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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended June 30, 2003
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 is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ X ] No [ ]
As of August 1, 2003, the number of shares outstanding of the Registrant's
common stock, $0.01 par value, was 18,241,262.
SILGAN HOLDINGS INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information 3
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets at 3
June 30, 2003 and 2002 and December 31, 2002
Condensed Consolidated Statements of Income for 4
the three months ended June 30, 2003 and 2002
Condensed Consolidated Statements of Income for the 5
six months ended June 30, 2003 and 2002
Condensed Consolidated Statements of Cash Flows for 6
the six months ended June 30, 2003 and 2002
Condensed Consolidated Statements of Stockholders' 7
Equity for the six months ended June 30, 2002 and 2003
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 18
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market 25
Risk
Item 4. Controls and Procedures 25
Part II. Other Information 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 28
Exhibit Index 29
-2-
Part I. Financial Information
Item 1. Financial Statements
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited, see Note 1)
June 30, June 30, Dec. 31,
2003 2002 2002
---- ---- ----
Assets
Current assets
Cash and cash equivalents ........................ $ 10,167 $ 13,277 $ 58,318
Trade accounts receivable, net ................... 232,256 191,403 124,657
Inventories ...................................... 439,819 385,004 272,836
Prepaid expenses and other current assets ........ 14,082 12,699 13,988
---------- ---------- ----------
Total current assets ......................... 696,324 602,383 469,799
Property, plant and equipment, net .................... 818,264 683,496 705,746
Goodwill, net ......................................... 218,221 141,589 141,481
Other assets .......................................... 57,182 68,624 57,399
---------- ---------- ----------
$1,789,991 $1,496,092 $1,374,425
========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Bank revolving loans ............................. $ 170,900 $ 157,700 $ --
Current portion of long-term debt ................ 46,926 1,765 20,170
Trade accounts payable ........................... 152,082 146,011 172,703
Accrued payroll and related costs ................ 68,003 58,418 56,238
Accrued liabilities .............................. 39,457 36,245 15,825
---------- ---------- ----------
Total current liabilities .................... 477,368 400,139 264,936
Long-term debt ........................................ 1,059,564 958,333 936,655
Other liabilities ..................................... 165,594 92,294 109,742
Stockholders' equity
Common stock ..................................... 209 209 209
Paid-in capital .................................. 125,009 124,174 124,872
Retained earnings (accumulated deficit) .......... 36,575 (13,519) 18,871
Accumulated other comprehensive loss ............. (13,935) (5,145) (20,467)
Treasury stock ................................... (60,393) (60,393) (60,393)
---------- ---------- ----------
Total stockholders' equity ................... 87,465 45,326 63,092
---------- ---------- ----------
$1,789,991 $1,496,092 $1,374,425
========== ========== ==========
See accompanying notes.
-3-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended June 30, 2003 and 2002
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
2003 2002
---- ----
Net sales .............................................. $545,240 $456,249
Cost of goods sold ..................................... 475,045 398,822
-------- --------
Gross profit ...................................... 70,195 57,427
Selling, general and administrative expenses ........... 28,144 19,534
-------- --------
Income from operations ............................ 42,051 37,893
Interest and other debt expense ........................ 20,038 19,372
-------- --------
Income before income taxes and equity in
losses of affiliate ............................. 22,013 18,521
Provision for income taxes ............................. 8,475 7,227
-------- --------
Income before equity in losses of affiliate ....... 13,538 11,294
Equity in losses of affiliate, net of income taxes ..... -- 1,219
-------- --------
Net income ........................................ $ 13,538 $ 10,075
======== ========
Earnings per share:
Basic net income per share ........................ $0.74 $0.56
===== =====
Diluted net income per share ...................... $0.74 $0.55
===== =====
Weighted average number of shares:
Basic ............................................ 18,239 18,144
Assumed exercise of employee stock options ....... 156 311
------ ------
Diluted .......................................... 18,395 18,455
====== ======
See accompanying notes.
-4-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the six months ended June 30, 2003 and 2002
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
2003 2002
---- ----
Net sales .............................................. $999,617 $880,505
Cost of goods sold ..................................... 879,825 770,591
-------- --------
Gross profit ...................................... 119,792 109,914
Selling, general and administrative expenses ........... 51,720 38,276
Rationalization credit ................................. -- (2,259)
-------- --------
Income from operations ............................ 68,072 73,897
Interest and other debt expense ........................ 38,827 35,868
-------- --------
Income before income taxes and equity in
losses of affiliate ............................. 29,245 38,029
Provision for income taxes ............................. 11,260 14,835
-------- --------
Income before equity in losses of affiliate ....... 17,985 23,194
Equity in losses of affiliate, net of income taxes ..... 281 1,776
-------- --------
Net income ........................................ $ 17,704 $ 21,418
======== ========
Earnings per share:
Basic net income per share ........................ $0.97 $1.19
===== =====
Diluted net income per share ...................... $0.96 $1.17
===== =====
Weighted average number of shares:
Basic ............................................. 18,237 18,041
Assumed exercise of employee stock options ........ 132 324
------ ------
Diluted ........................................... 18,369 18,365
====== ======
See accompanying notes.
-5-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2003 and 2002
(Dollars in thousands)
(Unaudited)
2003 2002
---- ----
Cash flows provided by (used in) operating activities
Net income .............................................. $ 17,704 $ 21,418
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization ....................... 56,143 48,574
Rationalization credit .............................. -- (2,259)
Equity in losses of affiliate ....................... 457 2,911
Other changes that provided (used) cash:
Trade accounts receivable, net ................. (85,898) (46,500)
Inventories .................................... (88,377) (122,377)
Trade accounts payable ......................... (35,309) (27,840)
Accrued liabilities ............................ 16,423 9,221
Other, net ..................................... 13,311 4,691
--------- ---------
Net cash used in operating activities ............... (105,546) (112,161)
--------- ---------
Cash flows provided by (used in) investing activities
Purchases of businesses, net of cash acquired ........... (206,868) --
Capital expenditures .................................... (55,073) (49,437)
Proceeds from asset sales ............................... 325 699
--------- ---------
Net cash used in investing activities ............... (261,616) (48,738)
--------- ---------
Cash flows provided by (used in) financing activities
Borrowings under revolving loans ........................ 383,050 577,130
Repayments under revolving loans ........................ (212,150) (752,455)
Proceeds from stock option exercises .................... 118 4,131
Proceeds from issuance of long-term debt ................ 150,000 656,000
Repayments of long-term debt ............................ -- (307,549)
Debt issuance costs ..................................... (2,007) (21,090)
--------- ---------
Net cash provided by financing activities ........... 319,011 156,167
--------- ---------
Cash and cash equivalents
Net decrease ............................................ (48,151) (4,732)
Balance at beginning of year ............................ 58,318 18,009
--------- ---------
Balance at end of period ................................ $ 10,167 $ 13,277
========= =========
Interest paid ................................................ $ 32,715 $ 34,977
Income taxes paid, net of refunds ............................ (69) 3,146
See accompanying notes.
