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 September 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 November 1, 1999, the number of shares outstanding of the registrant's
common stock, $0.01 par value, was 17,551,694.
<PAGE>
SILGAN HOLDINGS INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part 1. Financial Information .......................................................... 3
Item 1. Financial Statements .................................................... 3
Condensed Consolidated Balance Sheets as of ................................... 3
September 30, 1999 and 1998 and December 31, 1998
Condensed Consolidated Statements of Income for the three months .............. 4
ended September 30, 1999 and 1998
Condensed Consolidated Statements of Income for the nine months ............... 5
ended September 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows for the nine months ........... 6
ended September 30, 1999 and 1998
Consolidated Statements of Deficiency in Stockholders' Equity at .............. 7
September 30, 1999
Notes to Condensed Consolidated Financial Statements .......................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and .......... 14
Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk ................ 23
Part II. Other Information ............................................................. 23
Item 6. Exhibits and Reports on Form 8-K ......................................... 23
Signatures .............................................................................. 24
Exhibit Index ........................................................................... 25
</TABLE>
-2-
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
Sept. 30, Sept. 30, Dec. 31,
1999 1998 1998
---- ---- ----
(unaudited) (unaudited) (Note 1)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........... $ 6,309 $ 8,135 $ 4,753
Accounts receivable, net ............ 305,206 294,271 134,004
Inventories ......................... 263,250 247,384 250,085
Prepaid expenses and other current
assets ........................... 8,564 9,107 9,880
---------- ---------- ----------
Total current assets ............ 583,329 558,897 398,722
Property, plant and equipment, net .... 651,338 663,331 671,466
Other non-current assets, net ......... 146,657 146,317 153,857
---------- ---------- ----------
$1,381,324 $1,368,545 $1,224,045
========== ========== ==========
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable .............. $ 129,517 $ 128,959 $ 184,543
Accrued payroll and related costs ... 46,127 41,988 45,566
Accrued interest payable ............ 16,151 17,192 10,357
Accrued expenses and other current
liabilities ...................... 22,860 23,770 23,220
Bank revolving loans ................ 200,241 131,328 --
Current portion of long-term debt ... 31,807 1,730 36,065
---------- ---------- ----------
Total current liabilities ....... 446,703 344,967 299,751
Long-term debt ........................ 893,729 982,097 890,976
Other long-term liabilities ........... 90,471 83,454 90,626
Deficiency in stockholders' equity:
Common stock ........................ 201 199 199
Additional paid-in capital .......... 118,666 118,273 117,911
Accumulated deficit ................. (108,797) (139,459) (131,940)
Accumulated other comprehensive loss. (390) (713) (723)
Treasury stock ...................... (59,259) (20,273) (42,755)
---------- ---------- ----------
Total deficiency in stockholders'
equity ....................... (49,579) (41,973) (57,308)
---------- ---------- ----------
$1,381,324 $1,368,545 $1,224,045
========== ========== ==========
</TABLE>
See accompanying notes.
-3-
<PAGE>
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per common share amounts)
<TABLE>
<CAPTION>
Three Months Ended
------------------
Sept. 30, Sept. 30,
1999 1998
---- ----
<S> <C> <C>
Net sales ............................................... $571,666 $561,085
Cost of goods sold ...................................... 496,988 486,035
-------- --------
Gross profit ....................................... 74,678 75,050
Selling, general and administrative expenses ............ 17,947 18,055
Reduction in carrying value of assets ................... 24,214 --
-------- --------
Income from operations ............................. 32,517 56,995
Interest expense and other related financing costs ...... 22,785 22,500
-------- --------
Income before income taxes ......................... 9,732 34,495
Income tax provision .................................... 3,699 12,947
-------- --------
Net income ......................................... $ 6,033 $ 21,548
======== ========
Per common share data:
Basic earnings per common share ..................... $0.34 $1.12
===== =====
Diluted earnings per common share ................... $0.34 $1.08
===== =====
Weighted average shares used in computation (000's):
Basic ............................................... 17,515 19,253
Effect of dilutive employee stock options ........... 475 711
------ ------
Diluted ............................................. 17,990 19,964
====== ======
</TABLE>
See accompanying notes.
