10-Q 1 thirdq01.txt THIRD QUARTER 10Q 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 September 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 November 14, 2001, the number of shares outstanding of the registrant's common stock, $0.01 par value, was 17,846,170. SILGAN HOLDINGS INC. TABLE OF CONTENTS Page No. -------- Part I. Financial Information ........................................ 3 Item 1. Financial Statements .................................... 3 Condensed Consolidated Balance Sheets at September 30, 2001 and 2000 and December 31, 2000 ....... 3 Condensed Consolidated Statements of Income for the three months ended September 30, 2001 and 2000 ................................................ 4 Condensed Consolidated Statements of Income for the nine months ended September 30, 2001 and 2000 ................................................ 5 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 ................................................ 6 Condensed Consolidated Statements of Stockholders' Equity (Deficiency) for the nine months ended September 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 ........... 19 Item 3. Quantitative and Qualitative Disclosure About Market Risk ............................................. 28 Part II. Other Information ........................................... 28 Item 6. Exhibits and Reports on Form 8-K ........................ 28 Signatures ............................................................ 29 Exhibit Index ......................................................... 30 -2- Part I. Financial Information Item 1. Financial Statements SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited, see Note 1)
Sept. 30, Sept. 30, Dec. 31, 2001 2000 2000 ---- ---- ---- Assets Current assets Cash and cash equivalents ........................ $ 25,753 $ 3,514 $ 20,073 Trade accounts receivable, net ................... 313,765 332,475 168,307 Inventories ...................................... 257,651 249,797 279,737 Prepaid expenses and other current assets ........ 19,397 8,941 11,874 ---------- ---------- ---------- Total current assets ......................... 616,566 594,727 479,991 Property, plant and equipment, net .................... 677,305 641,222 709,513 Goodwill, net ......................................... 150,894 104,518 153,038 Other assets .......................................... 50,173 38,794 41,282 ---------- ---------- ---------- $1,494,938 $1,379,261 $1,383,824 ========== ========== ========== Liabilities and Stockholders' Equity (Deficiency) Current liabilities Bank revolving loans ............................. $ 134,465 $ 214,900 $ -- Current portion of long-term debt ................ 41,911 38,054 44,948 Trade accounts payable ........................... 138,565 135,169 208,144 Accrued payroll and related costs ................ 51,939 52,749 56,452 Accrued interest payable ......................... 12,247 15,505 9,564 Accrued liabilities .............................. 13,626 16,188 13,142 ---------- ---------- ---------- Total current liabilities .................... 392,753 472,565 332,250 Long-term debt ........................................ 983,065 843,452 986,527 Other liabilities ..................................... 108,117 83,926 85,427 ---------- ---------- ---------- Total liabilities ............................ 1,483,935 1,399,943 1,404,204 Stockholders' equity (deficiency) Common stock ..................................... 205 204 204 Paid-in capital .................................. 118,258 118,349 118,099 Retained earnings (accumulated deficit) .......... (39,751) (77,990) (76,702) Accumulated other comprehensive income (loss) .... (7,316) (852) (1,588) Treasury stock ................................... (60,393) (60,393) (60,393) ---------- ---------- ---------- Total stockholders' equity (deficiency) ...... 11,003 (20,682) (20,380) ---------- ---------- ---------- $1,494,938 $1,379,261 $1,383,824 ========== ========== ==========
See accompanying notes. -3- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the three months ended September 30, 2001 and 2000 (Dollars and shares in thousands, except per share amounts) (Unaudited)
2001 2000 ---- ---- Net sales ............................................. $590,791 $571,369 Cost of goods sold .................................... 511,813 496,861 -------- -------- Gross profit ..................................... 78,978 74,508 Selling, general and administrative expenses .......... 18,667 17,732 -------- -------- Income from operations ........................... 60,311 56,776 Gain on assets contributed to affiliate ............... 5,337 -- Interest and other debt expense ....................... 19,702 23,500 -------- -------- Income before income taxes and equity in losses of affiliates ........................ 45,946 33,276 Provision for income taxes ............................ 18,468 12,978 -------- -------- Income before equity in losses of affiliates ..... 27,478 20,298 Equity in losses of affiliates ........................ 199 1,813 -------- -------- Net income ....................................... $ 27,279 $ 18,485 ======== ======== Per share data Basic earnings per share ......................... $1.53 $1.04 ===== ===== Diluted earnings per share ....................... $1.50 $1.03 ===== ===== Weighted average number of shares Basic ........................................... 17,812 17,703 Assumed exercise of employee stock options ...... 329 289 ------ ------ Diluted ......................................... 18,141 17,992 ====== ======
