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, 2009
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)
(203)975-7110
(Registrant's telephone number, including area code)
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 [ ]
Indicate by check mark whether the Registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the Registrant was required
to submit and post such files). Yes [ ] No [ ]
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer[X] Accelerated filer[ ]
Non-accelerated filer[ ] Smaller reporting company[ ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of October 30, 2009, the number of shares outstanding of the Registrant's
common stock, $0.01 par value, was 38,229,426.
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, 2009 and 2008 and December 31, 2008
Condensed Consolidated Statements of Income for the 4
three months ended September 30, 2009 and 2008
Condensed Consolidated Statements of Income for the 5
nine months ended September 30, 2009 and 2008
Condensed Consolidated Statements of Cash Flows for 6
the nine months ended September 30, 2009 and 2008
Condensed Consolidated Statements of Stockholders' Equity 7
for the nine months ended September 30, 2009 and 2008
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 23
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market 31
Risk
Item 4. Controls and Procedures 31
Part II. Other Information 32
Item 1. Legal Proceedings 32
Item 6. Exhibits 32
Signatures 33
Exhibit Index 34
-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,
2009 2008 2008
---- ---- ----
(unaudited) (unaudited)
Assets
Current assets
Cash and cash equivalents $ 66,727 $ 290,377 $ 163,006
Trade accounts receivable, net 517,124 487,344 266,880
Inventories 372,995 399,466 376,986
Prepaid expenses and other current assets 23,963 28,417 31,093
---------- ---------- ----------
Total current assets 980,809 1,205,604 837,965
Property, plant and equipment, net 889,610 936,371 917,579
Goodwill 304,585 302,282 300,448
Other intangible assets, net 56,530 59,981 57,112
Other assets, net 57,765 67,937 50,475
---------- ---------- ----------
$2,289,299 $2,572,175 $2,163,579
========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Revolving loans and current
portion of long-term debt $ 56,529 $ 436,546 $ 158,877
Trade accounts payable 207,373 252,570 298,611
Accrued payroll and related costs 76,251 75,983 72,337
Accrued liabilities 96,336 68,540 41,046
---------- ---------- ----------
Total current liabilities 436,489 833,639 570,871
Long-term debt 868,328 866,544 726,036
Other liabilities 328,449 279,388 342,094
Stockholders' equity
Common stock 434 432 433
Paid-in capital 169,839 160,264 162,568
Retained earnings 610,594 479,889 497,732
Accumulated other comprehensive (loss) income (64,386) 12,276 (75,861)
Treasury stock (60,448) (60,257) (60,294)
---------- ---------- ----------
Total stockholders' equity 656,033 592,604 524,578
---------- ---------- ----------
$2,289,299 $2,572,175 $2,163,579
========== ========== ==========
See accompanying notes.
-3-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended September 30, 2009 and 2008
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
2009 2008
---- ----
Net sales $1,016,537 $964,299
Cost of goods sold 849,942 822,984
---------- --------
Gross profit 166,595 141,315
Selling, general and administrative expenses 38,612 39,270
Rationalization charges 113 2,408
---------- --------
Income from operations 127,870 99,637
Interest and other debt expense 13,724 15,100
---------- --------
Income before income taxes 114,146 84,537
Provision for income taxes 40,643 31,730
---------- --------
Net income $ 73,503 $ 52,807
========== ========
Earnings per share:
Basic net income per share $1.92 $1.39
===== =====
Diluted net income per share $1.91 $1.38
===== =====
Dividends per share $0.19 $0.17
===== =====
Weighted average number of shares:
Basic 38,202 37,932
Effect of dilutive securities 302 389
------ ------
Diluted 38,504 38,321
====== ======
See accompanying notes.
-4-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the nine months ended September 30, 2009 and 2008
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
2009 2008
---- ----
Net sales $2,361,475 $2,379,413
Cost of goods sold 1,993,539 2,040,005
---------- ----------
Gross profit 367,936 339,408
Selling, general and administrative expenses 119,952 115,185
Rationalization charges 1,491 9,801
---------- ----------
Income from operations 246,493 214,422
Interest and other debt expense before loss on
early extinguishment of debt 36,389 46,215
Loss on early extinguishment of debt 661 --
---------- ----------
Interest and other debt expense 37,050 46,215
Income before income taxes 209,443 168,207
Provision for income taxes 74,578 60,934
---------- ----------
Net income $ 134,865 $ 107,273
========== ==========
Earnings per share:
Basic net income per share $3.54 $2.83
===== =====
Diluted net income per share $3.51 $2.80
===== =====
Dividends per share $0.57 $0.51
===== =====
Weighted average number of shares:
Basic 38,146 37,853
Effect of dilutive securities 310 414
------ ------
Diluted 38,456 38,267
====== ======
See accompanying notes.
-5-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2009 and 2008
(Dollars in thousands)
(Unaudited)
2009 2008
---- ----
Cash flows provided by (used in) operating activities
Net income $ 134,865 $ 107,273
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 109,577 108,330
Rationalization charges 1,491 9,801
Loss on early extinguishment of debt 661 --
Excess tax benefit from stock-based compensation (1,970) (2,737)
Other changes that provided (used) cash,
net of effects from acquisitions:
Trade accounts receivable, net (247,207) (269,393)
Inventories 6,604 15,810
Trade accounts payable (40,620) 70,103
Accrued liabilities 52,375 25,192
Other, net 2,942 13,614
--------- ---------
Net cash provided by operating activities 18,718 77,993
--------- ---------
Cash flows provided by (used in) investing activities
Purchase of businesses, net of cash acquired -- (14,542)
Capital expenditures (72,105) (87,655)
Proceeds from asset sales 2,877 1,088
--------- ---------
Net cash used in investing activities (69,228) (101,109)
--------- ---------
Cash flows provided by (used in) financing activities
Borrowings under revolving loans 302,734 703,536
Repayments under revolving loans (277,555) (384,114)
Proceeds from issuance of long-term debt 243,200 7,984
Repayments of long-term debt (237,924) (3,000)
Debt issuance costs (5,345) --
Changes in outstanding checks - principally vendors (51,790) (91,557)
Dividends paid on common stock (22,003) (19,492)
Proceeds from stock option exercises 1,969 2,236
Excess tax benefit from stock-based compensation 1,970 2,737
Repurchase of treasury shares (1,025) (778)
--------- ---------
Net cash (used in) provided by financing activities (45,769) 217,552
--------- ---------
Cash and cash equivalents
Net (decrease) increase (96,279) 194,436
Balance at beginning of year 163,006 95,941
--------- ---------
Balance at end of period $ 66,727 $ 290,377
========= =========
Interest paid, net $ 30,215 $ 42,646
Income taxes paid, net 42,039 27,036
See accompanying notes.
