UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from ________________ to ________________
Commission file number 000-22117
SILGAN HOLDINGS INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-1269834
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
4 Landmark Square
Stamford, Connecticut 06901
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (203) 975-7110
N/A
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
As of August 8, 2000 the number of shares outstanding of the registrant's common
stock, $0.01 par value, was 17,702,897.
<PAGE>
<TABLE>
<CAPTION>
SILGAN HOLDINGS INC.
TABLE OF CONTENTS
Page No.
--------
<S> <C>
Part 1. Financial Information .................................................................... 3
Item 1. Financial Statements ............................................................ 3
Condensed Consolidated Balance Sheets at
June 30, 2000 and 1999 and December 31, 1999 .................................. 3
Condensed Consolidated Statements of Income for
the three months ended June 30, 2000 and 1999 ................................. 4
Condensed Consolidated Statements of Income for
the six months ended June 30, 2000 and 1999 ................................... 5
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 2000 and 1999 ............................... 6
Condensed Consolidated Statement of Deficiency in
Stockholders' Equity for the six months ended June 30, 2000 ................... 7
Notes to Condensed Consolidated Financial Statements .......................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................................... 15
Item 3. Quantitative and Qualitative Disclosure About
Market Risk ..................................................................... 22
Part II. Other Information ....................................................................... 23
Item 4. Submission of Matters to a Vote of Security Holders ............................. 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>
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
June 30, June 30, Dec. 31,
2000 1999 1999
---- ---- ----
(unaudited) (unaudited) (Note 1)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............ $ 5,262 $ 10,289 $ 2,411
Trade accounts receivable, net ....... 197,924 177,545 128,095
Inventories .......................... 321,458 345,328 249,571
Prepaid expenses and other current
assets ............................. 8,342 8,641 8,864
---------- ---------- ----------
Total current assets ............. 532,986 541,803 388,941
Property, plant and equipment, net ..... 642,015 671,889 645,515
Investment in equity affiliate ......... 1,380 -- --
Other non-current assets, net .......... 152,660 151,448 150,829
---------- ---------- ----------
$1,329,041 $1,365,140 $1,185,285
=========== ========== ==========
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ............... $ 133,838 $ 123,535 $ 175,430
Accrued payroll and related costs .... 52,887 46,369 56,100
Accrued interest payable ............. 10,779 10,900 10,998
Accrued expenses and other current
liabilities ....................... 18,143 21,884 25,093
Bank revolving loans ................. 178,870 195,600 --
Current portion of long-term debt .... 39,290 33,966 39,351
---------- ---------- ----------
Total current liabilities ........ 433,807 432,254 306,972
Long-term debt ......................... 843,629 893,681 843,909
Other long-term liabilities ............ 90,523 94,974 83,138
Deficiency in stockholders' equity:
Common stock ......................... 204 201 201
Additional paid-in capital ........... 118,349 118,555 118,666
Accumulated deficit .................. (96,475) (114,830) (108,010)
Accumulated other comprehensive
(loss) ............................ (603) (436) (273)
Treasury stock ....................... (60,393) (59,259) (59,318)
---------- ---------- ----------
Total deficiency in stockholders'
equity ......................... (38,918) (55,769) (48,734)
---------- ---------- ----------
$1,329,041 $1,365,140 $1,185,285
========== ========== ==========
</TABLE>
See accompanying notes.
-3-
<PAGE>
<TABLE>
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per common share amounts)
<CAPTION>
Three Months Ended
------------------
June 30, June 30,
2000 1999
---- ----
<S> <C> <C>
Net sales ............................................ $422,495 $432,975
Cost of goods sold ................................... 369,852 373,167
-------- --------
Gross profit .................................... 52,643 59,808
Selling, general and administrative expenses ......... 17,290 19,561
-------- --------
Income from operations .......................... 35,353 40,247
Interest expense and other related financing
costs ............................................. 21,616 21,406
-------- --------
Income before income taxes and equity in
losses of affiliate ........................... 13,737 18,841
Income tax provision ................................. 5,358 7,354
-------- --------
Income before equity in losses of affiliate ..... 8,379 11,487
Equity in losses of affiliate ........................ 2,135 --
-------- --------
Net income ...................................... $ 6,244 $ 11,487
======== ========
Per common share data:
Basic earnings per common share ................. $0.35 $0.65
===== =====
Diluted earnings per common share ............... $0.35 $0.64
===== =====
Weighted average shares used in computation (000's):
Basic .......................................... 17,649 17,563
Effect of dilutive employee stock options ...... 322 474
------ ------
Diluted ........................................ 17,971 18,037
====== ======
</TABLE>
See accompanying notes.
