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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, 2002
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 July 31, 2002, the number of shares outstanding of the registrant's common
stock, $0.01 par value, was 18,221,042.
SILGAN HOLDINGS INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information 3
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets at 3
June 30, 2002 and 2001 and December 31, 2001
Condensed Consolidated Statements of Income for the 4
three months ended June 30, 2002 and 2001
Condensed Consolidated Statements of Income for the 5
six months ended June 30, 2002 and 2001
Condensed Consolidated Statements of Cash Flows 6
for the six months ended June 30, 2002 and 2001
Condensed Consolidated Statements of Stockholders' 7
Equity (Deficiency) for the six months ended
June 30, 2001 and 2002
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 20
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market 29
Risk
Part II. Other Information 29
Item 4. Submission of Matters to a Vote of Security Holders 29
Item 6. Exhibits and Reports on Form 8-K 30
Signatures 31
Exhibit Index 32
-2-
Part I. Financial Information
Item 1. Financial Statements
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited, see Note 1)
June 30, June 30, Dec. 31,
2002 2001 2001
---- ---- ----
Assets
Current assets
Cash and cash equivalents ........................ $ 13,277 $ 49,220 $ 18,009
Trade accounts receivable, net ................... 191,403 200,775 144,903
Inventories ...................................... 385,004 372,758 262,627
Prepaid expenses and other current assets ........ 12,699 17,639 12,053
---------- ---------- ----------
Total current assets ......................... 602,383 640,392 437,592
Property, plant and equipment, net .................... 683,496 710,580 677,542
Goodwill, net ......................................... 141,589 151,920 141,465
Other assets .......................................... 68,624 37,464 55,221
---------- ---------- ----------
$1,496,092 $1,540,356 $1,311,820
========== ========== ==========
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities
Bank revolving loans ............................. $ 157,700 $ 173,065 $ --
Current portion of long-term debt ................ 1,765 41,970 57,999
Trade accounts payable ........................... 146,011 144,112 173,851
Accrued payroll and related costs ................ 58,418 53,276 59,215
Accrued interest payable ......................... 4,959 5,444 5,022
Accrued liabilities .............................. 31,286 49,212 21,631
---------- ---------- ----------
Total current liabilities .................... 400,139 467,079 317,718
Long-term debt ........................................ 958,333 986,072 886,770
Other liabilities ..................................... 92,294 101,323 92,184
Stockholders' equity (deficiency)
Common stock ..................................... 209 205 205
Paid-in capital .................................. 124,174 117,400 118,319
Retained earnings (accumulated deficit) .......... (13,519) (67,030) (34,937)
Accumulated other comprehensive income (loss) .... (5,145) (4,300) (8,046)
Treasury stock ................................... (60,393) (60,393) (60,393)
---------- ---------- ----------
Total stockholders' equity (deficiency) ...... 45,326 (14,118) 15,148
---------- ---------- ----------
$1,496,092 $1,540,356 $1,311,820
========== ========== ==========
See accompanying notes.
-3-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended June 30, 2002 and 2001
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
2002 2001
---- ----
Net sales .............................................. $456,249 $445,417
Cost of goods sold ..................................... 398,822 388,225
-------- --------
Gross profit ...................................... 57,427 57,192
Selling, general and administrative expenses ........... 19,534 19,257
-------- --------
Income from operations ............................ 37,893 37,935
Interest and other debt expense ........................ 18,390 21,248
-------- --------
Income before income taxes, equity in losses
of affiliates and extraordinary item ............ 19,503 16,687
Provision for income taxes ............................. 7,610 6,704
-------- --------
Income before equity in losses of affiliates
and extraordinary item .......................... 11,893 9,983
Equity in losses of affiliates, net of income taxes .... 1,219 2,536
-------- --------
Income before extraordinary item .................. 10,674 7,447
Extraordinary item - loss on early extinguishment
of debt, net of income taxes ...................... 599 --
-------- --------
Net income ........................................ $ 10,075 $ 7,447
======== ========
Basic earnings per share:
Income before extraordinary item .................. $ 0.59 $0.42
Extraordinary item ................................ (0.03) --
------ -----
Basic net income per share ........................ $ 0.56 $0.42
====== =====
Diluted earnings per share:
Income before extraordinary item .................. $ 0.58 $0.41
Extraordinary item ................................ (0.03) --
------ -----
Diluted net income per share ...................... $ 0.55 $0.41
====== =====
Weighted average number of shares:
Basic ............................................. 18,144 17,742
Assumed exercise of employee stock options ........ 311 288
------ ------
Diluted ........................................... 18,455 18,030
====== ======
See accompanying notes.
-4-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the six months ended June 30, 2002 and 2001
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
2002 2001
---- ----
Net sales .............................................. $880,505 $888,931
Cost of goods sold ..................................... 770,591 780,809
-------- --------
Gross profit ...................................... 109,914 108,122
Selling, general and administrative expenses ........... 38,276 37,989
Rationalization (credit) charge ........................ (2,259) 3,490
-------- --------
Income from operations ............................ 73,897 66,643
Interest and other debt expense ........................ 34,886 44,116
-------- --------
Income before income taxes, equity in losses
of affiliates and extraordinary item ............ 39,011 22,527
Provision for income taxes ............................. 15,218 9,051
-------- --------
Income before equity in losses of affiliates
and extraordinary item .......................... 23,793 13,476
Equity in losses of affiliates, net of income taxes .... 1,776 3,804
-------- --------
Income before extraordinary item .................. 22,017 9,672
Extraordinary item - loss on early extinguishment
of debt, net of income taxes ...................... 599 --
-------- --------
Net income ........................................ $ 21,418 $ 9,672
======== ========
Basic earnings per share:
Income before extraordinary item .................. $ 1.22 $0.55
Extraordinary item ................................ (0.03) --
------ -----
Basic net income per share ........................ $ 1.19 $0.55
====== =====
Diluted earnings per share:
Income before extraordinary item .................. $ 1.20 $0.54
Extraordinary item ................................ (0.03) --
------ -----
Diluted net income per share ...................... $ 1.17 $0.54
====== =====
Weighted average number of shares:
Basic ............................................. 18,041 17,723
Assumed exercise of employee stock options ........ 324 284
------ ------
Diluted ........................................... 18,365 18,007
====== ======
See accompanying notes.
-5-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2002 and 2001
(Dollars in thousands)
(Unaudited)
2002 2001
---- ----
Cash flows provided by (used in) operating activities
Net income .............................................. $ 21,418 $ 9,672
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation ........................................ 46,388 44,676
Amortization ........................................ 1,203 3,742
Rationalization (credit) charge ..................... (2,259) 3,490
Equity in losses of affiliates ...................... 2,911 3,804
Extraordinary item .................................. 983 --
Other changes that provided (used) cash:
Trade accounts receivable, net ................. (46,500) (32,468)
Inventories .................................... (122,377) (93,021)
Trade accounts payable ......................... (27,840) (64,032)
Other, net ..................................... 13,912 220
--------- ---------
Net cash used in operating activities ............... (112,161) (123,917)
--------- ---------
Cash flows provided by (used in) investing activities
Investment in equity affiliate .......................... -- (3,039)
Proceeds from joint venture ............................. -- 32,388
Capital expenditures, net ............................... (48,738) (46,416)
--------- ---------
Net cash used in investing activities ............... (48,738) (17,067)
--------- ---------
Cash flows provided by (used in) financing activities
Borrowings under revolving loans ........................ 577,130 473,524
Repayments under revolving loans ........................ (752,455) (300,459)
Proceeds from issuance of long-term debt ................ 656,000 --
Proceeds from stock option exercises .................... 4,131 311
Debt issuance costs ..................................... (21,090) --
Repayments of long-term debt ............................ (307,549) (3,245)
--------- ---------
Net cash provided by financing activities ........... 156,167 170,131
--------- ---------
Cash and cash equivalents
Net (decrease) increase ................................. (4,732) 29,147
Balance at beginning of year ............................ 18,009 20,073
--------- ---------
Balance at end of period ................................ $ 13,277 $ 49,220
========= =========
Interest paid ................................................ $ 27,577 $ 47,519
Income taxes paid, net of refunds ............................ 3,146 1,112
See accompanying notes.
