-----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, Vv4+7ANR9lonsHkTWyFlNze5ZHI6jSlQNMSVoVDyO5sOUChHi68Ao+hbttr9V+Nz 9+Wmo9kVkzbDsPhTJeYpFg== 0000849869-99-000020.txt : 19991115 0000849869-99-000020.hdr.sgml : 19991115 ACCESSION NUMBER: 0000849869-99-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILGAN HOLDINGS INC CENTRAL INDEX KEY: 0000849869 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED STRUCTURAL METAL PRODUCTS [3440] IRS NUMBER: 061269834 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22117 FILM NUMBER: 99748109 BUSINESS ADDRESS: STREET 1: 4 LANDMARK SQ CITY: STAMFORD STATE: CT ZIP: 06901 BUSINESS PHONE: 2039757110 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarter Ended September 30, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange Act of 1934 for the Period ____________ to ____________. Commission file number 000-22117 SILGAN HOLDINGS INC. (Exact name of registrant as specified in its charter) Delaware 06-1269834 (State of Incorporation) (I.R.S. Employer Identification Number) 4 Landmark Square Stamford, Connecticut 06901 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (203) 975-7110 Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] As of November 1, 1999, the number of shares outstanding of the registrant's common stock, $0.01 par value, was 17,551,694. SILGAN HOLDINGS INC. TABLE OF CONTENTS
Page No. -------- Part 1. Financial Information .......................................................... 3 Item 1. Financial Statements .................................................... 3 Condensed Consolidated Balance Sheets as of ................................... 3 September 30, 1999 and 1998 and December 31, 1998 Condensed Consolidated Statements of Income for the three months .............. 4 ended September 30, 1999 and 1998 Condensed Consolidated Statements of Income for the nine months ............... 5 ended September 30, 1999 and 1998 Condensed Consolidated Statements of Cash Flows for the nine months ........... 6 ended September 30, 1999 and 1998 Consolidated Statements of Deficiency in Stockholders' Equity at .............. 7 September 30, 1999 Notes to Condensed Consolidated Financial Statements .......................... 8 Item 2. Management's Discussion and Analysis of Financial Condition and .......... 14 Results of Operations Item 3. Quantitative and Qualitative Disclosure About Market Risk ................ 23 Part II. Other Information ............................................................. 23 Item 6. Exhibits and Reports on Form 8-K ......................................... 23 Signatures .............................................................................. 24 Exhibit Index ........................................................................... 25
-2- Part I. Financial Information Item 1. Financial Statements
SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) Sept. 30, Sept. 30, Dec. 31, 1999 1998 1998 ---- ---- ---- (unaudited) (unaudited) (Note 1) ASSETS Current assets: Cash and cash equivalents ........... $ 6,309 $ 8,135 $ 4,753 Accounts receivable, net ............ 305,206 294,271 134,004 Inventories ......................... 263,250 247,384 250,085 Prepaid expenses and other current assets ........................... 8,564 9,107 9,880 ---------- ---------- ---------- Total current assets ............ 583,329 558,897 398,722 Property, plant and equipment, net .... 651,338 663,331 671,466 Other non-current assets, net ......... 146,657 146,317 153,857 ---------- ---------- ---------- $1,381,324 $1,368,545 $1,224,045 ========== ========== ========== LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable .............. $ 129,517 $ 128,959 $ 184,543 Accrued payroll and related costs ... 46,127 41,988 45,566 Accrued interest payable ............ 16,151 17,192 10,357 Accrued expenses and other current liabilities ...................... 22,860 23,770 23,220 Bank revolving loans ................ 200,241 131,328 -- Current portion of long-term debt ... 31,807 1,730 36,065 ---------- ---------- ---------- Total current liabilities ....... 446,703 344,967 299,751 Long-term debt ........................ 893,729 982,097 890,976 Other long-term liabilities ........... 90,471 83,454 90,626 Deficiency in stockholders' equity: Common stock ........................ 201 199 199 Additional paid-in capital .......... 118,666 118,273 117,911 Accumulated deficit ................. (108,797) (139,459) (131,940) Accumulated other comprehensive loss. (390) (713) (723) Treasury stock ...................... (59,259) (20,273) (42,755) ---------- ---------- ---------- Total deficiency in stockholders' equity ....................... (49,579) (41,973) (57,308) ---------- ---------- ---------- $1,381,324 $1,368,545 $1,224,045 ========== ========== ==========
See accompanying notes. -3- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per common share amounts)
Three Months Ended ------------------ Sept. 30, Sept. 30, 1999 1998 ---- ---- Net sales ............................................... $571,666 $561,085 Cost of goods sold ...................................... 496,988 486,035 -------- -------- Gross profit ....................................... 74,678 75,050 Selling, general and administrative expenses ............ 17,947 18,055 Reduction in carrying value of assets ................... 24,214 -- -------- -------- Income from operations ............................. 32,517 56,995 Interest expense and other related financing costs ...... 22,785 22,500 -------- -------- Income before income taxes ......................... 9,732 34,495 Income tax provision .................................... 3,699 12,947 -------- -------- Net income ......................................... $ 6,033 $ 21,548 ======== ======== Per common share data: Basic earnings per common share ..................... $0.34 $1.12 ===== ===== Diluted earnings per common share ................... $0.34 $1.08 ===== ===== Weighted average shares used in computation (000's): Basic ............................................... 17,515 19,253 Effect of dilutive employee stock options ........... 475 711 ------ ------ Diluted ............................................. 17,990 19,964 ====== ======
See accompanying notes. -4- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per common share amounts)
