) ......................... 73.4 32.4 8.9 (2.1) 112.6
Depreciation and amortization(3) .. 25.7 11.5 4.9 0.1 42.2
Segment profit (loss) ............. 47.7 20.9 4.0 (2.2) 70.4
Six Months Ended
June 30,1998
- ------------
Net sales ......................... $511.6 $152.2 $63.4 $ -- $727.2
EBITDA(2) ......................... 65.6 28.7 6.7 (1.4) 99.6
Depreciation and amortization(3) .. 21.5 9.2 4.4 -- 35.1
Segment profit (loss) ............. 44.1 19.5 2.3 (1.4) 64.5
-10-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1999 and 1998 and for the
three and six months then ended is unaudited)
7. Business Segment Information (continued)
(1)The other category provides information pertaining to the corporate
holding company.
(2)EBITDA means earnings before interest, taxes, depreciation and
amortization.
(3)Depreciation and amortization excludes debt cost amortization of $0.4
million for each of the three months ended June 30, 1999 and 1998 and
$0.8 million for each of the six months ended June 30, 1999 and 1998.
Total segment profit is reconciled to income before income taxes as follows:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in millions)
Total segment profit .................... $40.2 $35.8 $70.4 $64.5
Interest expense and other related
financing costs ....................... 21.4 19.5 42.3 37.5
----- ----- ----- -----
Income before income taxes .......... $18.8 $16.3 $28.1 $27.0
===== ===== ===== =====
-11-
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Statements included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Quarterly Report on
Form 10-Q which are not historical facts are "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and Securities Exchange Act of 1934. Such forward-looking
statements are made based upon management's expectations and beliefs concerning
future events impacting the Company and therefore involve a number of
uncertainties and risks, including, but not limited to, those described in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998
and the Company's other filings with the Securities and Exchange Commission. As
a result, the actual results of operations or financial condition of the Company
could differ materially from those expressed or implied in such forward-looking
statements.
RESULTS OF OPERATIONS - THREE MONTHS
Summary unaudited results of operations for the Company's three business
segments, metal food containers, plastic containers and specialty packaging, for
the three months ended June 30, 1999 and 1998 are provided below.
Three Months Ended June 30,
---------------------------
1999 1998
---- ----
(In millions)
Net sales:
Metal food containers ................... $313.9 $282.3
Plastic containers ...................... 84.0 77.0
Specialty packaging ..................... 35.1 33.5
------ ------
Consolidated ......................... $433.0 $392.8
====== ======
Operating profit:
Metal food containers ................... $ 28.8 $ 25.9
Plastic containers ...................... 10.8 9.4
Specialty packaging ..................... 2.1 1.4
Other ................................... (1.5) (0.9)
------ ------
Consolidated ......................... $ 40.2 $ 35.8
====== ======
Three Months Ended June 30, 1999 Compared with Three Months Ended June 30, 1998
Net Sales. Consolidated net sales increased $40.2 million, or 10.2%, to $433.0
million for the three months ended June 30, 1999, as compared to net sales of
$392.8 million for the same three months in the prior year. This increase
resulted primarily from incremental sales added from acquisitions and, to a
lesser extent, from increased sales to existing customers of all three business
segments.
-12-
Net sales for the metal food container business were $313.9 million for the
three months ended June 30, 1999, an increase of $31.6 million, or 11.2%, from
net sales of $282.3 million for the same period in 1998. This increase resulted
from sales to Campbell Soup Company ("Campbell") under the Supply Agreement with
Campbell entered into in June 1998 and from increased unit sales to existing
customers.
Net sales for the plastic container business of $84.0 million during the three
months ended June 30, 1999 increased $7.0 million, or 9.1%, from net sales of
$77.0 million for the same period in 1998. The increase in net sales was
principally attributable to incremental sales added by the August 1998
acquisition of Clearplass Containers, Inc. ("Clearplass") as well as a 6%
increase in unit sales to other customers. This increase was partially offset by
lower prices due to the pass through of lower resin costs.