-6-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
For the nine months ended September 30, 2009 and 2008
(Dollars and shares in thousands)
(Unaudited)
Common Stock Accumulated
------------ Other Total
Shares Par Paid-in Retained Comprehensive Treasury Stockholders'
Outstanding Value Capital Earnings (Loss) Income Stock Equity
----------- ----- -------- -------- ------------- -------- -------------
Balance at December 31, 2007 37,740 $430 $152,629 $392,108 $ 15,064 $(60,148) $500,083
Comprehensive income:
Net income -- -- -- 107,273 -- -- 107,273
Changes in net prior service
credit and actuarial losses,
net of tax provision of $15 -- -- -- -- 21 -- 21
Change in fair value of derivatives,
net of tax provision of $30 -- -- -- -- 42 -- 42
Foreign currency translation,
net of tax provision of $3,507 -- -- -- -- (2,851) -- (2,851)
--------
Comprehensive income 104,485
--------
Dividends declared on common stock -- -- -- (19,492) -- -- (19,492)
Stock compensation expense -- -- 2,772 -- -- -- 2,772
Stock option exercises, including
tax benefit of $3,021 188 2 5,255 -- -- -- 5,257
Net issuance of treasury stock for
vested restricted stock units,
including tax benefit of $277 35 -- (392) -- -- (109) (501)
------ ---- -------- -------- -------- -------- --------
Balance at September 30, 2008 37,963 $432 $160,264 $479,889 $ 12,276 $(60,257) $592,604
====== ==== ======== ======== ======== ======== ========
Balance at December 31, 2008 38,026 $433 $162,568 $497,732 $(75,861) $(60,294) $524,578
Comprehensive income:
Net income -- -- -- 134,865 -- -- 134,865
Changes in net prior service
credit and actuarial losses,
net of tax provision of $2,758 -- -- -- -- 4,191 -- 4,191
Change in fair value of derivatives,
net of tax benefit of $1,841 -- -- -- -- (2,401) -- (2,401)
Foreign currency translation,
net of tax benefit of $113 -- -- -- -- 9,685 -- 9,685
--------
Comprehensive income 146,340
--------
Dividends declared on common stock -- -- -- (22,003) -- -- (22,003)
Stock compensation expense -- -- 3,680 -- -- -- 3,680
Stock option exercises, including
tax benefit of $2,233 142 1 4,201 -- -- -- 4,202
Net issuance of treasury stock for
vested restricted stock units,
including tax benefit of $261 45 -- (610) -- -- (154) (764)
------ ---- -------- -------- -------- -------- --------
Balance at September 30, 2009 38,213 $434 $169,839 $610,594 $(64,386) $(60,448) $656,033
====== ==== ======== ======== ======== ======== ========
See accompanying notes.
-7-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2009 and 2008 and for the
three and nine months then ended is unaudited)
Note 1. Significant Accounting Policies
Basis of Presentation. The accompanying unaudited condensed consolidated
financial statements of Silgan Holdings Inc., or Silgan, have been prepared in
accordance with U.S. generally accepted accounting principles, or GAAP, for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by GAAP 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.
We have evaluated events subsequent to September 30, 2009 for recognition
through November 9, 2009, the issuance date of the accompanying condensed
consolidated financial statements.
The Condensed Consolidated Balance Sheet at December 31, 2008 has been derived
from our audited consolidated financial statements at that date, but does not
include all of the information and footnotes required by GAAP for complete
financial statements.
Certain prior years' amounts have been reclassified to conform with the current
year's presentation.
You should read the accompanying condensed consolidated 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, 2008.
Goodwill and Other Intangible Assets. We review goodwill and other
indefinite-lived intangible assets for impairment as of July 1 each year and
more frequently if circumstances indicate a possible impairment. We determined
that our goodwill and other indefinite-lived intangible assets were not impaired
in our annual 2009 assessment performed during the third quarter.
Recently Adopted Accounting Pronouncements. In June 2009, the Financial
Accounting Standards Board, or FASB, confirmed that the FASB Accounting
Standards Codification, or the Codification, was the single official source of
authoritative GAAP, other than guidance issued by the Securities and Exchange
Commission. The Codification, which changed the referencing of financial
accounting standards and superseded authoritative guidance, was effective for
interim and annual financial periods ending after September 15, 2009. The
Codification was not intended to change existing GAAP. We have conformed our
financial statements and related notes to the Codification beginning with this
Quarterly Report.
In September 2006, the FASB issued a standard that establishes a single
authoritative definition for fair value, sets out a framework for measuring fair
value and requires additional disclosures about fair value measurements. As of
January 1, 2009, we completed the adoption of this standard which did not have a
significant effect on our financial position, results of operations or cash
flows. See Note 6 for further information.
-8-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2009 and 2008 and for the
three and nine months then ended is unaudited)
Note 1. Significant Accounting Policies (continued)
Recently Adopted Accounting Pronouncements. (continued)
In December 2007, the FASB issued a standard on business combinations which
retains the fundamental requirements in existing GAAP that the purchase method
of accounting be used for all business combinations and an acquirer be
identified for each business combination. This standard establishes principles
and requirements for the reporting entity in a business combination, including
recognition and measurement in the financial statements of the identifiable
assets acquired, the liabilities assumed and any non-controlling interest at
their fair values at the acquisition date. This standard also requires that
acquisition-related costs be recognized separately from the acquisition. This
standard applies prospectively to business combinations for which the
acquisition date is on or after January 1, 2009. In addition, this standard
requires that any changes in an acquired deferred tax account or related
valuation allowance that occur after January 1, 2009 will be recognized as
adjustments to income tax expense. The initial adoption of this standard did not
have an effect on our financial position, results of operations or cash flows.
However, our unrecognized tax benefit positions will impact our effective tax
rate if recognition of such positions is required in future periods.
In March 2008, the FASB issued a standard which requires companies with
derivative instruments to disclose information that should enable readers of
financial statements to understand how and why a company uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under existing GAAP and how derivative instruments and related hedged items
affect a company's financial position, financial performance and cash flows.
This standard was effective for us on January 1, 2009, and the adoption of it
did not have an effect on our financial position, results of operations or cash
flows. See Note 6 for additional disclosures required under this standard.
In April 2009, the FASB issued a standard which requires disclosures about the
fair value of financial instruments for interim reporting periods. This standard
was effective for us beginning with our quarter ending June 30, 2009, and the
adoption of it did not have an effect on our financial position, results of
operations or cash flows. See Note 6 for additional disclosures required under
this standard.
Recently Issued Accounting Pronouncement. In December 2008, the FASB issued a
standard which requires enhanced disclosures about plan assets in an employer's
defined benefit pension and other postretirement plans. These disclosures are
intended to provide users of financial statements with a greater understanding
of how investment allocation decisions are made, the major categories of plan
assets, the inputs and valuation techniques used to measure the fair value of
plan assets and significant concentrations of risk within plan assets. This
standard will apply to our plan asset disclosures for the fiscal year ending
December 31, 2009. We are currently evaluating the disclosure implications of
this standard, however the adoption of it will not have an effect on our
financial position, results of operations or cash flows.
-9-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2009 and 2008 and for the
three and nine months then ended is unaudited)
Note 2. Rationalization Charges
As part of our plans to rationalize certain facilities, we have established
reserves for employee severance and benefits and plant exit costs. Activity in
our rationalization reserves since December 31, 2008 is summarized as follows:
Employee Plant
Severance Exit
and Benefits Costs Total
------------ ----- -----
(Dollars in thousands)
Balance at December 31, 2008
----------------------------
2001 Fairfield Rationalization Plan $ -- $ 168 $ 168
2006 Rationalization Plans 3,661 -- 3,661
2008 Rationalization Plans 949 875 1,824
------ ------ -------
Balance at December 31, 2008 4,610 1,043 5,653
Activity for the Nine Months Ended September 30, 2009
-----------------------------------------------------
2001 Fairfield Rationalization Plan Reserves Established -- 62 62
2001 Fairfield Rationalization Plan Reserves Utilized -- (155) (155)
2006 Rationalization Plan Reserves Utilized (171) -- (171)
2008 Rationalization Plan Reserves Established 42 145 187
2008 Rationalization Plan Reserves Utilized (771) (460) (1,231)
2009 Rationalization Plan Reserves Established 1,242 -- 1,242
2009 Rationalization Plan Reserves Utilized (353) -- (353)
------ ------ -------
Total Activity (11) (408) (419)
Balance at September 30, 2009
-----------------------------
2001 Fairfield Rationalization Plan -- 75 75
2006 Rationalization Plans 3,490 -- 3,490
2008 Rationalization Plans 220 560 780
2009 Rationalization Plan 889 -- 889
------ ------ -------
Balance at September 30, 2009 $4,599 $ 635 $ 5,234
====== ====== =======
2009 Rationalization Plan
-------------------------
In March 2009, we approved a plan to reduce costs at our Hannover, Germany
closures manufacturing facility, which plan included the termination of 14
employees. Total estimated charges related to this plan of $1.3 million for
employee severance and benefit costs were recognized through September 2009.