Nine Months Ended ----------------- Sept. 30, Sept. 30, 1999 1998 ---- ---- Net sales .............................................. $1,403,389 $1,288,289 Cost of goods sold ..................................... 1,221,043 1,116,338 ---------- ---------- Gross profit ...................................... 182,346 171,951 Selling, general and administrative expenses ........... 55,263 50,465 Reduction in carrying value of assets .................. 24,214 -- ---------- ---------- Income from operations ............................ 102,869 121,486 Interest expense and other related financing costs ..... 65,085 59,985 ---------- ---------- Income before income taxes ........................ 37,784 61,501 Income tax provision ................................... 14,641 23,096 ---------- ---------- Net income ........................................ $ 23,143 $ 38,405 ========== ========== Per common share data: Basic earnings per common share ................... $1.30 $2.02 ===== ===== Diluted earnings per common share ................. $1.27 $1.92 ===== ===== Weighted average shares used in computation (000's): Basic ............................................. 17,757 19,051 Effect of dilutive employee stock options ......... 494 982 ------ ------ Diluted ........................................... 18,251 20,033 ====== ======
See accompanying notes. -5- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)
Nine Months Ended ----------------- Sept. 30, Sept. 30, 1999 1998 ---- ---- Cash flows from operating activities: Net income ....................................... $ 23,143 $ 38,405 Adjustments to reconcile net income to net cash used in operating activities: Depreciation ................................. 60,227 53,439 Amortization ................................. 4,125 3,453 Reduction in carrying value of assets ........ 24,214 -- Changes in assets and liabilities, net of effect of acquisitions: (Increase) in accounts receivable ....... (171,202) (162,660) (Increase) in inventories ............... (14,549) (20,746) Decrease in other non-current assets .... 7,469 19,025 (Decrease) in trade accounts payable .... (55,026) (15,357) Other, net .............................. 2,689 (2,612) --------- --------- Total adjustments ................... (142,053) (125,458) --------- --------- Net cash used in operating activities ........ (118,910) (87,053) --------- --------- Cash flows from investing activities: Acquisition of businesses ........................ -- (193,972) Capital expenditures ............................. (61,899) (58,841) Proceeds from sale of assets ..................... 262 1,269 --------- --------- Net cash used in investing activities ........ (61,637) (251,544) --------- --------- Cash flows from financing activities: Borrowings under revolving loans ................. 729,609 852,327 Repayments under revolving loans ................. (529,368) (530,027) Purchases of treasury stock ...................... (16,504) (20,273) Proceeds from stock option exercises ............. 514 2,159 Proceeds from issuance of long-term debt ......... -- 7,193 Repayment of long-term debt ...................... (2,148) (18,365) --------- --------- Net cash provided by financing activities .... 182,103 293,014 --------- --------- Net increase (decrease) in cash and cash equivalents .. 1,556 (45,583) Cash and cash equivalents at beginning of year ........ 4,753 53,718 --------- --------- Cash and cash equivalents at end of period ............ $ 6,309 $ 8,135 ========= ========= Supplementary data: Cash interest payments ........................... $ 58,241 $ 52,680 Cash income tax payments, net of refunds ......... 4,042 2,476
See accompanying notes. -6-
SILGAN HOLDINGS INC. CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS' EQUITY (Unaudited, except for information at December 31, 1998) (Dollars and shares in thousands) Common Stock Accumulated Total ------------ Additional other deficiency in Par paid-in Accumulated comprehensive Treasury stockholders' Shares Value capital deficit income (loss) stock equity ------ ----- ---------- ----------- ------------- -------- ------------- Balance at December 31, 1998 ............ 18,256 $199 $117,911 $(131,940) $(723) $(42,755) $(57,308) Comprehensive income: Net income ........................... 23,143 23,143 Foreign currency translation ......... 333 333 -------- Comprehensive income .................... 23,476 Issuance of common shares under stock option plan, including income tax benefit of $243 ....................... 193 2 755 757 Purchase of treasury stock .............. (897) (16,504) (16,504) ------ ---- -------- --------- ----- -------- -------- Balance at September 30, 1999 ........... 17,552 $201 $118,666 $(108,797) $(390) $(59,259) $(49,579) ====== ==== ======== ========= ===== ======== ========
See accompanying notes. -7- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 1999 and 1998 and for the three and nine months then ended is unaudited) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Silgan Holdings Inc. ("Holdings" or the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation. The results of operations for any interim period are not necessarily indicative of the results for the full year. The condensed consolidated balance sheet at December 31, 1998 has been derived from the Company's audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Holdings' Annual Report on Form 10-K for the year ended December 31, 1998. 2. Acquisition Reserves and Impairment Charge Since 1995, the Company has completed three acquisitions in its metal food container business, including its acquisitions of the Food Metal and Specialty business ("AN Can") of American National Can Company in August 1995 and of the steel container manufacturing business ("CS Can") of Campbell Soup Company ("Campbell") in June 1998. During the third quarter of 1999, the Company completed a study initiated earlier this year to evaluate the long-term utilization of all assets of its metal food container business, including assets acquired through such acquisitions. As a result, the Company has recorded a non-cash charge to earnings of $24.2 million to reduce the carrying value of those assets determined to be surplus or obsolete. As part of the plan to integrate and rationalize the operations of its various acquired businesses, the Company established reserves for certain costs, including costs for closing or downsizing certain manufacturing plants, integrating the selling, general and administrative functions with those of the Company, and other acquisition liabilities. These costs will principally be incurred through 2001. -8- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 1999 and 1998 and for the three and nine months then ended is unaudited) 2. Acquisition Reserves and Impairment Charge (continued) The activity in the Company's acquisition reserves and impairment charges recorded since December 31, 1998 are summarized as follows:
Facilities Rationalization Write Down and Acquisition of Reserves Assets -------------------------- ---------- (Dollars in thousands) Balance at December 31, 1998 .......... $24,844 Charges to income ..................... -- $24,214 ======= Amounts utilized in 1999 .............. (6,306) ------- Balance at September 30, 1999 ......... $18,538 =======
3. Comprehensive Income Comprehensive income is reported in the Consolidated Statements of Deficiency in Stockholders' Equity. Amounts included in accumulated other comprehensive income (loss) at September 30, 1999 and 1998 and December 31, 1998 consist of the following:
Sept. 30, Sept. 30, Dec. 31, 1999 1998 1998 ---- ---- ---- (Dollars in thousands) Foreign currency translation .................. $(370) $(713) $(703) Additional minimum pension liability .......... (20) -- (20) ----- ----- ----- Accumulated other comprehensive income (loss) ................................ $(390) $(713) $(723) ===== ===== =====
The components of comprehensive income for the three and nine months ended September 30, 1999 and 1998 are as follows:
Three Months Ended Nine Months Ended ------------------ ----------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 1999 1998 1999 1998 ---- ---- ---- ---- (Dollars in thousands) Net income ....................... $6,033 $21,548 $23,143 $38,405 Foreign currency translation adjustments ................. 46 (208) 333 (205) ------ ------- ------- ------- Comprehensive income .......... $6,079 $21,340 $23,476 $38,200 ====== ======= ======= =======
-9- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 1999 and 1998 and for the three and nine months then ended is unaudited) 4. Inventories Inventories consisted of the following:
Sept. 30, Sept. 30, Dec. 31, 1999 1998 1998 ---- ---- ---- (Dollars in thousands) Raw materials and supplies .............. $ 44,033 $ 41,433 $ 34,224 Work-in-process ......................... 49,986 50,552 52,415 Finished goods .......................... 153,714 142,834 147,339 Spare parts and other ................... 10,769 10,809 10,927 -------- -------- -------- 258,502 245,628 244,905 Adjustment to value inventory at cost on the LIFO method ........... 4,748 1,756 5,180 -------- -------- -------- $263,250 $247,384 $250,085 ======== ======== ========
5. Long-Term Debt Long-term debt consisted of the following:
Sept. 30, Sept. 30, Dec. 31, 1999 1998 1998 ---- ---- ---- (Dollars in thousands) Bank debt: Bank Revolving Loans .................. $ 335,800 $ 322,300 $135,900 Bank A Term Loans ..................... 223,900 223,900 223,900 Bank B Term Loans ..................... 192,449 192,449 192,449 Canadian Bank Facility ................ 14,422 17,300 15,586 ---------- ---------- -------- Total bank debt .................... 766,571 755,949 567,835 Subordinated debt: 9% Senior Subordinated Debentures ..... 300,000 300,000 300,000 13 1/4% Subordinated Debentures ....... 56,206 56,206 56,206 Other ................................. 3,000 3,000 3,000 ---------- ---------- -------- Total subordinated debt ............ 359,206 359,206 359,206 Total debt: ................................ 1,125,777 1,115,155 927,041 Less: Amounts to be repaid within one year ....................... 232,048 133,058 36,065 ---------- ---------- -------- $ 893,729 $ 982,097 $890,976 ========== ========== ========
-10- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 1999 and 1998 and for the three and nine months then ended is unaudited) 5. Long-Term Debt (continued) Under the Company's U.S. senior secured bank credit facility (the "U.S. Credit Agreement"), the Company has available to it $545.5 million of bank revolving loans. The Company also has $4.5 million of bank revolving loans available to it under its Canadian bank facility. Bank revolving loans may be used by the Company for working capital needs, acquisitions, common stock repurchases and other permitted purposes. Bank revolving loans may be borrowed, repaid and reborrowed until December 31, 2003, their final maturity date under both facilities. At September 30, 1999, bank revolving loans under the U.S. Credit Agreement totaled $335.8 million, of which $199.9 million related to seasonal working capital needs and common share repurchases and $135.9 million related to long-term financing of acquisitions. At September 30, 1999, amounts expected to be repaid within one year consisted of $200.2 million of bank revolving loans and $31.8 million of bank term loans. Bank revolving loans not expected to be repaid within one year have been recorded as long-term debt. 6. Income Taxes In the third quarter of 1999, the Company revised its estimate of its annual effective tax rate to 38.75% from the previously provided rate of 39.0% in the first two quarters of the current year. As a consequence, during the quarter the Company provided for income taxes at an effective rate of 38.0%, as compared to 37.5% for the same period in 1998. 7. Stockholders' Equity The Company's Board of Directors has authorized the repurchase by the Company of up to $70.0 million of its common stock. The Company expects to fund repurchases from internally generated funds or from revolving loan borrowings under its U.S. Credit Agreement. The Company's repurchases of common stock are recorded as treasury stock and result in an increase in the deficiency in stockholders' equity. Through September 30, 1999, the Company repurchased 2,603,975 shares of its common stock for $59.9 million. In 1998, the Company issued 23,500 shares ($0.6 million) of its common stock from its treasury stock for stock option exercises. -11- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 1999 and 1998 and for the three and nine months then ended is unaudited) 8. Business Segment Information Presented below is a table setting forth reportable business segment profit or loss for the three and nine months ended September 30, 1999 and 1998 for the Company's three business segments. Segment information for 1998 has been restated to conform with the requirements of Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information."
