Back to GetFilings.com
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 March 31, 2005
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 April 29, 2005, the number of shares outstanding of the Registrant's
common stock, $0.01 par value, was 18,497,591.
SILGAN HOLDINGS INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information 3
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets at 3
March 31, 2005 and 2004 and December 31, 2004
Condensed Consolidated Statements of Income for the 4
three months ended March 31, 2005 and 2004
Condensed Consolidated Statements of Cash Flows for 5
the three months ended March 31, 2005 and 2004
Condensed Consolidated Statements of Stockholders' 6
Equity for the three months ended March 31, 2005 and
2004
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 15
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market 20
Risk
Item 4. Controls and Procedures 21
Part II. Other Information 21
Item 6. Exhibits 21
Signatures 22
Exhibit Index 23
-2-
Part I. Financial Information
Item 1. Financial Statements
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited, see Note 1)
March 31, March 31, Dec. 31,
2005 2004 2004
---- ---- ----
Assets
Current assets
Cash and cash equivalents ........................ $ 34,690 $ 18,510 $ 35,416
Trade accounts receivable, net ................... 192,114 194,333 148,073
Inventories ...................................... 396,763 392,473 318,665
Prepaid expenses and other current assets ........ 48,477 50,258 53,776
---------- ---------- ----------
Total current assets ......................... 672,044 655,574 555,930
Property, plant and equipment, net .................... 785,642 811,891 792,936
Goodwill, net ......................................... 198,332 204,710 198,346
Other assets, net ..................................... 51,982 54,294 49,947
---------- ---------- ----------
$1,708,000 $1,726,469 $1,597,159
========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Bank revolving loans ............................. $ 151,000 $ 164,500 $ --
Current portion of long-term debt ................ 21,804 23,670 21,804
Trade accounts payable ........................... 175,179 154,857 244,116
Accrued payroll and related costs ................ 57,446 67,060 57,364
Accrued liabilities .............................. 38,156 32,702 21,152
---------- ---------- ----------
Total current liabilities .................... 443,585 442,789 344,436
Long-term debt ........................................ 819,864 953,910 819,864
Other liabilities ..................................... 223,076 198,029 225,423
Stockholders' equity
Common stock ..................................... 212 210 211
Paid-in capital .................................. 135,005 127,920 131,685
Retained earnings ................................ 145,998 71,990 136,768
Accumulated other comprehensive income (loss) .... 2,749 (7,986) 859
Unamortized stock compensation ................... (2,096) -- (1,694)
Treasury stock ................................... (60,393) (60,393) (60,393)
---------- ---------- ----------
Total stockholders' equity ................... 221,475 131,741 207,436
---------- ---------- ----------
$1,708,000 $1,726,469 $1,597,159
========== ========== ==========
See accompanying notes.
-3-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 2005 and 2004
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
2005 2004
---- ----
Net sales ............................................... $530,044 $518,331
Cost of goods sold ...................................... 467,861 456,171
-------- --------
Gross profit ....................................... 62,183 62,160
Selling, general and administrative expenses ............ 28,285 27,626
Rationalization charges ................................. 282 990
-------- --------
Income from operations ............................. 33,616 33,544
Interest and other debt expense ......................... 12,282 15,222
-------- --------
Income before income taxes ......................... 21,334 18,322
Provision for income taxes .............................. 8,405 7,237
-------- --------
Net income ......................................... $ 12,929 $ 11,085
======== ========
Earnings per share:
Basic net income per share ......................... $0.70 $0.61
===== =====
Diluted net income per share ....................... $0.69 $0.60
===== =====
Dividends per share: .................................... $0.20 $ --
===== =====
Weighted average number of shares:
Basic ............................................. 18,461 18,308
Effect of dilutive securities ..................... 289 260
------ ------
Diluted ........................................... 18,750 18,568
====== ======
See accompanying notes.