-4-
<PAGE>
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per common share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
Sept. 30, Sept. 30,
1999 1998
---- ----
<S> <C> <C>
Net sales .............................................. $1,403,389 $1,288,289
Cost of goods sold ..................................... 1,221,043 1,116,338
---------- ----------
Gross profit ...................................... 182,346 171,951
Selling, general and administrative expenses ........... 55,263 50,465
Reduction in carrying value of assets .................. 24,214 --
---------- ----------
Income from operations ............................ 102,869 121,486
Interest expense and other related financing costs ..... 65,085 59,985
---------- ----------
Income before income taxes ........................ 37,784 61,501
Income tax provision ................................... 14,641 23,096
---------- ----------
Net income ........................................ $ 23,143 $ 38,405
========== ==========
Per common share data:
Basic earnings per common share ................... $1.30 $2.02
===== =====
Diluted earnings per common share ................. $1.27 $1.92
===== =====
Weighted average shares used in computation (000's):
Basic ............................................. 17,757 19,051
Effect of dilutive employee stock options ......... 494 982
------ ------
Diluted ........................................... 18,251 20,033
====== ======
</TABLE>
See accompanying notes.
-5-
<PAGE>
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
Sept. 30, Sept. 30,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ....................................... $ 23,143 $ 38,405
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation ................................. 60,227 53,439
Amortization ................................. 4,125 3,453
Reduction in carrying value of assets ........ 24,214 --
Changes in assets and liabilities, net of
effect of acquisitions:
(Increase) in accounts receivable ....... (171,202) (162,660)
(Increase) in inventories ............... (14,549) (20,746)
Decrease in other non-current assets .... 7,469 19,025
(Decrease) in trade accounts payable .... (55,026) (15,357)
Other, net .............................. 2,689 (2,612)
--------- ---------
Total adjustments ................... (142,053) (125,458)
--------- ---------
Net cash used in operating activities ........ (118,910) (87,053)
--------- ---------
Cash flows from investing activities:
Acquisition of businesses ........................ -- (193,972)
Capital expenditures ............................. (61,899) (58,841)
Proceeds from sale of assets ..................... 262 1,269
--------- ---------
Net cash used in investing activities ........ (61,637) (251,544)
--------- ---------
Cash flows from financing activities:
Borrowings under revolving loans ................. 729,609 852,327
Repayments under revolving loans ................. (529,368) (530,027)
Purchases of treasury stock ...................... (16,504) (20,273)
Proceeds from stock option exercises ............. 514 2,159
Proceeds from issuance of long-term debt ......... -- 7,193
Repayment of long-term debt ...................... (2,148) (18,365)
--------- ---------
Net cash provided by financing activities .... 182,103 293,014
--------- ---------
Net increase (decrease) in cash and cash equivalents .. 1,556 (45,583)
Cash and cash equivalents at beginning of year ........ 4,753 53,718
--------- ---------
Cash and cash equivalents at end of period ............ $ 6,309 $ 8,135
========= =========
Supplementary data:
Cash interest payments ........................... $ 58,241 $ 52,680
Cash income tax payments, net of refunds ......... 4,042 2,476
</TABLE>
See accompanying notes.
-6-
<PAGE>
<TABLE>
<CAPTION>
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
------ ----- ---------- ----------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 ............ 18,256 $199 $117,911 $(131,940) $(723) $(42,755) $(57,308)
Comprehensive income:
Net income ........................... 23,143 23,143
Foreign currency translation ......... 333 333
--------
Comprehensive income .................... 23,476
Issuance of common shares
under stock option plan,
including income tax
benefit of $243 ....................... 193 2 755 757
Purchase of treasury stock .............. (897) (16,504) (16,504)
------ ---- -------- --------- ----- -------- --------
Balance at September 30, 1999 ........... 17,552 $201 $118,666 $(108,797) $(390) $(59,259) $(49,579)
====== ==== ======== ========= ===== ======== ========
</TABLE>
See accompanying notes.