Metal Food Plastic Specialty Containers(1) Containers Packaging Other(2) Total ------------- ---------- --------- -------- ----- (Dollars in millions) Three Months Ended September 30, 1999 - ------------------ Net sales .......................... $ 456.2 $ 79.1 $ 36.4 $ -- $ 571.7 EBITDA(3) .......................... 58.1 15.7 4.6 (0.7) 77.7 Depreciation and amortization(4) ... 12.4 6.2 2.4 -- 21.0 Segment profit (loss) .............. 45.7 9.5 2.2 (0.7) 56.7 Three Months Ended September 30, 1998 - ------------------ Net sales .......................... $ 447.2 $ 79.0 $ 34.9 $ -- $ 561.1 EBITDA(3) .......................... 61.6 13.5 3.3 (0.8) 77.6 Depreciation and amortization(4) ... 13.1 5.2 2.3 -- 20.6 Segment profit (loss) .............. 48.5 8.3 1.0 (0.8) 57.0 Nine Months Ended September 30, 1999 - ------------------ Net sales .......................... $1,058.3 $242.0 $103.1 $ -- $1,403.4 EBITDA(3) .......................... 131.5 48.1 13.5 (2.8) 190.3 Depreciation and amortization(4) ... 38.1 17.7 7.3 0.1 63.2 Segment profit (loss) .............. 93.4 30.4 6.2 (2.9) 127.1 Nine Months Ended September 30, 1998 - ------------------ Net sales .......................... $ 959.0 $231.1 $ 98.2 $ -- $1,288.3 EBITDA(3) .......................... 127.2 42.3 9.9 (2.2) 177.2 Depreciation and amortization(4) ... 34.6 14.5 6.6 -- 55.7 Segment profit (loss) .............. 92.6 27.8 3.3 (2.2) 121.5
-12- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 1999 and 1998 and for the three and nine months then ended is unaudited) 8. Business Segment Information (continued) (1)Excludes a non-cash charge of $24.2 million for the reduction in the carrying value of certain assets of the metal food container business recorded in the three month period ended September 30, 1999. (2)The other category provides information pertaining to the corporate holding company. (3)EBITDA means earnings before interest, taxes, depreciation and amortization. (4)Depreciation and amortization excludes debt cost amortization of $0.4 million for each of the three months ended September 30, 1999 and 1998 and $1.2 million for each of the nine months ended September 30, 1999 and 1998. Total segment profit is reconciled to income before income taxes as follows:
Three Months Ended Nine Months Ended ------------------ ----------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 1999 1998 1999 1998 ---- ---- ---- ---- (Dollars in millions) Total segment profit ................... $56.7 $57.0 $127.1 $121.5 Reduction in carrying value of assets of metal food container business ..... 24.2 -- 24.2 -- Interest expense and other related financing costs ...................... 22.8 22.5 65.1 60.0 ----- ----- ------ ------ Income before income taxes ......... $ 9.7 $34.5 $ 37.8 $ 61.5 ===== ===== ====== ======
-13- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q which are not historical facts are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and Securities Exchange Act of 1934. Such forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the Company and therefore involve a number of uncertainties and risks, including, but not limited to, those described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and the Company's other filings with the Securities and Exchange Commission. As a result, the actual results of operations or financial condition of the Company could differ materially from those expressed or implied in such forward-looking statements. RESULTS OF OPERATIONS - THREE MONTHS Summary unaudited results of operations for the Company's three business segments, metal food containers, plastic containers and specialty packaging, for the three months ended September 30, 1999 and 1998 are provided below.
