UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2008
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 a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer[X] Accelerated filer[ ]
Non-accelerated filer[ ] Smaller reporting company[ ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of October 31, 2008, the number of shares outstanding of the Registrant's
common stock, $0.01 par value, was 37,963,110.
SILGAN HOLDINGS INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information 3
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets at 3
September 30, 2008 and 2007 and December 31, 2007
Condensed Consolidated Statements of Income for the 4
three months ended September 30, 2008 and 2007
Condensed Consolidated Statements of Income for the 5
nine months ended September 30, 2008 and 2007
Condensed Consolidated Statements of Cash Flows for 6
the nine months ended September 30, 2008 and 2007
Condensed Consolidated Statements of Stockholders' Equity 7
for the nine months ended September 30, 2008 and 2007
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 20
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market 29
Risk
Item 4. Controls and Procedures 29
Part II. Other Information 30
Item 6. Exhibits 30
Signatures 31
Exhibit Index 32
-2-
Part I. Financial Information
Item 1. Financial Statements
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
Sept. 30, Sept. 30, Dec. 31,
2008 2007 2007
---- ---- ----
(unaudited) (unaudited)
Assets
Current assets
Cash and cash equivalents $ 290,377 $ 26,792 $ 95,941
Trade accounts receivable, net 487,344 456,289 219,775
Inventories 415,090 412,706 427,807
Prepaid expenses and other current assets 28,417 27,341 27,670
---------- ---------- ----------
Total current assets 1,221,228 923,128 771,193
Property, plant and equipment, net 920,747 926,462 939,627
Goodwill 302,282 304,495 310,692
Other intangible assets, net 59,981 63,709 63,526
Other assets, net 67,937 51,466 54,975
---------- ---------- ----------
$2,572,175 $2,269,260 $2,140,013
========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Revolving loans and current
portion of long-term debt $ 436,546 $ 210,828 $ 112,921
Trade accounts payable 252,570 208,988 272,999
Accrued payroll and related costs 75,983 75,073 70,996
Accrued liabilities 68,540 60,821 34,028
--------- ---------- ----------
Total current liabilities 833,639 555,710 490,944
Long-term debt 866,544 962,846 879,581
Other liabilities 279,388 282,141 269,405
Stockholders' equity
Common stock 432 430 430
Paid-in capital 160,264 151,667 152,629
Retained earnings 479,889 378,282 392,108
Accumulated other comprehensive income (loss) 12,276 (1,712) 15,064
Treasury stock (60,257) (60,104) (60,148)
---------- ---------- ----------
Total stockholders' equity 592,604 468,563 500,083
---------- ---------- ----------
$2,572,175 $2,269,260 $2,140,013
========== ========== ==========
See accompanying notes.
-3-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended September 30, 2008 and 2007
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
2008 2007
---- ----
Net sales $964,299 $904,837
Cost of goods sold 822,984 774,536
-------- --------
Gross profit 141,315 130,301
Selling, general and administrative expenses 39,270 37,026
Rationalization charges 2,408 670
-------- --------
Income from operations 99,637 92,605
Interest and other debt expense 15,100 17,282
-------- --------
Income before income taxes 84,537 75,323
Provision for income taxes 31,730 27,705
-------- --------
Net income $ 52,807 $ 47,618
======== ========
Earnings per share:
Basic net income per share $1.39 $1.26
===== =====
Diluted net income per share $1.38 $1.25
===== =====
Dividends per share $0.17 $0.16
===== =====
Weighted average number of shares:
Basic 37,932 37,690
Effect of dilutive securities 389 490
------ ------
Diluted 38,321 38,180
====== ======
See accompanying notes.
-4-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the nine months ended September 30, 2008 and 2007
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
2008 2007
---- ----
Net sales $2,379,413 $2,239,188
Cost of goods sold 2,040,005 1,909,576
---------- ----------
Gross profit 339,408 329,612
Selling, general and administrative expenses 115,185 112,403
Rationalization charges 9,801 4,048
---------- ----------
Income from operations 214,422 213,161
Interest and other debt expense 46,215 50,290
---------- ----------
Income before income taxes 168,207 162,871
Provision for income taxes 60,934 60,000
---------- ----------
Net income $ 107,273 $ 102,871
========== ==========
Earnings per share:
Basic net income per share $2.83 $2.73
===== =====
Diluted net income per share $2.80 $2.70
===== =====
Dividends per share $0.51 $0.48
===== =====
Weighted average number of shares:
Basic 37,853 37,653
Effect of dilutive securities 414 496
------ ------
Diluted 38,267 38,149
====== ======
See accompanying notes.
-5-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2008 and 2007
(Dollars in thousands)
(Unaudited)
2008 2007
---- ----
Cash flows provided by (used in) operating activities
Net income $ 107,273 $ 102,871
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 108,330 101,455
Rationalization charges 9,801 4,048
Excess tax benefit from stock-based compensation (2,737) (1,578)
Other changes that provided (used) cash,
net of effects from acquisitions:
Trade accounts receivable, net (269,393) (214,115)
Inventories 15,810 23,359
Trade accounts payable 70,103 (1,758)
Accrued liabilities 25,192 20,297
Other, net 13,614 22,643
--------- ---------
Net cash provided by operating activities 77,993 57,222
--------- ---------
Cash flows provided by (used in) investing activities
Purchase of businesses, net of cash acquired (14,542) (7,846)
Capital expenditures (87,655) (112,612)
Proceeds from asset sales 1,088 2,855
--------- ---------
Net cash used in investing activities (101,109) (117,603)
--------- ---------
Cash flows provided by (used in) financing activities
Borrowings under revolving loans 703,536 713,033
Repayments under revolving loans (384,114) (531,059)
Changes in outstanding checks - principally vendors (91,557) (95,874)
Proceeds from issuance of debt 7,984 --
Repayments of long-term debt (3,000) --
Dividends paid on common stock (19,492) (18,207)
Proceeds from stock option exercises 2,236 1,530
Excess tax benefit from stock-based compensation 2,737 1,578
Repurchase of treasury shares (778) (565)
--------- ---------
Net cash provided by financing activities 217,552 70,436
--------- ---------
Cash and cash equivalents
Net increase 194,436 10,055
Balance at beginning of year 95,941 16,737
--------- ---------
Balance at end of period $ 290,377 $ 26,792
========= =========
Interest paid, net $ 42,646 $ 41,523
Income taxes paid, net 27,036 43,681
See accompanying notes.