-7-
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1999 and 1998 and for the
three and nine months then ended is unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Silgan
Holdings Inc. ("Holdings" or the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying financial statements include all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation. The results of operations for any interim period are not
necessarily indicative of the results for the full year.
The condensed consolidated balance sheet at December 31, 1998 has been derived
from the Company's audited financial statements at that date, but does not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
The accompanying financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Holdings'
Annual Report on Form 10-K for the year ended December 31, 1998.
2. Acquisition Reserves and Impairment Charge
Since 1995, the Company has completed three acquisitions in its metal food
container business, including its acquisitions of the Food Metal and Specialty
business ("AN Can") of American National Can Company in August 1995 and of the
steel container manufacturing business ("CS Can") of Campbell Soup Company
("Campbell") in June 1998. During the third quarter of 1999, the Company
completed a study initiated earlier 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 has recorded a
non-cash charge to earnings of $24.2 million to reduce the carrying value of
those assets determined to be surplus or obsolete.
As part of the plan to integrate and rationalize the operations of its various
acquired businesses, the Company established reserves for certain costs,
including costs for closing or downsizing certain manufacturing plants,
integrating the selling, general and administrative functions with those of the
Company, and other acquisition liabilities. These costs will principally be
incurred through 2001.
-8-
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1999 and 1998 and for the
three and nine months then ended is unaudited)
2. Acquisition Reserves and Impairment Charge (continued)
The activity in the Company's acquisition reserves and impairment charges
recorded since December 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Facilities Rationalization Write Down
and Acquisition of
Reserves Assets
-------------------------- ----------
(Dollars in thousands)
<S> <C> <C>
Balance at December 31, 1998 .......... $24,844
Charges to income ..................... -- $24,214
=======
Amounts utilized in 1999 .............. (6,306)
-------
Balance at September 30, 1999 ......... $18,538
=======
</TABLE>
3. Comprehensive Income
Comprehensive income is reported in the Consolidated Statements of Deficiency in
Stockholders' Equity. Amounts included in accumulated other comprehensive income
(loss) at September 30, 1999 and 1998 and December 31, 1998 consist of the
following:
<TABLE>
<CAPTION>
Sept. 30, Sept. 30, Dec. 31,
1999 1998 1998
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Foreign currency translation .................. $(370) $(713) $(703)
Additional minimum pension liability .......... (20) -- (20)
----- ----- -----
Accumulated other comprehensive income
(loss) ................................ $(390) $(713) $(723)
===== ===== =====
</TABLE>
The components of comprehensive income for the three and nine months ended
September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net income ....................... $6,033 $21,548 $23,143 $38,405
Foreign currency translation
adjustments ................. 46 (208) 333 (205)
------ ------- ------- -------
Comprehensive income .......... $6,079 $21,340 $23,476 $38,200
====== ======= ======= =======
</TABLE>
-9-
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1999 and 1998 and for the
three and nine months then ended is unaudited)
4. Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
Sept. 30, Sept. 30, Dec. 31,
1999 1998 1998
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Raw materials and supplies .............. $ 44,033 $ 41,433 $ 34,224
Work-in-process ......................... 49,986 50,552 52,415
Finished goods .......................... 153,714 142,834 147,339
Spare parts and other ................... 10,769 10,809 10,927
-------- -------- --------
258,502 245,628 244,905
Adjustment to value inventory
at cost on the LIFO method ........... 4,748 1,756 5,180
-------- -------- --------
$263,250 $247,384 $250,085
======== ======== ========
</TABLE>
5. Long-Term Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
Sept. 30, Sept. 30, Dec. 31,
1999 1998 1998
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Bank debt:
Bank Revolving Loans .................. $ 335,800 $ 322,300 $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 ................ 14,422 17,300 15,586
---------- ---------- --------
Total bank debt .................... 766,571 755,949 567,835
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: ................................ 1,125,777 1,115,155 927,041
Less: Amounts to be repaid within
one year ....................... 232,048 133,058 36,065
---------- ---------- --------
$ 893,729 $ 982,097 $890,976
========== ========== ========
</TABLE>
-10-
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1999 and 1998 and for the
three and nine months then ended is unaudited)
5. 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 September 30, 1999, bank revolving loans under the U.S. Credit Agreement
totaled $335.8 million, of which $199.9 million related to seasonal working
capital needs and common share repurchases and $135.9 million related to
long-term financing of acquisitions. At September 30, 1999, amounts expected to
be repaid within one year consisted of $200.2 million of bank revolving loans
and $31.8 million of bank term loans. Bank revolving loans not expected to be
repaid within one year have been recorded as long-term debt.