Cash payments of $0.4 million were paid as of September 30, 2009. Cash payments
of $0.9 million are expected to be paid through the first quarter of 2010.
-10-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2009 and 2008 and for the
three and nine months then ended is unaudited)
Note 2. Rationalization Charges (continued)
2008 Rationalization Plans
--------------------------
In 2008, as part of our ongoing effort to streamline operations and reduce
costs, we approved plans to close our metal food container manufacturing
facility in Tarrant, Alabama, our plastic container manufacturing facility in
Richmond, Virginia and our closures manufacturing facility in Turkey and to
consolidate various administrative positions within our European closures
operations. Through December 31, 2008, we recognized an aggregate $10.7 million
of rationalization costs under these plans and terminated 200 employees. As of
December 31, 2008, these plans were substantially completed. During the nine
months ended September 30, 2009, we recognized $0.2 million of rationalization
costs and made cash payments of $1.2 million related to these plans. We have
ceased operations at these three facilities and expect to sell the owned
facilities for proceeds at or in excess of their respective net book values. We
expect to recognize additional charges under these plans of $0.2 million during
2009. Remaining aggregate cash payments of $1.0 million are expected during the
remainder of 2009.
2006 Rationalization Plans
--------------------------
In 2006, we announced plans to exit our St. Paul, Minnesota and Stockton,
California metal food container manufacturing facilities. These plans have been
fully implemented and substantially all costs have been recognized. We have
ceased operations at these facilities. We expect to sell both buildings for
estimated proceeds at or in excess of their net book value. Remaining cash
payments of $3.5 million are expected in 2009 and thereafter.
Rationalization reserves are included in the Condensed Consolidated Balance
Sheets as follows:
Sept. 30, Sept. 30, Dec. 31,
2009 2008 2008
---- ---- ----
(Dollars in thousands)
Accrued liabilities $2,357 $2,826 $2,671
Other liabilities 2,877 3,165 2,982
------ ------ ------
$5,234 $5,991 $5,653
====== ====== ======
-11-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2009 and 2008 and for the
three and nine months then ended is unaudited)
Note 3. Accumulated Other Comprehensive (Loss) Income
Accumulated other comprehensive (loss) income is reported in the Condensed
Consolidated Statements of Stockholders' Equity. Amounts included in accumulated
other comprehensive (loss) income, net of tax, consisted of the following:
Sept. 30, Sept. 30, Dec. 31,
2009 2008 2008
---- ---- ----
(Dollars in thousands)
Foreign currency translation $ 21,881 $ 29,765 $ 12,196
Change in fair value of derivatives (9,561) 1,881 (7,160)
Unrecognized net periodic pension and
other postretirement benefit costs:
Net prior service credit 6,699 4,147 6,845
Net actuarial loss (83,405) (23,517) (87,742)
-------- -------- --------
Accumulated other comprehensive
(loss) income $(64,386) $ 12,276 $(75,861)
======== ======== ========
Note 4. Inventories
Inventories consisted of the following:
Sept. 30, Sept. 30, Dec. 31,
2009 2008 2008
---- ---- ----
(Dollars in thousands)
Raw materials $ 85,715 $ 87,717 $110,480
Work-in-process 76,450 72,058 72,078
Finished goods 254,094 278,577 237,080
Spare parts and other 15,900 15,535 15,492
-------- -------- --------
432,159 453,887 435,130
Adjustment to value domestic inventory
at cost on the LIFO method (59,164) (54,421) (58,144)
-------- -------- --------
$372,995 $399,466 $376,986
======== ======== ========
-12-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2009 and 2008 and for the
three and nine months then ended is unaudited)
Note 5. Long-Term Debt
Long-term debt consisted of the following:
Sept. 30, Sept. 30, Dec. 31,
2009 2008 2008
---- ---- ----
(Dollars in thousands)
Bank debt
Bank revolving loans $ 27,000 $ 315,149 $ --
Bank A term loans 121,765 345,000 284,118
Bank B term loans 40,621 41,477 41,049
Canadian term loans 76,648 86,112 72,122
Euro term loans 185,828 286,020 256,860
Other foreign bank revolving and term loans 29,529 29,332 30,764
-------- ---------- --------
Total bank debt 481,391 1,103,090 684,913
-------- ---------- --------
7 1/4% Senior Notes, net of unamortized discount 243,466 -- --
6 3/4% Senior Subordinated Notes 200,000 200,000 200,000
-------- ---------- --------
Total other debt 443,466 200,000 200,000
-------- ---------- --------
Total debt 924,857 1,303,090 884,913
Less current portion 56,529 436,546 158,877
-------- ---------- --------
$868,328 $ 866,544 $726,036
======== ========== ========
The aggregate annual principal maturities of our term loans under our senior
secured credit facility, or the Credit Agreement, 7 1/4% Senior Notes and 6 3/4%
Senior Subordinated Notes are as follows (dollars in thousands, non-U.S. dollar
debt has been translated into U.S. dollars at exchange rates in effect at the
balance sheet date):
2010 $ 14,598
2011 218,081
2012 192,183
2013 200,000
Thereafter 250,000
--------
$874,862
========
At September 30, 2009, amounts expected to be repaid within one year consisted
of $27.0 million of bank revolving loans related primarily to seasonal working
capital needs and $29.5 million of foreign bank revolving and term loans.
-13-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2009 and 2008 and for the
three and nine months then ended is unaudited)
Note 5. Long-Term Debt (continued)
7 1/4% Senior Notes
-------------------
On May 12, 2009, we issued $250 million aggregate principal amount of 7 1/4%
Senior Notes, or the 7 1/4% Notes. The issue price for the 7 1/4% Notes was
97.28 percent of their principal amount. The 7 1/4% Notes are general unsecured
obligations of Silgan, ranking equal in right of payment with Silgan's unsecured
unsubordinated indebtedness and ahead of Silgan's subordinated debt. The 7 1/4%
Notes are effectively subordinated to Silgan's secured debt to the extent of the
assets securing such debt and effectively subordinated to all obligations of the
subsidiaries of Silgan. Interest on the 7 1/4% Notes is payable semi-annually in
cash on August 15 and February 15 of each year and the 7 1/4% Notes mature on
August 15, 2016. Net proceeds from the issuance of the 7 1/4% Notes of $237.9
million were used to prepay all of the 2009 term loan installment payments and
substantially all of the 2010 term loan installment payments due under the
Credit Agreement. As a result of these term loan prepayments, we incurred a $0.7
million loss on early extinguishment of debt for the write off of debt issuance
costs.
The 7 1/4% Notes are redeemable, at the option of Silgan, in whole or in part,
at any time after August 15, 2013 at the following redemption prices (expressed
in percentages of principal amount) plus accrued and unpaid interest thereon to
the redemption date if redeemed during the twelve month period commencing August
15, of the years set forth below:
Year Redemption Price
---- ----------------
2013 103.625%
2014 101.813%
2015 and thereafter 100.000%
In addition, prior to August 15, 2012, we may redeem up to 35 percent of the
aggregate principal amount of the 7 1/4% Notes from the proceeds of certain
equity offerings. We may also redeem the 7 1/4% Notes, in whole or in part, at a
redemption price equal to 100 percent of their principal amount plus a
make-whole premium as provided in the indenture for the 7 1/4% Notes.
Upon the occurrence of a change of control, as defined in the indenture for the
7 1/4% Notes, Silgan is required to make an offer to purchase the 7 1/4% Notes
at a purchase price equal to 101 percent of their principal amount, plus accrued
interest to the date of purchase.
The indenture for the 7 1/4% Notes contains covenants which are generally less
restrictive than those under the Credit Agreement.