Net sales for the specialty packaging business increased $1.6 million, or 4.8%,
to $35.1 million during the three months ended June 30, 1999, as compared to
$33.5 million for the same period in 1998. This increase resulted from higher
unit sales to existing customers.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 86.2% ($373.2 million) for the three months ended June 30, 1999, a decrease
of 0.4 percentage points as compared to 86.6% ($340.2 million) for the same
period in 1998. The increase in gross profit margins was primarily attributable
to higher unit sales from all three business segments which resulted in lower
per unit manufacturing costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales increased
slightly to 4.5% ($19.6 million) for the three months ended June 30, 1999, as
compared to 4.3% ($16.7 million) for the three months ended June 30, 1998.
Income from Operations. Income from operations as a percentage of consolidated
net sales for the three months ended June 30, 1999 increased to 9.3% ($40.2
million), as compared to 9.1% ($35.8 million) for the same period in 1998. The
increase in operating margins in the second quarter of 1999 as compared to the
same period in 1998 was principally attributable to the leveraging effect of
increased sales volume of all three business segments.
Income from operations as a percentage of net sales for the metal food container
business for the three months ended June 30, 1999 and 1998 remained constant at
9.2% ($28.8 million and $25.9 million, respectively). Operating margins were
maintained principally as a result of additional contribution from increased
sales volume to existing customers despite the impact of lower margin sales to
Campbell as discussed further below. In addition, sales to Campbell are at a
seasonally low level in the second quarter.
-13-
Income from operations as a percentage of net sales for the plastic container
business increased 0.7 percentage points to 12.9% ($10.8 million) for the three
months ended June 30, 1999, as compared to 12.2% ($9.4 million) for the same
period in 1998. The increase in income from operations as a percentage of net
sales for the plastic container business was principally attributable to lower
per unit manufacturing costs primarily as a result of higher unit sales and to
higher margin sales from Clearplass in the current year's quarter.
Income from operations as a percentage of net sales for the specialty packaging
business improved 1.8 percentage points to 6.0% ($2.1 million) for the three
months ended June 30, 1999, as compared to 4.2% ($1.4 million) for the same
period in 1998. The improvement in operating performance of the specialty
packaging business was due to higher unit sales resulting in lower per unit
production costs.
Interest Expense. Interest expense increased $1.9 million to $21.4 million for
the three months ended June 30, 1999 as compared to the same period in 1998,
principally as a result of the incurrence of additional indebtedness to finance
acquisitions and repurchases of common stock.
Income Taxes. The provision for income taxes for the three months ended June 30,
1999 was recorded at an effective tax rate of 39.0% ($7.4 million), as compared
to approximately 38.0% used in the comparable period in 1998.
Net Income and Earnings per Share. As a result of the items discussed above, net
income for the three months ended June 30, 1999 was $11.5 million, an increase
of $1.3 million from net income of $10.2 million for the three months ended June
30, 1998. Earnings per diluted share for the second quarter of 1999 were $0.64,
as compared with $0.50 for the same period in 1998.
-14-
RESULTS OF OPERATIONS - SIX MONTHS
Summary unaudited results of operations for the Company's three business
segments, metal food containers, plastic containers and specialty packaging, for
the six months ended June 30, 1999 and 1998 are provided below.
Six Months Ended June 30,
-------------------------
1999 1998
---- ----
(In millions)
Net sales:
Metal food containers .......................... $602.1 $511.6
Plastic containers ............................. 162.9 152.2
Specialty packaging ............................ 66.7 63.4
------ ------
Consolidated ................................ $831.7 $727.2
====== ======
Operating profit:
Metal food containers .......................... $47.7 $44.1
Plastic containers ............................. 20.9 19.5
Specialty packaging ............................ 4.0 2.3
Other .......................................... (2.2) (1.4)
----- -----
Consolidated ................................ $70.4 $64.5
===== =====
Six Months Ended June 30, 1999 Compared with Six Months Ended June 30, 1998
Net Sales. Consolidated net sales increased $104.5 million, or 14.4%, to $831.7
million for the six months ended June 30, 1999, as compared to net sales of
$727.2 million for the same six months in the prior year. This increase resulted
primarily from incremental sales added from acquisitions and, to a lesser
extent, from increased sales to existing customers in all three business
segments.
Net sales for the metal food container business were $602.1 million for the six
months ended June 30, 1999, an increase of $90.5 million, or 17.7%, from net
sales of $511.6 million for the same period in 1998. This increase resulted from
sales to Campbell under the Supply Agreement with Campbell entered into in June
1998 and from increased unit sales to existing customers.