-4-
<PAGE>
<TABLE>
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per common share amounts)
<CAPTION>
Six Months Ended
----------------
June 30, June 30,
2000 1999
---- ----
<S> <C> <C>
Net sales ............................................ $833,152 $831,722
Cost of goods sold ................................... 731,791 724,055
-------- --------
Gross profit .................................... 101,361 107,667
Selling, general and administrative expenses ......... 36,353 37,315
-------- --------
Income from operations .......................... 65,008 70,352
Interest expense and other related financing costs ... 42,597 42,300
-------- --------
Income before income taxes and equity in
losses of affiliate ........................... 22,411 28,052
Income tax provision ................................. 8,741 10,942
-------- --------
Income before equity in losses of affiliate ..... 13,670 17,110
Equity in losses of affiliate ........................ 2,135 --
-------- --------
Net income ...................................... $ 11,535 $ 17,110
======== ========
Per common share data:
Basic earnings per common share ................. $0.66 $0.96
===== =====
Diluted earnings per common share ............... $0.64 $0.93
===== =====
Weighted average shares used in computation (000's):
Basic .......................................... 17,600 17,878
Effect of dilutive employee stock options ...... 403 504
------ ------
Diluted ........................................ 18,003 18,382
====== ======
</TABLE>
See accompanying notes.
-5-
<PAGE>
<TABLE>
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<CAPTION>
Six Months Ended
----------------
June 30, June 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................... $ 11,535 $ 17,110
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation ................................ 41,687 40,278
Amortization ................................ 2,744 2,754
Equity in losses of affiliate ............... 2,135 --
Changes in assets and liabilities:
(Increase) in accounts receivable ...... (69,829) (43,541)
(Increase) in inventories .............. (71,887) (96,627)
(Increase) Decrease in other
non-current assets ................... (8,572) 4,053
(Decrease) in trade accounts payable ... (41,592) (61,008)
Other, net ............................. 1,278 1,334
--------- ---------
Total adjustments .................. (144,036) (152,757)
--------- ---------
Net cash used in operating activities ....... (132,501) (135,647)
--------- ---------
Cash flows from investing activities:
Investment in equity affiliate .................. (3,516) --
Capital expenditures, net ....................... (39,439) (38,314)
--------- ---------
Net cash used in investing activities ....... (42,955) (38,314)
--------- ---------
Cash flows from financing activities:
Borrowings under revolving loans ................ 469,353 543,700
Repayments under revolving loans ................ (290,483) (348,100)
Purchases of treasury stock ..................... (1,075) (16,504)
Proceeds from stock option exercises ............ 512 401
--------- ---------
Net cash provided by financing activities ... 178,307 179,497
--------- ---------
Net increase in cash and cash equivalents ............ 2,851 5,536
Cash and cash equivalents at beginning of year ....... 2,411 4,753
--------- ---------
Cash and cash equivalents at end of period ........... $ 5,262 $ 10,289
========= =========
Supplementary data:
Cash interest payments .......................... $ 42,109 $ 41,072
Cash income tax payments, net of refunds ........ 6,242 3,258
</TABLE>
See accompanying notes.
-6-
<PAGE>
<TABLE>
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
(Dollars and shares in thousands)
<CAPTION>
Common Stock Accumulated Total
------------ Additional other deficiency in
Par paid-in Accumulated comprehensive Treasury stockholders'
Shares Value capital deficit (loss) stock equity
------ ----- ------- ------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 ............ 17,547 $201 $118,666 $(108,010) $(273) $(59,318) $(48,734)
Comprehensive income:
Net income ........................... 11,535 11,535
Foreign currency translation ......... (330) (330)
--------
Comprehensive income .................... 11,205
Issuance of common shares
under stock option plan,
including income tax
provision of $826 ..................... 256 3 (317) (314)
Purchases of treasury stock ............. (100) (1,075) (1,075)
------ ---- -------- --------- ----- -------- --------
Balance at June 30, 2000 ................ 17,703 $204 $118,349 $ (96,475) $(603) $(60,393) $(38,918)
====== ==== ======== ========= ===== ======== ========
</TABLE>
See accompanying notes.
-7-
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2000 and 1999 and for the
three and six 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 of operations for the full year.
The condensed consolidated balance sheet at December 31, 1999 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, 1999.