-14-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2009 and 2008 and for the
three and nine months then ended is unaudited)
Note 6. Financial Instruments
The financial instruments recorded in our Condensed Consolidated Balance Sheets
include cash and cash equivalents (primarily invested in U.S. Treasury
instruments), trade accounts receivable, trade accounts payable, debt
obligations and swap agreements. Due to their short-term maturity, the carrying
amounts of cash and cash equivalents, trade accounts receivable and trade
accounts payable approximate their fair market values. The following table
summarizes the carrying amounts and estimated fair values of our other financial
instruments at September 30, 2009:
Carrying Fair
Amount Value
------ -----
(Dollars in thousands)
Bank debt $481,391 $481,391
7 1/4% Notes 243,466 251,875
6 3/4% Senior Subordinated Notes 200,000 199,500
Interest rate swap agreements 15,838 15,838
Natural gas swap agreements 503 503
Fair Value Measurements
-----------------------
Financial Instruments Measured at Fair Value
GAAP defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date (exit price). GAAP classifies the inputs
used to measure fair value into a hierarchy consisting of three levels. Level 1
inputs represent unadjusted quoted prices in active markets for identical assets
or liabilities. Level 2 inputs represent unadjusted quoted prices in active
markets for similar assets or liabilities, or unadjusted quoted prices for
identical or similar assets or liabilities in markets that are not active, or
inputs other than quoted prices that are observable for the asset or liability.
Level 3 inputs represent unobservable inputs for the asset or liability.
Financial assets and liabilities are classified in their entirety based on the
lowest level of input that is significant to the fair value measurement.
The financial assets and liabilities that are measured on a recurring basis at
September 30, 2009 consist of our interest rate and natural gas swap agreements.
We measured the fair value of these swap agreements using the income approach.
The fair value of these agreements reflects the estimated amounts that we would
pay based on the present value of the expected cash flows derived from market
interest rates and prices. As such, these derivative instruments are classified
within Level 2.
Financial Instruments Not Measured at Fair Value
Our bank debt, 7 1/4% Notes and 6 3/4% Senior Subordinated Notes are recorded at
historical amounts in our Condensed Consolidated Balance Sheets as we have not
elected to measure them at fair value. The carrying amounts of our variable rate
bank debt approximate their fair values. Fair values of our 7 1/4% Notes and 6
3/4% Senior Subordinated Notes are estimated based on quoted market prices.
-15-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2009 and 2008 and for the
three and nine months then ended is unaudited)
Note 6. Financial Instruments (continued)
Derivative Instruments and Hedging Activities
---------------------------------------------
Effective January 1, 2009, we adopted the standard which requires expanded
disclosure about our derivative instruments and hedging activities. We account
for derivative financial instruments under GAAP which requires all derivatives
to be recorded in the Condensed Consolidated Balance Sheets at their fair
values. Changes in fair values of derivatives are recorded in each period in
earnings or comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction.
We utilize certain derivative financial instruments to manage a portion of our
interest rate and natural gas cost exposures. We limit our use of derivative
financial instruments to interest rate and natural gas swap agreements. We do
not engage in trading or other speculative uses of these financial instruments.
For a financial instrument to qualify as a hedge, we must be exposed to interest
rate or price risk, and the financial instrument must reduce the exposure and be
designated as a hedge. Financial instruments qualifying for hedge accounting
must maintain a high correlation between the hedging instrument and the item
being hedged, both at inception and throughout the hedged period.
We utilize certain internal hedging strategies to minimize our foreign currency
exchange rate risk. Net investment hedges that qualify for hedge accounting
result in the recognition of foreign currency gains or losses, net of tax, in
accumulated other comprehensive (loss) income. We generally do not utilize
external derivative financial instruments to manage our foreign currency
exchange rate risk.
Our interest rate and natural gas swap agreements are accounted for as cash flow
hedges. During the first nine months of 2009, our hedges were fully effective.
The fair value of our outstanding swap agreements in effect at September 30,
2009 was recorded in our Condensed Consolidated Balance Sheet as a liability of
$16.3 million, of which $9.2 million was included in accrued liabilities and
$7.1 million was included in other liabilities.
The amount reclassified to earnings from the change in fair value of derivatives
component of accumulated other comprehensive (loss) income for the nine months
ended September 30, 2009 was a loss of $4.3 million, net of income taxes. We
estimate that we will reclassify losses of $5.0 million, net of income taxes,
from the change in fair value of derivatives component of accumulated other
comprehensive (loss) income to earnings during the next twelve months. The
actual amount that will be reclassified to earnings will vary from this amount
as a result of changes in market conditions.
-16-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2009 and 2008 and for the
three and nine months then ended is unaudited)
Note 6. Financial Instruments (continued)
Interest Rate Swap Agreements
-----------------------------
We have entered into U.S. dollar, Euro and Canadian dollar interest rate swap
agreements to manage a portion of our exposure to interest rate fluctuations. At
September 30, 2009, the aggregate notional principal amount of our outstanding
interest rate swap agreements was $281.1 million (non-U.S. dollar agreements
have been translated into U.S. dollars at exchange rates in effect at the
balance sheet date). In connection with the prepayment of certain installments
of Euro term loans as discussed in Note 5, we settled (euro)10 million of
notional principal amount of outstanding Euribor interest rate swap agreements.
The difference between amounts to be paid or received on our interest rate swap
agreements is recorded in interest and other debt expense in our Condensed
Consolidated Statements of Income. For the nine months ended September 30, 2009,
net payments under our interest rate swap agreements were $5.4 million. These
agreements are with a financial institution which is expected to fully perform
under the terms thereof.
Natural Gas Swap Agreements
---------------------------
We have entered into natural gas swap agreements with a major financial
institution to manage a portion of our exposure to fluctuations in natural gas
prices. At September 30, 2009, the aggregate notional principal amount of our
natural gas swap agreements was 672,100 MMBtu of natural gas with fixed prices
ranging from $4.340 to $8.115 per MMBtu, which hedges approximately 26 percent
of our estimated twelve month exposure to fluctuations in natural gas prices.
For the nine months ended September 30, 2009, net payments under our natural gas
swap agreements were $2.1 million. These agreements are with a financial
institution which is expected to fully perform under the terms thereof.
Foreign Currency Exchange Rate Risk
-----------------------------------
In an effort to minimize foreign currency exchange rate risk, we have financed
our 2006 acquisitions of the White Cap closures operations and Cousins-Currie
Limited with term loans borrowed under our Credit Agreement denominated in Euros
and Canadian dollars, respectively. In addition, where available, we have
borrowed funds in local currency or implemented certain internal hedging
strategies to minimize our foreign currency exchange rate risk related to
foreign operations. Foreign currency losses recognized as net investment hedges
included in accumulated other comprehensive (loss) income for the nine months
ended September 30, 2009 were $0.3 million, net of a deferred tax benefit of
$0.1 million.
-17-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2009 and 2008 and for the
three and nine months then ended is unaudited)
Note 7. Retirement Benefits
The components of the net periodic pension benefits costs are as follows:
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2009 2008 2009 2008
---- ---- ---- ----
(Dollars in thousands)
Service cost $ 3,734 $ 2,665 $ 10,420 $ 9,450
Interest cost 6,739 6,758 20,712 20,324
Expected return on plan assets (6,272) (7,873) (18,918) (23,049)
Amortization of prior service cost 577 604 1,684 1,725
Amortization of actuarial losses 2,289 155 7,052 315
Curtailment expense -- 83 -- 83
------- ------- -------- --------
Net periodic benefit cost $ 7,067 $ 2,392 $ 20,950 $ 8,848
======= ======= ======== ========
The components of the net periodic other postretirement benefits costs are as
follows:
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2009 2008 2009 2008
---- ---- ---- ----
(Dollars in thousands)
Service cost $ 181 $ 170 $ 586 $ 630
Interest cost 656 797 2,188 2,446
Amortization of prior service credit (644) (659) (1,923) (1,808)
Amortization of actuarial (gains) losses (30) 70 136 214
Curtailment gain -- (455) -- (455)
----- ----- ------- -------
Net periodic benefit cost (credit) $ 163 $ (77) $ 987 $ 1,027
===== ===== ======= =======
As previously disclosed in our consolidated financial statements and notes
thereto included in our Annual Report on Form 10-K for the year ended December
31, 2008, there are no material minimum required contributions to our pension
plans in 2009. Based on our current funded status, we made voluntary
contributions of $23.4 million to our pension benefit plans in 2009. To the
extent they are tax deductible, we may make additional voluntary contributions
to our pension benefit plans during the remainder of 2009.