6. Income Taxes
In the third quarter of 1999, the Company revised its estimate of its annual
effective tax rate to 38.75% from the previously provided rate of 39.0% in the
first two quarters of the current year. As a consequence, during the quarter the
Company provided for income taxes at an effective rate of 38.0%, as compared to
37.5% for the same period in 1998.
7. 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. 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 an increase in the deficiency in stockholders'
equity. Through September 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.
-11-
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1999 and 1998 and for the
three and nine months then ended is unaudited)
8. Business Segment Information
Presented below is a table setting forth reportable business segment profit or
loss for the three and nine months ended September 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."
<TABLE>
<CAPTION>
Metal Food Plastic Specialty
Containers(1) Containers Packaging Other(2) Total
------------- ---------- --------- -------- -----
(Dollars in millions)
Three Months Ended
September 30, 1999
- ------------------
<S> <C> <C> <C> <C> <C>
Net sales .......................... $ 456.2 $ 79.1 $ 36.4 $ -- $ 571.7
EBITDA(3) .......................... 58.1 15.7 4.6 (0.7) 77.7
Depreciation and amortization(4) ... 12.4 6.2 2.4 -- 21.0
Segment profit (loss) .............. 45.7 9.5 2.2 (0.7) 56.7
Three Months Ended
September 30, 1998
- ------------------
Net sales .......................... $ 447.2 $ 79.0 $ 34.9 $ -- $ 561.1
EBITDA(3) .......................... 61.6 13.5 3.3 (0.8) 77.6
Depreciation and amortization(4) ... 13.1 5.2 2.3 -- 20.6
Segment profit (loss) .............. 48.5 8.3 1.0 (0.8) 57.0
Nine Months Ended
September 30, 1999
- ------------------
Net sales .......................... $1,058.3 $242.0 $103.1 $ -- $1,403.4
EBITDA(3) .......................... 131.5 48.1 13.5 (2.8) 190.3
Depreciation and amortization(4) ... 38.1 17.7 7.3 0.1 63.2
Segment profit (loss) .............. 93.4 30.4 6.2 (2.9) 127.1
Nine Months Ended
September 30, 1998
- ------------------
Net sales .......................... $ 959.0 $231.1 $ 98.2 $ -- $1,288.3
EBITDA(3) .......................... 127.2 42.3 9.9 (2.2) 177.2
Depreciation and amortization(4) ... 34.6 14.5 6.6 -- 55.7
Segment profit (loss) .............. 92.6 27.8 3.3 (2.2) 121.5
</TABLE>
-12-
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 1999 and 1998 and for the
three and nine months then ended is unaudited)
8. Business Segment Information (continued)
(1)Excludes a non-cash charge of $24.2 million for the reduction in the
carrying value of certain assets of the metal food container business
recorded in the three month period ended September 30, 1999.
(2)The other category provides information pertaining to the corporate
holding company.
(3)EBITDA means earnings before interest, taxes, depreciation and
amortization.
(4)Depreciation and amortization excludes debt cost amortization of
$0.4 million for each of the three months ended September 30, 1999 and
1998 and $1.2 million for each of the nine months ended September 30,
1999 and 1998.
Total segment profit is reconciled to income before income taxes as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Total segment profit ................... $56.7 $57.0 $127.1 $121.5
Reduction in carrying value of assets
of metal food container business ..... 24.2 -- 24.2 --
Interest expense and other related
financing costs ...................... 22.8 22.5 65.1 60.0
----- ----- ------ ------
Income before income taxes ......... $ 9.7 $34.5 $ 37.8 $ 61.5
===== ===== ====== ======
</TABLE>
-13-
<PAGE>
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 September 30, 1999 and 1998 are provided below.