-6-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
For the nine months ended September 30, 2008 and 2007
(Dollars and shares in thousands)
(Unaudited)
Common Stock Accumulated
------------ Other Total
Shares Par Paid-in Retained Comprehensive Treasury Stockholders'
Outstanding Value Capital Earnings Income(Loss) Stock Equity
----------- ----- -------- -------- ------------- -------- -------------
Balance at December 31, 2006 37,588 $429 $146,332 $295,433 $(15,564) $(60,090) $366,540
Comprehensive income:
Net income -- -- -- 102,871 -- -- 102,871
Amortization of net prior service
credit and net actuarial losses,
net of tax provision of $577 -- -- -- -- 919 -- 919
Change in fair value of derivatives,
net of tax provision of $979 -- -- -- -- 1,696 -- 1,696
Foreign currency translation,
net of tax benefit of $8,041 -- -- -- -- 11,237 -- 11,237
--------
Comprehensive income 116,723
--------
Adjustment to initially apply FIN 48 -- -- -- (1,815) -- -- (1,815)
Dividends declared on common stock -- -- -- (18,207) -- -- (18,207)
Stock compensation expense -- -- 2,443 -- -- -- 2,443
Stock option exercises, including
tax benefit of $1,648 109 1 3,177 -- -- -- 3,178
Net issuance of treasury stock for
vested restricted stock units,
including tax benefit of $266 30 -- (285) -- -- (14) (299)
------ ---- -------- -------- -------- -------- --------
Balance at September 30, 2007 37,727 $430 $151,667 $378,282 $ (1,712) $(60,104) $468,563
====== ==== ======== ======== ======== ======== ========
Balance at December 31, 2007 37,740 $430 $152,629 $392,108 $ 15,064 $(60,148) $500,083
Comprehensive income:
Net income -- -- -- 107,273 -- -- 107,273
Amortization of net prior service
credit and net actuarial losses,
net of tax provision of $15 -- -- -- -- 21 -- 21
Change in fair value of derivatives,
net of tax provision of $30 -- -- -- -- 42 -- 42
Foreign currency translation,
net of tax provision of $3,507 -- -- -- -- (2,851) -- (2,851)
--------
Comprehensive income 104,485
--------
Dividends declared on common stock -- -- -- (19,492) -- -- (19,492)
Stock compensation expense -- -- 2,772 -- -- -- 2,772
Stock option exercises, including
tax benefit of $3,021 188 2 5,255 -- -- -- 5,257
Net issuance of treasury stock for
vested restricted stock units,
including tax benefit of $277 35 -- (392) -- -- (109) (501)
------ ---- -------- -------- -------- -------- --------
Balance at September 30, 2008 37,963 $432 $160,264 $479,889 $ 12,276 $(60,257) $592,604
====== ==== ======== ======== ======== ======== ========
See accompanying notes.
-7-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2008 and 2007 and for the
three and nine months then ended is unaudited)
Note 1. Significant Accounting Policies
Basis of Presentation. The accompanying unaudited condensed consolidated
financial statements of Silgan Holdings Inc., or 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, 2007 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.
Certain prior years' amounts have been reclassified to conform with the current
year's presentation.
You should read the accompanying condensed consolidated financial statements in
conjunction with our consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended December 31, 2007.
Goodwill and Other Intangible Assets. We review goodwill and other
indefinite-lived intangible assets for impairment as of July 1 each year and
more frequently if circumstances indicate a possible impairment. We determined
that our goodwill and other indefinite-lived intangible assets were not impaired
in our third quarter 2008 assessment.
Recently Adopted Accounting Pronouncements. In September 2006, the Financial
Accounting Standards Board, or FASB, issued Statement of Financial Accounting
Standards, or SFAS, No. 157, "Fair Value Measurements." SFAS No. 157 establishes
a single authoritative definition for fair value, sets out a framework for
measuring fair value, and requires additional disclosures about fair value
measurements. In February 2008, the FASB issued FASB Staff Position, or FSP, No.
157-2, "Effective Date of FASB Statement No. 157." FSP No. 157-2 delays the
effective date of our adoption of SFAS No. 157, as it relates to applying fair
value measurements to nonfinancial assets and nonfinancial liabilities that are
not recognized or disclosed on a recurring basis (at least annually), to January
1, 2009. We adopted SFAS No. 157, as it relates to financial assets and
financial liabilities, on January 1, 2008. The adoption of SFAS No. 157 did not
have a significant effect on our financial position, results of operations or
cash flows. We do not expect that the adoption of SFAS No. 157, as it relates to
nonfinancial assets and nonfinancial liabilities, will have a significant effect
on our financial position, results of operations or cash flows. See Note 7 for
further information.
-8-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2008 and 2007 and for the
three and nine months then ended is unaudited)
Note 1. Significant Accounting Policies (continued)
Recently Adopted Accounting Pronouncements (continued)
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115." SFAS No. 159 permits entities to elect to measure eligible
financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. We adopted SFAS No. 159 on
January 1, 2008. We have elected not to measure eligible items at fair value,
and therefore our adoption of SFAS No. 159 did not have an effect on our
financial position, results of operations or cash flows.
Recent Accounting Pronouncements. In December 2007, the FASB issued SFAS No.
141(R), "Business Combinations." SFAS No. 141(R) retains the fundamental
requirements in SFAS No. 141 that the purchase method of accounting be used for
all business combinations and for an acquirer to be identified for each business
combination. SFAS No. 141(R) establishes principles and requirements for the
reporting entity in a business combination, including recognition and
measurement in the financial statements of the identifiable assets acquired, the
liabilities assumed and any non-controlling interest at their fair values at the
acquisition date. SFAS No. 141(R) also requires that acquisition-related costs
be recognized separately from the acquisition. SFAS No. 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after January 1, 2009. In addition, SFAS No. 141(R) requires that any changes in
an acquired deferred tax account or related valuation allowance that occur after
the effective date of adoption will be recognized as adjustments to income tax
expense. We are currently evaluating the impact that SFAS No. 141(R) will have
on our consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities." SFAS No. 161 requires companies with
derivative instruments to disclose information that should enable
financial-statement users to understand how and why a company uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" and how derivative instruments and related hedged items affect a
company's financial position, financial performance and cash flows. SFAS No. 161
is effective for us on January 1, 2009. We are currently evaluating the impact,
if any, that SFAS No. 161 will have on our consolidated financial statements.
Note 2. Acquisitions
In February 2008, we acquired substantially all of the assets of the metal
vacuum closures operations of Grup Vemsa 1857, S.L., or Vem, which had
manufacturing operations in Spain and China, for an aggregate purchase price of
$10.2 million. The acquisition of Vem was accounted for using the purchase
method of accounting.
-9-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2008 and 2007 and for the
three and nine months then ended is unaudited)
Note 2. Acquisitions (continued)
In April 2008, we acquired the White Cap closures operation in Brazil for an
aggregate purchase price of $4.3 million, net of cash acquired, thereby
concluding our acquisition of the White Cap closures operations from Amcor
Limited. This acquisition was accounted for using the purchase method of
accounting.
Note 3. Rationalization Charges
As part of our plans to rationalize certain facilities, we have established
reserves for employee severance and benefits and plant exit costs. Activity in
our rationalization reserves since December 31, 2007 is summarized as follows:
Employee Plant Non-Cash
Severance Exit Asset
and Benefits Costs Write-Down Total
------------ ----- ---------- -----
(Dollars in thousands)
Balance at December 31, 2007
----------------------------
2001 Fairfield Rationalization Plan $ -- $ 290 $ -- $ 290
2006 Rationalization Plans 5,104 -- -- 5,104
------- ------- ------- -------
Balance at December 31, 2007 5,104 290 -- 5,394
Activity for the Nine Months Ended Sept. 30, 2008
-------------------------------------------------
2001 Fairfield Rationalization Plan -- (92) -- (92)
2006 Rationalization Plan Reserves Established -- 1,410 296 1,706
2006 Rationalization Plan Reserves Utilized (1,060) (1,410) (296) (2,766)
2008 Rationalization Plan Reserves Established 4,261 997 2,837 8,095
2008 Rationalization Plan Reserves Utilized (3,185) (324) (2,837) (6,346)
------- ------- ------- -------
Total Activity 16 581 -- 597
Balance at September 30, 2008
-----------------------------
2001 Fairfield Rationalization Plan -- 198 -- 198
2006 Rationalization Plans 4,044 -- -- 4,044
2008 Rationalization Plans 1,076 673 -- 1,749
------- ------- ------- -------
Balance at September 30, 2008 $ 5,120 $ 871 $ -- $ 5,991
======= ======= ======= =======
2008 Rationalization Plans
--------------------------
In 2008, as part of our ongoing effort to streamline operations and reduce
costs, we approved plans to close our metal food container manufacturing
facility in Tarrant, Alabama, our plastic container manufacturing facility in
Richmond, Virginia and our closures manufacturing facility in Turkey and to
consolidate various administrative positions within our European closures
operations.
