<PAGE>
Page 1 of 24
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, 1998 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 July 31, 1998, the number of shares outstanding of the registrant's common
stock, $0.01 par value, was 19,053,340.
<PAGE>
Page 2 of 24
Part I. Financial Information
Item 1. Financial Statements
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, June 30, Dec. 31,
1998 1997 1997
ASSETS (unaudited) (unaudited) (audited)
- ------ ----------- ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ................... $ 3,130 $ 11,394 $ 53,718
Accounts receivable, net .................... 171,214 147,708 125,837
Inventories ................................. 324,556 307,826 209,963
Prepaid expenses and other current assets ... 9,332 10,350 9,997
---------- ---------- ----------
Total current assets .................... 508,232 477,278 399,515
Property, plant and equipment, net ............... 646,672 525,804 531,765
Other non-current assets ......................... 122,560 129,823 119,287
---------- ---------- ----------
$1,277,464 $1,132,905 $1,050,567
========== ========== ==========
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ...................... $ 116,234 $ 95,685 $ 142,281
Accrued payroll and related costs ........... 43,758 42,318 40,621
Accrued interest payable .................... 11,917 8,423 10,939
Accrued expenses and other current
liabilities .............................. 17,763 47,637 20,871
Bank revolving loans ........................ 106,573 -- --
Current portion of long-term debt ........... 1,805 135,000 20,218
---------- ---------- ----------
Total current liabilities ............... 298,050 329,063 234,930
Long-term debt ................................... 925,631 808,799 785,036
Other long-term liabilities ...................... 101,964 80,679 97,849
Deficiency in stockholders' equity:
Common stock ................................ 191 189 189
Additional paid-in capital .................. 113,140 110,935 110,935
Accumulated deficit ......................... (161,007) (195,995) (177,864)
Accumulated other comprehensive income ...... (505) (765) (508)
---------- ---------- ----------
Total deficiency in stockholders' equity (48,181) (85,636) (67,248)
---------- ---------- ----------
$1,277,464 $1,132,905 $1,050,567
========== ========== ==========
</TABLE>
See accompanying notes.
<PAGE>
Page 3 of 24
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per common share amounts)
<TABLE>
<CAPTION>
Three Months Ended
June 30, June 30,
1998 1997
---- ----
<S> <C> <C>
Net sales ............................................. $ 392,791 $ 357,584
Cost of goods sold .................................... 340,214 300,623
--------- ---------
Gross profit ..................................... 52,577 56,961
Selling, general and administrative expenses .......... 16,747 15,192
--------- ---------
Income from operations ........................... 35,830 41,769
Interest expense and other related financing costs .... 19,523 21,139
--------- ---------
Income before income taxes ....................... 16,307 20,630
Income tax provision .................................. 6,120 6,600
--------- ---------
Income before extraordinary charge ............... 10,187 14,030
Extraordinary charge relating to early
extinguishment of debt, net of taxes ............... -- (8,282)
--------- ---------
Net income before preferred stock
dividend requirement .......................... 10,187 5,748
Preferred stock dividend requirement .................. -- (1,469)
--------- ---------
Net income available to common stockholders ...... $ 10,187 $ 4,279
========= =========
Basic earnings per common share:
Income before extraordinary charge ............... $ 0.54 $ 0.75
Extraordinary charge ............................. -- (0.44)
Preferred stock dividend requirement ............. -- (0.08)
--------- ---------
Net income per common share ........................... $ 0.54 $ 0.23
========= =========
Diluted earnings per common share:
Income before extraordinary charge ............... $ 0.50 $ 0.69
Extraordinary charge ............................. -- (0.41)
Preferred stock dividend requirement ............. -- (0.07)
--------- ---------
Net income per common share ........................... $ 0.50 $ 0.21
========= =========
</TABLE>
See accompanying notes.
<PAGE>
Page 4 of 24
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per common share amounts)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1998 1997
---- ----
<S> <C> <C>
Net sales ............................................. $ 727,204 $ 657,011
Cost of goods sold .................................... 630,303 557,330
--------- ---------
Gross profit ..................................... 96,901 99,681
Selling, general and administrative expenses .......... 32,410 29,228
Non-cash stock option charge .......................... -- 22,522
--------- ---------
Income from operations ........................... 64,491 47,931
Interest expense and other related financing costs .... 37,486 41,104
--------- ---------
Income before income taxes ....................... 27,005 6,827
Income tax provision (benefit) ........................ 10,148 (18,250)
--------- ---------
Income before extraordinary charge ............... 16,857 25,077
Extraordinary charge relating to early
extinguishment of debt, net of taxes ............... -- (9,024)
--------- ---------
Net income before preferred stock
dividend requirement .......................... 16,857 16,053
Preferred stock dividend requirement .................. -- (3,224)
--------- ---------
Net income available to common stockholders ...... $ 16,857 $ 12,829
========= =========
Basic earnings per common share:
Income before extraordinary charge ............... $ 0.89 $ 1.40
Extraordinary charge ............................. -- (0.50)
Preferred stock dividend requirement ............. -- (0.18)
--------- ---------
Net income per common share ........................... $ 0.89 $ 0.72
========= =========
Diluted earnings per common share:
Income before extraordinary charge ............... $ 0.83 $ 1.30
Extraordinary charge ............................. -- (0.47)
Preferred stock dividend requirement ............. -- (0.16)
--------- ---------
Net income per common share ........................... $ 0.83 $ 0.67
========= =========
</TABLE>
See accompanying notes.