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1999 1998
---- ----
(Dollars in millions)
<S> <C> <C>
Net sales:
Metal food containers ........ $456.2 $447.2
Plastic containers ........... 79.1 79.0
Specialty packaging .......... 36.4 34.9
------ ------
Consolidated .............. $571.7 $561.1
====== ======
Operating profit:
Metal food containers (a) .... $ 21.5 $ 48.5
Plastic containers ........... 9.5 8.3
Specialty packaging .......... 2.2 1.0
Other ........................ (0.7) (0.8)
------ ------
Consolidated .............. $ 32.5 $ 57.0
====== ======
</TABLE>
(a) Includes a non-cash charge of $24.2 million for the reduction in the
carrying value of certain assets of the metal food container business
recorded in 1999.
Three Months Ended September 30, 1999 Compared with Three Months Ended September
30, 1998
Net Sales. Consolidated net sales increased $10.6 million, or 1.9%, to $571.7
million for the three months ended September 30, 1999, as compared to net sales
of $561.1 million for the same three months in the prior year. This increase
resulted primarily from increased sales of the metal food container business.
-14-
<PAGE>
Net sales for the metal food container business were $456.2 million for the
three months ended September 30, 1999, an increase of $9.0 million, or 2.0%,
from net sales of $447.2 million for the same period in 1998. This increase
resulted from increased unit sales and was partially offset by lower price
realization.
Net sales for the plastic container business was $79.1 million during the three
months ended September 30, 1999, as compared to net sales of $79.0 million for
the same period in 1998.
Net sales for the specialty packaging business increased $1.5 million, or 4.3%,
to $36.4 million during the three months ended September 30, 1999, as compared
to $34.9 million for the same period in 1998. This increase resulted from
increased unit sales.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 86.9% ($497.0 million) for the three months ended September 30, 1999, an
increase of 0.3 percentage points as compared to 86.6% ($486.0 million) for the
same period in 1998. The decline in gross profit margins during the quarter was
primarily attributable to the effect of lower price realization by the metal
food container business and was partially offset by improved gross margins of
the plastic container and specialty packaging businesses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales decreased
slightly to 3.1% ($17.9 million) for the three months ended September 30, 1999,
as compared to 3.2% ($18.1 million) for the three months ended September 30,
1998.
Income from Operations. Including the effect of the non-cash charge of $24.2
million to write down the value of certain assets of the metal food container
business described below, income from operations for the three months ended
September 30, 1999 was $32.5 million, as compared to $57.0 million for the same
period in 1998. Excluding the effect of the non-cash charge, income from
operations as a percentage of consolidated net sales was 9.9% ($56.7 million)
for the three months ended September 30, 1999, as compared to 10.2% ($57.0
million) for the same period in the prior year. The decrease in operating
margins in the third quarter of 1999 as compared to the same period in 1998 was
principally attributable to lower operating margins of the metal food container
business and was offset in part by the improved operating performance of the
plastic container and specialty packaging businesses.
Since 1995, the Company has completed three acquisitions in its metal food
container business, including the acquisitions of AN Can in August 1995 and of
CS Can in June 1998. During the third quarter of 1999, the Company completed a
study initiated earlier 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 recorded a one-time non-cash charge
to earnings of $24.2 million, before income taxes, to write down the value of
those assets determined to be surplus or obsolete.
-15-
<PAGE>
Including the effect of the non-cash charge, income from operations for the
metal food container business for the three months ended September 30, 1999 was
$21.5 million, as compared to $48.5 million for the same period in 1998. Income
from operations as a percentage of net sales excluding the effect of the
non-cash charge was 10.0% ($45.7 million), as compared to 10.8% ($48.5 million)
for the same period in 1998. This decrease was principally a result of
anticipated lower price realization under recently renewed long-term supply
agreements and was partially offset by lower overall per unit manufacturing
costs.
Income from operations as a percentage of net sales for the plastic container
business increased 1.5 percentage points to 12.0% ($9.5 million) for the three
months ended September 30, 1999, as compared to 10.5% ($8.3 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
additional operating cost reductions realized during the quarter as compared to
the third quarter of 1998.