-10-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2008 and 2007 and for the
three and nine months then ended is unaudited)
Note 3. Rationalization Charges (continued)
2008 Rationalization Plans (continued)
--------------------------
In February 2008, we approved and announced to employees a plan to exit our
Tarrant, Alabama metal food container facility. Our plan includes the
termination of approximately 35 employees and other related plant exit costs. We
estimate that the total costs for the rationalization of this facility will be
$2.4 million. These costs include $0.6 million for employee severance and
benefits, $1.4 million for plant exit costs and $0.8 million for the
acceleration of depreciation to write-down equipment for abandonment upon the
exit of the facility, offset by $0.4 million for a non-cash curtailment gain for
other postretirement benefits. Rationalization charges recognized during the
first nine months of 2008 for this action were $1.1 million, which consisted of
$0.8 million for the accelerated depreciation of equipment, $0.1 million for
plant exit costs and $0.6 million for employee severance and benefits, offset by
$0.4 million for a non-cash curtailment gain for other postretirement benefits.
We have ceased operations at this facility and expect to sell the building for
estimated proceeds at or in excess of its net book value. Additional charges of
$1.3 million are expected through 2009. Remaining cash payments of $1.4 million
are expected through 2009.
In March 2008, we approved and announced to employees a plan to exit our
Richmond, Virginia plastic container manufacturing facility. Our plan includes
the termination of approximately 15 employees and other related plant exit
costs. We estimate that the total costs for the rationalization of this facility
will be $1.1 million. These costs include $0.1 million for employee severance
and benefits, $0.7 million for plant exit costs and $0.3 million for the
non-cash write-down in carrying value of assets. Rationalization charges
recognized during the first nine months of 2008 for this action were $0.9
million, which consisted of $0.3 million for the non-cash write-down in carrying
value of assets, $0.1 million for employee severance and benefits and $0.5
million for plant exit costs. We have ceased operations at this facility.
Additional charges of $0.2 million are expected through 2009. Remaining cash
payments of $0.5 million are expected through 2009.
During 2008, we approved and announced to employees in our closures business
plans to consolidate various administrative positions and streamline operations
in Europe and exit our closures manufacturing facility in Turkey. Our plans
include the termination of approximately 150 employees, the relocation of
certain operations into existing facilities and other related plant exit costs.
We plan to exit the facility in Turkey in the fourth quarter of 2008. We
estimate that the total costs for the rationalization will be $6.8 million.
These costs include $1.7 million for the non-cash write-down in carrying value
of assets, $4.5 million for employee severance and benefits and $0.6 million for
plant exit costs. Rationalization charges recognized during the first nine
months of 2008 for this action were $6.1 million, which consisted of $1.7
million for the non-cash write-down in carrying value of assets, $4.0 million
for employee severance and benefits and $0.4 million for plant exit costs.
Additional charges of $0.7 million are expected during the remainder of 2008.
Remaining cash payments of $2.0 million are expected primarily in 2008.
-11-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2008 and 2007 and for the
three and nine months then ended is unaudited)
Note 3. Rationalization Charges (continued)
2006 Rationalization Plans
--------------------------
In June 2006, in an effort to streamline operations and reduce costs, we
approved a plan to exit our St. Paul, Minnesota metal food container
manufacturing facility. The plan includes the termination of approximately 60
employees, the consolidation of certain operations into existing facilities and
the elimination of the remaining operations and the exit of the facility. We
estimate that the total costs for the rationalization of the facility will be
$14.2 million. As of December 31, 2007, total charges of $12.5 million
recognized to date included $5.8 million of non-cash pension and postretirement
curtailment expense, $2.6 million for employee severance and special termination
benefits, $1.1 million for plant exit costs and $3.0 million for the non-cash
write-down and accelerated depreciation of the building and equipment.
Rationalization charges recognized during the first nine months of 2008 were
$1.6 million, which consisted of $1.3 million for plant exit costs and $0.3
million for the non-cash write down in carrying value of assets. We have ceased
operations at this facility and expect to sell the building for estimated
proceeds at or in excess of its net book value. Additional charges of $0.1
million for plant exit costs are expected through 2008. Remaining cash payments
of $0.8 million are expected primarily in 2008.
In October 2006, we approved and announced to employees a plan to exit our
Stockton, California metal food container manufacturing facility. The plan
includes the termination or relocation of approximately 110 employees and other
related plant exit costs. We estimate total rationalization charges for the plan
will be $5.4 million. As of December 31, 2007, we recognized rationalization
charges of $4.1 million for employee severance and benefits, $0.4 million for
the non-cash write down in carrying value of assets and $0.6 million for plant
exit costs. Rationalization charges recognized during the first nine months of
2008 were $0.1 million for plant exit costs. We have ceased operations at this
facility and expect to sell the building for estimated proceeds at or in excess
of its net book value. Additional charges of $0.2 million for plant exit costs
are expected through 2008. Remaining cash payments of $3.6 million are expected
through 2009.