<PAGE>
Page 5 of 24
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred stock dividend
requirement ....................................$ 16,857 $ 16,053
Adjustments to reconcile net income before preferred
stock dividend requirement to net cash used in
operating activities:
Depreciation ................................... 33,761 29,545
Amortization ................................... 2,166 3,435
Extraordinary charge relating to early
extinguishment of debt, net of taxes ........ -- 9,024
Non-cash stock option charge ................... -- 22,522
Changes in assets and liabilities, net of effect
of acquisitions:
(Increase) in accounts receivable ......... (42,955) (41,695)
(Increase) in inventories ................. (99,599) (102,130)
(Increase) decrease in other non-current
assets ................................ 6,553 (12,352)
(Decrease) in trade accounts payable ...... (26,047) (29,487)
Other, net ................................ 2,950 (7,009)
--------- ---------
Total adjustments ..................... (123,171) (128,147)
--------- ---------
Net cash used in operating activities .......... (106,314) (112,094)
--------- ---------
Cash flows from investing activities:
Acquisition of businesses .......................... (136,827) (42,357)
Capital expenditures ............................... (37,195) (25,441)
Proceeds from sale of assets ....................... 57 4,247
--------- ---------
Net cash used in investing activities .......... (173,965) (63,551)
--------- ---------
Cash flows from financing activities:
Borrowings under revolving loans ................... 553,727 504,900
Repayments under revolving loans ................... (313,327) (532,700)
Net proceeds from issuance of common stock ......... -- 67,220
Proceeds from stock option exercises ............... 463 --
Proceeds from issuance of long-term debt ........... 7,193 375,000
Repayment of long-term debt ........................ (18,365) (219,617)
Debt financing costs ............................... -- (8,781)
--------- ---------
Net cash provided by financing activities ...... 229,691 186,022
--------- ---------
Net increase in cash and cash equivalents ............... (50,588) 10,377
Cash and cash equivalents at beginning of year .......... 53,718 1,017
--------- ---------
Cash and cash equivalents at end of period ..............$ 3,130 $ 11,394
========= =========
Supplementary data:
Cash interest payments .............................$ 35,838 $ 40,033
Cash income tax payments ........................... 1,920 593
Preferred stock issued in lieu of cash dividend .... -- 3,208
</TABLE>
See accompanying notes.
<PAGE>
Page 6 of 24
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
Accumulated Total
Common Stock Additional other deficiency in
Par paid-in Accumulated comprehensive stockholders'
Shares Value capital deficit income equity
------ ----- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 ...... 18,863 $ 189 $ 110,935 $(177,864) $ (508) $ (67,248)
Net income ..................... -- -- -- 16,857 -- 16,857
Foreign currency translation ... -- -- -- -- 3 3
Proceeds from exercise of
shares through employee
stock option plans, including
income tax benefit of $1,744 227 2 2,205 -- -- 2,207
------- ------ --------- --------- ------- ---------
Balance at June 30, 1998 .......... 19,090 $ 191 $ 113,140 $(161,007) $ (505) $ (48,181)
======= ====== ========= ========= ======= =========
</TABLE>
See accompanying notes.
<PAGE>
Page 7 of 24
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1998 and 1997 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, 1998 and 1997 and December 31, 1997, results of
operations for the three and six months ended June 30, 1998 and 1997, statement
of cash flows for the six months ended June 30, 1998 and 1997, and statement of
deficiency in stockholders' equity for the six months ended June 30, 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, 1997.
2. Acquisitions
In January 1998, the Company acquired substantially all of the assets of Winn
Packaging Co. ("Winn"), a privately held manufacturer and marketer of decorated
rigid plastic containers, serving the personal care, automotive, and household
chemical markets. Winn's sales in 1997 were approximately $22.0 million.
In June 1998, the Company (through an indirect wholly owned subsidiary) acquired
from Campbell Soup Company ("Campbell") a wholly owned subsidiary of Campbell
into which Campbell had transferred substantially all of its assets used in its
steel container manufacturing business ("CS Can"). As part of the transaction,
the Company and Campbell entered into a ten-year supply agreement under which
the Company has agreed to sell Campbell substantially all of Campbell's steel
container requirements to be used for the packaging of foods and beverages for
the United States. Annual sales to Campbell under the long-term supply agreement
are expected to be approximately $210.0-$230.0 million.