Income from operations as a percentage of net sales for the specialty packaging
business improved 3.1 percentage points to 6.0% ($2.2 million) for the three
months ended September 30, 1999, as compared to 2.9% ($1.0 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 for the three months ended September 30, 1999
was $22.8 million, a $0.3 million increase over interest expense for the
comparable period in 1998. This increase was principally a result of higher
average revolving loan balances outstanding during the three months ended
September 30, 1999 as compared to the same period in the prior year.
Income Taxes. The provision for income taxes for the three months ended
September 30, 1999 was recorded at an effective tax rate of 38.0% ($3.7
million), as compared to 37.5% used in the comparable period in 1998. During the
quarter, the Company revised its estimate of its annual effective tax rate to
38.75% from the previously provided rate of 39.0% in the first two quarters of
1999.
Net Income and Earnings per Share. As a result of the items discussed above, net
income for the three months ended September 30, 1999 was $6.0 million, as
compared to $21.5 million for the three months ended September 30, 1998.
Excluding the effect of the non-cash charge described above, net income for the
three months ended September 30, 1999 would have been $21.0 million. Earnings
per diluted share for the third quarter of 1999 were $0.34, as compared to $1.08
for the same period in 1998. Excluding the effect of the non-cash charge,
earnings per diluted share for the third quarter of 1999 would have been $1.17.
-16-
<PAGE>
RESULTS OF OPERATIONS - NINE MONTHS
Summary unaudited results of operations for the Company's three business
segments, metal food containers, plastic containers and specialty packaging, for
the nine months ended September 30, 1999 and 1998 are provided below.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
---- ----
(Dollars in millions)
<S> <C> <C>
Net sales:
Metal food containers ................ $1,058.3 $ 959.0
Plastic containers ................... 242.0 231.1
Specialty packaging .................. 103.1 98.2
-------- --------
Consolidated ...................... $1,403.4 $1,288.3
======== ========
Operating profit:
Metal food containers (a) ............ $ 69.2 $ 92.5
Plastic containers ................... 30.4 27.7
Specialty packaging .................. 6.2 3.3
Other ................................ (2.9) (2.0)
-------- --------
Consolidated ...................... $ 102.9 $ 121.5
======== ========
</TABLE>
(a) Includes a non-cash charge of $24.2 million for the reduction in the
carrying value of certain assets of the metal food container business
recorded in 1999.
Nine Months Ended September 30, 1999 Compared with Nine Months Ended September
30, 1998
Net Sales. Consolidated net sales increased $115.1 million, or 8.9%, to $1,403.4
million for the nine months ended September 30, 1999, as compared to net sales
of $1,288.3 million for the same nine months in the prior year. This increase
resulted primarily from incremental sales added from acquisitions and, to a
lesser extent, from increased sales of the base business in all three business
segments.
Net sales for the metal food container business were $1,058.3 million for the
nine months ended September 30, 1999, an increase of $99.3 million, or 10.4%,
from net sales of $959.0 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 other customers, and was
offset in part by lower price realization.
Net sales for the plastic container business of $242.0 million during the nine
months ended September 30, 1999 increased $10.9 million, or 4.7%, from net sales
of $231.1 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. as well as increased unit sales of
the base business.
-17-
<PAGE>
Net sales for the specialty packaging business increased $4.9 million, or 5.0%,
to $103.1 million during the nine months ended September 30, 1999, as compared
to $98.2 million for the same period in 1998. This increase resulted from higher
unit sales.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 87.0% ($1,221.0 million) for the nine months ended September 30, 1999, an
increase of 0.3 percentage points as compared to 86.7% ($1,116.3 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 was offset in part by the leveraging effect of increased unit sales of the
plastic container and specialty packaging businesses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales for the nine
months ended September 30, 1999 and 1998 remained constant at 3.9% ($55.3
million and $50.5 million, respectively).