-18-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2009 and 2008 and for the
three and nine months then ended is unaudited)
Note 8. Income Taxes
Silgan and its subsidiaries file U.S. Federal income tax returns, as well as
income tax returns in various states and foreign jurisdictions. The Internal
Revenue Service, or IRS, has commenced an examination of Silgan's income tax
return for the periods ended December 31, 2004 through December 31, 2007. It is
reasonably possible that this IRS audit and IRS audits for prior periods will be
concluded within the next twelve months, and that the conclusion of these audits
may result in a significant change to our reported unrecognized tax benefits.
Due to the ongoing nature of these audits, we are unable to estimate the amount
of this potential impact.
Note 9. Dividends
In each of March, June and September of 2009, we paid quarterly cash dividends
on our common stock of $0.19 per share, as approved by our Board of Directors.
The cash payments related to these dividends totaled $22.0 million.
Note 10. Treasury Stock
During the first nine months of 2009, we issued 65,700 treasury shares which had
an average cost of $13.25 per share for restricted stock units that vested
during the period. In accordance with the Silgan Holdings Inc. 2004 Stock
Incentive Plan, we repurchased 20,827 shares of our common stock at an average
cost of $49.18 to satisfy employee withholding tax requirements resulting from
certain restricted stock units becoming vested. We account for the treasury
shares using the first-in, first-out (FIFO) cost method. As of September 30,
2009, 5,218,122 shares were held in treasury.
Note 11. Stock-Based Compensation
We currently have one stock-based compensation plan in effect, under which we
have issued options and restricted stock units to our officers, other key
employees and outside directors. During the first nine months of 2009, 133,200
restricted stock units were granted to certain of our officers and key
employees. The fair value of these restricted stock units at the grant date was
$6.5 million, which is being amortized ratably over the five-year vesting period
from the grant date. In addition, in the third quarter of 2009, 125,000
restricted stock units were granted to certain of our officers that are subject
to forfeiture unless certain performance criteria for the year ended December
31, 2010 is achieved. These restricted stock units vest at the conclusion of the
five-year period from the grant date. The fair value of these restricted stock
units at the grant date was $6.3 million, which is being amortized ratably over
the five-year vesting period from the grant date.
In May 2009, we granted 6,702 restricted stock units to non-employee members of
our Board of Directors, which vest in full one year from the date of grant. The
fair value of these restricted stock units at the date of grant was $0.3
million.
-19-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2009 and 2008 and for the
three and nine months then ended is unaudited)
Note 11. Stock-Based Compensation (continued)
At our annual meeting of stockholders held on May 26, 2009, our stockholders
approved the Second Amendment to the Silgan Holdings Inc. 2004 Stock Incentive
Plan, as amended, or the 2004 Stock Incentive Plan, which, among other things,
increased the number of shares of our Common Stock available for awards under
the 2004 Stock Incentive Plan by an additional 1,500,000 shares. The total
number of shares available for issuance under the 2004 Stock Incentive Plan as
of September 30, 2009 was 1,739,016.
-20-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2009 and 2008 and for the
three and nine months then ended is unaudited)
Note 12. Business Segment Information
Reportable business segment information for the three and nine months ended
September 30 is as follows:
Metal Food Plastic
Containers Closures Containers Corporate Total
---------- -------- ---------- --------- -----
(Dollars in thousands)
Three Months Ended September 30, 2009
-------------------------------------
Net sales $ 716,527 $166,349 $133,661 $ -- $1,016,537
Depreciation and amortization(1) 16,680 7,046 11,634 422 35,782
Rationalization charges -- 15 98 -- 113
Segment income from operations 104,193 24,247 2,633 (3,203) 127,870
Three Months Ended September 30, 2008
-------------------------------------
Net sales $ 617,369 $184,329 $162,601 $ -- $ 964,299
Depreciation and amortization(2) 16,569 7,954 11,586 420 36,529
Rationalization (credit) charges (507) 2,821 94 -- 2,408
Segment income from operations 76,639 17,110 9,066 (3,178) 99,637
Nine Months Ended September 30, 2009
------------------------------------
Net sales $1,493,499 $463,275 $404,701 $ -- $2,361,475
Depreciation and amortization(1) 51,335 21,005 34,554 1,263 108,157
Rationalization charges -- 1,341 150 -- 1,491
Segment income from operations 172,619 60,794 22,994 (9,914) 246,493
Nine Months Ended September 30, 2008
------------------------------------
Net sales $1,346,062 $531,701 $501,650 $ -- $2,379,413
Depreciation and amortization(2) 48,599 23,044 34,400 1,263 107,306
Rationalization charges 2,783 6,090 928 -- 9,801
Segment income from operations 134,811 53,388 35,244 (9,021) 214,422
-------------
(1) Depreciation and amortization excludes amortization of debt discount
and issuance costs of $0.6 million and $1.4 million for the three and
nine months ended September 30, 2009, respectively.
(2) Depreciation and amortization excludes amortization of debt issuance
costs of $0.3 million and $1.0 million for the three and nine months
ended September 30, 2008, respectively.
-21-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2009 and 2008 and for the
three and nine months then ended is unaudited)
Note 12. Business Segment Information (continued)
Total segment income from operations is reconciled to income before income taxes
as follows:
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2009 2008 2009 2008
---- ---- ---- ----
(Dollars in thousands)
Total segment income from operations $127,870 $99,637 $246,493 $214,422
Interest and other debt expense 13,724 15,100 37,050 46,215
-------- ------- -------- --------
Income before income taxes $114,146 $84,537 $209,443 $168,207
======== ======= ======== ========
Sales and income from operations of our metal food container business are
dependent, in part, upon the vegetable and fruit harvests in the midwest and
western regions of the United States. Our closures business is also dependent,
in part, upon vegetable and fruit harvests. The size and quality of these
harvests varies from year to year, depending in large part upon the weather
conditions in applicable regions. Because of the seasonality of the harvests, we
have historically experienced higher unit sales volume in the third quarter of
our fiscal year and generated a disproportionate amount of our annual income
from operations during that quarter.
-22-
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, 2008 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.
General
We are a leading manufacturer of metal and plastic consumer goods packaging
products. We produce steel and aluminum containers for human and pet food;
metal, composite and plastic vacuum closures for food and beverage products; and
custom designed plastic containers, tubes and closures for personal care, health
care, pharmaceutical, household and industrial chemical, food, pet care,
agricultural chemical, automotive and marine chemical products. We are the
largest manufacturer of metal food containers in North America, a leading
worldwide manufacturer of metal, composite and plastic vacuum closures for food
and beverage products and a leading manufacturer of plastic containers in North
America for a variety of markets, including the personal care, health care,
household and industrial chemical and food markets.
Our objective is to increase shareholder value by efficiently deploying capital
and management resources to grow our business, reduce operating costs and build
sustainable competitive positions, or franchises, and to complete acquisitions
that generate attractive cash returns. We have grown our net sales and income
from operations over the years, largely through acquisitions but also through
internal growth, and we continue to evaluate acquisition opportunities in the
consumer goods packaging market. If acquisition opportunities are not identified
over a longer period of time, we may use our cash flow to repay debt, repurchase
shares of our common stock or increase dividends to our stockholders or for
other permitted purposes.