2. Rationalization and Acquisition Reserves
As part of its plan to integrate and rationalize the operations of its various
acquired businesses, the Company has established reserves for employee
termination and severance, plant exit costs and assumed liabilities. These costs
are expected to be incurred principally through 2001. Activity in the Company's
rationalization and acquisition reserves since December 31, 1999 is summarized
as follows:
<TABLE>
<CAPTION>
Employee
Termination
and Plant Exit Assumed
Severance Costs Liabilities Total
----------- ---------- ----------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance at December 31, 1999 ... $ 4,347 $10,750 $6,956 $22,053
Cash payments .................. (2,298) (3,020) (95) (5,413)
------- ------- ------ -------
Balance at June 30, 2000 ....... $ 2,049 $ 7,730 $6,861 $16,640
======= ======= ====== =======
</TABLE>
-8-
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2000 and 1999 and for the
three and six months then ended is unaudited)
2. Rationalization and Acquisition Reserves (continued)
Rationalization and acquisition reserves are included in the Condensed
Consolidated Balance Sheets as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
(Dollars in thousands)
<S> <C> <C>
Accrued expense and other current liabilities ..... $ 8,526 $14,523
Other long-term liabilities ....................... 8,114 7,530
------- -------
$16,640 $22,053
======= =======
</TABLE>
3. Investment in E-Commerce Packaging Venture
On April 5, 2000, the Company announced that it will be investing up to $20.0
million for a minority interest in a neutral, independent e-commerce joint
venture, Packtion Corporation, with Morgan Stanley Dean Witter Private Equity
and Diamond Technology Partners. On June 2, 2000, the Company funded its initial
equity investment of $3.5 million for approximately 45% of the interests in
Packaging Markets LLC, the parent company of Packtion Corporation. The new
company, which has $52.7 million in combined funding commitments, is expected to
provide a comprehensive online marketplace for packaging goods and services and
to combine content, tools and collaboration capabilities to streamline the
product development process and enhance transaction opportunities for buyers and
sellers of packaging.
During the first quarter of 2000, the Company expensed $0.7 million related to
start-up costs incurred for Packtion Corporation. These costs were reimbursed
during the second quarter of 2000 in accordance with the terms of the agreements
for Packtion Corporation, and the Company's selling, general and administrative
expenses for the quarter were credited in the same amount. Further, during the
second quarter of 2000 the Company recorded its equity in losses of Packtion
Corporation aggregating $2.1 million.
-9-
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2000 and 1999 and for the
three and six months then ended is unaudited)
4. Comprehensive Income
Comprehensive income is reported in the Condensed Consolidated Statement of
Deficiency in Stockholders' Equity. Amounts included in accumulated other
comprehensive income (loss) at June 30, 2000 and 1999 and December 31, 1999
consist of the following:
<TABLE>
<CAPTION>
June 30, June 30, Dec. 31,
2000 1999 1999
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Foreign currency translation .................. $(503) $(416) $(173)
Additional minimum pension liability .......... (100) (20) (100)
----- ----- -----
Accumulated other comprehensive (loss) ..... $(603) $(436) $(273)
===== ===== =====
</TABLE>
The components of comprehensive income for the three and six months ended June
30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net income ....................... $6,244 $11,487 $11,535 $17,110
Foreign currency translation ..... (283) 192 (330) 287
------ ------- ------- -------
Comprehensive income .......... $5,961 $11,679 $11,205 $17,397
====== ======= ======= =======
</TABLE>
5. Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
June 30, June 30, Dec. 31,
2000 1999 1999
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Raw materials ..................... $ 38,008 $ 47,242 $ 33,453
Work-in-process ................... 50,755 53,879 49,799
Finished goods .................... 214,151 227,688 148,135
Spare parts and other ............. 11,487 10,266 10,493
-------- -------- --------
314,401 339,075 241,880
Adjustment to value inventory
at cost on the LIFO Method ..... 7,057 6,253 7,691
-------- -------- --------
$321,458 $345,328 $249,571
======== ======== ========
</TABLE>
-10-
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2000 and 1999 and for the
three and six months then ended is unaudited)
6. Long-Term Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
June 30, June 30, Dec. 31,
2000 1999 1999
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Bank debt:
Bank Revolving Loans ............... $ 304,070 $ 331,500 $125,200
Bank A Term Loans .................. 194,047 223,900 194,047
Bank B Term Loans .................. 190,495 192,449 190,495
Canadian Bank Facility ............. 13,971 16,192 14,312
---------- ---------- --------
Total bank debt ................. 702,583 764,041 524,054
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 .............................. 1,061,789 1,123,247 883,260
Less: Amounts to be repaid within
one year ......................... 218,160 229,566 39,351
---------- ---------- --------
$ 843,629 $ 893,681 $843,909
========== ========== ========
</TABLE>
Under the Company's U.S. senior secured bank credit facility (the "U.S. Credit
Agreement"), the Company has available to it $545.5 million of bank revolving
loans. The Company also has $4.5 million of bank revolving loans available to it
under its Canadian bank facility. Bank revolving loans may be used by the
Company for working capital needs, acquisitions, common stock repurchases and
other permitted purposes. Bank revolving loans may be borrowed, repaid and
reborrowed until December 31, 2003, their final maturity date under both
facilities.