<PAGE>
Page 8 of 24
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1998 and 1997 and for the
three and six months then ended is unaudited)
2. Acquisitions (continued)
The Company financed the aggregate purchase price of $136.8 million for these
transactions through revolving loan borrowings under its U.S. Credit Agreement.
The excess of the purchase price over the estimated fair market value of net
assets acquired of $10.3 million for such acquisitions has been recorded as
goodwill and is being amortized over periods ranging from 20-40 years.
Both transactions were accounted for using the purchase method of accounting and
the results of operations therefrom have been included with the Company's
results of operations from the respective acquisition dates. The preliminary
purchase price was allocated to the tangible and intangible assets acquired and
liabilities assumed based on their estimated fair value as determined from
preliminary appraisals and valuations. The purchase price allocations will be
finalized within one year of the acquisition dates. Any differences between the
actual and preliminary valuations will cause adjustments to the purchase price
allocations.
Set forth below are the Company's summary unaudited pro forma results of
operations for the six months ended June 30, 1998 and 1997. The unaudited pro
forma results of operations of the Company for the six months ended June 30,
1998 include the historical results of the Company, and give pro forma effect to
the acquisition of CS Can as if it occurred as of the beginning of 1998. The
unaudited pro forma results of operations of the Company for the six months
ended June 30, 1997 include the historical results of the Company, and give pro
forma effect to the acquisitions of CS Can, Winn, the North American plastic
container business of Rexam plc and the aluminum roll-on closure business of
Alcoa Closure Systems International Inc. as if each acquisition occurred as of
the beginning of 1997. The pro forma adjustments made to the Company's
historical results of operations for the six months ended June 30, 1998 and 1997
also reflect the effect of purchase accounting adjustments based upon estimated
fair values determined by appraisals and valuations, the financing of the
acquisitions by the Company, and certain other adjustments as if these events
had occurred as of the beginning of 1998 or 1997. The pro forma adjustments are
based upon available information and upon certain assumptions that the Company
believes are reasonable. The pro forma results of operations do not give effect
to adjustments for decreased costs from manufacturing synergies resulting from
the integration of these acquisitions with the Company's existing manufacturing
operations. Additionally, the pro forma results of operations for the six months
ended June 30, 1997 do not reflect the benefit realized by the Company from its
July 1997 refinancing of its U.S. bank credit facility. If the 1997 pro forma
results of operations had been based upon current bank borrowing rates, 1997 pro
forma earnings would have increased $.05 per diluted share.
<PAGE>
Page 9 of 24
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1998 and 1997 and for the
three and six months then ended is unaudited)
2. Acquisitions (continued)
The unaudited pro forma results of operations do not purport to represent what
the Company's results of operations would actually have been had the
acquisitions in fact occurred on January 1, 1998 or January 1, 1997, as the case
may be, or to project the Company's results of operations for any future period
(in thousands):
<TABLE>
<CAPTION>
Pro forma
Six months ended June 30,
1998 1997
---- ----
<S> <C> <C>
Net sales ........................................ $815,108 $784,662
Income from operations ........................... 70,212 55,124
Income before income taxes ....................... 29,141 7,208
Income before extraordinary charge ............... 18,192 25,336
Net income ....................................... 18,192 13,088
Diluted earnings per common share:
Income before extraordinary charge ............ $ 0.90 $ 1.31
Net income .................................... 0.90 0.68
</TABLE>
<PAGE>
Page 10 of 24
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1998 and 1997 and for the
three and six months then ended is unaudited)
3. Earnings per Share
Earnings per share amounts for 1997 have been restated to conform with the
requirements of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share". Under SFAS No. 128, primary and fully diluted earnings per
share were replaced with basic and diluted earnings per share. The following
table summarizes the basic and diluted earnings per share computations for the
three and six month periods ended June 30, 1998 and 1997, respectively:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(Dollars and shares in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Numerator:
Income before extraordinary charge . $10,187 $14,030 $16,857 $25,077
Extraordinary charge ............... -- (8,282) -- (9,024)
Preferred stock dividend requirement -- (1,469) -- (3,224)
------- ------- ------- -------
Numerator for basic and diluted
earnings per share:
Net income .................... $10,187 $ 4,279 $16,857 $12,829
======= ======= ======= =======
Denominator:
Denominator for basic earnings
per share: weighted average
shares outstanding ............ 19,026 18,863 18,948 17,923
Effect of dilutive securities:
Employee stock options ........ 1,208 1,348 1,257 1,356