Net sales for the plastic container business of $162.9 million during the six
months ended June 30, 1999 increased $10.7 million, or 7.0%, from net sales of
$152.2 million for the same period in 1998. The increase in net sales was
principally attributable to incremental sales added by the August 1998
acquisition of Clearplass as well as increased unit sales to existing customers,
and was offset in part by the pass through of lower resin costs to customers.
Net sales for the specialty packaging business increased $3.3 million, or 5.2%,
to $66.7 million during the six months ended June 30, 1999, as compared to $63.4
million for the same period in 1998. This increase resulted from higher unit
sales to existing customers.
-15-
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 87.1% ($724.1 million) for the six months ended June 30, 1999, an increase
of 0.4 percentage points as compared to 86.7% ($630.3 million) for the same
period in 1998. The decline in gross profit margins was primarily attributable
to lower operating margins for the metal food container business and higher
depreciation expense due to acquisitions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales for the six
months ended June 30, 1999 and 1998 remained constant at 4.5% ($37.3 million and
$32.4 million, respectively).
Income from Operations. Income from operations as a percentage of consolidated
net sales for the six months ended June 30, 1999 decreased to 8.5% ($70.4
million), as compared to 8.9% ($64.5 million) for the same period in 1998. The
decline in operating margins in the first six months of 1999 as compared to the
same period in 1998 was principally attributable to lower margins realized by
the metal food container business.
Income from operations as a percentage of net sales for the metal food container
business decreased 0.7 percentage points to 7.9% ($ 47.7 million) for the six
months ended June 30, 1999, as compared to 8.6% ($44.1 million) for the same
period in 1998. The decrease in income from operations as a percentage of net
sales for the metal food container business was principally due to the impact of
lower margin sales to Campbell and higher depreciation expense. In addition,
higher unit sales to existing customers offset price reductions provided to
certain metal food container customers in exchange for contract extensions.
In its acquisition economics for the steel container manufacturing business of
Campbell, the Company had anticipated a decline in the operating margins of the
metal food container business due to the impact of lower margin sales to
Campbell. However, this impact was greater than expected for the first half of
1999 due to significantly lower than forecasted sales to Campbell during such
period. In January 1999, Campbell announced a one-time adjustment to its
production and distribution cycle which would reduce its soup shipments in the
first half of 1999. Excluding the effect of sales to Campbell, operating margins
for the first six months of 1999 for the existing metal food container business
remained relatively the same as compared to the same period in 1998.
Income from operations as a percentage of net sales for the plastic container
business for the six months ended June 30, 1999 and 1998 remained constant at
12.8% ($20.9 million and $19.5 million, respectively).
Income from operations as a percentage of net sales for the specialty packaging
business improved 2.4 percentage points to 6.0% ($4.0 million) for the six
months ended June 30, 1999, as compared to 3.6% ($2.3 million) for the same
period in 1998. The improvement in operating performance of the specialty
packaging business was due to higher unit sales resulting in lower per unit
production costs.
-16-
Interest Expense. Interest expense increased $4.8 million to $42.3 million for
the six months ended June 30, 1999 as compared to the same period in 1998,
principally as a result of the incurrence of additional indebtedness to finance
acquisitions and repurchases of common stock.
Income Taxes. The provision for income taxes for the six months ended June 30,
1999 was recorded at an effective tax rate of 39.0% ($10.9 million), as compared
to approximately 38.0% used in the comparable period in 1998.
Net Income and Earnings per Share. As a result of the items discussed above, net
income for the six months ended June 30, 1999 was $17.1 million, an increase of
$0.2 million from net income of $16.9 million for the six months ended June 30,
1998. Earnings per diluted share for the first half of 1999 were $0.93, as
compared with $0.83 for the same period in 1998.
CAPITAL RESOURCES AND LIQUIDITY
The Company's liquidity requirements arise primarily from its obligations under
the indebtedness incurred in connection with its acquisitions and the
refinancing of such indebtedness, capital investment in new and existing
equipment and the funding of the Company's seasonal working capital needs.
Historically, the Company has met these liquidity requirements through cash flow
generated from operating activities and revolving loan borrowings.