-4-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2005 and 2004
(Dollars in thousands)
(Unaudited)
2005 2004
---- ----
Cash flows provided by (used in) operating activities
Net income .............................................. $ 12,929 $ 11,085
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization ....................... 30,675 29,603
Rationalization charges ............................. 282 990
Other changes that provided (used) cash:
Trade accounts receivable, net ................. (44,041) (35,061)
Inventories .................................... (78,098) (72,359)
Trade accounts payable ......................... 3,585 16,614
Accrued liabilities ............................ 16,804 7,250
Other, net ..................................... 3,811 4,929
--------- ---------
Net cash used in operating activities ............... (54,053) (36,949)
--------- ---------
Cash flows provided by (used in) investing activities
Capital expenditures .................................... (23,004) (24,680)
Proceeds from asset sales ............................... 64 738
--------- ---------
Net cash used in investing activities ............... (22,940) (23,942)
--------- ---------
Cash flows provided by (used in) financing activities
Borrowings under revolving loans ........................ 257,975 286,300
Repayments under revolving loans ........................ (106,975) (146,800)
Proceeds from stock option exercises .................... 1,488 1,293
Changes in outstanding checks - principally vendors ..... (72,522) (73,396)
Dividends paid on common stock .......................... (3,699) --
Debt issuance costs ..................................... -- (96)
--------- ---------
Net cash provided by financing activities ........... 76,267 67,301
--------- ---------
Cash and cash equivalents
Net (decrease) increase ................................. (726) 6,410
Balance at beginning of year ............................ 35,416 12,100
--------- ---------
Balance at end of period ................................ $ 34,690 $ 18,510
========= =========
Interest paid ................................................ $ 8,316 $ 10,079
Income taxes (refunded) paid ................................. (1,674) 788
See accompanying notes.
-5-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
For the three months ended March 31, 2005 and 2004
(Dollars and shares in thousands)
(Unaudited)
Common Stock Accumulated
------------- Paid- Other Unamortized Total
Par in Retained Comprehensive Stock Treasury Stockholders'
Shares value Capital Earnings Income (Loss) Compensation Stock Equity
------ ----- -------- -------- ------------- ------------ -------- -------------
Balance at December 31, 2003 ............. 18,273 $210 $125,758 $ 60,905 $(5,675) $ -- $(60,393) $120,805
Comprehensive income:
Net income ............................ -- -- -- 11,085 -- -- -- 11,085
Change in fair value of derivatives,
net of tax benefit of $1,182 ......... -- -- -- -- (1,814) -- -- (1,814)
Foreign currency translation .......... -- -- -- -- (497) -- -- (497)
--------
Comprehensive income ..................... 8,774
--------
Stock option exercises, including
tax benefit of $869 .................... 80 -- 2,162 -- -- -- -- 2,162
------ ---- -------- -------- ------- ------- -------- --------
Balance at March 31, 2004 ................ 18,353 $210 $127,920 $ 71,990 $(7,986) $ -- $(60,393) $131,741
====== ==== ======== ======== ======= ======= ======== ========
Balance at December 31, 2004 ............. 18,423 $211 $131,685 $136,768 $ 859 $(1,694) $(60,393) $207,436
Comprehensive income:
Net income ............................ -- -- -- 12,929 -- -- -- 12,929
Change in fair value of derivatives,
net of tax provision of $1,381 ...... -- -- -- -- 2,115 -- -- 2,115
Foreign currency translation .......... -- -- -- -- (225) -- -- (225)
--------
Comprehensive income ..................... 14,819
--------
Dividends declared on common stock ....... -- -- -- (3,699) -- -- -- (3,699)
Issuance of restricted stock units ....... -- -- 506 -- -- (506) -- --
Amortization of stock compensation ....... -- -- -- -- -- 104 -- 104
Stock option exercises, including
tax benefit of $1,327 .................. 75 1 2,814 -- -- -- -- 2,815
------ ---- -------- -------- ------- ------- -------- --------
Balance at March 31, 2005 ................ 18,498 $212 $135,005 $145,998 $ 2,749 $(2,096) $(60,393) $221,475
====== ==== ======== ======== ======= ======= ======== ========
See accompanying notes.
-6-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2005 and 2004 and for the
three 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 U.S. generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by U.S. generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying financial
statements include all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation. The results of operations for any
interim period are not necessarily indicative of the results of operations for
the full year.
The Condensed Consolidated Balance Sheet at December 31, 2004 has been derived
from our audited consolidated financial statements at that date, but does not
include all of the information and footnotes required by U.S. generally accepted
accounting principles for complete financial statements.
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, 2004.
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
Cash and Cash Equivalents. Cash equivalents represent short-term, highly liquid
investments which are readily convertible to cash and have maturities of three
months or less at the time of purchase. As a result of our cash management
system, checks issued for payment may create negative book balances. Checks
outstanding in excess of related book balances of approximately $33.0 million,
$26.0 million and $105.5 million at March 31, 2005 and 2004 and December 31,
2004, respectively, are included in trade accounts payable in our Condensed
Consolidated Balance Sheets. For the three months ended March 31, 2005 and 2004,
we reclassified the changes in outstanding checks from operating activities to
financing activities in our Condensed Consolidated Statements of Cash Flows to
treat them as, in substance, cash advances.