Income from Operations. Including the effect of the non-cash charge, income from
operations for the nine months ended September 30, 1999 was $102.9 million, as
compared to $121.5 million for the same period in 1998. In the third quarter of
1999, as discussed above, the Company established a one-time non-cash charge to
earnings of $24.2 million, before income taxes, to write down the carrying value
of certain assets of the metal food container business that were determined to
be surplus or obsolete. Excluding the effect of the non-cash charge, income from
operations as a percentage of consolidated net sales was 9.1% ($127.1 million)
for the nine months ended September 30, 1999, as compared to 9.4% ($121.5
million) for the same period in the prior year. The decrease in operating
margins was principally attributable to lower operating margins of the metal
food container business and was offset in part by the improved operating
performance of the plastic container and specialty packaging businesses.
Including the effect of the non-cash charge, income from operations for the
metal food container business for the nine months ended September 30, 1999 was
$69.2 million, as compared to $92.5 million for the same period in 1998. Income
from operations as a percentage of net sales excluding the effect of the
non-cash charge was 8.8% ($93.4 million) for the nine months ended September 30,
1999, as compared to 9.6% ($92.5 million) for the same period in 1998. The
decrease in operating margins was principally attributable to anticipated lower
margin sales to Campbell and lower price realization under recently renewed
long-term supply agreements, and was partially offset by lower overall per unit
manufacturing costs.
Income from operations as a percentage of net sales for the plastic container
business for the nine months ended September 30, 1999 increased 0.6 percentage
points to 12.6% ($30.4 million), as compared to 12.0% ($27.7 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 attributable to additional
operating cost reductions realized during the current year as compared to the
comparable prior year period and lower per unit manufacturing costs as a result
of higher unit sales.
-18-
<PAGE>
Income from operations as a percentage of net sales for the specialty packaging
business improved 2.6 percentage points to 6.0% ($6.2 million) for the nine
months ended September 30, 1999, as compared to 3.4% ($3.3 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.
Interest Expense. Interest expense increased $5.1 million to $65.1 million for
the nine months ended September 30, 1999, as compared to $60.0 million in the
same period in 1998. This increase was principally a result of higher average
revolving loan balances outstanding for the nine months ended September 30, 1999
as compared to the same period in the prior year, primarily to finance
acquisitions and common stock repurchases.
Income Taxes. The provision for income taxes for the nine months ended September
30, 1999 was recorded at an effective tax rate of 38.75% ($14.6 million), as
compared to 37.6% 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 nine months ended September 30, 1999 was $23.1 million, as
compared to $38.4 million for the nine months ended September 30, 1998.
Excluding the effect of the non-cash charge described above, net income for the
nine months ended September 30, 1999 would have been $38.2 million. Earnings per
diluted share for the nine months ended September 30, 1999 were $1.27, as
compared to $1.92 for the same period in 1998. Excluding the effect of the
non-cash charge, earnings per diluted share for the nine months ended September
30, 1999 would have been $2.09.
CAPITAL RESOURCES AND LIQUIDITY
The Company's liquidity requirements arise primarily from its obligations under
the indebtedness incurred in connection with its acquisitions and the
refinancing of such indebtedness, capital investment in new and existing
equipment and the funding of the Company's seasonal working capital needs.
Historically, the Company has met these liquidity requirements through cash flow
generated from operating activities and revolving loan borrowings.
For the nine months ended September 30, 1999, the Company used net borrowings of
revolving loans of $200.2 million under the Company's credit agreements and cash
proceeds from the exercise of stock options of $0.5 million to fund cash used by
operations of $118.9 million for the Company's seasonal working capital needs,
net capital expenditures of $61.6 million, the repayment of debt of $2.1 million
and repurchases of common stock for $16.5 million and to increase cash balances
by $1.6 million.
-19-
<PAGE>
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. During the third quarter of 1999, at its peak the Company
had incurred approximately $252.0 million of revolving loan borrowings under its
credit agreements to fund its working capital needs. Amounts available under the
Company's revolving loan facilities in excess of its seasonal working capital
needs are available to the Company to pursue its growth strategy and for other
permitted purposes.
As of September 30, 1999, the Company had $336.1 million of revolving loans
outstanding, of which $200.2 million related to seasonal working capital needs
and common stock repurchases and is expected to be repaid by year end, 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 September 30, 1999, after taking into account outstanding letters
of credit, was $198.6 million.