-6-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
For the six months ended June 30, 2002 and 2003
(Dollars and shares in thousands)
(Unaudited)
Common Stock Retained Accumulated
------------ Paid- earnings other Total
Par in (accumulated comprehensive Treasury stockholders'
Shares value capital deficit) income (loss) stock equity
------ ----- --------- ------------ ------------- -------- -------------
Balance at December 31, 2001 ............. 17,854 $205 $118,319 $(34,937) $ (8,046) $(60,393) $15,148
Comprehensive income:
Net income ............................ -- -- -- 21,418 -- -- 21,418
Minimum pension liability, net of
tax benefit of $74 .................. -- -- -- -- (115) -- (115)
Change in fair value of derivatives,
net of tax provision of $1,249 ...... -- -- -- -- 1,855 -- 1,855
Foreign currency translation .......... -- -- -- -- 1,161 -- 1,161
-------
Comprehensive income ..................... 24,319
Stock option exercises, including
tax benefit of $1,728 .................. 367 4 5,855 -- -- -- 5,859
------ ---- -------- -------- -------- -------- -------
Balance at June 30, 2002 ................. 18,221 $209 $124,174 $(13,519) $(5,145) $(60,393) $45,326
====== ==== ======== ======== ======== ======== =======
Balance at December 31, 2002 ............. 18,231 $209 $124,872 $18,871 $(20,467) $(60,393) $63,092
Comprehensive income:
Net income ............................ -- -- -- 17,704 -- -- 17,704
Change in fair value of derivatives,
net of tax provision of $688 ......... -- -- -- -- 978 -- 978
Foreign currency translation .......... -- -- -- -- 5,554 -- 5,554
-------
Comprehensive income ..................... 24,236
Stock option exercises, including
tax benefit of $19 ..................... 8 -- 137 -- -- -- 137
------ ---- -------- -------- -------- -------- -------
Balance at June 30, 2003 ................. 18,239 $209 $125,009 $ 36,575 $(13,935) $(60,393) $87,465
====== ==== ======== ======== ======== ======== =======
See accompanying notes.
-7-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2003 and 2002 and for the
three and six 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 Holdings, have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management, the accompanying financial statements include all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation. The results of operations for any interim period are not
necessarily indicative of the results of operations for the full year.
The condensed consolidated balance sheet at December 31, 2002 has been derived
from our audited financial statements at that date, but does not include all of
the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
You should read the accompanying financial statements in conjunction with our
consolidated financial statements and notes thereto included in our Annual
Report on Form 10-K for the year ended December 31, 2002.
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
Stock-Based Compensation. We have two stock-based compensation plans. We apply
the recognition and measurement principles of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for these plans. Accordingly, no compensation
expense for employee stock options is recognized, as all options granted under
these plans had an exercise price that was equal to or greater than the market
value of the underlying stock on the date of the grant.
-8-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2003 and 2002 and for the
three and six months then ended is unaudited)
Note 1. Significant Accounting Policies (continued)
Stock-Based Compensation (continued). If we had applied the fair value
recognition provisions of Statement of Financial Accounting Standards, or SFAS,
No. 123, "Accounting for Stock-Based Compensation," for the three and six months
ended June 30, net income and basic and diluted earnings per share would have
been as follows:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
(Dollars in thousands, except per share data)
Net income, as reported ........................... $13,538 $10,075 $17,704 $21,418
Deduct: Total stock-based employee
compensation expense determined under
fair value method for all stock option
awards, net of income taxes ................... 377 397 701 713
------- ------- ------- -------
Pro forma net income .............................. $13,161 $ 9,678 $17,003 $20,705
======= ======= ======= =======
Earnings per share:
Basic net income per share - as reported ...... $0.74 $0.56 $0.97 $1.19
===== ===== ===== =====
Basic net income per share - pro forma ........ 0.72 0.53 0.93 1.15
===== ===== ===== =====
Diluted net income per share - as reported .... $0.74 $0.55 $0.96 $1.17
===== ===== ===== =====
Diluted net income per share - pro forma ...... 0.72 0.53 0.93 1.13
===== ===== ===== =====
Recently Issued Accounting Pronouncements. Effective January 1, 2003, we adopted
SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections." Among other provisions, SFAS No.
145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of
Debt," and SFAS No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund
Requirements," such that certain gains or losses from the extinguishment of debt
will no longer be classified as extraordinary items. Upon adoption in 2003, the
extraordinary item for loss on early extinguishment of debt of $1.0 million
before income taxes that was recorded in the second quarter of 2002 as a result
of the refinancing of our previous senior secured credit facility with our new
senior secured credit facility, or the Credit Agreement, was reclassified to
interest and other debt expense.
-9-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2003 and 2002 and for the
three and six months then ended is unaudited)
Note 1. Significant Accounting Policies (continued)
Recently Issued Accounting Pronouncements (continued). Effective January 1,
2003, we adopted SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities," which is applicable to exit and disposal activities that
are initiated after December 31, 2002. SFAS No. 146 addresses accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force, or EITF, Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires
the recognition of a liability for a cost associated with an exit or disposal
activity when the liability is incurred. Under EITF Issue No. 94-3, a liability
for an exit cost was recognized at the date an entity committed to an exit plan.
In January 2003, the Financial Accounting Standards Board, or the FASB, issued
Interpretation, or FIN, No. 46, "Consolidation of Variable Interest Entities,"
which expands upon existing accounting guidance on consolidation. A variable
interest entity either does not have equity investors with voting rights or has
equity investors that do not provide sufficient financial resources for the
entity to support its activities. FIN No. 46 requires a variable interest entity
to be consolidated by a company if that company is subject to a majority of the
risk of loss from the variable interest entity's activities or is entitled to
receive a majority of the entity's residual returns. The provisions of FIN No.