See accompanying notes. -4- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the nine months ended September 30, 2001 and 2000 (Dollars and shares in thousands, except per share amounts) (Unaudited)
2001 2000 ---- ---- Net sales ............................................. $1,479,722 $1,420,080 Cost of goods sold .................................... 1,292,622 1,244,211 ---------- ---------- Gross profit ..................................... 187,100 175,869 Selling, general and administrative expenses .......... 56,656 54,085 Rationalization charge ................................ 3,490 -- ---------- ---------- Income from operations ........................... 126,954 121,784 Gain on assets contributed to affiliate ............... 5,337 -- Interest and other debt expense ....................... 63,818 66,097 ---------- ---------- Income before income taxes and equity in losses of affiliates ........................ 68,473 55,687 Provision for income taxes ............................ 27,519 21,719 ---------- ---------- Income before equity in losses of affiliates ..... 40,954 33,968 Equity in losses of affiliates ........................ 4,003 3,948 ---------- ---------- Net income ....................................... $ 36,951 $ 30,020 ========== ========== Per share data Basic earnings per share ......................... $2.08 $1.70 ===== ==== Diluted earnings per share ....................... $2.05 $1.67 ===== ===== Weighted average number of shares Basic ........................................... 17,752 17,634 Assumed exercise of employee stock options ...... 300 365 ------ ------ Diluted ......................................... 18,052 17,999 ====== ======
See accompanying notes. -5- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW For the nine months ended September 30, 2001 and 2000 (Dollars in thousands) (Unaudited)
2001 2000 ---- ---- Cash flows provided by (used in) operating activities Net income .............................................. $ 36,951 $ 30,020 Adjustments to reconcile net income to net cash used in operating activities: Depreciation ........................................ 66,007 62,350 Amortization ........................................ 5,677 4,115 Rationalization charge .............................. 3,490 -- Gain on assets contributed to affiliate ............. (5,337) -- Equity in losses of affiliates ...................... 4,003 3,948 Other changes that provided (used) cash: Trade accounts receivable, net ................. (151,756) (204,380) Inventories .................................... 6,196 (226) Trade accounts payable ......................... (69,579) (40,261) Other, net ..................................... 18,260 (1,323) --------- --------- Net cash used in operating activities ............... (86,088) (145,757) --------- --------- Cash flows provided by (used in) investing activities Investment in equity affiliate .......................... (3,039) (7,026) Proceeds from affiliate ................................. 32,388 -- Capital expenditures .................................... (67,025) (60,401) Proceeds from asset sales ............................... 309 1,167 --------- --------- Net cash used in investing activities ............... (37,367) (66,260) --------- --------- Cash flows provided by (used in) financing activities Borrowings under revolving loans ........................ 602,424 682,824 Repayments under revolving loans ........................ (468,019) (467,924) Repurchase of common stock .............................. -- (1,075) Proceeds from stock option exercises .................... 982 512 Repayments of long-term debt ............................ (6,252) (1,217) --------- --------- Net cash provided by financing activities ........... 129,135 213,120 --------- --------- Cash and cash equivalents Net increase ............................................ 5,680 1,103 Balance at beginning of year ............................ 20,073 2,411 --------- --------- Balance at end of period ................................ $ 25,753 $ 3,514 ========= ========= Interest paid ................................................ $ 61,453 $ 60,548 Income taxes paid ............................................ 5,208 8,505
See accompanying notes. -6- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) For the nine months ended September 30, 2000 and 2001 (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, 1999 ............ 17,547 $201 $118,666 $(108,010) $ (273) $(59,318) $(48,734) Comprehensive income: Net income ........................ -- -- -- 30,020 -- -- 30,020 Foreign currency translation ...... -- -- -- -- (579) -- (579) -------- Comprehensive income .................... 29,441 Repurchase of common stock .............. (100) -- -- -- -- (1,075) (1,075) Stock option exercises, net of tax provision of $826 ................ 256 3 (317) -- -- -- (314) ------ ---- ------- --------- ------- -------- -------- Balance at September 30, 2000 ........... 17,703 $204 $118,349 $ (77,990) $ (852) $(60,393) $(20,682) ====== ==== ======== ========= ======= ======== ======== Balance at December 31, 2000 ............ 17,703 $204 $118,099 $ (76,702) $(1,588) $(60,393) $(20,380) Comprehensive income: Net income ........................ -- -- -- 36,951 -- -- 36,951 Change in fair value of derivatives, net of tax benefit of $3,152 ... -- -- -- -- (4,690) -- (4,690) Foreign currency translation ...... -- -- -- -- (1,038) -- (1,038) -------- Comprehensive income .................... 31,223 Dilution of investment in equity affiliate ..................... -- -- (1,402) -- -- -- (1,402) Stock option exercises, including tax benefit of $580 .................. 143 1 1,561 -- -- -- 1,562 ------ ---- ------- --------- ------- -------- -------- Balance at September 30, 2001 ........... 17,846 $205 $118,258 $ (39,751) $(7,316) $(60,393) $11,003 ====== ==== ======== ========= ======= ======== ========