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. We apply the recognition
and measurement principles of Accounting Principles Board, or APB, Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations in
accounting for stock awards. Accordingly, no compensation expense for employee
stock options is recognized, as all options granted had an exercise price that
was equal to or greater than the market value of the underlying stock on the
date of the grant. Restricted stock units issued are accounted for as fixed
grants and, accordingly, the fair value at the grant date has been charged to
stockholders' equity as unamortized stock compensation and is being amortized
ratably over the respective vesting period.
-7-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2005 and 2004 and for the
three months then ended is unaudited)
Note 1. Significant Accounting Policies (continued)
Stock-Based Compensation (continued). In the first quarter of 2005, we granted
8,000 restricted stock units to certain of our officers and key employees. These
restricted stock units vest ratably over a five-year period from the date of
grant. The fair value of these units at the date of grant was $0.5 million.
Unvested restricted stock units may not be disposed of or transferred during the
vesting period.
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 months ended March 31, net income and basic and
diluted earnings per share would have been as follows:
2005 2004
---- ----
(Dollars in thousands, except per share data)
Net income, as reported ........................... $12,929 $11,085
Add: Stock-based compensation expense
included in reported net income, net of
income taxes ................................... 63 --
Deduct: Total stock-based employee
compensation expense determined under
fair value method for all awards, net of
income taxes ................................... 357 475
------- -------
Pro forma net income .............................. $12,635 $10,610
======= =======
Earnings per share:
Basic net income per share - as reported ....... $0.70 $0.61
===== =====
Basic net income per share - pro forma ......... 0.68 0.58
===== =====
Diluted net income per share - as reported ..... $0.69 $0.60
===== =====
Diluted net income per share - pro forma ....... 0.68 0.57
===== =====
Recently Issued Accounting Pronouncements. In November 2004, the Financial
Accounting Standards Board, or the FASB, issued SFAS No. 151, "Inventory Costs,
an amendment of ARB No. 43, Chapter 4." SFAS No. 151 clarifies that abnormal
amounts of idle facility expense, freight, handling costs and wasted materials
should be recognized as current period charges in all circumstances. SFAS No.
151 will be effective for us beginning January 1, 2006. We do not expect the
adoption of SFAS No. 151 to have a material effect on our financial position,
results of operations or cash flows.
-8-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2005 and 2004 and for the
three months then ended is unaudited)
Note 1. Significant Accounting Policies (continued)
Recently Issued Accounting Pronouncements (continued). In December 2004, the
FASB issued SFAS No. 123(R), "Share-Based Payment." SFAS No. 123(R) requires
that public companies recognize compensation expense in an amount equal to the
fair value of the share-based payment. Based on a recent deferral of the
effective date, we will adopt SFAS No. 123(R) beginning January 1, 2006. SFAS
No. 123(R) permits companies to adopt its requirements using one of two methods:
1. A "modified prospective" method in which compensation cost is
recognized beginning with the effective date (a) based on the
requirements of SFAS No. 123(R) for all share-based payments granted
after the effective date and (b) based on the requirements of SFAS No.
123 for all awards granted to employees prior to the effective date of
SFAS No. 123(R) that remain unvested on the effective date.
2. A "modified retrospective" method which includes the requirements of
the modified prospective method described above, but also permits
entities to restate based on the amounts previously recognized under
SFAS No. 123 for purposes of pro forma disclosures either (a) all
prior periods presented or (b) prior interim periods of the year of
adoption.
We are still assessing which transition method to utilize.
As permitted by SFAS No. 123, we currently account for share-based payments to
employees using APB Opinion No. 25's intrinsic value method and, as such,
recognize no compensation expense for employee stock options. Accordingly, the
adoption of SFAS No. 123(R)'s fair value method will have an impact on our
results of operations, although it will have no impact on our overall financial
position. The impact of adoption of SFAS No. 123(R) cannot be predicted at this
time because it will depend on levels of share-based payments granted in the
future. However, had we adopted SFAS No. 123(R) in prior periods, the impact of
that standard would have approximated the impact of SFAS No. 123 as described in
the disclosure of pro forma net income and diluted net income per share in Note
1 to our Condensed Consolidated Financial Statements. SFAS No. 123(R) also
requires the benefits of tax deductions in excess of recognized compensation
expense to be reported as a financing cash flow activity, rather than as an
operating cash flow activity as required under current literature. This
requirement will reduce net operating cash flows and increase net financing cash
flows in periods after adoption. While we cannot estimate what those amounts
will be in the future (because they depend on, among other things, when
employees exercise stock options), the amounts of operating cash flows
recognized in prior periods for such excess tax deductions have not been
material to our cash flows.