46 are effective for us on July 1, 2003. We do not anticipate that the adoption
of FIN No. 46 will have a material effect on our financial position or results
of operations.
Note 2. Acquisitions
In January 2003, we acquired substantially all of the assets of Thatcher Tubes
LLC and its affiliates, or Thatcher Tubes, a privately held manufacturer and
marketer of decorated plastic tubes serving primarily the personal care
industry. Including recently installed additional production capacity, the
purchase price for the assets was approximately $32 million in cash. Thatcher
Tubes had annual net sales of approximately $29 million in 2002. Thatcher Tubes
operates as part of our plastic container business.
In March 2003, we acquired the remaining 65 percent equity interest in the Amcor
White Cap LLC, or White Cap, joint venture that we did not already own from
Amcor White Cap Inc. for approximately $37 million in cash and repaid debt and
purchased equipment subject to a third party lease for approximately $93
million. White Cap had annual net sales of approximately $250 million in 2002.
The business operates as part of our metal food container business.
In April 2003, we acquired PCP Can Manufacturing, Inc., or Pacific Coast Can, a
subsidiary of Pacific Coast Producers, or Pacific Coast, through which Pacific
Coast self-manufactured a majority of its metal food containers. The purchase
price was approximately $44 million in cash, including approximately $29 million
for inventory. As part of the transaction, we entered into a ten-year supply
agreement with Pacific Coast under which Pacific Coast has agreed to purchase
from us substantially all of its metal food container requirements. Annual sales
to Pacific Coast under the supply agreement are expected to be approximately $55
million.
-10-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2003 and 2002 and for the
three and six months then ended is unaudited)
Note 2. Acquisitions (continued)
We financed these acquisitions through a $150 million incremental term loan
borrowing and revolving loan borrowings under the Credit Agreement. These
acquisitions were accounted for using the purchase method of accounting.
Accordingly, the purchase price has been allocated to the assets acquired and
liabilities assumed based on their fair values at the date of acquisition, and
the businesses' results of operations have been included in our consolidated
operating results from the date of acquisition. The allocation of purchase price
is based on preliminary estimates and assumptions and is subject to revision
when valuations and integration plans have been finalized. Accordingly,
revisions to the allocation of purchase price, which may be significant, will be
reported in a future period as increases or decreases to amounts previously
reported.
Note 3. Rationalization (Credits) Charges and Acquisition Reserves
As part of our plans to integrate the operations of our various acquired
businesses, including the Food Metal and Specialty business of American National
Can Company, or AN Can, and to rationalize certain facilities, we have
established reserves for employee severance and benefits and plant exit costs.
Activity in our rationalization and acquisition reserves since December 31, 2002
is summarized as follows:
Employee Plant
Severance Exit
and Benefits Costs Total
------------ ----- -----
(Dollars in thousands)
Balance at December 31, 2002
- ----------------------------
AN Can Acquisition ................................ $ 747 $1,119 $ 1,866
Fairfield Plant Rationalization ................... -- 1,594 1,594
------ ------ -------
Balance at December 31, 2002 ...................... 747 2,713 3,460
Activity for the Six Months Ended June 30, 2003
- -----------------------------------------------
AN Can Acquisition ................................ (435) (622) (1,057)
Fairfield Plant Rationalization ................... -- (137) (137)
2003 Acquisition Reserves Established ............. 4,554 400 4,954
2003 Acquisition Reserves Utilized ................ (153) -- (153)
------ ------ -------
Total Activity .................................... 3,966 (359) 3,607
Balance at June 30, 2003
- ------------------------
AN Can Acquisition ................................ 312 497 809
Fairfield Plant Rationalization ................... -- 1,457 1,457
2003 Acquisitions ................................. 4,401 400 4,801
------ ------ -------
Balance at June 30, 2003 .......................... $4,713 $2,354 $ 7,067
====== ====== =======
-11-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2003 and 2002 and for the
three and six months then ended is unaudited)
Note 3. Rationalization (Credits) Charges and Acquisition Reserves (continued)
During the second quarter of 2003, we established acquisition reserves in
connection with our purchases of Thatcher Tubes, White Cap and Pacific Coast Can
aggregating approximately $5.0 million, recorded pursuant to plans that we began
to assess and formulate at the date of the acquisitions and which will be
finalized within one year. As we continue to assess, formulate and finalize our
integration plans, there may be revisions to these acquisition reserves. These
reserves consisted of employee severance and benefits costs of $4.6 million and
plant exit costs of $0.4 million related to the planned closing and downsizing
of certain acquired facilities. Through June 30, 2003, a total of $0.2 million
has been expended for employee severance and benefits related to these plans. At
June 30, 2003, this reserve had a balance of $4.8 million. Cash payments related
to these acquisition reserves are expected through 2004.
During the first quarter of 2002, we placed certain assets of our metal food
container business with carrying values that were previously written down back
in service. As a result, we recorded a $2.3 million rationalization credit and
recorded those assets in our Condensed Consolidated Balance Sheets at their
depreciated cost, which approximated fair value.
Rationalization and acquisition reserves are included in the Condensed
Consolidated Balance Sheets as follows:
June 30, June 30, Dec. 31,
2003 2002 2002
---- ---- ----
(Dollars in thousands)
Accrued liabilities ........ $5,235 $6,204 $1,813
Other liabilities .......... 1,832 2,009 1,647
------ ------ ------
$7,067 $8,213 $3,460
====== ====== ======
In August 2003, we approved and announced to employees our plan to exit one
manufacturing facility of our plastic container business. The plan includes the
termination of approximately 30 plant employees and other related exit costs.
This decision will result in a charge to earnings of approximately $6.7 million
in the third quarter of 2003. This charge will consist of approximately $5.2
million for the non-cash write-down in carrying value of assets, approximately
$0.9 million for employee severance and benefits and approximately $0.6 million
for plant exit costs.
