-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NCOWz49u7AYEnqiwcMZf3yYR/PTlKb+mC9ueTEy+r/Fp5TV3ihx541CKiP7qp4LO 05iCKa++XrKfYIE4mG1QMA== 0000849869-02-000018.txt : 20021114 0000849869-02-000018.hdr.sgml : 20021114 20021114144226 ACCESSION NUMBER: 0000849869-02-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILGAN HOLDINGS INC CENTRAL INDEX KEY: 0000849869 STANDARD INDUSTRIAL CLASSIFICATION: METAL CANS [3411] IRS NUMBER: 061269834 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22117 FILM NUMBER: 02824431 BUSINESS ADDRESS: STREET 1: 4 LANDMARK SQ CITY: STAMFORD STATE: CT ZIP: 06901 BUSINESS PHONE: 2039757110 10-Q 1 thirdquarterq02.txt 10-Q FOR THE PERIOD ENDING 9/30/02 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, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ________________ to ________________ Commission file number 000-22117 SILGAN HOLDINGS INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 06-1269834 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 4 Landmark Square Stamford, Connecticut 06901 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code (203) 975-7110 N/A (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] As of October 31, 2002, the number of shares outstanding of the registrant's common stock, $0.01 par value, was 18,230,842. SILGAN HOLDINGS INC. TABLE OF CONTENTS Page No. -------- Part I. Financial Information 3 Item 1. Financial Statements 3 Condensed Consolidated Balance Sheets at 3 September 30, 2002 and 2001 and December 31, 2001 Condensed Consolidated Statements of Income for the 4 three months ended September 30, 2002 and 2001 Condensed Consolidated Statements of Income for the 5 nine months ended September 30, 2002 and 2001 Condensed Consolidated Statements of Cash Flows for 6 the nine months ended September 30, 2002 and 2001 Condensed Consolidated Statements of Stockholders' 7 Equity (Deficiency) for the nine months ended September 30, 2001 and 2002 Notes to Condensed Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial 20 Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure About Market 29 Risk Item 4. Controls and Procedures 29 Part II. Other Information 30 Item 6. Exhibits and Reports on Form 8-K 30 Signatures 31 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act 32 of 2002 Exhibit Index 36 -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, 2002 2001 2001 ---- ---- ---- Assets Current assets Cash and cash equivalents ........................ $ 19,794 $ 25,753 $ 18,009 Trade accounts receivable, net ................... 316,170 313,765 144,903 Inventories ...................................... 274,935 257,651 262,627 Prepaid expenses and other current assets ........ 13,512 19,397 12,053 ---------- ---------- ---------- Total current assets ......................... 624,411 616,566 437,592 Property, plant and equipment, net .................... 688,008 677,305 677,542 Goodwill, net ......................................... 141,457 150,894 141,465 Other assets .......................................... 68,649 50,173 55,221 ---------- ---------- ---------- $1,522,525 $1,494,938 $1,311,820 ========== ========== ========== Liabilities and Stockholders' Equity Current liabilities Bank revolving loans ............................. $ 148,000 $ 134,465 $ -- Current portion of long-term debt ................ 1,750 41,911 57,999 Trade accounts payable ........................... 133,323 138,565 173,851 Accrued payroll and related costs ................ 55,604 51,939 59,215 Accrued interest payable ......................... 18,865 12,247 5,022 Accrued liabilities .............................. 30,211 13,626 21,631 ---------- ---------- ---------- Total current liabilities .................... 387,753 392,753 317,718 Long-term debt ........................................ 956,987 983,065 886,770 Other liabilities ..................................... 107,357 108,117 92,184 Stockholders' equity Common stock ..................................... 209 205 205 Paid-in capital .................................. 124,872 118,258 118,319 Retained earnings (accumulated deficit) .......... 12,679 (39,751) (34,937) Accumulated other comprehensive income (loss) .... (6,939) (7,316) (8,046) Treasury stock ................................... (60,393) (60,393) (60,393) ---------- ---------- ---------- Total stockholders' equity ................... 70,428 11,003 15,148 ---------- ---------- ---------- $1,522,525 $1,494,938 $1,311,820 ========== ========== ==========
See accompanying notes. -3- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the three months ended September 30, 2002 and 2001 (Dollars and shares in thousands, except per share amounts) (Unaudited)
2002 2001 ---- ---- Net sales .............................................. $640,854 $590,791 Cost of goods sold ..................................... 559,620 511,813 -------- -------- Gross profit ...................................... 81,234 78,978 Selling, general and administrative expenses ........... 20,364 18,667 Rationalization credits ................................ (2,619) -- -------- -------- Income from operations ............................ 63,489 60,311 Gain on assets contributed to affiliate ................ -- 5,337 Interest and other debt expense ........................ 19,977 19,702 -------- -------- Income before income taxes and equity in earnings (losses) of affiliates .......................... 43,512 45,946 Provision for income taxes ............................. 17,379 18,468 -------- -------- Income before equity in earnings (losses) of affiliates .................................... 26,133 27,478 Equity in earnings (losses) of affiliates, net of income taxes ................................. 65 (199) -------- -------- Net income ........................................ $ 26,198 $ 27,279 ======== ======== Per share data: Basic earnings per share ......................... $1.44 $1.53 ===== ===== Diluted earnings per share ....................... $1.42 $1.50 ===== ===== Weighted average number of shares: Basic .......................................... 18,226 17,812 Assumed exercise of employee stock options ..... 199 329 ------ ------ Diluted ........................................ 18,425 18,141 ====== ======
See accompanying notes. -4- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the nine months ended September 30, 2002 and 2001 (Dollars and shares in thousands, except per share amounts) (Unaudited)
2002 2001 ---- ---- Net sales .............................................. $1,521,359 $1,479,722 Cost of goods sold ..................................... 1,330,211 1,292,622 ---------- ---------- Gross profit ...................................... 191,148 187,100 Selling, general and administrative expenses ........... 58,640 56,656 Rationalization (credits) charge ....................... (4,878) 3,490 ---------- ---------- Income from operations ............................ 137,386 126,954 Gain on assets contributed to affiliate ................ -- 5,337 Interest and other debt expense ........................ 54,863 63,818 ---------- ---------- Income before income taxes, equity in losses of affiliates and extraordinary item ............ 82,523 68,473 Provision for income taxes ............................. 32,597 27,519 ---------- ---------- Income before equity in losses of affiliates and extraordinary item .......................... 49,926 40,954 Equity in losses of affiliates, net of income taxes .... (1,711) (4,003) ---------- ---------- Income before extraordinary item .................. 48,215 36,951 Extraordinary item - loss on early extinguishment of debt, net of income taxes ...................... (599) -- ---------- ---------- Net income ........................................ $ 47,616 $ 36,951 ========== ========== Basic earnings per share: Income before extraordinary item .................. $ 2.66 $2.08 Extraordinary item ................................ (0.03) -- ------ ----- Basic net income per share ........................ $ 2.63 $2.08 ====== ===== Diluted earnings per share: Income before extraordinary item .................. $ 2.62 $2.05 Extraordinary item ................................ (0.03) -- ------ ----- Diluted net income per share ...................... $ 2.59 $2.05 ====== ===== Weighted average number of shares: Basic ............................................ 18,102 17,752 Assumed exercise of employee stock options ....... 283 300 ------ ------ Diluted .......................................... 18,385 18,052 ====== ======
See accompanying notes. -5- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended September 30, 2002 and 2001 (Dollars in thousands) (Unaudited)