On October 22, 2004, the American Jobs Creation Act, or the AJCA, was signed
into law. The AJCA includes a deduction of 85 percent on certain foreign
earnings that are repatriated during the calendar years of 2004 and 2005. We may
elect to apply this provision to qualifying earnings repatriated in 2005. We
have started an evaluation of the effects of the repatriation provision;
however, we do not expect to be able to complete this evaluation until after
Congress or the Treasury Department provides additional clarifying language on
key elements of the provision. The range of possible amounts that we are
evaluating for repatriation under this provision is between zero and $42.6
million. The related potential range of income tax cannot be determined at this
time.
-9-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2005 and 2004 and for the
three months then ended is unaudited)
Note 2. Rationalization Charges and Acquisition Reserves
As part of our plans to integrate the operations of our various acquired
businesses 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, 2004 is summarized
as follows:
Employee Plant Non-Cash
Severance Exit Asset
and Benefits Costs Write Down Total
------------ ----- ---------- -----
(Dollars in thousands)
Balance at December 31, 2004
- ----------------------------
Fairfield Rationalization ...................................... $-- $ 893 $ -- $ 893
2003 Acquisition Plans ......................................... 160 46 -- 206
2003 Rationalization Plans ..................................... 37 690 -- 727
---- ------ ----- ------
Balance at December 31, 2004 ................................... 197 1,629 -- 1,826
Activity for the Three Months Ended March 31, 2005
- --------------------------------------------------
Fairfield Rationalization ...................................... -- (91) -- (91)
2003 Acquisition Plan Reserves Utilized ........................ (37) -- -- (37)
2003 Rationalization Plan Reserves Utilized .................... -- (43) -- (43)
2005 Rationalization Plan Reserves Established ................. 226 -- 56 282
2005 Rationalization Plan Reserves Utilized .................... (29) -- (56) (85)
---- ------ ----- ------
Total Activity ................................................. 160 (134) -- 26
Balance at March 31, 2005
- -------------------------
Fairfield Rationalization ...................................... -- 802 -- 802
2003 Acquisition Plans ......................................... 123 46 -- 169
2003 Rationalization Plans ..................................... 37 647 -- 684
2005 Rationalization Plan ...................................... 197 -- -- 197
---- ------ ----- ------
Balance at March 31, 2005 ...................................... $357 $1,495 $ -- $1,852
==== ====== ===== ======
-10-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2005 and 2004 and for the
three months then ended is unaudited)
Note 2. Rationalization Charges and Acquisition Reserves (continued)
2005 Rationalization Plan
- -------------------------
During the first quarter of 2005, we approved and announced to employees a plan
to relocate the operations of one of our Mississauga, Ontario plastic container
manufacturing facilities to other operating facilities. This decision resulted
in a charge to earnings of $0.3 million, which consisted of $0.1 million for the
non-cash write-down in carrying value of assets and $0.2 million for employee
severance and benefits costs. Additional rationalization charges of
approximately $0.1 million are expected in 2005, bringing the total expected
charges related to this plan to an aggregate of $0.4 million. Through March 31,
2005, there were no significant cash payments related to relocating this
facility. Cash payments related to these reserves are expected through 2006 for
employee severance and benefits costs.