-12-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2003 and 2002 and for the
three and six months then ended is unaudited)
Note 4. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is reported in the Condensed Consolidated
Statements of Stockholders' Equity. Amounts included in accumulated other
comprehensive loss consisted of the following:
June 30, June 30, Dec. 31,
2003 2002 2002
----- ---- ----
(Dollars in thousands)
Foreign currency translation ............... $ 3,556 $ (755) $ (1,998)
Change in fair value of derivatives ........ (1,836) (1,412) (2,814)
Minimum pension liability .................. (15,655) (2,978) (15,655)
-------- ------- --------
Accumulated other comprehensive loss .... $(13,935) $(5,145) $(20,467)
======== ======= ========
Note 5. Inventories
Inventories consisted of the following:
June 30, June 30, Dec. 31,
2003 2002 2002
----- ---- ----
(Dollars in thousands)
Raw materials ............................ $ 35,382 $ 36,022 $ 31,925
Work-in-process .......................... 64,827 54,475 50,941
Finished goods ........................... 317,243 275,380 171,341
Spare parts and other .................... 20,548 11,863 13,944
-------- -------- --------
438,000 377,740 268,151
Adjustment to value inventory
at cost on the LIFO method ............. 1,819 7,264 4,685
-------- -------- --------
$439,819 $385,004 $272,836
======== ======== ========
Note 6. Investment in Affiliate
Effective July 1, 2001, we formed a joint venture company with Schmalbach-Lubeca
AG that is a leading supplier of an extensive range of metal and plastic
closures to consumer goods packaging companies in the food and beverage
industries in North America. The venture operated under the name Amcor White Cap
LLC. We contributed certain metal closure assets and liabilities, including our
manufacturing facilities in Evansville and Richmond, Indiana, in return for a 35
percent interest in and $32.4 million of cash proceeds from the joint venture.
Schmalbach-Lubeca AG contributed the remaining metal and plastic closure
operations to the joint venture. In July 2002, Amcor Ltd. purchased
Schmalbach-Lubeca AG's interest in the joint venture.
-13-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2003 and 2002 and for the
three and six months then ended is unaudited)
Note 6. Investment in Affiliate (continued)
As discussed in Note 2, in March 2003, we acquired the remaining 65 percent
interest in the White Cap joint venture that we did not already own. The
business now operates under the name Silgan Closures LLC, or Silgan Closures.
Prior to our acquisition of White Cap, we accounted for our investment in the
White Cap joint venture using the equity method. For the first two months of
2003, we recorded equity in losses of White Cap of $0.3 million, net of income
taxes. The results of Silgan Closures since March 2003 have been included with
the results of our metal food container business. For the second quarter and
first six months of 2002, we recorded equity in losses of White Cap of $1.2
million, net of income taxes, and $1.8 million, net of income taxes,
respectively.
Note 7. Long-Term Debt
Long-term debt consisted of the following:
June 30, June 30, Dec. 31,
2003 2002 2002
---- ---- ----
(Dollars in thousands)
Bank debt
Bank revolving loans ..................... $ 170,900 $ 157,700 $ --
Bank A term loans ........................ 100,000 100,000 100,000
Bank B term loans ........................ 498,250 350,000 348,250
Canadian Bank Facility ................... -- 1,187 --
---------- ---------- --------
Total bank debt ....................... 769,150 608,887 448,250
Subordinated debt
9% Senior Subordinated Debentures ........ 505,240 505,896 505,575
Other .................................... 3,000 3,015 3,000
---------- ---------- --------
Total subordinated debt ............... 508,240 508,911 508,575
Total debt .................................... 1,277,390 1,117,798 956,825
Less current portion ..................... 217,826 159,465 20,170
---------- ---------- --------
$1,059,564 $ 958,333 $936,655
========== ========== ========
-14-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2003 and 2002 and for the
three and six months then ended is unaudited)
Note 7. Long-Term Debt (continued)
On July 30, 2003, we gave irrevocable notice of a partial redemption of $25
million principal amount of our 9% Senior Subordinated Debentures due 2009, or
the 9% Debentures. The redemption price will be 103.375% of the principal amount
of the 9% Debentures being redeemed, or approximately $25.8 million, plus
accrued and unpaid interest to the redemption date, August 29, 2003. As
permitted under the Credit Agreement, we will fund this redemption with lower
cost revolving loans under the Credit Agreement. As a result of this redemption,
we expect to record a loss on early extinguishment of debt of approximately $1.0
million in the third quarter of 2003 for the premium paid in connection with
this redemption and for the write-off of unamortized debt issuance costs and
unamortized premium related to the redeemed 9% Debentures. This loss on early
extinguishment of debt will be recorded as interest and other debt expense in
the Condensed Consolidated Statements of Income. This redemption will reduce the
principal amount of 9% Debentures outstanding to $475 million.
In June 2003, we entered into an interest rate swap agreement for an aggregate
notional principal amount of $100 million. Under this agreement, we will pay a
fixed rate of interest of 1.3 percent and receive a floating rate of interest
based on three month LIBOR. This agreement matures in June 2005 and is accounted
for as a cash flow hedge.
On March 3, 2003, we completed a $150 million incremental term loan borrowing
under the Credit Agreement. The proceeds were used largely to finance the
acquisitions of White Cap and Thatcher Tubes. The terms of the incremental term
loan borrowing are the same as those for B term loan borrowings under the Credit
Agreement. This borrowing reduced our uncommitted incremental term loan facility
under the Credit Agreement to $125 million.
At June 30, 2003, amounts expected to be repaid within one year consisted of
$170.9 million of bank revolving loans related primarily to seasonal working
capital needs, $21.7 million of bank term loans and $25.2 million (including
unamortized premium) of 9% Debentures.
-15-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2003 and 2002 and for the
three and six months then ended is unaudited)
Note 8. Business Segment Information
Reportable business segment information for our business segments is as follows:
Metal Food Plastic
Containers(1) Containers Corporate Total
---------- ---------- --------- -----
(Dollars in thousands)
Three Months Ended June 30, 2003
- --------------------------------
Net sales .................................... $397,941 $147,299 $ -- $545,240
Depreciation and amortization(2) ............. 18,580 9,929 11 28,520
Segment income from operations ............... 26,089 17,331 (1,369) 42,051
Three Months Ended June 30, 2002
- --------------------------------
Net sales .................................... $327,600 $128,649 $ -- $456,249
Depreciation and amortization(2) ............. 14,983 9,210 18 24,211
Segment income from operations ............... 22,485 16,815 (1,407) 37,893
Six Months Ended June 30, 2003
- ------------------------------
Net sales .................................... $713,370 $286,247 $ -- $999,617
Depreciation and amortization(2) ............. 34,221 19,990 22 54,233
Segment income from operations ............... 37,878 32,805 (2,611) 68,072
Six Months Ended June 30, 2002
- ------------------------------
Net sales .................................... $626,958 $253,547 $ -- $880,505
Depreciation and amortization(2) ............. 28,758 17,975 33 46,766
Segment income from operations ............... 44,939 31,649 (2,691) 73,897
- -------------
(1) Includes a rationalization credit of $2.3 million for the six months ended
June 30, 2002.