2002 2001 ---- ---- Cash flows provided by (used in) operating activities Net income ........................................... $ 47,616 $ 36,951 Adjustments to reconcile net income to net cash used in operating activities: Depreciation ..................................... 70,499 66,007 Amortization ..................................... 2,280 5,677 Rationalization (credits) charge ................. (4,878) 3,490 Gain on assets contributed to affiliate .......... -- (5,337) Equity in losses of affiliates ................... 2,805 4,003 Extraordinary item ............................... 983 -- Other changes that provided (used) cash: Trade accounts receivable, net .............. (171,267) (151,756) Inventories ................................. (12,308) 6,196 Trade accounts payable ...................... (40,528) (69,579) Accrued liabilities ......................... 20,343 (5,767) Other, net .................................. 18,207 24,027 ----------- ----------- Net cash used in operating activities ............ (66,248) (86,088) ----------- ----------- Cash flows provided by (used in) investing activities Investment in equity affiliate ....................... -- (3,039) Proceeds from joint venture .......................... -- 32,388 Capital expenditures ................................. (77,653) (67,025) Proceeds from asset sales ............................ 844 309 ----------- ----------- Net cash used in investing activities ............ (76,809) (37,367) ----------- ----------- Cash flows provided by (used in) financing activities Borrowings under revolving loans ..................... 953,730 602,424 Repayments under revolving loans ..................... (1,138,755) (468,019) Proceeds from issuance of long-term debt ............. 656,000 -- Proceeds from stock option exercises ................. 4,303 982 Debt issuance costs .................................. (21,613) -- Repayments of long-term debt ......................... (308,823) (6,252) ----------- ----------- Net cash provided by financing activities ........ 144,842 129,135 ----------- ----------- Cash and cash equivalents Net increase ......................................... 1,785 5,680 Balance at beginning of year ......................... 18,009 20,073 ----------- ----------- Balance at end of period ............................. $ 19,794 $ 25,753 =========== =========== Interest paid ............................................. $ 40,520 $ 61,453 Income taxes paid, net of refunds ......................... 3,993 5,208
See accompanying notes. -6-
SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) For the nine months ended September 30, 2001 and 2002 (Dollars and shares in thousands) (Unaudited) Common Stock Retained Accumulated Total ------------ earnings other stockholders' Par Paid-in (accumulated comprehensive Treasury equity Shares value capital deficit) income (loss) stock (deficiency) ------ ----- ------- ------- ------------- ----- ---------- Balance at December 31, 2000 ............... 17,703 $204 $118,099 $(76,702) $(1,588) $(60,393) $(20,380) Comprehensive income: Net income ........................... -- -- -- 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 ====== ==== ======== ======== ======= ======== ======== Balance at December 31, 2001 ............... 17,854 $205 $118,319 $(34,937) $(8,046) $(60,393) $ 15,148 Comprehensive income: Net income ........................... -- -- -- 47,616 -- -- 47,616 Minimum pension liability ............ -- -- -- -- (115) -- (115) Change in fair value of derivatives, net of tax provision of $925 ...... -- -- -- -- 1,389 -- 1,389 Foreign currency translation ......... -- -- -- -- (167) -- (167) -------- Comprehensive income ....................... 48,723 Stock option exercises, including tax benefit of $2,254 ................... 377 4 6,553 -- -- -- 6,557 ------ ---- -------- -------- ------- -------- -------- Balance at September 30, 2002 .............. 18,231 $209 $124,872 $ 12,679 $(6,939) $(60,393) $ 70,428 ====== ==== ======== ======== ======= ======== ========
See accompanying notes. -7- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2002 and 2001 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. have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation. The results of operations for any interim period are not necessarily indicative of the results of operations for the full year. The condensed consolidated balance sheet at December 31, 2001 has been derived from our audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. You should read the accompanying financial statements in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2001. Certain prior year amounts have been reclassified to conform with the current year's presentation. Note 2. Recently Issued Accounting Pronouncements Business Combinations and Goodwill and Other Intangible Assets - -------------------------------------------------------------- Effective January 1, 2002, we adopted Statement of Financial Accounting Standards, or SFAS, No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 revises the accounting treatment for business combinations to require the use of purchase accounting and prohibit the use of the pooling-of-interests method for business combinations initiated after June 30, 2001. SFAS No. 142 revises the accounting for goodwill to eliminate amortization of goodwill on transactions consummated after June 30, 2001 and of all other goodwill as of January 1, 2002. Other intangible assets will continue to be amortized over their useful lives. SFAS No. 142 also requires goodwill and other intangibles to be assessed for impairment each year and more frequently if circumstances indicate a possible impairment. During the second quarter of 2002, we completed the initial transitional impairment test as of January 1, 2002 and determined that goodwill was not impaired. -8- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2002 and 2001 and for the three and nine months then ended is unaudited) Note 2. Recently Issued Accounting Pronouncements (continued) Business Combinations and Goodwill and Other Intangible Assets (continued) - -------------------------------------------------------------- The impact of prior period goodwill amortization on reported net income and earnings per share was as follows:
Three Months Ended Nine Months Ended ------------------ ----------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2002 2001 2002 2001 ---- ---- ---- ---- (Dollars in thousands, except per share amounts) Net income Income before extraordinary item .......... $26,198 $27,279 $48,215 $36,951 Add back of goodwill amortization, net of income taxes ..................... -- 789 -- 2,304 ------- ------- ------- ------- Adjusted income before extraordinary item ...................... 26,198 28,068 48,215 39,255 Extraordinary item - loss on early extinguishment of debt, net of income taxes ............................ -- -- (599) -- ------- ------- ------- ------- Adjusted net income ....................... $26,198 $28,068 $47,616 $39,255 ======= ======= ======= ======= Basic earnings per share Income before extraordinary item .......... $1.44 $1.53 $2.66 $2.08 Add back of goodwill amortization, net of income taxes ..................... -- 0.05 -- 0.13 ----- ----- ----- ----- Adjusted income before extraordinary item ...................... 1.44 1.58 2.66 2.21 Extraordinary item - loss on early extinguishment of debt, net of income taxes ............................ -- -- (0.03) -- ----- ----- ----- ----- Adjusted net income ....................... $1.44 $1.58 $2.63 $2.21 ===== ===== ===== ===== Diluted earnings per share Income before extraordinary item .......... $1.42 $1.50 $2.62 $2.05 Add back of goodwill amortization, net of income taxes ..................... -- 0.05 -- 0.12 ----- ----- ----- ----- Adjusted income before extraordinary item ...................... 1.42 1.55 2.62 2.17 Extraordinary item - loss on early extinguishment of debt, net of income taxes ............................ -- -- (0.03) -- ----- ----- ----- ----- Adjusted net income ....................... $1.42 $1.55 $2.59 $2.17 ===== ===== ===== =====
-9- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2002 and 2001 and for the three and nine months then ended is unaudited) Note 2. Recently Issued Accounting Pronouncements (continued) Impairment and Disposal of Long-Lived Assets and Discontinued Operations - ------------------------------------------------------------------------ Effective January 1, 2002, we adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of Accounting Principles Board, or APB, No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 provides updated guidance concerning the recognition and measurement of an impairment loss for certain types of long-lived assets and expands the scope of a discontinued operation to include a component of an entity. The adoption of SFAS No. 144 on January 1, 2002 did not impact our financial position or results of operations. Extinguishment of Debt and Various Technical Corrections - -------------------------------------------------------- In April 2002, the Financial Accounting Standards Board, or FASB, issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Among other provisions, SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and SFAS No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements," such that most gains or losses from the extinguishment of debt will no longer be classified as extraordinary items. The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 and SFAS No. 64 are effective for us on January 1, 2003. Upon adoption in 2003, we expect to reclassify previously reported extraordinary items from the early extinguishment of debt to income from operations. Costs Associated With Exit or Disposal Activities - ------------------------------------------------- In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force, or EITF, Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires the recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost was recognized at the date an entity committed to an exit plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. -10- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2002 and 2001 and for the three and nine months then ended is unaudited) Note 3. Rationalization (Credits) Charges and Acquisition Reserves As part of our plans to integrate the operations of our various acquired businesses, including the Food Metal and Specialty business of American National Can Company, or AN Can, and to rationalize certain facilities, we have established reserves for employee severance and benefits, plant exit costs and acquisition liabilities. Except for certain contractual obligations, these costs are expected to be incurred primarily through 2002. Activity in our rationalization and acquisition reserves since December 31, 2001 is summarized as follows:
Employee Plant Severance Exit Acquisition and Benefits Costs Liabilities Total ------------ ----- ----------- ----- (Dollars in thousands) Balance at December 31, 2001 - ---------------------------- AN Can Acquisition .................................................. $1,491 $ 1,977 $ 2,000 $ 5,468 San Leandro and City of Industry Plant Rationalizations ............. -- 197 -- 197 Fairfield Plant Rationalization ..................................... 237 1,867 -- 2,104 Northtown, Kingsburg and Waukegan Plant Rationalizations ............ 1,333 1,399 -- 2,732 ------ ------- ------- ------- Balance at December 31, 2001 ........................................ 3,061 5,440 2,000 10,501 Activity for the Nine Months Ended September 30, 2002 - ----------------------------------------------------- AN Can Acquisition .................................................. (657) (686) (2,000) (3,343) San Leandro and City of Industry Plant Rationalizations ............. -- (79) -- (79) Fairfield Plant Rationalization ..................................... -- (218) -- (218) Fairfield Rationalization Credit .................................... (237) -- -- (237) Northtown, Kingsburg and Waukegan Plant Rationalizations ............ (728) (1,137) -- (1,865) Northtown, Kingsburg and Waukegan Rationalization Credits ........... (605) (262) -- (867) ------ ------- ------- ------- Total Activity ...................................................... (2,227) (2,382) (2,000) (6,609) Balance at September 30, 2002 - ----------------------------- AN Can Acquisition .................................................. 834 1,291 -- 2,125 San Leandro and City of Industry Plant Rationalizations ............. -- 118 -- 118 Fairfield Plant Rationalization ..................................... -- 1,649 -- 1,649 Northtown, Kingsburg and Waukegan Plant Rationalizations ............ -- -- -- -- ------ ------- ------- ------- Balance at September 30, 2002 ....................................... $ 834 $ 3,058 $ -- $ 3,892 ====== ======= ======= =======
During the fourth quarter of 2001, we approved and announced to employees separate plans to exit our Northtown, Missouri and Kingsburg, California metal food container manufacturing facilities and to cease operation of our composite container department at our Waukegan, Illinois metal food container manufacturing facility. These decisions resulted in a fourth quarter rationalization charge of $7.0 million, consisting of $4.2 million for the non-cash write-down in carrying value of assets, $1.4 million for employee severance and benefits and $1.4 million for plant exit costs. -11- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2002 and 2001 and for the three and nine months then ended is unaudited) Note 3. Rationalization (Credits) Charges and Acquisition Reserves (continued) During the third quarter of 2002, in order to support new business we decided to continue to operate our Kingsburg manufacturing facility. As a result, we recorded a $2.1 million rationalization credit, which consisted of $1.5 million related to certain assets with carrying values that were previously written down but will now remain in service and $0.6 million for the reversal of rationalization reserves related to employee severance and benefits and plant exit costs. The assets that will remain in service were recorded in our Condensed Consolidated Balance Sheets at their depreciated cost, which approximated fair value. Also, during the third quarter of 2002, all actions related to our rationalization plans for our Northtown and Waukegan manufacturing facilities related to employee severance and benefits and plant exit costs were completed at amounts less than originally estimated, and, accordingly, we reversed $0.2 million of rationalization reserves as a rationalization credit. During the first quarter of 2002, certain assets of our metal food container business with carrying values that were previously written down were placed back in service. As a result, we recorded a $2.3 million rationalization credit and recorded those assets in our Condensed Consolidated Balance Sheets at their depreciated cost, which approximated fair value. During the first quarter of 2001, we recorded a rationalization charge of $3.5 million relating to closing our Fairfield, Ohio plastic container manufacturing facility. This charge consisted of $2.6 million for plant exit costs and $0.9 million for employee severance and benefits. During the third quarter of 2002, all actions related to employee severance and benefits under this plan were completed at amounts less than originally estimated, and, accordingly, we reversed $0.3 million of rationalization reserves as a rationalization credit. During the first nine months of 2001, we utilized $5.2 million of rationalization and acquisition reserves which were comprised of $1.4 million for employee severance and benefits, $1.6 million for plant exit costs and $2.2 million for acquisition liabilities. Rationalization and acquisition reserves are included in the Condensed Consolidated Balance Sheets as follows: Sept. 30, Sept. 30, Dec. 31, 2002 2001 2001 ---- ---- ---- (Dollars in thousands) Accrued liabilities ............... $1,883 $ 7,745 $ 8,492 Other liabilities ................. 2,009 2,713 2,009 ------ ------- ------- $3,892 $10,458 $10,501 ====== ======= ======= -12- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2002 and 2001 and for the three and nine months then ended is unaudited) Note 4. Comprehensive Income (Loss) Comprehensive income (loss) is reported in the Condensed Consolidated Statements of Stockholders' Equity (Deficiency). Amounts included in accumulated other comprehensive income (loss) consisted of the following: Sept. 30, Sept. 30, Dec. 31, 2002 2001 2001 ---- ---- ---- (Dollars in thousands) Foreign currency translation ........... $(2,083) $(1,729) $(1,916) Change in fair value of derivatives .... (1,878) (4,690) (3,267) Minimum pension liability .............. (2,978) (897) (2,863) ------- ------- ------- Accumulated other comprehensive income (loss) ..................... $(6,939) $(7,316) $(8,046) ======= ======= ======= Note 5. Inventories Inventories consisted of the following: Sept. 30, Sept. 30, Dec. 31, 2002 2001 2001 ---- ---- ---- (Dollars in thousands) Raw materials ..................... $ 32,153 $ 30,682 $ 29,602 Work-in-process ................... 51,101 42,907 45,510 Finished goods .................... 171,264 163,766 168,362 Spare parts and other ............. 13,916 12,583 12,128 -------- -------- -------- 268,434 249,938 255,602 Adjustment to value inventory at cost on the LIFO method ..... 6,501 7,713 7,025 -------- -------- -------- $274,935 $257,651 $262,627 ======== ======== ======== Note 6. Investment in Affiliate Effective July 1, 2001, we formed a joint venture company with Schmalbach-Lubeca AG (whose interest in the joint venture was recently purchased by Amcor, Ltd.) that supplies an extensive range of metal and plastic closures to the food and beverage industries in North America. The joint venture operates under the name Amcor White Cap LLC, or White Cap. We contributed certain metal closure assets and liabilities, including our manufacturing facilities in Evansville and Richmond, Indiana, in return for a 35 percent interest in and $32.4 million of cash proceeds from the joint venture. -13- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2002 and 2001 and for the three and nine months then ended is unaudited) Note 6. Investment in Affiliate (continued) We account for our investment in White Cap using the equity method. During the third quarter of 2002, we recorded equity in earnings of White Cap of $0.1 million, net of income taxes. For the nine months ended September 30, 2002, we recorded equity in losses of White Cap of $1.7 million, net of income taxes. The results for the first nine months of 2002 included $2.0 million, net of income taxes, for our portion of White Cap's second quarter rationalization charge to close a metal closure manufacturing facility and $0.7 million, net of income taxes, for our portion of White Cap's gain on the sale of certain assets at a price in excess of book value. Note 7. Long-Term Debt Long-term debt consisted of the following: Sept. 30, Sept. 30, Dec. 31, 2002 2001 2001 ---- ---- ---- (Dollars in thousands) Bank debt Bank Revolving Loans ................ $ 148,000 $ 503,400 $333,025 Bank A Term Loans ................... 100,000 159,218 119,413 Bank B Term Loans ................... 350,000 188,542 186,588 Canadian Bank Facility .............. -- 5,129 2,639 ---------- ---------- -------- Total bank debt .................... 598,000 856,289 641,665 Subordinated debt 9% Senior Subordinated Debentures ... 505,737 300,000 300,000 Other ............................... 3,000 3,152 3,104 ---------- ---------- -------- Total subordinated debt ............ 508,737 303,152 303,104 Total debt ............................. 1,106,737 1,159,441 944,769 Less current portion ................ 