10-Q 1 secondq01.txt SECOND QUARTER 10-Q 2001 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, 2001 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 14, 2001, the number of shares outstanding of the registrant's common stock, $0.01 par value, was 17,790,593. SILGAN HOLDINGS INC. TABLE OF CONTENTS Page No. -------- Part I. Financial Information ........................................ 3 Item 1. Financial Statements .................................... 3 Condensed Consolidated Balance Sheets at June 30, 2001 and 2000 and December 31, 2000 ............ 3 Condensed Consolidated Statements of Income for the three months ended June 30, 2001 and 2000 ................................................ 4 Condensed Consolidated Statements of Income for the six months ended June 30, 2001 and 2000 ................................................ 5 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000 ................................................ 6 Condensed Consolidated Statements of Deficiency in Stockholders' Equity for the six months ended June 30, 2000 and 2001 ............................ 7 Notes to Condensed Consolidated Financial Statements .............................................. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ........... 17 Item 3. Quantitative and Qualitative Disclosure About Market Risk ............................................. 26 Part II. Other Information ........................................... 26 Item 1. Legal Proceedings ....................................... 26 Item 4. Submission of Matters to a Vote of Security Holders ..... 26 Item 6. Exhibits and Reports on Form 8-K ........................ 27 Signatures ............................................................ 28 Exhibit Index ......................................................... 29 -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, 2001 2000 2000 ---- ---- ---- Assets Current assets Cash and cash equivalents ...................... $ 49,220 $ 5,262 $ 20,073 Trade accounts receivable, net ................. 200,775 197,924 168,307 Inventories .................................... 372,758 321,458 279,737 Prepaid expenses and other current assets ...... 17,639 8,342 11,874 ---------- ---------- ---------- Total current assets ....................... 640,392 532,986 479,991 Property, plant and equipment, net ............... 710,580 642,015 709,513 Goodwill, net .................................... 151,920 105,535 153,038 Other assets ..................................... 37,464 48,505 41,282 ---------- ---------- ---------- $1,540,356 $1,329,041 $1,383,824 ========== ========== ========== Liabilities and Deficiency in Stockholders' Equity Current liabilities Bank revolving loans ........................... $ 173,065 $ 178,870 $ -- Current portion of long-term debt .............. 41,970 39,290 44,948 Trade accounts payable ......................... 144,112 133,838 208,144 Accrued payroll and related costs .............. 53,276 52,887 56,452 Accrued interest payable ....................... 5,444 10,779 9,564 Accrued liabilities ............................ 49,212 18,143 13,142 ---------- ---------- ---------- Total current liabilities .................. 467,079 433,807 332,250 Long-term debt ................................... 986,072 843,629 986,527 Other liabilities ................................ 101,323 90,523 85,427 ---------- ---------- ---------- Total liabilities .......................... 1,554,474 1,367,959 1,404,204 Deficiency in stockholders' equity Common stock ................................... 205 204 204 Paid-in capital ................................ 117,400 118,349 118,099 Retained earnings (accumulated deficit) ........ (67,030) (96,475) (76,702) Accumulated other comprehensive income (loss) .. (4,300) (603) (1,588) Treasury stock ................................. (60,393) (60,393) (60,393) ---------- ---------- ---------- Total deficiency in stockholders' equity ... (14,118) (38,918) (20,380) ---------- ---------- ---------- $1,540,356 $1,329,041 $1,383,824 ========== ========== ==========
See accompanying notes. -3- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the three months ended June 30, 2001 and 2000 (Dollars and shares in thousands, except per share amounts) (Unaudited)
2001 2000 ---- ---- Net sales ............................................ $445,417 $430,206 Cost of goods sold ................................... 388,225 377,563 -------- -------- Gross profit .................................... 57,192 52,643 Selling, general and administrative expenses ......... 19,257 17,290 ------- ------- Income from operations .......................... 37,935 35,353 Interest and other debt expense ...................... 21,248 21,616 ------- ------- Income before income taxes and equity in losses of affiliate ........................ 16,687 13,737 Provision for income taxes ........................... 6,704 5,358 ------- ------- Income before equity in losses of affiliate ..... 9,983 8,379 Equity in losses of affiliate ........................ 2,536 2,135 ------- ------- Net income ...................................... $ 7,447 $ 6,244 ======= ======= Per share data Basic earnings per share ........................ $0.42 $0.35 ===== ===== Diluted earnings per share ...................... $0.41 $0.35 ===== ===== Weighted average number of shares Basic .......................................... 17,742 17,649 Assumed exercise of employee stock options ..... 288 322 ------ ------ Diluted ........................................ 18,030 17,971 ====== ======
See accompanying notes. -4- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the six months ended June 30, 2001 and 2000 (Dollars and shares in thousands, except per share amounts) (Unaudited)
2001 2000 ---- ---- Net sales ............................................ $888,931 $848,711 Cost of goods sold ................................... 780,809 747,350 -------- -------- Gross profit .................................... 108,122 101,361 Selling, general and administrative expenses ......... 37,989 36,353 Rationalization charge ............................... 3,490 -- -------- -------- Income from operations .......................... 66,643 65,008 Interest and other debt expense ...................... 44,116 42,597 -------- -------- Income before income taxes and equity in losses of affiliate ........................ 22,527 22,411 Provision for income taxes ........................... 9,051 8,741 -------- -------- Income before equity in losses of affiliate ..... 13,476 13,670 Equity in losses of affiliate ........................ 3,804 2,135 -------- -------- Net income ...................................... $ 9,672 $ 11,535 ======== ======== Per share data Basic earnings per share ........................ $0.55 $0.66 ===== ===== Diluted earnings per share ...................... $0.54 $0.64 ===== ===== Weighted average number of shares Basic .......................................... 17,723 17,600 Assumed exercise of employee stock options ..... 284 403 ------ ------ Diluted ........................................ 18,007 18,003 ====== ======