-6-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIENCY)
For the six months ended June 30, 2001 and 2002
(Dollars and shares in thousands)
(Unaudited)
Common Stock Retained Accumulated Total
------------ earnings other stockholders'
Par Paid-in (accumulated comprehensive Treasury equity
Shares value capital deficit) income (loss) stock (deficiency)
------ ----- ------- ------- ------------- ----- ----------
Balance at December 31, 2000 ............... 17,703 $204 $118,099 $(76,702) $(1,588) $(60,393) $(20,380)
Comprehensive income:
Net income ........................... -- -- -- 9,672 -- -- 9,672
Change in fair value of derivatives,
net of tax benefit of $1,733 ...... -- -- -- -- (2,579) -- (2,579)
Foreign currency translation ......... -- -- -- -- (133) -- (133)
--------
Comprehensive income 6,960
Dilution of investment in equity
affiliate ................................ -- -- (1,402) -- -- -- (1,402)
Stock option exercises, including
tax benefit of $393 ..................... 88 1 703 -- -- -- 704
------ ---- -------- -------- ------- -------- --------
Balance at June 30, 2001 ................... 17,791 $205 $117,400 $(67,030) $(4,300) $(60,393) $(14,118)
====== ==== ======== ======== ======= ======== ========
Balance at December 31, 2001 ............... 17,854 $205 $118,319 $(34,937) $(8,046) $(60,393) $ 15,148
Comprehensive income:
Net income ........................... -- -- -- 21,418 -- -- 21,418
Minimum pension liability ............ -- -- -- -- (115) -- (115)
Change in fair value of derivatives,
net of tax provision of $1,249 .... -- -- -- -- 1,855 -- 1,855
Foreign currency translation ......... -- -- -- -- 1,161 -- 1,161
--------
Comprehensive income 24,319
Stock option exercises, including
tax benefit of $1,728 ................... 367 4 5,855 -- -- -- 5,859
------ ---- -------- -------- ------- -------- --------
Balance at June 30, 2002 ................... 18,221 $209 $124,174 $(13,519) $(5,145) $(60,393) $ 45,326
====== ==== ======== ======== ======= ======== ========
See accompanying notes.
-7-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2002 and 2001 and for the
three and six months then ended is unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Silgan
Holdings Inc. have been prepared in accordance with accounting principles
generally accepted in the United States 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 accounting principles generally accepted in the United States 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, 2001 has been derived
from our audited financial statements at that date, but does not include all of
the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
You should read the accompanying financial statements in conjunction with our
consolidated financial statements and notes thereto included in our Annual
Report on Form 10-K for the year ended December 31, 2001.
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
Note 2. Recently Issued Accounting Pronouncements
Business Combinations and Goodwill and Other Intangible Assets
- --------------------------------------------------------------
Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards, or SFAS, No. 141, "Business Combinations," and SFAS No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 141 revises the accounting
treatment for business combinations to require the use of purchase accounting
and prohibit the use of the pooling-of-interests method for business
combinations initiated after June 30, 2001. SFAS No. 142 revises the accounting
for goodwill to eliminate amortization of goodwill on transactions consummated
after June 30, 2001 and of all other goodwill as of January 1, 2002. Other
intangible assets will continue to be amortized over their useful lives. SFAS
No. 142 also requires goodwill and other intangibles to be assessed for
impairment each year and more frequently if circumstances indicate a possible
impairment. SFAS No. 142 requires that an initial transitional impairment test
be performed within six months of the date of adoption. During the second
quarter of 2002, we completed the initial impairment test as of January 1, 2002,
and no impairment was noted.
-8-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2002 and 2001 and for the
three and six months then ended is unaudited)
Note 2. Recently Issued Accounting Pronouncements (continued)
The impact of prior period goodwill amortization on reported net income and
earnings per share was as follows:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
(Dollars in thousands, except per share amounts)
Net income
As reported ............................. $10,075 $7,447 $21,418 $ 9,672
Add back of goodwill amortization,
net of income taxes .................. -- 751 -- 1,516
------- ------ ------- -------
Adjusted net income ..................... $10,075 $8,198 $21,418 $11,188
======= ====== ======= =======
Basic earnings per share
As reported ............................. $0.56 $0.42 $1.19 $0.55
Add back of goodwill amortization,
net of income taxes ................... -- 0.04 -- 0.08
----- ----- ----- -----
Adjusted basic earnings per share ....... $0.56 $0.46 $1.19 $0.63
===== ===== ===== =====
Diluted earnings per share
As reported ............................. $0.55 $0.41 $1.17 $0.54
Add back of goodwill amortization,
net of income taxes ................... -- 0.04 -- 0.08
----- ----- ----- -----
Adjusted diluted earnings per share ..... $0.55 $0.45 $1.17 $0.62
===== ===== ===== =====
Impairment and Disposal of Long-Lived Assets and Discontinued Operations
- ------------------------------------------------------------------------
Effective January 1, 2002, we adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," and the accounting and reporting provisions of
Accounting Principles Board, or APB, No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
No. 144 provides updated guidance concerning the recognition and measurement of
an impairment loss for certain types of long-lived assets and expands the scope
of a discontinued operation to include a component of an entity. The adoption of
SFAS No. 144 on January 1, 2002 did not impact our financial position or results
of operations.
-9-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2002 and 2001 and for the
three and six months then ended is unaudited)
Note 2. Recently Issued Accounting Pronouncements (continued)
Extinguishment of Debt and Various Technical Corrections
- --------------------------------------------------------
In April 2002, the Financial Accounting Standards Board, or FASB, issued SFAS
No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections." SFAS No. 145 rescinds SFAS No. 4,
"Reporting Gains and Losses from Extinguishment of Debt," and SFAS No. 64,
"Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements." SFAS No. 145
also rescinds SFAS No. 44 and amends SFAS No. 13 and other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. In
accordance with SFAS No. 145, certain gains or losses on extinguishment of debt
that were classified as extraordinary items in prior periods are required to be
reclassified. The provisions of SFAS No. 145 related to the rescission of SFAS
No. 4 and SFAS No. 64 are effective for us on January 1, 2003, and all other
provisions are effective for transactions occurring after May 15, 2002. We are
currently evaluating the impact of this standard.
Costs Associated With Exit or Disposal Activities
- -------------------------------------------------
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force, or EITF, Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires
the recognition of a liability for a cost associated with an exit or disposal
activity when the liability is incurred. Under EITF Issue No. 94-3, a liability
for an exit cost was recognized at the date an entity committed to an exit plan.
The provisions of SFAS No. 146 are effective for exit or disposal activities
that are initiated after December 31, 2002.