-23-
RESULTS OF OPERATIONS
The following table sets forth certain unaudited income statement data expressed
as a percentage of net sales for the periods presented:
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2009 2008 2009 2008
---- ---- ---- ----
Net sales
Metal food containers 70.5% 64.0% 63.2% 56.6%
Closures 16.4 19.1 19.7 22.3
Plastic containers 13.1 16.9 17.1 21.1
----- ----- ----- -----
Consolidated 100.0 100.0 100.0 100.0
Cost of goods sold 83.6 85.3 84.4 85.7
----- ----- ----- -----
Gross profit 16.4 14.7 15.6 14.3
Selling, general and administrative expenses 3.8 4.1 5.1 4.9
Rationalization charges -- 0.3 0.1 0.4
----- ----- ----- -----
Income from operations 12.6 10.3 10.4 9.0
Interest and other debt expense 1.4 1.5 1.5 1.9
----- ----- ----- -----
Income before income taxes 11.2 8.8 8.9 7.1
Provision for income taxes 4.0 3.3 3.2 2.6
----- ----- ----- -----
Net income 7.2% 5.5% 5.7% 4.5%
===== ===== ===== =====
Summary unaudited results of operations for the three and nine months ended
September 30, 2009 and 2008 are provided below.
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2009 2008 2009 2008
---- ---- ---- ----
(Dollars in millions)
Net sales
Metal food containers $ 716.5 $617.4 $1,493.5 $1,346.1
Closures 166.3 184.3 463.3 531.7
Plastic containers 133.7 162.6 404.7 501.6
-------- ------ ------- --------
Consolidated $1,016.5 $964.3 $2,361.5 $2,379.4
======== ====== ======== ========
Income from operations
Metal food containers (1) $ 104.2 $ 76.6 $ 172.6 $ 134.8
Closures (2) 24.3 17.1 60.8 53.4
Plastic containers (3) 2.6 9.1 23.0 35.2
Corporate (3.2) (3.2) (9.9) (9.0)
-------- ------ -------- --------
Consolidated $ 127.9 $ 99.6 $ 246.5 $ 214.4
======== ====== ======== ========
-------------
(1) Includes a rationalization credit of $0.5 million and rationalization
charges of $2.8 million for the three and nine months ended September
30, 2008, respectively.
(2) Includes rationalization charges of $2.8 million for the three months
ended September 30, 2008 and rationalization charges of $1.3 million
and $6.1 million for the nine months ended September 30, 2009 and
2008, respectively.
(3) Includes rationalization charges of $0.1 million for each of the three
months ended September 30, 2009 and 2008 and $0.2 million and $0.9
million for the nine months ended September 30, 2009 and 2008,
respectively.
-24-
Three Months Ended September 30, 2009 Compared with Three Months Ended September
30, 2008
Overview. Consolidated net sales were $1,016.5 million in the third quarter of
2009, representing a 5.4 percent increase as compared to the third quarter of
2008 primarily as a result of higher average selling prices in the metal food
container business due to the pass through of higher raw material and other
manufacturing costs and higher unit volumes in the metal food container
business, partially offset by lower average selling prices in the plastic
container business largely attributable to the pass through of lower resin
prices, lower volumes in the plastic container and closures businesses and the
impact of unfavorable foreign currency translation. Income from operations for
the third quarter of 2009 of $127.9 million increased by $28.3 million, or 28.4
percent, as compared to the same period in 2008 due to higher unit volumes in
the metal food container business, effective cost control and manufacturing
efficiencies and lower year-over-year rationalization charges, partially offset
by the impact from lower unit volumes in the plastic container and closures
businesses, increased pension expense and the unfavorable effect from the lagged
pass through of recent resin price increases. Results for 2008 included
rationalization charges of $2.4 million. Net income for the third quarter of
2009 was $73.5 million, or $1.91 per diluted share, as compared to $52.8
million, or $1.38 per diluted share, for the same period in 2008.
Net Sales. The $52.2 million increase in consolidated net sales in the third
quarter of 2009 as compared to the third quarter of 2008 was the result of
higher net sales in the metal food container business, partially offset by lower
net sales in the plastic container and closures businesses.
Net sales for the metal food container business increased $99.1 million, or 16.1
percent, in the third quarter of 2009 as compared to the same period in 2008.
This increase was primarily attributable to higher average selling prices as a
result of the pass through of higher raw material and other manufacturing costs
and higher unit volumes principally due to the favorable size and timing of the
seasonal fruit and vegetable pack.
Net sales for the closures business decreased $18.0 million, or 9.8 percent, in
the third quarter of 2009 as compared to the same period in 2008. This decrease
was primarily the result of lower unit volumes largely attributable to continued
soft demand in the single-serve beverage markets and unfavorable foreign
currency translation of approximately $4.5 million.
Net sales for the plastic container business in the third quarter of 2009
decreased $28.9 million, or 17.8 percent, as compared to the same period in
2008. This decrease was principally due to the impact of lower average selling
prices as a result of the pass through of lower raw material costs, a decline in
unit volumes as demand for certain products showed some sign of recovery but
overall volumes continued to lag prior year levels and the impact of unfavorable
foreign currency translation of approximately $1.3 million.
Gross Profit. Gross profit margin increased 1.7 percentage points to 16.4
percent in the third quarter of 2009 as compared to the same period in 2008 for
the reasons discussed below in "Income from Operations."
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $0.7 million to $38.6 million for the third
quarter of 2009 as compared to $39.3 million for the same period in 2008.
Selling, general and administrative expenses as a percentage of consolidated net
sales decreased 0.3 percentage points to 3.8 percent for the third quarter of
2009 as compared to 4.1 percent for the same period in 2008.
-25-
Income from Operations. Income from operations for the third quarter of 2009
increased by $28.3 million as compared to the third quarter of 2008, and
operating margin increased to 12.6 percent from 10.3 percent over the same
periods.
Income from operations of the metal food container business for the third
quarter of 2009 increased $27.6 million, or 36.0 percent, as compared to the
same period in 2008, and operating margin increased to 14.5 percent from 12.4
percent over the same periods. These increases were primarily the result of
higher unit volumes, better manufacturing efficiencies and ongoing improvements
in cost controls, partially offset by higher pension expense.
Income from operations of the closures business for the third quarter of 2009
increased $7.2 million, or 42.1 percent, as compared to the same period in 2008,
and operating margin increased to 14.6 percent from 9.3 percent over the same
periods. These increases were primarily attributable to the benefits of ongoing
cost reduction initiatives, improved manufacturing efficiencies and lower
rationalization charges, partially offset by lower unit volumes. The third
quarter of 2008 included rationalization charges of $2.8 million principally
related to the shut down of the Turkey manufacturing facility.
Income from operations of the plastic container business for the third quarter
of 2009 decreased $6.5 million, or 71.4 percent, as compared to the same period
in 2008, and operating margin decreased to 1.9 percent from 5.6 percent over the
same periods. These decreases were primarily attributable to lower unit volumes,
the unfavorable effect from the lagged pass through of recent resin price
increases, manufacturing inefficiencies created by shorter production runs and
challenges in meeting certain increased demand with reduced plant personnel and
higher pension expense, partially offset by ongoing cost reductions.
Interest and Other Debt Expense. Interest and other debt expense for the third
quarter of 2009 decreased $1.4 million to $13.7 million as compared to the same
period in 2008. This decrease was primarily due to lower average debt balances
outstanding in the third quarter of 2009 as compared to the same period in 2008,
partially offset by slightly higher interest rates largely as a result of the
issuance of the 7 1/4% Notes in May 2009.
Provision for Income Taxes. The effective tax rate for the third quarter of 2009
was 35.6 percent as compared to 37.5 percent in the same period of 2008. The
effective tax rate for the third quarter of 2008 was negatively impacted by a
$1.2 million valuation allowance against tax positions in Turkey related to our
decision to close the operating facility.