See accompanying notes. -5- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months ended June 30, 2001 and 2000 (Dollars in thousands) (Unaudited)
2001 2000 ---- ---- Cash flows provided by (used in) operating activities Net income ........................................ $ 9,672 $ 11,535 Adjustments to reconcile net income to net cash used in operating activities: Depreciation .................................. 44,676 41,687 Amortization .................................. 3,742 2,744 Rationalization charge ........................ 3,490 -- Equity in losses of affiliate ................. 3,804 2,135 Other changes that provided (used) cash: Trade accounts receivable, net ............ (32,468) (69,829) Inventories ............................... (93,021) (71,887) Trade accounts payable .................... (64,032) (41,592) Other, net ................................ 220 (7,294) --------- --------- Net cash used in operating activities ......... (123,917) (132,501) --------- --------- Cash flows provided by (used in) investing activities Investment in equity affiliate .................... (3,039) (3,516) Proceeds from joint venture ....................... 32,388 -- Capital expenditures .............................. (46,697) (40,558) Proceeds from asset sales ......................... 281 1,119 --------- --------- Net cash used in investing activities ......... (17,067) (42,955) --------- --------- Cash flows provided by (used in) financing activities Borrowings under revolving loans .................. 473,524 469,353 Repayments under revolving loans .................. (300,459) (290,483) Repurchase of common stock ........................ -- (1,075) Proceeds from stock option exercises .............. 311 512 Repayments and redemptions of long-term debt ...... (3,245) -- --------- --------- Net cash provided by financing activities ..... 170,131 178,307 --------- --------- Cash and cash equivalents Net increase ...................................... 29,147 2,851 Balance at beginning of year ...................... 20,073 2,411 --------- --------- Balance at end of period .......................... $ 49,220 $ 5,262 ========= ========= Interest paid ........................................ $ 47,519 $ 42,109 Income taxes paid .................................... 1,112 6,242
See accompanying notes. -6- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY For the six months ended June 30, 2000 and 2001 (Dollars and shares in thousands) (Unaudited)
Common Stock Retained Accumulated Total ------------ earnings other deficiency in Par Paid-in (accumulated comprehensive Treasury stockholders' Shares value capital deficit) income (loss) stock equity ------ ----- ------- ------- ------------- ----- ------ 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 Repurchase of common stock .............. (100) -- -- -- -- (1,075) (1,075) Stock option exercises, net of tax provision of $826 ................ 256 3 (317) -- -- -- (314) ------ ---- ------- --------- ------- -------- -------- Balance at June 30, 2000 ................ 17,703 $204 $118,349 $ (96,475) $ (603) $(60,393) $(38,918) ====== ==== ======== ========= ======= ======== ======== 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) ====== ==== ======== ========= ======= ======== ========
See accompanying notes. -7- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2001 and 2000 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. ("Holdings" or the "Company") have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") 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, 2000 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 accounting principles generally accepted in the United States 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, 2000. Certain prior year amounts have been reclassified to conform with the current year's presentation. Note 2. New Accounting Pronouncements Derivative Instruments and Hedging Activities --------------------------------------------- Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138. SFAS No. 133 requires all derivative instruments to be recorded in the consolidated balance sheets at their fair values. Changes in the fair value of derivatives will be recorded each period in earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type and effectiveness of the hedge transaction. The Company utilizes certain financial instruments to manage its interest rate and energy cost exposures. The Company limits its use of derivative financial instruments to interest rate and natural gas swap agreements. The Company does not utilize derivative financial instruments for speculative purposes. -8- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2001 and 2000 and for the three and six months then ended is unaudited) Note 2. New Accounting Pronouncements (continued) The Company has entered into interest rate swap agreements to manage its exposure to interest rate fluctuations. The interest rate swap agreements effectively convert interest rate exposure from variable rates to fixed rates of interest. At June 30, 2001 and January 1, 2001, the aggregate notional principal amounts of these agreements were $225 million and $150 million, respectively. Under these agreements at June 30, 2001, the Company pays fixed rates of interest ranging from 4.7% to 6.4% and receives floating rates of interest based on three month LIBOR. These agreements mature in 2002 ($100 million notional principal amount) and in 2003 ($125 million notional principal amount). The Company has entered into natural gas swap agreements to manage its exposure to fluctuations in natural gas prices. At June 30, 2001 and January 1, 2001, the aggregate notional principal amount of these agreements was 1,170,000 MMBtu and 170,000 MMBtu of natural gas, respectively. Under these agreements at June 30, 2001, the Company pays a fixed natural gas price ranging from $4.04 per MMBtu to $5.78 per MMBtu and receives a NYMEX-based natural gas price. These agreements mature at various times through June 2002. The interest rate and natural gas swap agreements are accounted for as cash flow hedges. To the extent these swap agreements are effective