See accompanying notes. -7- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2001 and 2000 and for the three and nine 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 September 30, 2001 and 2000 and for the three and nine 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 September 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 September 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). In October 2001, the Company entered into two interest rate swap agreements for an aggregate notional principal amount of $50 million. Under these agreements, the Company pays a fixed rate of interest of 3.8% and receives a floating rate of interest based on three month LIBOR. Both agreements mature in 2004. The Company has entered into natural gas swap agreements to manage its exposure to fluctuations in natural gas prices. At September 30, 2001 and January 1, 2001, the aggregate notional amount of these agreements was 850,000 MMBtu and 170,000 MMBtu of natural gas, respectively. Under these agreements at September 30, 2001, the Company pays a fixed natural gas price ranging from $4.04 per MMBtu to $5.73 per MMBtu and receives a NYMEX-based natural gas price. These agreements mature at various times through June 2002. In October and November 2001, the Company entered into natural gas swap agreements for an aggregate notional amount of 1,000,000 MMBtu. Under these agreements, the Company pays fixed natural gas prices ranging from $2.34 per MMBtu to $3.91 per MMBtu and receives a NYMEX-based natural gas price. These agreements mature at various times through March 2003. 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 are 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 are recorded in net earnings. -9- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2001 and 2000 and for the three and nine months then ended is unaudited) Note 2. New Accounting Pronouncements (continued) 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 September 30, 2001 was $8.1 million and was recorded in other liabilities. As a result, the Company recorded an additional charge to accumulated other comprehensive income (loss) of $4.6 million, net of both taxes and net losses reclassified to earnings. The Company estimates that it will reclassify $1.2 million, net of tax, of the amount recorded in accumulated other comprehensive income (loss) as a charge to earnings during the next three months. The actual amount that will be reclassified to earnings will vary from this amount as a result of changes in market conditions. 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. Impairment and Disposal of Long-Lived Assets and Discontinued Operations ------------------------------------------------------------------------ In October 2001, the Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This Statement 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 ("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." The Company does not expect the adoption of this standard on January 1, 2002 to have a significant impact on its financial position or results of operations. 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 primarily through 2001. -10- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2001 and 2000 and for the three and nine months then ended is unaudited) Note 3. Rationalization Charges and Acquisition Reserves (continued) As part of its plans to integrate the operations of its various acquired businesses, including the Food Metal and Specialty business of American National Can Company ("AN Can"), the steel container manufacturing business of Campbell Soup Company ("CS Can"), Clearplass Containers, Inc. ("Clearplass") and Winn Packaging Co. ("Winn"), and rationalize certain facilities, the Company has established reserves for employee severance and benefits, plant exit costs and acquisition liabilities. These costs are expected to be incurred primarily through 2002. Activity in the Company's rationalization and acquisition reserves since December 31, 2000 is summarized as follows:
Employee Plant Severance Exit Acquisition and Benefits Costs Liabilities Total ------------ ----- ----------- ----- (Dollars in thousands) Balance at December 31, 2000 ---------------------------- AN Can Acquisition ....................................... $2,364 $2,622 $ 4,000 $ 8,986 CS Can, Clearplass and Winn Acquisitions ................. -- 2,123 252 2,375 San Leandro and City of Industry Plant Closings .......... -- 606 -- 606 Other Acquisitions ....................................... -- 208 -- 208 ------ ------ ------- ------- Balance at December 31, 2000 ............................. 2,364 5,559 4,252 12,175 Activity for the Nine Months Ended September 30, 2001 ----------------------------------------------------- AN Can Acquisition ....................................... (763) (166) (2,000) (2,929) CS Can, Clearplass and Winn Acquisitions ................. -- (230) (252) (482) San Leandro and City of Industry Plant Closings .......... -- (297) -- (297) Fairfield Plant Rationalization Charge ................... 874 2,616 -- 3,490 Fairfield Plant Closing .................................. (629) (687) -- (1,316) Other Acquisitions ....................................... -- (183) -- (183) ------ ------ ------- ------- Total Activity ........................................... (518) 1,053 (2,252) (1,717) Balance at September 30, 2001 ----------------------------- AN Can Acquisition ....................................... 1,601 2,456 2,000 6,057 CS Can, Clearplass and Winn Acquisitions ................. -- 1,893 -- 1,893 San Leandro and City of Industry Plant Closings .......... -- 309 -- 309 Fairfield Plant Closing .................................. 245 1,929 -- 2,174 Other Acquisitions ....................................... -- 25 -- 25 ------ ------ ------- ------- Balance at September 30, 2001 ............................ $1,846 $6,612 $ 2,000 $10,458 ====== ====== ======= =======