At June 30, 2000, bank revolving loans consisted of $178.9 million related
primarily to seasonal working capital needs and $125.2 million related to
long-term financing of acquisitions. At June 30, 2000, amounts expected to be
repaid within one year consisted of $178.9 million of bank revolving loans and
$39.3 million of bank term loans. Bank revolving loans not expected to be repaid
within one year have been recorded as long-term debt.
-11-
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2000 and 1999 and for the
three and six months then ended is unaudited)
7. Income Taxes
The provision for income taxes for the six months ended June 30, 2000 and 1999
was recorded at an effective tax rate of 39.0%.
8. Deficiency in Stockholders' Equity
In 1998, the Company's Board of Directors authorized the repurchase by the
Company of up to $60.0 million of its common stock. In 1999, the Company's Board
of Directors authorized the repurchase by the Company of up to an additional
$10.0 million of its common stock, for a total of $70.0 million. Through June
30, 2000, the Company had repurchased 2,708,975 shares of its common stock for
$61.0 million. The Company's repurchases of common stock are recorded as
treasury stock and result in an increase in deficiency in stockholders' equity.
9. Business Segment Information
Presented below is a table setting forth reportable business segment profit
(loss) for the three and six months ended June 30, 2000 and 1999 for the
Company's three business segments.
-12-
<PAGE>
<TABLE>
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2000 and 1999 and for the
three and six months then ended is unaudited)
9. Business Segment Information (continued)
<CAPTION>
Metal Food Plastic Specialty
Containers Containers Packaging Other(1) Total
---------- ---------- --------- ----- -----
(Dollars in millions)
Three Months Ended
June 30, 2000
-------------
<S> <C> <C> <C> <C> <C>
Net sales ...................................... $303.7 $ 86.1 $32.7 $ -- $422.5
EBITDA(2) ...................................... 39.5 14.7 3.5 (0.5) 57.2
Depreciation and amortization(3) ............... 13.2 6.2 2.5 -- 21.9
Segment profit (loss) .......................... 26.3 8.5 1.0 (0.5) 35.3
Three Months Ended
June 30, 1999
-------------
Net sales ...................................... $313.9 $ 84.0 $35.1 $ -- $433.0
EBITDA(2) ...................................... 41.5 16.7 4.7 (1.4) 61.5
Depreciation and amortization(3) ............... 12.7 5.9 2.6 0.1 21.3
Segment profit (loss) .......................... 28.8 10.8 2.1 (1.5) 40.2
Six Months Ended
June 30, 2000
-------------
Net sales ...................................... $599.2 $170.7 $63.3 $ -- $833.2
EBITDA(2) ...................................... 74.1 30.1 6.3 (1.9) 108.6
Depreciation and amortization(3) ............... 26.2 12.4 5.0 -- 43.6
Segment profit (loss) .......................... 47.9 17.7 1.3 (1.9) 65.0
Six Months Ended
June 30,1999
------------
Net sales ...................................... $602.1 $162.9 $66.7 $ -- $831.7
EBITDA(2) ...................................... 73.4 32.4 8.9 (2.1) 112.6
Depreciation and amortization(3) ............... 25.7 11.5 4.9 0.1 42.2
Segment profit (loss) .......................... 47.7 20.9 4.0 (2.2) 70.4
</TABLE>
-13-
<PAGE>
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2000 and 1999 and for the
three and six months then ended is unaudited)
9. Business Segment Information (continued)
(1)The other category provides information pertaining to the corporate
holding company and includes a $0.7 million credit recorded during the
three months ended June 30, 2000 related to the reimbursement of start-
up costs for the e-commerce packaging venture described in Note 3 above.
(2)EBITDA means earnings before interest, taxes, depreciation and
amortization.
(3)Depreciation and amortization excludes debt cost amortization of $0.4
million for each of the three months ended June 30, 2000 and 1999 and
$0.8 million for each of the six months ended June 30, 2000 and 1999.
Total segment profit is reconciled to income before income taxes as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Total segment profit ................... $35.3 $40.2 $65.0 $70.4
Interest expense and other related
financing costs ...................... 21.6 21.4 42.6 42.3
----- ----- ----- -----
Income before income taxes and
equity in losses of affiliate .... $13.7 $18.8 $22.4 $28.1
===== ===== ===== =====
</TABLE>
10. Subsequent Event
On July 27, 2000, the Company announced that it has reached an agreement in
principle to acquire all of the outstanding stock of RXI Holdings, Inc. ("RXI").