For the six months ended June 30, 1999, the Company used net borrowings of
revolving loans of $195.6 million under the Company's U.S. Credit Agreement and
cash proceeds from the exercise of stock options of $0.4 million to fund cash
used by operations of $135.7 million for the Company's seasonal working capital
needs, capital expenditures of $38.3 million and repurchases of common stock for
$16.5 million and to increase cash balances by $5.5 million.
Because the Company sells metal containers used in fruit and vegetable pack
processing, its sales are seasonal. As is common in the industry, the Company
must access working capital to build inventory and then carry accounts
receivable for some customers beyond the end of the summer and fall packing
season. Seasonal accounts are generally settled by year end. Due to the
Company's seasonal requirements, the Company incurs short-term indebtedness to
finance its working capital requirements.
The Company utilizes its revolving loan facilities for seasonal working capital
needs and for other permitted purposes, including acquisitions and repurchases
of its common stock. For 1999, the Company estimates that at its month-end peak
in August it will utilize approximately $190-$210 million of its revolving loan
facilities for seasonal working capital needs. As a result, the Company
estimates that approximately $150 million of its revolving loan facilities is
available to it in 1999 for other permitted purposes.
-17-
As of June 30, 1999, the Company had $331.5 million of revolving loans
outstanding, of which $195.6 million related to seasonal working capital needs
and common stock repurchases and $135.9 million related to long-term financing
of acquisitions. Revolving loans not expected to be repaid within one year have
been recorded as long-term debt. The unused portion of revolving loan
commitments under the Company's credit agreements at June 30, 1999, after taking
into account outstanding letters of credit, was $207.2 million.
The Company's Board of Directors has authorized the repurchase of up to $70
million of its common stock. As of June 30, 1999, the Company repurchased
2,603,975 shares of its common stock under its share repurchase program for an
aggregate amount of $59.9 million, resulting in an average cost of $23.00 per
share. The share repurchases were funded through revolving loan borrowings under
the Company's U.S. Credit Agreement. The Company intends to finance any future
share repurchases through revolving loan borrowings under its U.S. Credit
Agreement or through internally generated funds.
Management believes that cash generated by operations and funds from revolving
loan borrowings under the Company's credit agreements will be sufficient to meet
the Company's expected operating needs, planned capital expenditures, debt
service, share repurchase plan, and tax obligations for the foreseeable future.
Since 1995, the Company has completed three acquisitions in its metal food
container business, including its acquisitions of the Food Metal and Specialty
business of American National Can Company in August 1995 and of the steel
container manufacturing business of Campbell ("CS Can") in June 1998. Following
the CS Can acquisition, the Company initiated a study this year to evaluate the
long-term utilization of all assets of its metal food container business,
including assets acquired through such acquisitions. As a result, the Company
may establish a one-time noncash charge to earnings to write down the value of
certain assets that are determined to be surplus or obsolete and to increase its
existing facility rationalization reserves. Because this study is still in
process and not expected to be completed until the third quarter, the Company
cannot yet accurately determine the amount of such charge and its resulting
effect on the Company's earnings.
The Company is continually evaluating and pursuing acquisition opportunities in
the consumer goods packaging market. The Company may borrow additional revolving
loans under its U.S. Credit Agreement to fund such acquisitions and any
resulting increased operating needs. However, the Company may need to incur
additional new indebtedness to fund such acquisitions and any resulting
increased operating needs. Any such new financing will have to be effected in
compliance with the agreements governing the Company's indebtedness. There can
be no assurance that the Company will be able to complete any such acquisition
or obtain any such new financing.
The Company is in compliance with all financial and operating covenants
contained in the instruments and agreements governing its indebtedness and
believes that it will continue to be in compliance with all such covenants
during 1999.
-18-
YEAR 2000 ISSUES
Since 1997, the Company has been in the process of reviewing its computer and
operational systems to identify and determine the extent to which its systems
will be vulnerable to potential errors and failures as a result of the "Year
2000" issue. The Year 2000 issue arises because many computer systems and other
equipment with embedded chips or processors use only two digits to represent the
year and, as a result, may be unable to process accurately certain data before,
during or after the year 2000. The Year 2000 issue presents several risks to the
Company, such as (i) the Company's internal systems may not function properly,
(ii) suppliers' computer and operational systems may not function properly and,
consequently, deliveries of materials and supplies may be delayed, (iii)
customers' computers and operational systems may not function properly and,
consequently, orders or payments for the Company's products may be delayed, and
(iv) the Company's banks' computer systems could malfunction, disrupting the
Company's orderly posting of deposits, funds, transfers and payments. Such a
disruption at any point in the Company's supply, manufacturing, processing,
distribution or financial chains could have a material adverse effect on the
Company's financial condition and results of operations.