-11- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2001 and 2000 and for the three and nine 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: Sept. 30, Sept. 30, Dec. 31, 2001 2000 2000 ---- ---- ---- (Dollars in thousands) Accrued liabilities .......... $ 7,745 $ 7,797 $ 7,462 Other liabilities ............ 2,713 6,114 4,713 ------- ------- ------- $10,458 $13,911 $12,175 ======= ======= ======= Note 4. Comprehensive Income (Loss) Comprehensive income is reported in the Condensed Consolidated Statements of Stockholders' Equity (Deficiency). Amounts included in accumulated other comprehensive income (loss) consisted of the following: Sept. 30, Sept. 30, Dec. 31, 2001 2000 2000 ---- ---- ---- (Dollars in thousands) Foreign currency translation ........... $(1,729) $(752) $ (691) Change in fair value of derivatives .... (4,690) -- -- Minimum pension liability .............. (897) (100) (897) ------- ----- ------- Accumulated other comprehensive income (loss) ..................... $(7,316) $(852) $(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 $4.6 million, net of both tax and net losses reclassified to earnings, for the change in fair value of derivatives for the nine months ended September 30, 2001. The amounts reclassified to earnings from accumulated other comprehensive income (loss) for the three and nine month periods ended September 30, 2001 were net losses of $0.9 million and $1.3 million, respectively. -12- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2001 and 2000 and for the three and nine months then ended is unaudited) Note 5. Inventories Inventories consisted of the following: Sept. 30, Sept. 30, Dec. 31, 2001 2000 2000 ---- ---- ---- (Dollars in thousands) Raw materials ........................ $ 33,798 $ 36,242 $ 43,873 Work-in-process ...................... 42,907 50,279 51,191 Finished goods ....................... 163,766 144,397 165,680 Spare parts and other ................ 9,467 11,743 11,698 -------- -------- -------- 249,938 242,661 272,442 Adjustment to value inventory at cost on the LIFO method ........ 7,713 7,136 7,295 -------- -------- -------- $257,651 $249,797 $279,737 ======== ======== ======== Note 6. Investments White Cap LLC ------------- Effective July 1, 2001, the Company formed a joint venture company with Schmalbach-Lubeca AG that supplies 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 of cash proceeds from the joint venture. Net sales for the two facilities contributed totaled approximately $88 million in 2000. The Company accounts for its investment in the White Cap joint venture using the equity method. During the third quarter of 2001, the Company recorded equity losses of the White Cap joint venture of $0.2 million and a gain on the assets contributed to the venture of $5.3 million. 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. -13- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2001 and 2000 and for the three and nine months then ended is unaudited) Note 6. Investments (continued) Packtion Corporation (continued) -------------------- 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. During the first six months of 2001, the Company recorded equity losses of Packtion aggregating $3.8 million which included its final losses and eliminated its investment in Packtion. Note 7. Long-Term Debt Long-term debt consisted of the following:
Sept. 30, Sept. 30, Dec. 31, 2001 2000 2000 ---- ---- ---- (Dollars in thousands) Bank debt Bank Revolving Loans .................. $ 503,400 $ 340,100 $ 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 ................ 5,129 12,558 12,850 ---------- ---------- ---------- Total bank debt .................... 856,289 737,200 728,010 Subordinated debt 9% Senior Subordinated Debentures ..... 300,000 300,000 300,000 13 1/4% Subordinated Debentures ....... -- 56,206 -- Other ................................. 3,152 3,000 3,465 ---------- ---------- ---------- Total subordinated debt ............ 303,152 359,206 303,465 Total debt ................................. 1,159,441 1,096,406 1,031,475 Less current portion .................. 176,376 252,954 44,948 ---------- ---------- ---------- $ 983,065 $ 843,452 $ 986,527 ========== ========== ==========
-14- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2001 and 2000 and for the three and nine months then ended is unaudited) Note 7. Long-Term Debt (continued) Under the Company's U.S. senior secured bank credit facility (the "U.S. Credit Agreement"), the Company has available to it $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 September 30, 2001, bank revolving loans under the U.S. Credit Agreement consisted of $134.5 million related primarily to seasonal working capital needs and $368.9 million related primarily to long-term financing of acquisitions. At September 30, 2001, amounts expected to be repaid within one year consisted of $134.5 million of bank revolving loans and $41.9 million of bank term loans. Bank revolving loans not expected to be repaid within one year have been reclassified as long-term debt. -15- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2001 and 2000 and for the three and nine months then ended is unaudited) Note 8. Business Segment Information As a result of the White Cap joint venture, the Company no longer reports the results of its remaining specialty packaging business as a separate segment. The results of the Omni plastic container and Polystar easy-open plastic end businesses are reported with the plastic container business, and the results of the paperboard container business are reported with the metal food container business. The historical results of the metal closure business are reported separately. Prior year amounts have been restated to conform with the current presentation. Reportable business segment information for the Company's business segments is as follows:
Metal Food Plastic Metal Containers Containers(1) Closures Other(2) Total ---------- ---------- -------- ----- ----- (Dollars in thousands) Three Months Ended September 30, 2001 ------------------------------------- Net sales .................................... $ 471,969 $118,822 $ -- $ -- $ 590,791 EBITDA(3) .................................... 65,063 19,284 -- (1,196) 83,151 Depreciation and amortization(4) ............. 13,627 9,194 -- 19 22,840 Segment profit (loss) ........................ 51,436 10,090 -- (1,215) 60,311 Three Months Ended September 30, 2000 ------------------------------------- Net sales .................................... $ 454,852 $ 93,344 $23,173 $ -- $ 571,369 EBITDA (3) ................................... 62,425 14,911 1,867 (792) 78,411 Depreciation and amortization (4) ............ 13,468 6,959 1,183 25 21,635 Segment profit (loss) ........................ 48,957 7,952 684 (817) 56,776 Nine Months Ended September 30, 2001 ------------------------------------ Net sales .................................... $1,055,432 $378,040 $46,250 $ -- $1,479,722 EBITDA (3) ................................... 130,945 67,399 5,743 (3,216) 200,871 Depreciation and amortization (4) ............ 40,281 27,599 2,475 72 70,427 Segment profit (loss) ........................ 90,664 39,800 3,268 (3,288) 130,444 Nine Months Ended September 30, 2000 ------------------------------------ Net sales .................................... $1,070,623 $277,728 $71,729 $ -- $1,420,080 EBITDA (3) ................................... 136,151 46,578 7,274 (2,950) 187,053 Depreciation and amortization(4) ............. 39,742 21,726 3,725 76 65,269 Segment profit (loss) ........................ 96,409 24,852 3,549 (3,026) 121,784
-16- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2001 and 2000 and for the three and nine months then ended is unaudited) Note 8. Business Segment Information (continued) (1) Excludes a rationalization charge of $3.5 million for the nine months ended September 30, 2001 related to the closing of a facility. (2) Provides information pertaining to the corporate holding company. (3) EBITDA means earnings before equity in losses of affiliates, interest, income taxes, depreciation and amortization, as adjusted to add back rationalization charges and subtract the gain on assets contributed to affiliate. 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 September 30, 2001 and 2000 and of $1.3 and $1.2 million for the nine months ended September 30, 2001 and 2000, respectively. Total segment profit is reconciled to income before income taxes and equity in losses of affiliates as follows:
Three Months Ended Nine Months Ended ----------------------- ------------------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2001 2000 2001 2000 ---- ---- ---- ---- (Dollars in thousands) Total segment profit ......................... $60,311 $56,776 $130,444 $121,784 Rationalization charge ....................... -- -- 3,490 -- Gain on assets contributed to affiliate .............................. 5,337 -- 5,337 -- Interest and other debt expense .............. 19,702 23,500 63,818 66,097 ------- ------- -------- -------- Income before income taxes and equity in losses of affiliates ......... $45,946 $33,276 $ 68,473 $ 55,687 ======= ======= ======== ========
-17- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2001 and 2000 and for the three and nine months then ended is unaudited) Note 9. Subsequent Event On November 9, 2001, The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II") completed a public offering of 4,100,000 shares of common stock of the Company owned by it at $19.00 per share. MSLEF II has also granted the underwriters an option, exercisable at any time until December 6, 2001, to purchase up to an additional 492,000 shares owned by it to cover over-allotments, if any, at the offering price. The Company did not sell any shares in the offering and did not receive any proceeds from the sale of the shares in the offering. Following the offering, MSLEF II will own 1,735,842 shares, or 9.7%, of the Company's common stock, assuming no exercise of the underwriters over-allotment option. The shares that were sold were registered pursuant to registration rights of MSLEF II under a stockholders agreement with the Company. -18- 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 three months ended September 30, 2001 and 2000 are provided below. 2001 2000 ---- ---- (Dollars in millions) Net sales (1) Metal food containers ............... $472.0 $454.9 Plastic containers .................. 118.8 93.3 Metal closures ...................... -- 23.2 ------ ------ Consolidated ..................... $590.8 $571.4 ====== ====== Operating profit (1) Metal food containers ............... $ 51.4 $ 48.9 Plastic containers .................. 