-10-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2002 and 2001 and for the
three and six months then ended is unaudited)
Note 3. Rationalization (Credit) Charges and Acquisition Reserves
During the first quarter of 2002, certain assets of our metal food container
business with carrying values that were previously written down were placed back
in service. As a result, we recorded a $2.3 million rationalization credit in
our Condensed Consolidated Statements of Income, and recorded those assets in
our Condensed Consolidated Balance Sheets at their depreciated cost, which
approximated fair value. During the first quarter of 2001, we recorded a
rationalization charge of $3.5 million relating to closing our Fairfield, Ohio
plastic container manufacturing facility. This charge consisted of $2.6 million
for plant exit costs and $0.9 million for employee severance and benefits.
As part of our plans to integrate the operations of our various acquired
businesses, including the Food Metal and Specialty business of American National
Can Company, or AN Can, and to rationalize certain facilities, we have
established reserves for employee severance and benefits, plant exit costs and
acquisition liabilities. Except for certain contractual obligations, these costs
are expected to be incurred primarily through 2002. Activity in our
rationalization and acquisition reserves since December 31, 2001 is summarized
as follows:
Employee Plant
Severance Exit Acquisition
and Benefits Costs Liabilities Total
------------ ----- ----------- -----
(Dollars in thousands)
Balance at December 31, 2001
- ----------------------------
AN Can Acquisition .................................................. $1,491 $1,977 $2,000 $ 5,468
San Leandro and City of Industry Plant Rationalizations ............. -- 197 -- 197
Fairfield Plant Rationalization ..................................... 237 1,867 -- 2,104
Northtown, Kingsburg and Waukegan Plant Rationalizations ............ 1,333 1,399 -- 2,732
------ ------ ------ -------
Balance at December 31, 2001 ........................................ 3,061 5,440 2,000 10,501
Activity for the Six Months Ended June 30, 2002
- -----------------------------------------------
AN Can Acquisition .................................................. (440) (433) -- (873)
San Leandro and City of Industry Plant Rationalizations ............. -- (52) -- (52)
Fairfield Plant Rationalization ..................................... -- (144) -- (144)
Northtown, Kingsburg and Waukegan Plant Rationalizations ............ (412) (807) -- (1,219)
------ ------ ------ -------
Total Activity ...................................................... (852) (1,436) -- (2,288)
Balance at June 30, 2002
- ------------------------
AN Can Acquisition .................................................. 1,051 1,544 2,000 4,595
San Leandro and City of Industry Plant Rationalizations ............. -- 145 -- 145
Fairfield Plant Rationalization ..................................... 237 1,723 -- 1,960
Northtown, Kingsburg and Waukegan Plant Rationalizations ............ 921 592 -- 1,513
------ ------ ------ -------
Balance at June 30, 2002 ............................................ $2,209 $4,004 $2,000 $ 8,213
====== ====== ====== =======
-11-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2002 and 2001 and for the
three and six months then ended is unaudited)
Note 3. Rationalization (Credit) Charges and Acquisition Reserves (continued)
During the first six months of 2001, we utilized $2.7 million of rationalization
and acquisition reserves which was comprised of $1.3 million for employee
severance and benefits, $1.0 million for plant exit costs and $0.4 million for
acquisition liabilities.
Rationalization and acquisition reserves are included in the Condensed
Consolidated Balance Sheets as follows:
June 30, June 30, Dec. 31,
2002 2001 2001
---- ---- ----
(Dollars in thousands)
Accrued liabilities ............... $6,204 $ 8,226 $ 8,492
Other liabilities ................. 2,009 4,713 2,009
------ ------- -------
$8,213 $12,939 $10,501
====== ======= =======
Note 4. Comprehensive Income (Loss)
Comprehensive income (loss) is reported in the Condensed Consolidated Statements
of Stockholders' Equity (Deficiency). Amounts included in accumulated other
comprehensive income (loss) consisted of the following:
June 30, June 30, Dec. 31,
2002 2001 2001
---- ---- ----
(Dollars in thousands)
Foreign currency translation ............ $ (755) $ (824) $(1,916)
Change in fair value of derivatives ..... (1,412) (2,579) (3,267)
Minimum pension liability ............... (2,978) (897) (2,863)
------- ------- -------
Accumulated other comprehensive
income (loss) ...................... $(5,145) $(4,300) $(8,046)
======= ======= =======
-12-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2002 and 2001 and for the
three and six months then ended is unaudited)
Note 5. Inventories
Inventories consisted of the following:
June 30, June 30, Dec. 31,
2002 2001 2001
---- ---- ----
(Dollars in thousands)
Raw materials ........................ $ 36,022 $ 35,662 $ 29,602
Work-in-process ...................... 54,475 57,187 45,510
Finished goods ....................... 275,380 260,880 168,362
Spare parts and other ................ 11,863 12,431 12,128
-------- -------- --------
377,740 366,160 255,602
Adjustment to value inventory
at cost on the LIFO method ........ 7,264 6,598 7,025
-------- -------- --------
$385,004 $372,758 $262,627
======== ======== ========
Note 6. Investment in Affiliate
Effective July 1, 2001, we formed a joint venture company with Schmalbach-Lubeca
AG (whose interest in the joint venture was recently purchased by Amcor, Ltd.)
that supplies an extensive range of metal and plastic closures to the food and
beverage industries in North America. The joint venture operates under the name
Amcor White Cap LLC, or White Cap. We contributed certain metal closure assets
and liabilities, including our manufacturing facilities in Evansville and
Richmond, Indiana, in return for a 35 percent interest in and $32.4 million of
cash proceeds from the joint venture.
We account for our investment in White Cap using the equity method. During the
second quarter of 2002, we recorded equity in losses of White Cap of $1.2
million, net of income taxes. For the six months ended June 30, 2002, we
recorded equity in losses of White Cap of $1.8 million, net of income taxes.
These results included $2.0 million, net of income taxes, for our portion of
White Cap's second quarter rationalization charge to close a metal closure
manufacturing facility and $0.7 million, net of income taxes, for our portion of
White Cap's gain on the sale of certain assets at a price in excess of book
value.
-13-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2002 and 2001 and for the
three and six months then ended is unaudited)
Note 7. Long-Term Debt
Long-term debt consisted of the following:
June 30, June 30, Dec. 31,
2002 2001 2001
---- ---- ----
(Dollars in thousands)
Bank debt
Bank Revolving Loans ............... $ 157,700 $ 542,000 $333,025
Bank A Term Loans .................. 100,000 159,218 119,413
Bank B Term Loans .................. 350,000 188,542 186,588
Canadian Bank Facility ............. 1,187 8,120 2,639
---------- ---------- --------
Total bank debt ................. 608,887 897,880 641,665
Subordinated debt
9% Senior Subordinated Debentures .. 505,896 300,000 300,000
Other .............................. 3,015 3,227 3,104
---------- ---------- --------
Total subordinated debt ......... 508,911 303,227 303,104
Total debt .............................. 1,117,798 1,201,107 944,769
Less current portion ............... 159,465 215,035 57,999
---------- ---------- --------
$ 958,333 $ 986,072 $886,770
========== ========== ========
9% Debentures
- -------------
On April 29, 2002, we issued an additional $200 million aggregate principal
amount of our 9% Senior Subordinated Debentures due 2009, or the 9% Debentures,
in a private placement. The newly issued 9% Debentures were an add-on issuance
under the Indenture for our existing 9% Debentures originally issued in June
1997. The terms of the newly issued 9% Debentures are identical to the existing
9% Debentures issued in June 1997 except that the newly issued 9% Debentures are
subject to certain transfer restrictions until we complete a registered exchange
offer.
The issue price for the new 9% Debentures was 103 percent of their principal
amount. Net cash proceeds received from this issuance were approximately $202
million, after deducting selling commissions and offering expenses payable by
us. The net proceeds from this issuance were used to repay a portion of our
revolving loan obligations under our previous U.S. senior secured credit
facility, or the U.S. Credit Agreement.