As a manufacturer of consumer goods packaging products, the products
manufactured and sold by the Company are unaffected by Year 2000 issues since
they contain no microprocessors or similar electronic components.
The Company has undertaken various initiatives intended to ensure that its
internal computing infrastructure, business applications and shop floor systems
are Year 2000 compliant. These systems assist in the control of the Company's
operations by performing such functions as processing financial data,
maintaining manufacturing processes and assisting with facilities management and
security. Many of these systems contain one or more microprocessors or other
embedded electronic components that could be affected by Year 2000 issues.
Failure of some of these systems could result in significant business
disruptions for the Company.
Utilizing both internal and external resources to identify and assess needed
Year 2000 remediation, the Company has modified, renovated or replaced its
internal computing infrastructure, business applications and shop floor systems
as necessary to assure Year 2000 compliance. The Company believes that its Year
2000 identification, assessment, remediation and testing efforts for its systems
have been nearly completed, and anticipates completing any remaining Year 2000
compliance initiatives for its systems by September 30, 1999.
The Company believes that the cost of its Year 2000 identification, assessment,
remediation and testing efforts will approximate $2.0 million, which
expenditures will be funded from operating cash flows. As of June 30, 1999, the
Company had incurred costs of approximately $1.7 million related to the Year
2000 issue. Principally all of these costs relate to analysis, repair, upgrade
or replacement of existing software.
-19-
The Company relies on numerous third party vendors and suppliers for a wide
variety of goods and services, including raw materials, telecommunications and
utilities such as water and electricity. Many of the Company's operating
locations would be adversely affected if these supplies and services were
curtailed as a result of a supplier's Year 2000 noncompliance. The Company's
vendor and supplier base has been surveyed through questionnaires in an attempt
to identify potential disruptions in the event of vendor Year 2000
noncompliance. Widespread disruption of certain utilities such as electricity
would result in a temporary closure of affected facilities and potential damage
to production equipment.
The Company has developed contingency plans related to the Year 2000 issue that
include securing alternate sources of supply, stockpiling raw materials,
increasing inventory levels, adjusting facility shutdown and start-up schedules,
moving critical equipment to other facilities not affected by the Year 2000
issue and other appropriate measures. The contingency plans and related cost
estimates are flexible and will be refined as additional information becomes
available.
The Company presently believes that the Year 2000 issue will not pose
significant operational problems for the Company. However, if all Year 2000
issues are not identified, or assessment, remediation and testing are not
effected timely, there can be no assurance that the Year 2000 issue will not
materially and adversely impact the Company's results of operations or adversely
affect the Company's relationships with customers, vendors or others.
Additionally, there can be no assurance that the Year 2000 issues of third
parties (including suppliers, customers, banks and governmental entities) will
not have a material adverse impact on the Company's systems or results of
operations.
The costs of the Company's Year 2000 identification, assessment, remediation and
testing efforts and the dates on which the Company believes it will complete
such efforts are based upon management's best estimates, which were derived
using numerous assumptions regarding future events, including the continued
availability of certain resources, third party remediation plans and other
factors. There can be no assurance that these estimates will prove to be
accurate, and actual results could differ materially from those currently
anticipated. Specific factors that could cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in Year 2000 issues, the ability to identify, assess, remediate and test all
relevant computer codes and embedded technology, unanticipated Year 2000
noncompliance by suppliers and/or customers and similar uncertainties.
-20-
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
Market risks relating to the Company's operations result primarily from changes
in interest rates. The Company also has limited foreign currency risk associated
with its Canadian operations. The Company employs established policies and
procedures to manage its exposure to fluctuations in interest rates and the
value of foreign currencies. Interest rate and foreign currency transactions are
used only to the extent considered necessary to meet the Company's objectives.
The Company does not utilize derivative financial instruments for trading or
other speculative purposes.