10.1 8.0 Metal closures ...................... -- 0.7 Other ............................... (1.2) (0.8) ------ ------ Consolidated ..................... $ 60.3 $ 56.8 ====== ====== ------------- (1) As a result of the White Cap joint venture, the Company no longer reports the results of its remaining specialty packaging business, which had net sales of approximately $36 million in 2000, as a separate segment. The results of the Omni plastic container and Polystar easy-open plastic end businesses are reported with the plastic container business, and the results of the paperboard container business are reported with the metal food container business. The historical results of the metal closure business are reported separately. Prior year amounts have been restated to conform with the current presentation. -19- Three Months Ended September 30, 2001 Compared with Three Months Ended September 30, 2000 Net Sales. Consolidated net sales increased $19.4 million, or 3.4%, to $590.8 million for the three months ended September 30, 2001, as compared to net sales of $571.4 million for the same three months in the prior year. This increase was the result of higher net sales in the plastic container and metal food container businesses, partially offset by the impact of contributing the metal closure business to the White Cap joint venture. Net sales for the metal food container business were $472.0 million for the three months ended September 30, 2001, an increase of $17.1 million, or 3.8%, from net sales of $454.9 million for the same period in 2000. This increase was primarily attributable to the acquisition of new food can accounts, largely offset by a weaker fruit and vegetable pack as compared to last year. Net sales for the plastic container business of $118.8 million during the three months ended September 30, 2001 increased $25.5 million, or 27.3%, from net sales of $93.3 million for the same period in 2000. This increase in net sales was largely due to the acquisition of RXI Plastics, Inc. ("RXI Plastics") in October 2000. Excluding RXI Plastics, third quarter 2001 net sales were essentially unchanged from net sales for the same period last year, reflecting generally softer market conditions as compared to earlier in the year. Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales was 86.6% ($511.8 million) for the three months ended September 30, 2001, a decrease of 0.4 percentage points as compared to 87.0% ($496.9 million) for the same period in 2000. Excluding the impact of contributing the metal closure business to the White Cap joint venture, the gross profit margin for the third quarter of 2001 was essentially unchanged from the same period in 2000. Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of consolidated net sales increased by 0.1 percentage points to 3.2% ($18.7 million) for the three months ended September 30, 2001, as compared to 3.1% ($17.7 million) for the same period in 2000. This slight increase was principally the result of higher selling, general and administrative expenses in the plastic container business, partially offset by lower selling, general and administrative expenses in the metal food container business. Income from Operations. Income from operations for the third quarter of 2001 increased $3.5 million, or 6.2%, to $60.3 million, as compared to $56.8 million in the same period in 2000. This increase was a result of a favorable sales mix in the metal food container business and higher sales in the plastic container business, partially offset by the impact of contributing the metal closure business to the White Cap joint venture. Income from operations as a percentage of consolidated net sales for the three months ended September 30, 2001 improved 0.3 percentage points to 10.2%, as compared to 9.9% for the same period in 2000. Excluding the impact of contributing the metal closure business to the White Cap joint venture, income from operations as a percentage of consolidated net sales for the third quarter of 2001 was essentially unchanged from the same period in 2000. -20- Income from operations as a percentage of net sales for the metal food container business increased 0.2 percentage points to 10.9% ($51.4 million) for the three months ended September 30, 2001, as compared to 10.7% ($48.9 million) for the same period in 2000. The slight increase in income from operations as a percentage of net sales for the metal food container business was primarily a result of a favorable sales mix. Income from operations for the plastic container business for the three months ended September 30, 2001 increased $2.1 million, or 26.3%, to $10.1 million, as compared to $8.0 million for the same period in 2000. This increase was primarily a result of higher unit volume. Income from operations as a percentage of net sales for the plastic container business was 8.5% for the three months ended September 30, 2001, essentially unchanged from the same period in 2000. Interest Expense. Interest expense decreased $3.8 million to $19.7 million for the three months ended September 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 Plastics. Income Taxes. The provision for income taxes for the three months ended September 30, 2001 and 2000 was recorded at an effective income tax rate of 40.2% and 39.0%, respectively ($18.5 million and $13.0 million, respectively). Net Income and Earnings per Share. Earnings for the three months ended September 30, 2001 before the impact of the investment in the White Cap joint venture were $24.3 million, or $1.34 per diluted share, as compared to $20.3 million, or $1.13 per diluted share, for the same period in the prior year before the impact of the investment in Packtion. Including the pre-tax gain on the assets contributed to the White Cap joint venture of $5.3 million and equity losses of the White Cap joint venture of $0.2 million, or a combined $0.16 per diluted share, net earnings for the three months ended September 30, 2001 were $27.3 million, or $1.50 per diluted share, as compared to $18.5 million, or $1.03 per diluted share, for the same period in 2000 including equity losses in Packtion of $1.8 million, or $0.10 per diluted share. -21- RESULTS OF OPERATIONS - NINE MONTHS Summary unaudited results of operations for the nine months ended September 30, 2001 and 2000 are provided below. 