Rationalization reserves are included in the Condensed Consolidated Balance
Sheets as follows:
Sept. 30, Sept. 30, Dec. 31,
2008 2007 2007
---- ---- ----
(Dollars in thousands)
Accrued liabilities $2,826 $1,863 $2,050
Other liabilities 3,165 3,660 3,344
------ ------ ------
$5,991 $5,523 $5,394
====== ====== ======
-12-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2008 and 2007 and for the
three and nine months then ended is unaudited)
Note 4. 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:
Sept. 30, Sept. 30, Dec. 31,
2008 2007 2007
---- ---- ----
(Dollars in thousands)
Foreign currency translation $ 29,765 $ 24,145 $ 32,616
Change in fair value of derivatives 1,881 3,192 1,839
Unrecognized net periodic pension and
other postretirement benefit costs:
Net prior service credit 4,147 4,791 4,464
Net actuarial loss (23,517) (33,840) (23,855)
-------- -------- --------
Accumulated other comprehensive
income (loss) $ 12,276 $ (1,712) $ 15,064
======== ======== ========
Note 5. Inventories
Inventories consisted of the following:
Sept. 30, Sept. 30, Dec. 31,
2008 2007 2007
---- ---- ----
(Dollars in thousands)
Raw materials $ 87,717 $ 79,518 $ 91,988
Work-in-process 72,058 68,666 73,863
Finished goods 278,577 275,185 282,665
Spare parts and other 31,159 28,534 29,566
-------- -------- --------
469,511 451,903 478,082
Adjustment to value domestic inventory
at cost on the LIFO method (54,421) (39,197) (50,275)
-------- -------- --------
$415,090 $412,706 $427,807
======== ======== ========
-13-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2008 and 2007 and for the
three and nine months then ended is unaudited)
Note 6. Long-Term Debt
Long-term debt consisted of the following:
Sept. 30, Sept. 30, Dec. 31,
2008 2007 2007
---- ---- ----
(Dollars in thousands)
Bank debt
Bank revolving loans $ 315,149 $ 189,872 $ --
Bank A term loans 345,000 345,000 345,000
Bank B term loans 41,477 41,904 41,477
Canadian term loans 86,112 89,910 91,674
Euro term loans 286,020 283,460 294,480
Other foreign bank revolving and
term loans 29,332 20,528 16,871
---------- ---------- --------
Total bank debt 1,103,090 970,674 789,502
---------- ---------- --------
Subordinated debt
6 3/4% Senior Subordinated Notes 200,000 200,000 200,000
Other -- 3,000 3,000
---------- ---------- --------
Total subordinated debt 200,000 203,000 203,000
---------- ---------- --------
Total debt 1,303,090 1,173,674 992,502
Less current portion 436,546 210,828 112,921
---------- ---------- --------
$ 866,544 $ 962,846 $879,581
========== ========== ========
At September 30, 2008, amounts expected to be repaid within one year consisted
of $315.1 million of bank revolving loans and $92.1 million of bank term loans
under our senior secured credit facility, or the Credit Agreement, and $29.3
million of foreign bank revolving and term loans. Bank revolving loans borrowed
under our Credit Agreement were utilized primarily for current seasonal working
capital requirements and to ensure access to liquidity in light of the current
credit market turmoil. Our cash and cash equivalents balance at September 30,
2008 was $290.4 million. Cash equivalents are primarily invested in U.S.
Treasury instruments and U.S. government backed securities.
At September 30, 2008, the aggregate notional principal amount of outstanding
interest rate swap agreements was $328 million, of which $36 million matures in
2008 (non-U.S. dollar agreements have been translated into U.S. dollars at
exchange rates in effect at the balance sheet date).
-14-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2008 and 2007 and for the
three and nine months then ended is unaudited)
Note 7. Fair Value Measurements
We adopted SFAS No. 157 as it relates to financial assets and financial
liabilities as of January 1, 2008. SFAS No. 157 defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date (exit
price). SFAS No. 157 classifies the inputs used to measure fair value into a
hierarchy consisting of three levels. Level 1 inputs represent unadjusted quoted
prices in active markets for identical assets or liabilities. Level 2 inputs
represent unadjusted quoted prices in active markets for similar assets or
liabilities, or unadjusted quoted prices for identical or similar assets or
liabilities in markets that are not active, or inputs other than quoted prices
that are observable for the asset or liability. Level 3 inputs represent
unobservable inputs for the asset or liability. Financial assets and liabilities
are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement.
The financial assets and liabilities that are measured on a recurring basis at
September 30, 2008 consist of our interest rate swap agreements. We measured the
fair value of the interest rate swap agreements using the income approach. The
fair value of these agreements reflects the estimated amounts that we would
receive based on the present value of the expected cash flows derived from
market interest rates. As such, these derivative instruments are classified
within Level 2.
At September 30, 2008, our interest rate swap agreements were valued as a net
asset of $3.2 million. There were no significant unrealized gains or losses
related to our interest rate swap agreements recognized during the first nine
months of 2008.
-15-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2008 and 2007 and for the
three and nine months then ended is unaudited)
Note 8. Retirement Benefits
The components of the net periodic pension benefits costs are as follows:
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2008 2007 2008 2007
---- ---- ---- ----
(Dollars in thousands)
Service cost $ 2,665 $ 3,522 $ 9,450 $ 10,649
Interest cost 6,758 6,401 20,324 18,650
Expected return on plan assets (7,873) (7,670) (23,049) (23,080)
Amortization of prior service cost 604 723 1,725 1,877
Amortization of actuarial losses 155 287 315 717
Curtailment expense 83 -- 83 1,158
------- ------- -------- --------
Net periodic benefit cost $ 2,392 $ 3,263 $ 8,848 $ 9,971
======= ======= ======== ========
The components of the net periodic other postretirement benefits costs are as
follows:
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2008 2007 2008 2007
---- ---- ---- ----
(Dollars in thousands)
Service cost $ 170 $ 231 $ 630 $ 700
Interest cost 797 808 2,446 2,681
Amortization of prior service credit (659) (569) (1,808) (1,454)
Amortization of actuarial losses 70 74 214 356
Curtailment gain (455) -- (455) --
------- ------- -------- --------
Net periodic benefit (credit) cost $ (77) $ 544 $ 1,027 $ 2,283
======= ======= ======== ========
In the third quarter of 2008, we recognized curtailment expense related to our
pension benefits and a curtailment gain related to our other postretirement
benefits in connection with the planned exit of our Tarrant, Alabama metal food
container manufacturing facility. We recognized curtailment expense in 2007 for
our pension benefits related to the planned exit of our St. Paul, Minnesota
metal food container manufacturing facility.
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, 2007, based on current tax law, there are no material minimum required
contributions to our pension plans in 2008. However, this is subject to change
based on a number of factors, including asset performance that is significantly
below the assumed long-term rate of return on plan assets. In order to reduce
our unfunded pension liability, we have historically made certain voluntary
contributions in excess of the ERISA minimum requirements to the extent these
contributions are tax deductible. We may continue to make such voluntary
contributions at our discretion. During the first nine months of 2008, we made
contributions of $9.8 million to fund our pension plans.
-16-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2008 and 2007 and for the
three and nine months then ended is unaudited)
Note 9. Income Taxes
On October 3, 2008, the Emergency Economic Stabilization Act of 2008 reinstated
the research and development tax credit for both 2008 and 2009. We will record
the benefit of this credit for the full year 2008 in the fourth quarter. This
benefit is not expected to be material to our consolidated financial statements
for the fourth quarter and year ended December 31, 2008.
Holdings and its subsidiaries file U.S. Federal income tax returns, as well as
income tax returns in various states and foreign jurisdictions. The Internal
Revenue Service, or IRS, has commenced an examination of Holdings' income tax
return for the periods ended December 31, 2004 and December 31, 2005. It is
reasonably possible that this IRS audit and IRS audits for prior periods will be
concluded within the next twelve months, and that the conclusion of these audits
may result in a significant change to our reported unrecognized tax benefits.
Due to the ongoing nature of these audits, we are unable to estimate the amount
of this potential impact.
Note 10. Dividends
In March, June and September of 2008, we paid quarterly cash dividends on our
common stock of $0.17 per share, as approved by our Board of Directors. The cash
payments related to these dividends totaled $19.5 million.
Note 11. Treasury Stock
During the first nine months of 2008, we issued 50,477 treasury shares which had
an average cost of $13.25 per share for restricted stock units that vested
during the period. In accordance with the Silgan Holdings Inc. 2004 Stock
Incentive Plan, we repurchased 15,600 shares of our common stock at an average
cost of $49.87 to satisfy employee withholding tax requirements resulting from
certain restricted stock units becoming vested. We account for the treasury
shares using the first-in, first-out (FIFO) cost method. As of September 30,
2008, 5,266,958 shares were held in treasury.