-14-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2002 and 2001 and for the
three and six months then ended is unaudited)
Note 7. Long-Term Debt (continued)
Bank Credit Agreement
- ---------------------
On June 28, 2002, we completed the refinancing of our U.S. Credit Agreement by
entering into a new $850 million senior secured credit facility, or the New
Credit Agreement. Our New Credit Agreement provides us with $100 million of A
term loans, $350 million of B term loans and up to $400 million of revolving
loans. Pursuant to the New Credit Agreement, we also have a $275 million
incremental uncommitted term loan facility.
Revolving loans may be used for working capital needs and other general
corporate purposes, including acquisitions. Revolving loans may be borrowed,
repaid and reborrowed over the life of the New Credit Agreement until their
final maturity. We are required to maintain, for at least one period of 30
consecutive days during each calendar year, total average unutilized revolving
loan commitments of at least $90 million. The A term loans and revolving loans
mature on June 28, 2008 and the B term loans mature on November 30, 2008.
Principal on the A term loans and B term loans is required to be repaid in
scheduled annual installments during each of the years set forth below and
amounts repaid may not be reborrowed (in thousands):
Year A Term Loans B Term Loans
---- ------------ ------------
2002 $ -- $ 1,750
2003 16,670 3,500
2004 16,670 3,500
2005 16,670 3,500
2006 16,670 3,500
2007 16,670 3,500
2008 16,650 330,750
-------- --------
$100,000 $350,000
======== ========
The New Credit Agreement requires us to prepay term loans with proceeds received
from the incurrence of indebtedness, except proceeds used to refinance other
existing indebtedness; with proceeds received from certain assets sales; and,
under certain circumstances, with 50 percent of our excess cash flow. Generally,
prepayments are allocated pro rata to the A term loans and B term loans and
applied first to the scheduled amortization payments in the year of such
prepayments and, to the extent in excess thereof, pro rata to the remaining
installments of term loans.
The incremental uncommitted term loan facility provides, among other things,
that any incremental term loan borrowing shall be denominated in a single
currency, either U.S. dollars or certain foreign currencies; have a maturity
date no earlier than the maturity date for the B term loans; and be used to
finance permitted acquisitions, refinance any indebtedness assumed as part of
such permitted acquisition, to refinance or repurchase subordinated debt and to
repay outstanding revolving loans.
-15-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2002 and 2001 and for the
three and six months then ended is unaudited)
Note 7. Long-Term Debt (continued)
Bank Credit Agreement (continued)
- ---------------------
Borrowings under the New Credit Agreement may be designated as base rate or
Eurodollar rate borrowings. The base rate is the higher of the prime lending
rate of Deutsche Bank Trust Company Americas or 1/2 of one percent in excess of
the overnight federal funds rate. Initially, the interest rate for all loans
under the New Credit Agreement is the base rate plus a margin of one percent or
the Eurodollar rate plus a margin of two percent. After December 31, 2002, the
interest rate margin on base rate and Eurodollar rate borrowings will be reset
quarterly based upon our Total Leverage Ratio, as defined in the New Credit
Agreement.
The New Credit Agreement provides for the payment of a commitment fee ranging
from 0.25 percent to 0.50 percent per annum on the daily average unused portion
of commitments available under the revolving credit facility. Initially, the
commitment fee will be 0.50 percent per annum. After December 31, 2002, the
margin will be reset quarterly based on our Total Leverage Ratio.
We may utilize up to a maximum of $50 million of our revolving credit facility
under the New Credit Agreement for letters of credit as long as the aggregate
amount of borrowings of revolving loans and letters of credit do not exceed the
amount of the commitment under such revolving credit facility. The New Credit
Agreement provides for payment to the applicable lenders of a letter of credit
fee equal to the applicable margin in effect for revolving loans maintained as
Eurodollar rate loans and to the issuers of letters of credit of a facing fee of
1/4 of one percent per annum, calculated on the aggregate stated amount of all
letters of credit.
The indebtedness under the New Credit Agreement is guaranteed by us and certain
of our U.S. subsidiaries and is secured by a security interest in substantially
all of our real and personal property. The stock of certain of our U.S.
subsidiaries has also been pledged as security to the lenders under the New
Credit Agreement. The New Credit Agreement contains certain financial and
operating covenants which limit, among other things, our ability and the ability
of our subsidiaries to grant liens, sell assets and use the proceeds from
certain asset sales, make certain payments (including dividends) on our capital
stock, incur indebtedness or provide guarantees, make loans or investments,
enter into transactions with affiliates, make certain capital expenditures,
engage in any business other than the packaging business, and, with respect to
our subsidiaries, issue stock. In addition, we are required to meet specified
financial covenants including Interest Coverage and Total Leverage Ratios, each
as defined in the New Credit Agreement. We are currently in compliance with all
covenants under the New Credit Agreement.
-16-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2002 and 2001 and for the
three and six months then ended is unaudited)
Note 7. Long-Term Debt (continued)
Bank Credit Agreement (continued)
- ---------------------
At June 30, 2002, there were $157.7 million of revolving loans outstanding under
the New Credit Agreement related primarily to seasonal working capital needs. We
currently expect to repay $157.7 million of revolving loans and $1.8 million of
term loans within one year.
As a result of this refinancing, we recorded an extraordinary charge of $0.6
million, net of income taxes, or $0.03 per diluted share, in the second quarter
of 2002 for the write-off of unamortized financing costs related to the U.S.
Credit Agreement.
Interest Rate Swap Agreement
- ----------------------------
In August 2002, we entered into an interest rate swap agreement for a notional
principal amount of $100 million. Under this agreement, we will pay a fixed rate
of interest of 2.525 percent and receive a floating rate of interest based on
three month LIBOR. The agreement is effective starting in January of 2003 and
matures in July of 2004.
Note 8. Business Segment Information
Historically, we reported the results of our specialty packaging business as a
separate business segment, which included our metal closures, Omni plastic
container, Polystar easy-open plastic end and paperboard container businesses.
As a result of the White Cap joint venture on July 1, 2001, we no longer report
the results of our remaining specialty packaging businesses as a separate
business segment. The results of the Omni plastic container and Polystar
easy-open plastic end businesses are reported with our plastic container
business, and the results of the paperboard container business are reported with
our metal food container business. The results of our metal closures business,
which was contributed to the White Cap joint venture, are reported separately.
Prior year amounts have been restated to conform with the current presentation.
-17-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2002 and 2001 and for the
three and six months then ended is unaudited)
Note 8. Business Segment Information (continued)
Reportable business segment information for our business segments is as follows:
Metal Food Plastic Metal
Containers(1) Containers(2) Closures Corporate Total
---------- ---------- -------- --------- -----
(Dollars in thousands)
Three Months Ended June 30, 2002
- --------------------------------
Net sales .................................... $327,600 $128,649 $ -- $ -- $456,249
EBITDA(3) .................................... 37,468 26,025 -- (1,389) 62,104
Depreciation and amortization(4) ............. 14,983 9,210 -- 18 24,211
Segment profit (loss) ........................ 22,485 16,815 -- (1,407) 37,893
Three Months Ended June 30, 2001
- --------------------------------
Net sales .................................... $289,985 $131,333 $24,099 $ -- $445,417
EBITDA (3) ................................... 35,663 23,973 3,662 (1,150) 62,148
Depreciation and amortization(4) ............. 13,565 9,311 1,310 27 24,213
Segment profit (loss) ........................ 22,098 14,662 2,352 (1,177) 37,935
Six Months Ended June 30, 2002
- ------------------------------
Net sales .................................... $626,958 $253,547 $ -- $ -- $880,505
EBITDA(3) .................................... 71,438 49,624 -- (2,658) 118,404
Depreciation and amortization(4) ............. 28,758 17,975 -- 33 46,766
Segment profit (loss) ........................ 42,680 31,649 -- (2,691) 71,638
Six Months Ended June 30, 2001
- ------------------------------
Net sales .................................... $583,463 $259,218 $46,250 $ -- $888,931
EBITDA(3) .................................... 65,882 48,115 5,743 (2,020) 117,720
Depreciation and amortization(4) ............. 26,654 18,405 2,475 53 47,587
Segment profit (loss) ........................ 39,228 29,710 3,268 (2,073) 70,133
(1) Excludes a rationalization credit of $2.3 million for the six months
ended June 30, 2002 primarily relating to certain assets previously
written down that were placed back in service.