pursuant to SFAS No. 133 in offsetting the variability of the hedged cash flows, changes in their fair values will be recorded in accumulated other comprehensive income (loss), a component of stockholders' equity, and reclassified into earnings in future periods when earnings are also affected by the variability of the hedged cash flows. To the extent these swap agreements are not effective as hedges, changes in their fair values will be recorded in net earnings. The adoption of SFAS No. 133 on January 1, 2001 resulted in the Company recording a net liability of $0.1 million on the balance sheet to reflect the fair value of outstanding swap agreements and a transition adjustment of $0.1 million ($0.1 million net of tax) to reflect the cumulative effect of adoption in accumulated other comprehensive income (loss). The fair value of the outstanding swap agreements in effect at June 30, 2001 was $4.4 million and recorded in other liabilities. As a result, the Company recorded an additional charge to accumulated other comprehensive income (loss) of $2.5 million, net of both taxes and net losses reclassified to earnings. The Company estimates that it will reclassify $1.5 million, net of tax, of the amount recorded in accumulated other comprehensive income (loss) as a charge to earnings during the next six months. The actual amount that will be reclassified to earnings will vary from this amount as a result of changes in market conditions. -9- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2001 and 2000 and for the three and six months then ended is unaudited) Note 2. New Accounting Pronouncements (continued) Business Combinations and Goodwill and Other Intangible Assets -------------------------------------------------------------- During July 2001, the Financial Accounting Standards Board (the "Board") issued SFAS No. 141, "Business Combinations," which 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. During July 2001, the Board also issued SFAS No. 142, "Goodwill and Other Intangible Assets," which 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 requires goodwill and other intangibles to be assessed for impairment each year and more frequently if circumstances indicate a possible impairment. During 2002, the Company will perform its first impairment test as of January 1, 2002. The Company is currently evaluating the provisions of these standards. Note 3. Rationalization Charges and Acquisition Reserves During the first quarter of 2001, the Company completed its plan to close one plastic container facility. The plan included the termination of approximately 150 plant employees and other related exit costs. This decision resulted in a first quarter pre-tax charge to earnings of $3.5 million (including approximately $1.0 million in anticipated cash payments), which consists of $2.6 million for plant exit costs and $0.9 million for employee severance and benefits. The Company closed the facility in May 2001 and expects related cash payments to be made through 2001. As part of its plan to integrate and rationalize the operations of its various acquired businesses, the Company has established reserves for employee severance and benefits, plant exit costs and assumed liabilities. These costs are expected to be incurred through 2002. Activity in the Company's rationalization and acquisition reserves since December 31, 2000 is summarized as follows: Severance and Plant Exit Assumed Benefits Costs Liabilities Total ---------- ---------- ----------- ----- (Dollars in thousands) Balance at December 31, 2000 ... $ 2,364 $5,559 $4,252 $12,175 Rationalization Charge ......... 874 2,616 -- 3,490 Utilized ....................... (1,355) (975) (396) (2,726) ------- ------ ------ ------- Balance at June 30, 2001 ....... $ 1,883 $7,200 $3,856 $12,939 ======= ====== ====== ======= -10- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2001 and 2000 and for the three and six months then ended is unaudited) Note 3. Rationalization Charges and Acquisition Reserves (continued) Rationalization and acquisition reserves are included in the Condensed Consolidated Balance Sheets as follows: June 30, June 30, Dec. 31, 2001 2000 2000 ---- ---- ---- (Dollars in thousands) Accrued liabilities .......... $ 8,226 $ 8,526 $ 7,462 Other liabilities ............ 4,713 8,114 4,713 ------- ------- ------- $12,939 $16,640 $12,175 ======= ======= ======= Note 4. Comprehensive Income (Loss) Comprehensive income is reported in the Condensed Consolidated Statements of Deficiency in Stockholders' Equity. Amounts included in accumulated other comprehensive income (loss) consisted of the following: June 30, June 30, Dec. 31, 2001 2000 2000 ---- ---- ---- (Dollars in thousands) Foreign currency translation ........... $ (824) $(503) $ (691) Change in fair value of derivatives .... (2,579) -- -- Minimum pension liability .............. (897) (100) (897) ------- ----- ------- Accumulated other comprehensive income (loss) ..................... $(4,300) $(603) $(1,588) ======= ===== ======= The change in fair value of derivatives component of accumulated other comprehensive income (loss) is comprised of a $0.1 million charge, net of tax, for the cumulative effect of adopting SFAS No. 133 and an additional charge of $2.5 million, net of both tax and net losses reclassified to earnings, for the change in fair value of derivatives for the six months ended June 30, 2001. The amount reclassified to earnings for both the three and six month periods ended June 30, 2001 was a net loss of $0.4 million. -11- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2001 and 2000 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, 2001 2000 2000 ---- ---- ---- (Dollars in thousands) Raw materials ....................... $ 35,662 $ 38,008 $ 43,873 Work-in-process ..................... 57,187 50,755 51,191 Finished goods ...................... 260,880 214,151 165,680 Spare parts and other ............... 12,431 11,487 11,698 -------- -------- -------- 366,160 314,401 272,442 Adjustment to value inventory at cost on the LIFO method ....... 