Three Months Ended September 30, -------------------------------- 1999 1998 ---- ---- (Dollars in millions) Net sales: Metal food containers ........ $456.2 $447.2 Plastic containers ........... 79.1 79.0 Specialty packaging .......... 36.4 34.9 ------ ------ Consolidated .............. $571.7 $561.1 ====== ====== Operating profit: Metal food containers (a) .... $ 21.5 $ 48.5 Plastic containers ........... 9.5 8.3 Specialty packaging .......... 2.2 1.0 Other ........................ (0.7) (0.8) ------ ------ Consolidated .............. $ 32.5 $ 57.0 ====== ======
(a) Includes a non-cash charge of $24.2 million for the reduction in the carrying value of certain assets of the metal food container business recorded in 1999. Three Months Ended September 30, 1999 Compared with Three Months Ended September 30, 1998 Net Sales. Consolidated net sales increased $10.6 million, or 1.9%, to $571.7 million for the three months ended September 30, 1999, as compared to net sales of $561.1 million for the same three months in the prior year. This increase resulted primarily from increased sales of the metal food container business. -14- Net sales for the metal food container business were $456.2 million for the three months ended September 30, 1999, an increase of $9.0 million, or 2.0%, from net sales of $447.2 million for the same period in 1998. This increase resulted from increased unit sales and was partially offset by lower price realization. Net sales for the plastic container business was $79.1 million during the three months ended September 30, 1999, as compared to net sales of $79.0 million for the same period in 1998. Net sales for the specialty packaging business increased $1.5 million, or 4.3%, to $36.4 million during the three months ended September 30, 1999, as compared to $34.9 million for the same period in 1998. This increase resulted from increased unit sales. Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales was 86.9% ($497.0 million) for the three months ended September 30, 1999, an increase of 0.3 percentage points as compared to 86.6% ($486.0 million) for the same period in 1998. The decline in gross profit margins during the quarter was primarily attributable to the effect of lower price realization by the metal food container business and was partially offset by improved gross margins of the plastic container and specialty packaging businesses. Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of consolidated net sales decreased slightly to 3.1% ($17.9 million) for the three months ended September 30, 1999, as compared to 3.2% ($18.1 million) for the three months ended September 30, 1998. Income from Operations. Including the effect of the non-cash charge of $24.2 million to write down the value of certain assets of the metal food container business described below, income from operations for the three months ended September 30, 1999 was $32.5 million, as compared to $57.0 million for the same period in 1998. Excluding the effect of the non-cash charge, income from operations as a percentage of consolidated net sales was 9.9% ($56.7 million) for the three months ended September 30, 1999, as compared to 10.2% ($57.0 million) for the same period in the prior year. The decrease in operating margins in the third quarter of 1999 as compared to the same period in 1998 was principally attributable to lower operating margins of the metal food container business and was offset in part by the improved operating performance of the plastic container and specialty packaging businesses. Since 1995, the Company has completed three acquisitions in its metal food container business, including the acquisitions of AN Can in August 1995 and of CS Can in June 1998. During the third quarter of 1999, the Company completed a study initiated earlier this year to evaluate the long-term utilization of all assets of its metal food container business, including assets acquired through such acquisitions. As a result, the Company recorded a one-time non-cash charge to earnings of $24.2 million, before income taxes, to write down the value of those assets determined to be surplus or obsolete. -15- Including the effect of the non-cash charge, income from operations for the metal food container business for the three months ended September 30, 1999 was $21.5 million, as compared to $48.5 million for the same period in 1998. Income from operations as a percentage of net sales excluding the effect of the non-cash charge was 10.0% ($45.7 million), as compared to 10.8% ($48.5 million) for the same period in 1998. This decrease was principally a result of anticipated lower price realization under recently renewed long-term supply agreements and was partially offset by lower overall per unit manufacturing costs. Income from operations as a percentage of net sales for the plastic container business increased 1.5 percentage points to 12.0% ($9.5 million) for the three months ended September 30, 1999, as compared to 10.5% ($8.3 million) for the same period in 1998. The increase in income from operations as a percentage of net sales for the plastic container business was principally attributable to additional operating cost reductions realized during the quarter as compared to the third quarter of 1998. Income from operations as a percentage of net sales for the specialty packaging business improved 3.1 percentage points to 6.0% ($2.2 million) for the three months ended September 30, 1999, as compared to 2.9% ($1.0 million) for the same period in 1998. The improvement in operating performance of the specialty packaging business was due to higher unit sales resulting in lower per unit production costs. Interest Expense. Interest expense for the three months ended September 30, 1999 was $22.8 million, a $0.3 million increase over interest expense for the comparable period in 1998. This increase was principally a result of higher average revolving loan balances outstanding during the three months ended September 30, 1999 as compared to the same period in the prior year. Income Taxes. The provision for income taxes for the three months ended September 30, 1999 was recorded at an effective tax rate of 38.0% ($3.7 million), as compared to 37.5% used in the comparable period in 1998. During the quarter, the Company revised its estimate of its annual effective tax rate to 38.75% from the previously provided rate of 39.0% in the first two quarters of 1999. Net Income and Earnings per Share. As a result of the items discussed above, net income for the three months ended September 30, 1999 was $6.0 million, as compared to $21.5 million for the three months ended September 30, 1998. Excluding the effect of the non-cash charge described above, net income for the three months ended September 30, 1999 would have been $21.0 million. Earnings per diluted share for the third quarter of 1999 were $0.34, as compared to $1.08 for the same period in 1998. Excluding the effect of the non-cash charge, earnings per diluted share for the third quarter of 1999 would have been $1.17. -16- RESULTS OF OPERATIONS - NINE MONTHS Summary unaudited results of operations for the Company's three business segments, metal food containers, plastic containers and specialty packaging, for the nine months ended September 30, 1999 and 1998 are provided below.