(2) Excludes a rationalization charge of $3.5 million for the six months
ended June 30, 2001 relating to the closing of a manufacturing
facility.
-18-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2002 and 2001 and for the
three and six months then ended is unaudited)
Note 8. Business Segment Information (continued)
(3) EBITDA means earnings before extraordinary items, equity in losses of
affiliates, interest, income taxes, depreciation and amortization, as
adjusted to add back rationalization charges and subtract
rationalization credits. We believe EBITDA provides important
information in enabling us to assess our ability to service and incur
debt. EBITDA is not intended to be a measure of profitability in
isolation or as a substitute for net income or other operating income
or cash flow data prepared in accordance with accounting principles
generally accepted in the United States.
(4) Depreciation and amortization excludes debt cost amortization of $0.4
million for each of the three months ended June 30, 2002 and 2001,
respectively, and $0.8 million for each of the six months ended June
30, 2002 and June 30, 2001, respectively. For the three months ended
June 30, 2001, depreciation and amortization includes goodwill
amortization of $0.6 million for the metal food container business and
$0.7 million for the plastic container business. For the six months
ended June 30, 2001, depreciation and amortization includes goodwill
amortization of $1.2 million for the metal food container business and
$1.3 million for the plastic container business.
Total segment profit is reconciled to income before income taxes, equity in
losses of affiliates and extraordinary item as follows:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
(Dollars in thousands)
Total segment profit .............................. $37,893 $37,935 $71,638 $70,133
Rationalization (credit) charge ................... -- -- (2,259) 3,490
Interest and other debt expense ................... 18,390 21,248 34,886 44,116
------- ------- ------- -------
Income before income taxes, equity in losses
of affiliates and extraordinary item ........... $19,503 $16,687 $39,011 $22,527
======= ======= ======= =======
-19-
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 us and therefore involve a number of uncertainties and
risks, including, but not limited to, those described in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2001 and our other filings with
the Securities and Exchange Commission. As a result, the actual results of our
operations or our financial condition could differ materially from those
expressed or implied in these forward-looking statements.
RESULTS OF OPERATIONS
Certain unaudited income statement data expressed as a percentage of net sales
for the three and six months ended June 30, 2002 and 2001 are provided below.
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
Net sales
Metal food containers.................................. 71.8% 65.1% 71.2% 65.6%
Plastic containers..................................... 28.2 29.5 28.8 29.2
Metal closures......................................... -- 5.4 -- 5.2
----- ----- ----- -----
Consolidated........................................ 100.0 100.0 100.0 100.0
Cost of goods sold....................................... 87.4 87.2 87.5 87.8
----- ----- ----- -----
Gross profit............................................. 12.6 12.8 12.5 12.2
Selling, general and administrative expenses............. 4.3 4.3 4.4 4.3
Rationalization (credit) charge.......................... -- -- (0.3) 0.4
----- ----- ----- -----
Income from operations................................... 8.3 8.5 8.4 7.5
Interest and other debt expense.......................... 4.0 4.8 4.0 5.0
----- ----- ----- -----
Income before income taxes, equity in losses
of affiliates and extraordinary item................... 4.3 3.7 4.4 2.5
Provision for income taxes............................... 1.7 1.5 1.7 1.0
----- ----- ----- -----
Income before equity in losses of affiliates and
extraordinary item..................................... 2.6 2.2 2.7 1.5
Equity in losses of affiliates, net of income taxes...... 0.3 0.6 0.2 0.4
----- ----- ----- -----
Income before extraordinary item......................... 2.3 1.6 2.5 1.1
Extraordinary item - loss on early extinguishment
of debt, net of income taxes........................... 0.1 -- 0.1 --
----- ----- ----- -----
Net income............................................... 2.2% 1.6% 2.4% 1.1%
===== ===== ===== =====
-20-
Summary unaudited results of operations for the three and six months ended June
30, 2002 and 2001 are provided below.
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
(Dollars in millions)
Net sales
Metal food containers .......... $327.6 $290.0 $627.0 $583.5
Plastic containers ............. 128.6 131.3 253.5 259.2
Metal closures ................. -- 24.1 -- 46.2
------ ------ ------ ------
Consolidated ................ $456.2 $445.4 $880.5 $888.9
====== ====== ====== ======
Operating profit
Metal food containers (1) ...... $ 22.5 $ 22.1 $ 45.0 $ 39.2
Plastic containers(2) .......... 16.8 14.7 31.6 26.2
Metal closures ................. -- 2.3 -- 3.3
Corporate ...................... (1.4) (1.2) (2.7) (2.1)
------ ------ ------ ------
Consolidated ................ $ 37.9 $ 37.9 $ 73.9 $ 66.6
====== ====== ====== ======
(1) Includes a rationalization credit of $2.3 million recorded in the
first quarter of 2002 primarily relating to certain assets previously
written down that were placed back in service.
(2) Includes a rationalization charge of $3.5 million recorded in the
first quarter of 2001 relating to closing a manufacturing facility.
Three Months Ended June 30, 2002 Compared with Three Months Ended June 30, 2001
Net Sales. Consolidated net sales increased $10.8 million, or 2.4 percent, to
$456.2 million for the three months ended June 30, 2002, as compared to net
sales of $445.4 million for the same three months in the prior year. This
increase was the result of higher net sales of the metal food container
business, partially offset by the impact of contributing the metal closure
business to the White Cap joint venture and lower net sales of the plastic
container business. Excluding second quarter 2001 net sales of $24.1 million of
the metal closure business, net sales for the second quarter of 2002 increased
$34.9 million, or 8.3 percent, as compared to the same period in the prior year.
Net sales for the metal food container business were $327.6 million for the
three months ended June 30, 2002, an increase of $37.6 million, or 13.0 percent,
from net sales of $290.0 million for the same period in 2001. This increase was
primarily attributable to higher unit volume, partially offset by a less
favorable sales mix.
Net sales for the plastic container business of $128.6 million for the three
months ended June 30, 2002 decreased $2.7 million, or 2.1 percent, from net
sales of $131.3 million for the same period in 2001. This decrease was primarily
a result of lower average sales prices due to the pass through of lower resin
costs, partially offset by higher unit volume.
-21-
Cost of Goods Sold. Cost of goods sold was 87.4 percent of consolidated net
sales for the three months ended June 30, 2002, an increase of 0.2 percentage
points as compared to 87.2 percent for the same period in 2001. The decrease in
gross margin was primarily attributable to the metal food container business,
which was impacted by a less favorable sales mix, costs incurred to absorb new
volume awarded and higher depreciation expense, partially offset by an improved
product mix and increased productivity of the plastic container business and the
elimination of goodwill amortization.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $19.5 million, or 4.3 percent of consolidated net
sales, for the three months ended June 30, 2002 as compared to $19.3 million, or
4.3 percent, for the same period in 2001. Higher selling, general and
administrative expenses in the plastic container business were largely offset by
the impact of contributing the metal closure business to the White Cap joint
venture.