RXI is a manufacturer and seller of rigid plastic packaging, including plastic
bottles and closures for the pet care, food, personal care, household and
industrial chemical, agricultural chemical and automotive industries as well as
thermoformed plastic containers. RXI had net sales of approximately $100.0
million for its fiscal year ended June 30, 2000. RXI's operations are conducted
at seven manufacturing facilities in the United States. The transaction is
subject to negotiation and execution of definitive documentation, completion by
the Company of due diligence, receipt of all necessary governmental and third
party approvals and other customary terms and conditions. The Company
anticipates closing this transaction prior to the end of the third quarter of
2000 and funding the purchase price with revolving loans under its U.S. Credit
Agreement.
-14-
<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, 1999
and the Company's other filings with the Securities and Exchange Commission. As
a result, the actual results of operations or financial condition of the Company
could differ materially from those expressed or implied in such forward-looking
statements.
RESULTS OF OPERATIONS - THREE MONTHS
Summary unaudited results of operations for the Company's three business
segments, metal food containers, plastic containers and specialty packaging, for
the three months ended June 30, 2000 and 1999 are provided below.
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
2000 1999
---- ----
(In millions)
<S> <C> <C>
Net sales:
Metal food containers ............ $303.7 $313.9
Plastic containers ............... 86.1 84.0
Specialty packaging .............. 32.7 35.1
------ ------
Consolidated .................. $422.5 $433.0
====== ======
Operating profit:
Metal food containers ............ $ 26.3 $ 28.8
Plastic containers ............... 8.5 10.8
Specialty packaging .............. 1.0 2.1
Other(1) ......................... (0.5) (1.5)
----- ------
Consolidated .................. $ 35.3 $ 40.2
====== ======
</TABLE>
-------------
(1) Includes a $0.7 million credit recorded for the three months ended
June 30, 2000 related to the reimbursement of start-up costs for the
e-commerce packaging venture affiliate.
-15-
<PAGE>
Three Months Ended June 30, 2000 Compared with Three Months Ended June 30, 1999
Net Sales. Consolidated net sales decreased $10.5 million, or 2.4%, to $422.5
million as compared to the second quarter of 1999 as a result of lower net sales
of the metal food container and specialty packaging businesses, offset in part
by higher net sales of the plastic container business.
Net sales for the metal food container business were $303.7 million for the
three months ended June 30, 2000, a decrease of $10.2 million, or 3.2%, from net
sales of $313.9 million for the same period in 1999. The decrease in second
quarter net sales was primarily attributable to lower unit sales.
Net sales for the plastic container business of $86.1 million during the three
months ended June 30, 2000 increased $2.1 million, or 2.5%, from net sales of
$84.0 million for the same period in 1999. The increase in net sales was
principally attributable to higher average sales prices due to the pass through
of increased resin costs and was offset in part by lower unit sales to certain
major customers who were adjusting their inventory levels.
Net sales for the specialty packaging business decreased $2.4 million, or 6.9%,
to $32.7 million during the three months ended June 30, 2000, as compared to
$35.1 million for the same period in 1999. This decrease was due to lower unit
sales and a change in sales mix in the current quarter as compared to the same
period in 1999 due to a change in customer requirements during the second half
of 1999.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 87.5% ($369.8 million) for the three months ended June 30, 2000, an increase
of 1.3 percentage points as compared to 86.2% ($373.2 million) for the same
period in 1999. The decrease in gross profit margin was primarily attributable
to the effect of increased resin costs of the plastic container business and
lower net sales of the metal food container and specialty packaging businesses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales decreased to
4.1% ($17.3 million) for the three months ended June 30, 2000, as compared to
4.5% ($19.6 million) for the three months ended June 30, 1999. The decrease was
primarily attributable to the absence of Year 2000 readiness costs incurred in
the prior year and a credit recorded in the current year quarter ($0.7 million)
relating to the reimbursement of start-up costs for the e-commerce packaging
venture affiliate that the Company incurred during the first quarter of 2000.
Income from Operations. Income from operations as a percentage of consolidated
net sales for the three months ended June 30, 2000 decreased to 8.4% ($35.3
million), as compared to 9.3% ($40.2 million) for the same period in 1999.
-16-
<PAGE>
Income from operations for the metal food container business for the three
months ended June 30, 2000 decreased $2.5 million to $26.3 million from the
comparable prior year period. This decrease was primarily a result of lower unit
sales and increased per unit manufacturing costs due to the Company's planned
inventory reduction. Operating margins declined 0.5 percentage points to 8.7% in
the second quarter of 2000 as compared to the second quarter of 1999 for the
reasons mentioned above.