149,750 176,376 57,999 ---------- ---------- -------- $ 956,987 $ 983,065 $886,770 ========== ========== ======== 9% Debentures - ------------- On April 29, 2002, we issued an additional $200 million aggregate principal amount of our 9% Senior Subordinated Debentures due 2009, or the 9% Debentures, in a private placement. The newly issued 9% Debentures were an add-on issuance under the Indenture for our existing 9% Debentures originally issued in June 1997. The terms of the newly issued 9% Debentures are identical to the existing 9% Debentures issued in June 1997 except that the newly issued 9% Debentures were subject to certain transfer restrictions until we completed a registered exchange offer on October 28, 2002. -14- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2002 and 2001 and for the three and nine months then ended is unaudited) Note 7. Long-Term Debt (continued) 9% Debentures (continued) - ------------- The issue price for the new 9% Debentures was 103 percent of their principal amount. Net cash proceeds received from this issuance were approximately $202 million, after deducting selling commissions and offering expenses payable by us. The net proceeds from this issuance were used to repay a portion of our revolving loan obligations under our previous U.S. senior secured credit facility, or the U.S. Credit Agreement. Bank Credit Agreement - --------------------- On June 28, 2002, we completed the refinancing of our U.S. Credit Agreement by entering into a new $850 million senior secured credit facility, or the New Credit Agreement. Our New Credit Agreement provides us with $100 million of A term loans, $350 million of B term loans and up to $400 million of revolving loans. Pursuant to the New Credit Agreement, we also have a $275 million incremental uncommitted term loan facility. Revolving loans may be used for working capital needs and other general corporate purposes, including acquisitions. Revolving loans may be borrowed, repaid and reborrowed over the life of the New Credit Agreement until their final maturity. We are required to maintain, for at least one period of 30 consecutive days during each calendar year, total average unutilized revolving loan commitments of at least $90 million. The A term loans and revolving loans mature on June 28, 2008 and the B term loans mature on November 30, 2008. Principal on the A term loans and B term loans is required to be repaid in scheduled annual installments during each of the years set forth below and amounts repaid may not be reborrowed (dollars in thousands): Year A Term Loans B Term Loans ---- ------------ ------------ 2002 $ -- $ 1,750 2003 16,670 3,500 2004 16,670 3,500 2005 16,670 3,500 2006 16,670 3,500 2007 16,670 3,500 2008 16,650 330,750 -------- -------- $100,000 $350,000 ======== ======== The New Credit Agreement requires us to prepay term loans with proceeds received from the incurrence of indebtedness, except proceeds used to refinance other existing indebtedness; with proceeds received from certain assets sales; and, under certain circumstances, with 50 percent of our excess cash flow. Generally, prepayments are allocated pro rata to the A term loans and B term loans and applied first to the scheduled amortization payments in the year of such prepayments and, to the extent in excess thereof, pro rata to the remaining installments of term loans. -15- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2002 and 2001 and for the three and nine months then ended is unaudited) Note 7. Long-Term Debt (continued) Bank Credit Agreement (continued) - --------------------- The incremental uncommitted term loan facility provides, among other things, that any incremental term loan borrowing shall be denominated in a single currency, either U.S. dollars or certain foreign currencies; have a maturity date no earlier than the maturity date for the B term loans; and be used to finance permitted acquisitions, refinance any indebtedness assumed as part of a permitted acquisition, refinance or repurchase subordinated debt and repay outstanding revolving loans. Borrowings under the New Credit Agreement may be designated as base rate or Eurodollar rate borrowings. The base rate is the higher of the prime lending rate of Deutsche Bank Trust Company Americas or 1/2 of one percent in excess of the overnight federal funds rate. Initially, the interest rate for all loans under the New Credit Agreement is the base rate plus a margin of one percent or the Eurodollar rate plus a margin of two percent. After December 31, 2002, the interest rate margin on base rate and Eurodollar rate borrowings will be reset quarterly based upon our Total Leverage Ratio, as defined in the New Credit Agreement. The New Credit Agreement provides for the payment of a commitment fee ranging from 0.25 percent to 0.50 percent per annum on the daily average unused portion of commitments available under the revolving loan facility. Initially, the commitment fee will be 0.50 percent per annum. After December 31, 2002, the margin will be reset quarterly based on our Total Leverage Ratio. We may utilize up to a maximum of $50 million of our revolving loan facility under the New Credit Agreement for letters of credit as long as the aggregate amount of borrowings of revolving loans and letters of credit do not exceed the amount of the commitment under such revolving loan facility. The New Credit Agreement provides for payment to the applicable lenders of a letter of credit fee equal to the applicable margin in effect for revolving loans maintained as Eurodollar rate loans and to the issuers of letters of credit of a facing fee of 1/4 of one percent per annum, calculated on the aggregate stated amount of all letters of credit. The indebtedness under the New Credit Agreement is guaranteed by us and certain of our U.S. subsidiaries and is secured by a security interest in substantially all of our real and personal property. The stock of certain of our U.S. subsidiaries has also been pledged as security to the lenders under the New Credit Agreement. The New Credit Agreement contains certain financial and operating covenants which limit, among other things, our ability and the ability of our subsidiaries to grant liens, sell assets and use the proceeds from certain asset sales, make certain payments (including dividends) on our capital stock, incur indebtedness or provide guarantees, make loans or investments, enter into transactions with affiliates, make certain capital expenditures, engage in any business other than the packaging business, and, with respect to our subsidiaries, issue stock. In addition, we are required to meet specified financial covenants including Interest Coverage and Total Leverage Ratios, each as defined in the New Credit Agreement. We are currently in compliance with all covenants under the New Credit Agreement. -16- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2002 and 2001 and for the three and nine months then ended is unaudited) Note 7. Long-Term Debt (continued) Bank Credit Agreement (continued) - --------------------- At September 30, 2002, there were $148.0 million of revolving loans outstanding under the New Credit Agreement related primarily to seasonal working capital needs. We currently expect to repay $148.0 million of revolving loans and $1.8 million of term loans within one year. As a result of this refinancing, we recorded an extraordinary charge of $0.6 million, net of income taxes, or $0.03 per diluted share, in the second quarter of 2002 for the write-off of unamortized financing costs related to the U.S. Credit Agreement. Interest Rate Swap Agreements - ----------------------------- In August 2002, we entered into interest rate swap agreements for an aggregate notional principal amount of $200 million. Under these agreements, we will pay a fixed rate of interest ranging from 2.5 to 2.7 percent and receive a floating rate of interest based on three month LIBOR. These agreements are effective starting in January 2003 and mature in July 2004. These agreements are accounted for as cash flow hedges. Note 8. Business Segment Information Historically, we reported the results of our specialty packaging business as a separate business segment, which included our metal closures, Omni plastic container, Polystar easy-open plastic end and paperboard container businesses. As a result of the White Cap joint venture on July 1, 2001, we no longer report the results of our remaining specialty packaging businesses as a separate business segment. The results of the Omni plastic container and Polystar easy-open plastic end businesses are reported with our plastic container business, and the results of the paperboard container business are reported with our metal food container business. The results of our metal closures business, which was contributed to the White Cap joint venture, are reported separately. Prior year amounts have been restated to conform with the current presentation. -17- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2002 and 2001 and for the three and nine months then ended is unaudited) Note 8. Business Segment Information (continued) Reportable business segment information for our business segments is as follows:
Metal Food Plastic Metal Containers(1) Containers(2) Closures Corporate Total ---------- ---------- -------- --------- ----- (Dollars in thousands) Three Months Ended September 30, 2002 - ------------------------------------- Net sales .................................... $ 517,279 $123,575 $ -- $ -- $ 640,854 EBITDA(3) .................................... 68,566 18,112 -- (1,491) 85,187 Depreciation and amortization(4) ............. 15,508 8,798 -- 11 24,317 Segment profit (loss) ........................ 53,058 9,314 -- (1,502) 60,870 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 Nine Months Ended September 30, 2002 - ------------------------------------ Net sales .................................... $1,144,237 $377,122 $ -- $ -- $1,521,359 EBITDA(3) .................................... 140,004 67,736 -- (4,149) 203,591 Depreciation and amortization(4) ............. 44,266 26,773 -- 44 71,083 Segment profit (loss) ........................ 95,738 40,963 -- (4,193) 132,508 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