Income from Operations. Income from operations for the second quarter of 2002
was $37.9 million, essentially flat as compared to the same period in 2001. This
was primarily a result of higher income from operations in the plastic container
business and the elimination of goodwill amortization, offset by the impact of
contributing the metal closure business to the White Cap joint venture.
Excluding income from operations of the metal closure business that was
contributed to the White Cap joint venture in 2001, income from operations for
the second quarter of 2002 increased by $2.3 million, or 6.5 percent, as
compared to the same period in 2001. Operating margin for the second quarter of
2002 decreased 0.2 percentage points to 8.3 percent, as compared to 8.5 percent
for the same period in 2001. This decrease in operating margin was primarily the
result of lower margins in the metal food container business, partially offset
by higher margins in the plastic container business.
Income from operations of the metal food container business in the second
quarter of 2002 increased $0.4 million, or 1.8 percent, to $22.5 million as
compared to $22.1 million for the second quarter of 2001. Operating margin
decreased 0.7 percentage points to 6.9 percent in the second quarter of 2002 as
compared to 7.6 percent for the same period in 2001. Income from operations of
the metal food container business for the second quarter of 2001 included $0.6
million of goodwill amortization. The increase in income from operations was
principally due to higher sales and the elimination of goodwill amortization,
largely offset by costs incurred to absorb new volume awarded, higher
depreciation expense and start-up costs related to the manufacture of
convenience ends.
Income from operations for the plastic container business for the three months
ended June 30, 2002 increased $2.1 million, or 14.3 percent, to $16.8 million as
compared to $14.7 million for the same period in 2001, and operating margin
increased 1.9 percentage points to 13.1 percent as compared to 11.2 percent for
the second quarter of 2001. Income from operations of the plastic container
business for the second quarter of 2001 included $0.7 million of goodwill
amortization. The increase in income from operations and operating margin was
primarily a result of improved product mix, increased productivity and the
elimination of goodwill amortization.
Interest Expense. Interest expense decreased $2.8 million to $18.4 million for
the three months ended June 30, 2002 as compared to the same period in 2001. The
decrease in interest expense was a result of lower interest rates and
approximately $100 million in lower average borrowings as compared to the same
period in 2001.
-22-
Income Taxes. The provision for income taxes for the three months ended June 30,
2002 and 2001 was recorded at an effective annual income tax rate of 39.0
percent and 40.2 percent, respectively. The decrease in the effective tax rate
was largely due to the discontinuation of goodwill amortization that was
non-deductible for income tax purposes.
Net Income and Earnings per Share. Net income for the second quarter of 2002 was
$10.1 million, or $0.55 per diluted share, as compared to net income of $7.4
million, or $0.41 per diluted share, for the second quarter of 2001. Net income
for the second quarter of 2002 included our portion of a rationalization charge
of White Cap of $2.0 million, net of tax, or $0.11 per diluted share, our
portion of a gain on the sale of assets by White Cap of $0.7 million, net of
tax, or $0.04 per diluted share, and an extraordinary charge of $0.6 million,
net of tax, or $0.03 per diluted share, for the write-off of unamortized
financing costs as a result of the refinancing of our U.S. Credit Agreement. Net
income for the second quarter of 2001 included equity in losses of Packtion
Corporation, or Packtion, a now dissolved e-commerce packaging venture, of $2.5
million, or $0.14 per diluted share.
Excluding our portion of both White Cap's rationalization charge and gain on
sale of assets and the extraordinary charge in the second quarter of 2002,
earnings for the second quarter of 2002 were $12.0 million, or $0.65 per diluted
share. Excluding equity in losses of Packtion, earnings were $10.0 million, or
$0.55 per diluted share, for the second quarter of 2001.
SFAS No. 142, "Accounting for Goodwill and Other Intangible Assets," required us
to eliminate the amortization of goodwill effective January 1, 2002. However, if
we continued to amortize goodwill during the second quarter of 2002, we would
have recorded additional expense of approximately $1.3 million, or $0.04 per
diluted share.
Six Months Ended June 30, 2002 Compared with Six Months Ended June 30, 2001
Net Sales. Consolidated net sales decreased $8.4 million, or 0.9 percent, to
$880.5 million for the six months ended June 30, 2002, as compared to net sales
of $888.9 million for the same six months in the prior year. This decrease was
the result of the impact of contributing the metal closure business to the White
Cap joint venture and lower sales of the plastic container business, partially
offset by higher sales of the metal food container business. Excluding net sales
for the first six months of 2001 of $46.2 million of the metal closure business,
net sales for the first six months of 2002 increased $37.8 million, or 4.5
percent, as compared to the same period in the prior year.
Net sales for the metal food container business were $627.0 million for the six
months ended June 30, 2002, an increase of $43.5 million, or 7.5 percent, from
net sales of $583.5 million for the same period in 2001. This increase was
primarily attributable to higher unit volume.
Net sales for the plastic container business of $253.5 million for the six
months ended June 30, 2002 decreased $5.7 million, or 2.2 percent, from net
sales of $259.2 million for the same period in 2001. This decrease was primarily
a result of lower average sales prices due to the pass through of lower resin
costs, partially offset by higher unit volume.
Cost of Goods Sold. Cost of goods sold was 87.5 percent of consolidated net
sales for the six months ended June 30, 2002, a decrease of 0.3 percentage
points as compared to 87.8 percent for the same period in 2001. The increase in
gross margin was primarily attributable to an improved product mix and increased
productivity of the plastic container business and the elimination of goodwill
amortization, partially offset by a less favorable sales mix, higher
depreciation expense and costs incurred to absorb new volume awarded in the
metal food container business.
-23-
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $38.3 million, or 4.4 percent of consolidated net
sales, for the six months ended June 30, 2002, as compared to $38.0 million, or
4.3 percent, for the same period in 2001. Higher selling, general and
administrative expenses in the plastic container business were largely offset by
the impact of contributing the metal closure business to the White Cap joint
venture and lower selling, general and administrative expenses in the metal food
container business.
Income from Operations. Excluding rationalization credits and charges in both
periods, income from operations for the first six months of 2002 increased $1.5
million, or 2.1 percent, to $71.6 million, as compared to $70.1 million in the
same period in 2001. This increase was primarily a result of higher sales and
income from operations in the metal food container business, higher income from
operations in the plastic container business and the elimination of goodwill
amortization, partially offset by the impact of contributing the metal closure
business to White Cap. Excluding rationalization credits and charges in both
periods and income from operations of the metal closure business which was
contributed to the White Cap joint venture in 2001, income from operations for
the first six months of 2002 increased by $4.8 million, or 7.2 percent, as
compared to the same period in 2001. Excluding rationalization credits and
charges, operating margin for the first six months of 2002 improved 0.2
percentage points to 8.1 percent, as compared to 7.9 percent for the same period
in 2001. This increase in operating margin was primarily the result of higher
margins in the plastic container business. Including the effects of
rationalization credits and charges, income from operations for the first six
months of 2002 increased $7.3 million, or 11.0 percent, to $73.9 million, as
compared to $66.6 million in the same period in 2001.
In the first quarter of 2002, we recorded a rationalization credit of $2.3
million primarily relating to certain assets of our metal food container
business previously written down that were placed back in service. In the first
quarter of 2001, we recorded a rationalization charge of $3.5 million relating
to closing a plastic container manufacturing facility.