Income from operations for the plastic container business decreased $2.3 million
to $8.5 million from the second quarter of 1999. This decrease was attributable
to lower overall average selling prices resulting from competitive pricing,
higher per unit manufacturing costs as a result of lower unit sales and higher
depreciation. Operating margins declined 3.0 percentage points to 9.9% in the
second quarter of 2000 as compared to 12.9% in the second quarter of 1999 for
the reasons mentioned above and as a result of the effect of increased resin
costs which were passed on to customers.
Income from operations for the specialty packaging business for the three months
ended June 30, 2000 decreased $1.1 million to $1.0 million from the comparable
prior year period. This decrease was primarily due to the effect of lower net
sales and operating inefficiencies at one plant. Operating margins declined 2.9
percentage points to 3.1% in the second quarter of 2000 as compared to the
second quarter of 1999 for the reasons mentioned above.
Interest Expense. Interest expense increased $0.2 million to $21.6 million for
the three months ended June 30, 2000 as compared to the same period in 1999.
Lower average borrowings outstanding during the quarter due to prior year debt
repayments and lower average net working capital during the current year quarter
offset most of the additional interest incurred as a result of higher interest
rates.
Income Taxes. The provision for income taxes for the three months ended June 30,
2000 and 1999 was recorded at an effective tax rate of 39.0% ($5.4 million and
$7.4 million, respectively).
Net Income and Earnings per Share. Income before equity in losses of affiliate
for the three months ended June 30, 2000 was $8.4 million, as compared to net
income of $11.5 million for the same period in 1999. Earnings per diluted share
before equity in losses of affiliate for the second quarter of 2000 were $0.47,
as compared to $0.64 for the same period in the prior year. Including the
Company's equity in losses of affiliate of $2.1 million related to the
e-commerce packaging venture, net income for the three months ended June 30,
2000 was $6.2 million, or $0.35 per diluted share.
-17-
<PAGE>
RESULTS OF OPERATIONS - SIX MONTHS
Summary unaudited results of operations for the Company's three business
segments, metal food containers, plastic containers and specialty packaging, for
the six months ended June 30, 2000 and 1999 are provided below.
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
2000 1999
---- ----
(In millions)
<S> <C> <C>
Net sales:
Metal food containers ............ $599.2 $602.1
Plastic containers ............... 170.7 162.9
Specialty packaging .............. 63.3 66.7
------ ------
Consolidated .................. $833.2 $831.7
====== ======
Operating profit:
Metal food containers ............ $ 47.9 $ 47.7
Plastic containers ............... 17.7 20.9
Specialty packaging .............. 1.3 4.0
Other ............................ (1.9) (2.2)
------ ------
Consolidated .................. $ 65.0 $ 70.4
====== ======
</TABLE>
Six Months Ended June 30, 2000 Compared with Six Months Ended June 30, 1999
Net Sales. Consolidated net sales increased $1.5 million, or 0.2%, to $833.2
million for the six months ended June 30, 2000, as compared to net sales of
$831.7 million for the same six months in the prior year. This increase was
attributable to higher net sales of the plastic container business which were
mostly offset by lower net sales of the metal food container and specialty
packaging businesses.
Net sales for the metal food container business were $599.2 million for the six
months ended June 30, 2000, a decrease of $2.9 million, or 0.5%, from net sales
of $602.1 million for the same period in 1999. This decrease was primarily due
to a change in sales mix which resulted in a lower overall average sales price
and was offset in part by slightly higher unit sales.
Net sales for the plastic container business of $170.7 million during the six
months ended June 30, 2000 increased $7.8 million, or 4.8%, from net sales of
$162.9 million for the same period in 1999. The increase in net sales was
principally attributable to higher average sales prices of the plastic container
business due to the pass through of increased resin costs and was offset in part
by lower unit sales to certain major customers who were adjusting their
inventory levels.
Net sales for the specialty packaging business decreased $3.4 million, or 5.1%,
to $63.3 million during the six months ended June 30, 2000, as compared to $66.7
million for the same period in 1999. This decrease was primarily attributable to
lower unit sales and a change in sales mix during the current period as compared
to the same period in 1999 due to a change in customer requirements during the
second half of 1999.
-18-
<PAGE>
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 87.8% ($731.8 million) for the six months ended June 30, 2000, an increase
of 0.7 percentage points as compared to 87.1% ($724.1 million) for the same
period in 1999. The decline in gross profit margins was primarily attributable
to the effect of increased resin costs of the plastic container business and
lower net sales of the metal food container and specialty packaging businesses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales decreased
slightly for the six months ended June 30, 2000 to 4.4% ($36.4 million), as
compared to 4.5% ($37.3 million) for the same period in 1999. The decrease was
primarily attributable to the absence of costs incurred in the prior year period
for Year 2000 readiness activities.