Rationalization and acquisition reserves are included in the Condensed
Consolidated Balance Sheets as follows:
March 31, March 31, Dec. 31,
2005 2004 2004
---- ---- ----
(Dollars in thousands)
Accrued liabilities ............... $ 831 $2,797 $ 877
Other liabilities ................. 1,021 1,587 949
------ ------ ------
$1,852 $4,384 $1,826
====== ====== ======
Note 3. Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) is reported in the Condensed
Consolidated Statements of Stockholders' Equity. Amounts included in accumulated
other comprehensive income (loss) consisted of the following:
March 31, March 31, Dec. 31,
2005 2004 2004
---- ---- ----
(Dollars in thousands)
Foreign currency translation ............ $ 9,412 $ 4,138 $ 9,637
Change in fair value of derivatives ..... 5,040 (2,575) 2,925
Minimum pension liability ............... (11,703) (9,549) (11,703)
-------- ------- --------
Accumulated other comprehensive
income (loss) ..................... $ 2,749 $(7,986) $ 859
======== ======= ========
-11-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2005 and 2004 and for the
three months then ended is unaudited)
Note 4. Inventories
Inventories consisted of the following:
March 31, March 31, Dec. 31,
2005 2004 2004
---- ---- ----
(Dollars in thousands)
Raw materials ....................... $ 54,857 $ 35,119 $ 63,225
Work-in-process ..................... 60,538 61,538 50,366
Finished goods ...................... 277,023 280,115 198,697
Spare parts and other ............... 18,718 19,708 19,324
-------- -------- --------
411,136 396,480 331,612
Adjustment to value inventory
at cost on the LIFO method ...... (14,373) (4,007) (12,947)
-------- -------- --------
$396,763 $392,473 $318,665
======== ======== ========
Note 5. Long-Term Debt
Long-term debt consisted of the following:
March 31, March 31, Dec. 31,
2005 2004 2004
---- ---- ----
(Dollars in thousands)
Bank debt
Bank revolving loans ............... $151,000 $ 164,500 $ --
Bank A term loans .................. 63,669 83,330 63,669
Bank B term loans .................. 574,999 691,250 574,999
-------- ---------- --------
Total bank debt ................. 789,668 939,080 638,668
Subordinated debt
6 3/4% Senior Subordinated Notes ... 200,000 200,000 200,000
Other .............................. 3,000 3,000 3,000
-------- ---------- --------
Total subordinated debt ......... 203,000 203,000 203,000
-------- ---------- --------
Total debt .............................. 992,668 1,142,080 841,668
Less current portion ............... 172,804 188,170 21,804
-------- ---------- --------
$819,864 $ 953,910 $819,864
======== ========== ========
At March 31, 2005, amounts expected to be repaid within one year consisted of
$151.0 million of bank revolving loans related primarily to seasonal working
capital needs and $21.8 million of bank term loans under our senior secured
credit facility, or the Credit Agreement.
-12-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2005 and 2004 and for the
three months then ended is unaudited)
Note 6. Retirement Benefits
The components of the net periodic benefit cost for the three months ended March
31 are as follows:
Other
Pension Benefits Postretirement Benefits
---------------- -----------------------
2005 2004 2005 2004
---- ---- ---- ----
(Dollars in thousands)
Service cost ......................... $ 3,236 $ 3,188 $ 419 $ 787
Interest cost ........................ 5,165 4,959 1,384 1,462
Expected return on plan assets ....... (6,488) (5,571) -- --
Amortization of prior service cost ... 795 814 2 2
Amortization of actuarial losses ..... 396 438 113 291
------- ------- ------ ------
Net periodic benefit cost ............ $ 3,104 $ 3,828 $1,918 $2,542
======= ======= ====== ======
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, 2004, based on current tax law, there are no minimum required contributions
to our pension plans in 2005. However, this estimate is subject to change based
on asset performance significantly below the assumed long-term rate of return on
plan assets. In order to reduce our unfunded pension liability, it has been our
recent practice to make contributions in excess of the ERISA minimum
requirements, to the extent they are tax deductible. During the first quarter of
2005, we made no contributions to fund our pension plans for 2005.
-13-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2005 and 2004 and for the
three months then ended is unaudited)
Note 7. Business Segment Information
Reportable business segment information for the three months ended March 31 is
as follows:
Metal Food Plastic
Containers(1) Containers(2) Corporate Total
---------- ---------- --------- -----
(Dollars in thousands)
2005
- ----
Net sales .................................... $374,121 $155,923 $ -- $530,044
Depreciation and amortization(3) ............. 19,449 10,310 9 29,768
Segment income from operations ............... 27,236 9,161 (2,781) 33,616
2004
- ----
Net sales .................................... $372,936 $145,395 $ -- $518,331
Depreciation and amortization(3) ............. 18,037 10,580 9 28,626
Segment income from operations ............... 21,130 13,866 (1,452) 33,544
- ----------
(1) Segment income from operations includes rationalization charges of
$0.7 million recorded for the three months ended March 31, 2004.
(2) Segment income from operations includes rationalization charges of
$0.3 million recorded for each of the three months ended March 31,
2005 and 2004.
(3) Depreciation and amortization excludes amortization of debt issuance
costs of $0.9 million and $1.0 million for the three months ended
March 31, 2005 and 2004, respectively.