Excluding the rationalization credit in 2002, income from operations of the
metal food container business in the first six months of 2002 increased $3.5
million, or 8.9 percent, to $42.7 million as compared to $39.2 million for the
first six months of 2001, and operating margin increased 0.1 percentage points
to 6.8 percent as compared to 6.7 percent for the same period in 2001. Income
from operations of the metal food container business for the first six months of
2001 included $1.2 million of goodwill amortization. The increase in income from
operations and operating margin was principally due to higher sales and the
elimination of goodwill amortization, partially offset by a less favorable sales
mix, higher depreciation expense and costs incurred to absorb new volume
awarded. Including the rationalization credit, income from operations of the
metal food container business was $45.0 million and operating margin was 7.2
percent for the six months ended June 30, 2002.
Excluding the rationalization charge in 2001, income from operations for the
plastic container business for the six months ended June 30, 2002 increased $1.9
million, or 6.4 percent, to $31.6 million as compared to $29.7 million for the
same period in 2001, and operating margin increased 1.0 percentage points to
12.5 percent as compared to 11.5 percent for the first six months of 2001.
Income from operations of the plastic container business for the first six
months of 2001 included $1.3 million of goodwill amortization. The increase in
income from operations and operating margin was primarily a result of an
improved sales mix, increased productivity and the elimination of goodwill
amortization. Including the effect of the rationalization charge, income from
operations and operating margin for the plastic container business were $26.2
million and 10.1 percent, respectively, for the six months ended June 30, 2001.
-24-
Interest Expense. Interest expense decreased $9.2 million to $34.9 million for
the six months ended June 30, 2002 as compared to the same period in 2001. The
decrease in interest expense was a result of lower interest rates and
approximately $100 million in lower average borrowings as compared to the same
period last year.
Income Taxes. The provision for income taxes for the six months ended June 30,
2002 and 2001 was recorded at an effective annual income tax rate of 39.0
percent and 40.2 percent, respectively. The decrease in the effective tax rate
was largely due to the discontinuation of goodwill amortization that was
non-deductible for income tax purposes.
Net Income and Earnings per Share. Net income for the first six months of 2002
was $21.4 million, or $1.17 per diluted share, as compared to net income of $9.7
million, or $0.54 per diluted share, for the first six months of 2001. Net
income for the first six months of 2002 included our portion of the
rationalization charge of White Cap of $2.0 million, net of tax, or $0.11 per
diluted share, and our portion of the gain on the sale of assets by White Cap of
$0.7 million, net of tax, or $0.04 per diluted share. Net income for the first
six months of 2002 also included a rationalization credit of $2.3 million, or
$0.07 per diluted share, and an extraordinary charge, net of tax, of $0.6
million, or $0.03 per diluted share. Net income for the first six months of 2001
included equity in losses of Packtion of $3.8 million, or $0.20 per diluted
share, and a rationalization charge of $3.5 million, or $0.12 per diluted share.
Excluding both our portion of the rationalization charge and the gain on the
sale of assets recorded by White Cap and the rationalization credit and
extraordinary charge in 2002, earnings for the first six months of 2002 were
$21.9 million, or $1.20 per diluted share. Excluding the rationalization charge
and equity in losses of Packtion, earnings were $15.6 million, or $0.86 per
diluted share, for the first six months of 2001.
SFAS No. 142 required us to eliminate the amortization of goodwill effective
January 1, 2002. However, if we continued to amortize goodwill during the first
six months of 2002, we would have recorded additional expense of approximately
$2.5 million, or $0.08 per diluted share.
CAPITAL RESOURCES AND LIQUIDITY
Our principal sources of liquidity have been net cash from operating activities
and borrowings under our revolving loan facilities. Our liquidity requirements
arise primarily from our obligations under the indebtedness incurred in
connection with our acquisitions and the refinancing of that indebtedness,
capital investment in new and existing equipment and the funding of our seasonal
working capital needs.
On April 29, 2002, we issued an additional $200 million aggregate principal
amount of our 9% Senior Subordinated Debentures due 2009, or the 9% Debentures,
in a private placement. The newly issued 9% Debentures were an add-on issuance
under the Indenture for our existing 9% Debentures originally issued in June
1997. The terms of the newly issued 9% Debentures are identical to the existing
9% Debentures issued in June 1997 except that the newly issued 9% Debentures are
subject to certain transfer restrictions until we complete a registered exchange
offer.
The issue price for the newly issued 9% Debentures was 103.0 percent of their
principal amount. Net cash proceeds received from this issuance were
approximately $202 million, after deducting selling commissions and offering
expenses payable by us. The net proceeds from this issuance were used to repay a
portion of our revolving loan obligations under our previous U.S. senior secured
credit facility, or the U.S. Credit Agreement.
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On June 28, 2002, we completed the refinancing of our U.S. Credit Agreement by
entering into a new $850 million senior secured credit facility, or the New
Credit Agreement. The New Credit Agreement provides us with $100 million of A
term loans, $350 million of B term loans and a revolving loan facility of up to
$400 million. Under the New Credit Agreement, we may use revolving loans for
working capital and other operating needs as well as for acquisitions and other
permitted purposes. The A term loans and revolving loan facility mature on June
28, 2008 and the B term loans mature on November 30, 2008. The New Credit
Agreement also provides us with an incremental uncommitted term loan facility of
up to an additional $275 million which may be used to finance acquisitions and
for other permitted purposes.
Under the New Credit Agreement, the interest rate for all loans will be either
the Eurodollar rate plus a margin or the prime lending rate of Deutsche Bank
Trust Company Americas plus a margin. Initially, the margin for the Eurodollar
rate loans will be two percent and the margin for prime rate loans will be one
percent. Starting in 2003, the margins are subject to adjustment quarterly based
upon financial ratios. Prior to the refinancing, the interest rate for A term
loans and revolving loans under our U.S. Credit Agreement was the Eurodollar
rate plus a margin of one percent or the prime lending rate of Deutsche Bank
Trust Company Americas, and for B term loans an additional 0.5 percent.
As a result of the refinancing of our U.S. Credit Agreement with the New Credit
Agreement and the net proceeds from the add-on issuance of our 9% Debentures, we
expect that our interest expense will increase during the second half of 2002 as
compared to the second half of 2001.
For the first six months of 2002, we used excess proceeds of $174.7 million from
the issuance of the 9% Debentures and the refinancing of the U.S. Credit
Agreement, cash balances of $4.7 million and proceeds from stock option
issuances of $4.1 million to fund cash used in operations of $112.2 million
primarily for our seasonal working capital needs, net capital expenditures of
$48.7 million, debt issuance costs of $21.1 million and other repayments of
long-term debt of $1.5 million.
For the first six months of 2001, we used net borrowings of revolving loans of
$173.1 million under the U.S. Credit Agreement, cash proceeds from White Cap of
$32.4 million and proceeds from stock option exercises of $0.3 million to fund
cash used by operations of $123.9 million primarily for our seasonal working
capital needs, net capital expenditures of $46.4 million, the repayment of $3.2
million of long-term debt and our investment in Packtion of $3.0 million and to
increase cash balances by $29.1 million.
Because we sell metal containers used in fruit and vegetable pack processing, we
have seasonal sales. As is common in the industry, we must access working
capital to build inventory and then carry accounts receivable for some customers
beyond the end of the summer and fall packing season. Seasonal accounts are
generally settled by year end. Due to our seasonal requirements, we incur
short-term indebtedness to finance our working capital requirements.