2001 2000 ---- ---- (Dollars in millions) Net sales (1) Metal food containers ............. $1,055.4 $1,070.6 Plastic containers ................ 378.0 277.7 Metal closures .................... 46.3 71.8 -------- -------- Consolidated ................... $1,479.7 $1,420.1 ======== ======== Operating profit (1) Metal food containers ............. $ 90.7 $ 96.4 Plastic containers (2) ............ 36.3 24.9 Metal closures .................... 3.3 3.5 Other ............................. (3.3) (3.0) -------- -------- Consolidated ................... $ 127.0 $ 121.8 ======== ======== ------------- (1) As a result of the White Cap joint venture, the Company no longer reports the results of its remaining specialty packaging business, which had net sales of approximately $36 million in 2000, as a separate segment. The results of the Omni plastic container and Polystar easy-open plastic end businesses are reported with the plastic container business, and the results of the paperboard container business are reported with the metal food container business. The historical results of the metal closure business are reported separately. Prior year amounts have been restated to conform with the current presentation. (2) Includes a rationalization charge of $3.5 million in the first quarter of 2001 related to the closing of a facility. Nine Months Ended September 30, 2001 Compared with Nine Months Ended September 30, 2000 Net Sales. Consolidated net sales increased $59.6 million, or 4.2%, to $1.480 billion for the nine months ended September 30, 2001, as compared to net sales of $1.420 billion for the same nine 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 business and the impact of contributing the metal closure business to the White Cap joint venture. Net sales for the metal food container business were $1.055 billion for the nine months ended September 30, 2001, a decrease of $15.2 million, or 1.4%, from net sales of $1.071 billion for the same period in 2000. This decrease was primarily attributable to lower net sales due to generally soft market conditions and a weaker fruit and vegetable pack as compared to last year, partially offset by the acquisition of new food can accounts. -22- Net sales for the plastic container business of $378.0 million during the nine months ended September 30, 2001 increased $100.3 million, or 36.1%, from net sales of $277.7 million for the same period in 2000. This increase in net sales was principally attributable to the acquisition of RXI Plastics in October 2000 and higher unit sales from the existing business. Excluding RXI Plastics, net sales during the nine months ended September 30, 2001 increased $15.9 million, or 5.7%, versus the same period last year. Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales was 87.4% ($1.293 billion) for the nine months ended September 30, 2001, a decrease of 0.2 percentage points as compared to 87.6% ($1.244 billion) 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 business. Selling, General and Administrative Expenses. Selling, general and administrative expenses were 3.8% of consolidated net sales for the nine months ended September 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 nine months ended September 30, 2001 increased $8.7 million, or 7.1%, to $130.5 million, as compared to $121.8 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 business and, to a lesser extent, the impact of contributing the metal closure business to the White Cap joint venture. Excluding the rationalization charge, income from operations as a percentage of consolidated net sales for the nine months ended September 30, 2001 improved 0.2 percentage points to 8.8%, as compared to 8.6% 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. Including the rationalization charge, income from operations for the nine months ended September 30, 2001 was $127.0 million or 8.6% of consolidated net sales. Income from operations as a percentage of net sales for the metal food container business decreased 0.4 percentage points to 8.6% ($90.7 million) for the nine months ended September 30, 2001, as compared to 9.0% ($96.4 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 energy costs, 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 1.5 percentage points to 10.5% ($39.8 million) for the nine months ended September 30, 2001, as compared to 9.0% ($24.9 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 nine months ended September 30, 2001 was $36.3 million or 9.6% of net sales. -23- Interest Expense. Interest expense decreased $2.3 million to $63.8 million for the nine months ended September 30, 2001 as compared to the same period in 2000. The benefits of lower interest rates more than offset the impact of higher average borrowings outstanding during the first nine months of 2001, principally due to debt incurred in October 2000 for the acquisition of RXI Plastics. Income Taxes. The provision for income taxes for the nine months ended September 30, 2001 and 2000 was recorded at an effective income tax rate of 40.2% and 39.0%, respectively ($27.5 million and $21.7 million, respectively). Net