Income from Operations. Income from operations as a percentage of consolidated
net sales for the six months ended June 30, 2000 decreased to 7.8% ($65.0
million), as compared to 8.5% ($70.4 million) for the same period in 1999.
Income from operations as a percentage of net sales for the metal food container
business increased slightly to 8.0% ($47.9 million) for the six months ended
June 30, 2000, as compared to 7.9% ($47.7 million) for the same period in 1999.
The increase in operating margins for the metal food container business was
principally due to cost savings achieved from previous plant shut downs, and was
offset in part by increased per unit manufacturing costs due to the Company's
planned inventory reduction.
Income from operations as a percentage of net sales for the plastic container
business for the six months ended June 30, 2000 decreased 2.4 percentage points
to 10.4% ($17.7 million), as compared to 12.8% ($20.9 million) for the same
period in 1999. The decrease in income from operations as a percentage of net
sales was attributable to the effects of lower unit sales, increased resin
costs, lower overall average selling prices resulting from competitive pricing
and higher depreciation.
Income from operations as a percentage of net sales for the specialty packaging
business decreased to 2.1% ($1.3 million) for the six months ended June 30,
2000, as compared to 6.0% ($4.0 million) for the same period in 1999. The
decrease in income from operations as a percentage of net sales was attributable
to the effect of lower net sales, a change in sales mix and operating
inefficiencies at one plant.
Interest Expense. Interest expense increased $0.3 million to $42.6 million for
the six months ended June 30, 2000 as compared to the same period in 1999. Lower
average borrowings outstanding during the current year period due to prior year
debt repayments and lower average net working capital during the current year
period offset most of the additional interest incurred as a result of higher
interest rates.
Income Taxes. The provision for income taxes for the six months ended June 30,
2000 and 1999 was recorded at an effective tax rate of 39.0% ($8.7 million and
$10.9 million, respectively).
-19-
<PAGE>
Net Income and Earnings per Share. Income before equity in losses of affiliate
for the six months ended June 30, 2000 was $13.7 million, as compared to net
income of $17.1 million for the same period in 1999. Earnings per diluted share
before equity in losses of affiliate for the six months ended June 30, 2000 were
$0.76, as compared to $0.93 for the same period in the prior year. Including the
Company's equity in losses of affiliate of $2.1 million related to the
e-commerce packaging venture, net income for the six months ended June 30, 2000
was $11.5 million, or $0.64 per diluted share.
CAPITAL RESOURCES AND LIQUIDITY
The Company's liquidity requirements arise primarily from its obligations under
the indebtedness incurred in connection with its acquisitions and the
refinancing of such indebtedness, capital investment in new and existing
equipment and the funding of the Company's seasonal working capital needs.
Historically, the Company has met these liquidity requirements through cash flow
generated from operating activities and revolving loan borrowings.
For the six months ended June 30, 2000, the Company used net borrowings of
revolving loans of $178.9 million under the Company's U.S. Credit Agreement and
proceeds from the exercise of stock options of $0.5 million to fund cash used by
operations of $132.5 million for the Company's seasonal working capital needs,
the Company's investment of $3.5 million in the e-commerce packaging venture
affiliate, repurchases of common stock for $1.1 million and net capital
expenditures of $39.4 million and to increase cash balances by $2.9 million.
Because the Company sells metal containers used in fruit and vegetable pack
processing, its sales are seasonal. As is common in the industry, the Company
must access working capital to build inventory and then carry accounts
receivable for some customers beyond the end of the summer and fall packing
season. Seasonal accounts are generally settled by year end. Due to the
Company's seasonal requirements, the Company expects to incur short-term
indebtedness to finance its working capital requirements.
The Company utilizes its revolving loan facilities for seasonal working capital
needs and for other general corporate purposes, including acquisitions and
repurchases of its common stock. For 2000, the Company estimates that at its
month-end peak it will utilize approximately $230 - $240 million of its
revolving loan facilities for seasonal 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 June 30, 2000, the Company had $304.1 million of revolving loans
outstanding, of which $178.9 million related primarily to seasonal working
capital needs and $125.2 million related to long-term financing of acquisitions.
Revolving loans not expected to be repaid within one year have been recorded as
long-term debt. The unused portion of revolving loan commitments under the
Company's credit agreements at June 30, 2000, after taking into account
outstanding letters of credit, was $229.5 million.
-20-
<PAGE>
On July 27, 2000, the Company announced that it has reached an agreement in
principle to acquire all of the outstanding stock of RXI, a manufacturer and
seller of rigid plastic packaging. The transaction is subject to negotiation and
execution of definitive documentation, completion by the Company of due
diligence, receipt of all necessary governmental and third party approvals and
other customary terms and conditions. The Company anticipates closing this
transaction prior to the end of the third quarter of 2000 and funding the
purchase price with revolving loans under its U.S. Credit Agreement.