------- ------- ------- -------
Denominator for diluted earnings
per share:
Adjusted weighted average
shares outstanding .......... 20,234 20,211 20,205 19,279
======= ======= ======= =======
Basic earnings per share:
Income before extraordinary charge . $ 0.54 $ 0.75 $ 0.89 $ 1.40
Extraordinary charge ............... -- (0.44) -- (0.50)
Preferred stock dividend requirement -- (0.08) -- (0.18)
------- ------- ------- -------
Net income per common share ..... $ 0.54 $ 0.23 $ 0.89 $ 0.72
======= ======= ======= =======
Diluted earnings per share:
Income before extraordinary charge . $ 0.50 $ 0.69 $ 0.83 $ 1.30
Extraordinary charge ............... -- (0.41) -- (0.47)
Preferred stock dividend requirement -- (0.07) -- (0.16)
------- ------- ------- -------
Net income per common share ..... $ 0.50 $ 0.21 $ 0.83 $ 0.67
======= ======= ======= =======
</TABLE>
<PAGE>
Page 11 of 24
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1998 and 1997 and for the
three and six months then ended is unaudited)
4. Inventories
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, June 30, Dec. 31,
1998 1997 1997
---- ---- ----
<S> <C> <C> <C>
Raw materials and supplies .. $ 41,073 $ 37,130 $ 33,706
Work-in-process ............. 57,109 50,554 43,529
Finished goods .............. 214,538 210,395 121,369
Spare parts and other ....... 10,581 7,993 8,382
-------- -------- --------
323,301 306,072 206,986
Adjustment to value inventory
at cost on the LIFO Method 1,255 1,754 2,977
-------- -------- --------
$324,556 $307,826 $209,963
======== ======== ========
</TABLE>
5. Income Taxes
The provision for income taxes for the six months ended June 30, 1998 was
recorded at an effective tax rate of 37.6%, which represents the Company's
estimated annual effective tax rate for 1998.
The Company recognized an income tax benefit of $23.2 million in 1997 because it
determined that a portion of the future tax benefits arising from its net tax
operating loss carryforward would be realized in future years due to the
Company's continued improvement in earnings and increased probability of future
taxable income.
6. New Accounting Standards
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components. The adoption of this
pronouncement had no impact on the Company's results of operations or
stockholders' equity. Prior year's financial statements have been reclassified
to conform with its requirements. SFAS No. 130 requires foreign currency
translation adjustments to be included in comprehensive income, instead of as a
separate component of stockholders' equity where it was previously included.
Accumulated other comprehensive income at June 30, 1998 and June 30, 1997
consist solely of foreign currency translation adjustments.
<PAGE>
Page 12 of 24
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1998 and 1997 and for the
three and six months then ended is unaudited)
6. New Accounting Standards (continued)
The components of comprehensive income include net income and cumulative foreign
currency translation adjustments. Since the Company's cumulative foreign
currency translation adjustments are not significant for the six month periods
ended June 30, 1998 and 1997, total comprehensive income represents net income
of $16.9 million and $12.8 million, respectively.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" is effective for financial statements for fiscal years beginning
after December 15, 1997. As allowed under SFAS No. 131, the Company has elected
not to apply its provisions to interim financial statement reporting during the
initial year of adoption. SFAS No. 131 establishes standards for reporting
information related to operating segments. Although management is currently
evaluating the impact of SFAS No. 131, it is not anticipated that this
pronouncement will have any impact on its current reporting disclosures of
operating segment information.
SFAS No. 132, "Employers' Disclosure about Pensions and Other Postretirement
Benefits" was issued in February 1998 and is effective for financial statements
for fiscal years beginning after December 15, 1997. SFAS No. 132 revised
disclosures regarding pension and postretirement benefit plans, but does not
change the measurement or recognition of those plans. The Company has not yet
determined the impact of SFAS No. 132 on its pension and other postretirement
disclosures.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was
issued in June 1998 and is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, requiring recognition of all derivatives
as either assets or liabilities in the statement of financial position and
measurement of those instruments at fair value. As required, the Company will
adopt SFAS No. 133 in 2000 and does not anticipate that this pronouncement will
have a material impact on the Company's consolidated financial statements.
<PAGE>
Page 13 of 24
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 1998 and 1997 and for the
three and six months then ended is unaudited)
7. Stock Repurchase Program
In late June 1998, the Company announced that its Board of Directors authorized
the repurchase by the Company of up to $30.0 million of its common stock from
time to time in the open market, through privately negotiated transactions or
through block purchases. The Company expects to fund repurchases from internally
generated funds or from revolving loan borrowings under its U.S. Credit
Agreement. Through August 10, 1998, the Company repurchased 364,000 shares of
its common stock for $9.6 million.