Nine Months Ended September 30, ------------------------------- 1999 1998 ---- ---- (Dollars in millions) Net sales: Metal food containers ................ $1,058.3 $ 959.0 Plastic containers ................... 242.0 231.1 Specialty packaging .................. 103.1 98.2 -------- -------- Consolidated ...................... $1,403.4 $1,288.3 ======== ======== Operating profit: Metal food containers (a) ............ $ 69.2 $ 92.5 Plastic containers ................... 30.4 27.7 Specialty packaging .................. 6.2 3.3 Other ................................ (2.9) (2.0) -------- -------- Consolidated ...................... $ 102.9 $ 121.5 ======== ========
(a) Includes a non-cash charge of $24.2 million for the reduction in the carrying value of certain assets of the metal food container business recorded in 1999. Nine Months Ended September 30, 1999 Compared with Nine Months Ended September 30, 1998 Net Sales. Consolidated net sales increased $115.1 million, or 8.9%, to $1,403.4 million for the nine months ended September 30, 1999, as compared to net sales of $1,288.3 million for the same nine months in the prior year. This increase resulted primarily from incremental sales added from acquisitions and, to a lesser extent, from increased sales of the base business in all three business segments. Net sales for the metal food container business were $1,058.3 million for the nine months ended September 30, 1999, an increase of $99.3 million, or 10.4%, from net sales of $959.0 million for the same period in 1998. This increase resulted from sales to Campbell under the Supply Agreement with Campbell entered into in June 1998 and from increased unit sales to other customers, and was offset in part by lower price realization. Net sales for the plastic container business of $242.0 million during the nine months ended September 30, 1999 increased $10.9 million, or 4.7%, from net sales of $231.1 million for the same period in 1998. The increase in net sales was principally attributable to incremental sales added by the August 1998 acquisition of Clearplass Containers, Inc. as well as increased unit sales of the base business. -17- Net sales for the specialty packaging business increased $4.9 million, or 5.0%, to $103.1 million during the nine months ended September 30, 1999, as compared to $98.2 million for the same period in 1998. This increase resulted from higher unit sales. Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales was 87.0% ($1,221.0 million) for the nine months ended September 30, 1999, an increase of 0.3 percentage points as compared to 86.7% ($1,116.3 million) for the same period in 1998. The decline in gross profit margins was primarily attributable to lower operating margins for the metal food container business, and was offset in part by the leveraging effect of increased unit sales of the plastic container and specialty packaging businesses. Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of consolidated net sales for the nine months ended September 30, 1999 and 1998 remained constant at 3.9% ($55.3 million and $50.5 million, respectively). Income from Operations. Including the effect of the non-cash charge, income from operations for the nine months ended September 30, 1999 was $102.9 million, as compared to $121.5 million for the same period in 1998. In the third quarter of 1999, as discussed above, the Company established a one-time non-cash charge to earnings of $24.2 million, before income taxes, to write down the carrying value of certain assets of the metal food container business that were determined to be surplus or obsolete. Excluding the effect of the non-cash charge, income from operations as a percentage of consolidated net sales was 9.1% ($127.1 million) for the nine months ended September 30, 1999, as compared to 9.4% ($121.5 million) for the same period in the prior year. The decrease in operating margins was principally attributable to lower operating margins of the metal food container business and was offset in part by the improved operating performance of the plastic container and specialty packaging businesses. Including the effect of the non-cash charge, income from operations for the metal food container business for the nine months ended September 30, 1999 was $69.2 million, as compared to $92.5 million for the same period in 1998. Income from operations as a percentage of net sales excluding the effect of the non-cash charge was 8.8% ($93.4 million) for the nine months ended September 30, 1999, as compared to 9.6% ($92.5 million) for the same period in 1998. The decrease in operating margins was principally attributable to anticipated lower margin sales to Campbell and lower price realization under recently renewed long-term supply agreements, and was partially offset by lower overall per unit manufacturing costs. Income from operations as a percentage of net sales for the plastic container business for the nine months ended September 30, 1999 increased 0.6 percentage points to 12.6% ($30.4 million), as compared to 12.0% ($27.7 million) for the same period in 1998. The increase in income from operations as a percentage of net sales for the plastic container business was attributable to additional operating cost reductions realized during the current year as compared to the comparable prior year period and lower per unit manufacturing costs as a result of higher unit sales. -18- Income from operations as a percentage of net sales for the specialty packaging business improved 2.6 percentage points to 6.0% ($6.2 million) for the nine months ended September 30, 1999, as compared to 3.4% ($3.3 million) for the same period in 1998. The improvement in operating performance of the specialty packaging business was due to higher unit sales resulting in lower per unit production costs. Interest Expense. Interest expense increased $5.1 million to $65.1 million for the nine months ended September 30, 1999, as compared to $60.0 million in the same period in 1998. This increase was principally a result of higher average revolving loan balances outstanding for the nine months ended September 30, 1999 as compared to the same period in the prior year, primarily to finance acquisitions and common stock repurchases. Income Taxes. The provision for income taxes for the nine months ended September 30, 1999 was recorded at an effective tax rate of 38.75% ($14.6 million), as compared to 37.6% used in the comparable period in 1998. Net Income and Earnings per Share. As a result of the items discussed above, net income for the nine months ended September 30, 1999 was $23.1 million, as compared to $38.4 million for the nine months ended September 30, 1998. Excluding the effect of the non-cash charge described above, net income for the nine months ended September 30, 1999 would have been $38.2 million. Earnings per diluted share for the nine months ended September 30, 1999 were $1.27, as compared to $1.92 for the same period in 1998. Excluding the effect of the non-cash charge, earnings per diluted share for the nine months ended September 30, 