(1) Excludes rationalization credits of $2.3 million recorded in each of the first quarter and third quarter of 2002. (2) Excludes a rationalization credit of $0.3 million recorded in the third quarter of 2002 and a rationalization charge of $3.5 million recorded in the first quarter of 2001. -18- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2002 and 2001 and for the three and nine months then ended is unaudited) Note 8. Business Segment Information (continued) (3) EBITDA means earnings before extraordinary items, equity in earnings (losses) of affiliates, interest, income taxes, depreciation and amortization, as adjusted to add back rationalization charges and subtract rationalization credits and the gain on assets contributed to affiliate. We believe EBITDA provides important information in enabling us to assess our ability to service and incur debt. EBITDA is not intended to be a measure of profitability in isolation or as a substitute for net income or other operating income or cash flow data prepared in accordance with accounting principles generally accepted in the United States and may not be comparable to other similarly titled measures of other companies. (4) Depreciation and amortization excludes debt cost amortization of $0.9 million and $0.4 million for the three months ended September 30, 2002 and 2001, respectively, and $1.7 million and $1.3 million for the nine months ended September 30, 2002 and 2001, respectively. For the three months ended September 30, 2001, depreciation and amortization includes goodwill amortization of $0.6 million for the metal food container business and $0.7 million for the plastic container business. For the nine months ended September 30, 2001, depreciation and amortization includes goodwill amortization of $1.8 million for the metal food container business and $2.1 million for the plastic container business. Total segment profit is reconciled to income before income taxes, equity in earnings (losses) of affiliates and extraordinary item as follows:
Three Months Ended Nine Months Ended ------------------ ----------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2002 2001 2002 2001 ---- ---- ---- ---- (Dollars in thousands) Total segment profit ................................ $60,870 $60,311 $132,508 $130,444 Rationalization (credits) charge .................... (2,619) -- (4,878) 3,490 Gain on assets contributed to affiliate ............. -- 5,337 -- 5,337 Interest and other debt expense ..................... 19,977 19,702 54,863 63,818 ------- ------- -------- -------- Income before income taxes, equity in earnings (losses) of affiliates and extraordinary item ... $43,512 $45,946 $ 82,523 $ 68,473 ======= ======= ======== ========
-19- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- Statements included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q which are not historical facts are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and Securities Exchange Act of 1934. Such forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting us and therefore involve a number of uncertainties and risks, including, but not limited to, those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and our other filings with the Securities and Exchange Commission. As a result, the actual results of our operations or our financial condition could differ materially from those expressed or implied in these forward-looking statements. RESULTS OF OPERATIONS Certain unaudited income statement data expressed as a percentage of net sales for the three and nine months ended September 30, 2002 and 2001 are provided below.
Three Months Ended Nine Months Ended ------------------ ----------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2002 2001 2002 2001 ---- ---- ---- ---- Net sales Metal food containers ................................. 80.7% 79.9% 75.2% 71.3% Plastic containers .................................... 19.3 20.1 24.8 25.6 Metal closures ........................................ -- -- -- 3.1 ----- ----- ----- ----- Consolidated ....................................... 100.0 100.0 100.0 100.0 Cost of goods sold ...................................... 87.3 86.6 87.4 87.4 ----- ----- ----- ----- Gross profit ............................................ 12.7 13.4 12.6 12.6 Selling, general and administrative expenses ............ 3.2 3.2 3.9 3.8 Rationalization (credits) charge ........................ (0.4) -- (0.3) 0.2 ----- ----- ----- ----- Income from operations .................................. 9.9 10.2 9.0 8.6 Gain on assets contributed to affiliate ................. -- 0.9 -- 0.4 Interest and other debt expense ......................... 3.1 3.3 3.6 4.3 ----- ----- ----- ----- Income before income taxes, equity in earnings (losses) of affiliates and extraordinary item ......... 6.8 7.8 5.4 4.7 Provision for income taxes .............................. 2.7 3.1 2.1 1.9 ----- ----- ----- ----- Income before equity in earnings (losses) of affiliates and extraordinary item ..................... 4.1 4.7 3.3 2.8 Equity in earnings (losses) of affiliates, net of income taxes .......................................... -- -- (0.1) (0.3) ----- ----- ----- ----- Income before extraordinary item ........................ 4.1 4.7 3.2 2.5 Extraordinary item - loss on early extinguishment of debt, net of income taxes .......................... -- -- (0.1) -- ----- ----- ----- ----- Net income .............................................. 4.1% 4.7% 3.1% 2.5% ===== ===== ===== =====
-20- Summary unaudited results of operations for the three and nine months ended September 30, 2002 and 2001 are provided below. Three Months Ended Nine Months Ended ------------------ ----------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2002 2001 2002 2001 ---- ---- ---- ---- (Dollars in millions) Net sales Metal food containers ....... $517.3 $472.0 $1,144.3 $1,055.4 Plastic containers .......... 123.6 118.8 377.1 378.0 Metal closures .............. -- -- -- 46.3 ------ ------ -------- -------- Consolidated ............. $640.9 $590.8 $1,521.4 $1,479.7 ====== ====== ======== ======== Income from operations Metal food containers (1) ... $ 55.4 $ 51.4 $ 100.3 $ 90.7 Plastic containers(2) ....... 9.6 10.1 41.3 36.3 Metal closures .............. -- -- -- 3.3 Corporate ................... (1.5) (1.2) (4.2) (3.3) ------ ------ -------- -------- Consolidated ............. $ 63.5 $ 60.3 $ 137.4 $ 127.0 ====== ====== ======== ======== (1) Includes rationalization credits of $2.3 million recorded in each of the first quarter and third quarter of 2002. (2) Includes a rationalization credit of $0.3 million recorded in the third quarter of 2002 and a rationalization charge of $3.5 million recorded in the first quarter of 2001. Three Months Ended September 30, 2002 Compared with Three Months Ended September 30, 2001 Net Sales. Consolidated net sales increased $50.1 million, or 8.5 percent, to $640.9 million for the third quarter of 2002, as compared to net sales of $590.8 million for the third quarter of 2001. This increase was the result of higher net sales in the metal food container business and, to a lesser extent, higher net sales in the plastic container business. Net sales for the metal food container business were $517.3 million for third quarter of 2002, an increase of $45.3 million, or 9.6 percent, from net sales of $472.0 million for the same period in 2001. This increase was primarily attributable to an 8.9 percent increase in unit volume as a result of new business and a stronger fruit and vegetable pack as compared to last year. Net sales for the plastic container business of $123.6 million for the three months ended September 30, 2002 increased $4.8 million, or 4.0 percent, from net sales of $118.8 million for the same period in 2001. This increase was primarily a result of higher unit volume, partially offset by lower average selling prices due principally to a less favorable sales mix. -21- Cost of Goods Sold. Cost of goods sold was 87.3 percent of consolidated net sales for the third quarter of 2002, an increase of 0.7 percentage points as compared to 86.6 percent for the same period in 2001. The metal food container and the plastic container businesses both experienced a decrease in gross margin. The decrease in the metal food container business was primarily attributable to higher manufacturing costs to initially absorb new business, the effect of price adjustments related to certain contract negotiations, higher depreciation expense and increased health and welfare costs, partially offset by higher volume and the elimination of goodwill amortization. In the plastic container business, the decline in gross margin resulted primarily from a less favorable sales mix and higher employee health and welfare costs, partially offset by the elimination of goodwill amortization. Selling, General and Administrative Expenses. Selling, general and administrative expenses were $20.4 million, or 3.2 percent of consolidated net sales, for the third quarter of 2002 as compared to $18.7 million, or 3.2 percent of consolidated net sales, for the same period in 2001. Selling, general and administrative expenses in the plastic container business increased as a result of higher selling and commercial development expenses. Income from Operations. Excluding the rationalization credits, income from operations for the third quarter of 2002 increased $0.6 million, or 1.0 percent, to $60.9 million as compared to $60.3 million for the same period in 2001. Income from operations for the third quarter of 2001 included $1.3 million of goodwill amortization. Excluding the benefit from the elimination of goodwill amortization, income from operations decreased primarily as a result of lower income from operations in the plastic container business, partially offset by higher income from operations in the metal food container business. Excluding the rationalization credits, operating margin declined 0.7 percentage points to 9.5 percent for the third quarter of 2002, as compared to 10.2 percent for the same period in 2001, primarily as a result of lower margins in both the metal food container and plastic container businesses. Including the rationalization credits, income from operations and operating margin for the third quarter of 2002 were $63.5 million and 9.9 percent, respectively. In the third quarter of 2002, we recorded rationalization credits of $2.3 million primarily related to the decision to support new business by continuing to operate a metal food container manufacturing facility that was previously expected to be closed and $0.3 million related to certain aspects of a rationalization plan to close a plastic container manufacturing facility that were completed at amounts less than originally