8. Subsequent Events
In early August 1998, the Company acquired all of the outstanding capital stock
of Clearplass Containers, Inc. ("Clearplass"). Clearplass was a privately-held
manufacturer and marketer of rigid plastic containers serving the personal care
and pharmaceutical industries with sales of $23.4 million in its 1998 fiscal
year. Clearplass operates three blow molding plants located in Penn Yan, New
York; Albia, Iowa; and Sheffield, Alabama. The acquisition was financed through
revolving loan borrowings under the Company's U.S. Credit Agreement.
<PAGE>
Page 14 of 24
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, 1997
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 two business segments,
metal and plastic containers, for the three months ended June 30, 1998 and 1997
are provided below.
<TABLE>
<CAPTION>
Three Months Ended June 30,
1998 1997
---- ----
(In millions)
<S> <C> <C>
Net sales:
Metal containers and specialty .............. $ 315.8 $ 288.0
Plastic containers .......................... 77.0 69.6
-------- --------
Consolidated ............................ $ 392.8 $ 357.6
======== ========
Operating profit:
Metal containers and specialty .............. $ 27.3 $ 33.7
Plastic containers .......................... 9.4 8.4
Corporate expense ........................... (0.9) (0.3)
-------- --------
Consolidated ............................ $ 35.8 $ 41.8
======== ========
</TABLE>
Three Months Ended June 30, 1998 Compared with Three Months ended June 30, 1997
Net Sales. Consolidated net sales increased $35.2 million, or 9.8%, to $392.8
million for the three months ended June 30, 1998, as compared to net sales of
$357.6 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 unit sales to existing customers of both the metal
and plastic container businesses.
<PAGE>
Page 15 of 24
Net sales for the metal container business (including net sales of its specialty
business of $33.5 million) were $315.8 million for the three months ended June
30, 1998, an increase of $27.8 million, or 9.7%, from net sales of $288.0
million for the same period in 1997. Net sales of metal food cans increased
during the second quarter of 1998 to $282.3 million, as compared to $256.0
million for the same period in 1997 due to sales to Campbell and higher unit
sales to existing customers.
Sales of specialty items included in the metal container segment increased $1.5
million to $33.5 million during the three months ended June 30, 1998, as
compared to $32.0 million in the same period in 1997.
Net sales for the plastic container business of $77.0 million during the three
months ended June 30, 1998 increased $7.4 million, or 10.6%, from net sales of
$69.6 million for the same period in 1997. The additional sales were generated
by incremental sales from the acquisition of Winn in January 1998 and by higher
unit volume with existing customers.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 86.6% ($340.2 million) for the three months ended June 30, 1998, an increase
of 2.5 percentage points as compared to 84.1% ($300.6 million) for the same
period in 1997. The decline in gross profit margins was primarily attributable
to higher per unit manufacturing costs of the metal container business as a
result of a lower 1998 seasonal inventory build as compared to 1997, a change in
the mix of products sold, and higher depreciation expense incurred as a result
of increased capital expenditures.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales for the three
months ended June 30, 1998 and 1997 remained constant at 4.3% ($16.7 million and
$15.2 million, respectively).
Income from Operations. Income from operations as a percentage of consolidated
net sales declined to 9.1% ($35.8 million) for the three months ended June 30,
1998, as compared with 11.7% ($41.8 million) for the same period in the prior
year, as a result of the aforementioned decline in cost of goods sold as a
percentage of sales.
Income from operations as a percentage of net sales for the metal container
business was 8.6% ($27.3 million) for the three months ended June 30, 1998, a
decline of 3.1 percentage points from 11.7% ($33.7 million) for the same period
in the prior year. The decrease in income from operations as a percentage of net
sales for the metal container business was attributable to the decline in gross
profit margins as discussed above.
Income from operations as a percentage of net sales for the plastic container
business improved 0.1 percentage points to 12.2% ($9.4 million) for the three
months ended June 30, 1998, as compared to 12.1% ($8.4 million) for the same
period in 1997. The improved operating performance of the plastic container
business was attributable to increased production and sales volume as discussed
above resulting in slightly lower per unit manufacturing costs.
<PAGE>
Page 16 of 24
Interest Expense. Interest expense declined $1.6 million to $19.5 million for
the three months ended June 30, 1998 principally as a result of benefits
realized from the refinancing of substantially all of the Company's indebtedness
in the second and third quarters of 1997 with lower cost indebtedness, offset in
part by additional indebtedness incurred under the Company's U.S. Credit
Agreement to finance its recently completed acquisitions. In addition, interest
expense and preferred stock dividend requirements declined $3.1 million during
the second quarter of 1998 as compared to the second quarter of 1997.
Income Taxes. The provision for income taxes for the three months ended June 30,
1998 was recorded at an effective tax rate of 37.5% ($6.1 million), which
represents the Company's estimated annual effective tax rate for 1998. For the
three months ended June 30, 1997, the Company recognized the benefit of a
portion of its net tax operating loss carryforward and recorded an effective tax
rate of 32%.