6,598 7,057 7,295 -------- -------- -------- $372,758 $321,458 $279,737 ======== ======== ======== Note 6. Investments Packtion Corporation -------------------- In April 2000, the Company, together with Morgan Stanley Dean Witter Private Equity and Diamondcluster International, Inc., agreed to invest in Packtion Corporation ("Packtion"), an e-commerce joint venture aimed at integrating the packaging supply chain, from design through manufacturing and procurement. The parties agreed to invest through Packaging Markets LLC, a limited liability company. In the first quarter of 2001 in connection with an investment by The Proctor & Gamble Company and E.I. Du Pont de Nemours & Co. in Packtion, the Company funded additional equity investments of $3.0 million, bringing its total investment to $10.1 million representing approximately a 25% interest in Packtion. In connection therewith, the Company also recorded a reduction to paid-in capital of $1.4 million due to the dilution of its investment. Packtion was dissolved on May 31, 2001. The Company accounted for its investment in Packtion using the equity method. For the six months ended June 30, 2001, the Company recorded equity in losses of Packtion aggregating $3.8 million which includes its final losses and eliminates its investment in Packtion. -12- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2001 and 2000 and for the three and six months then ended is unaudited) Note 6. Investments (continued) White Cap LLC ------------- Effective July 1, 2001, the Company formed a joint venture company with Schmalbach-Lubeca AG that will supply an extensive range of metal and plastic closures to the food and beverage industries in North America. The new venture operates under the name White Cap LLC ("White Cap"). The Company contributed certain metal closure assets and liabilities, including its manufacturing facilities in Evansville and Richmond, Indiana, in return for a 35% interest in and $32.4 million cash proceeds from the joint venture. Net sales for the two facilities contributed totaled approximately $88 million in 2000. In connection with the formation of White Cap, the Company received the $32.4 million cash proceeds from the venture on June 29, 2001 and contributed its manufacturing facilities effective July 1, 2001. As a result, at June 30, 2001 the Company recorded a short-term liability in an amount equal to such cash distribution. When the investment in the venture is established in the third quarter of 2001, this liability will be eliminated. The Company will account for its investment in White Cap LLC using the equity method. As a result of this transaction, the Company expects to record a gain during the third quarter. Also, as a result of this transaction, beginning with the third quarter of 2001, the Company will no longer report the financial results of its remaining specialty packaging business as a separate segment. The results of the remaining operations, which had net sales of approximately $36 million in 2000, will be included with the Company's other businesses. -13- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2001 and 2000 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, 2001 2000 2000 ---- ---- ---- (Dollars in thousands) Bank debt Bank Revolving Loans ................ $ 542,000 $ 304,070 $ 367,400 Bank A Term Loans ................... 159,218 194,047 159,218 Bank B Term Loans ................... 188,542 190,495 188,542 Canadian Bank Facility .............. 8,120 13,971 12,850 ---------- ---------- ---------- Total bank debt .................. 897,880 702,583 728,010 Subordinated debt 9% Senior Subordinated Debentures ... 300,000 300,000 300,000 13 1/4% Subordinated Debentures ..... -- 56,206 -- Other ............................... 3,227 3,000 3,465 ---------- ---------- ---------- Total subordinated debt .......... 303,227 359,206 303,465 Total debt .............................. 1,201,107 1,061,789 1,031,475 Less current portion ................ 215,035 218,160 44,948 ---------- ---------- ---------- $ 986,072 $ 843,629 $ 986,527 ========== ========== ========== Under the Company's U.S. senior secured bank credit facility (the "U.S. Credit Agreement"), the Company has available to it $670.5 million of bank revolving loans. The Company also has $4.5 million of bank revolving loans available to it under its Canadian bank facility (the "Canadian Bank Facility"). Bank revolving loans may be used by the Company for working capital needs, acquisitions 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, 2001, bank revolving loans under the U.S. Credit Agreement consisted of $173.1 million related primarily to seasonal working capital needs and $368.9 million related primarily to long-term financing of acquisitions. At June 30, 2001, amounts expected to be repaid within one year consisted of $173.1 million of bank revolving loans and $42.0 million of bank term loans. Bank revolving loans not expected to be repaid within one year have been reclassified as long-term debt. -14- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2001 and 2000 and for the three and six months then ended is unaudited) Note 8. Business Segment Information Reportable business segment information for the Company's three business segments is as follows:
Metal Food Plastic Specialty Containers Containers(1) Packaging Other(2) Total ---------- ---------- --------- ----- ----- (Dollars in thousands) Three Months Ended June 30, 2001 -------------------------------- Net sales .................................... $288,173 $124,725 $32,519 $ -- $445,417 EBITDA(3) .................................... 35,850 23,723 3,575 (1,000) 62,148 Depreciation and amortization(4) ............. 13,508 8,113 2,566 26 24,213 Segment profit (loss) ........................ 22,342 15,610 1,009 (1,026) 37,935 Three Months Ended June 30, 2000 -------------------------------- Net sales .................................... $309,963 $ 86,600 $33,643 $ -- $430,206 EBITDA (3) ................................... 39,428 14,615 3,636 (482) 57,197 Depreciation and amortization(4) ............. 13,096 6,140 2,583 25 21,844 Segment profit (loss) ........................ 26,332 8,475 1,053 (507) 35,353 Six Months Ended June 30, 2001 ------------------------------ Net sales .................................... $579,869 $247,021 $62,041 $ -- $888,931 EBITDA(3) .................................... 66,476 47,543 5,415 (1,714) 117,720 Depreciation and amortization(4) ............. 26,540 16,098 4,897 52 47,587 Segment profit (loss) ........................ 39,936 31,445 518 (1,766) 70,133 Six Months Ended June 30, 2000 ------------------------------ Net sales .................................... $611,960 $171,620 $65,131 $ -- $848,711 EBITDA(3) .................................... 74,068 30,059 6,389 (1,874) 108,642 Depreciation and amortization(4) ............. 26,165 12,365 5,053 51 43,634 Segment profit (loss) ........................ 47,903 17,694 1,336 (1,925) 65,008