Pursuant to the indenture relating to the Company's 13-1/4% Subordinated
Debentures (the "13-1/4% Debentures"), the Company is permitted to redeem all or
any of the 13-1/4% Debentures beginning July 15, 2000. The Company is
considering redeeming in the second half of the year all of its outstanding
13-1/4% Debentures ($56.2 million principal amount) at a redemption price of
109.938% of their principal amount in accordance with their terms, using lower
cost revolving loans from its U.S. Credit Agreement to fund this redemption.
In 1998, the Company's Board of Directors authorized the repurchase of up to
$60.0 million of its common stock. In 1999, the Company's Board of Directors
authorized the repurchase by the Company of up to an additional $10.0 million of
its common stock, for a total of $70.0 million. As of June 30, 2000, the Company
had repurchased 2,708,975 shares of its common stock for an aggregate cost of
approximately $61.0 million. The Company intends to finance future share
repurchases, if any, through revolving loan borrowings under its U.S. Credit
Agreement or through internally generated funds.
Management believes that cash generated by operations and funds from revolving
loan borrowings under the Company's credit agreements will be sufficient to meet
the Company's expected operating needs, planned capital expenditures,
investments in affiliate, debt service, rationalization costs, share repurchase
plan and tax obligations for the foreseeable future.
The Company is continually evaluating and pursuing acquisition opportunities in
the consumer goods packaging market. The Company intends to borrow additional
revolving loans under its U.S. Credit Agreement to finance any such acquisitions
and to fund any resulting increased operating needs. However, the Company may
need to incur additional new indebtedness to finance any such acquisitions and
to fund any resulting increased operating needs. Any new financing will have to
be effected in compliance with the agreements governing the Company's
indebtedness. There can be no assurance that the Company will be able to
complete any such acquisition or obtain any such new financing.
The Company is in compliance with all financial and operating covenants
contained in the instruments and agreements governing its indebtedness and
believes that it will continue to be in compliance with all such covenants
during 2000.
-21-
<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, 1999. There has not been a material change to the
Company's interest rate risk or foreign currency exchange rate risk since such
filing.
-22-
<PAGE>
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders (the "Annual Meeting"), for which
proxies were solicited pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, was held on May 23, 2000 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 2003 and until their successors are
duly elected and qualified and (2) ratifying the appointment by the Board of
Directors of the Company of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending December 31, 2000.
The nominees for director listed in the proxy statement, each of whom was
elected at the Annual Meeting, are named below, and each received the number of
votes for election as indicated below (with each share of the Company's common
stock being entitled to one vote):
Number of Shares Number of Shares
Voted For Withheld
--------- --------
Thomas M. Begel 17,435,415 57,791
Jeffrey C. Crowe 17,435,415 57,791
The directors of the Company whose term of office as a director continued after
the Annual Meeting are R. Philip Silver and Leigh J. Abramson, each of whose
term of office as a director continues until the Company's annual meeting of
stockholders in 2001, and D. Greg Horrigan and Michael M. Janson, each of whose
term of office as a director continues until the Company's annual meeting of
stockholders in 2002.
The ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 2000 was approved
at the Annual Meeting. There were 17,486,050 votes cast ratifying such
appointment, 3,000 votes cast against ratification of such appointment and 4,156
votes abstaining.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
12 Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K
None
-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: August 8, 2000 /s/Harley Rankin, Jr.
---------------------- --------------------------------------
Harley Rankin, Jr.
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
Dated: August 8, 2000 /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 six months ended
June 30, 2000 and 1999
27 Financial Data Schedule for the six
months ended June 30, 2000, submitted
to the Securities and Exchange
Commission in electronic format
-25-
<PAGE>
<TABLE>
Exhibit 12
SILGAN HOLDINGS INC.
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Income before income taxes and equity in losses
of affiliate ......................................................... $13,737 $18,841 $22,411 $28,052
Add:
Interest expense and debt amortization ......................... 21,616 21,406 42,597 42,300
Rental expense representative of interest factor ............... 302 247 592 502
------- ------- ------- -------
Earnings, as adjusted .......................................... $35,655 $40,494 $65,600 $70,854
======= ======= ======= =======
Fixed charges:
Interest expense and debt amortization ......................... $21,616 $21,406 $42,597 $42,300
Rental expense representative of interest factor ............... 302 247 592 502
------- ------- ------- -------
Total fixed charges ............................................ $21,918 $21,653 $43,189 $42,802
======= ======= ======= =======
Ratio of earnings to fixed charges ..................................... 1.63 1.87 1.52 1.66
</TABLE>