Net Income and Earnings per Share. As a result of the items discussed above, net
income for the three months ended June 30, 1998 was $10.2 million, a decrease of
$3.8 million from net income of $14.0 million (before the extraordinary charge
of $8.3 million and the preferred stock dividend requirement of $1.5 million)
for the three months ended June 30, 1997.
Earnings per diluted share were $0.50 for the three months ended June 30, 1998
as compared with $0.69 for the same period in 1997 (before the extraordinary
charge of $0.41 per diluted share and the preferred stock dividend requirement
of $0.07 per diluted share). The Company estimates that earnings per diluted
share for the six months ended June 30, 1997 would have been $0.56 if unusual
items for the extraordinary charges incurred in connection with the refinancing
of the Company's debt obligations had been excluded from earnings and if
earnings for the three months ended June 30, 1997 had been calculated utilizing
the effective tax rate and the weighted average diluted shares outstanding for
the three months ended June 30, 1998.
During the second quarter of 1997, the Company incurred an extraordinary charge
of $8.3 million, net of taxes, or $0.41 per diluted share, for the write-off of
unamortized debt financing costs and premiums associated with the redemption of
its debt obligations.
<PAGE>
Page 17 of 24
RESULTS OF OPERATIONS - SIX MONTHS
Summary unaudited results of operations for the Company's two business segments,
metal and plastic containers, for the six months ended June 30, 1998 and 1997
are provided below.
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
---- ----
(In millions)
<S> <C> <C>
Net sales:
Metal containers and specialty $ 575.0 $ 530.3
Plastic containers ........... 152.2 126.7
-------- --------
Consolidated ............. $ 727.2 $ 657.0
======== ========
Operating profit:
Metal containers and specialty $ 46.4 $ 56.0
Plastic containers ........... 19.5 15.1
Non-cash stock option charge . -- (22.5)
Corporate expense ............ (1.4) (0.7)
-------- --------
Consolidated ............. $ 64.5 $ 47.9
======== ========
</TABLE>
Six Months Ended June 30, 1998 Compared with Six Months ended June 30, 1997
Net Sales. Consolidated net sales increased $70.2 million, or 10.7%, to $727.2
million for the six months ended June 30, 1998, as compared to net sales of
$657.0 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 unit sales to existing metal container and plastic container
customers.
Net sales for the metal container business (including net sales of its specialty
business of $63.4 million) were $575.0 million for the six months ended June 30,
1998, an increase of $44.7 million, or 8.4%, from net sales of $530.3 million
for the same period in 1997. Net sales of metal food cans increased during the
first six months of 1998 to $511.6 million, as compared to $479.2 million for
the same period in 1997. The increase related to sales to Campbell and higher
unit sales to existing customers.
Sales of specialty items included in the metal container segment increased $12.3
million to $63.4 million during the six months ended June 30, 1998, as compared
to $51.1 million in the same period in 1997, predominately due to incremental
sales from the April 1997 acquisition of the aluminum roll-on closure business
of Alcoa Closure Systems International Inc.
Net sales for the plastic container business of $152.2 million during the six
months ended June 30, 1998 increased $25.5 million, or 20.1%, from net sales of
$126.7 million for the same period in 1997. The additional sales were generated
by incremental sales from the acquisition of Winn in January 1998 and the
acquisition in April 1997 of the North American plastic container business of
Rexam plc and by higher unit volume with existing customers.
<PAGE>
Page 18 of 24
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 86.7% ($630.3 million) for the six months ended June 30, 1998, an increase
of 1.9 percentage points as compared to 84.8% ($557.3 million) for the same
period in 1997. The decline in gross profit margins was primarily attributable
to higher per unit manufacturing costs as a result of lower production volumes
of the metal container business during the first six months of 1998 as compared
to the same period in 1997, price concessions made to several contractual metal
food can customers in exchange for contract term extensions with such customers
and higher depreciation expense, offset in part by an increase in the gross
profit margin of the plastic container business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales for the six
months ended June 30, 1998 increased slightly to 4.5% ($32.4 million) from 4.4%
($29.2 million) for the same period in 1997.
Income from Operations. Income from operations as a percentage of consolidated
net sales was 8.9% ($64.5 million) for the six months ended June 30, 1998, as
compared with 7.3% ($47.9 million) for the same period in the prior year.
Excluding the effect of the non-cash stock option charge of $22.5 million
incurred in connection with the Company's initial public offering (the "IPO") of
its common stock in 1997, income from operations as a percentage of consolidated
net sales declined 1.8 percentage point to 8.9% for the six months ended June
30, 1998, as compared with 10.7% for the same period in the prior year. This
decrease was a result of the aforementioned decline in gross profit margins.