(2) Depreciation and amortization excludes amortization of debt issuance costs
of $1.0 million and $1.4 million for the three months ended June 30, 2003
and 2002, respectively, and $1.9 million and $1.8 million for the six
months ended June 30, 2003 and 2002, respectively.
-16-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2003 and 2002 and for the
three and six months then ended is unaudited)
Note 8. Business Segment Information (continued)
Total segment income from operations is reconciled to income before income taxes
and equity in losses of affiliate as follows:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
(Dollars in thousands)
Total segment income from operations ........ $42,051 $37,893 $68,072 $73,897
Interest and other debt expense ............. 20,038 19,372 38,827 35,868
------- ------- ------- -------
Income before income taxes and
equity in losses of affiliate ........ $22,013 $18,521 $29,245 $38,029
======= ======= ======= =======
Note 9. Related Party Transactions
Previously, pursuant to management services agreements, or the Management
Agreements, entered into between each of Holdings, Silgan Containers Corporation
and Silgan Plastics Corporation and S&H Inc., or S&H, a company wholly owned by
R. Philip Silver, the Chairman and Co-Chief Executive Officer of Holdings, and
D. Greg Horrigan, the President and Co-Chief Executive Officer of Holdings, S&H
provided Holdings and its subsidiaries with general management, supervision and
administrative services. The parties to the Management Agreements agreed to
terminate the Management Agreements effective January 1, 2003. As a result,
Messrs. Silver and Horrigan became employees of Holdings effective January 1,
2003, and neither Holdings nor its subsidiaries will make any payment in 2003
under the Management Agreements.
-17-
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, 2002 and our other filings with
the Securities and Exchange Commission. As a result, the actual results of our
operations or our financial condition could differ materially from those
expressed or implied in these forward-looking statements.
RESULTS OF OPERATIONS
The following table sets forth certain unaudited income statement data expressed
as a percentage of net sales for the periods presented.
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
Net sales
Metal food containers........................... 73.0% 71.8% 71.4% 71.2%
Plastic containers.............................. 27.0 28.2 28.6 28.8
----- ----- ----- -----
Consolidated................................. 100.0 100.0 100.0 100.0
Cost of goods sold................................ 87.1 87.4 88.0 87.5
----- ----- ----- -----
Gross profit...................................... 12.9 12.6 12.0 12.5
Selling, general and administrative expenses...... 5.2 4.3 5.2 4.4
Rationalization credit ........................... -- -- -- (0.3)
----- ----- ----- -----
Income from operations............................ 7.7 8.3 6.8 8.4
Interest and other debt expense................... 3.7 4.2 3.9 4.1
----- ----- ----- -----
Income before income taxes and equity in
losses of affiliate............................. 4.0 4.1 2.9 4.3
Provision for income taxes........................ 1.5 1.6 1.1 1.7
----- ----- ----- -----
Income before equity in losses of affiliate ...... 2.5 2.5 1.8 2.6
Equity in losses of affiliate, net of
income taxes................................... -- 0.3 -- 0.2
----- ----- ----- -----
Net income........................................ 2.5% 2.2% 1.8% 2.4%
===== ===== ===== =====
-18-
Summary unaudited results of operations for the three and six months ended June
30, 2003 and 2002 are provided below.
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
(Dollars in millions)
Net Sales
Metal food containers ........ $397.9 $327.6 $713.4 $627.0
Plastic containers ........... 147.3 128.6 286.2 253.5
------ ------ ------ ------
Consolidated .............. $545.2 $456.2 $999.6 $880.5
====== ====== ====== ======
Income from operations
Metal food containers(1) ..... $ 26.1 $ 22.5 $ 37.9 $ 45.0
Plastic containers ........... 17.3 16.8 32.8 31.6
Corporate .................... (1.3) (1.4) (2.6) (2.7)
------ ------ ------ ------
Consolidated .............. $ 42.1 $ 37.9 $ 68.1 $ 73.9
====== ====== ====== ======
- -------------
(1) Includes a rationalization credit of $2.3 million for the six months ended
June 30, 2002.
Three Months Ended June 30, 2003 Compared with Three Months Ended June 30, 2002
Net Sales. Consolidated net sales increased $89.0 million, or 19.5 percent, to
$545.2 million for the second quarter of 2003, as compared to net sales of
$456.2 million for the second quarter of 2002. This increase was the result of
higher net sales in the metal food container business largely due to the
acquisition of the White Cap closures business and higher net sales of the
plastic container business due to higher average selling prices and the
acquisition of Thatcher Tubes.
Net sales for the metal food container business were $397.9 million for the
second quarter of 2003, an increase of $70.3 million, or 21.5 percent, from net
sales of $327.6 million for the second quarter of 2002. This increase was
largely attributable to the inclusion of net sales of Silgan Closures in the
second quarter of 2003. Excluding net sales of Silgan Closures, net sales of the
metal food container business for the second quarter of 2003 increased 1.2
percent as a result of slightly higher average selling prices and increased
sales volumes as compared to the second quarter in 2002.
Net sales for the plastic container business of $147.3 million for the second
quarter of 2003 increased $18.7 million, or 14.5 percent, from net sales of
$128.6 million for the second quarter of 2002. This increase was primarily a
result of higher unit volume due in part to the acquisition of Thatcher Tubes
and higher average selling prices due to the pass through of significantly
higher resin costs.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 87.1 percent for the second quarter of 2003, a decrease of 0.3 percentage
points as compared to 87.4 percent for the same period in 2002. The increase in
gross profit margin was primarily attributable to the inclusion of the recently
acquired White Cap closures business and a reduction in costs incurred by the
metal food container business to absorb new volume awarded in 2002, partially
offset by higher depreciation expense and employee health and welfare costs.
-19-
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales increased by
0.9 percentage points to 5.2 percent for the second quarter of 2003, as compared
to 4.3 percent for the same period in 2002. This increase was largely the result
of the acquisitions of the White Cap and Thatcher Tubes businesses, which have
higher selling, general and administrative expense levels, and higher insurance
and employee health and welfare costs.