-15- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2001 and 2000 and for the three and six months then ended is unaudited) Note 8. Business Segment Information (continued) (1) Excludes a rationalization charge of $3.5 million for the six months ended June 30, 2001 related to the closing of a facility. (2) Provides information pertaining to the corporate holding company and includes a $0.7 million credit for the three months ended June 30, 2000 related to the reimbursement of start-up costs for Packtion. (3) EBITDA means earnings before equity in losses of affiliate, interest, income taxes, depreciation and amortization, as adjusted to add back rationalization charges. While EBITDA should not be considered in isolation or as a substitute for net income or other consolidated statement of income or cash flows data prepared in accordance with GAAP as a measure of the profitability or liquidity of the Company, management believes that many investors and lenders consider it important in assessing a company's ability to service and incur debt. EBITDA does not take into account the Company's debt service requirements and other commitments and, accordingly, is not necessarily indicative of amounts that may be available for discretionary uses. Additionally, EBITDA is not computed in accordance with GAAP and may not be comparable to other similarly titled measures of other companies. (4) Depreciation and amortization excludes debt cost amortization of $0.4 million for each of the three months ended June 30, 2001 and 2000 and $0.8 million for each of the six months ended June 30, 2001 and 2000. Total segment profit is reconciled to income before income taxes and equity in losses of affiliate as follows:
Three Months Ended Six Months Ended ----------------------- ----------------------- June 30, June 30, June 30, June 30, 2001 2000 2001 2000 ---- ---- ---- ---- (Dollars in thousands) Total segment profit ...................... $37,935 $35,353 $70,133 $65,008 Interest and other debt expense ........... 21,248 21,616 44,116 42,597 Rationalization charge .................... -- -- 3,490 -- ------- ------- ------- ------- Income before income taxes and equity in losses of affiliate .... $16,687 $13,737 $22,527 $22,411 ======= ======= ======= =======
-16- 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, 2000 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, 2001 and 2000 are provided below. 2001 2000 ---- ---- (Dollars in millions) Net sales Metal food containers ........... $288.2 $310.0 Plastic containers .............. 124.7 86.6 Specialty packaging ............. 32.5 33.6 ------ ------ Consolidated ................. $445.4 $430.2 ====== ====== Operating profit Metal food containers ........... $ 22.3 $ 26.3 Plastic containers .............. 15.6 8.5 Specialty packaging ............. 1.0 1.0 Other (1) ....................... (1.0) (0.5) ------ ------ Consolidated ................. $ 37.9 $ 35.3 ====== ====== ------------- (1) Includes a $0.7 million credit for the reimbursement of start-up costs for Packtion for the three months ended June 30, 2000. -17- Three Months Ended June 30, 2001 Compared with Three Months Ended June 30, 2000 Net Sales. Consolidated net sales increased $15.2 million, or 3.5%, to $445.4 million for the three months ended June 30, 2001, as compared to net sales of $430.2 million for the same three months in the prior year. This increase was the result of higher net sales in the plastic container business, partially offset by lower sales in the metal food container and specialty packaging businesses. Net sales for the metal food container business were $288.2 million for the three months ended June 30, 2001, a decrease of $21.8 million, or 7.0%, from net sales of $310.0 million for the same period in 2000. This decrease was primarily attributable to lower unit sales, reflecting generally soft market conditions. Net sales for the plastic container business of $124.7 million during the three months ended June 30, 2001 increased $38.1 million, or 44.0%, from net sales of $86.6 million for the same period in 2000. This increase in net sales was principally attributable to the acquisition of RXI Plastics, Inc. ("RXI"), which was acquired in October 2000, and higher unit sales from the existing business. Excluding RXI, second quarter 2001 net sales increased $8.7 million, or 10.0%, versus the same period last year. Net sales for the specialty packaging business decreased $1.1 million, or 3.3%, to $32.5 million during the three months ended June 30, 2001, as compared to net sales of $33.6 million for the same period in 2000. This decrease was primarily due to lower unit sales. Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales was 87.2% ($388.2 million) for the three months ended June 30, 2001, a decrease of 0.5 percentage points as compared to 87.7% ($377.6 million) for the same period in 2000. The increase in gross profit margin was primarily attributable to higher unit volume in the plastic container business, partially offset by lower unit sales and higher energy costs in 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 increased by 0.3 percentage points to 4.3% ($19.3 million) for the three months ended June 30, 2001, as compared to 4.0% ($17.3 million) for the same period in 2000. This increase was principally the result of higher selling, general and administrative expenses in the plastic container business and the absence in the current year period of a credit recorded in the second quarter of 2000 for the reimbursement of $0.7 million in start-up costs incurred for Packtion during the first quarter of 2000, partially offset by lower selling, general and administrative expenses in the metal food container business. -18- Income from Operations. Income from operations for the second quarter of 2001 increased $2.6 million, or 7.4%, to $37.9 million, as compared to $35.3 million in the same period in 2000. This increase was a result of higher unit volume in the plastic container business, partially offset by lower unit volume and income from operations in the metal food container business. Income from operations as a percentage of consolidated net sales for the three months ended June 30, 2001 improved 0.3 percentage points to 8.5%, as compared to 8.2% for the same period in 2000. This increase was primarily a result of higher operating margins of the plastic container business, partially offset by lower operating margins of the metal food container business. Income from operations as a percentage of net sales for the metal food container business decreased 0.8 percentage points to 7.7% ($22.3 million) for the three months ended June 30, 2001, as compared to 8.5% ($26.3 million) for the same period in 2000. The decrease in income from operations as a percentage of net sales for the metal food container business was primarily a result of lower unit volume and higher per