Total segment income from operations is reconciled to income before income taxes
for the three months ended March 31 as follows:
2005 2004
---- ----
(Dollars in thousands)
Total segment income from operations ....... $33,616 $33,544
Interest and other debt expense ............ 12,282 15,222
------- -------
Income before income taxes ............... $21,334 $18,322
======= =======
Note 8. Dividends
On March 15, 2005, we paid a quarterly cash dividend on our common stock of
$0.20 per share to the holders of record of our common stock on March 1, 2005.
The cash payment for this dividend was $3.7 million.
In April 2005, our Board of Directors declared a quarterly cash dividend on our
common stock of $0.20 per share, payable on June 15, 2005 to the holders of
record of our common stock on June 1, 2005. The cash payment for this dividend
is expected to be approximately $3.7 million.
-14-
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, 2004 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 North American 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 manufacturer of plastic containers in North America for a variety of
markets, including the personal care, health care, household and industrial
chemical and pet care markets, and a leading manufacturer of metal, composite
and plastic vacuum closures in North America for food and beverage products.
Our objective is to increase shareholder value by efficiently deploying capital
and management resources to grow our business, reduce operating costs, 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. However, in the absence of such acquisition
opportunities, we expect to use our cash flow to repay debt or for other
permitted purposes.
In 2003, we announced that in the absence of compelling acquisitions we intended
to focus on reducing our debt and expected to repay $200-$300 million of debt
over the period from 2004 through 2006. In 2004, we paid down $160.9 million of
debt, making significant progress toward this debt reduction goal. We expect to
pay down approximately $100 million of debt during 2005 in the absence of
compelling acquisitions.
-15-
RESULTS OF OPERATIONS
The following table sets forth certain unaudited income statement data expressed
as a percentage of net sales for the three months ended March 31:
2005 2004
---- ----
Net sales
Metal food containers .......................... 70.6% 72.0%
Plastic containers ............................. 29.4 28.0
----- -----
Consolidated ................................ 100.0 100.0
Cost of goods sold ............................... 88.3 88.0
----- -----
Gross profit ..................................... 11.7 12.0
Selling, general and administrative expenses ..... 5.3 5.3
Rationalization charges .......................... 0.1 0.2
----- -----
Income from operations ........................... 6.3 6.5
Interest and other debt expense .................. 2.3 3.0
----- -----
Income before income taxes ....................... 4.0 3.5
Provision for income taxes ....................... 1.6 1.4
----- -----
Net income ....................................... 2.4% 2.1%
===== =====
Summary unaudited results of operations for the three months ended March 31 are
provided below.
2005 2004
---- ----
(Dollars in millions)
Net sales
Metal food containers ..................... $374.1 $372.9
Plastic containers ........................ 155.9 145.4
------ ------
Consolidated ........................... $530.0 $518.3
====== ======
Income from operations
Metal food containers(1) .................. $ 27.2 $ 21.1
Plastic containers(2) ..................... 9.2 13.9
Corporate ................................. (2.8) (1.5)
------ ------
Consolidated ........................... $ 33.6 $ 33.5
====== ======
- -------------
(1) Includes rationalization charges of $0.7 million recorded in the first
quarter of 2004.
(2) Includes rationalization charges of $0.3 million recorded in each of
the first quarters of 2005 and 2004.
-16-
Three Months Ended March 31, 2005 Compared with Three Months Ended March 31,
2004
Overview. Consolidated net sales were $530.0 million in the first quarter of
2005, representing a 2.3 percent increase as compared to the first quarter of
2004 primarily due to higher average selling prices resulting from the pass
through of higher raw material costs in both the metal food container and
plastic container businesses, partially offset by volume declines in both
businesses. Income from operations for the first quarter of 2005 was $33.6
million, as compared to $33.5 million for the first quarter of 2004. This
increase was principally due to higher income from operations and improved
margins in our metal food container business, largely offset by lower income
from operations in the plastic container business and higher selling, general
and administrative costs. Net income for the first quarter of 2005 of $12.9
million increased by $1.8 million as compared to the same period in 2004 as a
result of the items previously discussed, as well as lower interest and other
debt expense primarily as a result of our debt reduction initiative.
Net Sales. The $11.7 million increase in consolidated net sales in the first
quarter of 2005 was primarily attributable to higher average selling prices
resulting from the pass through of higher raw material costs in both the metal
food container and plastic container businesses, partially offset by volume
declines in both businesses.
Net sales for the metal food container business increased $1.2 million in the
first quarter of 2005 as compared to the same period in 2004. This increase was
primarily attributable to higher average selling prices due to the pass through
of higher material costs and an improved product mix, partially offset by a
decline in volumes in the first quarter of 2005. This volume decline in the
first quarter of 2005 was anticipated and largely attributable to the impact of
strong demand in the fourth quarter of 2004 and certain low margin business that
was not retained upon a contract renewal in late 2004.