-26-
Nine Months Ended September 30, 2009 Compared with Nine Months Ended September
30, 2008
Overview. Consolidated net sales were $2.36 billion in the first nine months of
2009, representing a 0.8 percent decrease as compared to the first nine months
of 2008 primarily due to lower unit volumes in the plastic container and
closures businesses, lower average selling prices in the plastic container
business largely attributable to the pass through of lower resin prices and
unfavorable foreign currency translation, partially offset by higher average
selling prices in the metal food container business due to the pass through of
higher raw material and other manufacturing costs and higher unit volumes in the
metal food container business. Income from operations for the first nine months
of 2009 increased by $32.1 million, or 15.0 percent, as compared to the same
period in 2008 as a result of higher unit volumes in the metal food container
business, improved manufacturing efficiencies and ongoing cost controls across
all businesses and lower rationalization charges. This increase was partially
offset by lower unit volumes in the plastic container and closures businesses,
higher pension expense and the impact of management fee income of approximately
$2.0 million recognized in the first quarter of 2008 from the pre-acquisition
management of the Brazilian White Cap closures operations. The results for the
first nine months of 2009 and 2008 included rationalization charges of $1.5
million and $9.8 million, respectively. Net income for the first nine months of
2009 was $134.9 million, or $3.51 per diluted share, as compared to $107.3
million, or $2.80 per diluted share, for the same period in 2008.
Net Sales. The $17.9 million decrease in consolidated net sales in the first
nine months of 2009 as compared to the first nine months of 2008 was due to
lower net sales in the plastic container and closures businesses, partially
offset by higher net sales in the metal food container business.
Net sales for the metal food container business increased $147.4 million, or
11.0 percent, in the first nine months of 2009 as compared to the same period in
2008. This increase was primarily attributable to higher average selling prices
due to the pass through of inflation in raw material and other manufacturing
costs and higher unit volumes.
Net sales for the closures business in the first nine months of 2009 decreased
$68.4 million, or 12.9 percent, as compared to the same period in 2008. This
decrease was primarily the result of a decrease in unit volumes largely
attributable to softer demand in the single-serve beverage markets as a result
of the current economic environment and the customer buy ahead of metal closures
in the fourth quarter of 2008 and unfavorable foreign currency translation of
approximately $24.0 million.
Net sales for the plastic container business in the first nine months of 2009
decreased $96.9 million, or 19.3 percent, as compared to the same period in
2008. This decrease was primarily due to lower average selling prices as a
result of the pass through of lower resin prices, a decline in unit volumes
attributable to the ongoing weakness in demand and the impact of unfavorable
foreign currency translation of approximately $12.3 million.
Gross Profit. Gross Profit margin increased 1.3 percentage points to 15.6
percent for the first nine months of 2009 as compared to the same period in 2008
for the reasons discussed below in "Income from Operations."
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $4.7 million to $119.9 million for the nine
months ended September 30, 2009 as compared to $115.2 million for the same
period in 2008. Selling, general and administrative expenses as a percentage of
consolidated net sales increased to 5.1 percent for the first nine months of
2009 as compared to 4.9 percent for the same period in 2008. These increases
were primarily due to the recognition in the first quarter of 2008 of management
fee income of approximately $2.0 million from the management of the Brazilian
White Cap closures operations until it was acquired from Amcor Limited in April
2008 and higher pension expense in 2009.
-27-
Income from Operations. Income from operations for the first nine months of 2009
increased by $32.1 million, or 15.0 percent, as compared to the first nine
months of 2008, and operating margin increased to 10.4 percent from 9.0 percent
over the same periods.
Income from operations of the metal food container business for the first nine
months of 2009 increased $37.8 million, or 28.0 percent, as compared to the same
period in 2008, and operating margin increased to 11.6 percent from 10.0 percent
over the same periods. These increases were primarily the result of improved
manufacturing efficiencies and ongoing cost controls, higher unit volumes and
lower rationalization charges. These increases were partially offset by the
impact of higher pension expense and increased depreciation expense. The first
nine months of 2008 included total rationalization charges of $2.8 million
related to ongoing costs to exit the St. Paul, Minnesota manufacturing facility
as well as costs incurred for the shutdown of the Tarrant, Alabama manufacturing
facility.
Income from operations of the closures business for the first nine months of
2009 increased $7.4 million, or 13.9 percent, as compared to the same period in
2008, and operating margin increased to 13.1 percent from 10.0 percent over the
same periods. These increases were primarily attributable to the benefits of
ongoing cost reduction initiatives, improved manufacturing efficiencies and
lower rationalization charges, partially offset by lower unit volumes and the
year-over-year impact of the management fee income from the Brazilian White Cap
closures operation of approximately $2.0 million recognized in the first quarter
of 2008. Rationalization charges of $1.3 million were recognized in the first
nine months of 2009 for a reduction in workforce at the operating facility in
Germany. The first nine months of 2008 included rationalization charges of $6.1
million principally related to the shut down of the Turkey manufacturing
facility and the consolidation of various administrative positions in Europe.
Income from operations of the plastic container business for the first nine
months of 2009 decreased $12.2 million, or 34.7 percent, as compared to the same
period in 2008, and operating margin decreased to 5.7 percent from 7.0 percent
over the same periods. These decreases were primarily attributable to lower unit
volumes, a less favorable mix of products sold and higher pension expense,
partially offset by the net positive effect in 2009 from the lagged pass through
of resin price decreases in the first quarter of 2009 in excess of the lagged
pass through of resin price increases in the second and third quarters of 2009,
ongoing focus on cost reductions and lower rationalization charges. The first
nine months of 2008 included rationalization charges of $0.9 million related to
the shutdown of the Richmond, Virginia manufacturing facility.
Interest and Other Debt Expense. Interest and other debt expense for the first
nine months of 2009 decreased $9.1 million to $37.1 million as compared to the
same period in 2008. This decrease resulted primarily from lower outstanding
debt balances, partially offset by the impact of slightly higher interest rates
largely due to the issuance of the 7 1/4% Notes in May 2009. The net proceeds
from this issuance were utilized to prepay all of the 2009 term loan installment
payments and substantially all of the 2010 term loan installment payments due
under the Credit Agreement. As a result of these prepayments, we incurred a loss
on early extinguishment of debt for the write off of debt issuance costs of $0.7
million.
Provision for Income Taxes. The effective tax rate for the first nine months of
2009 was 35.6 percent as compared to 36.2 percent in the same period of 2008.
The decrease in the effective tax rate was primarily a result of lower average
statutory rates in 2009.
-28-
CAPITAL RESOURCES AND LIQUIDITY
Our principal sources of liquidity have been net cash from operating activities
and borrowings under our debt instruments, including our Credit Agreement. 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 May 12, 2009, we issued $250 million aggregate principal amount of the 7 1/4%
Notes. The issue price for the 7 1/4% Notes was 97.28 percent of their principal
amount. Interest on the 7 1/4% Notes is payable semi-annually in cash on August
15 and February 15 of each year and the 7 1/4% Notes mature on August 15, 2016.
Net proceeds from the issuance of the 7 1/4% Notes of $237.9 million were used
to prepay all of the 2009 term loan installment payments and substantially all
of the 2010 term loan installment payments due under the Credit Agreement. As a
result of these term loan prepayments, we incurred a $0.7 million loss on early
extinguishment of debt for the write off of debt issuance costs.
For the nine months ended September 30, 2009, we used cash on hand of $96.3
million, cash from operations of $18.7 million, net borrowings of revolving
loans of $25.1 million, proceeds from the issuance of the 7 1/4% Notes of $243.2
million and net proceeds from stock-based compensation issuances of $2.9 million
to fund the repayment of term loans of $237.9 million, net capital expenditures
of $69.2 million, decreases in outstanding checks of $51.8 million, debt
issuance costs of $5.3 million and dividends paid on our common stock of $22.0
million.