Income from Operations. Income from operations for the second quarter of 2003
increased $4.2 million, or 11.1 percent, to $42.1 million, as compared to $37.9
million in the same period in 2002. Operating margin for the second quarter of
2003 decreased 0.6 percentage points to 7.7 percent, as compared to 8.3 percent
for the same period in 2002. The increase in income from operations was largely
due to the inclusion of the results of the recently acquired White Cap closures
business, as well as increases in the remaining metal food container and the
plastic container businesses.
Income from operations of the metal food container business for the second
quarter of 2003 increased $3.6 million, or 16.0 percent, to $26.1 million as
compared to $22.5 million for the second quarter of 2002, while operating margin
decreased 0.3 percentage points to 6.6 percent as compared to 6.9 percent for
the same period in 2002. The increase in income from operations was principally
due to higher net sales largely as a result of the acquisition of the White Cap
closures business and a reduction in costs incurred to absorb new volume awarded
in 2002, partially offset by higher depreciation expense and increased employee
health and welfare costs.
Income from operations of the plastic container business for the second quarter
of 2003 increased $0.5 million, or 3.0 percent, to $17.3 million as compared to
$16.8 million for the same period in 2002, while operating margin decreased 1.4
percentage points to 11.7 percent as compared to 13.1 percent for the second
quarter of 2002. The increase in income from operations was primarily a result
of higher unit volumes and improved productivity, partially offset by the impact
of heightened competitive activity, higher depreciation expense and higher
employee health and welfare costs.
Interest Expense. Interest expense increased $0.6 million to $20.0 million for
the second quarter of 2003 as compared to the same period in 2002. This increase
resulted primarily from higher average borrowings due to three acquisitions
completed in early 2003, largely offset by a lower average interest rate due to
lower LIBOR rates. During the quarter, lower LIBOR rates more than offset the
impact on our average interest rate of the add-on issuance of $200 million of 9%
Debentures at the end of April 2002 and higher interest rate spreads over LIBOR
as a result of the refinancing of our previous senior secured credit facility
with the Credit Agreement at the end of June 2002. As a result of the
refinancing of our previous senior secured credit facility, interest expense for
the second quarter of 2002 included $1.0 million for the write-off of
unamortized debt issuance costs related to that credit facility.
Income Taxes. The provision for income taxes for the second quarter of 2003 and
2002 was recorded at an effective annual income tax rate of 38.5 percent and
39.0 percent, respectively.
Net Income and Earnings per Share. Net income for the second quarter of 2003 was
$13.5 million, or $0.74 per diluted share, as compared to net income of $10.1
million, or $0.55 per diluted share, for the second quarter of 2002.
-20-
Six Months Ended June 30, 2003 Compared with Six Months Ended June 30, 2002
Net Sales. Consolidated net sales increased $119.1 million, or 13.5 percent, to
$999.6 million for the six months ended June 30, 2003, as compared to net sales
of $880.5 million for the same six months in the prior year. This increase was
largely the result of higher net sales in the metal food container business due
to the acquisition of White Cap in March 2003 and higher volumes in the plastic
container business due largely to the acquisition of Thatcher Tubes in January
2003.
Net sales for the metal food container business were $713.4 million for the six
months ended June 30, 2003, an increase of $86.4 million, or 13.8 percent, from
net sales of $627.0 million for the same six months in the prior year. This
increase was primarily attributable to the inclusion of net sales of Silgan
Closures since March 2003. Excluding net sales of Silgan Closures, net sales of
the metal food container business for the six months ended June 30, 2003 were
essentially unchanged from the same period last year.
Net sales for the plastic container business of $286.2 million for the six
months ended June 30, 2003 increased $32.7 million, or 12.9 percent, from net
sales of $253.5 million for the same six months in the prior year. This increase
was primarily a result of higher unit volume due largely to the acquisition of
Thatcher Tubes in January 2003 and higher average selling prices due to the pass
through of increased resin costs.
Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales
was 88.0 percent for the six months ended June 30, 2003, an increase of 0.5
percentage points as compared to 87.5 percent for the same period in 2002. The
decrease in gross profit margin was primarily attributable to unfavorable
absorption of fixed costs in the metal food container business as an inventory
reduction program was implemented during the first quarter of 2003, higher
depreciation expense and increased employee health and welfare costs, partially
offset by the inclusion of Silgan Closures since March 2003.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales increased by
0.8 percentage points to 5.2 percent for the six months ended June 30, 2003, as
compared to 4.4 percent for the same period in 2002. This increase was largely
the result of the acquisitions of White Cap and Thatcher Tubes, which have
higher selling, general and administrative expense levels, and higher insurance
and employee health and welfare costs.
Income from Operations. Income from operations for the six months ended June 30,
2003 decreased $5.8 million, or 7.8 percent, to $68.1 million, as compared to
$73.9 million in the same period in 2002. Operating margin for the six months
ended June 30, 2003 decreased 1.6 percentage points to 6.8 percent, as compared
to 8.4 percent for the same period in 2002. These decreases were primarily a
result of lower income from operations and operating margin in the metal food
container business.
Income from operations of the metal food container business for the six months
ended June 30, 2003 decreased $7.1 million, or 15.8 percent, to $37.9 million as
compared to $45.0 million for the same period in 2002, and operating margin
decreased 1.9 percentage points to 5.3 percent as compared to 7.2 percent for
the same period in 2002. The decrease in income from operations was principally
due to unfavorable absorption of fixed costs as an inventory reduction program
was implemented during the first quarter of 2003, a rationalization credit of
$2.3 million recorded in the first quarter of 2002 related to placing certain
previously written down assets back in service, higher depreciation expense and
increased employee health and welfare costs, partially offset by the inclusion
of Silgan Closures since March 2003.
-21-
Income from operations of the plastic container business for the six months
ended June 30, 2003 increased $1.2 million, or 3.8 percent, to $32.8 million as
compared to $31.6 million for the same period in 2002, while operating margin
decreased 1.0 percentage point to 11.5 percent as compared to 12.5 percent for
the same period in 2002. The increase in income from operations was primarily a
result of higher unit volumes largely due to the acquisition of Thatcher Tubes
in January 2003 and improved operating efficiencies, partially offset by the
impact of heightened competitive activity, higher depreciation expense and
higher employee health and welfare costs.