1999 would have been $2.09. CAPITAL RESOURCES AND LIQUIDITY The Company's liquidity requirements arise primarily from its obligations under the indebtedness incurred in connection with its acquisitions and the refinancing of such indebtedness, capital investment in new and existing equipment and the funding of the Company's seasonal working capital needs. Historically, the Company has met these liquidity requirements through cash flow generated from operating activities and revolving loan borrowings. For the nine months ended September 30, 1999, the Company used net borrowings of revolving loans of $200.2 million under the Company's credit agreements and cash proceeds from the exercise of stock options of $0.5 million to fund cash used by operations of $118.9 million for the Company's seasonal working capital needs, net capital expenditures of $61.6 million, the repayment of debt of $2.1 million and repurchases of common stock for $16.5 million and to increase cash balances by $1.6 million. -19- Because the Company sells metal containers used in fruit and vegetable pack processing, its sales are seasonal. As is common in the industry, the Company must access working capital to build inventory and then carry accounts receivable for some customers beyond the end of the summer and fall packing season. Seasonal accounts are generally settled by year end. Due to the Company's seasonal requirements, the Company incurs short-term indebtedness to finance its working capital requirements. The Company utilizes its revolving loan facilities for seasonal working capital needs and for other permitted purposes, including acquisitions and repurchases of its common stock. During the third quarter of 1999, at its peak the Company had incurred approximately $252.0 million of revolving loan borrowings under its credit agreements to fund its working capital needs. Amounts available under the Company's revolving loan facilities in excess of its seasonal working capital needs are available to the Company to pursue its growth strategy and for other permitted purposes. As of September 30, 1999, the Company had $336.1 million of revolving loans outstanding, of which $200.2 million related to seasonal working capital needs and common stock repurchases and is expected to be repaid by year end, and $135.9 million related to long-term financing of acquisitions. Revolving loans not expected to be repaid within one year have been recorded as long-term debt. The unused portion of revolving loan commitments under the Company's credit agreements at September 30, 1999, after taking into account outstanding letters of credit, was $198.6 million. The Company's Board of Directors has authorized the repurchase of up to $70 million of its common stock. As of September 30, 1999, the Company repurchased 2,603,975 shares of its common stock under its share repurchase program for an aggregate amount of $59.9 million, resulting in an average cost of $23.00 per share. The share repurchases were financed through revolving loan borrowings under the Company's U.S. Credit Agreement. The Company intends to finance any future share repurchases through revolving loan borrowings under its U.S. Credit Agreement or through internally generated funds. As part of the Company's continuing evaluation of its business in order to maximize its production efficiencies, the Company is planning to close a West Coast metal food container facility in early 2000. Upon finalization of plans for the closure of the facility, the Company may be required to record a pretax charge to income ranging from $6-$8 million, most of which would relate to machinery and equipment and be non-cash. Management believes that cash generated by operations and funds from revolving loan borrowings under the Company's credit agreements will be sufficient to meet the Company's expected operating needs, planned capital expenditures, debt service, share repurchase plan, and tax obligations for the foreseeable future. -20- The Company is continually evaluating and pursuing acquisition opportunities in the consumer goods packaging market. The Company may borrow additional revolving loans under its U.S. Credit Agreement to fund such acquisitions and any resulting increased operating needs. However, the Company may need to incur additional new indebtedness or issue additional securities to fund such acquisitions and any resulting increased operating needs. Any such new financing will have to be effected in compliance with the agreements governing the Company's indebtedness. There can be no assurance that the Company will be able to complete any such acquisition or obtain any such new financing. The Company is in compliance with all financial and operating covenants contained in the instruments and agreements governing its indebtedness and believes that it will continue to be in compliance with all such covenants during 1999. YEAR 2000 ISSUES Since 1997, the Company has been in the process of reviewing its computer and operational systems to identify and determine the extent to which its systems will be vulnerable to potential errors and failures as a result of the "Year 2000" issue. The Year 2000 issue arises because many computer systems and other equipment with embedded chips or processors use only two digits to represent the year and, as a result, may be unable to process accurately certain data before, during or after the year 2000. The Year 2000 issue presents several risks to the Company, such as (i) the Company's internal systems may not function properly, (ii) suppliers' computer and operational systems may not function properly and, consequently, deliveries of materials and supplies may be delayed, (iii) customers' computers and operational systems may not function properly and, consequently, orders or payments for the Company's products may be delayed, and (iv) the Company's banks' computer systems could malfunction, disrupting the Company's orderly posting of deposits, funds, transfers and payments. Such a disruption at any point in the Company's supply, manufacturing, processing, distribution or financial chains could have a material adverse effect on the Company's financial condition and results of operations. As a manufacturer of consumer goods packaging products, the products manufactured and sold by the Company are unaffected by Year 2000 issues since they contain no microprocessors or similar electronic components. The Company has undertaken various initiatives intended to ensure that its internal computing infrastructure, business applications and shop floor systems are Year 2000 compliant. These systems assist in the control of the Company's operations by performing such functions as processing financial data, maintaining manufacturing processes and assisting with facilities management and security. Many of these systems contain one or more microprocessors or other embedded electronic components that could be affected by Year 2000 issues. Failure of some of these systems could result in significant business disruptions for the Company. -21- Utilizing