For the nine months ended September 30, 2008, we used cash from operations of
$78.0 million, net borrowings of revolving loans of $319.4 million, other debt
borrowings of $8.0 million and net proceeds from stock-based compensation
issuances of $4.2 million to fund net capital expenditures of $86.6 million, our
acquisitions of the metal vacuum closures operations of Grup Vemsa 1857, S.L.
and the White Cap Brazil operations for $14.5 million, net of cash acquired,
decreases in outstanding checks of $91.6 million, the repayment of debt of $3.0
million and dividends paid on our common stock of $19.5 million and to increase
cash and cash equivalents by $194.4 million. Our cash and cash equivalents
balance at September 30, 2008 of $290.4 million reflected our decision to borrow
an additional $200.0 million of revolving loans under our Credit Agreement to
ensure access to liquidity during a period of uncertainty in the credit markets.
Because we sell metal containers used in fruit and vegetable pack processing, we
have seasonal sales. As is common in the industry, we must utilize working
capital to build inventory and then carry accounts receivable for some customers
beyond the end of the packing season. Due to our seasonal requirements, which
generally peak sometime in the summer or early fall, we may incur short-term
indebtedness to finance our working capital requirements. In recent years, our
incremental peak seasonal working capital requirements were approximately $300
million, which were funded through a combination of revolving loans under our
Credit Agreement and cash on hand.
At September 30, 2009, we had $27.0 million of revolving loans outstanding under
the Credit Agreement. After taking into account outstanding letters of credit,
the available portion of our revolving loan facility under the Credit Agreement
at September 30, 2009 was $395.7 million. We may use the available portion of
our revolving loan facility, after taking into account our seasonal needs and
outstanding letters of credit, for acquisitions or other permitted purposes.
-29-
We believe that cash generated from operations and funds from borrowings
available under the Credit Agreement will be sufficient to meet our expected
operating needs, planned capital expenditures, debt service, tax obligations,
pension benefit plan contributions, share repurchases required under our 2004
Stock Incentive Plan and common stock dividends for the foreseeable future. With
cash and cash equivalents on hand and cash generated from operations, we believe
that we will be able to repay all outstanding term loans under the Credit
Agreement as they become due and payable. However, there can be no assurance
that we will be able to generate enough cash from operations to repay all such
outstanding term loans, in which case we will need to refinance any remaining
outstanding term loans. Additionally, we also believe that we will be able to
replace our revolving loan facilities under the Credit Agreement before they
expire with other loan facilities for our seasonal working capital needs.
There can be no assurance that we will be able to effect any such refinancing,
and, if we are able to, we may not be able to do so on the same terms (including
interest rates) as under the Credit Agreement. Our ability to effect any such
transactions and the terms thereof (including interest rates) will depend on a
variety of factors, including the condition of the credit markets, which have
experienced substantial disruptions to liquidity and credit availability in
recent periods; our future performance, which will be subject to prevailing
economic conditions and to financial, business and other factors (including the
state of the economy and other factors beyond our control) affecting our
business and operations; the timing of such transactions; and the amount of debt
to be refinanced.
We continue to evaluate acquisition opportunities in the consumer goods
packaging market and may incur additional indebtedness, including indebtedness
under the Credit Agreement, to finance any such acquisition.
We are in compliance with all financial and operating covenants contained in our
financing agreements and believe that we will continue to be in compliance
during 2009 with all of these covenants.
Rationalization Charges
In March 2009, we approved a plan to reduce costs at our Hannover, Germany
closures manufacturing facility, which plan included the termination of 14
employees. Total estimated charges related to this plan of $1.3 million for
employee severance and benefit costs were recognized through September 2009.
In 2008, as part of our ongoing effort to streamline operations and reduce
costs, we approved plans to close our metal food container manufacturing
facility in Tarrant, Alabama, our plastic container manufacturing facility in
Richmond, Virginia and our closures manufacturing facility in Turkey and to
consolidate various administrative positions within our European closures
operations. Through December 31, 2008, we recognized an aggregate of $10.7
million of rationalization costs under these plans and terminated 200 employees.
As of December 31, 2008, these plans were substantially completed. During the
nine months ended September 30, 2009, we recognized $0.2 million of
rationalization costs and made cash payments of $1.2 million related to these
plans. We have ceased operations at these three facilities and expect to sell
the owned facilities for proceeds at or in excess of their respective net book
values.
Under our rationalization plans, we made cash payments of $1.9 million and $6.4
million for the nine months ended September 30, 2009 and 2008, respectively.
Total future cash spending of $5.4 million is expected for our outstanding
rationalization plans.
You should also read Note 2 to our Condensed Consolidated Financial Statements
for the three and nine months ended September 30, 2009 included elsewhere in
this Quarterly Report.
-30-
We continually evaluate cost reduction opportunities in our business, including
rationalizations of our existing facilities through plant closings and
downsizings. We use a disciplined approach to identify opportunities that
generate attractive cash returns.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENT
In December 2007, the FASB issued a standard on business combinations which
retains the fundamental requirements in existing GAAP that the purchase method
of accounting be used for all business combinations and an acquirer be
identified for each business combination. This standard establishes principles
and requirements for the reporting entity in a business combination, including
recognition and measurement in the financial statements of the identifiable
assets acquired, the liabilities assumed and any non-controlling interest at
their fair values at the acquisition date. This standard also requires that
acquisition-related costs be recognized separately from the acquisition. This
standard applies prospectively to business combinations for which the
acquisition date is on or after January 1, 2009. In addition, this standard
requires that any changes in an acquired deferred tax account or related
valuation allowance that occur after January 1, 2009 will be recognized as
adjustments to income tax expense. The initial adoption of this standard did not
have an effect on our financial position, results of operations or cash flows.
However, our unrecognized tax benefit positions will impact our effective tax
rate if recognition of such positions is required in future periods.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Market risks relating to our operations result primarily from changes in
interest rates and, with respect to our international closures operations and
our Canadian plastic container operations, from foreign currency exchange rates.
In the normal course of business, we also have 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, 2008. Since such filing, other than
the issuance of the 7 1/4% Notes and the prepayment of $237.9 million of
variable rate term loan installments under our Credit Agreement with the
proceeds from such issuance, there has not been a material change to our
interest rate risk, foreign currency exchange rate risk or commodity pricing
risk or to our policies and procedures to manage our exposure to these risks.
You should also read Notes 5 and 6 to our Condensed Consolidated Financial
Statements for the three and nine months ended September 30, 2009 included
elsewhere in this Quarterly Report.
Item 4. CONTROLS AND PROCEDURES
-----------------------
We carried out an evaluation, under the supervision and with the participation
of management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Securities Exchange Act of 1934). Based upon
that evaluation, as of the end of the period covered by this Quarterly Report
our Chief Executive Officer 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.
-31-
There were no changes in our internal controls over financial reporting during
the period covered by this Quarterly Report that have materially affected, or
are reasonably likely to materially affect, these internal controls.
Part II. Other Information
Item 1. Legal Proceedings
Refer to our Quarterly Reports on Form 10-Q for the periods ended March 31, 2009
and June 30, 2009.
Item 6. Exhibits
Exhibit Number Description
-------------- -----------
12 Ratio of Earnings to Fixed Charges for the three and nine months
ended September 30, 2009 and 2008.
31.1 Certification by the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act.
31.2 Certification by the Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act.
32.1 Certification by the Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act.
32.2 Certification by the Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act.
-32-
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 9, 2009 /s/ Robert B. Lewis
----------------------------
Robert B. Lewis
Executive Vice President and
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
----------- -------
12 Ratio of Earnings to Fixed Charges for the three and nine months
ended September 30, 2009 and 2008.
31.1 Certification by the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act.
31.2 Certification by the Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act.
32.1 Certification by the Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act.
32.2 Certification by the Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act.
-34-