Interest Expense. Interest expense increased $2.9 million to $38.8 million for
the six months ended June 30, 2003 as compared to the same period in 2002. This
increase resulted primarily from higher average borrowings due to three
acquisitions completed in early 2003. The average interest rate was essentially
unchanged for the first six months of 2003 as compared to the same period in
2002, as the impact of the add-on issuance of $200 million of 9% Debentures at
the end of April 2002 and higher interest rate spreads over LIBOR as a result of
the refinancing of our previous senior secured credit facility with the Credit
Agreement at the end of June 2002 were offset by the impact of lower LIBOR rates
during the six months ended June 30, 2003. As a result of the refinancing of our
previous senior secured credit facility, interest expense for the first six
months of 2002 included $1.0 million for the write-off of unamortized debt
issuance costs related to that credit facility.
Income Taxes. The provision for income taxes for the six months ended June 30,
2003 and 2002 was recorded at an effective annual income tax rate of 38.5
percent and 39.0 percent, respectively.
Net Income and Earnings per Share. Net income for the six months ended June 30,
2003 was $17.7 million, or $0.96 per diluted share, as compared to net income of
$21.4 million, or $1.17 per diluted share, for the same period in 2002.
CAPITAL RESOURCES AND LIQUIDITY
Our principal sources of liquidity have been net cash from operating activities
and borrowings under the 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 March 3, 2003, we completed a $150 million incremental term loan borrowing
under the Credit Agreement. The proceeds were used largely to finance the
acquisitions of White Cap and Thatcher Tubes. The terms of the incremental term
loans are the same as those for B term loans under the Credit Agreement. This
borrowing reduced our uncommitted incremental term loan facility under the
Credit Agreement to $125 million.
For the six months ended June 30, 2003, we used net borrowings of revolving
loans of $170.9 million, incremental term loan borrowings of $150.0 million
under the Credit Agreement, cash balances of $48.2 million, proceeds from asset
sales of $0.3 million and proceeds from stock option exercises of $0.1 million
to fund the acquisitions of White Cap, Thatcher Tubes and Pacific Coast Can for
$206.9 million, cash used by operations of $105.5 million primarily for our
seasonal working capital needs, capital expenditures of $55.1 million and debt
issuance costs of $2.0 million.
-22-
For the six months ended June 30, 2002, we used excess proceeds of $174.7
million from the issuance of the 9% Debentures and the refinancing of our
previous senior secured credit facility, cash balances of $4.7 million and
proceeds from stock option exercises of $4.1 million to fund cash used in
operations of $112.2 million primarily for our seasonal working capital needs,
capital expenditures of $48.7 million, debt issuance costs of $21.1 million and
other repayments of long-term debt of $1.5 million.
Because we sell metal containers used in fruit and vegetable pack processing, we
have seasonal sales. As is common in the industry, we must access working
capital to build inventory and then carry accounts receivable for some customers
beyond the end of the summer and fall packing season. Seasonal accounts are
generally settled by year end. Due to our seasonal requirements, we incur
short-term indebtedness to finance our working capital requirements.
For 2003, we estimate that we will utilize approximately $200-$210 million of
revolving loans under the Credit Agreement for our peak seasonal working capital
requirements, which excludes borrowings to initially fund acquisitions and
redeem 9% Debentures. We may use the available portion of our revolving loan
facility under the Credit Agreement, after taking into account our seasonal
needs and outstanding letters of credit, for acquisitions and other permitted
purposes.
As of June 30, 2003, we had $170.9 million of revolving loans outstanding under
the Credit Agreement related primarily to seasonal working capital needs. The
unused portion of the revolving loan facility under the Credit Agreement at June
30, 2003, after taking into account outstanding letters of credit, was $207.2
million.
On July 30, 2003, we gave irrevocable notice of a partial redemption of $25
million principal amount of our 9% Debentures. The redemption price will be
103.375% of the principal amount of the 9% Debentures being redeemed, or
approximately $25.8 million, plus accrued and unpaid interest to the redemption
date, August 29, 2003. As permitted under the Credit Agreement, we will fund
this redemption with lower cost revolving loans under the Credit Agreement. As a
result of this redemption, we expect to record a loss on early extinguishment of
debt of approximately $1.0 million in the third quarter of 2003 for the premium
paid in connection with this redemption and for the write-off of unamortized
debt issuance costs and unamortized premium related to the redeemed 9%
Debentures. This loss on early extinguishment of debt will be recorded as
interest and other debt expense in the Condensed Consolidated Statements of
Income. This redemption will reduce the principal amount of 9% Debentures
outstanding to $475 million.
Our Board of Directors has authorized the repurchase of up to $70 million of our
common stock. As of June 30, 2003, we have repurchased 2,708,975 shares of our
common stock for an aggregate cost of approximately $61.0 million. We intend to
finance future repurchases, if any, of our common stock with revolving loan
borrowings.
-23-
During the second quarter of 2003, we established acquisition reserves in
connection with our purchases of Thatcher Tubes, White Cap and Pacific Coast Can
aggregating approximately $5.0 million, recorded pursuant to plans that we began
to assess and formulate at the date of the acquisitions and which will be
finalized within one year. As we continue to assess, formulate and finalize our
integration plans, there may be revisions to these acquisition reserves. These
reserves consisted of employee severance and benefits costs of $4.6 million and
plant exit costs of $0.4 million related to the planned closing and downsizing
of certain acquired facilities. Through June 30, 2003, a total of $0.2 million
has been expended for employee severance and benefits related to these plans. At
June 30, 2003, this reserve had a balance of $4.8 million. Cash payments related
to these acquisition reserves are expected through 2004. You should also read
Note 3 to our Condensed Consolidated Financial Statements for the three and six
months ended June 30, 2003 included elsewhere in this Quarterly Report.
In August 2003, we approved and announced to employees our plan to exit one
manufacturing facility of our plastic container business. The plan includes the
termination of approximately 30 plant employees and other related exit costs.
This decision will result in a charge to earnings of approximately $6.7 million
in the third quarter of 2003. This charge will consist of approximately $5.2
million for the non-cash write-down in carrying value of assets, approximately
$0.9 million for employee severance and benefits and approximately $0.6 million
for plant exit costs.
During the first quarter of 2002, we placed certain assets of our metal food
container business with carrying values that were previously written down back
in service. As a result, we recorded a $2.3 million rationalization credit and
recorded those assets in our Condensed Consolidated Balance Sheets at their
depreciated cost, which approximated fair value. You should also read Note 3 to
our Condensed Consolidated Financial Statements for the three and six months
ended June 30, 2003 included elsewhere in this Quarterly Report.