both internal and external resources to identify and assess needed Year 2000 remediation, the Company has modified, renovated or replaced its internal computing infrastructure, business applications and shop floor systems as necessary to assure Year 2000 compliance. The Company believes that its Year 2000 identification, assessment, remediation and testing efforts for its systems have now been completed. The Company believes that the cost of its Year 2000 identification, assessment, remediation and testing efforts will approximate $2.2 million, which expenditures have been funded from operating cash flows. As of September 30, 1999, the Company had incurred costs of approximately $2.0 million related to the Year 2000 issue. Principally all of these costs relate to analysis, repair, upgrade or replacement of existing software. The Company relies on numerous third party vendors and suppliers for a wide variety of goods and services, including raw materials, telecommunications and utilities such as water and electricity. Many of the Company's operating locations would be adversely affected if these goods and services were curtailed as a result of a supplier's Year 2000 noncompliance. The Company's vendor and supplier base has been surveyed through questionnaires in an attempt to identify potential disruptions in the event of their Year 2000 noncompliance. Widespread disruption of certain utilities such as electricity would result in a temporary closure of affected facilities and potential damage to production equipment. The Company has developed contingency plans related to the Year 2000 issue that include securing alternate sources of supply, stockpiling raw materials, increasing inventory levels, adjusting facility shutdown and start-up schedules, moving critical equipment to other facilities not affected by the Year 2000 issue, if necessary, and other appropriate measures. The contingency plans and related cost estimates are flexible and will be refined as additional information becomes available. The Company presently believes that the Year 2000 issue will not pose significant operational problems for the Company. However, if all Year 2000 issues are not identified, or assessment, remediation and testing are not effected timely, there can be no assurance that the Year 2000 issue will not materially and adversely impact the Company's results of operations or adversely affect the Company's relationships with customers, vendors or others. Additionally, there can be no assurance that the Year 2000 issues of third parties (including suppliers, customers, banks and governmental entities) will not have a material adverse impact on the Company's systems or results of operations. The costs of the Company's Year 2000 identification, assessment, remediation and testing efforts and the Company's belief that it has completed such efforts are based upon management's best estimates, which were derived using numerous assumptions regarding future events, including the continued availability of certain resources, third party remediation plans and other factors. There can be no assurance that these estimates and beliefs will prove to be accurate, and actual results could differ materially from those currently anticipated. Specific factors that could cause such material differences include, but are not limited to, the availability and cost of personnel trained in Year 2000 issues, the ability to identify, assess, remediate and test all relevant computer codes and embedded technology, unanticipated Year 2000 noncompliance by suppliers and/or customers and similar uncertainties. -22- Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Market risks relating to the Company's operations result primarily from changes in interest rates. The Company also has limited foreign currency risk associated with its Canadian operations. The Company employs established policies and procedures to manage its exposure to fluctuations in interest rates and the value of foreign currencies. Interest rate and foreign currency transactions are used only to the extent considered necessary to meet the Company's objectives. The Company does not utilize derivative financial instruments for trading or other speculative purposes. Information regarding the Company's interest rate risk and foreign currency exchange rate risk has been disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and its Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31 and June 30, 1999. There has not been a material change to the Company's interest rate risk or foreign currency exchange rate risk since such filings. 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 27 Financial Data Schedule (b) Reports on Form 8-K None -23- 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 12, 1999 /s/Harley Rankin, Jr. - ------------------------- ------------------------------- Harley Rankin, Jr. Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Dated: November 12, 1999 /s/Stephen J. Sweeney - ------------------------- ------------------------------- Stephen J. Sweeney Vice President and Controller (Chief Accounting Officer) -24- EXHIBIT INDEX EXHIBIT NO. EXHIBIT ----------- ------- 12 Ratio of Earnings to Fixed Charges for the three and nine months ended September 30, 1999 and 1998 27 Financial Data Schedule for the nine months ended September 30, 1999, submitted to the Securities and Exchange Commission in electronic format -25- Exhibit 12 SILGAN HOLDINGS INC. RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended Nine Months Ended ------------------ ----------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 1999 1998 1999 1998 ---- ---- ---- ---- (Unaudited) (Dollars in thousands) Income before income taxes .................................... $ 9,732 $34,495 $ 37,784 $ 61,501 Add: Interest expense and debt amortization ................ 22,785 22,500 65,085 59,985 Rental expense representative of interest factor ...... 259 291 762 871 ------- ------- -------- -------- Earnings, as adjusted ................................. $32,776 $57,286 $103,631 $122,357 ======= ======= ======== ======== Fixed charges: Interest expense and debt amortization ................ $22,785 $22,500 $ 65,085 $ 59,985 Rental expense representative of interest factor ...... 259 291 762 871 ------- ------- -------- -------- Total fixed charges ................................... $23,044 $22,791 $ 65,847 $ 60,856 ======= ======= ======== ======== Ratio of earnings to fixed charges ............................ 1.42 2.51 1.57 2.01
EX-27 2 FDS --
5 This schedule contains summary financial information extracted from Silgan Holdings Inc. Form 10-Q for the nine months ended September 30, 1999 and is qualified in its entirety by reference to the financial statements therein. 1,000 9-MOS DEC-31-1999 SEP-30-1999 6,309 0 305,206 0 263,250 583,329 651,338 0 1,381,324 446,703 893,729 0 0 201 (49,780) 1,381,324 1,403,389 1,403,389 1,221,043 1,221,043 24,214 0 65,085 37,784 14,641 23,143 0 0 0 23,143 1.30 1.27
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