Note 12. Stock-Based Compensation
We currently have one stock-based compensation plan in effect, under which we
have issued options and restricted stock units to our officers, other key
employees and outside directors. During the first nine months of 2008, we
granted 92,900 restricted stock units to certain of our officers and key
employees. The fair value of these restricted stock units at the date of grant
was $4.4 million, which is being amortized ratably over the five-year vesting
period from the date of grant. In June 2008, we granted 5,262 restricted stock
units to non-employee members of our Board of Directors, which vest in full one
year from the date of grant. The fair value of these restricted stock units at
the date of grant was $0.3 million.
-17-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2008 and 2007 and for the
three and nine months then ended is unaudited)
Note 13. Business Segment Information
Reportable business segment information for the three and nine months ended
September 30 is as follows:
Metal Food Plastic
Containers(1) Containers(2) Closures(3) Corporate Total
------------- ------------- ----------- --------- -----
(Dollars in thousands)
Three Months Ended September 30, 2008
-------------------------------------
Net sales $ 617,369 $162,601 $184,329 $ -- $ 964,299
Depreciation and amortization(4) 16,569 11,586 7,954 420 36,529
Segment income from operations 76,639 9,066 17,110 (3,178) 99,637
Three Months Ended September 30, 2007
-------------------------------------
Net sales $ 585,071 $153,122 $166,644 $ -- $ 904,837
Depreciation and amortization(4) 15,847 11,134 6,932 421 34,334
Segment income from operations 62,729 10,275 21,828 (2,227) 92,605
Nine Months Ended September 30, 2008
------------------------------------
Net sales $1,346,062 $501,650 $531,701 $ -- $2,379,413
Depreciation and amortization(4) 48,599 34,400 23,044 1,263 107,306
Segment income from operations 134,811 35,244 53,388 (9,021) 214,422
Nine Months Ended September 30, 2007
------------------------------------
Net sales $1,295,671 $472,715 $470,802 $ -- $2,239,188
Depreciation and amortization(4) 46,058 32,643 20,486 1,262 100,449
Segment income from operations 119,199 42,508 58,432 (6,978) 213,161
-------------
(1) Segment income from operations includes a rationalization credit of $0.5
million and rationalization charges of $0.7 million for the three months
ended September 30, 2008 and 2007, respectively, and rationalization
charges of $2.8 million and $3.8 million for the nine months ended
September 30, 2008 and 2007, respectively.
(2) Segment income from operations includes rationalization charges of $0.1
million for the three months ended September 30, 2008 and $0.9 million and
$0.2 million for the nine months ended September 30, 2008 and 2007,
respectively.
(3) Segment income from operations includes rationalization charges of $2.8
million and $6.1 million for the three and nine months ended September 30,
2008, respectively.
(4) Depreciation and amortization excludes amortization of debt issuance costs
of $0.3 million for each of the three months ended September 30, 2008 and
2007 and $1.0 million for each of the nine months ended September 30, 2008
and 2007.
-18-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2008 and 2007 and for the
three and nine months then ended is unaudited)
Note 13. Business Segment Information (continued)
Total segment income from operations is reconciled to income before income taxes
as follows:
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2008 2007 2008 2007
---- ---- ---- ----
(Dollars in thousands)
Total segment income from operations $99,637 $92,605 $214,422 $213,161
Interest and other debt expense 15,100 17,282 46,215 50,290
------- ------- -------- --------
Income before income taxes $84,537 $75,323 $168,207 $162,871
======= ======= ======== ========
-19-
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Statements included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Quarterly Report on
Form 10-Q which are not historical facts are "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and Securities Exchange Act of 1934. Such forward-looking
statements are made based upon management's expectations and beliefs concerning
future events impacting us and therefore involve a number of uncertainties and
risks, including, but not limited to, those described in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2007 and our other filings with
the Securities and Exchange Commission. As a result, the actual results of our
operations or our financial condition could differ materially from those
expressed or implied in these forward-looking statements.
General
We are a leading manufacturer of metal and plastic consumer goods packaging
products. We produce steel and aluminum containers for human and pet food;
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; and metal,
composite and plastic vacuum closures for food and beverage 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 worldwide manufacturer of metal, composite and
plastic vacuum closures 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. If acquisition opportunities are not identified
over a longer period of time, we may use our cash flow to repay debt, repurchase
shares of our common stock or increase dividends to our stockholders or for
other permitted purposes.
In February 2008, we acquired substantially all of the assets of Vem, a
manufacturer of metal closures in Spain and China, for an aggregate purchase
price of $10.2 million. In April 2008, we acquired the White Cap closures
operation in Brazil for an aggregate purchase price of $4.3 million, net of cash
acquired, thereby concluding our acquisition of the White Cap closures
operations from Amcor Limited.
-20-
RESULTS OF OPERATIONS
The following table sets forth certain unaudited income statement data expressed
as a percentage of net sales for the periods presented:
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2008 2007 2008 2007
---- ---- ---- ----
Net sales
Metal food containers 64.0% 64.7% 56.6% 57.9%
Plastic containers 16.9 16.9 21.1 21.1
Closures 19.1 18.4 22.3 21.0
----- ----- ----- -----
Consolidated 100.0 100.0 100.0 100.0
Cost of goods sold 85.3 85.6 85.7 85.3
----- ----- ----- -----
Gross profit 14.7 14.4 14.3 14.7
Selling, general and administrative expenses 4.1 4.1 4.9 5.0
Rationalization charges 0.3 0.1 0.4 0.2
----- ----- ----- -----
Income from operations 10.3 10.2 9.0 9.5
Interest and other debt expense 1.5 1.9 1.9 2.2
----- ----- ----- -----
Income before income taxes 8.8 8.3 7.1 7.3
Provision for income taxes 3.3 3.0 2.6 2.7
----- ----- ----- -----
Net income 5.5% 5.3% 4.5% 4.6%
===== ===== ===== =====
Summary unaudited results of operations for the three and nine months ended
September 30, 2008 and 2007 are provided below.
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2008 2007 2008 2007
---- ---- ---- ----
(Dollars in millions)
Net sales
Metal food containers $617.4 $585.1 $1,346.1 $1,295.7
Plastic containers 162.6 153.1 501.6 472.7
Closures 184.3 166.6 531.7 470.8
------ ------ -------- --------
Consolidated $964.3 $904.8 $2,379.4 $2,239.2
====== ====== ======== ========
Income from operations
Metal food containers (1) $ 76.6 $ 62.7 $ 134.8 $ 119.2
Plastic containers (2) 9.1 10.3 35.2 42.5
Closures (3) 17.1 21.8 53.4 58.5
Corporate (3.2) (2.2) (9.0) (7.0)
------ ------ -------- --------
Consolidated $ 99.6 $ 92.6 $ 214.4 $ 213.2
====== ====== ======== ========
-------------
(1) Includes a rationalization credit of $0.5 million and rationalization
charges of $0.7 million for the three months ended September 30, 2008
and 2007, respectively, and rationalization charges of $2.8 million
and $3.8 million for the nine months ended September 30, 2008 and
2007, respectively.
(2) Includes rationalization charges of $0.1 million for the three months
ended September 30, 2008 and $0.9 million and $0.2 million for the
nine months ended September 30, 2008 and 2007, respectively.