Income and Earnings per Share. Earnings before the impact of the investments in Packtion and the White Cap joint venture and before the first quarter 2001 rationalization charge relating to closing a plastic container manufacturing facility were $39.9 million, or $2.21 per diluted share, for the first nine months of 2001. Earnings before the impact of the investment in Packtion for the first nine months of 2000 were $33.9 million, or $1.89 per diluted share. Including equity losses of Packtion and the White Cap joint venture of a combined $4.0 million, or $0.22 per diluted share, the pre-tax gain on the assets contributed to the White Cap joint venture of $5.3 million, or $0.18 per diluted share, and the first quarter pre-tax rationalization charge of $3.5 million, or $0.12 per diluted share, the Company's net earnings were $37.0 million, or $2.05 per diluted share, for the first nine months of 2001. Including equity losses of Packtion of $3.9 million, or $0.22 per diluted share, the Company's net earnings were $30.0 million, or $1.67 per diluted share, for the first nine months of 2000. -24- CAPITAL RESOURCES AND LIQUIDITY The Company's liquidity requirements arise primarily from its obligations under the indebtedness incurred in connection with its acquisitions and the refinancing of such indebtedness, capital investment in new and existing equipment and the funding of the Company's seasonal working capital needs. Historically, the Company has met these liquidity requirements through cash flow generated from operating activities and revolving loan borrowings. For the nine months ended September 30, 2001, the Company used net borrowings of revolving loans of $134.4 million under the U.S. Credit Agreement, cash proceeds from White Cap of $32.4 million and the proceeds from stock option exercises of $1.0 million to fund cash used by operations of $86.1 million for the Company's seasonal working capital needs, net capital expenditures of $66.7 million, the repayment of $6.3 million of long-term debt and its investment in Packtion of $3.0 million and to increase cash balances by $5.7 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. During the second quarter of 2001, at its month-end peak, 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. The unused portion of revolving loan commitments under the Company's credit agreements at its 2001 month-end borrowing peak, after taking into account outstanding letters of credit, was $112.1 million. Amounts available under the Company's revolving loan facilities in excess of its seasonal working capital needs are available to the Company to pursue its growth strategy and for other permitted purposes. As of September 30, 2001, the Company had $503.4 million of revolving loans outstanding under the U.S. Credit Agreement, of which $134.5 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 September 30, 2001, after taking into account outstanding letters of credit, was $155.2 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 primarily through 2001. See Note 3 to the Condensed Consolidated Financial Statements included herein. -25- 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. During the first six months of 2001, the Company recorded equity losses of Packtion aggregating $3.8 million which included its final losses and eliminated its investment in Packtion. Effective July 1, 2001, the Company formed a joint venture company with Schmalbach-Lubeca AG that supplies 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. During the third quarter of 2001, the Company recorded equity losses of the White Cap joint venture of $0.2 million and a gain on assets contributed to the venture of $5.3 million. The Company's Board of Directors has authorized the repurchase of up to $70 million of its common stock. As of September 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. 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. -26- 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. 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. In October 2001, the Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This Statement 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." The Company does not expect the adoption of this standard on January 1, 2002 to have a significant impact on its financial position or results of operations. -27- 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 two years by entering into natural gas swap agreements with major trading companies 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 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 October 24, 2001, the Company filed a Current Report on Form 8-K with which it filed a copy of its press release announcing its financial results for the three and nine month periods ended September 30, 2001. 2. On October 26, 2001, the Company filed a Current Report on Form 8-K with which it furnished pursuant to Regulation FD, but did not file, a copy of its press release regarding its estimated 2001 and preliminary 2002 earnings. -28- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized. SILGAN HOLDINGS INC. Dated: November 14, 2001 /s/Harley Rankin, Jr. ------------------------- ------------------------------- Harley Rankin, Jr. Executive Vice President and Chief Financial Officer (Principal Financial Officer) Dated: November 14, 2001 /s/Nancy Merola ------------------------- ---------------------------- Nancy Merola Vice President and Controller (Chief Accounting Officer) -29- EXHIBIT INDEX EXHIBIT NO. EXHIBIT ----------- ------- 12 Ratio of Earnings to Fixed Charges for the three and nine months ended September 30, 2001 and 2000 -30-