unit manufacturing costs, including higher energy costs and was partially offset by benefits realized from a previous plant rationalization. Income from operations as a percentage of net sales for the plastic container business increased 2.7 percentage points to 12.5% ($15.6 million) for the three months ended June 30, 2001, as compared to 9.8% ($8.5 million) for the same period in 2000. The increase in income from operations as a percentage of net sales for the plastic container business was primarily a result of higher unit volume. Income from operations for the specialty packaging business and income from operations as a percentage of net sales for the specialty packaging business for the three months ended June 30, 2001 were $1.0 million and 3.1%, respectively, essentially unchanged from the same period in 2000. Interest Expense. Interest expense decreased $0.4 million to $21.2 million for the three months ended June 30, 2001 as compared to the same period in 2000. The benefits of lower interest rates during the quarter more than offset the impact of higher average borrowings outstanding during the quarter, principally due to debt incurred in October 2000 for the acquisition of RXI. Income Taxes. The provision for income taxes for the three months ended June 30, 2001 and 2000 was recorded at an effective tax rate of 40.2% and 39.0%, respectively ($6.7 million and $5.4 million, respectively). Net Income and Earnings per Share. Before equity in losses of Packtion, income for the three months ended June 30, 2001 was $10.0 million and earnings per diluted share were $0.55, as compared to $8.4 million and $0.47, respectively, for the same period in the prior year. Including equity in losses of Packtion, net income for the three months ended June 30, 2001 was $7.4 million, or $0.41 per diluted share, as compared to $6.2 million, or $0.35 per diluted share, for the same period in 2000. -19- 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, 2001 and 2000 are provided below. 2001 2000 ---- ---- (Dollars in millions) Net sales Metal food containers ........... $579.9 $612.0 Plastic containers .............. 247.0 171.6 Specialty packaging ............. 62.0 65.1 ------ ------ Consolidated ................. $888.9 $848.7 ====== ====== Operating profit Metal food containers ........... $ 39.9 $ 47.9 Plastic containers(1) ........... 27.9 17.7 Specialty packaging ............. 0.5 1.3 Other ........................... (1.7) (1.9) ------ ------ Consolidated ................. $ 66.6 $ 65.0 ====== ====== ------------- (1) Includes a rationalization charge of $3.5 million in the first quarter of 2001 related to the closing of a facility. Six Months Ended June 30, 2001 Compared with Six Months Ended June 30, 2000 Net Sales. Consolidated net sales increased $40.2 million, or 4.7%, to $888.9 million for the six months ended June 30, 2001, as compared to net sales of $848.7 million for the same six months in the prior year. This increase was the result of higher net sales in the plastic container business, partially offset by lower sales in the metal food container and specialty packaging businesses. Net sales for the metal food container business were $579.9 million for the six months ended June 30, 2001, a decrease of $32.1 million, or 5.2%, from net sales of $612.0 million for the same period in 2000. This decrease was primarily attributable to lower unit sales due to generally soft market conditions and a particularly strong first quarter of 2000 in the food can segment. Net sales for the plastic container business of $247.0 million during the six months ended June 30, 2001 increased $75.4 million, or 43.9%, from net sales of $171.6 million for the same period in 2000. This increase in net sales was principally attributable to the acquisition of RXI in October 2000 and higher unit sales from the existing business. Excluding RXI, net sales during the six months ended June 30, 2001 increased $17.3 million, or 10.1%, versus the same period last year. Net sales for the specialty packaging business decreased $3.1 million, or 4.8%, to $62.0 million during the six months ended June 30, 2001, as compared to net sales of $65.1 million for the same period in 2000. This decrease was primarily due to lower unit sales. -20- Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales was 87.8% ($780.8 million) for the six months ended June 30, 2001, a decrease of 0.3 percentage points as compared to 88.1% ($747.4 million) for the same period in 2000. The increase in gross profit margin was primarily attributable to higher unit sales in the plastic container business, partially offset by lower unit sales and the effects of higher energy costs in the metal food container and specialty packaging businesses. Selling, General and Administrative Expenses. Selling, general and administrative expenses were 4.3% of consolidated net sales for the six months ended June 30, 2001, essentially unchanged from the same period in 2000. Income from Operations. Excluding the rationalization charge of $3.5 million related to the closing of a plastic container manufacturing facility in 2001, income from operations for the six months ended June 30, 2001 increased $5.1 million, or 7.8%, to $70.1 million, as compared to $65.0 million in the same period in 2000. This increase was primarily a result of higher unit volume in the plastic container business, partially offset by lower unit volume and higher energy costs in the metal food container and specialty packaging businesses. Excluding the rationalization charge, income from operations as a percentage of consolidated net sales for the six months ended June 30, 2001 improved 0.2 percentage points to 7.9%, as compared to 7.7% for the same period in 2000. This increase was primarily a result of higher operating margins of the plastic container business, partially offset by lower operating margins of the metal food container and specialty packaging businesses. Including the rationalization charge, income from operations for the six months ended June 30, 2001 was $66.6 million or 7.5% of consolidated net sales. Income from operations as a percentage of net sales for the metal food container business decreased 0.9 percentage points to 6.9% ($39.9 million) for the six months ended June 30, 2001, as compared to 7.8% ($47.9 million) for the same period in 2000. The decrease in income from operations as a percentage of net sales for the metal food container business was primarily a result of lower unit volume and higher per unit manufacturing costs, including higher energy costs, and was partially offset by benefits realized from a previous plant rationalization. Excluding