(3) Includes rationalization charges of $2.8 million and $6.1 million for
the three and nine months ended September 30, 2008, respectively.
-21-
Three Months Ended September 30, 2008 Compared with Three Months Ended September
30, 2007
Overview. Consolidated net sales were $964.3 million in the third quarter of
2008, representing a 6.6 percent increase as compared to the third quarter of
2007 primarily as a result of higher average selling prices across all
businesses largely attributable to the pass through of higher raw material and
other manufacturing costs, sales attributed to the international closures
operations acquired during the first half of 2008 and favorable foreign currency
translation, partially offset by slightly lower unit volumes in the plastic
container and closures businesses. Income from operations for the third quarter
of 2008 of $99.6 million increased by $7.0 million, or 7.6 percent, as compared
to the same period in 2007 due to significantly increased income from operations
in the metal food container business, partially offset by modest declines in the
plastic container and closures businesses. Results for 2008 included
rationalization charges of $2.4 million. Results for 2007 included
rationalization charges of $0.7 million. Net income for the third quarter of
2008 was $52.8 million, or $1.38 per diluted share, as compared to $47.6
million, or $1.25 per diluted share, for the same period in 2007.
Net Sales. The $59.5 million increase in consolidated net sales in the third
quarter of 2008 as compared to the third quarter of 2007 was the result of
higher net sales across all businesses.
Net sales for the metal food container business increased $32.3 million, or 5.5
percent, in the third quarter of 2008 as compared to the same period in 2007.
This increase was primarily attributable to higher average selling prices as a
result of the pass through of inflation in raw material and other manufacturing
costs and modestly higher unit volumes.
Net sales for the plastic container business in the third quarter of 2008
increased $9.5 million, or 6.2 percent, as compared to the same period in 2007.
This increase was primarily due to higher average selling prices as a result of
the pass through of higher raw material costs, partially offset by slight volume
declines attributable to generally soft market demand.
Net sales for the closures business increased $17.7 million, or 10.6 percent, in
the third quarter of 2008 as compared to the same period in 2007. This increase
was primarily the result of sales from operations acquired in 2008 in Brazil,
Spain and China, favorable foreign currency translation of approximately $7.8
million and higher average selling prices due to the pass through of higher raw
material costs, partially offset by the impact of soft beverage demand on unit
volumes.
Gross Profit. Gross profit margin increased 0.3 percentage points to 14.7
percent in the third quarter of 2008 as compared to the same period in 2007 for
the reasons discussed below in "Income from Operations."
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales remained flat
at 4.1 percent for the third quarter of 2008 as compared to the same period in
2007.
Income from Operations. Income from operations for the third quarter of 2008
increased by $7.0 million, or 7.6 percent, as compared to the third quarter of
2007, and operating margin increased to 10.3 percent from 10.2 percent over the
same periods.
-22-
Income from operations of the metal food container business for the third
quarter of 2008 increased $13.9 million, or 22.2 percent, as compared to the
same period in 2007, and operating margin increased to 12.4 percent from 10.7
percent over the same periods. These increases were primarily the result of cost
control and manufacturing efficiencies, the net impact of a larger third quarter
2007 inventory reduction versus the current year quarter and improved unit
volumes. The third quarter of 2008 included a rationalization credit of $0.5
million primarily related to a postretirement health care curtailment gain from
the shut down of the Tarrant facility. The third quarter of 2007 included
rationalization charges of $0.7 million related to costs to exit the St. Paul
and Stockton manufacturing facilities.
Income from operations of the plastic container business for the third quarter
of 2008 decreased $1.2 million, or 11.7 percent, as compared to the same period
in 2007, and operating margin decreased to 5.6 percent from 6.7 percent over the
same periods. These decreases were primarily the result of inflation in resin
costs not yet passed through to customers, other manufacturing cost inflation
and slightly lower unit volumes, partially offset by ongoing benefits from cost
controls. In addition, the plastic container business was negatively impacted by
costs attributable to the damage and disruption at the Houston, Texas
manufacturing facility caused by Hurricane Ike.
Income from operations of the closures business for the third quarter of 2008
decreased $4.7 million, or 21.6 percent, as compared to the same period in 2007,
and operating margin decreased to 9.3 percent from 13.1 percent over the same
periods. These decreases were primarily due to rationalization charges of $2.8
million recognized in the third quarter of 2008 principally related to the shut
down of the Turkey manufacturing facility, inflation in manufacturing and other
costs, including delays in passing through resin costs which spiked in the
quarter, and a decrease in unit volumes.
Interest and Other Debt Expense. Interest and other debt expense for the third
quarter of 2008 decreased $2.2 million to $15.1 million as compared to the same
period in 2007. This decrease was primarily due to lower market interest rates.
Provision for Income Taxes. The effective tax rate for the third quarter of 2008
was 37.5 percent as compared to 36.8 percent in the same period of 2007. The
effective tax rate was negatively impacted by a $1.2 million valuation allowance
against tax positions in Turkey related to our decision to close the operating
facility.
Nine Months Ended September 30, 2008 Compared with Nine Months Ended September
30, 2007
Overview. Consolidated net sales were $2.38 billion in the first nine months of
2008, representing a 6.3 percent increase as compared to the first nine months
of 2007 primarily due to higher average selling prices resulting from the pass
through of inflation in raw material and other manufacturing costs, favorable
foreign currency translation and an increase in unit volumes in the closures
business, slightly offset by lower unit volumes in the metal food and plastic
container businesses. Income from operations for the first nine months of 2008
increased by $1.2 million, or 0.6 percent, as compared to the same period in
2007. The increase in income from operations was primarily a result of
significantly increased income from operations in the metal food container
business, partially offset by decreases in the plastic container and closures
businesses. The results for the first nine months of 2008 and 2007 included
rationalization charges of $9.8 million and $4.0 million, respectively. Net
income for the first nine months of 2008 was $107.3 million, or $2.80 per
diluted share, as compared to $102.9 million, or $2.70 per diluted share, for
the same period in 2007.
Net Sales. The $140.2 million increase in consolidated net sales in the first
nine months of 2008 as compared to the first nine months of 2007 was due to
higher net sales across all of our businesses.
-23-
Net sales for the metal food container business increased $50.4 million, or 3.9
percent, in the first nine months of 2008 as compared to the same period in
2007. This increase was primarily attributable to higher average selling prices
due to the pass through of inflation in raw material and other manufacturing
costs, partially offset by lower unit volumes.
Net sales for the plastic container business in the first nine months of 2008
increased $28.9 million, or 6.1 percent, as compared to the same period in 2007.
This increase was primarily the result of higher average selling prices as a
result of the pass through of higher raw material costs and the impact of
favorable foreign currency translation of approximately $8.5 million, slightly
offset by lower unit volumes attributable to generally soft market demand.
Net sales for the closures business in the first nine months of 2008 increased
$60.9 million, or 12.9 percent, as compared to the same period in 2007. This
increase was the result of favorable foreign currency translation of
approximately $29.6 million, higher average selling prices due to the pass
through of higher raw material costs and an increase in unit volumes.
Gross Profit. Gross Profit margin decreased 0.4 percentage points to 14.3
percent for the first nine months of 2008 as compared to the same period in 2007
for the reasons discussed below in "Income from Operations."