The Company's Board of Directors has authorized the repurchase of up to $70
million of its common stock. As of September 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 financed 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.
As part of the Company's continuing evaluation of its business in order to
maximize its production efficiencies, the Company is planning to close a West
Coast metal food container facility in early 2000. Upon finalization of plans
for the closure of the facility, the Company may be required to record a pretax
charge to income ranging from $6-$8 million, most of which would relate to
machinery and equipment and be non-cash.
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.
-20-
<PAGE>
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 or issue additional securities 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.
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.
-21-
<PAGE>
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 now been completed.
The Company believes that the cost of its Year 2000 identification, assessment,
remediation and testing efforts will approximate $2.2 million, which
expenditures have been funded from operating cash flows. As of September 30,
1999, the Company had incurred costs of approximately $2.0 million related to
the Year 2000 issue. Principally all of these costs relate to analysis, repair,
upgrade or replacement of existing software.
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 goods 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 their 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, if necessary, 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 Company's belief that it has completed 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 and beliefs 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.
-22-
<PAGE>
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.
Information regarding the Company's interest rate risk and 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 Reports on Form 10-Q for
the fiscal quarters ended March 31 and June 30, 1999. There has not been a
material change to the Company's interest rate risk or foreign currency exchange
rate risk since such filings.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
- -------------- -----------
12 Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K
None
-23-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned thereunto duly authorized.
SILGAN HOLDINGS INC.
Dated: November 12, 1999 /s/Harley Rankin, Jr.
- ------------------------- -------------------------------
Harley Rankin, Jr.
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
Dated: November 12, 1999 /s/Stephen J. Sweeney
- ------------------------- -------------------------------
Stephen J. Sweeney
Vice President and Controller
(Chief Accounting Officer)
-24-
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
----------- -------
12 Ratio of Earnings to Fixed Charges
for the three and nine months ended
September 30, 1999 and 1998
27 Financial Data Schedule for the nine
months ended September 30, 1999,
submitted to the Securities and
Exchange Commission in electronic
format
-25-
<PAGE>
Exhibit 12
SILGAN HOLDINGS INC.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited)
(Dollars in thousands)
<S> <C> <C> <C> <C>
Income before income taxes .................................... $ 9,732 $34,495 $ 37,784 $ 61,501
Add:
Interest expense and debt amortization ................ 22,785 22,500 65,085 59,985
Rental expense representative of interest factor ...... 259 291 762 871
------- ------- -------- --------
Earnings, as adjusted ................................. $32,776 $57,286 $103,631 $122,357
======= ======= ======== ========
Fixed charges:
Interest expense and debt amortization ................ $22,785 $22,500 $ 65,085 $ 59,985
Rental expense representative of interest factor ...... 259 291 762 871
------- ------- -------- --------
Total fixed charges ................................... $23,044 $22,791 $ 65,847 $ 60,856
======= ======= ======== ========
Ratio of earnings to fixed charges ............................ 1.42 2.51 1.57 2.01
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Silgan
Holdings Inc. Form 10-Q for the nine months ended September 30, 1999 and is
qualified in its entirety by reference to the financial statements therein.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,309
<SECURITIES> 0
<RECEIVABLES> 305,206
<ALLOWANCES> 0
<INVENTORY> 263,250
<CURRENT-ASSETS> 583,329
<PP&E> 651,338
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,381,324
<CURRENT-LIABILITIES> 446,703
<BONDS> 893,729
0
0
<COMMON> 201
<OTHER-SE> (49,780)
<TOTAL-LIABILITY-AND-EQUITY> 1,381,324
<SALES> 1,403,389
<TOTAL-REVENUES> 1,403,389
<CGS> 1,221,043
<TOTAL-COSTS> 1,221,043
<OTHER-EXPENSES> 24,214
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,085
<INCOME-PRETAX> 37,784
<INCOME-TAX> 14,641
<INCOME-CONTINUING> 23,143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,143
<EPS-BASIC> 1.30
<EPS-DILUTED> 1.27
</TABLE>