Net sales for the plastic container business in the first quarter of 2005
increased $10.5 million as compared to the same period in 2004. This increase
was primarily the result of higher average selling prices due to the pass
through of increased resin costs, partially offset by lower demand overall
including lower sales to one specific customer resulting from a year-over-year
inventory correction relating to a recent product launch.
Gross Profit. Gross profit for the first quarter of 2005 was relatively flat as
compared to the same period in 2004. The quarter benefited principally from the
effect of an improved mix of products sold in the metal food container business,
offset primarily by resin inflation in the plastic container business and lower
volumes in both businesses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.7 million for the first quarter of 2005
from the same period in 2004 primarily related to costs incurred as a result of
the Sarbanes-Oxley Act, partially offset by continued benefits in the metal food
container business from the rationalization and integration activities at our
manufacturing facilities.
Income from Operations. Income from operations for the first quarter of 2005
increased by $0.1 million as compared to the first quarter of 2004, while
operating margin decreased to 6.3 percent from 6.5 percent over the same
periods. Results for the first quarter of 2005 included rationalization charges
totaling $0.3 million and results for the first quarter of 2004 included
rationalization charges of $1.0 million.
-17-
Income from operations of the metal food container business for the first
quarter of 2005 increased $6.1 million, or 28.9 percent, as compared to the same
period in 2004, and operating margin increased to 7.3 percent from 5.7 percent
over the same periods. These increases were principally due to the effect of an
improved mix of products sold, continued benefits from rationalization and
integration activities at our manufacturing facilities and rationalization
charges in the first quarter of 2004 of $0.7 million, partially offset by the
impact of lower volumes.
Income from operations of the plastic container business for the first quarter
of 2005 decreased $4.7 million, or 33.8 percent, as compared to the same period
in 2004, and operating margin decreased to 5.9 percent from 9.6 percent over the
same periods. Income from operations and operating margin in the first quarter
of 2005 were negatively impacted by lower sales volumes and resin inflation.
Interest and Other Debt Expense. Interest and other debt expense for the first
quarter of 2005 decreased $2.9 million to $12.3 million as compared to the same
period in 2004. This decrease resulted primarily from lower average borrowings
as a result of the pay down of $160.9 million of debt in the fourth quarter of
2004 as part of our ongoing debt reduction initiative.
CAPITAL RESOURCES AND LIQUIDITY
Our principal sources of liquidity have been cash from operations 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.
For the three months ended March 31, 2005, we used net borrowings of revolving
loans of $151.0 million, proceeds from stock option exercises of $1.5 million,
proceeds from asset sales of $0.1 million and cash balances of $0.7 million to
fund cash used in operations of $54.1 million primarily for our seasonal working
capital needs, capital expenditures of $23.0 million, decreases in outstanding
checks of $72.5 million and dividends paid on common stock of $3.7 million.
For the three months ended March 31, 2004, we used net borrowings of revolving
loans of $139.5 million, proceeds from stock option exercises of $1.3 million
and proceeds from asset sales of $0.7 million to fund cash used in operations of
$36.9 million primarily for our seasonal working capital needs, capital
expenditures of $24.7 million, decreases in outstanding checks of $73.4 million
and debt issuance costs of $0.1 million and to increase cash balances by $6.4
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 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, we incur
short-term indebtedness to finance our working capital requirements.
At March 31, 2005, we had $151.0 million of revolving loans outstanding under
the Credit Agreement, related primarily to seasonal working capital needs. After
taking into account outstanding letters of credit, the available portion of the
revolving loan facility under the Credit Agreement at March 31, 2005 was $216.4
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. During 2005, we estimate that we will
utilize approximately $250 - $300 million of revolving loans under the Credit
Agreement for our peak seasonal working capital requirements.
-18-
On March 15, 2005, we paid a quarterly cash dividend on our common stock of
$0.20 per share to the holders of record of our common stock on March 1, 2005.
The cash payment for this dividend was $3.7 million.
In April 2005, our Board of Directors declared a quarterly cash dividend on our
common stock of $0.20 per share, payable on June 15, 2005 to the holders of
record of our common stock on June 1, 2005. The cash payment for this dividend
is expected to be approximately $3.7 million.
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 and
common stock dividends for the foreseeable future. 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. However, in the absence of 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 2005 with all of these covenants.