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales decreased
slightly to 4.9 percent for the first nine months of 2008 as compared to 5.0
percent for the same period in 2007, due primarily to the recognition in the
first quarter of 2008 of management fee income of approximately $2.0 million
from the management of the White Cap Brazil closures operations during the
delayed closing period up until it was acquired from Amcor Limited.
Income from Operations. Income from operations for the first nine months of 2008
increased by $1.2 million, or 0.6 percent, as compared to the first nine months
of 2007, while operating margin decreased to 9.0 percent from 9.5 percent over
the same periods.
Income from operations of the metal food container business for the first nine
months of 2008 increased $15.6 million, or 13.1 percent, as compared to the same
period in 2007, and operating margin increased to 10.0 percent from 9.2 percent
over the same periods. This increase was principally due to cost control and
manufacturing efficiencies, a $1.0 million decrease in rationalization charges
and the net impact of a larger year-over-year inventory reduction in 2007 as
compared to 2008, partially offset by lower unit volumes and higher depreciation
expense. Rationalization charges for the first nine months of 2008 and 2007 were
$2.8 million and $3.8 million, respectively.
Income from operations of the plastic container business for the first nine
months of 2008 decreased $7.3 million, or 17.2 percent, as compared to the same
period in 2007, and operating margin decreased to 7.0 percent from 9.0 percent
over the same periods. These decreases were primarily the result of the negative
effect from the timing of the pass through of increased resin costs to customers
particularly in light of escalating resin costs experienced in 2008 as compared
to declines in resin costs experienced in the first quarter of 2007, inflation
in manufacturing and other costs, a decrease in unit volumes and higher
depreciation expense. These decreases were partially offset by a favorable mix
of products sold, improved manufacturing efficiencies and cost controls.
Rationalization charges for the first nine months of 2008 and 2007 were $0.9
million and $0.2 million, respectively.
-24-
Income from operations of the closures business for the first nine months of
2008 decreased $5.1 million, or 8.7 percent, as compared to the same period in
2007, and operating margin decreased to 10.0 percent from 12.4 percent over the
same periods. These decreases were due primarily to rationalization charges of
$6.1 million recognized in 2008 principally related to the shut down of the
Turkey manufacturing facility and the consolidation of various administrative
positions in Europe, inflation in raw materials and other costs and the benefit
recognized in the first quarter of 2007 of $1.4 million from the sale of certain
previously leased capping equipment. These decreases were partially offset by
2008 management fee income of approximately $2.0 million from the management of
the White Cap Brazil operations prior to its acquisition and an increase in unit
volumes.
Interest and Other Debt Expense. Interest and other debt expense for the first
nine months of 2008 decreased $4.1 million to $46.2 million as compared to the
same period in 2007. This decrease resulted primarily from lower market interest
rates and higher interest income attributable to the cash on hand during 2008,
partially offset by the effects of higher average borrowings.
Provision for Income Taxes. The effective tax rate for the first nine months of
2008 was 36.2 percent as compared to 36.8 percent in the same period of 2007.
The effective tax rate for the first nine months of 2008 benefited from a $1.7
million tax credit related to certain non-recurring state tax incentives
associated with capital investments, partially offset by the $1.2 million
valuation allowance in the third quarter related to the shut down of the Turkey
operations.
CAPITAL RESOURCES AND LIQUIDITY
Our principal sources of liquidity have been cash from operations and borrowings
under our debt instruments, including our Credit Agreement. Our liquidity
requirements arise primarily from our obligations under the indebtedness
incurred in connection with our acquisitions and the refinancing of that
indebtedness, capital investment in new and existing equipment and the funding
of our seasonal working capital needs.
For the nine months ended September 30, 2008, we used cash from operations of
$78.0 million, net borrowings of revolving loans of $319.4 million, other debt
borrowings of $8.0 million, net proceeds from stock-based compensation issuances
of $4.2 million to fund net capital expenditures of $86.6 million, our
acquisition of Vem and the White Cap Brazil operations for $14.5 million, net of
cash acquired, decreases in outstanding checks of $91.6 million, the repayment
of debt of $3.0 million and dividends paid on our common stock of $19.5 million
and to increase cash and cash equivalents by $194.4 million. At the end of 2007
and through the third quarter of 2008 in light of the on-going credit crisis, we
maintained a significant amount of cash and cash equivalents to ensure access to
liquidity in this tumultuous environment. Consistent with this objective, in the
third quarter of 2008, we borrowed an additional $200.0 million of revolving
loans under our Credit Agreement. Our cash and cash equivalents balance at
September 30, 2008 was $290.4 million. Cash equivalents are primarily invested
in U.S. Treasury instruments and U.S. government backed securities. We will
continue to evaluate our level of cash and cash equivalents based on our
assessment of the condition of the credit markets.
For the nine months ended September 30, 2007, we used cash from operations of
$57.2 million, net borrowings of revolving loans of $182.0 million and net
proceeds from stock-based compensation issuances of $2.6 million to fund net
capital expenditures of $109.8 million, our acquisition of the White Cap
operations in Venezuela for $7.8 million, net of cash acquired, decreases in
outstanding checks of $95.9 million and dividends paid on our common stock of
$18.2 million and to increase cash and cash equivalents by $10.1 million.
-25-
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. During the
third quarter of 2008, for our peak seasonal working capital requirements we
utilized $233.2 million of revolving loans under the Credit Agreement and $49.0
million of cash on hand.
At September 30, 2008, we had $315.1 million of revolving loans outstanding
under the Credit Agreement. After taking into account outstanding letters of
credit, the available portion of the revolving loan facility under the Credit
Agreement at September 30, 2008 was $90.2 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.
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,
share repurchases required under our 2004 Stock Incentive Plan 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.
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 2008 with all of these covenants.
Rationalization Charges
In 2008, as part of our ongoing effort to streamline operations and reduce
costs, we approved plans to close our metal food container manufacturing
facility in Tarrant, Alabama, our plastic container manufacturing facility in
Richmond, Virginia and our closures manufacturing facility in Turkey and to
consolidate various administrative positions within our European closures
operations.
In February 2008, we approved and announced to employees a plan to exit our
Tarrant, Alabama metal food container facility. Our plan includes the
termination of approximately 35 employees and other related plant exit costs. We
estimate that the total costs for the rationalization of this facility will be
$2.4 million. These costs include $0.6 million for employee severance and
benefits, $1.4 million for plant exit costs and $0.8 million for the
acceleration of depreciation to write-down equipment for abandonment upon the
exit of the facility, offset by $0.4 million for a non-cash curtailment gain for
other postretirement benefits. Rationalization charges recognized during the
first nine months of 2008 for this action were $1.1 million, which consisted of
$0.8 million for the accelerated depreciation of equipment, $0.1 million for
plant exit costs and $0.6 million for employee severance and benefits, offset by
$0.4 million for a non-cash curtailment gain for other postretirement benefits.
We have ceased operations at this facility and expect to sell the building for
estimated proceeds at or in excess of its net book value. Additional charges of
$1.3 million are expected through 2009. Remaining cash payments of $1.4 million
are expected through 2009.