We believe that cash generated from operations and funds from the revolving
loans available under the Credit Agreement will be sufficient to meet our
expected operating needs, planned capital expenditures, debt service and tax
obligations for the foreseeable future. We have historically grown our
businesses primarily through acquisitions, and we continue to evaluate
acquisition opportunities in the consumer goods packaging market. As a result,
we may incur additional indebtedness, including indebtedness under the Credit
Agreement, to finance any such acquisition. However, in the absence of
strategically compelling and immediately accretive acquisition opportunities, we
expect to use our free cash flow to repay indebtedness or for other permitted
purposes.
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 2003 with all of these covenants.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2003, we adopted SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." Among other provisions, SFAS No. 145 rescinds SFAS No. 4,
"Reporting Gains and Losses from Extinguishment of Debt," and SFAS No. 64,
"Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements," such that
certain gains or losses from the extinguishment of debt will no longer be
classified as extraordinary items. Upon adoption in 2003, the extraordinary item
for loss on early extinguishment of debt of $1.0 million before income taxes
that was recorded in the second quarter of 2002 as a result of the refinancing
of our previous senior secured credit facility with the Credit Agreement was
reclassified to interest and other debt expense.
-24-
Effective January 1, 2003, we adopted SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which is applicable to exit and
disposal activities that are initiated after December 31, 2002. SFAS No. 146
addresses accounting and reporting for costs associated with exit or disposal
activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires the
recognition of a liability for a cost associated with an exit or disposal
activity when the liability is incurred. Under EITF Issue No. 94-3, a liability
for an exit cost was recognized at the date an entity committed to an exit plan.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities," which expands upon existing accounting guidance on consolidation. A
variable interest entity either does not have equity investors with voting
rights or has equity investors that do not provide sufficient financial
resources for the entity to support its activities. FIN No. 46 requires a
variable interest entity to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest entity's
activities or is entitled to receive a majority of the entity's residual
returns. The provisions of FIN No. 46 are effective for us on July 1, 2003. We
do not anticipate that the adoption of FIN No. 46 will have a material effect on
our financial position or results of operations.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Market risks relating to our operations result primarily from changes in
interest rates. In the normal course of business, we also have limited foreign
currency risk associated with our operations in Canada and Mexico and risk
related to commodity price changes for items such as natural gas. We employ
established policies and procedures to manage our exposure to these risks.
Interest rate, foreign currency and commodity pricing transactions are used only
to the extent considered necessary to meet our objectives. We do not utilize
derivative financial instruments for trading or other speculative purposes.
Information regarding our interest rate risk, foreign currency exchange rate
risk and commodity pricing risk has been disclosed in our Annual Report on Form
10-K for the fiscal year ended December 31, 2002. Since such filing, there has
not been a material change to our interest rate risk, foreign currency rate risk
or commodity pricing risk or to our policies and procedures to manage our
exposure to these risks. You should also read Note 7 to our Condensed
Consolidated Financial Statements for the three and six months ended June 30,
2003 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 Co-Chief Executive Officers 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 Co-Chief Executive Officers and Chief Financial Officer concluded that the
disclosure controls and procedures are effective in ensuring that all material
information required to be disclosed in this Quarterly Report has been made
known to them in a timely fashion.
There were no 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.
-25-
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Our annual meeting of stockholders, or the Annual Meeting, for which proxies
were solicited pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended, was held on June 5, 2003 for the purposes of (1) electing two
directors to serve for a three year term until our annual meeting of
stockholders in 2006 and until their successors are duly elected and qualified;
(2) approving the adoption of the Silgan Holdings Inc. Senior Executive
Performance Plan; and (3) ratifying the appointment of Ernst & Young LLP as our
independent auditors for the fiscal year ending December 31, 2003.
The nominees for director listed in our proxy statement, each of whom was
elected at the Annual Meeting, are named below, and each received the number of
votes for election as indicated below (with each share of our common stock being
entitled to one vote):
Number of Shares Number of Shares
Voted For Withheld
--------- --------
Jeffrey C. Crowe 13,636,310 3,738,801
Edward A. Lapekas 16,813,189 561,922
Our directors whose term of office continued after the Annual Meeting are R.
Philip Silver and William C. Jennings (who replaced Leigh J. Abramson on July
30, 2003), each of whose term of office as a director continues until our annual
meeting of stockholders in 2004, and D. Greg Horrigan and John W. Alden, each of
whose term of office as a director continues until our annual meeting of
stockholders in 2005.
The adoption of the Silgan Holdings Inc. Senior Executive Performance Plan was
approved at the Annual Meeting. There were 16,989,176 votes cast approving such
adoption, 369,550 votes cast against such adoption and 16,385 votes abstaining.
The ratification of the appointment of Ernst & Young LLP as our independent
auditors for the fiscal year ending December 31, 2003 was approved at the Annual
Meeting. There were 17,147,174 votes cast ratifying such appointment, 225,437
votes cast against ratification of such appointment and 2,500 votes abstaining.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
- -------------- -----------
12 Ratio of Earnings to Fixed Charges for the three and six
months ended June 30, 2003 and 2002.
31.1 Certification by the Co-Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act.
31.2 Certification by the Co-Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act.
31.3 Certification by the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act.
32.1 Certification by the Co-Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act.
32.2 Certification by the Co-Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act.
32.3 Certification by the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act.
(b) Reports on Form 8-K
1. On April 23, 2003, we filed a Current Report on Form 8-K related to
our announcement regarding our results of operations for the quarterly
period ended March 31, 2003.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned thereunto duly authorized.
SILGAN HOLDINGS INC.
Dated: August 14, 2003 /s/Anthony J. Allott
- ----------------------- -----------------------------
Anthony J. Allott
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Dated: August 14, 2003 /s/Nancy Merola
- ----------------------- -----------------------------
Nancy Merola
Vice President and Controller
(Chief Accounting Officer)
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EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
----------- -------
12 Ratio of Earnings to Fixed Charges for the three and
six months ended June 30, 2003 and 2002.
31.1 Certification by the Co-Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act.
31.2 Certification by the Co-Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act.
31.3 Certification by the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act.
32.1 Certification by the Co-Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act.
32.2 Certification by the Co-Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act.
32.3 Certification by the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act.
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