estimated. Excluding the rationalization credit of $2.3 million, income from operations of the metal food container business in the third quarter of 2002 increased $1.7 million, or 3.3 percent, to $53.1 million as compared to $51.4 million for the third quarter of 2001. Excluding the rationalization credit, operating margin decreased 0.6 percentage points to 10.3 percent in the third quarter of 2002 as compared to 10.9 percent for the same period in 2001. Income from operations of the metal food container business for the third quarter of 2001 included $0.6 million of goodwill amortization. The increase in income from operations was principally due to higher sales and the elimination of goodwill amortization, largely offset by higher manufacturing costs to initially absorb new business, the effect of price adjustments related to certain contract negotiations, increased depreciation expense and higher health and welfare costs. Including the rationalization credit, income from operations and operating margin for the third quarter of 2002 were $55.4 million and 10.7 percent, respectively. -22- Excluding the rationalization credit of $0.3 million, income from operations for the plastic container business for the third quarter of 2002 decreased $0.8 million, or 7.9 percent, to $9.3 million as compared to $10.1 million for the same period in 2001, and operating margin decreased 1.0 percentage points to 7.5 percent as compared to 8.5 percent for the third quarter of 2001. Income from operations of the plastic container business for the third quarter of 2001 included $0.7 million of goodwill amortization. The decrease in income from operations and operating margin was primarily a result of a less favorable sales mix, higher selling and commercial development expenses and higher employee health and welfare costs, partially offset by higher sales and the elimination of goodwill amortization. Including the rationalization credit, income from operations and operating margin of the plastic container business were $9.6 million and 7.8 percent, respectively, for the third quarter of 2002. Interest Expense. Interest expense increased $0.3 million to $20.0 million for the third quarter of 2002 as compared to the same period in 2001. The increase in interest expense was primarily the result of a higher average interest rate due to the add-on issuance of $200 million of 9% Debentures and higher interest rate spreads over LIBOR as a result of the refinancing of the U.S. Credit Agreement, both of which occurred in the second quarter of 2002. The effect of the higher average interest rate was largely offset by approximately $35 million in lower average borrowings as compared to the same period in 2001. Income Taxes. During the third quarter of 2002, we increased our estimated annual effective tax rate to 39.5 percent and adjusted the estimated income tax rates used in prior quarters through the third quarter provision for income taxes. The provision for income taxes for the third quarter of 2002 and 2001 was recorded at an effective annual income tax rate of 39.9 percent and 40.2 percent, respectively. Net Income and Earnings per Share. Net income for the third quarter of 2002 was $26.2 million, or $1.42 per diluted share, as compared to net income of $27.3 million, or $1.50 per diluted share, for the third quarter of 2001. Net income for the third quarter of 2002 included rationalization credits of $2.6 million, or $0.08 per diluted share. Net income for the third quarter of 2001 included a gain on assets contributed to the White Cap joint venture of $5.3 million, or $0.17 per diluted share. Excluding the rationalization credits, earnings were $24.6 million, or $1.34 per diluted share, for the third quarter of 2002. Excluding the gain on assets contributed to the White Cap joint venture, earnings were $24.1 million, or $1.33 per diluted share, for the third quarter of 2001. SFAS No. 142, "Accounting for Goodwill and Other Intangible Assets," required us to eliminate the amortization of goodwill effective January 1, 2002. For the third quarter of 2001, we recorded goodwill amortization of approximately $1.3 million, or $0.05 per diluted share. Nine Months Ended September 30, 2002 Compared with Nine Months Ended September 30, 2001. Net Sales. Consolidated net sales increased $41.7 million, or 2.8 percent, to $1.521 billion for the nine months ended September 30, 2002, as compared to net sales of $1.480 billion for the first nine months in 2001. This increase was largely the result of higher unit volume of the metal food container business, partially offset by the impact of contributing the metal closure business to the White Cap joint venture. Excluding net sales of $46.3 million of the metal closure business in 2001, net sales for the first nine months of 2002 increased $88.0 million, or 6.1 percent, as compared to the same period in the prior year. -23- Net sales for the metal food container business were $1.144 billion for the nine months ended September 30, 2002, an increase of $88.9 million, or 8.4 percent, from net sales of $1.055 billion for the same period in 2001. This increase was primarily attributable to higher unit volume as a result of new business and a stronger fruit and vegetable pack as compared to last year. Net sales for the plastic container business of $377.1 million for the nine months ended September 30, 2002 decreased $0.9 million, or 0.2 percent, from net sales of $378.0 million for the same period in 2001. This decrease was primarily a result of lower average selling prices due to the pass through of lower resin costs and a less favorable mix, largely offset by higher unit volume. Cost of Goods Sold. Cost of goods sold was 87.4 percent of consolidated net sales for the nine months ended September 30, 2002, essentially unchanged as compared to the same period in 2001. Higher volume and the elimination of goodwill amortization in both the metal food container and the plastic container businesses offset the effect of price adjustments related to certain contract negotiations, higher manufacturing costs to initially absorb new business and higher depreciation expense in the metal food container business. Selling, General and Administrative Expenses. Selling, general and administrative expenses were $58.6 million, or 3.9 percent of consolidated net sales, for the nine months ended September 30, 2002, as compared to $56.7 million, or 3.8 percent, for the same period in 2001. This increase was primarily due to higher selling and commercial development expenses 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. Excluding rationalization credits and charges in both periods, income from operations for the first nine months of 2002 increased $2.0 million, or 1.5 percent, to $132.5 million as compared to $130.5 million in the same period in 2001. Income from operations for the first nine months of 2001 included $3.9 million of goodwill amortization and $3.3 million of income from operations from the metal closure business which was contributed to the White Cap joint venture in 2001. Excluding rationalization credits and charges in both periods, the benefit from the elimination of goodwill amortization and income from operations of the metal closure business, income from operations for the first nine months of 2002 increased as compared to the same period in 2001 primarily due to higher income from operations in the metal food container business. Excluding rationalization credits and charges in both periods, operating margin decreased 0.1 percentage points to 8.7 percent as compared to 8.8 percent for the same period in 2001 as a result of lower operating margin in the metal food container business, partially offset by higher operating margin in the plastic container business. Including the effects of rationalization credits and charges, income from operations for the first nine months of 2002 increased $10.4 million, or 8.2 percent, to $137.4 million as compared to $127.0 million in the same period in 2001. In the third quarter of 2002, we recorded rationalization credits of $2.3 million primarily related to the decision to support new business by continuing to operate a metal food container manufacturing facility that was previously expected to be closed and $0.3 million related to certain aspects of a rationalization plan to close a plastic container manufacturing facility that were completed at amounts less than originally estimated. In the first quarter of 2002, we recorded a rationalization credit of $2.3 million primarily relating to certain assets of our metal food container business previously written down that were placed back in service. In the first quarter of 2001, we recorded a rationalization charge of $3.5 million relating to closing a plastic container manufacturing facility. -24- Excluding rationalization credits in 2002, income from operations of the metal food container business for the first nine months of 2002 increased $5.0 million, or 5.5 percent, to $95.7 million as compared to $90.7 million for the first nine months of 2001, while operating margin decreased 0.2 percentage points to 8.4 percent as compared to 8.6 percent for the same period in 2001. Income from operations of the metal food container business for the first nine months of 2001 included $1.8 million of goodwill amortization. The increase in income from operations was principally due to higher unit volume and the elimination of goodwill amortization, partially offset by the effect of price adjustments related to certain contract negotiations, higher manufacturing costs incurred to initially absorb new business and increased depreciation expense. Including the rationalization credits, income from operations of the metal food container business was $100.3 million and operating margin was 8.8 percent for the nine months ended September 30, 2002. Excluding rationalization credits and charges in both