Interest Rate Risk
The Company's interest rate risk management objective is to limit the impact of
interest rate changes on its earnings and cash flow and to lower its overall
borrowing cost. To achieve its objectives, the Company regularly evaluates the
amount of its variable rate debt as a percentage of its aggregate debt. The
Company manages its exposure to interest rate fluctuations in its variable rate
debt through interest rate swap agreements. These agreements effectively convert
interest rate exposure from variable rates to fixed rates of interest without
the exchange of the underlying principal amounts.
During the second quarter of 1999, the Company entered into interest rate swap
agreements for an aggregate notional principal amount of $100.0 million. These
agreements provide for fixed rates of interest based on the London interbank
offering rate ("LIBOR") ranging from 5.6% to 6.1% and mature in the second
quarter of 2002. The Company also has interest rate swap agreements for an
additional aggregate notional principal amount of $100.0 million in effect which
mature in the fourth quarter of 1999 and provide for fixed rates of interest
based on LIBOR ranging from 5.9% to 6.0%.
The notional principal amounts of the Company's interest rate swap agreements
are used to measure the interest to be paid or received thereunder and do not
represent the amount of exposure to credit loss. The difference between amounts
to be paid or received on interest rate swap agreements are recorded as
adjustments to interest expense. Net payments of $0.5 million for the six months
ended June 30, 1999 were recorded under the Company's interest rate swap
agreements. The fair value of the Company's interest rate swap agreements at
June 30, 1999 was an asset of $0.5 million.
Foreign Currency Exchange Rate Risk
Information regarding the Company's foreign currency exchange rate risk has been
disclosed in its Annual Report on Form 10-K for the fiscal year ended December
31, 1998 and its Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1999. There has not been a material change to the Company's foreign
currency exchange rate risk since such filings.
-21-
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders (the "Annual Meeting"), for which
proxies were solicited pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, was held on May 18, 1999 for the purposes of (1)
electing two directors of the Company to serve for a three year term until the
Company's annual meeting of stockholders in 2002 and until their successors are
duly elected and qualified and (2) ratifying the appointment by the Board of
Directors of the Company of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending December 31, 1999.
The nominees for director listed in the proxy statement, each of whom was
elected at the Annual Meeting, are named below, and each received the number of
votes for election as indicated below (with each share of the Company's common
stock being entitled to one vote):
Number of Shares Number of Shares
Voted For Withheld
--------- --------
D. Greg Horrigan ...................... 17,240,222 67,815
Michael M. Janson ..................... 17,200,017 108,020
The directors of the Company whose term of office as a director continued after
the Annual Meeting are Thomas M. Begel and Jeffrey C. Crowe, each of whose term
of office as a director continues until the Company's annual meeting of
stockholders in 2000, and R. Philip Silver and Leigh J. Abramson, each of whose
term of office as a director continues until the Company's annual meeting of
stockholders in 2001.
The ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999 was approved
at the Annual Meeting. There were 17,306,637 votes cast ratifying such
appointment, 700 votes cast against ratification of such appointment and 700
votes abstaining.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
- -------------- -----------
12 Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K
None
-22-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned thereunto duly authorized.
SILGAN HOLDINGS INC.
Dated: August 12, 1999 /s/Harley Rankin, Jr.
- ----------------------- -------------------------------
Harley Rankin, Jr.
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
Dated: August 12, 1999 /s/Stephen J. Sweeney
- ----------------------- -----------------------------
Stephen J. Sweeney
Vice President and Controller
(Chief Accounting Officer)
-23-
Exhibit 12
SILGAN HOLDINGS INC.
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited)
Income before income taxes ...................................... $18,841 $16,307 $28,052 $27,005
Add:
Interest expense and debt amortization .................. 21,406 19,523 42,300 37,486
Rental expense representative of interest factor ........ 247 288 502 579
------- ------- ------- -------
Earnings, as adjusted ................................... $40,494 $36,118 $70,854 $65,070
======= ======= ======= =======
Fixed charges:
Interest expense and debt amortization .................. $21,406 $19,523 $42,300 $37,486
Rental expense representative of interest factor ........ 247 288 502 579
------- ------- ------- -------
Total fixed charges ..................................... $21,653 $19,811 $42,802 $38,065
======= ======= ======= =======
Ratio of earnings to fixed charges .............................. 1.87 1.82 1.66 1.71