-26-
In March 2008, we approved and announced to employees a plan to exit our
Richmond, Virginia plastic container manufacturing facility. Our plan includes
the termination of approximately 15 employees and other related plant exit
costs. We estimate that the total costs for the rationalization of this facility
will be $1.1 million. These costs include $0.1 million for employee severance
and benefits, $0.7 million for plant exit costs and $0.3 million for the
non-cash write-down in carrying value of assets. Rationalization charges
recognized during the first nine months of 2008 for this action were $0.9
million, which consisted of $0.3 million for the non-cash write-down in carrying
value of assets, $0.1 million for employee severance and benefits and $0.5
million for plant exit costs. We have ceased operations at this facility.
Additional charges of $0.2 million are expected through 2009. Remaining cash
payments of $0.5 million are expected through 2009.
During 2008, we approved and announced to employees in our closures business
plans to consolidate various administrative positions and streamline operations
in Europe and exit our closures manufacturing facility in Turkey. Our plans
include the termination of approximately 150 employees, the relocation of
certain operations into existing facilities and other related plant exit costs.
We plan to exit the facility in Turkey in the fourth quarter of 2008. We
estimate that the total costs for the rationalization will be $6.8 million.
These costs include $1.7 million for the non-cash write-down in carrying value
of assets, $4.5 million for employee severance and benefits and $0.6 million for
plant exit costs. Rationalization charges recognized during the first nine
months of 2008 for this action were $6.1 million, which consisted of $1.7
million for the non-cash write-down in carrying value of assets, $4.0 million
for employee severance and benefits and $0.4 million for plant exit costs.
Additional charges of $0.7 million are expected during the remainder of 2008.
Remaining cash payments of $2.0 million are expected primarily in 2008.
In 2006, we announced our plans to exit our St. Paul, Minnesota and Stockton,
California metal food container manufacturing facilities. We have ceased
operations at both of these facilities. We expect to sell the buildings at each
of these facilities for proceeds at or in excess of their respective net book
values. We incurred charges of $1.7 million in the first nine months of 2008
related to these plans primarily for the St. Paul rationalization. We expect to
incur additional charges of $0.3 million for plant exit costs through 2008
related to the St. Paul and Stockton rationalizations.
Under our rationalization plans, we made cash payments of $6.4 million and $1.1
million for the nine months ended September 30, 2008 and 2007, respectively.
Total future cash spending of $8.5 million is expected for our outstanding
rationalization plans.
You should also read Note 3 to our Condensed Consolidated Financial Statements
for the three and nine months ended September 30, 2008 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 attractive cash returns. In line with our ongoing evaluation, we are
currently reviewing certain facilities for potential rationalization actions
which may result in additional cash expenditures and charges to our earnings.
-27-
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 157 "Fair Value Measurements." SFAS
No. 157 establishes a single authoritative definition for fair value, sets out a
framework for measuring fair value, and requires additional disclosures about
fair value measurements. In February 2008, the FASB issued FSP No. 157-2,
"Effective Date of FASB Statement No. 157." FSP No. 157-2 delays the effective
date of our adoption of SFAS No. 157, as it relates to applying fair value
measurements to nonfinancial assets and nonfinancial liabilities that are not
recognized or disclosed on a recurring basis (at least annually), to January 1,
2009. We adopted SFAS No. 157, as it relates to financial assets and financial
liabilities, on January 1, 2008. The adoption of SFAS No. 157 did not have a
significant effect on our financial position, results of operations or cash
flows. We do not expect that the adoption of SFAS No. 157, as it relates to
nonfinancial assets and nonfinancial liabilities, will have a significant effect
on our financial position, results of operations or cash flows. You should also
read Note 7 to our Condensed Consolidated Financial Statements for the three and
nine months ended September 30, 2008 included elsewhere in this Quarterly
Report.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115." SFAS No. 159 permits entities to elect to measure eligible
financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. We adopted SFAS No. 159 on
January 1, 2008. We have elected not to measure eligible items at fair value,
and therefore our adoption of SFAS No. 159 did not have an effect on our
financial position, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations." SFAS
No. 141(R) retains the fundamental requirements in SFAS No. 141 that the
purchase method of accounting be used for all business combinations and for an
acquirer to be identified for each business combination. SFAS No. 141(R)
establishes principles and requirements for the reporting entity in a business
combination, including recognition and measurement in the financial statements
of the identifiable assets acquired, the liabilities assumed and any
non-controlling interest at their fair values at the acquisition date. SFAS No.
141(R) also requires that acquisition-related costs be recognized separately
from the acquisition. SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after January 1, 2009. In
addition, SFAS No. 141(R) requires that any changes in an acquired deferred tax
account or related valuation allowance that occur after the effective date of
adoption will be recognized as adjustments to income tax expense. We are
currently evaluating the impact that SFAS No. 141(R) will have on our
consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities." SFAS No. 161 requires companies with
derivative instruments to disclose information that should enable
financial-statement users to understand how and why a company uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" and how derivative instruments and related hedged items affect a
company's financial position, financial performance and cash flows. SFAS No. 161
is effective for us on January 1, 2009. We are currently evaluating the impact,
if any, that SFAS No. 161 will have on our consolidated financial statements.
-28-
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Market risks relating to our operations result primarily from changes in
interest rates and, with respect to our international closures operations and
our Canadian plastic container operations, from foreign currency exchange rates.
In the normal course of business, we also have risk related to commodity price
changes for items such as natural gas. We employ established policies and
procedures to manage our exposure to these risks. Interest rate, foreign
currency and commodity pricing transactions are used only to the extent
considered necessary to meet our objectives. We do not utilize derivative
financial instruments for trading or other speculative purposes.
Information regarding our interest rate risk, foreign currency exchange rate
risk and commodity pricing risk has been disclosed in our Annual Report on Form
10-K for the fiscal year ended December 31, 2007. Since such filing there has
not been a material change to our interest rate risk, foreign currency exchange
rate risk or commodity pricing risk or to our policies and procedures to manage
our exposure to these risks, other than the impact of additional revolving loans
borrowed under our Credit Agreement to ensure access to liquidity, as further
discussed in Note 6 to our Condensed Consolidated Financial Statements for the
three and nine months ended September 30, 2008 included elsewhere in this
Quarterly Report.
Item 4. CONTROLS AND PROCEDURES
-----------------------
We carried out an evaluation, under the supervision and with the participation
of management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Securities Exchange Act of 1934). Based upon
that evaluation, as of the end of the period covered by this Quarterly Report
our Chief Executive Officer and Chief Financial Officer concluded that the
disclosure controls and procedures are effective in ensuring that all material
information required to be disclosed in this Quarterly Report has been made
known to them in a timely fashion.
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.
-29-
Part II. Other Information
Item 6. Exhibits
Exhibit Number Description
-------------- -----------
12 Ratio of Earnings to Fixed Charges for the three and nine months
ended September 30, 2008 and 2007.
31.1 Certification by the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act.
31.2 Certification by the Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act.
32.1 Certification by the Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act.
32.2 Certification by the Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act.
-30-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned thereunto duly authorized.
SILGAN HOLDINGS INC.
Dated: November 10, 2008 /s/ Robert B. Lewis
----------------------------
Robert B. Lewis
Executive Vice President and
Chief Financial Officer
-31-
EXHIBIT INDEX
Exhibit No. EXHIBIT
----------- -------
12 Ratio of Earnings to Fixed Charges for the three and nine months
ended September 30, 2008 and 2007.
31.1 Certification by the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act.
31.2 Certification by the Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act.
32.1 Certification by the Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act.
32.2 Certification by the Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act.
-32-