the rationalization charge, income from operations as a percentage of net sales for the plastic container business increased 2.4 percentage points to 12.7% ($31.4 million) for the six months ended June 30, 2001, as compared to 10.3% ($17.7 million) for the same period in 2000. The increase in income from operations as a percentage of net sales for the plastic container business was primarily a result of higher unit volume. Including the rationalization charge, income from operations for the six months ended June 30, 2001 was $27.9 million or 11.3% of net sales. The specialty packaging business had income from operations of $0.5 million, or 0.8% of net sales, for the six months ended June 30, 2001, as compared to income from operations of $1.3 million, or 2.0% of net sales, for the same period in 2000. The decline in operating performance of the specialty packaging business was due primarily to the effects of lower unit sales and higher energy costs. -21- Interest Expense. Interest expense increased $1.5 million to $44.1 million for the six months ended June 30, 2001 as compared to the same period in 2000. This increase was a result of higher average borrowings outstanding during the first six months of 2001, principally due to debt incurred in October 2000 for the acquisition of RXI, which more than offset the benefit of lower interest rates. Income Taxes. The provision for income taxes for the six months ended June 30, 2001 and 2000 was recorded at an effective tax rate of 40.2% and 39.0%, respectively ($9.1 million and $8.7 million, respectively). Net Income and Earnings per Share. Before the rationalization charge and equity in losses of Packtion, income for the six months ended June 30, 2001 was $15.6 million and earnings per diluted share were $0.86, as compared to income and earnings per diluted share before equity in losses of Packtion of $13.7 million and $0.76, respectively, for the same period in the prior year. Including the rationalization charge and equity in losses of Packtion, net income for the six months ended June 30, 2001 was $9.7 million, or $0.54 per diluted share, as compared to net income including equity in losses of Packtion of $11.5 million, or $0.64 per diluted share, for the same period in 2000. 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, 2001, the Company 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 on June 29, 2001 and the proceeds from stock option exercises of $0.3 million to fund cash used by operations of $123.9 million for the Company's seasonal working capital needs, net capital expenditures of $46.4 million, the repayment of $3.2 million of long-term debt and its investment in Packtion of $3.0 million and to increase cash balances by $29.1 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. For 2001, the Company estimates that at its month-end peak it will utilize approximately $545 - $555 million of its revolving loan facilities. 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. -22- As of June 30, 2001, the Company had $542.0 million of revolving loans outstanding under the U.S. Credit Agreement, of which $173.1 million related primarily to seasonal working capital needs and $368.9 million related primarily to long-term financing of acquisitions. Revolving loans not expected to be repaid within one year have been reclassified as long-term debt. The unused portion of revolving loan commitments under the Company's credit agreements at June 30, 2001, after taking into account outstanding letters of credit, was $112.1 million. During the first quarter of 2001, the Company completed its plan to close one plastic container facility. The plan included the termination of approximately 150 plant employees and other related exit costs. This decision resulted in a first quarter 2001 pre-tax charge to earnings of $3.5 million (including approximately $1.0 million in anticipated cash payments), which consists of $2.6 million for plant exit costs and $0.9 million for employee severance and benefits. The Company closed the facility in May 2001 and expects related cash payments to be made through 2001. In April 2000, the Company, together with Morgan Stanley Dean Witter Private Equity and Diamondcluster International, Inc. agreed to invest in Packtion, an e-commerce joint venture aimed at integrating the packaging supply chain, from design through manufacturing and procurement. The parties agreed to invest through Packaging Markets LLC, a limited liability company. In the first quarter of 2001 in connection with an investment by The Proctor & Gamble Company and E. I. Du Pont de Nemours & Co. in Packtion, the Company funded additional equity investments in Packtion of $3.0 million, bringing its total investment to $10.1 million representing approximately a 25% interest in Packtion. In connection therewith, the Company also recorded a reduction to paid-in capital of $1.4 million due to the dilution of its investment. Packtion was dissolved on May 31, 2001. For the six months ended June 30, 2001, the Company recorded equity in losses of Packtion aggregating $3.8 million which includes its final losses and eliminates its investment in Packtion. Effective July 1, 2001, the Company formed a joint venture company with Schmalbach-Lubeca AG that will supply an extensive range of metal and plastic closures to the food and beverage industries in North America. The new venture operates under the name White Cap LLC. The Company contributed certain metal closure assets and liabilities, including its manufacturing facilities in Evansville and Richmond, Indiana, in return for a 35% interest in and $32.4 million cash proceeds from the joint venture. Net sales for the two facilities contributed totaled approximately $88 million in 2000. Also, as a result of this transaction, beginning with the third quarter of 2001, the Company will no longer report the financial results of its remaining specialty packaging business as a separate segment. The remaining operations, which had net sales of approximately $36 million in 2000, will be included with the Company's other businesses. The Company's Board of Directors has authorized the repurchase of up to $70 million of its common stock. As of June 30, 2001, 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. -23- Management believes that cash generated by operations and funds from revolving loan borrowings under the Company's credit agreements will be sufficient to meet the Company's expected operating needs, planned capital expenditures, debt service, rationalization costs and tax obligations until the final maturity of its revolving loan facilities under its credit