In conjunction with the IPO, stock options issued under the stock option plans
of Holdings' subsidiaries were converted to Holdings stock options. In
accordance with generally accepted accounting principles, the Company recorded a
charge of $22.5 million at the time of the IPO for the excess of the fair market
value of the stock options issued under the subsidiary stock option plans over
the grant price of the options. The Company will not recognize any future
charges for these stock options.
Income from operations as a percentage of net sales for the metal container
business declined 2.5 percentage points to 8.1% ($46.4 million) for the six
months ended June 30, 1998, from 10.6% ($56.0 million) for the same period in
the prior year. This decrease in income from operations as a percentage of net
sales reflected the impact of the decline in gross profit margin as discussed
above.
Income from operations as a percentage of net sales for the plastic container
business improved 0.9 percentage points to 12.8% ($19.5 million) for the six
months ended June 30, 1998, as compared to 11.9% ($15.1 million) for the same
period in 1997. The improved operating performance of the plastic container
business was attributable to continuing manufacturing efficiencies realized from
capital investment and increased production volumes.
<PAGE>
Page 19 of 24
Interest Expense. Interest expense declined $3.6 million to $37.5 million for
the six months ended June 30, 1998 principally as a result of benefits realized
from the Company's 1997 refinancings, offset in part by additional indebtedness
incurred to finance the Company's recently completed acquisitions. In addition,
interest expense and preferred stock dividend requirements declined $6.8 million
during the first six months of 1998 as compared to the same period in 1997.
Income Taxes. The provision for income taxes for the six months ended June 30,
1998 was recorded at an effective tax rate of 37.6% ($10.1 million), which
approximates the Company's estimated annual effective tax rate for 1998.
The Company recognized an income tax benefit of $23.2 million in 1997 when it
determined that a portion of the future tax benefits arising from its net tax
operating loss carryforward would be realized in future years due to the
Company's continued improvement in earnings and increased probability of future
taxable income.
Net Income and Earnings per Share. As a result of the items discussed above, net
income for the six months ended June 30, 1998 was $16.9 million, a decrease of
$8.2 million from net income of $25.1 million (before the extraordinary charge
of $9.0 million and the preferred stock dividend requirement of $3.2 million)
for the six months ended June 30, 1997.
Earnings per diluted share for the first half of 1998 were $0.83 as compared
with $0.67 for the same period in 1997. The Company estimates that earnings per
diluted share (before the preferred stock dividend requirement) for the six
months ended June 30, 1997 would have been $0.91 if unusual items for the
non-cash stock option charge and the extraordinary charge incurred in connection
with the refinancings of the Company's debt obligations had been excluded from
earnings and if earnings for such period had been calculated utilizing the
effective tax rate and the weighted average diluted shares outstanding for the
six months ended June 30, 1998. After giving effect to the preferred stock
dividend requirement, the Company estimates that such earnings per diluted share
for the six months ended June 30, 1997 would have been $0.75, or $0.08 less per
diluted share than earnings per diluted share for the same six month period in
1998.
During the first six months of 1997, the Company incurred an extraordinary
charge of $9.0 million, net of taxes, or $0.47 per diluted share, for the
write-off of unamortized debt financing costs and premiums associated with the
redemption of its debt obligations.
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.
<PAGE>
Page 20 of 24
For the first six months of 1998, net borrowings of revolving loans of $240.4
million under the Company's U.S. Credit Agreement, $4.2 million of borrowings
under the Company's Canadian bank credit facility, $3.0 million of borrowings
related to the Campbell acquisition, $0.5 million of proceeds from employee
stock option exercises, and a decrease in cash balances of $50.6 million were
used to fund cash used by operations of $106.3 million for the Company's
seasonal working capital needs, capital expenditures of $37.2 million,
acquisitions for $136.8 million, and the repayment of $18.4 million of bank term
loans.
Because the Company sells metal containers used in fruit and vegetable pack
processing, its sales are seasonal. As is common in the industry, the Company
must access working capital to build inventory and then carry accounts
receivable for some customers beyond the end of the summer and fall packing
season. Seasonal accounts are generally settled by year end. Due to the
Company's seasonal requirements, the Company expects to incur short term
indebtedness to finance its working capital requirements.
During 1998, the Company estimates that approximately $350.0 million of its
revolving loan facilities under its credit agreements will be utilized at its
seasonal peak in the third quarter of 1998. The Company utilizes its revolving
loan facility to meet seasonal working capital needs, fund acquisitions, and
finance common stock repurchases. Amounts available under the Company's
revolving loan facilities in excess of its seasonal peak are available to the
Company to pursue its growth strategy and for other permitted purposes.
As of June 30, 1998, the Company had $240.4 million of revolving loans
outstanding, of which $106.6 million related to seasonal working capital needs
and $133.8 million related to long-term financing of acquisitions. The amount
used for acquisition financing has been recorded as long-term debt. The unused
portion of revolving loan commitments under the Company's credit agreements at
June 30, 1998, after taking into account outstanding letters of credit, was
$299.7 million.