Rationalization Charges and Acquisition Reserves
During the first quarter of 2005, we approved and announced to employees a plan
to relocate the operations of one of our Mississauga, Ontario plastic container
manufacturing facilities to other operating facilities. This decision resulted
in a charge to earnings of $0.3 million, which consisted of $0.1 million for the
non-cash write-down in carrying value of assets and $0.2 million for employee
severance and benefits costs. Additional rationalization charges of
approximately $0.1 million are expected in 2005, bringing the total expected
charges related to this plan to an aggregate of $0.4 million. Through March 31,
2005, there were no significant cash payments related to relocating this
facility. Cash payments related to these reserves are expected through 2006 for
employee severance and benefits costs.
Under our rationalization and acquisition plans, we made cash payments of $0.2
million and $3.4 million for the three months ended March 31, 2005 and 2004,
respectively. Total future cash spending of $1.9 million is expected under our
Fairfield and 2005 and 2003 rationalization plans and our 2003 acquisition
plans. Spending under these plans in 2005 is not expected to be material to our
cash flows.
You should also read Note 2 to our Condensed Consolidated Financial Statements
for the three months ended March 31, 2005 included elsewhere in this Quarterly
Report.
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 an attractive cash return. In line with our ongoing evaluation, we are
currently reviewing certain facilities for potential rationalization actions
which may result in charges to our earnings and cash expenditures.
-19-
NEW ACCOUNTING PRONOUNCEMENTS
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment
of ARB No. 43, Chapter 4." SFAS No. 151 clarifies that abnormal amounts of idle
facility expense, freight, handling costs and wasted materials should be
recognized as current period charges in all circumstances. SFAS No. 151 will be
effective for us beginning January 1, 2006. We do not expect the adoption of
SFAS No. 151 to have a material effect on our financial position, results of
operations or cash flows.
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment." SFAS
No. 123(R) requires that public companies recognize compensation expense in an
amount equal to the fair value of the share-based payment. Based on a recent
deferral of the effective date, we will adopt SFAS No. 123(R) beginning January
1, 2006. SFAS No. 123(R) permits companies to adopt its requirements using
either the "modified prospective" method or the "modified retrospective" method.
We are still assessing which transition method to utilize. As permitted by SFAS
No. 123, we currently account for share-based payments to employees using APB
Opinion No. 25's intrinsic value method and, as such, recognize no compensation
expense for employee stock options. Accordingly, the adoption of SFAS No.
123(R)'s fair value method will have an impact on our results of operations,
although it will have no impact on our overall financial position. The impact of
adoption of SFAS No. 123(R) cannot be predicted at this time because it will
depend on levels of share-based payments granted in the future. However, had we
adopted SFAS No. 123(R) in prior periods, the impact of that standard would have
approximated the impact of SFAS No. 123 as described in the disclosure of pro
forma net income and diluted net income per share in Note 1 to our Condensed
Consolidated Financial Statements for the three months ended March 31, 2005.
SFAS No. 123(R) also requires the benefits of tax deductions in excess of
recognized compensation expense to be reported as a financing cash flow
activity, rather than as an operating cash flow activity as required under
current literature. This requirement will reduce net operating cash flows and
increase net financing cash flows in periods after adoption. While we cannot
estimate what those amounts will be in the future (because they depend on, among
other things, when employees exercise stock options), the amounts of operating
cash flows recognized in prior periods for such excess tax deductions have not
been material to our cash flows.
On October 22, 2004, the American Jobs Creation Act was signed into law. The
AJCA includes a deduction of 85 percent on certain foreign earnings that are
repatriated during the calendar years of 2004 and 2005. We may elect to apply
this provision to qualifying earnings repatriated in 2005. We have started an
evaluation of the effects of the repatriation provision; however, we do not
expect to be able to complete this evaluation until after Congress or the
Treasury Department provides additional clarifying language on key elements of
the provision. The range of possible amounts that we are evaluating for
repatriation under this provision is between zero and $42.6 million. The related
potential range of income tax cannot be determined at this time.
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 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.
-20-
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, 2004. 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.
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 our
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.
Part II. Other Information
Item 6. Exhibits
Exhibit Number Description
-------------- -----------
12 Ratio of Earnings to Fixed Charges for the three months
ended March 31, 2005 and 2004.
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.
-21-
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: May 10, 2005 /s/ Robert B. Lewis
----------------------------
Robert B. Lewis
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
-22-
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
----------- -------
12 Ratio of Earnings to Fixed Charges for the three months
ended March 31, 2005 and 2004.
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.
-23-