agreements on December 31, 2003. Management also believes that it will be able to refinance its credit agreements and replace its revolving loan facilities prior to December 31, 2003 on terms which will be acceptable to the Company. However, there can be no assurance that the Company will be able to effect such refinancing or, if it is able to effect such refinancing, that such refinancing will be effected on the same terms (including interest rates) as the Company's current credit agreements. The ability of the Company to effect any such refinancing and the terms thereof (including interest rates) will depend on a variety of factors, including the future performance of the Company and its subsidiaries, which will be subject to prevailing economic conditions and to financial, business and other factors (including the state of the economy and the financial markets and other factors beyond the control of the Company and its subsidiaries) affecting the business and operations of the Company and its subsidiaries as well as prevailing interest rates, the timing of such refinancing and the amount of debt to be refinanced. The Company is continually evaluating and pursuing acquisition opportunities in the consumer goods packaging market and may incur additional indebtedness, including indebtedness under the revolving loan facility 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 2001. -24- NEW ACCOUNTING PRONOUNCEMENTS Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138. SFAS No. 133 requires all derivative instruments to be recorded in the consolidated balance sheets at their fair values. Changes in the fair value of derivatives will be recorded each period in earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The adoption of SFAS No. 133, as amended, did not have a significant impact on the Company's financial position or results of operations. See Note 2 to the Condensed Consolidated Financial Statements included herein. During July 2001, the Board issued SFAS No. 141, "Business Combinations," which 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. During July 2001, the Board also issued SFAS No. 142, "Goodwill and Other Intangible Assets," which 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 requires goodwill and other intangibles to be assessed for impairment each year and more frequently if circumstances indicate a possible impairment. During 2002, the Company will perform its first impairment test as of January 1, 2002. The Company is currently evaluating the provisions of these standards. -25- Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK --------------------------------------------------------- Market risks relating to the Company's operations result primarily from changes in interest rates. In the normal course of business, the Company also has limited foreign currency risk associated with its Canadian operations and risk related to commodity price changes for items such as natural gas. The Company employs established policies and procedures to manage its exposure to such risks. Interest rate, foreign currency and commodity pricing 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, foreign currency exchange rate risk and commodity pricing risk has been disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2000. Since such filing, there has not been a material change to the Company's interest rate risk, foreign currency rate risk or commodity pricing risk or to the Company's policies and procedures to manage its exposure to such risks, except that beginning in the second quarter of 2001 the Company began managing its exposure to fluctuations in natural gas prices for up to a significant portion of its natural gas purchases over a period of up to one year by entering into natural gas swap agreements with a major trading company to convert pricing exposure from market prices to fixed prices. See Note 2 to the Condensed Consolidated Financial Statements included herein. Part II. Other Information Item 1. Legal Proceedings On June 18, 2001, the Company received a fine from the Jefferson County, Alabama Department of Health ("Jefferson County") for $2.3 million for alleged air violations at its Tarrant City, Alabama leased facility. The alleged violations stem from activities occurring during the facility's ownership by a predecessor owner, which the Company discovered and voluntarily disclosed to such state agency last year. Initial review of the fine indicates that most of it is related to the Company's alleged "economic benefit" for operating certain equipment without upgraded control devices that the former owner should have installed. Based on the discovery of these alleged violations, the Company filed an indemnity claim seeking to offset any costs or penalties that it incurs. The Company has filed a response to the fine which is being considered by Jefferson County and is also reviewing all of its legal options. The Company does not expect to incur any liability in excess of the indemnification available to it. 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, 2001 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 2004 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, 2001. -26- 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 --------- -------- R. Philip Silver 17,329,637 135,550 Leigh J. Abramson 17,178,291 286,896 The directors of the Company whose term of office as a director continued after the Annual Meeting are D. Greg Horrigan and James S. Hoch, each of whose term of office as a director continues until the Company's annual meeting of stockholders in 2002, and Thomas M. Begel and Jeffrey C. Crowe, each of whose term of office as a director continues until the Company's annual meeting of stockholders in 2003. The ratification of the appointment of Ernst & Young LLP as the Company's independent auditors for the fiscal year ending December 31, 2001 was approved at the Annual Meeting. There were 17,438,992 votes cast ratifying such appointment, 21,200 votes cast against ratification of such appointment and 4,995 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 None. -27- 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, 2001 /s/Harley Rankin, Jr. ----------------------- ------------------------------- Harley Rankin, Jr. Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Dated: August 14, 2001 /s/Nancy Merola ----------------------- ---------------------------- Nancy Merola Vice President and Controller (Chief Accounting Officer) -28- EXHIBIT INDEX EXHIBIT NO. EXHIBIT ----------- ------- 12 Ratio of Earnings to Fixed Charges for the three and six months ended June 30, 2001 and 2000 -29-