periods, income from operations for the plastic container business for the nine months ended September 30, 2002 increased $1.2 million, or 3.0 percent, to $41.0 million as compared to $39.8 million for the same period in 2001, and operating margin increased 0.4 percentage points to 10.9 percent as compared to 10.5 percent for the first nine months of 2001. Income from operations of the plastic container business for the first nine months of 2001 included $2.1 million of goodwill amortization. Excluding the benefit from the elimination of goodwill amortization, income from operations and operating margin of the plastic container business for the first nine months of 2002 decreased primarily as a result of higher selling and commercial development expenses. Including the effects of rationalization credits and charges in both periods, income from operations and operating margin for the plastic container business were $41.3 million and 11.0 percent, respectively, for the first nine months of 2002 and $36.3 million and 9.6 percent, respectively, for the same period in 2001. Interest Expense. Interest expense decreased $8.9 million to $54.9 million for the nine months ended September 30, 2002 as compared to the same period in 2001. This decrease resulted from approximately $80 million in lower average borrowings as compared to the same period last year and a lower average interest rate. Despite the add-on issuance of $200 million of 9% Debentures and higher interest rate spreads over LIBOR as a result of the refinancing of the U.S. Credit Agreement, we experienced a lower average interest rate for the first nine months of 2002 as compared to the first nine months of 2001 as a result of lower LIBOR rates. Income Taxes. The provision for income taxes for the nine months ended September 30, 2002 and 2001 was recorded at an estimated effective annual income tax rate of 39.5 percent and 40.2 percent, respectively. Net Income and Earnings per Share. Net income for the first nine months of 2002 was $47.6 million, or $2.59 per diluted share, as compared to net income of $37.0 million, or $2.05 per diluted share, for the first nine months of 2001. Net income for the first nine months of 2002 included our share of White Cap's rationalization charge of $2.0 million, net of tax, or $0.11 per diluted share, and our share of White Cap's gain on the sale of assets of $0.7 million, net of tax, or $0.04 per diluted share. Net income for the first nine months of 2002 also included rationalization credits totaling $4.9 million, or $0.16 per diluted share, and an extraordinary charge, net of tax, of $0.6 million, or $0.03 per diluted share, for the write-off of unamortized financing costs as a result of the refinancing of the U.S. Credit Agreement. Net income for the first nine months of 2001 included a rationalization charge of $3.5 million, or $0.12 per diluted share, a gain on assets contributed to White Cap of $5.3 million, or $0.18 per diluted share, and equity in losses of Packtion Corporation, or Packtion, a now dissolved e-commerce packaging venture, of $3.8 million, or $0.21 per diluted share. -25- Excluding our share of White Cap's rationalization charge and White Cap's gain on the sale of assets and the rationalization credits and extraordinary charge in 2002, earnings for the first nine months of 2002 were $46.6 million, or $2.53 per diluted share. Excluding the rationalization charge, the gain on assets contributed to White Cap and equity in losses of Packtion, earnings were $39.7 million, or $2.20 per diluted share, for the first nine months of 2001. SFAS No. 142 required us to eliminate the amortization of goodwill effective January 1, 2002. For the first nine months of 2001, we recorded goodwill amortization of approximately $3.9 million, or $0.12 per diluted share. CAPITAL RESOURCES AND LIQUIDITY Our principal sources of liquidity have been net cash from operating activities and borrowings under our revolving loan facilities. Our liquidity requirements arise primarily from our obligations under the indebtedness incurred in connection with our acquisitions and the refinancing of that indebtedness, capital investment in new and existing equipment and the funding of our seasonal working capital needs. On April 29, 2002, we issued an additional $200 million aggregate principal amount of our 9% Debentures in a private placement. The newly issued 9% Debentures were an add-on issuance under the Indenture for our existing 9% Debentures originally issued in June 1997. The terms of the newly issued 9% Debentures are identical to the existing 9% Debentures issued in June 1997 except that the newly issued 9% Debentures were subject to certain transfer restrictions until we completed a registered exchange offer on October 28, 2002. The issue price for the newly issued 9% Debentures was 103 percent of their principal amount. Net cash proceeds received from this issuance were approximately $202 million, after deducting selling commissions and offering expenses payable by us. The net proceeds from this issuance were used to repay a portion of our revolving loan obligations under the U.S. Credit Agreement. On June 28, 2002, we completed the refinancing of the U.S. Credit Agreement by entering into a new $850 million senior secured credit facility. The New Credit Agreement provides us with $100 million of A term loans, $350 million of B term loans and a revolving loan facility of up to $400 million. Under the New Credit Agreement, we may use revolving loans for working capital and other operating needs as well as for acquisitions and other permitted purposes. The A term loans and revolving loan facility mature on June 28, 2008 and the B term loans mature on November 30, 2008. The New Credit Agreement also provides us with an incremental uncommitted term loan facility of up to an additional $275 million which may be used to finance acquisitions and for other permitted purposes. Under the New Credit Agreement, the interest rate for all loans will be either the Eurodollar rate plus a margin or the prime lending rate of Deutsche Bank Trust Company Americas plus a margin. Initially, the margin for Eurodollar rate loans is two percent and the margin for prime rate loans is one percent. Starting in 2003, the margins are subject to adjustment quarterly based upon financial ratios. Prior to the refinancing, the interest rate for A term loans and revolving loans under the U.S. Credit Agreement was the Eurodollar rate plus a margin of one percent or the prime lending rate of Deutsche Bank Trust Company Americas and for B term loans an additional 0.5 percent. -26- As a result of the refinancing of the U.S. Credit Agreement with the New Credit Agreement and the net proceeds from the add-on issuance of our 9% Debentures, we expect that our interest expense will increase during the fourth quarter of 2002 as compared to the fourth quarter of 2001. For the first nine months of 2002, we used proceeds of $206.0 million from the add-on issuance of 9% Debentures, proceeds from stock option exercises of $4.3 million and proceeds from asset sales of $0.8 million to fund capital expenditures of $77.6 million, cash used in operations of $66.2 million primarily for our seasonal working capital needs, net repayments of revolving loans and long-term debt of $43.9 million and debt issuance costs of $21.6 million and to increase cash balances by $1.8 million. For the first nine months of 2001, we 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, proceeds from stock option exercises of $1.0 million and proceeds from asset sales of $0.3 million to fund cash used by operations of $86.1 million primarily for our seasonal working capital needs, capital expenditures of $67.0 million, the repayment of $6.3 million of long-term debt and our investment in Packtion of $3.0 million and to increase cash balances by $5.7 million. Because we sell metal containers used in fruit and vegetable pack processing, we have seasonal sales. As is common in the industry, we must access working capital to build inventory and then carry accounts receivable for some customers beyond the end of the summer and fall packing season. Seasonal accounts are generally settled by year end. Due to our seasonal requirements, we incur short-term indebtedness to finance our working capital requirements. During the third quarter of 2002, at our seasonal borrowing peak we had $226.1 million of revolving loans outstanding under our senior secured credit facilities related primarily to seasonal working capital requirements. We may use the available portion of our revolving loan facilities, after taking into account our seasonal needs and outstanding letters of credit, for acquisitions and other permitted purposes. As of September 30, 2002, we had $148.0 million of revolving loans outstanding under the New Credit Agreement which related primarily to seasonal working capital needs. The unused portion of revolving loan commitments under our credit facilities at September 30, 2002, after taking into account outstanding letters of credit, was $239.2 million. Our Board of Directors has authorized the repurchase of up to $70 million of our common stock. As of September 30, 2002, we have repurchased 2,708,975 shares of our common stock for an aggregate cost of approximately $61.0 million. We intend to finance future repurchases, if any, of our common stock with revolving loan borrowings. During the third quarter of 2002, we recorded rationalization credits of $2.3 million primarily related to the decision to support new business by continuing to operate a metal food container manufacturing facility that was previously expected to be closed and $0.3 million related to certain aspects of a rationalization plan to close a plastic container manufacturing facility that were completed at amounts less than originally estimated. During the first quarter of 2002, we recorded a $2.3 million rationalization credit related to certain assets of our metal food container business with carrying values previously written down that were placed back in service. During the first quarter of 2001, we recorded a rationalization charge of $3.5 million related to closing one plastic container manufacturing facility. You should also read Note 3 to our Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2002 included elsewhere in this Quarterly Report. -27- We believe that cash generated from operations and funds from the revolving loans available under our senior secured credit facilities will be sufficient to meet our expected operating needs, planned capital expenditures, debt service and tax obligations for the foreseeable future. We are also continually evaluating and pursuing acquisition opportunities in the consumer goods packaging market and may incur additional indebtedness, including indebtedness under our senior secured credit facilities, to finance any such acquisition. We are in compliance with all financial and operating covenants contained in the financing agreements governing our indebtedness and believe that we will continue to be in compliance with all such covenants during 2002. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Effective January 1, 2002, we adopted SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 revises the accounting treatment for business combinations to require the use of purchase accounting and prohibit the use of the pooling-of-interests method for business combinations initiated after June 30, 2001. SFAS No. 142 revises the accounting for goodwill to eliminate amortization of goodwill on transactions consummated after June 30, 2001 and of all other goodwill as of January 1, 2002. Other intangible assets will continue to be amortized over their useful lives. SFAS No. 142 also requires goodwill and other intangibles to be assessed for impairment each year and more frequently if circumstances indicate a possible impairment. During the second quarter of 2002, we completed the initial transitional impairment test as of January 1, 2002 and determined that goodwill was not impaired. Effective January 1, 2002, we adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 provides updated guidance concerning the recognition and measurement of an impairment loss for certain types of long-lived assets and expands the scope of a discontinued operation to include a component of an entity. The adoption of SFAS No. 144 on January 1, 2002 did not impact our financial position or results of operations. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Among other provisions, SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and SFAS No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements," such that most gains or losses from the extinguishment of debt will no longer be classified as extraordinary items. The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 and SFAS No. 64 are effective for us on January 1, 2003. Upon adoption in 2003, we expect to reclassify previously reported extraordinary items from the early extinguishment of debt to income from operations. -28- In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires the recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost was recognized at the date an entity committed to an exit plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. CERTIFICATIONS UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The written certifications of both of our Co-Chief Executive Officers and of our Chief Financial Officer with respect to this Quarterly Report on Form 10-Q, as required by Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), have been submitted to the Securities and Exchange Commission as additional correspondence accompanying this Quarterly Report. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK --------------------------------------------------------- Market risks relating to our operations result primarily from changes in interest rates. In the normal course of business, we also have limited foreign currency risk associated with our Canadian operations and risk related to commodity price changes for items such as natural gas. We employ established policies and procedures to manage our exposure to these risks. Interest rate, foreign currency and commodity pricing transactions are used only to the extent considered necessary to meet our objectives. We do not utilize derivative financial instruments for trading or other speculative purposes. Information regarding our interest rate risk, foreign currency exchange rate risk and commodity pricing risk has been disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2001. Since such filing, there has not been a material change to our interest rate risk, foreign currency rate risk or commodity pricing risk or to our policies and procedures to manage our exposure to these risks, except that we have entered into additional interest rate swap agreements. You should also read Note 7 to our Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2002 included elsewhere in this Quarterly Report. Item 4. CONTROLS AND PROCEDURES ----------------------- Within the 90 days prior to the date of this Quarterly Report, we carried out an evaluation, under the supervision and with the participation of management, including our Co-Chief Executive Officers and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-14(c) of the Securities Exchange Act of 1934). Based upon that evaluation, our Co-Chief Executive Officers and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be disclosed in this Quarterly Report has been made known to them in a timely fashion. There were no significant changes in our internal controls or in other factors that could significantly affect these internal controls subsequent to the date of our most recent evaluation. -29- 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 July 12, 2002, we filed a Current Report on Form 8-K related to our new $850 million senior secured credit facility which refinanced our existing U.S. credit facility. 2. On August 7, 2002, we filed a Current Report on Form 8-K which indicated pursuant to Item 9 that our principal executive officers and our principal financial officer each submitted to the Securities and Exchange Commission, or the SEC, a statement under oath as required by the SEC's Order Requiring the Filing of Sworn Statements Pursuant to Section 21(a) (1) of the Securities Exchange Act of 1934 (Order No. 4-460, June 27, 2002) and with which copies of such statements were furnished. 3. On August 14, 2002, we filed a Current Report on Form 8-K which indicated pursuant to Item 9 that the written certifications of both of our Co-Chief Executive Officers and our Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), accompanied our Quarterly Report on Form 10-Q for the quarterly period ending June 30, 2002 as additional correspondence and with which copies of such written certifications were furnished. -30- 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, 2002 /s/Anthony J. Allott - ------------------------- ---------------------------- Anthony J. Allott Executive Vice President and Chief Financial Officer (Principal Financial Officer) Dated: November 14, 2002 /s/Nancy Merola - ------------------------- ---------------------------- Nancy Merola Vice President and Controller (Chief Accounting Officer) -31- CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, D. Greg Horrigan, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Silgan Holdings Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and -32- 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ D. Greg Horrigan -------------------------- President and Co-Chief Executive Officer CERTIFICATION I, R. Philip Silver, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Silgan Holdings Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; -33- 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ R. Philip Silver -------------------------- Chairman of the Board and Co-Chief Executive Officer CERTIFICATION I, Anthony J. Allott, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Silgan Holdings Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: -34- a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Anthony J. Allott ---------------------------- Executive Vice President and Chief Financial Officer -35- EXHIBIT INDEX EXHIBIT NO. EXHIBIT ----------- ------- 12 Ratio of Earnings to Fixed Charges for the three and nine months ended September 30, 2002 and 2001 -36- EX-12 7 extwelvethreeq02.txt EXHIBT 12 TO 10-Q FOR THE PERIOD ENDING 9/30/02 Exhibit 12 SILGAN HOLDINGS INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Unaudited) The following table sets forth Silgan Holdings Inc.'s computation of its ratio of earnings to fixed charges for the periods indicated.
Three Months Ended Nine Months Ended ------------------ ----------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2002 2001 2002 2001 ---- ---- ---- ---- (Dollars in thousands) Earnings before fixed charges: Income before income taxes, equity in earnings (losses) of affiliates and extraordinary item ... $43,512 $45,946 $ 82,523 $ 68,473 Interest and other debt expense ........ 19,977 19,702 54,863 63,818 Interest portion of rental expense ..... 176 219 290 786 ------- ------- -------- -------- Earnings before fixed charges .......... $63,665 $65,867 $137,676 $133,077 ======= ======= ======== ======== Fixed charges: Interest and other debt expense ........ $19,977 $19,702 $ 54,863 $ 63,818 Interest portion of rental expense ..... 176 219 290 786 Capitalized interest ................... 334 455 827 1,380 ------- ------- -------- -------- Total fixed charges .................... $20,487 $20,376 $ 55,980 $ 65,984 ======= ======= ======== ======== Ratio of earnings to fixed charges ......... 3.11 3.23 2.46 2.02
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