In late June 1998, the Company announced that its Board of Directors had
authorized a repurchase program for up to $30 million of its common stock. At
current price levels, the Company believes a repurchase of its shares is an
attractive investment. Through August 10, 1998, the Company has repurchased
364,000 shares of its common stock at an average cost of $26.44 per share. The
share repurchases were funded through revolving loan borrowings under the
Company's U.S. Credit Agreement.
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.
<PAGE>
Page 21 of 24
The Company is continually evaluating acquisition opportunities in the North
American consumer goods packaging market. The Company intends to borrow
additional revolving loans under its U.S. Credit Agreement to finance such
acquisitions and to fund any resulting increased operating needs. However, the
Company may need to incur additional new indebtedness to finance such
acquisitions and to fund 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 1998.
YEAR 2000 ISSUES
The Company has completed an assessment of its core financial and operational
software systems to ensure compliance with Year 2000 issues, has begun
assessment of other less critical software systems and is in the process of
testing and implementing necessary changes. The Company believes that the
potential impact, if any, of these systems not being Year 2000 compliant will at
most require employees to manually complete otherwise automated tasks or
calculations, and it should not materially impact the Company's production or
sales activities.
The Company has initiated formal communication with its significant suppliers
and customers to determine the extent to which the Company is vulnerable to
those third parties' failure to correct their own Year 2000 issues. There can be
no guarantee, however, that the systems of other companies on which the
Company's systems rely will be timely converted, or that a failure to convert by
another company, or a conversion that is incompatible with the Company's
systems, would not have a material adverse effect on the Company.
The Company is utilizing both internal and external resources to complete tasks
and perform testing necessary to address Year 2000 issues. The Company plans to
complete its Year 2000 project no later than June 30, 1999. The Company does not
expect costs relating to the assessment and remediation of Year 2000 issues to
be material.
<PAGE>
Page 22 of 24
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 June 2, 1998 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 2001 and until their successors are
duly elected and qualified, (2) approving an amendment to the Silgan Holdings
Inc. Fourth Amended and Restated 1989 Stock Option Plan (the "Plan") solely to
establish a maximum limit on the number of shares of Common Stock of the Company
with respect to which options may be granted to any individual in any single
year and (3) ratifying the appointment by the Board of Directors of the Company
of Ernst & Young LLP as the Company's independent accountants for the fiscal
year ending December 31, 1998.
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 Votes Number of Votes
For Withheld
---------- --------
R. Philip Silver 18,440,246 35,802
Leigh Abramson 18,435,946 40,102
The directors of the Company whose term of office as a director continued after
the Annual Meeting are D. Greg Horrigan and Robert H. Niehaus, each of whose
term of office continues until the Company's annual meeting of stockholders in
1999, and Thomas M. Begel and Jeffrey C. Crowe, each of whose term of office
continues until the Company's annual meeting of stockholders in 2000.
There were 18,490,925 votes cast approving the amendment to the Plan, 3,335
votes cast against such amendment to the Plan and 1,107 abstentions.
There were 18,475,241 votes cast ratifying the appointment of Ernst & Young LLP
as the Company's independent accountants for the fiscal year ending December 31,
1998, 400 votes cast against such ratification and 407 abstentions.
<PAGE>
Page 23 of 24
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
27 Financial Data Schedule.
(b) Reports on Form 8-K
On June 15, 1998, Silgan Holdings Inc. filed a Current Report on Form 8-K
regarding the purchase of the can manufacturing assets of Campbell Soup Company.
<PAGE>
Page 24 of 24
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, 1998 /s/Harley Rankin, Jr.
- ----------------------- ---------------------
Harley Rankin, Jr.
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
Dated: August 12, 1998 /s/Harold J. Rodriguez, Jr.
- ----------------------- ---------------------------
Harold J. Rodriguez, Jr.
Vice President and Controller
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Silgan
Holdings Inc. Form 10-Q for the six months ended June 30, 1998 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,130
<SECURITIES> 0
<RECEIVABLES> 171,214
<ALLOWANCES> 0
<INVENTORY> 324,556
<CURRENT-ASSETS> 508,232
<PP&E> 646,672
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,277,464
<CURRENT-LIABILITIES> 298,050
<BONDS> 925,631
0
0
<COMMON> 191
<OTHER-SE> (48,372)
<TOTAL-LIABILITY-AND-EQUITY> 1,277,464
<SALES> 727,204
<TOTAL-REVENUES> 727,204
<CGS> 630,303
<TOTAL-COSTS> 630,303
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,486
<INCOME-PRETAX> 27,005
<INCOME-TAX> 10,148
<INCOME-CONTINUING> 16,857
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,857
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.83
</TABLE>