For 2002, we estimate that we will utilize approximately $190-$200 million of
revolving loans under our senior secured credit facilities for our month-end
peak seasonal working capital requirements. We may use the available portion of
our revolving loan facilities, after taking into account our seasonal needs and
outstanding letters of credit, for acquisitions and other permitted purposes.
As of June 30, 2002, we had $157.7 million of revolving loans outstanding under
the New Credit Agreement which related primarily to seasonal working capital
needs. The unused portion of revolving loan commitments under our credit
agreements at June 30, 2002, after taking into account outstanding letters of
credit, was $229.5 million.
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Our Board of Directors has authorized the repurchase of up to $70 million of our
Common Stock. As of June 30, 2002, we have repurchased 2,708,975 shares of our
Common Stock for an aggregate cost of approximately $61.0 million. We intend to
finance future repurchases, if any, of our Common Stock with revolving loan
borrowings.
During the first quarter of 2002, certain assets of our metal food container
business with carrying values that were previously written down were placed back
in service. As a result, we recorded a $2.3 million rationalization credit in
our Condensed Consolidated Statements of Income, and recorded those assets in
our Condensed Consolidated Balance Sheets at their depreciated cost, which
approximated fair value. During the first quarter of 2001, we recorded a
rationalization charge of $3.5 million relating to closing one plastic container
manufacturing facility. You should also read Note 3 to our Condensed
Consolidated Financial Statements for the three and six months ended June 30,
2002 included elsewhere in this Quarterly Report.
We believe that cash generated from operations and funds from the revolving
loans available under our senior secured credit facilities will be sufficient to
meet our expected operating needs, planned capital expenditures, debt service
and tax obligations for the foreseeable future. We are also continually
evaluating and pursuing acquisition opportunities in the consumer goods
packaging market and may incur additional indebtedness, including indebtedness
under our senior secured credit facilities, to finance any such acquisition.
We are in compliance with all financial and operating covenants contained in the
instruments and agreements governing our indebtedness and believe that we will
continue to be in compliance with all such covenants during 2002.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2002, we adopted SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 revises the
accounting treatment for business combinations to require the use of purchase
accounting and prohibit the use of the pooling-of-interests method for business
combinations initiated after June 30, 2001. SFAS No. 142 revises the accounting
for goodwill to eliminate amortization of goodwill on transactions consummated
after June 30, 2001 and of all other goodwill as of January 1, 2002. Other
intangible assets will continue to be amortized over their useful lives. SFAS
No. 142 also requires goodwill and other intangibles to be assessed for
impairment each year and more frequently if circumstances indicate a possible
impairment. SFAS No. 142 requires that an initial transitional impairment test
be performed within six months of the date of adoption. During the second
quarter of 2002, we completed the initial impairment test as of January 1, 2002,
and no impairment was noted.
Effective January 1, 2002, we adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," and the accounting and reporting provisions of APB
No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." SFAS No. 144 provides updated guidance
concerning the recognition and measurement of an impairment loss for certain
types of long-lived assets and expands the scope of a discontinued operation to
include a component of an entity. The adoption of SFAS No. 144 on January 1,
2002 did not impact our financial position or results of operations.
-27-
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt," and SFAS No. 64, "Extinguishment of Debt Made to
Satisfy Sinking-Fund Requirements." SFAS No. 145 also rescinds SFAS No. 44 and
amends SFAS No. 13 and other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their applicability
under changed conditions. In accordance with SFAS No. 145, certain gains or
losses on extinguishment of debt that were classified as extraordinary items in
prior periods are required to be reclassified. The provisions of SFAS No. 145
related to the rescission of SFAS No. 4 and SFAS No. 64 are effective for us on
January 1, 2003, and all other provisions are effective for transactions
occurring after May 15, 2002. We are currently evaluating the impact of this
standard.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses accounting and
reporting for costs associated with exit or disposal activities and nullifies
EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." SFAS No. 146 requires the recognition of a liability for a
cost associated with an exit or disposal activity when the liability is
incurred. Under EITF Issue No. 94-3, a liability for an exit cost was recognized
at the date an entity committed to an exit plan. The provisions of SFAS No. 146
are effective for exit or disposal activities that are initiated after December
31, 2002.
CERTIFICATIONS UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The written certifications of both of our Co-Chief Executive Officers and of our
Chief Financial Officer with respect to this Quarterly Report on Form 10-Q, as
required by Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section
1350), have been submitted to the Securities and Exchange Commission as
additional correspondence accompanying this Quarterly Report.
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Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
Market risks relating to our operations result primarily from changes in
interest rates. In the normal course of business, we also have limited foreign
currency risk associated with our Canadian operations and risk related to
commodity price changes for items such as natural gas. We employ established
policies and procedures to manage our exposure to these risks. Interest rate,
foreign currency and commodity pricing transactions are used only to the extent
considered necessary to meet our objectives. We do not utilize derivative
financial instruments for trading or other speculative purposes.
Information regarding our interest rate risk, foreign currency exchange rate
risk and commodity pricing risk has been disclosed in our Annual Report on Form
10-K for the fiscal year ended December 31, 2001. Since such filing, there has
not been a material change to our interest rate risk, foreign currency rate risk
or commodity pricing risk or to our policies and procedures to manage our
exposure to these risks, except that we have entered into additional interest
rate swap agreements. You should also read Note 7 to our Condensed Consolidated
Financial Statements for the three and six months ended June 30, 2002 included
elsewhere in this Quarterly Report.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Our annual meeting of stockholders, or 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 29, 2002 for the purposes of (1) electing two
directors to serve for a three year term until our annual meeting of
stockholders in 2005 and until their successors are duly elected and qualified;
(2) approving the adoption of the Silgan Holdings Inc. 2002 Non-Employee
Directors Stock Option Plan; and (3) ratifying the appointment by our Board of
Directors of Ernst & Young LLP as our independent auditors for the fiscal year
ending December 31, 2002.
The nominees for director listed in our 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 our common stock being
entitled to one vote):
Number of Shares Number of Shares
Voted For Withheld
--------- --------
D. Greg Horrigan 15,226,080 2,143,737
John W. Alden 16,965,918 403,899
Our directors whose term of office continued after the Annual Meeting are Edward
A. Lapekas and Jeffrey C. Crowe, each of whose term of office as a director
continues until our annual meeting of stockholders in 2003, and R. Philip Silver
and Leigh J. Abramson, each of whose term of office as a director continues
until our annual meeting of stockholders in 2004.
The adoption of the Silgan Holdings Inc. 2002 Non-Employee Directors Stock
Option Plan was approved at the Annual Meeting. There were 16,944,229 votes cast
approving such adoption, 360,304 votes cast against such adoption and 65,284
votes abstaining.
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The ratification of the appointment of Ernst & Young LLP as our independent
auditors for the fiscal year ending December 31, 2002 was approved at the Annual
Meeting. There were 17,317,031 votes cast ratifying such appointment, 52,136
votes cast against ratification of such appointment and 650 votes abstaining.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
- -------------- -----------
12 Ratio of Earnings to Fixed Charges
(b) Reports on Form 8-K
1. On May 8, 2002, we filed a Current Report on Form 8-K with which we
filed a copy of our press release announcing the completion of the
add-on issuance of $200 million principal amount of our 9% Debentures.
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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 14, 2002 /s/Anthony J. Allott
- ----------------------- ----------------------------
Anthony J. Allott
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Dated: August 14, 2002 /s/Nancy Merola
- ----------------------- ----------------------------
Nancy Merola
Vice President and Controller
(Chief Accounting Officer)
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EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
----------- -------
12 Ratio of Earnings to Fixed Charges for the three and
six months ended June 30, 2002 and 2001
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